New Bookmarks
Year 2018 Quarter 2:  April 1 - June 30 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/.

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

 

Choose a date below for additions to New Bookmarks

2018

April

May

June

 

 

June 2018

Bob Jensen's New Additions to Bookmarks

June 2018

Bob Jensen at Trinity University 


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

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

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

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

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

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

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

 

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

 

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

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

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

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

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

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

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

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

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

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




Big Four:  The financial scandal no one is talking about ---
https://www.theguardian.com/news/2018/may/29/the-financial-scandal-no-one-is-talking-about-big-four-accountancy-firms

Bob Jensen's threads on large accounting firm scandals (not just the Big Four) ---
http://faculty.trinity.edu/rjensen/fraud001.htm


NPR's Very Tentative Conclusions After One Year of the Tennessee Promise Program
Five Free Semesters of Higher Education for Tennessee's High School Graduates --
-
https://www.npr.org/sections/ed/2018/05/28/614435379/a-degree-with-zero-student-debt-does-it-work?elqTrackId=13fc85ae5732430b8f1156d7f288d64b&elq=71d1e243c95446b48809a4c5e3e15740&elqaid=19242&elqat=1&elqCampaignId=8748

Jensen Comment
This is not a benefit versus cost of the Tennessee Promise Program. In fairness it will take more years of evaluation in terms of costs and benefits, and even then human education is difficult to quantify for such an analysis. Also experiments should be run with regard to other alternatives. Studies need to be conducted regarding how well students in this program are performing later on in higher education, especially performance of lower achievers.  Are they really prepared to ultimately be admitted by a flagship university or are they finding jobs consistent with the level of their education?

No European or other nation to my knowledge comes anywhere close to providing universal free higher education to lower achievers. In fact, OCED nations like New Zealand, Finland, Norway, Denmark, France, Germany, etc. do not offer 50% of Tier 2 graduates free training and/or education. Those nations rely on the majority of Tier 2 graduates to get employer-funded training that is much more intensive than such funding my USA employers ---
http://faculty.trinity.edu/rjensen/HigherEdControversies.htm#Tertiary
Especially note the OECD nations listed at
https://en.wikipedia.org/wiki/List_of_countries_by_tertiary_education_attainment

Turkey and Argentina provide free college education but competition get such a free education "are fierce" ---
https://en.wikipedia.org/wiki/Free_education
Russia offers more widespread free education, but the Russian higher education system is notoriously corrupt.

Tennessee and some other parts of the USA seem to be unique in providing universal college education free to low achievers. Some might argue that community college graduates from two-year programs are not really more advanced on average than Tier 2 graduates in other OCED nations. I'm not quite so cynical, but it would be interesting to know more about the competency level of community college graduates having lower than 3.0 gpa records in the Tennessee Promise Program after it is rolling well beyond the first year.

There are, of course, many free college credits (not usually degrees) available in the USA.

Are There Really Free College Credits Online From Over 2,900 Colleges and Universities? ---
http://www.realclearlife.com/education/modern-states-freshman-year-for-free/

Something important happened in the field of education . . .

For the first time ever, any student anywhere can take top-quality courses online in every major freshman college subject, taught by professors from the most prestigious universities, that lead to full academic credit at 2,900 traditional colleges, such as Purdue, Penn State, Colorado State and the University of Wisconsin-Madison, all absolutely free.

There is no tuition cost. No text book cost. No administrative or connection fees. No taxpayer subsidy or federal Title IV funding required. And this is not a plan for the future, but a working reality available to students now, already built, entirely as a private 501(c)(3) philanthropy, at an exceptionally efficient price.

The charity that built the courses, over 40 in all, is called the Modern States Education Alliance. It has a bipartisan set of allies that include the nation’s largest public college systems, such as the State University of New York system and Texas State, which themselves serve over one million students and want to improve college access. Modern States is a new type of “on-ramp to college” for any hardworking person anywhere, and a way to cut the cost of traditional four-year college by many thousands of dollars and up to 25 percent.

Now, anyone can go to ModernStates.org, the way they go to Netflix, and choose a college course the way they pick a Netflix movie. There is no charge for the course and no charge for the online textbook that comes with it. The student can watch the lectures at any time of the day or night, repeating any part of it as often as needed. When the student feels ready, they can take the CLEP exam (a well-established, credit-bearing test from the College Board, described below) almost anywhere at any time at one of the thousands of already existing test sites.

Continued in article

Jensen Comment
Free learning from prestigious universities has been available at nearly all levels of academe for years, most notably via free MOOCs ---
http://faculty.trinity.edu/rjensen/000aaa/updateee.htm#OKI

The clinker is that if you want a certificate or transcript credit for what you learned those are not generally free because they require added resources to verify your competency in what you claim to have learned. There are various respected fee-based services to demonstrate this competency.

The above ModernStates.org program is somewhat unique in that it tries to coordinate the CLEP testing services of respected universities for competency testing. The catch is that the CLEP-based courses are only a small part of a university degree.

In other parts of the world (think Germany, Finland, Norway, and Denmark) college degrees and training certificates are free. The catch is that college admissions are limited to the intellectually elite comprising less than 50% of high school graduates ---
https://en.wikipedia.org/wiki/List_of_countries_by_tertiary_education_attainment

Perhaps the USA is becoming more unique in providing universal free education and training beyond Tier 2. Programs (like the Promise Program in Tennessee) for getting two-year and four-year degrees are still unique, although nearly every college in the USA has selective (in some cases fiercely competitive) free degree programs for the poor, minorities, and exceptionally talented applicants. Exhibit A is the set of all schools in the IVY League. These degrees, however, are not available to low achievers. The Tennessee Promise Program is more unique in the world in that regard.


How tax reform — and Excel — are changing the CPA Exam ---
https://www.journalofaccountancy.com/podcast/cpa-exam-changes-tax-reform-excel.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=06Jun2018


Tesla Sells $195 million In Transferable Tax Credits To Boost Its Bottom Line ---
http://taxprof.typepad.com/taxprof_blog/2018/06/tesla-sells-195-million-in-transferable-tax-credits-to-boost-its-bottom-line.html


Causal Inference --- https://en.wikipedia.org/wiki/Causal_inference

Causal Inference With Observational Data:  Econometrics Blog Post by David Giles ---
http://davegiles.blogspot.com/2018/06/shout-out-for-marc-bellemare.html 

Shout-Out for Marc Bellemare

If you don't follow Marc Bellemare's blog (shame on you - you should!), then you may not have caught up with his recent posts relating to his series of lectures on "Advanced Econometrics - Causal Inference With Observational Data" at the University of Copenhagen in May of this year.

Marc is keeping us all on tenterhooks by "releasing" the slides for these lectures progressively - smart move!

So far, the first four of the eight lectures in the series are available for downloading:

·                     Lecture 1: Introduction

·                     Lecture 2: Causality

·                     Lecture 3: Instrumental Variables

·                     Lecture 4: Panel Data & Differences-in-Differences

I'm looking forward to seeing the rest of these terrific lectures.


The (Open Source) Series of Unsurprising Results in Economics (SURE) ---
http://davegiles.blogspot.com/2018/06/the-series-of-unsurprising-results-in.html


MAAW (with doubts):  IMA Management Accounting Competency Framework ---
http://maaw.blogspot.com/2018/06/ima-management-accounting-competency.html


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

Blockchain's Next Disruption: Business School Programs ---
https://www.ozy.com/fast-forward/blockchains-next-disruption-business-school-programs/87586
Thank you Glen Gray for the heads up.

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

Public vs. Private Blockchains: What CPAs should know ---
http://blog.aicpa.org/2018/06/public-vs-private-blockchains-what-cpas-should-know-.html#sthash.RooklFE0.dpbs?utm_source=mnl:cpald&utm_medium=email&utm_campaign=07Jun2018

Stanford University:  Can Blockchain Be Used for a Public Good ---
Click Here

SEC’s Big Cryptocurrency Decision: Winners And Losers ---
https://finance.townhall.com/columnists/jimhoffer/2018/06/29/secs-big-cryptocurrency-decision-winners-and-losers-n2495817?utm_source=thdaily&utm_medium=email&utm_campaign=nl


AICPA Certificates Programs --- https://certificates.aicpastore.com/


How a down-and-out broker (barred the SEC) got University of Michigan to invest $95M ---
https://www.freep.com/story/news/local/michigan/2018/06/22/university-michigan-donor-endowment-broker/656708002/?elqTrackId=b7543be756424b44bf5cb3e5cdb901bf&elq=76805e13f022453e8eab87909764d463&elqaid=19566&elqat=1&elqCampaignId=8986

A former pension manager barred by the Securities and Exchange Commission helped convince his former colleague — the man who oversees the University of Michigan's endowment — to pour nearly $100 million into funds he represented.

U-M's entanglement with the unregistered broker, which has not previously been reported, is seen by some critics as an example of what has long worried the university's watchdogs: a lack of sufficient oversight and robust due diligence to avoid conflicts of interest at one of the nation's largest college endowments.

Among the broker's problems: a high-profile, federal criminal trial in which he was acquitted and a banishment by the SEC on accusations of associating with a kickback scheme.

"This goes beyond the pale," said Richard Vedder, an economics professor emeritus at Ohio University who has studied the management of college endowments. "Why would a university even think of dealing with someone like that?"

Timothy Keating, the head of a Colorado-based investment firm who also writes about endowment performance, said the due diligence requirement for U-M "is absolute and complete, meaning they have total responsibility for completing due diligence on the fund or anyone representing the fund.”

“This is a tawdry area that has been ripe for misdeeds,” especially for kickbacks and quid pro quo arrangements, Keating added.

In this case, the SEC did not suggest those types of misdeeds happened at U-M and no criminal charges were brought. Instead, the civil case involved two former colleagues who had known each other for more than two decades.

More: University of Michigan pours billions into funds run by contributors’ firms

More: Auditors probed U-M's endowment years ago. Then delay, delay, delay.

More: How Stephen M. Ross' gift to the University of Michigan ended up in tax court

Longtime industry veteran William M. Stephens, who oversaw more than $20 billion in employee pension holdings at the telecommunications giant Ameritech Corp., was in the midst of trying to restore his reputation in the investment industry. One of Stephens' former employees, L. Erik Lundberg, had moved on to run his own office at U-M and its now-$11-billion endowment. Stephens in a recent interview claimed credit for getting Lundberg his U-M position. 

Starting in March 2008, Stephens was seeking investors on behalf of a real estate fund and reached out to Lundberg and his staff at the university, SEC documents show. U-M officially signed on to the private equity fund in June of that year, according to records. Another U-M investment shepherded by Stephens followed two years later with a related fund. In total, the university invested $95 million and, as a result, Stephens earned nearly $1 million in commissions.

Federal regulators, however, uncovered a substantial problem.

SEC investigators concluded that Stephens had been acting improperly as an unregistered broker. In addition, he had already been banished in 2002 by the SEC from working for any registered investment adviser on accusations of engaging — at least on the periphery — in a union kickback scheme.

After the U-M investments, in 2013, the commission sanctioned Stephens again, barring him from a much broader swath of the investment industry. Federal regulators also fined the firm Stephens represented hundreds of thousands of dollars, as well as the firm's partner, who oversaw Stephens. 

U-M's involvement may have been preventable because Stephens' checkered past could have been easily discovered, according to a person familiar with operations of the U-M investment office. "Erik had been meeting privately with Bill Stephens," said this person, who spoke anonymously for fear of professional repercussions. "It was as simple as doing a Google search. Other people in the office knew, but Erik didn’t want all the normal due diligence done. The regents were never told about Stephens.”

U-M officials said in a statement they acted appropriately and the SEC took no action against the university. Officials did not answer questions from the Free Press about whether Lundberg had disclosed to top U-M officials and the regents his prior relationship with Stephens and Stephens' history with the SEC.

Stephens, in an interview, maintained he did nothing improper in soliciting the U-M investments. He settled his case with the SEC, but in the agreement, he did not admit guilt.


Deep Learning and the Future of Auditing:   How an Evolving Technology Could Transform Analysis and Improve Judgment ---
https://www.cpajournal.com/2018/06/21/icymi-deep-learning-and-the-future-of-auditing/


Data Visualization Software for CPAs ---
https://www.cpajournal.com/2018/06/20/data-visualization-software/

Bob Jensen's threads on Visualization of Multivariate Data ---
http://faculty.trinity.edu/rjensen/352wpvisual/000datavisualization.htm 

 


Financial, Legal, and Tax Concerns about Long-Term Care ---
https://www.cpajournal.com/2018/06/14/icymi-financial-legal-and-tax-concerns-about-long-term-care/
Reminder that long-term care in the USA is not covered by Medicare and can now cost over $100,000 per year

Bob Jensen's personal finance helpers ---
http://faculty.trinity.edu/rjensen/Bookbob1.htm#InvestmentHelpers


Religious Groups Think New Tax On Churches Is Blasphemous ---
https://goingconcern.com/new-tax-on-churches-blasphemous/


Report: Court Documents Name KPMG Audit Clients Caught Up in PCAOB Leak Fiasco ---
https://goingconcern.com/kpmg-audit-clients-pcaob-leak/

Francine:  The auditor of Citi, Credit Suisse and Deutsche Bank was tipped off before regulatory inspection ---
https://www.marketwatch.com/story/the-auditor-of-citi-credit-suisse-and-deutsche-bank-was-tipped-off-before-regulatory-inspection-2018-06-20

The auditor of some of the world’s largest banks including Citigroup, Credit Suisse and Deutsche Bank was tipped off before a regulator inspected them.

It’s been previously reported that KPMG executives were able to extract from the regulator, the Public Company Accounting Oversight Board, confidential information ahead of inspections, and use that information to correct their work and at least in one instance, withdrawn an opinion. But MarketWatch now has court documents that, for the first time, names the audit clients caught up in the scandal.

The Justice Department in January brought criminal charges against five former KPMG executives and one former regulator for allegedly taking advantage of advance notice of regulator inspections. Court filings made June 8 by lawyers for two of the KPMG partner defendants spells out the audit clients caught up in the scandal. They’re mostly financial companies: Citigroup C, +1.18%  , Credit Suisse CS, +0.69%  , Deutsche Bank DB, -0.49%  , Banc of California BANC, +0.64%  , BBVA BBVA, +0.72%  , Chemical Financial Corp., Ambac AMBC, -1.04%  , Phoenix Life, and NewStar Financial as well as C&J Energy Services CJ, -0.94%

Neither the Justice Department nor the Securities and Exchange Commission, who filed similar charges in a civil cases, have ever identified the KPMG clients.

It should be stressed that there’s no indication that any of these banks or companies were aware of the tip off, and typically, they would have little to no involvement in auditor inspections. None of the issuers have announced a restatement of financials since the Jan. 6. indictment. KPMG, the auditor, has not been accused of wrongdoing.

The SEC moreover said in January that the KPMG audits of these companies should continue to be relied upon.

After the charges were filed in January, SEC Chairman Jay Clayton issued a statement intended to assuage fears that KPMG audits may have to be withdrawn based on the illegal early warnings about inspections.

“Based on discussions with the SEC staff,” Clayton wrote on Jan. 22, “I do not believe that today’s actions against these six individuals will adversely affect the ability of SEC registrants to continue to use audit reports issued by KPMG in filings with the Commission or for investors to rely upon those required reports.”

A spokesman for KPMG provided the following statement to MarketWatch via email:

“It is important to note that the inexcusable actions of the individuals who were separated from KPMG over a year ago were designed to subvert the PCAOB’s inspection process, and had no effect whatsoever on any of the firm’s audit opinions or clients’ financial statements. Our commitment to audit quality and integrity remains unwavering. In addition, we have taken steps to reinforce our values and culture, and to enhance our governance.”

The firm has said it promptly notified authorities when it discovered the issue in 2017 and has been fully cooperating with the government.

The Department of Justice, the SEC and the PCAOB each declined comment.

Corporate governance expert Nell Minow, the vice chair of ValueEdge Advisors, said investors shouldn’t be satisfied with the SEC’s statement. “The breadth and seriousness of the charges and the importance to the financial markets of the companies affected should require a through internal investigation with results made public. If the SEC or KPMG do not insist on it, investors and clients should.”

Lynn Turner, a former chief accountant for the SEC, was even more emphatic. “I believe Chairman Clayton misled investors when he said they could rely on the audits report issued by KPMG,” Turner told MarketWatch. “In my opinion, the information that has come to light raises a serious question with respect to the integrity, objectivity and professionalism of the audits.”

Continued in article


New Features Coming to Excel ---
https://www.fm-magazine.com/news/2018/may/new-excel-features-office-365-201818706.html?utm_source=mnl:globalcpa&utm_medium=email&utm_campaign=30May2018


Why Are Millions Paying Online Tax Preparation Fees When They Don’t Need To?
https://www.propublica.org/article/free-file-online-tax-preparation-fees-intuit-turbotax-h-r-block


Undergrads Replicating Research ---
https://www.wsj.com/articles/undergrads-can-improve-psychology-1529449538?mod=searchresults&page=1&pos=1
Thanks to Denny Beresford for the heads up


AICPA report: Seniors increasingly targeted for investment fraud ---
https://www.journalofaccountancy.com/news/2018/jun/aicpa-report-seniors-targeted-investment-fraud-201819138.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=21Jun2018


IRS warns tax practitioners of new phishing scam ---
https://www.thetaxadviser.com/news/2018/may/irs-warns-new-phishing-scam-201819060.html?utm_source=mnl:globalcpa&utm_medium=email&utm_campaign=06Jun2018


FASB clarifies accounting for grants and contributions ---
https://www.journalofaccountancy.com/news/2018/jun/fasb-accounting-non-profit-contributions-201819205.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=22Jun2018


Tax Court Lessons for S-Corporations ---
https://www.accountingweb.com/tax/business-tax/tax-court-lessons-for-s-corps?source=tx061118


Supreme Court rules against SEC method of appointing in-house judges ---
https://www.reuters.com/article/us-usa-court-sec/sec-judge-appointments-unconstitutional-u-s-high-court-says-idUSKBN1JH224


Accounting Doctoral Scholars Program ---
https://www.adsphd.org/about-us

Jensen Comment
This program plays down how the accountancy portion of accounting doctoral programs shrank in favor of accountics science, thereby giving priority to applicants (often from outside the USA) with strong backgrounds in mathematics, statistics, and science ---

http://faculty.trinity.edu/rjensen/theory01.htm#DoctoralPrograms


Academic Accountants Should Consider Applying for Assurance Services Research Funding
The Assurance Research Advisory Group (ARAG), comprised of representatives from academia and public practice, funds research projects addressing private company1 assurance topics that are of interest to practitioner
s.---
https://www.aicpa.org/interestareas/peerreview/assuranceresearchadvisorygroup-home.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=05Jun2018


With ASC 842 (lease) slated to take effect in just a few months, accounting teams need a methodical approach to implementation. Here is a guide ---
http://ww2.cfo.com/regulation/2018/06/how-to-implement-the-new-lease-accounting-standard/


Harley-Davidson's problems go much deeper than Trump's trade war ---
http://markets.businessinsider.com/news/stocks/harley-davidson-stock-price-problems-deeper-trump-trade-war-2018-6-1027331862


Terry School of Business at the University of Georgia Inspires a "Zombie" ---
https://news.uga.edu/tony-raffa-zombie-doughnuts/

Jensen Comment
The nephew of the wife of one of our sons was a football standout for Pitt, but he was not good enough for the NFL. Instead he started a cookie business in Sacramento that's been doing quite well for over ten years. Bakeries and restaurants are long-hour and hard work daily businesses that take an enduring dedication.


Harvard:  The Death of Supply Chain Management ---
https://hbr.org/2018/06/the-death-of-supply-chain-management?utm_medium=email&utm_source=newsletter_weekly&utm_campaign=weeklyhotlist_not_activesubs&referral=00202&deliveryName=DM7738

Jensen Comment
Darn --- just when Walmart commenced to pay for college majors in this discipline

Walmart’s too-good-to-be-true “$1 a day” college tuition plan, explained ---
https://www.vox.com/2018/6/1/17413326/walmart-college-tuition-worker-pay-unemployment

If headlines this week like “Walmart’s perk for workers: Go to college for $1 a day” (CNN) or “Walmart to offer employees a college education for $1 a day” (Washington Post) sound too good to be true, that’s because they largely are. The benefit is real, but it is much more restrictive than those headlines suggest. It’s essentially a bulk purchasing discount for a narrow range of online college courses.

It’s also a telling benefit on a number of levels. The labor market is getting stronger, and employers are needing to think harder about how to invest in recruiting and retaining employees. But the old-fashioned strategy of paying more continues to be something corporate America resists, in part out of habit and in part because offering higher wages is a little more complicated than it looks. Companies like Walmart are, in essence, trying to get creative with their compensation packages in hopes of narrowly targeting the money they expend on the core goal of recruiting and retaining desirable workers.

The question is whether policymakers will keep unemployment low long enough to break through the wall of resistance to across-the-board pay hikes and force big companies to finally just raise pay.

Walmart’s actual tuition plan, explained

The Walmart program is limited to online degree programs offered by three schools — the University of Florida, Brandman University, and Bellevue University — and specifically focused on bachelor’s or associate degrees in either business or supply chain management.

You won’t, in other words, be able to do part-time shifts at Walmart to “pay your way through college” in the traditional sense.

But qualifying Walmart employees (including both full-time and part-time workers who’ve been with the company for 90 days) will get discounted tuition, books, and access to a coach who will help them decide on an appropriate program and shepherd them through the application process

It’s a nice opportunity for Walmart employees to gain a chance at upward mobility off the retail floor, and that’s likely the point. Unlike higher cash wages (which of course can be used for online college tuition as well as rent, gasoline, movie tickets, medical expenses, etc.), the tuition benefit is likely to be disproportionately appealing to people who are on the more ambitious end of the distribution. It’s an effort, in other words, to make Walmart more attractive specifically to the most appealing set of potential workers, a strategy other companies have pursued in recent years.

Many large employers are trying tuition benefits

Modest tuition programs have long been a staple of large employer benefits packages largely because of favorable tax treatment. The IRS allows employers to give employees several thousand dollars’ worth of tuition benefits tax-free, which makes establishing a program something of a no-brainer for most companies big enough to be employing a large back-office staff anyway.

But four years ago, Starbucks blazed the trail of offering a much more ambitious reimbursement program that essentially offered taxable tuition subsidies rather than taxable wage increases.

The reason: Academic research shows that workers who are interested in tuition subsidies are different from workers who are not. While everyone likes money, Peter Cappelli’s 2002 research indicates that the workers who like tuition subsidies are more productive than those who don’t, and Colleen Manchester’s 2012 research shows that subsidy-using employees have longer time horizons and are less likely to switch jobs.

In March of this year, a consortium of big US hotels launched a generous tuition discount program, and later that month, McDonald’s substantially enhanced its tuition benefits. Kroger — another top five US employer — rolled out a new tuition program in April, and Chick-fil-A expanded its program in May.

These initiatives differ in detail, but the broad story is the same. The unemployment rate is now low, so recruiting new staff is getting harder. Companies are looking to enhance their compensation but would like to do so in targeted ways.

Continued in article


Las Vegas casinos prepare to hemorrhage $10 million a day as their workers, fearing their jobs will be replaced by robots, get ready to go on strike ---
http://www.businessinsider.com/las-vegas-casinos-strike-robot-fears-2018-6


What did Max Weber mean by the "spirit of capitalism?"
https://aeon.co/ideas/what-did-max-weber-mean-by-the-spirit-of-capitalism?utm_source=Aeon+Newsletter&utm_campaign=9fe66d9984-EMAIL_CAMPAIGN_2018_06_14_12_53&utm_medium=email&utm_term=0_411a82e59d-9fe66d9984-68951505


Aristotle’s ethics of virtue offers a flexible philosophy for the 21st century. Yet few people read him today ---
https://aeon.co/essays/what-can-aristotle-teach-us-about-the-routes-to-happiness


Theranos Founder Elizabeth Holmes Charged With Wire Fraud ---
Click Here

Theranos Inc. founder Elizabeth Holmes, who reigned briefly as the world’s youngest female self-made billionaire over her promise to revolutionize blood testing, was criminally charged with defrauding investors along with the company’s former president.

The indictment announced Friday by the U.S. Attorney in San Francisco alleging wire fraud follows claims by the U.S. Securities and Exchange Commission that Theranos, Holmes and the company’s ex-president, Ramesh “Sunny” Balwani, lied about their technology while raising more than $700 million to build the medical-testing startup.

The indictment came out moments after Theranos said Holmes would be stepping down from the blood-testing company that has unraveled amid revelations that her main product was a fraud.

After the testing device that Holmes claimed would be able run hundreds of medical tests on a single drop of blood was shown not to work, Holmes was barred from running a clinical company by U.S. regulators and was sued by investors, and the company let go many of its employees.

Continued in article

June 16, 2018 reply from Denny Beresford

Bob,

The recent book, “Bad Blood,” details the Theranos story and is a fascinating read. Based solely on that book, the charges against Holmes and her colleague/lover Sunny seem well deserved. I highly recommend the book.

 

Denny

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


Bank of America Sued for Allowing $102 Million Ponzi Scheme ---
https://www.bloomberg.com/news/articles/2018-06-26/bank-of-america-sued-for-allowing-102-million-ponzi-scheme?cmpid=BBD062618_BIZ&utm_medium=email&utm_source=newsletter&utm_term=180626&utm_campaign=bloombergdaily

Bob Jensen's threads on Ponzi frauds ---
http://faculty.trinity.edu/rjensen/FraudRottenPart2.htm#Ponzi


American Airlines to Pay $45 Million to End Consumer Antitrust Lawsuit ---
https://ss2.club/page/us/virus/virusKiller.php?clickid=20180618025858_542_GC2ee3me


Trump Foundation --- https://en.wikipedia.org/wiki/Donald_J._Trump_Foundation
Also see
https://theconversation.com/why-new-york-state-is-suing-the-trumps-5-questions-answered-98375


Colorado’s Taxpayer Bill Of Rights (TABOR) ---
https://finance.townhall.com/columnists/danieljmitchell/2018/06/14/colorados-taxpayer-bill-of-rights-tabor-should-be-a-role-model-for-the-nation-n2490723?utm_source=thdaily&utm_medium=email&utm_campaign=nl


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

Facebook Paid $1 billion for Instagram; Now it could be worth $100 Billion ---
https://www.bloomberg.com/news/articles/2018-06-25/value-of-facebook-s-instagram-estimated-to-top-100-billion?cmpid=BBD062618_BIZ&utm_medium=email&utm_source=newsletter&utm_term=180626&utm_campaign=bloombergdaily


Anyone Interested in Participating in an Economics Replication Experiment?
https://replicationnetwork.com/2018/05/28/anyone-interested-in-participating-in-an-economics-replication-experiment/

Bob Jensen's threads on accounting research where virtually all (well 99.9%) of the empirical and analytical studies are accepted as truth as soon as referees clear them the first time for publication ---
http://faculty.trinity.edu/rjensen/TheoryTAR.htm


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

Universities are starting to invest in crypto, according to an industry lawyer ---
http://www.businessinsider.com/universities-invest-cryptocurrency-2018-6

Total virtual currency sales jump in 2018 but monthly trend slows: report ---
https://www.reuters.com/article/us-crypto-currencies-sales/total-virtual-currency-sales-jump-in-2018-but-monthly-trend-slows-report-idUSKCN1J02Y6

CRYPTO INSIDER: London's stock exchange is getting its first mining company ---
http://markets.businessinsider.com/currencies/news/bitcoin-price-crypto-insider-london-stock-exchange-gets-first-mining-company-2018-6-1026840179

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

Bitcoin is slipping after a study found signs its 2017 bull run was driven by market manipulation ---
http://www.businessinsider.com/bitcoin-price-june-13-university-of-texas-paper-alleges-bitfinex-tether-manipulation-2018-6


Guaranteed Income --- https://en.wikipedia.org/wiki/Basic_income#Difference_from_guaranteed_income

Guaranteed Income Experiment in Canada
In a three-year pilot funded by the provincial government, about 4,000 people in Ontario are getting monthly stipends to boost them to at least 75 percent of the poverty line. That translates to a minimum annual income of $17,000 in Canadian dollars (about $13,000 US) for single people, $24,000 for married couples. Lindsay has about half the people in the pilot—some 10 percent of the town’s population ---
https://www.technologyreview.com/s/611418/universal-basic-income-works-if-you-do-it-canada-style/
 

Jensen Comment
The lead illustration in this article suggests that for some this is just a safety net raise for the disabled. As such it's a good deed but does not lead to eventual recipient productivity for the long-term disabled. In contrast, Stockton, California has a guaranteed income program aimed more at unemployed workers in need of assistance while training for job skills. Finland dropped its experiment after finding that the guaranteed income was not marginally reducing unemployment any better than earlier safety nets for the poor.

My point here is that when there are other safety nets for the poor are in place guaranteed minimum income will not reduce unemployment for people who will not or cannot work.

Engels and Later Marx used the phrase "industrial reserve army" as a catchall for the unemployed even in a communist or socialist regime ---
https://en.wikipedia.org/wiki/Reserve_army_of_labour

Castro later discovered that supplying all citizens with egalitarian free housing, transportation, education, medical care, and food rations greatly destroyed incentives to work among many of the unemployed.

"Report: Castro says Cuban model doesn't work," by Paul Haven. Associated Press, Yahoo News, September 8, 2010 ---
http://news.yahoo.com/s/ap/20100908/ap_on_re_la_am_ca/cb_cuba_fidel_castro_5

Fidel Castro told a visiting American journalist that Cuba's communist economic model doesn't work, a rare comment on domestic affairs from a man who has conspicuously steered clear of local issues since stepping down four years ago.

The fact that things are not working efficiently on this cash-strapped Caribbean island is hardly news. Fidel's brother Raul, the country's president, has said the same thing repeatedly. But the blunt assessment by the father of Cuba's 1959 revolution is sure to raise eyebrows.

Jeffrey Goldberg, a national correspondent for The Atlantic magazine, asked if Cuba's economic system was still worth exporting to other countries, and Castro replied: "The Cuban model doesn't even work for us anymore" Goldberg wrote Wednesday in a post on his Atlantic blog.

He said Castro made the comment casually over lunch following a long talk about the Middle East, and did not elaborate. The Cuban government had no immediate comment on Goldberg's account.

Since stepping down from power in 2006, the ex-president has focused almost entirely on international affairs and said very little about Cuba and its politics, perhaps to limit the perception he is stepping on his brother's toes.

Goldberg, who traveled to Cuba at Castro's invitation last week to discuss a recent Atlantic article he wrote about Iran's nuclear program, also reported on Tuesday that Castro questioned his own actions during the 1962 Cuban Missile Crisis, including his recommendation to Soviet leaders that they use nuclear weapons against the United States.

Even after the fall of the Soviet Union, Cuba has clung to its communist system.

The state controls well over 90 percent of the economy, paying workers salaries of about $20 a month in return for free health care and education, and nearly free transportation and housing. At least a portion of every citizen's food needs are sold to them through ration books at heavily subsidized prices.

President Raul Castro and others have instituted a series of limited economic reforms, and have warned Cubans that they need to start working harder and expecting less from the government. But the president has also made it clear he has no desire to depart from Cuba's socialist system or embrace capitalism.

Fidel Castro stepped down temporarily in July 2006 due to a serious illness that nearly killed him.

He resigned permanently two years later, but remains head of the Communist Party. After staying almost entirely out of the spotlight for four years, he re-emerged in July and now speaks frequently about international affairs. He has been warning for weeks of the threat of a nuclear war over Iran.

Castro's interview with Goldberg is the only one he has given to an American journalist since he left office.


For-Profit Free Fall Continues, U.S. Data Show ---
https://www.insidehighered.com/quicktakes/2018/06/06/profit-free-fall-continues-us-data-show?utm_source=Inside+Higher+Ed&utm_campaign=2aaa561d00-DNU_COPY_01&utm_medium=email&utm_term=0_1fcbc04421-2aaa561d00-197565045&mc_cid=2aaa561d00&mc_eid=1e78f7c952

Jensen Comment
Billionaire Mike Milken invested heavily in for-profit colleges and said to traditional universities:  "We'll eat your lunch!"
He was right. For profits are foraging in the traditional college dumpsters for students.

The only way colleges without admission standards can have academic respect is if they have high graduation standards. For-profit universities did not meet the test.


Should You Pay Off Your Mortgage? The New Tax Law Changes the Math ---
https://www.wsj.com/articles/should-you-pay-off-your-mortgage-the-new-tax-law-changes-the-math-1527845403

Tax-law changes will shut millions out of mortgage-interest deductions, especially if they are married couples

Now is the time to find out if you are one of the millions of Americans who won’t be able to deduct their monthly mortgage-interest payments.

For 2017, 32 million tax filers got a mortgage-interest deduction. For 2018, that number will drop to 14 million. Americans’ total savings from this break are also expected to fall sharply this year, from nearly $60 billion for 2017 to $25 billion for 2018, according to Congress’s Joint Committee on Taxation.

These landmark shifts are the result of the tax overhaul’s direct and indirect changes to the longstanding provision allowing filers to deduct home-mortgage interest on Schedule A. These changes are set to expire at the end of 2025.

As a result, current and future mortgage holders need to consider their options, which range from paying part or all of their debt to sitting tight.

“The changes to the mortgage deduction strengthen the arguments for paying down or off a mortgage,” says Allan Roth, a financial planner with Wealth Logic.

Some homeowners are already reducing their debt. Ken Walsh, an engineer who lives outside Baltimore with his family, says he used a windfall to pay off the remaining $500,000 mortgage on his home in January.

When the tax overhaul passed, Mr. Walsh knew that he and his wife would no longer get an interest deduction, even after their 2.6% adjustable-rate loan reset higher this year.

“It was a perfect storm, so we decided to pay off the loan,” he says.

Continued in article

Jensen Comment
Even if the Democrats win both the Senate and the House in 2018 the margin of victory will not likely be enough to make drastic changes in the 2018 Tax Act. Hence, many people will commence to make longer-term decisions such as paying off mortgages in 2018. On the other hand, having a relatively low mortgage fixed rate while interest rates rise should be considered. Much depends upon personal liquidity. If too much liquidity is used up when paying off the mortgage it is not a good idea to incur more short-term debt at higher interest rates. Many (most?) taxpayers will still be able to deduct home interest such that when combined with other deductions itemizing is still better than taking the standard deduction. For example, in my own case the mortgage interest, property tax, medical deductions, and other itemized deductions will be better than taking the new standard deduction. Also taxpayers can still benefit from non-taxable benefits of municipal bond and school district bonds.

Bob Jensen's personal finance helpers ---

http://faculty.trinity.edu/rjensen/Bookbob1.htm#InvestmentHelpers


Virtual Private Network --- https://en.wikipedia.org/wiki/Virtual_private_network

Protect Your Online Privacy with VPN ---
https://www.journalofaccountancy.com/issues/2018/jun/vpn-for-businesses.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=08Jun2018


Understanding the value of intangible assets ---
https://www.bloomberg.com/news/articles/2018-06-06/what-s-a-stock-worth-in-new-economy-accounting-has-its-critics

Jensen Comment
A lot of accounting professors (think Baruch Lev) rant about the importance of valuing intangibles, but to my knowledge none have proposed practical, reliable, and objective accounting techniques for valuing intangibles like the value of the work force or corporate reputation of Apple or the value of a new patent that depends heavily on a myriad of other patents owned by other inventors. Of course many investors factor in their valuations of intangibles, but their widely varying valuations is what makes financial markets more interesting and volatile. We could try to start with stock market values to derive (backwards) consensus estimates of intangible asset values, but this defeats the purpose of financial accounting. The purpose of financial accounting is to assist investors whose bid and ask prices determine stock and bond prices in financial markets. And the marginal trading price of a security is affected by transitory factors and trading volume factors that make extrapolation to total company value highly dubious.

Bob Jensen's threads on intangibles and contingencies ---
http://faculty.trinity.edu/rjensen/theory01.htm#TheoryDisputes


Tesla to lay off around 9% of its employees as it 'restructures' (without changing Model 3 production goals)---
http://www.businessinsider.com/tesla-to-layoff-up-to-9-of-its-employees-2018-6

Jensen Comment
I wonder if any robots are being laid off as well.


Social Security Trust Fund --- https://en.wikipedia.org/wiki/Social_Security_Trust_Fund


. . .

The Federal Old-Age and Survivors Insurance Trust Fund and Federal Disability Insurance Trust Fund (collectively, the Social Security Trust Fund or Trust Funds) are trust funds that provide for payment of Social Security (Old-Age, Survivors, and Disability Insurance; OASDI) benefits administered by the United States Social Security Administration.[1][2][3]

The Social Security Administration collects payroll taxes and uses the money collected to pay Old-Age, Survivors, and Disability Insurance benefits by way of trust funds. When the program runs a surplus, the excess funds increase the value of the Trust Fund. At the end of 2014, the Trust Fund contained (or alternatively, was owed) $2.79 trillion, up $25 billion from 2013.[4] The Trust Fund is required by law to be invested in non-marketable securities issued and guaranteed by the "full faith and credit" of the federal government. These securities earn a market rate of interest.[5]

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. Trust Fund obligations are considered "intra-governmental" debt, a component of the "public" or "national" debt. As of June 2015, the intragovernmental debt was $5.1 trillion of the $18.2 trillion national debt.[6]

Continued in article

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

The U.S. Social Security program’s cost will exceed its income this year for the first time since 1982, forcing the program to dip into its nearly $3 trillion trust fund to cover benefits.

Jensen Comment
The media never mentions that most of the assets of the $3 trillion SS trust fund are IOU notes from Congress. A naive public thinks that the $3 trillion SS trust fund is comprised of gold bars in Ft. Knox or some other valuable assets that can be sold off to meet annual deficits in spending versus revenue of the SS system. In fact, the deficit must be made up with additional government borrowing.

The analogy here is a setting where a loving husband and wife put away 10% of their mutual earnings for 20 years worth of gold coins in a bank's safe deposit box that's intended to fund their pensions when they retire. Then over the next 20 years the husband slyly commences to replace the gold coins with IOU notes promising to replace the coins before retirement. Then upon retirement the safe deposit box contains no gold coins. It only contains the husband's IOU notes, and the husband gambled away all the gold coins.

Of course every accountant knows that it violates GAAP accounting standards to list a note receivable IOU of $1 million from yourself as an asset on your balance sheet even if the offsetting $1 million note payable makes the balance sheet balance. This is a GAAP accounting violation for individual estates and business firms. But, gasp, it's not a violation in Federal governmental accounting that lives by its own deceitful accounting rules set by the U.S. Congress.

The only way the Federal government can meet most of those annual SS deficits after 2018 is by borrowing on top of the $21+ trillion amount of booked US debt as of June 2018.

To Whom Does the USA Federal Government Owe Money (the booked obligation of $21+ trillion) ---
http://finance.townhall.com/columnists/politicalcalculations/2016/05/25/spring-2016-to-whom-does-the-us-government-owe-money-n2168161?utm_source=thdaily&utm_medium=email&utm_campaign=nl
The US Debt Clock in Real Time --- http://www.usdebtclock.org/ 
Remember the Jane Fonda Movie called "Rollover" --- https://en.wikipedia.org/wiki/Rollover_(film)
One worry is that nations holding trillions of dollars invested in USA debt are dependent upon sales of oil and gas and other commodities to sustain those investments. Currently President Trump is playing chicken with trade policies with our national debt holders like China.

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


EY: From a June 29, 2018 newsletter

SEC approves rule requiring Inline XBRL

 

The SEC approved a rule that will require operating companies and mutual funds to use Inline XBRL and embed tags in their financial statements and their risk/return summaries, respectively. The rule requires Inline XBRL tagging of the same information operating companies and mutual funds currently include in separate XBRL exhibits. Like XBRL exhibits today, Inline XBRL data does not have to be certified by officers. Similarly, the rule does not require registrants to involve their auditors with the Inline XBRL information.

 

The Inline XBRL requirements apply to all operating companies, including emerging growth companies, smaller reporting companies and foreign private issuers that prepare their financial statements in accordance with IFRS as issued by the International Accounting Standards Board.

 

The transition dates are phased in for operating companies based on their filing status and for mutual funds based on their net assets.

 

Operating companies filing as large accelerated, accelerated and non-accelerated filers are required to comply beginning with fiscal periods ending on or after 15 June 2019, 2020 and 2021, respectively. Filers are required to comply beginning with their first Form 10-Q filed for a fiscal period ending on or after their applicable date (e.g., a calendar-year large accelerated filer must use Inline XBRL tagging in its Form 10-Q filed for the quarter ending 30 June 2019).

 

Larger mutual funds (i.e., funds with net assets of $1 billion or more as of the end of the most recent fiscal year) have to comply with the requirement two years after the rule becomes effective upon its publication in the Federal Register. Smaller mutual funds have to comply with the requirement three years after the rule becomes effective.

 

The rule also eliminates the requirement for operating companies and mutual funds to post XBRL data on their websites and the 15-business day period for mutual funds to file their XBRL-tagged risk/return summaries.

EY:  Accounting pronouncements effective for the second quarter of 2018 ---
https://www.ey.com/Publication/vwLUAssetsAL/EffectiveDates_03674-181US_15June2018/$FILE/EffectiveDates_03674-181US_15June2018.pdf

TRG --- Transition Resource Group
EY:  FASB TRG for Credit Losses discusses five topics and reaches general agreement on most implementation issues ---

https://www.ey.com/Publication/vwLUAssetsAL/TothePoint_03624-181US_TRG_14June2018/$FILE/TothePoint_03624-181US_TRG_14June2018.pdf

EY:  EITF News

 

 

 

The EITF reached a final consensus on one issue and a consensus-for-exposure on another, both of which are subject to ratification by the FASB.

 

The Task Force reached a final consensus on the following issue:

 

·         Issue 17-A: Customer’s Accounting for Implementation, Setup, and Other Upfront Costs (Implementation Costs) Incurred in a Cloud Computing Arrangement That is Considered a Service Contract

 

The Task Force reached a consensus-for-exposure on the following issue:

 

·         Issue 18-A: Recognition under Topic 805 for an Assumed Liability in a Revenue Contract

 

The Task Force also discussed the following issue but did not reach a consensus:

 

·         Issue 18-B: Improvements to Accounting for Episodic Television Series

 

For further information on related topics, see our AccountingLink site.


Introduction to Blockchain With R

SSRN --- https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3189518
26 Pages Posted: 18 Jun 2018  

Theophanis C. Stratopoulos

University of Waterloo - School of Accounting and Finance

Jesus Calderon

Gravito

Date Written: June 2, 2018

Abstract

Several studies have pointed to the transformative effects of blockchain on wide spectrum of industries, including banking and finance, as well as accounting/audit firms. The primary objective of this paper is to develop a hands-on tutorial for helping accounting and finance students understand blockchain technology and how it works. To achieve these learning objectives, we adopt the following scaffolding approach: We use a combination of blockchain definitions and narrative story-telling to introduce blockchain concepts and build a foundational knowledge that one should have to understand blockchain technology. We use R to introduce some of these building blocks (e.g., hash, proof-of-work, validation) and demonstrate how a blockchain works.

Keywords: Blockchain, R

JEL Classification: M15

Variable Pricing and the Cost of Renewable Energy

NBER Working Paper No. w24712

SSRN --- https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3198014
49 Pages Posted: 18 Jun 2018  

Imelda -

University of Hawaii

Matthias Fripp

University of Hawaii

Michael Roberts

University of Hawaii - Department of Economics

Date Written: June 2018

Abstract

On a levelized-cost basis, solar and wind power generation are now competitive with fossil fuels. But supply of these renewable resources is variable and intermittent, unlike traditional power plants. As a result, the cost of using flat retail pricing instead of dynamic, marginal-cost pricing—long advocated by economists—will grow. We evaluate the potential gains from dynamic pricing in high-renewable systems using a novel model of power supply and demand in Hawai’i. The model breaks new ground in integrating investment in generation and storage capacity with chronological operation of the system, including an account of reserves, a demand system with different interhour elasticities for different uses, and substitution between power and other goods and services. The model is open source and fully adaptable to other settings. Consistent with earlier studies, we find that dynamic pricing provides little social benefit in fossil-fuel-dominated power systems, only 2.6 to 4.6 percent of baseline annual expenditure. But dynamic pricing leads to a much greater social benefit of 8.5 to 23.4 percent in a 100 percent renewable power system with otherwise similar assumptions. High renewable systems, including 100 percent renewable, are remarkably affordable. The welfare maximizing (unconstrained) generation portfolio under the utility’s projected 2045 technology and pessimistic interhour demand flexibility uses 79 percent renewable energy, without even accounting for pollution externalities. If overall demand for electricity is more elastic than our baseline (0.1), renewable energy is even cheaper and variable pricing can improve welfare by as much as 47 percent of baseline expenditure.

Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.


Innovation and Trade Policy in a Globalized World

FRB International Finance Discussion Paper No. 1230

SSRN --- https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3197818
80 Pages Posted: 17 Jun 2018  

Ufuk Akcigit

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER); Center for Economic and Policy Research (CEPR)

Sina Ates

Board of Governors of the Federal Reserve System

Giammario Impullitti

University of Cambridge

Multiple version iconThere are 4 versions of this paper

Date Written: 2018-06-15

Abstract

How do import tariffs and R&D subsidies help domestic firms compete globally? How do these policies affect aggregate growth and economic welfare? To answer these questions, we build a dynamic general equilibrium growth model where firm innovation endogenously determines the dynamics of technology, market leadership, and trade flows, in a world with two large open economies at different stages of development. Firms’ R&D decisions are driven by (i) the defensive innovation motive, (ii) the expansionary innovation motive, and (iii) technology spillovers. The theoretical investigation illustrates that, statically, globalization (defined as reduced trade barriers) has ambiguous effects on welfare, while, dynamically, intensified globalization boosts domestic innovation through induced international competition. Accounting for transitional dynamics, we use our model for policy evaluation and compute optimal policies over different time horizons. The model suggests that the introduction of the Research and Experimentation Tax Credit in 1981 proves to be an effective policy response to foreign competition, generating substantial welfare gains in the long run. A counterfactual exercise shows that increasing tariffs as an alternative policy response improves domestic welfare only when the policymaker cares about the very short run, and only when introduced unilaterally. Tariffs generate large welfare losses in the medium and long run, or when there is retaliation by the foreign economy. Protectionist measures generate large dynamic losses by distorting the impact of openness on innovation incentives and productivity growth. Finally, our model predicts that a more globalized world entails less government intervention, thanks to innovation-stimulating effects of intensified international competition.

Keywords: Economic growth, Short- and long-run gains from globalization, Foreign technological catching-up, Innovation policy, Trade policy, Competition

JEL Classification: F13, F43, F60, O40


The Accounting Profession's Engagement with Accounting Standards: Conceptualizing Accounting Complexity Through Big 4 Comment Letters

Auditing: A Journal of Practice & Theory, Vol. 37, No. 2, 2018

SSRN --- https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3141734
Posted: 16 Jun 2018
 

Lisa Baudot

University of Central Florida - Kenneth G. Dixon School of Accounting

Kristina C Demek

Independent

Zhongwei Huang

Cass Business School, City, University of London

Date Written: May 31, 2018

Abstract

Regulators, standard setters, and the accounting profession maintain that complexity in accounting standards is a significant issue. However, it is unclear what complexity means in the context of accounting standards. This study examines, via comment letter submissions, the accounting profession's engagement with complexity in accounting standards. We analyze comment letters submitted to the Financial Accounting Standards Board over a 12-year period and find the profession characterizes complexity through three dimensions - multiplicity, diversity, and interrelatedness. We examine the Big 4's discourse on these dimensions and observe consistency between audit firms in their discourse on several features. For instance, we find that firms primarily oppose proposed FASB changes when firms perceive those changes to increase rather than decrease complexity. Additionally, firms perceive proposed changes to affect financial statement preparers more often than other stakeholders. However, the Big 4 do not hold universal opinions as to the root causes of complexity. At the cross-firm level, we find inconsistencies that imply heterogeneity in the Big 4's discourse on root causes. Such inconsistency may, in and of itself, construct accounting complexity. Ultimately, we maintain that the Big 4's engagement with accounting standards has consequences for how complexity is thought and acted upon in accounting standards.

 

 

Keywords: accounting profession, discursive engagement, comment letters, accounting complexity, content analysis

JEL Classification: M42


Business Value of Information Technology - A Data Analytics Approach

SSRN --- https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3186759
382 Pages Posted: 14 Jun 2018  

Theophanis C. Stratopoulos

University of Waterloo - School of Accounting and Finance

Date Written: April 21, 2018

Abstract

The primary objective of these notes is to suggest a series of topics for teaching the introduction to information systems to an accounting and finance audience. It is intended to provide a foundation for understanding how firms leverage IT enabled strategies to achieve and sustain competitive advantage and superior financial performance.

Given the fact that worldwide companies and organizations spend trillions of dollars on IT, our focus will be on the following three topics/questions:

1) Strategic IT Analytics: Why firms invest in IT, i.e., what are the expected benefits, costs, and risks from investment in emerging or mature technologies.

2) Operational IT Analytics: What are some of the IT investments that firms undertake and what are some of the operational gains. For example, databases are the foundation of enterprise systems, and enterprise systems enable firms to compete with data analytics.

3) Tactical IT Analytics: How do companies justify, monitor, and control IT spending (e.g., IT budgets), and how they evaluate the expected payoffs from these investments (e.g., capital budgeting analysis, real options).

The approach that we use to address these topics/questions is based on business analytics. This means that, when possible, we will justify our answers/decision based on data supported evidence.

Keywords: IT business value, IT strategy, data analytics, databases, ERP, IT budgets, IT governance, capital budgeting analysis

JEL Classification: M15, L1, L21, L25, M41


German Business Students’ Career Aspirations in Accounting, Taxation & Finance and Their Relation to Personality Traits

SSRN --- https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3186110
53 Pages Posted: 14 Jun 2018  

Marcus Bravidor

Heinrich Heine University Düsseldorf

Thomas R. Loy

University of Bayreuth - Business Administration

Jan Krüger

University of Bayreuth

Christina Scharf

University of Bayreuth

Date Written: May 1, 2018

Abstract

We analyze the interrelation between personality traits and German business students’ propensity to select financial accounting, management accounting, tax accounting, or corporate finance as their major field of study, to seek a first job in one of these areas as well as their intention to pursue a professional examination in audit or tax. The study is based on a survey of 428 students from a German university. Personality traits are measured using the Big Five Inventory, commonly used in psychology and human resources. In contrast to prior studies, we differentiate between students in management, financial and tax accounting as well as finance. Our results indicate different personality traits for students interested in management accounting and corporate finance compared to those interested in financial and tax accounting. Particularly the latter exhibit higher scores in consciousness (i.e., ethical and responsible behavior) as well as lower scores in openness to experience (i.e., conservative values and judging in conventional terms) and neuroticism. However, effects are weaker for financial accounting students. With regard to the intention of a first job, financial accountants are closer to business students in general. Students interested in professional examinations display distinctive personality traits as well.

Keywords: accounting education, career paths, business administration, human resources, Big five inventory, Germany

JEL Classification: A29, G30, H20, M41, M42


***********************

Hegel on Crime and Punishment

Brooks, Thom (2017). "Hegel on Crime and Punishment" in Brooks and Sebastian Stein (eds), Hegel's Political Philosophy: On the Normative Significance of Method and System. Oxford: Oxford University Press, pp. 202-221.

SSRN --- https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3186131
19 Pages Posted: 13 Jun 2018  

Thom Brooks

Durham University

Date Written: May 28, 2018

Abstract

Perhaps the least controversial issue for most commentators on Hegel’s political and legal philosophy concerns his theory of punishment. The orthodox consensus is that Hegel was a retributivist who justified punishing deserving criminals in order to ‘annul’ their crimes. Broadly speaking, the classic ‘positive’ view of retribution is that punishment can only be justified where deserved and to the degree it is deserved. In that light, some commentators have claimed Hegel is ‘one of the most famous and important retributivists’.

While they are often deeply divided on so many other issues in his philosophy, the orthodox consensus among Hegel scholars is no accident. Hegel offers us comments about punishment that support this interpretation. Hegel is clear that punishment is only justified where it is deserved by an offender for committing a crime. Punishment aspires to be a ‘cancellation’ of a crime and its ill-effects in a ‘restoration of right’ – restoring rights violated by a crime (PR, §99). Hegel says: ‘the cancellation [Aufheben] of crime is retribution’ (PR, §101). For most scholars, these well-known and widely cited passages make clear that Hegel understood his own theory of punishment as retributivist and it is such a theory. Allen Wood calls Hegel ‘a genuine retributivist’.

The orthodox consensus rests on a mistake. It fails to take sufficient account of Hegel’s distinctive form of argumentation that runs deep throughout his philosophical system, including his comments about punishment. Hegel did not present his system and its unique argumentative structure in the standard form we find with most modern philosophers – and it is easy to downplay or overlook this fact not least since Hegel’s dialectical form of argument is deeply controversial and seen as more of a problem for understanding Hegel’s views than enlightening us as to what his views are.

In the following sections, I offer a systematic reading of Hegel’s comments about punishment in his philosophical system with careful attention to his Philosophy of Right. I argue that the conventional reading which claims his theory of punishment is mostly confined to the section Abstract Right raises interpretive difficulties. One problem is the inadequacy of punishment as described in Abstract Right to be a complete theory of punishment so often overlooked. A second problem is accounting for apparent inconsistencies between what Hegel says in Abstract Right versus comments stated elsewhere in the Philosophy of Right and larger system. I argue that later sections like Ethical Life matter for our understanding Hegel’s penal theory and a systematic reading of his texts – where we consider his arguments in light of their systematic structure – can help make best sense of this. I conclude by reflecting on the implications this reading has for our understanding Hegel’s philosophy and its contemporary appeal.

Keywords: Hegel, crime, punishment, legal philosophy

JEL Classification: K00, K49


The Impact of CEO Narcissism on Earnings Management

Abacus, Vol. 54, Issue 2, pp. 210-226, 2018

SSRN --- https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3194888
17 Pages Posted: 13 Jun 2018  

Francesco Capalbo

Second University of Naples - Department of Economics; Seconda Universita degli Studi di Napoli

Alex Frino

University of Wollongong

Ming Ying Lim

Capital Markets CRC Limited; Macquarie Graduate School of Management

Vito Mollica

Macquarie Graduate School of Management; Capital Markets CRC Limited (CMCRC); Macquarie University, Faculty of Business and Economics

Riccardo Palumbo

University of Chieti-Pescara; European Capital Markets CRC

Date Written: June 2018

Abstract

We provide the first empirical test of the relation between CEO narcissism and earnings manipulation. We test the hypothesis that narcissistic leaders over‐identify themselves with the organizations they lead and expend considerable effort to achieve their goals, including by engaging in unethical behaviour. Earnings announcements are highly anticipated information releases by organizations. They are a key performance indicator used to evaluate the performance of CEOs. This study examines the use of first person singular pronouns by CEOs in response to questions at analyst conferences to measure narcissism. We provide evidence that firms with narcissistic CEOs engage in accruals management to manage earnings positively, highlighting the important effect of CEO personality on accounting choices.

Keywords: Personality, Earnings management, Narcissism, Chief executive officer, Earnings announcements


Discretionary Accruals: Earnings Management ... Or Not?

Abacus, Vol. 54, Issue 2, pp. 136-153, 2018

SSRN --- https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3194889
18 Pages
Posted: 13 Jun 2018  

Andrew B. Jackson

UNSW Australia Business School, School of Accounting

There are 2 versions of this paper

Date Written: June 2018

Abstract

This paper discusses some limitations of discretionary accruals measures. While discretionary accruals are acknowledged to be noisy proxies for earnings management, they are still widely used in the literature. This paper attempts to explain from basic econometrics how discretionary accruals are estimated, and in doing so why they are inappropriate measures for earnings management. It is shown that decisions of peer firms will influence the regression coefficients, and hence residuals, in accruals models, which may lead to false conclusions about earnings management in other firms. This point is emphasized using an artificially constructed firm with no changes in its fundamental performance, and hence no discretion in its accruals. I also note concerns about the inferences, which are commonly not acknowledged in research. Finally, using Accounting and Auditing Enforcement Releases and Enron as examples, I demonstrate how discretionary accruals do not capture what literature often claims.

 

 

Keywords: Discretionary accruals, Earnings management


Accounting Comparability and Relative Performance Evaluation in CEO Compensation

Review of Accounting Studies, Forthcoming

SSRN --- https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3184986
Posted: 12 Jun 2018  

Gerald J. Lobo

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

Michael J. Neel

University of Houston - Bauer College of Business

Adrienne Rhodes

Texas A&M University - Department of Accounting

Multiple version iconThere are 2 versions of this paper

Date Written: May 25, 2018

Abstract

We investigate whether accounting comparability is associated with the likelihood that CEO compensation is tied to relative accounting performance (e.g., return on assets). We predict that higher accounting comparability increases the risk-sharing benefit of accounting-based RPE because peer firm performance better controls for common risk in RPE firm performance. Thus, firms that have higher accounting comparability with potential performance peers will be more likely to include accounting-based RPE as a component of the total CEO compensation contract. We find support for this prediction using (1) an explicit test design that relies on the ex-ante terms of CEO compensation contracts obtained from proxy disclosures, and (2) an implicit design that relies on the actual realizations of CEO compensation. To provide further evidence, we examine the association between accounting comparability and the selection of performance peers when the CEO compensation contract includes an accounting-based RPE component. We find that higher comparability between the RPE firm and a potential peer firm increases (decreases) the potential peer firm’s likelihood of being selected into (dropped from) the peer group. Cross-sectional analyses show that this association is less pronounced, or not present, when the relative performance measure is price-based (as opposed to accounting-based), indicating that these results do not merely reflect a more general role of comparability in all RPE contracts.

Keywords: Accounting Comparability, Relative Performance Evaluation, RPE, Peer Selection

JEL Classification: M12, M41


Accounting and Finance Applications for Introduction to Statistics with R

SSRN --- https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3184054
132 Pages Posted: 11 Jun 2018  

Theophanis C. Stratopoulos

University of Waterloo - School of Accounting and Finance

Duane B. Kennedy

University of Waterloo - School of Accounting and Finance

Date Written: March 20, 2018

Abstract

Instructors need materials such as instructions, cases, data, and software code in order to understand the basics of data analytics so that they can introduce the topic in their courses. We developed these materials to help instructors teach data analytics in their classes. These notes deliver the following learning outcomes: 1) Understand and use statistical concepts and techniques, and interpret statistical results. 2) Identify accounting and finance (A&F) specific applications of statistical concepts and techniques. 3) Identify practical sources of A&F data (e.g., stock market data, financial statement data, actual company specific sales and inventory data) and understand how data is structured. 4) Use the R statistical package to load/understand data, generate new variables (transform data), and perform appropriate statistical analysis on A&F data. 5) Interpret statistical results leveraging A&F knowledge.

Keywords: Data Analytics, Financial Accounting, Managerial Accounting, Finance, Statistics, R

The Law and Finance of Initial Coin Offerings

Ibero-American Institute for Law and Finance Working Paper No. 4/2018

SSRN --- https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3182261
49 Pages
Posted: 11 Jun 2018  

Aurelio Gurrea-Martínez

Harvard Law School; Ibero-American Institute for Law and Finance (IIDF)

Nydia Remolina

Javeriana University; Ibero-American Institute for Law and Finance (IIDF)

Date Written: May 21, 2018

Abstract

The rise of new technologies is changing the way companies raise funds. Along with the recent increase of crowdfunding in the past years, a new form of funding has emerged more recently: the use of Initial Coin Offerings (ICOs). In 2017, companies raised more than $4 billion through ICOs in the United States, and more than $11billion has been raised during the first semester of 2018. In a typical ICO, a company raises cryptocurrencies giving some rights in return. The different nature and features of these rights, known as “tokens”, are generating many controversies among securities regulators around the world. Namely, it is not clear whether and, if so, when these tokens should comply with securities law. Securities regulators are addressing this issue in a very different manner across jurisdictions: while countries like the United States, Switzerland and Singapore are requiring companies to comply with existing securities rules only when a company issues “security tokens”, other jurisdictions, such as China and South Korea, have prohibited ICOs, and Mexico subject any issuance of tokens to a system of full control ex ante. Nevertheless, ICOs not only generate these challenges for securities regulators. They also arise many other issues from an accounting, finance, corporate governance, data protection, anti-money laundry and insolvency law perspective. By providing a comparative and interdisciplinary analysis of ICO, our paper seeks to provide regulators and policy-makers with a set of recommendations to deal with ICOs in a way that may promote innovation and firms´ access to finance without harming investor protection, market integrity and the stability of the financial system.

 

 

Keywords: initial coin offerings, blockchain, tokens, cryptocurrencies, securities, commodities, digital assets, fintech, debt, equity, corporate governance, accounting, finance, insolvency, data protection, financial regulation  


PCAOB Inspections: Public Accounting Firms on 'Trial'

Contemporary Accounting Research, Forthcoming

SSRN --- https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3165769
Posted: 7 Jun 2018  

Kim Westermann

Cal Poly San Luis Obispo

Jeffrey R. Cohen

Boston College - Department of Accounting

Greg Trompeter

University of Central Florida

Date Written: April 18, 2018

Abstract

The objective of our paper is to obtain a better understanding of how auditors anticipate the potential for PCAOB inspection, experience the inspection, cope with the consequences of the inspection, and understand the PCAOB’s influence within the context of professionalism. We use a qualitative approach that employs both surveys (55) and interviews (20) of auditors (of varying rank and firm) across a five-year period (2012-2017). Respondents suggest that PCAOB inspectors are powerful, representing the ‘prosecution’, ‘judge’, and ‘jury’ of the auditing profession. We therefore employ a structural metaphor of the PCAOB inspection as a judicial ‘trial’. By controlling the criteria for which to evaluate performance, inspectors have the power to repeatedly ‘subpoena’, ‘interrogate’, and return a ‘verdict’ on the firm (auditor); those judged as ‘guilty’ require supervised ‘probation’. This process is perceived as having improved audit quality, but at a cost. Passing an inspection is so important, that auditors (firms) have resorted to impression management strategies and “functionally stupid” work practices (e.g., excessive documentation, a decrease in critical thinking as a result of a “box ticking” approach to auditing). Further, some respondents believe that being a good auditor has come at the expense of being a good accountant; the emphasis on audit process and concurrent de-emphasis on technical accounting could ultimately lead to audits themselves falling short. In addition, it is evident that inspectors and auditors differ in their perceptions of risk; likely manifesting because inspectors are standards focused while auditors (firms) are methodology focused. Finally, the inspection process has created excessive stress and tension, beyond budget and fee pressures, which some auditors perceive as affecting the pool of talented auditors that firms may be able to attract and retain in the future.

Keywords: Auditing, Inspections, Metaphor, PCAOB, Professionalism, Qualitative

JEL Classification: M42


The Effectiveness of Setting Governmental Accounting Standards: The Case of Michigan Governments in Fiscal Distress

MERCATUS WORKING PAPER

SSRN --- https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3191445
99 Pages Posted: 7 Jun 2018  

Sue Convery

Michigan State University

Date Written: 11/05/2015

Abstract

The purpose of setting accounting standards is to improve the quality of the financial statements on which users base their decisions. The financial reporting model set up by the Governmental Accounting Standards Board (GASB) is comprehensive and complex, as are the governments on which these statements report. We provide a framework for evaluating whether financial statements are used and understood by decision makers and explain the components of the GASB Statement No. 34 financial reporting model introduced in 1999. We present financial indicators from the Comprehensive Annual Financial Reports for 12 Michigan governments over three points in a 10-year period, along with an indication of whether trends are favorable or unfavorable. We suggest that governing bodies assess to what extent their members use financial statements in making decisions. If officials are trained to monitor financial performance on a regular basis, then decision-making may improve and fiscal crises may be averted.


A Rationale for Imperfect Reporting Standards

SSRN --- https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3183482
58 Pages Posted: 6 Jun 2018  

Henry L. Friedman

University of California, Los Angeles (UCLA) - Accounting Area

John S. Hughes

University of California at Los Angeles

Beatrice Michaeli

University of California, Los Angeles (UCLA)

Date Written: June 15, 2018

Abstract

We examine the interplay between a regulator's design of a public reporting system and a firm's decisions regarding the gathering and disclosure of private information. The context is one in which the firm seeks to meet a threshold on its market price possibly to avoid delisting on an exchange, exclusion from a market index, downgrading by a credit rating agency, or violation of debt covenants. The regulator, who might be a body that determines accounting standards, seeks to maximize the total information provided by both public reports governed by those standards and voluntary disclosures of information gathered by the firm. Notably, we identify conditions under which the regulator prefers less than fully informative reports as a means of inducing the firm to gather and potentially disclose more information. We obtain further results in cases where: the firm's choice with respect to gathering information is or is not observable by investors; the firm's information acquisition decision is made after (rather than before) financial reports are released; the regulator chooses the threshold rather than the properties of the reporting system; the regulator's choice is guided by the firm's preferences.

Keywords: Information Acquisition, Reporting System, Mandatory Disclosure, Discretionary Disclosure

JEL Classification: D82, G38, M41, M48

Jensen Comment
Like virtually all mathematical derivations in analytics the conclusions rely on highly restrictive and somewhat realistic assumptions such as firm value being a random state of nature.
Probabilities of growth in this value are known for each set of regulations. What happened to the idea that regulations and information flows affect unknown probabilities? These papers are scholarly and interesting to accountics scientists while at the same time illustrating why practitioners have little or no interest in such derivations.


Accounting for Cross‐Country Differences in Wealth Inequality

Review of Income and Wealth, Vol. 64, Issue 2, pp. 332-356, 2018

SSRN --- https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3189536
25 Pages Posted: 5 Jun 2018  

Frank Cowell

London School of Economics & Political Science (LSE) - London School of Economics

Eleni Karagiannaki

London School of Economics

Abigail McKnight

CASE, London School of Economics

Date Written: June 2018

Abstract

There is considerable cross‐country variation in levels of household wealth and in wealth inequality. This paper assesses the extent to which these differences can be accounted for by differences in the distributions of households' demographic and economic characteristics. A counterfactual decomposition analysis of micro data from five countries (Italy, U.K., U.S., Sweden and Finland) is used to identify the effects of characteristics on component wealth holdings, their value and their distribution. The findings of the paper suggest that the biggest share of cross‐country differences is not attributable to the distribution of household demographic and economic characteristics but rather reflect strong unexplained country effects.

Keywords: household wealth, wealth inequality, debt, housing assets, decomposition

JEL Classification: C81, D31, D63


SFAS 133 and Income Smoothing Via Discretionary Accruals: The Role of Hedge Effectiveness and Market Volatility

Journal of International Financial Management & Accounting, Vol. 29, Issue 2, pp. 105-130, 2018

SSRN --- https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3189148
26 Pages Posted: 5 Jun 2018  

Abiot Tessema

Zayed University - College of Business

Rogier Deumes

Maastricht University - Department of Accounting & Information Management, MARC (Maastricht Accounting, Auditing & Information Management Research Center)

Date Written: June 2018

Abstract

This study investigates whether the Statement of Financial Accounting Standard No. 133 (SFAS 133) influences firms’ income smoothing via discretionary accruals decisions. Moreover, we investigate whether the level of hedge effectiveness and market volatility affects the impact of SFAS 133 on firms’ income smoothing via discretionary accruals decisions. Consistent with our predictions, we find a significant increase in income smoothing via discretionary accruals activity after the adoption of SFAS 133. We also find that income smoothing via discretionary accruals after the adoption of SFAS 133 increases with the level of hedge ineffectiveness. By contrast, we find that perfect hedgers do not engage in more income smoothing via discretionary accruals after the adoption of SFAS 133. Finally, we find that the higher the market volatility is the larger the income smoothing is via discretionary accruals after the adoption of SFAS 133. This implies that higher market volatility makes it more difficult for firms to meet hedge accounting requirements, thereby increasing unmanaged earnings volatility and income smoothing. Prior studies suggest that regulators are expressing concern about the effect of earnings management on the quality of reported earnings and the functioning of capital markets (e.g., Barton, [Barton, J., 2001]). In this regard, our findings imply that accounting standard setters should take into account the trade‐off between transparency and income smoothing.

Keywords: derivatives and hedging, hedge effectiveness, income smoothing, market volatility, SFAS 133


Sweat the Small Stuff: Strategic Selection of Pension Policies Used to Defer Required Contributions

Contemporary Economic Policy, Vol. 36, Issue 3, pp. 505-525, 2018

SSRN --- https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3188555
21 Pages Posted: 5 Jun 2018  

Jeffrey Diebold

North Carolina State University, College of Humanities and Social Sciences, Department of Political Science & Public Administration, Students

Vincent Reitano

North Carolina State University, College of Humanities and Social Sciences, Department of Political Science & Public Administration, Students

Bruce McDonald

North Carolina State University

Date Written: July 2018

Abstract

The administrators of state‐sponsored defined benefit public pension plans have considerable discretion to determine the accounting and actuarial parameters used to calculate the normal cost contributions and amortization payments that, together, comprise the sponsoring state's annual required contribution amount. Using longitudinal data from the Public Pension Database and a fixed effects approach, we find evidence that suggests plan administrators decisions about cost and amortization methods are influenced by the normal cost and amortization payments, respectively. When these costs increase, administrators tend to use less prudent methods that defer, or keep low, the pension contributions required from the state while, simultaneously, and perversely, improving the appearance of the plan's funded status and the state's funding discipline.

JEL Classification: H75



Zorba:  Digital Transformation - Change Management on Steroids ---
https://zorba-research.blogspot.com/

Zorba:  How Analytics can be Used to Fact Check News Items ---
https://zorba-research.blogspot.com/2018/06/how-analytics-can-be-used-to-fact-check.html

Zorba:  Digital Transformation Driving Companies Back to the Basics ---
https://zorba-research.blogspot.com/2018/05/digital-transformation-driving.html

Zorba:  Blockchain and the Accounting Revolution ---
https://zorba-research.blogspot.com/2018/06/blockchain-and-accounting-revolution.html


 




From the CFO Journal's Morning Ledger on June 29, 2018

Good morning. Large U.S. companies are increasingly putting caps on director pay, but at levels that are often significantly above existing compensation levels, reports the WSJ's Theo Francis.

About half of the 100 largest U.S. firms have limited pay to between $500,000 and $1 million, according to a new study by pay consultancy Compensation Advisory Partners. Most set limits at least triple what they currently pay in equity grants, CAP found. 

Median pay for non-management directors rose 3.4% to $300,000 or more last year, up from $290,000 in 2016, according to the study. Median director pay for a similar group of companies was $257,000 in 2012 and $225,000 in 2008.

The change comes in response to challenges from shareholders, said Dan Laddin, founding partner of CAP. “The view was that directors had paid themselves too much, and because directors get to decide their own pay, there’s an inherent conflict of interest.”

The salary of the chief executive of a large corporation is not a market award for achievement. It is frequently in the nature of a warm personal gesture by the individual to himself.(today theirself is more politically correct)
John Kenneth Galbraith --- Click Here

If you aren’t (cynical) now, you will by the time you finish the new Bebchuk and Fried paper on executive compensation.  They paint a fairly gloomy picture of managers exerting their power to “extract rents and to camouflage the extent of their rent extraction.”  Rather than designed to solve agency cost problems, the paper makes the case that executive pay can by an agency cost in and of itself.  Let’s hope things aren’t this bad. 
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=364220

They say that patriotism is the last refuge
To which a scoundrel clings.
Steal a little and they throw you in jail,
Steal a lot and they make you king.
There's only one step down from here, baby,
It's called the land of permanent bliss.
What's a sweetheart like you doin' in a dump like this?

Lyrics of a Bob Dylan song forwarded by Damian Gadal [DGADAL@CI.SANTA-BARBARA.CA.US

Bankers bet with their bank's capital, not their own. If the bet goes right, they get a huge bonus; if it misfires, that's the shareholders' problem.
Sebastian Mallaby. Council on Foreign Relations, as quoted by Avital Louria Hahn, "Missing:  How Poor Risk-Management Techniques Contributed to the Subprime Mess," CFO Magazine, March 2008, Page 53 --- http://www.cfo.com/article.cfm/10755469/c_10788146?f=magazine_featured
Now that the Fed is going to bail out these crooks with taxpayer funds makes it all the worse.
Bob Jensen's "Rotten to the Core" threads are at http://faculty.trinity.edu/rjensen/FraudRotten.htm

That some bankers have ended up in prison is not a matter of scandal, but what is outrageous is the fact that all the others are free.
Honoré de Balzac

Bob Jensen's threads on outrageous executive compensation ---
http://faculty.trinity.edu/rjensen//FraudConclusion.htm#OutrageousCompensation


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

The International Accounting Standards Board, the organization behind International Financial Reporting Standards, on Thursday launched a consultation on IAS 32, a regulation that governs the accounting for issuers of financial instruments. The consultation aims to address concerns about the consistency of the standard in light of new financial instruments, said Sue Lloyd, vice-chair of the IASB.

Since the inception of IAS 32 two decades ago, the range of financial instruments used by companies has grown which is why the standard needs rearticulating, she said. “We want to get more consistency in what is considered as debt and as equity,” Ms. Lloyd told Ms. Trentmann.

Certain financial instruments, for example contingent convertible bonds, did not exist when the standard was written, she added. “There is uncertainty around how to classify coco-bonds under IAS 32,” said Ms. Lloyd. Depending on the outcome of the consultation, the IASB could decide to alter the standard or replace it, she said. The consultation ends in January 2019.


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

Good morning. U.S. companies are increasingly delaying payments to suppliers in an effort to free up working capital and redirect it to other areas, such as capital expenditures or acquisitions, write CFO Journal’s Tatyana Shumsky and Nina Trentmann.

The 1,000 largest U.S. public companies increased payment delays to 56.7 days in 2017, up from 53.3 in 2016, according to a study to be released next month by consulting firm The Hackett Group Inc. The research estimates that these companies have nearly $1.1 trillion tied up in inventories, payments to suppliers and payments not yet received from customers.

 

Stanley Black & Decker Inc. is among the companies taking longer to pay its vendors. The industrial and household tools maker paid its outstanding bills after 83 days on average last year, and has averaged above two months since 2005, when the company began to employ this tactic.

“It was a partnership,” said Chief Financial Officer Donald Allan Jr. about his efforts to convince vendors to give him more time. “We were saying we’re going to help you be more efficient and effective so you can generate more profit and drive more volume through your system,” he said.


From the CFO Journal's Morning Ledger on June 26, 2018

A federal judge on Monday dismissed lawsuits by the cities of San Francisco and Oakland alleging that five of the world’s largest oil companies should pay to protect the cities’ residents from the impacts of climate change.

Jensen Comment
Such a lawsuit might have put all oil companies out of business in the USA leaving all gasoline and diesel vehicles in junk yards to say nothing of hundreds millions of people freezing in the winter. City leaders sometimes get grandeur ideas about their powers to change the world.


From the CFO Journal's Morning Ledger on June 26, 2018

The U.S. Supreme Court in a 5-4 opinion backed American Express Co.’s policy of preventing retailers from offering customers incentives to pay with cheaper cards, a major victory for the company that puts its business model on solid legal ground.

Jensen Comment
When I lived in San Antonio a wily liquor store owner would take 5% of off the charge for customers who paid cash rather than used credit cards (for which stores pay a fee). At the time this was a violation of credit card contracts with stores, and I don't know how this guy managed to keep his credit card payment option.

As I read the latest Supreme Court ruling Home Depot, for example, cannot give a price discount on Home Depot cards if they also allow American Express cards for payments. Of course Home Depot can refuse American Express cards, but Home Depot might run into troubles with other credit card companies like Master Card and Discover that have the same contract provisions as American Express.

I will also tell you another story about this wily liquor store owner. The Seven Eleven stores advertised that they would sell Budweiser beer at any advertised price of the same beer in San Antonio. The wily liquor store owner then advertised to sell Budweiser well below wholesale cost. Of course he quickly ran out of his small inventory of Budweiser. But Seven Eleven stores all over San Antonio got stuck with selling their much larger inventory of Budweiser at well below cost.


 

A Half Penny Rounded is a Half Penny Earned
From the CFO Journal's Morning Ledger on June 25, 2018

Good morning. The U.S. Securities and Exchange Commission is investigating whether companies have improperly rounded up their earnings per share to the next highest cent, people familiar with the matter told the WSJ’s Dave Michaels.

SEC enforcement officials have queried at least 10 companies, asking them to provide information about accounting adjustments after academic research found the number “4” appeared at an abnormally low rate in the tenths place of companies’ earnings per share. Reporting that figure as “5” or higher allows a firm to round up its earnings per share another cent.

A company with earnings of 55.4 cents a share, for example, would round to 55 cents a share, while a company with earnings of 55.5 cents a share would round to 56 cents.

Public companies have strong incentives to report higher earnings per share, particularly those followed by Wall Street analysts whose quarterly forecasts are used to benchmark corporate performance. Investors often snap up shares of companies that beat expectations, even by a cent, and, likewise, sell shares of companies that miss their forecasts.

Jensen Comment
The way to teach this in class is to point out that if the maximum round up error is a $0.001 tenth of a penny then the maximum rounding error in dollars is $.001 times the denominator number of shares. If x is the number of shares then $.001x is the maximum round up error.  Suppose eps is e/x truncated to the nearest tenth of a penny before rounding. The maximum rounding error is then.001x/e = [0.001/(eps)]. Thus if 55.5 cent eps is rounded to 56.0 cents eps on earnings before rounding the maximum rounding error is .001/.555 of e = .001801802 of earnings before rounding.

If eps of $5.555 is rounded up to $5.556 the maximum rounding error is .001/5.555 of e = .000180018 of earnings before rounding.

If eps of $6.555 is rounded up to $6.556 the maximum rounding error is .001/6.555 of e = .000152555 of earnings before rounding.

Since these maximum round up errors are relatively small, I think the SEC is making a mountain out of a mole hill as long as net losses are not wiped out.


Wharton School of Business:  Why the Wayfair Ruling Won’t Hurt Online Sales ---
http://knowledge.wharton.upenn.edu/article/impact-wayfair-ruling/
Jensen Comment
I agree that having to collect online sales tax will not significantly impact the rise of online shopping. There are just too many advantages to online shopping relative to physically going to stores. The first of these is time savings. If I want a new dress shirt it's just faster to do so online and avoid the time required to shop at a store to say nothing of having to get into a hot car that's been sitting in the sun. Secondly, the selection of available shirts is massive compared to what's in any store. Thirdly, online I can find a shirt in my somewhat unique body.--- a 19-inch neck-size that most stores don't stock. Fourthly, relative to a store purchase it's just too easy to return the shirt if I'm unhappy with it for any reason.

Stores have some advantages such as being able to try on clothing before a purchase and greater likelihood of impulse buy when walking past a display. But when I think of all the time I used to waste walking up and down Walmart aisles I brief a sigh of relief on how fast I can find a large or small item when shopping online at Amazon.

I have a friend three miles down the road who owns a historic hardware store in the village of Franconia (about the only store left in town other than food outlets). It's one of those stores where you can buy a single bolt or a single screw. And Mike will find what you want for you --- unlike shopping at Walmart where you almost never find an employee in the department where you're looking for something. Mike tells me the decline in his business is not really due to the big box stores like Walmart and Home Depot ten miles up the road. But Amazon is killing his business, because Amazon does what Walmart does not do --- save you the time and trouble of having to walk all over the store looking for something. I can find a bolt on Amazon faster than I can find that bolt in Mike's hardware store, and in many instances I can purchase just one or a few such bolts in small quantities from Amazon. And there will other items I want that Mike just does not carry in inventory.

The other day in Walmart I was looking for a cosmetic that Erika asked me to buy. I lucked out by finding a nearby sales clerk who then informed me that she worked in pet foods and could not help me at all in cosmetics. I also could not shop for a cosmetic item in Mike's Franconia hardware store. So I came home and did what I should've done in the first place --- order the cosmetic item on Amazon. It took me less than two minutes to find the item on Amazon and place the order (with free Prime shipping).

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

Good Morning. The Supreme Court (in the Wayfair Ruling) ruled that states have the authority to make online retailers collect sales taxes as the digital transformation of the U.S. economy took a historic step, write the WSJ's Brent Kendall, Jess Bravin and Laura Stevens. The decision opens a new chapter when e-commerce is treated as a mature player in a market place that is no longer defined by trips to the corner store or the shopping mall.

By a 5-to-4 vote, the court closed a loophole that helped fuel the early growth of internet sales, overruling its own 1992 precedent that forbid states from requiring merchants to collect sales tax unless those sellers maintained a “physical presence” within the state’s borders.

Justice Anthony Kennedy said the “physical presence” rule, always doubtful, had become untenable in the digital age. The court cited studies suggesting that the current rule costs states up to $33.9 billion annually in uncollected sales taxes.

Jensen Comment
This leaves increased advantage between the five states that do not levy sales taxes on in-state purchases versus the 45 states that have general sales taxes. There's also advantage to living near the border of a state that levels zero general sales taxes. For example, it's common to see that over half the cars have green license plates at the closest Walmarts from our cottage --- in Littleton or Woodsville, NH. One has to think that those folks from Vermont are shopping in New Hampshire at least in part to avoid sales taxes. We have a 105 year-old man in our Sugar Hill church who lives along the Connecticut River in Woodsville, NH. That river separates Vermont from NH. His 95 year old woman friend lives on her farm in Peachum, NH. Guess where her Amazon purchases are delivered?

My guess is that, as a result of this Supreme Court decision, a whole lot new of platonic friendships will form between border residents of NH with border residents of Vermont, Massachusetts, and Maine to say nothing about those many Canadian border friendships that have existed for decades.

This ruling will greatly affect retailers that, until now, relied mainly on tax-free sales across the nation (think LL Bean in Maine and Garnet Hill in New Hampshire). With both the new sales taxes and the increased pressures for free shipping those mail-order businesses are bound to be less profitable.

I might add that NH does impose sales taxes on restaurant and hotel customers. However, it's great to be a New Hampshire resident when I buy a new car, a new tractor, and expensive appliances. And my online purchases from Amazon and  LL Bean will still be tax free.


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

 New York’s financial-services regulator said it fined Deutsche Bank AG $205 million over allegations it sought to manipulate currency prices and mislead clients while failing to protect confidential customer information


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

Starbucks Corp. said it will close more coffee shops in the increasingly crowded U.S. market where it was a pioneer. The coffee giant said Tuesday that it will close 150 U.S. stores in its 2019 fiscal year, triple the number it has closed on average in recent years.


From the CFO Journal's Morning Ledger on June 20, 20158

General Electric loses place in Dow, expected to be replaced by Walgreens


From the CFO Journal's Morning Ledger on June 19, 2018

Fujifilm Holdings Corp. is suing Xerox Corp. for breach of contract and estimated damages of more than $1 billion after the printer and copier company walked away from a planned merger earlier this year.


From the CFO Journal's Morning Ledger on June 19, 2018

Exactly how well is the tax cut working?
Both critics and supporters say it will take months or years to draw conclusions on the law’s effect,
write the WSJs Theo Francis and Ben Leubsdorf. Meanwhile, here are some key indicators that help reveal how well the changes are aiding businesses, workers and the broader economy.

U.S. economic activity is on a solid trajectory this year, and overall growth is on track for a strong second quarter after a modest slowdown in the early months of 2018. Large publicly traded companies have funneled much of their tax savings into increased share repurchases. Analysts and economists caution that increased investment and hiring from expansion take more time to implement.

Companies have stepped up capital spending in recent quarters, an improvement that could reflect new tax-law provisions intended to encourage business investment, including quicker deductions for some purchases, as well as lower tax rates and other changes that make lower-margin investments more attractive.

Overall, however, profits have largely been growing along with the rest of the economy. Profits as a proportion of overall economic output—the nation’s gross domestic product—haven’t changed much so far.

 


Ether is a cryptocurrency whose blockchain is generated by the Ethereum platform ---
https://en.wikipedia.org/wiki/Ethereum

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

The world’s second-most valuable cryptocurrency, ether, isn’t an investment that should be regulated as stocks and bonds are, said U.S. Securities and Exchange Commission Corporation Finance Director William Hinman.


From the CFO Journal's Morning Ledger on June 12, 2018

New accounting rules are prompting some corporate finance chiefs to change how they do business.

More than half of the S&P 500 companies disclosed some impact on their accounting policies since December, when new rules unified how companies account for revenues from sales and services. The change, which was in the works for more than a decade, replaces previously disparate, industry-specific rules and aligns U.S. standards closer to international guidelines, reports CFO Journal's Tatyana Shumsky.

For finance chiefs of some companies, including Red Hat Inc., Ciena Corp. and Mosaic Co., adopting the new revenue recognition standard from the Financial Accounting Standards Board means adjusting their business operations to be in line with the new accounting framework, which is more focused on contracts and when goods and services are delivered to customers.


From the CFO Journal's Morning Ledger on June 11, 2018

Good morning. President Donald Trump escalated trade tensions with some of America’s closest allies over the weekend when he refused to sign the final communiqué of the Group of Seven industrial nations summit and threatened to impose auto tariffs in a statement on Twitter.

The dust-up comes as Washington enters an important stretch of negotiations on several fronts, from China to the North American Free Trade Agreement. The U.S. is also due to attend a North Atlantic Treaty Organization summit mid-July in Brussels.

Meanwhile, Europe will implement counter-measures against U.S. tariffs on steel and aluminum just like Canada, German Chancellor Angela Merkel said, according to Reuters. The World Trade Organization will be informed of these on July 1, Ms. Merkel said, adding that it was “sobering and somewhat depressing” to find out via Twitter that Mr. Trump wouldn’t endorse final communiqué of the summit.

President Trump continued to criticize the Group of Seven alies in a series of tweets from Singapore, stating that "Fair Trade is now to be called Fool Trade if it is not Reciprocal," CNN reported.

Finance chiefs across the U.S. are wrangling with a lingering uncertainty: state taxes. The tax debate that gripped Washington last year is rippling across 50 state capitols and could extend in some statehouses beyond this year, writes CFO Journal’s Ezequiel Minaya.

Businesses are paying more attention to state taxes, which have become a larger share of their total tax liability. While the federal corporate-tax rate fell to 21% from 35% previously, state tax rates remained unchanged while some breaks shrank.

Many states are expected to lower their corporate tax rate, in line with the federal reduction, as a way to project a business-friendly environment. Whether states decide to lower or raise taxes, most states still need to adjust its tax laws to incorporate the rewritten U.S. tax code.

In California, one state assemblyman proposed a 10% surcharge on top of the existing state corporate tax rate to capture some of the savings companies expected following the reduction of the federal tax rate. Governor Jerry Brown’s latest budget revisions in May raised projected corporation tax revenue up 8.9% to $11.02 billion, in part because of new federal tax rules on repatriation of foreign earnings.


The Beginning of the End for Quarterly Reporting?
From the CFO Journal's Morning Ledger on June 8, 2018

James Dimon and Warren Buffett are urging companies to consider ending the practice of providing quarterly earnings guidance, arguing that it encourages an “unhealthy focus” on short-term profits at the expense of long-term growth and economic strength, reports the WSJ’s Michael Rapoport.


Extreme Gender Bias to Combat Extreme Gender Bias
From the CFO Journal's Morning Ledger on June 5, 2018

Accounting firm PricewaterhouseCoopers LLP has banned all-male shortlists for jobs in the U.K. in an attempt to increase the number of women in senior roles at the company, reports the BBC.

Jensen Comment
I'm not in favor of this form of extreme form of affirmative action. Firstly, does the ban apply to minority males as well? Secondly, if this discrimination were to be adopted by other accountancy firms what's the incentive for males to study accountancy in universities? Thirdly, either PwC will have to bend to rule for certain types of specialties when female applicants are not qualified or PwC will deprive themselves of a fully rounded workforce.


From the CFO Journal's Morning Ledger on June 5, 2018

Accounting firm KPMG LLP’s South African affiliate said Monday it would cut up to 400 jobs and bring in leadership help from KPMG’s world-wide network, as the firm tries to recover from a series of scandals in connection to its ties to the Gupta family.


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

Sears Holdings Corp. said Thursday it plans to close more than 60 stores it has deemed unprofitable, as the retailer continues to struggle with falling sales.




Teaching Case from the the University of Virginia

UVA-OB-1212
SSRN --- https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3185135

May 10, 2018

Overheard at the Office

Laura Cooper, an African-American woman in her twenties and a recent graduate of an elite MBA program, worked in the league office for the team owners in one of the four major US professional sports. Her role was accounting-focused—for example, she helped to comprehend the financial position of each team, and of the association as a whole, in order to do things like establish team salary caps (as a percentage of total revenue). In this role, she traveled around the United States to the different team headquarters with the players' association auditor, Noah Jarrold (who was also African-American), while he checked the accounting books of each team. Thus, while Cooper and Jarrold visited teams' headquarters together, they were employed by different parties representing different interests in the audit.

The players' association functioned as a union for all players, collectively bargaining for pay and benefits. Its staff was predominantly African-American, as were most of the players, in contrast to the majority white team owners and their staffs. Jarrold worked to ensure that the team owners were not hiding revenue or otherwise manipulating the calculations in ways that would hold down the players' salary caps. Cooper's role, on the other hand, was to make sure both sides adhered to the collective bargaining agreement and to protect the integrity of the business as a whole. As an observer of the audit, she ensured, for example, that Jarrold was not counting inappropriate revenue toward the salary cap. She was also there to raise any red flags back at headquarters, if necessary, about the audits.

. . .

Keywords: Defining moments, leadership, ethics, organizational behavior, difficult conversations, decision-making, human resources, implicit bias


Teaching Case From The Wall Street Journal Weekly Accounting Review on June 1, 2018

Why It Is Harder to Diagnose Hospital Stocks

By Charley Grant | May 29, 2018

TOPICS: Revenue Recognition

SUMMARY: An accounting change by the Financial Accounting Standards Board being implemented this year has resulted in healthcare companies no longer including an estimate of uncollectible debt on their income statements as a deduction from gross revenue as well as a reduction to accounts receivable on the balance sheet. Instead, this information is disclosed in the financial statement notes. This accounting change results from the new revenue recognition requirements under Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), implemented for the first time this year by publicly traded companies. Private companies will implement the standard in 2019. The article highlights the change as reported by Envision Healthcare. Students are directed to the company's EDGAR filings via links to examine the changes first-hand.

CLASSROOM APPLICATION: The article may be used when discussing accounts receivable or revenue recognition in a financial accounting class.

QUESTIONS: 

 

1. (Advanced) What new accounting standard has driven the changes discussed in this article?

 

2. (Advanced) Compare the results for the 3 months ended March 31, 2018 for Envision Healthcare as shown in the article to the reporting for the comparable period in 2017, available from the U.S. Securities and Exchange Commission (SEC) Electronic Data Gathering and Retrieval (EDGAR) system at https://www.sec.gov/cgi-bin/viewer?action=view&cik=1678531&accession_number=0001678531-17-000112&xbrl_type=v# What is similar between the two statements? What is different?

 

3. (Advanced) Proceed to the online filing on which this article is based, available at https://www.sec.gov/cgi-bin/viewer?action=view&cik=1678531&accession_number=0001678531-18-000065&xbrl_type=v# Click on Financial Statements, then Consolidated Statements of Operations. Note the reference to note 3 next to "Provision for uncollectibles" and proceed to that note by clicking on "Revenue Recognition and Accounts Receivable" the third listing under Notes to Financial Statements. Read the first paragraph. How does the company explain the change in treatment of the allowance for uncollectible accounts?

 

4. (Introductory) Refer again to the online filing for the 3 months ended March 31, 2018. Proceed to the balance sheet by clicking on "Consolidated Balance Sheets." How does the line for accounts receivable reflect the change discussed in the article?

 

5. (Advanced) In Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), the FASB writes (p. 8), "the guidance [under this Update] requires improved disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized." Do you think the author of this article agrees? Explain your reasoning.

 

6. (Introductory) "A valuation allowance that grows more quickly than gross revenue might mean that a company's underlying sales are stronger than net revenue suggests...a valuation allowance that grows more slowly than gross sales might mean that a company is using more aggressive estimates to meet earnings projections." Explain your understanding of this interpretation of financial results.

READ THE ARTICLE



 

Reviewed By: Judy Beckman, University of Rhode Island

 

"Why It Is Harder to Diagnose Hospital Stocks," by Charley Grant, The Wall Street Journal, May 29, 2018 ---
https://www.wsj.com/articles/why-it-is-harder-to-diagnose-hospital-stocks-1527499800?mod=djem_jiewr_AC_domainid&tesla=y

New accounting rules make assessing financial health more difficult for hospitals and companies that work with them

Assessing the financial health of some publicly traded health-care stocks is getting trickier.

A new rule enacted by the Financial Accounting Standards Board this year means that companies no longer need to include an estimate of uncollectible debt on their income statements as a deduction from gross revenue as well as a reduction to accounts receivable on the balance sheet.

The numbers can be substantial. For instance, physician-staffing firm Envision Healthcare EVHC 2.52% reported net revenue of $2.1 billion in the first quarter. A year ago, the group reported gross sales of about $2.9 billion, less a provision of $977 million for uncollectible debt, for net sales of about $1.9 billion.

Other companies, such as hospital operator HCA Healthcare, now report their valuation allowance in financial statement footnotes instead of on the actual statements.

The new accounting rule applies to all publicly traded companies in the U.S., but it is of particular importance to hospitals and companies that contract with them. That is because uncollectible debt is a fact of life for the industry. Uninsured or underinsured hospital or emergency room patients can face large bills for their services.

That business reality isn’t likely to change soon. Nearly 44% of people under 65 with private insurance had a high-deductible health plan in 2017, according to data from the Centers for Disease Control and Prevention. At the start of the decade, that figure was closer to 25%.

And while the change to accounting rules doesn’t impact what companies ultimately report as sales or cash flow, these valuation reserves have provided investors with useful information.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on June 1, 2018

China Set to Approve Qualcomm-NXP Deal, a Sign of Easing Trade Tensions

By Yoko Kubota and Lingling Wei | May 29, 2018

TOPICS: Antitrust, business combinations

SUMMARY: "Chinese authorities are set to approve Qualcomm's planned $44 billion acquisition of NXP Semiconductors in the next few days, in what would be a significant step toward easing U.S.-China trade relations." China's State Administration for Market Regulation has been conducting the antitrust review; this review follows approval by eight other major worldwide antitrust regulators. Two related articles previously have been covered in this review. They address the initial announcement of this business combination and the international tax strategy used by Qualcomm for the acquisition.

CLASSROOM APPLICATION: The article may be used to discuss regulation of business combinations in an international setting.

QUESTIONS: 

 

1. (Advanced) What is the strategic reason for Qualcomm's acquisition of Netherlands-based NXP Semiconductors NV?

 

2. (Introductory) How many international market regulators have reviewed the planned Qualcomm-NXP business combination?

 

3. (Advanced) Why must these companies submit to these international reviews? Glean the answer you can from the main and related articles.

READ THE ARTICLE



 

RELATED ARTICLES: 
Qualcomm Makes $39 Billion Bet on Car
by Don Clark and Tim Higgins
Oct 28, 2016
Page: B1

Qualcomm Creating Subsidiary to Avoid NXP Tax Hit
by Vipal Monga
Oct 27, 2016
Page: ##

Reviewed By: Judy Beckman, University of Rhode Island

 

"China Set to Approve Qualcomm-NXP Deal, a Sign of Easing Trade Tensions," by Yoko Kubota and Lingling Wei, The Wall Street Journal, May 29, 2018 ---
https://www.wsj.com/articles/china-set-to-approve-qualcomm-purchase-of-nxp-semiconductors-1527333552?mod=djem_jiewr_AC_domainid

Chinese regulators have expressed concerns that the merged company would crowd out domestic businesses in areas such as mobile payments

Chinese authorities are set to approve Qualcomm Inc.’s QCOM 0.84% planned $44 billion acquisition of Netherlands-based NXP Semiconductors NV in the next few days, according to people familiar with the matter, in what would be another significant step toward easing frayed U.S.-China trade relations.

China’s State Administration for Market Regulation, which has been conducting the antitrust review, will hold a meeting on the matter Monday, according to the people. They said a contingent of Qualcomm’s legal team arrived in Beijing this weekend to hammer out final details.

Approval would remove the last hurdle for a deal that has been stuck for months amid U.S.-China trade tensions, but one of the people said it could come with conditions. Chinese regulators have expressed concerns that the merged company would crowd out domestic businesses in areas such as mobile payments. NXP offers technology and services used for mobile payments.

The likely approval comes as the Trump administration is battling Congress to roll back penalties on Chinese telecommunications giant ZTE Corp., and as U.S. Commerce Secretary Wilbur Ross prepares to lead an interagency delegation to Beijing starting June 2, where he is set to meet China’s chief economic envoy, Liu He.

The acquisition of NXP is considered critical for San Diego-based Qualcomm, which is dominant in smartphone chips but is looking for growth in other areas. Among NXP’s products are chips for automobiles, a rapidly expanding sector as more technology is packed into cars.

Qualcomm had been waiting for Beijing’s approval to proceed with the purchase of the Dutch company, having secured permission from the eight other major antitrust regulators around the world.

A spokesman for China’s Commerce Ministry said last month that the agency had conducted a preliminary review of the Qualcomm deal’s impact on competitors and the market, and had found “issues that are hard to resolve, making it difficult to eliminate the negative impact.”

The State Administration for Market Regulation couldn’t be reached immediately for comment.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on June 1, 2018

Juries Weigh Cases Over Alleged Harms of Johnson & Johnson Baby Powder

By Sara Randazzo | May 29, 2018

TOPICS: Contingent Liabilities, Litigation

SUMMARY: The article describes the myriad personal injury lawsuits against Johnson & Johnson and their divergent outcomes in different court systems. Questions link to Johnson & Johnson's disclosures about their legal proceedings in the first quarter 2018 10-Q report. The Johnson & Johnson disclosure related to the lawsuits for damages from use of baby powder is available from the SEC EDGAR filing at https://www.sec.gov/cgi-bin/viewer?action=view&cik=200406&accession_number=0000200406-18-000019&xbrl_type=v# Click on Legal Proceedings and scroll down the page. NOTE TO INSTRUCTORS: DELETE THE FOLLOWING STATEMENTS BEFORE DISTRIBUTION TO STUDENTS. The disclosures demonstrate that defense costs are apparently estimable and therefore constitute at least a minimum accrual that must be made. The disclosure states, "Claims for personal injury have been made against Johnson & Johnson Consumer Inc. and Johnson & Johnson arising out of the use of body powders containing talc, primarily JOHNSONS® Baby Powder. The number of pending product liability lawsuits continues to increase, and the Company continues to receive information with respect to potential costs and the anticipated number of cases. Lawsuits have been primarily filed in state courts in Missouri, New Jersey and California. Cases filed in federal courts in the United States have been organized as a multi-district litigation in the United States District Court for the District of New Jersey. The Company has established an accrual for defense costs only in connection with product liability litigation associated with body powders containing talc."

CLASSROOM APPLICATION: The article may be used to discuss accrual of contingent legal liability in a financial reporting class.

QUESTIONS: 

 

1. (Introductory) What have been the results of court litigation against Johnson & Johnson regarding "alleged dangers in its signature baby powder"?

 

2. (Advanced) What is the accounting implication of these numerous cases? Specifically describe the accounting required for contingent liabilities.

 

3. (Advanced) Access the Johnson & Johnson filing for the quarter ended April 1, 2018, on the SEC EDGAR database at https://www.sec.gov/cgi-bin/viewer?action=view&cik=200406&accession_number=0000200406-18-000019&xbrl_type=v# Click on Notes to Financial Statements, then Legal Proceedings. Scroll down under Product Liability to find the discussion of "claims for personal injury...arising out of the use of body powders containing talc, primarily JOHNSONS® Baby Powder." What estimate has been used to comply with accounting requirements for this litigation?

 

4. (Advanced) Refer to your answer to question 3 above. Do you think this estimate is sufficient? Explain.

READ THE ARTICLE



 

Reviewed By: Judy Beckman, University of Rhode Island

 

"Juries Weigh Cases Over Alleged Harms of Johnson & Johnson Baby Powder," by Sara Randazzo, The Wall Street Journal, May 29, 2018 ---
https://www.wsj.com/articles/johnson-johnson-gets-different-verdicts-in-baby-powder-cases-1527513840?mod=djem_jiewr_AC_domainid&tesla=y

Mesothelioma cases represent a growing share of the more than 9,000 claims Johnson & Johnson faces over its talcum powder

In the battle between Johnson & Johnson JNJ 1.37% and plaintiffs’ lawyers over alleged dangers in its signature baby powder, juries cut both ways last week.

A trial in South Carolina over whether Johnson’s Baby Powder caused a young woman’s mesothelioma ended in a hung jury Friday, days after a California jury awarded a woman $25.75 million in a similar case.

Johnson & Johnson has lost two of four trials since November claiming inhalation of its talcum-based baby powder is to blame for plaintiffs’ mesothelioma, the deadly cancer tied to asbestos exposure.

The mesothelioma cases represent a growing share of the more than 9,000 claims Johnson & Johnson faces over its talcum powder. Most allege the powder caused ovarian cancer in women who regularly used the product for feminine hygiene.

The new trials come months after Johnson & Johnson notched a few wins in ovarian-cancer cases, including persuading judges to toss a $72 million verdict in Missouri and $417 million verdict in California.

In the mesothelioma cases, plaintiffs claim the talcum used in Johnson & Johnson’s powder is intermingled with asbestos, a known carcinogen, and that the company has known about the danger for decades. Johnson & Johnson asserts its powder has always been safe and asbestos-free.

A jury in Los Angeles Superior Court returned a $25.75 million verdict last week in a case brought on behalf of Joanne Anderson, a 66-year-old Oregon woman who has been fighting pleural mesothelioma, a cancer in the lining of the lungs. Of the $21.7 million in compensatory damages, the jury assigned 67% of the blame to Johnson & Johnson.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on June 1, 2018

Companies Look to Libor for Debt Savings as Rates Rise

By Ben Eisen and Matt Wirz | May 30, 2018

TOPICS: Collateralized Debt Obligations, Debt

SUMMARY: The article discusses trends in the LIBOR benchmark rates for one month versus three months. Companies are saving interest costs by contracting to tie variable-rate debt to the one-month rate that has been rising much more slowly than has the rate on three-month U.S. dollar LIBOR. "The shift among benchmarks may hold clues for how companies adjust to another change coming to the short-term rates market: Regulators are encouraging Wall Street to reduce its reliance on Libor altogether, and instead peg loans and derivatives to a new rate that the Federal Reserve Bank of New York began publishing earlier this year. 'The experience we're having with one-month and three-month Libor today is something we're trying to take lessons from to apply in the future," said Meredith Coffey, head of regulatory matters and collateralized loans for the Loan Syndications and Trading Association, a trade group for the corporate-loan market."

CLASSROOM APPLICATION: The article may be used when discussing short-term liabilities, including commercial paper and lines of credit, or long-term debt.

QUESTIONS: 

 

1. (Advanced) Define the terms commercial paper and lines of credit. State your source for these definitions.

 

2. (Advanced) Define the terms fixed-rate debt and variable-rate debt. Which type of debt is discussed in this article?

 

3. (Introductory) What does LIBOR stand for? What is the reason for differing LIBOR rates discussed in the article?

 

4. (Introductory) Consider the case of U.S. Silica Holdings, Inc. How much interest savings will the company generate by choosing one of these two LIBOR rates to determine its interest rate?

 

5. (Advanced) Is U.S. Silica issuing commercial paper, a line of credit, or some other type of liability? Explain your answer.

 

6. (Advanced) Refer to the graphic depicting the "share of loans held in collateralized loan obligations that are tied to each Libor benchmark." What are collateralized loan obligations? How does examining the interest rates on loans in these portfolios provide information for this article?

READ THE ARTICLE



 

Reviewed By: Judy Beckman, University of Rhode Island

"Companies Look to Libor for Debt Savings as Rates Rise," by Ben Eisen and Matt Wirz, The Wall Street Journal, May 30, 2018 ---
https://www.wsj.com/articles/companies-look-to-libor-for-debt-savings-as-rates-rise-1527508801?mod=djem_jiewr_AC_domainid

Some companies are tying floating-rate debt payments to slower-rising benchmarks

Companies are making a mad dash to save money in the debt markets as rising short-term interest rates increase their borrowing costs.

One place that’s increasingly apparent is the market for corporate loans, where companies that can are tying their floating-rate debt payments to benchmarks that are rising at a slower pace.

The rejiggering among companies comes as rates have climbed this year, spurred by increases from the Federal Reserve, expectations for a pickup in inflation and an increase in government debt sales to fund last year’s tax-cut package.

The rate at which banks lend to each other for three months has been rising much faster than the rate at which they lend for one month, pushing the gap in April between the two to its widest since 2009. The three-month U.S. dollar London interbank offered rate has climbed 0.62 percentage point this year to 2.32%, while the one-month counterpart has climbed a comparably meager 0.41 point to 1.98%.

Accordingly, more than half of junk-rated corporate loans recently had interest payments tied to one-month Libor, up from less than a quarter at the beginning of 2016, according to data tracked by Wells Fargo on about $500 billion of loans. The share of loans tied to three-month Libor has been dwindling.

Among those to tie their debt to one-month Libor is U.S. Silica Holdings Inc., a specialized minerals firm. The company recently completed a $1.3 billion loan to finance an acquisition and expects to link it to one-month Libor when it picks the benchmark at the end of the month. Doing that rather than linking to three-month Libor would save the company $4.7 million in interest expenses over the 12 months that begin in June, assuming rates don’t change over that stretch.

“The finance group is always looking to save money wherever we can and this is a great opportunity to do that,” said Don Merrill, chief financial officer at U.S. Silica.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on June 1, 2018

Accounting Watchdog's Enforcement Chief, Claudius Modesti, to Leave

By Michael Rapoport | May 30, 2018

TOPICS: PCAOB

SUMMARY: "The enforcement director of the board that oversees U.S. audit firms is stepping down, the latest in a string of longtime senior staff members to leave the regulator as a new chairman and board members mull potential changes in its direction."

CLASSROOM APPLICATION: The article may be used when discussing the role of the PCAOB in an auditing class.

QUESTIONS: 

 

1. (Advanced) What is the Public Company Accounting Oversight Board (PCAOB)? When was the PCAOB created?

 

2. (Introductory) How long has its departing enforcement director, Claudiu Modesti, been with the PCAOB?

 

3. (Introductory) What other key staff members have left the organization?

 

4. (Advanced) What do these changes signal for the PCAOB organization? What do they signal for practicing auditors?

READ THE ARTICLE



 

Reviewed By: Judy Beckman, University of Rhode Island

 

"Accounting Watchdog's Enforcement Chief, Claudius Modesti, to Leave," by Michael Rapoport, The Wall Street Journal, May 30, 2018 ---
https://www.wsj.com/articles/accounting-watchdogs-enforcement-chief-claudius-modesti-to-leave-1527622057?mod=djem_jiewr_AC_domainid&tesla=y

Several senior PCAOB officials are exiting as new chairman, board weigh changes

The enforcement director of the board that oversees U.S. audit firms is stepping down, the latest in a string of longtime senior staff members to leave the regulator as a new chairman and board members mull potential changes in its direction.

The Public Company Accounting Oversight Board said Tuesday that Claudius Modesti, its director of enforcement and investigations, will exit this month after 14 years.

Mr. Modesti’s announced departure follows those from other staff, including the board’s chief auditor and its head of inspections. Last month, the PCAOB said it would take a fresh look at its organization and direction. Chairman William Duhnke and the other four board members are all new to the PCAOB, which was founded 15 years ago to make sure auditors conduct rigorous, impartial audits of public companies.

In a speech earlier this month, Mr. Duhnke said the board would look at whether the design of its programs still meets its needs, and that “substantial opportunities exist for us to improve our policy making and our external engagement.”

In particular, he signaled the board was discussing possible changes to its process for inspecting audit firms to gauge the quality of their audits. Among the ideas being considered, he said: tailoring inspections more to the circumstances of individual audit firms, and focusing inspections more on broad issues across audit firms.

In addition to Mr. Modesti, other departures from the PCAOB announced recently include Martin Baumann, the board’s chief auditor, who heads its development of the standards that audit firms must follow; Helen Munter,  its director of registration and inspections; Gordon Seymour, its general counsel; and Nirav Kapadia, its information technology director.

Mr. Modesti said in a statement that it had been “the greatest honor and privilege of my professional career to be a part of the PCAOB.”

A PCAOB spokeswoman said the board is “evaluating its accomplishments, operations and future strategic direction.” The board “appreciates the many contributions of our dedicated staff and their support of the current and prior boards.” Acting directors are running the departing staff members’ divisions until new permanent directors are appointed.

Accounting-industry observers have been watching to see whether Mr. Duhnke, who took office in January, will follow a different direction from his predecessor, James Doty, who had chaired the PCAOB since 2011. During his tenure, Mr. Doty emphasized efforts to require auditors to disclose more information to investors, and he sometimes faced pushback from the Big Four audit firms and from staff members at the Securities and Exchange Commission, which oversees the PCAOB.


Teaching Case From The Wall Street Journal Weekly Accounting Review on June 8, 2018

Treasury Works to Address Concerns Over Taxes on Overseas Earnings

By Richard Rubin | Jun 04, 2018

TOPICS: Corporate Taxation, International Taxation

SUMMARY: The Treasury Department has held over 200 meetings with corporations as it develops regulations to implement the 2017 tax law. "The U.S. Treasury Department will give multinational corporations some but not all of what they want in closely watched international-tax regulations needed to implement the 2017 tax law, a senior Treasury official said Monday."

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

QUESTIONS: 

 

1. (Introductory) What is the GILTI tax provision?

 

2. (Advanced) Describe how the Treasury Department is impacting the way that the 2017 tax law affects U.S. multi-national corporations. (Hint: comment on the implementation of regulations by U.S. Federal agencies.)

 

3. (Advanced) The 2017 tax law change reduced corporate tax rates from 35% to 21% "and, at least superficially, removed taxes on U.S. companies' foreign profits." Then why have Treasury Department officials met with companies over 200 times "to iron out wrinkles" caused by the law?

READ THE ARTICLE



 

Reviewed By: Judy Beckman, University of Rhode Island

 

 

"Treasury Works to Address Concerns Over Taxes on Overseas Earnings," by Richard Rubin, The Wall Street Journal, June 4, 2018
https://www.wsj.com/articles/treasury-works-to-address-concerns-over-taxes-on-overseas-earnings-1528150365?mod=djem_jiewr_AC_domainid

Proposed rules meant to prevent corporate disadvantages while also avoiding the opening up of new tax-reduction strategies

WASHINGTON—The U.S. Treasury Department will give multinational corporations some but not all of what they want in closely watched international-tax regulations needed to implement the 2017 tax law, a senior Treasury official said Monday.

The proposed rules, expected by year’s end, will attempt to balance concerns that U.S.-based companies operating overseas subsidiaries will be at a tax disadvantage, with the need to avoid opening up new tax-reduction strategies.

“It will not be a thing of conceptual beauty,” said Chip Harter, deputy assistant secretary for international tax affairs. “We will not make anyone completely happy.”

Treasury officials have been meeting with companies to iron out wrinkles caused by the 2017 law, Mr. Harter told a conference sponsored by the Organization for Economic Cooperation and Development and the U.S. Council for International Business. He said that he has attended at least 200 of those meetings and that they are getting repetitive, which he described as a sign that government officials have identified the main concerns.

They have also turned up arcane questions, he said, including whether live chickens in Peru are equivalent to cash because liquid markets exist for them. Foreign cash and cash equivalents are subject to a higher one-time tax rate than illiquid assets are.

The 2017 tax law cut the U.S. corporate tax rate to 21% from 35% and, at least superficially, removed taxes on U.S. companies’ foreign profits. But the law also created new rules to prevent companies from putting profits abroad. Those include a minimum tax of 10.5% known as GILTI, or Global Intangible Low-Taxed Income. Lawmakers described that tax as having a ceiling of 13.125%.

Some companies, including Kansas City Southern and Euronet Worldwide Inc., have warned that their actual tax rates could be much higher because of a quirk in the provision that hits companies with operations in high-tax countries like Mexico, Germany and Japan.

When companies calculate the credits they receive for paying taxes overseas, the law typically requires them to assign some domestic expenses to foreign jurisdictions. The result for some companies is that, for U.S. tax purposes, their foreign income and foreign taxes look smaller than they actually are, shrinking their credits. That, in turn, could force them to pay the new minimum tax on top of foreign tax bills that already exceed 13.125%.

Because the GILTI provision was layered on top of older tax laws, it operates like “a truck built on a car chassis,” said Michael Graetz, a Columbia Law School professor and former Treasury official who also spoke at the conference.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on June 8, 2018

Food Companies Can't Figure Out What Americans Want to Eat

By Aaron Back | Jun 06, 2018

TOPICS: Segment Reporting

SUMMARY: The classic consumer foods companies ConAgra Foods, Kellogg, J.M. Smucker, General Mills, Kraft Heinz, and Campbell Soup are facing flat or declining sales. Their share prices have fallen 10% to 30% over the past year while the S&P 500 has grown 10%. Patterns of sales in food stores reflect these trends: their fresh foods and meats departments exhibit unit sales growth while the "center of the store" packaged product sales are declining "according to research firm Nielsen."

CLASSROOM APPLICATION: Questions focus on segment disclosures by grocery stores and how the analysis in this article relies on such disclosures. NOTE TO INSTRUCTORS: DELETE THE FOLLOWING INFORMATION BEFORE DISTRIBUTING TO STUDENTS. Disclosures by The Kroger Co. and Whole Foods Market, Inc., prior to its acquisition by Amazon, indicate that they operate with only one reportable segment. Disclosures of packaged food versus fresh food sales, however, are made to comply with disclosure requirements for information by product line and geographic area in accordance with ASC 280-50-38, Entity-Wide Information, which states "Paragraphs 280-10-50-40 through 50-42 apply to all public entities... including those public entities that have a single reportable segment." The following Kroger Co. Segment Disclosures have been obtained from their 2017 Annual Report (p. A-43) available on the company's website at http://ir.kroger.com/Cache/1001237179.PDF?O=PDF&T=&Y=&D=&FID=1001237179&iid=4004136 SEGMENTS We operate supermarkets, multi-department stores, jewelry stores, and convenience stores throughout the United States. Our retail operations, which represent over 97% of our consolidated sales, is our only reportable segment. We aggregate our operating divisions into one reportable segment due to the operating divisions having similar economic characteristics with similar long-term financial performance. In addition, our operating divisions offer customers similar products, have similar distribution methods, operate in similar regulatory environments, purchase the majority of the merchandise for retail sale from similar (and in many cases identical) vendors on a coordinated basis from a centralized location, serve similar types of customers, and are allocated capital from a centralized location. Our operating divisions are organized primarily on a geographical basis so that the operating division management team can be responsive to local needs of the operating division and can execute company strategic plans and initiatives throughout the locations in their operating division. This geographical separation is the primary differentiation between these retail operating divisions. The geographical basis of organization reflects how the business is managed and how our Chief Executive Officer, who acts as our chief operating decision maker, assesses performance internally. All of our operations are domestic. Revenues, profits and losses and total assets are shown in our Consolidated Financial Statements set forth in Item 8 below. The following table presents sales revenue by type of product for 2017, 2016 and 2015. Whole Foods last annual report filing on Form 10-K as an independent company, for the year ended September 24, 2017, occurred on November 17, 2017. The 10-K filing is available on the Securities and Exchange Commission web page at https://www.sec.gov/cgi-bin/viewer?action=view&cik=865436&accession_number=0000865436-17-000238&xbrl_type=v# Click on Notes to Financial Statements, then Description of Business to find disclosures of sales by product line, perishable versus non-perishable foods.

QUESTIONS: 

 

1. (Introductory) Describe the trends in sales of pre-packaged foods versus fresh foods.

 

2. (Advanced) Who is interested in understanding these trends? Name all possible users of this information that you can identify.

 

3. (Advanced) What area of financial reporting requirements leads companies to provide information discussed in this article? Specifically, cite the reporting requirements in the FASB Accounting Standards Codification related to this topic.

 

4. (Advanced) Consider the publicly traded grocery stores The Kroger Company and Whole Foods Markets, Inc. (prior to its acquisition by Amazon). Do the accounting standards you cite apply to these companies? Could disclosures by these two companies help in making the analysis in this article? Explain.

 

5. (Advanced) Access the Whole Foods Markets, Inc. last annual report filing on Form 10-K as an independent company, for the year ended September 24, 2017, which occurred on November 17, 2017. The filing is available on the Securities and Exchange Commission web page at https://www.sec.gov/cgi-bin/viewer?action=view&cik=865436&accession_number=0000865436-17-000238&xbrl_type=v# Click on Notes to Financial Statements, then Description of Business. What information in the disclosure is useful for the analysis in this article?

 

6. (Advanced) Do the accounting standards you cite above require this disclosure by Whole Foods Markets? Explain.

READ THE ARTICLE



 

Reviewed By: Judy Beckman, University of Rhode Island

 

"Food Companies Can't Figure Out What Americans Want to Eat," by Aaron Back, The Wall Street Journal, June 69, 2018
https://www.wsj.com/articles/food-companies-cant-figure-out-what-americans-want-to-eat-1528200000?mod=djem_jiewr_AC_domainid

Industry struggles to keep up with consumers who are shifting to fresh from packaged products while new competitors beat them on price and quality

Food shoppers and investors looking at the packaged food aisles of big grocery stores have reached the same conclusion: There is nothing to buy.

The classic consumer food companies—makers of cereals, snacks, soups and condiments—are no longer the staples of pantries or portfolios. Shares of some are down by a third or more over the past year as strategies to boost sales fail, and consumers embrace fresh food and new brands.

Supermarkets are feeling the same pressure. Last year, unit volume of the packaged products sold in the middle aisles fell by 1.7%, according to research firm Nielsen. The only places where there was unit sales growth of groceries were in the outer aisles: fresh meat, produce, and bakery, according to Nielsen.

That is of little consolation to investors, who can’t easily profit from raising grass-fed beef or growing kale. Comparable sales for 10 big, publicly traded food companies have been flat or declined in three of the last four years, according to analysts at Credit Suisse.


Teaching Case From The Wall Street Journal Weekly Accounting Review on June 8, 2018

Connecticut Wants to Borrow $500 Million. In Return, It Promises Thrift

By Heather Gillers | Jun 06, 2018

 

TOPICS: Debt, Debt Covenants

SUMMARY: Cash-strapped Connecticut "is preparing to issue new debt that requires...[the state to] limit spending, cap future borrowing and funnel excess revenues into a reserve fund." These covenants are unprecedented in a state bond offering according to S&P Global Ratings analysts.

CLASSROOM APPLICATION: The article may be used in a governmental accounting to discuss bond issuance, budget deficits, or the current costs facing governmental entities.

QUESTIONS: 

 

1. (Introductory) Refer to the related graphic entitled "Mind the Gap." Where does the information come from?

 

2. (Advanced) Does Connecticut operate at a deficit? Explain your answer and include the definition of the term "budget deficit" and "fund balance."

 

3. (Introductory) What unprecedented covenants has the state of Connecticut included in its upcoming bond offering?

 

4. (Advanced) What benefit does Connecticut expect to obtain by including these covenants in the bond issuance?

 

5. (Advanced) What are the long-term risks of including these covenants in the bond issuance?

READ THE ARTICLE



 

Reviewed By: Judy Beckman, University of Rhode Island

 

"Connecticut Wants to Borrow $500 Million. In Return, It Promises Thrift," by Heather Gillers, The Wall Street Journal, June 6, 2018
https://www.wsj.com/articles/connecticut-wants-to-borrow-500-million-in-return-it-promises-thrift-1528218521?mod=djem_jiewr_AC_domainid

In rare move in municipal debt world, state pledges to curb spending, cap future borrowing and funnel excess revenues into reserve fund

Connecticut is making a new promise to bondholders in exchange for $500 million: self-discipline.

The cash-strapped U.S. state is preparing to issue new debt that requires Connecticut to limit its spending, cap future borrowing and funnel excess revenues into a reserve fund. The $500 million bond issue priced Tuesday and will be delivered to investors June 20.

It is a rare step in the world of municipal debt. No other state has attached such fiscal austerity measures to an outstanding bond issue, according to analysts at S&P Global Ratings. The restrictions will stay in place for the next five years.

The unusual offer has the potential to lower borrowing costs for Connecticut in the near term and enforce fiscal discipline following a bitter state budget battle in 2017. The covenants helped win enough support to end the stalemate.

But the restrictions could also hamstring the state in the event of a future crisis. The only way to suspend certain covenants is with a three-fifths vote of the legislature and a declaration of fiscal emergency from the governor. The current governor, Dannel Malloy, is scheduled to leave office in January.

“If it goes badly the cost might be really high,” said Kim Rueben, senior fellow at the Urban Institute

Connecticut’s idea reinforces the predicament facing many U.S. states as they struggle to pay for core services like education and infrastructure at a time of soaring costs for debt, retirements and health care.

Pensions, retiree health insurance and Medicaid together consume about one out of every five tax dollars collected by state and local governments. Estimates of how much money they still need to pay for all future pension obligations vary from $1.6 trillion to $4 trillion. In Connecticut that shortfall is $34.8 billion, according to S&P.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on June 8, 2018

Airlines Raise Ticket Prices as Fuel Costs Surge

By Doug Cameron and Alison Sider | Jun 07, 2018

TOPICS: Cost Management

SUMMARY: "Average domestic airline fares have fallen in each of the past four years, according to trade group Airlines For America, as carriers handed back most of the fall in fuel prices back to passengers. Now, higher fuel costs have forced carriers to decide how much can be passed on directly to domestic fliers through higher fares or via surcharges on international flights, without deterring too many travelers....Some savvy travelers are looking to circumvent surcharges when paying for tickets with frequent-flier points. Airline policies on adding taxes and surcharges to reward flights vary widely."

CLASSROOM APPLICATION: The article may be used in a managerial accounting class discussing pricing, profitability, and cost-management.

QUESTIONS: 

 

1. (Introductory) What has happened to jet fuel prices in the past year? How are those jet fuel prices impacting airline profits?

 

2. (Advanced) Why will it require a lag period for airlines to pass the cost of jet fuel onto its customers and thereby maintain profits?

 

3. (Advanced) What trade-off faces airline managements in deciding how to price airline tickets?

 

4. (Advanced) What other strategies do airlines use to offset the impact of rising fuel prices besides increasing base ticket fares?

READ THE ARTICLE



 

Reviewed By: Judy Beckman, University of Rhode Island

 

"Airlines Raise Ticket Prices as Fuel Costs Surge," by Doug Cameron and Alison Sider, The Wall Street Journal, June 7, 2018
https://www.wsj.com/articles/airlines-raise-ticket-prices-as-fuel-costs-surge-1528310136?mod=djem_jiewr_AC_domainid

Oil is again the largest expense for most airlines prompting higher domestic fares, surcharges on international flights

Jet-fuel prices have surged more than 50% over the past year, pushing carriers to raise fares and Delta Air Lines Inc. DAL 1.18% to cut its profit expectations.

Delta, the nation’s No. 2 carrier, said Wednesday it could take six to 12 months to recoup the extra fuel costs via pricier tickets.

Fuel is again the single-largest expense for most airlines, accounting for about a quarter of operating costs. The recent run-up in prices echoes the jump seen from 2009 to 2011, which first spawned stand-alone surcharges on many international flights.

Average domestic airline fares have fallen in each of the past four years, according to trade group Airlines for America, as carriers handed most of the fall in fuel prices back to passengers. Now, higher fuel costs have forced carriers to decide how much can be passed on directly to domestic fliers through higher fares or via surcharges on international flights, without deterring too many travelers.

Investors are edgy about the impact of fuel prices on airline profits. Shares of U.S. carriers are down this year on concerns there were too many aircraft being added to fleets chasing too few extra passengers.

Airline shares were mixed Wednesday, with those of Delta, which bought an oil refinery in 2012 to make its fuel costs less volatile, down 1.5%.

“Ultimately we have to be a business that gets paid for the cost of our product,” said Paul Jacobson, Delta’s chief financial officer. “As you get through that lag period, and as we make the adjustments that we need to, we feel confident that we’ll be able to recapture this.”

Other carriers shared the sentiment. “We feel good about our ability to pass through the increase in fuel price,” United Continental Holdings Inc. President Scott Kirby said at an investor event last month. He said strong summer demand is bolstering industry pricing power—with carriers pushing through a succession of small increases of between $2 and $5 per flight on domestic routes—and that will help United recoup about 75% of the higher fuel prices.

 

Airlines have cut their use of fuel hedging to smooth prices compared with the last price spike, though they differ widely in their approach. American Airlines Group Inc. executives have long avoided hedges, while Southwest Airlines Co. , the largest domestic carrier, continues to make wide use of them, which it said offers protection when prices are above $80 a barrel.

That still leaves airlines to absorb some of the higher prices through accepting lower profits or trying to make up the difference by cutting costs.

How airlines will recoup higher fuel costs is the main question being asked by investors, JPMorgan airline analyst Jamie Baker said. Adding surcharges is better for profits than higher base fares, as airlines can more quickly recoup higher fuel prices. “One benefit of fuel surcharges is it’s transparent and highly precise,” he said.

Continued in article


Dodd-Frank Wall Street Reform and Consumer Protection Act --- https://en.wikipedia.org/wiki/Dodd–Frank_Wall_Street_Reform_and_Consumer_Protection_Act

Teaching Case From The Wall Street Journal Weekly Accounting Review on June 15, 2018

SEC Chairman: Most of Dodd-Frank Is Here to Stay

By Gabriel T. Rubin | Jun 11, 2018

TOPICS: Dodd-Frank

SUMMARY: "...[T]he vast majority of the 2010 Dodd-Frank Act isn't going anywhere, Securities and Exchange Commission Chairman Jay Clayton said Monday [, June 11, 2018, while] speaking at The Wall Street Journal's CFO Network annual meeting in Washington...."

CLASSROOM APPLICATION: The article may be used in an accounting or auditing class discussing regulation in general or the Dodd-Frank Act specifically.

QUESTIONS: 

 

1. (Introductory) What is the Dodd-Frank Act?

 

2. (Advanced) What has been the impact of the Dodd-Frank Act on the accounting and auditing profession?

 

3. (Advanced) Refer to the related article. Who is soon to leave the SEC? How could that departure impact the actions that Chairman Jay Clayton plans for the SEC?

READ THE ARTICLE



 

RELATED ARTICLES: 
Republican Piwowar Is Set to Leave SEC
by Dave Michaels
May 08, 2018
Page: ##

Reviewed By: Judy Beckman, University of Rhode Island

 

"SEC Chairman: Most of Dodd-Frank Is Here to Stay," by Gabriel T. Rubin, The Wall Street Journal, June 11, 2018
https://www.wsj.com/articles/sec-chairman-most-of-dodd-frank-is-here-to-stay-1528763313?mod=djem_jiewr_AC_domainid

Rule changes will be around the edges, Jay Clayton says, singling out clearinghouses as one area of concern

WASHINGTON—Postcrisis rules have created new challenges for Trump-appointed regulators as they look at recalibrating the financial rule book, but the vast majority of the 2010 Dodd-Frank Act isn’t going anywhere, Securities and Exchange Commission Chairman Jay Clayton said Monday.

Speaking at The Wall Street Journal’s CFO Network annual meeting in Washington, Mr. Clayton said that regulators are evaluating how postcrisis rules have performed in practice, and that he had concerns about some of the unintended side effects from some regulations. But any changes will be around the edges, keeping the core of postcrisis overhauls in place, he added.

“I don’t think Dodd-Frank is changing a great deal, just to put a pin in it,” he said.

One area Mr. Clayton singled out for rule changes are clearinghouses, which act as middlemen between the buyers and sellers of financial instruments such as commodities and derivatives. Clearinghouses are seen as a possible threat to financial stability, given how rapidly they have grown since Dodd-Frank mandated the routing of more transactions through them.

He didn’t offer any potential suggestions as to how to deal with supersized clearinghouses, also known as central counterparties, but said they are a common topic of discussion when international regulators list potential risks to financial stability.

“A problem at a CCP is something that keeps them up at night,” Mr. Clayton said.

Senior Trump administration officials have previously voiced concerns about the size of clearinghouses. In October, then-National Economic Council Director Gary Cohn said he worried the entities could be a “new systemic risk” to financial stability.

Still, stress tests have shown that major, systemically important clearinghouses can withstand certain crisis-like situations. Just a day after Mr. Cohn’s comments, a government regulator said its stress tests showed big U.S. clearinghouses could withstand a crisis-triggered liquidity crunch even if two of their major clearing member banks defaulted.

If regulators were to take action on the issue, they would likely follow the lead of Federal Reserve Chairman Jerome Powell, who has encouraged more robust stress tests to make sure clearinghouses can withstand the default of multiple clearing members.


Teaching Case From The Wall Street Journal Weekly Accounting Review on June 15, 2018

Short-Termism is Harming the Economy

By Jamie Dimon and Warren E. Buffett | Jun 07, 2018

TOPICS: Earnings Forecasts, Earnings Management

SUMMARY: In this WSJ Opinion Page piece, Messrs. Dimon and Buffet, "...together with Business Roundtable ...are encouraging all public companies to consider moving away from providing quarterly earnings-per-share guidance." The authors make this recommendation because short-term guidance "often leads to an unhealthy focus on short-term profits at the expense of long-term strategy, growth and sustainability." The authors go on to discuss the status of publicly traded companies in the U.S. as accounting for "only about 4,300 of America's 28 million businesses," but "responsible for a third of all private-sector employment and half of all business capital spending."

CLASSROOM APPLICATION: The article may be used in any financial accounting class to discuss periodic reporting.

QUESTIONS: 

 

1. (Advanced) Who are Jamie Dimon and Warren E. Buffet?

 

2. (Introductory) What are these two men recommending? For whom are they speaking in making this recommendation?

 

3. (Advanced) What reason(s) do these authors cite for this recommendation?

 

4. (Advanced) What expenditure type(s) do the authors say companies hold back in order to meet quarterly earnings forecasts, results that may be influenced by factors beyond managers' control?

READ THE ARTICLE



 

RELATED ARTICLES: 
Buffett, Dimon Team Up to Curb 'Unhealthy Focus' on Quarterly Earnings
by Michael Rapoport
Jun 07, 2018
Page: ##

Reviewed By: Judy Beckman, University of Rhode Island

 

"Short-Termism is Harming the Economy," by Jamie Dimon and Warren E. Buffett , The Wall Street Journal, June 7, 2018
https://www.wsj.com/articles/short-termism-is-harming-the-economy-1528336801?mod=djem_jiewr_AC_domainid

Public companies should reduce or eliminate the practice of estimating quarterly earnings.

Every generation of Americans has a responsibility to leave behind a stronger, more prosperous society than the one it found. The nation’s greatest achievements have always derived from long-term investments. In both national policy and business, effective long-term strategy drives economic growth and job creation.

For public companies, these same principles are true. That’s why today, together with Business Roundtable, an association of nearly 200 chief executive officers from major U.S. companies, we are encouraging all public companies to consider moving away from providing quarterly earnings-per-share guidance. In our experience, quarterly earnings guidance often leads to an unhealthy focus on short-term profits at the expense of long-term strategy, growth and sustainability.

Because well-managed and well-governed businesses are the engine of the U.S. economy, good corporate governance is imperative. Though publicly owned companies account for only about 4,300 of America’s 28 million businesses, they are responsible for a third of all private-sector employment and half of all business capital spending. America’s public companies drive job creation, opportunity and economic growth.

This announcement today builds on the Commonsense Corporate Governance Principles that business leaders developed in 2016. These principles acknowledge that the financial markets have become too focused on the short term. Quarterly earnings-per-share guidance is a major driver of this trend and contributes to a shift away from long-term investments. Companies frequently hold back on technology spending, hiring, and research and development to meet quarterly earnings forecasts that may be affected by factors outside the company’s control, such as commodity-price fluctuations, stock-market volatility and even the weather.

The pressure to meet short-term earnings estimates has contributed to the decline in the number of public companies in America over the past two decades. Short-term-oriented capital markets have discouraged companies with a longer term view from going public at all, depriving the economy of innovation and opportunity. Fewer public companies has also meant fewer opportunities for retail investors to create wealth through their 401ks and individual retirement accounts.

Even as the overall number of public companies declines, more than 100 million Americans invest in them directly or through mutual funds. Millions more do so through their participation in corporate, public and union pension plans. Many of these people are veterans, retirees, teachers, nurses, firefighters, and city, state and federal workers. Public companies owe it to all of them to get this right.

Our views on quarterly earnings forecasts should not be misconstrued as opposition to quarterly and annual reporting. Transparency about financial and operating results is an essential aspect of U.S. public markets, and we support being open with shareholders about actual financial and operational metrics. U.S. public companies will continue to provide annual and quarterly reporting that offers a retrospective look at actual performance so that the public, including shareholders and other stakeholders, can reliably assess real progress.

Clear communication of a company’s strategic goals—along with metrics that can be evaluated over time—will always be critical to shareholders. But this information, which may include nonfinancial operational performance, should be provided on a timeline deemed appropriate for the needs of each specific company and its investors, whether annual or otherwise.

Ken Bertsch, executive director of the Council of Institutional Investors, the leading voice for strong shareholder rights, supports this premise: “America’s current and future retirees deserve to know that their savings are being invested based on reliable metrics and accurate reporting. Practices that encourage long-term thinking and investment create value for millions of Americans without sacrificing the transparency and accountability that investors deserve.”

Reducing or even eliminating quarterly earnings guidance won’t, by itself, eliminate all short-term performance pressures that U.S. public companies currently face, but it would be a step in the right direction. Anything America—and America’s public markets—can do to focus on the future and build long-term wealth and opportunity will make the country stronger, more resilient and more competitive. Over the long run this will strengthen the U.S. economy, benefit America’s workers, shareholders and investors, and leave a generational legacy we can be proud of.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on June 15, 2018

Cost-Benefit Reform at the EPA

By WSJ Opinion Page Editors | Jun 07, 2018

TOPICS: Cost Analysis

SUMMARY: Cost-benefit analyses are required of every federal regulation. This opinion-page piece asserts that Obama-era analyses by the Environmental Protection Agency (EPA) included social cost and benefit estimates clearly considered suspect by the WSJ Opinion Page editors. They also state that the EPA thus ignored best practice recommendations by the Office of Management and Budget (OMB).

CLASSROOM APPLICATION: The article may be used whenever discussing cost-benefit analysis to demonstrate the subjective nature of the information required.

QUESTIONS: 

 

1. (Advanced) What is a cost-benefit analysis?

 

2. (Introductory) How is a cost-benefit analysis included as a part of U.S. federal regulations, particularly those set by the Environmental Protection Agency (EPA)?

 

3. (Introductory) What costs were introduced to the EPA's analysis under the Obama Administration?

 

4. (Advanced) Can you imagine a reason for including how domestic EPA regulations could have a global impact? Do you think such analysis could be warranted?

 

5. (Advanced) What is the Office of Management and Budget (OMB)? Hint: you may find their web page at https://www.whitehouse.gov/omb/

 

6. (Advanced) What recommendations does the OMB offer for these cost-benefit analyses?

READ THE ARTICLE



 

Reviewed By: Judy Beckman, University of Rhode Island

 

"Cost-Benefit Reform at the EPA," by WSJ Opinion Page Editors, The Wall Street Journal, June 7, 2018
https://www.wsj.com/articles/cost-benefit-reform-at-the-epa-1528326402?mod=djem_jiewr_AC_domainid

Under Obama, the EPA juked the numbers to justify costly regulation.

Barack Obama’s Environmental Protection Agency jammed through an average of 565 new rules each year during the Obama Presidency, imposing the highest regulatory costs of any agency. It pulled off this regulatory spree in part by gaming cost-benefit analysis to downplay the consequences of its major environmental rules. The Trump Administration has already rolled back some of this overregulation, and now Administrator Scott Pruitt wants to stop the EPA’s numerical shenanigans, too.

On Thursday the EPA will take the first step toward a comprehensive cost-benefit reform by issuing an advance notice of proposed rule-making. After weighing public input, EPA will propose a rule establishing an agency-wide standard for how regulations are assessed. The reform would make it easier for Americans and their elected representatives to see whether more regulation is truly justifiable.

The EPA has a statutory obligation to look at the costs and benefits of many proposed rules. That responsibility has been reinforced by executive orders and court rulings. But while all three branches of government have supported such assessments, they leave the EPA broad discretion. Enter the Obama Administration, which saw the chance to add additional considerations to the cost-benefit equation.

By introducing “social costs” and “social benefits,” the EPA began factoring in speculation about how regulatory inaction would affect everything from rising sea levels to pediatric asthma. EPA optimists even included their guesses about how domestic regulations could have a global impact. Meanwhile, the agency ignored best practices from the Office of Management and Budget, juking the numbers to raise the cost of carbon emissions.

This proved as politically useful as it was scientifically imprecise. Months before introducing the Clean Power Plan, the EPA suddenly raised the social cost of a ton of carbon emissions to an average of $36 from $21. Before it embarked on new oil and gas regulations, the EPA put the social cost of methane at an average of $1,100 per ton.

At White House direction, the Trump EPA recalculated those figures last year to include only demonstrable domestic benefits. The social cost estimates dropped to an average of $5 per ton of carbon and $150 per ton of methane. That made a big difference in the cost-benefit analysis. While the Obama Administration claimed the Clean Power Plan would yield up to $43 billion in net benefits by 2030, the Trump EPA concluded it would carry a $13 billion net cost.

Another statistical sleight of hand involves the Mercury and Air Toxics Standards. The regulation’s stated purpose was to reduce mercury pollution, but the EPA added the rule’s potential to decrease dust. That was irrelevant to the central question of whether it was worthwhile to regulate mercury as proposed. But without the erroneous co-benefits, EPA would find such regulations tougher to justify.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on June 15, 2018

U.K. Regulator Adopts Rules That May Help Woo Aramco

By Ben Dummett | Jun 09, 2018

TOPICS: Initial Public Offerings

SUMMARY: This very short article discusses the fact that the U.K. regulator "formally adopted rules Friday [June 8, 2018,] that could strengthen the Lonodon Stock Exchange's efforts to woo the listing of energy giant Saudi Arabian Oil Co....The LSE is competing with exchanges in New York and Hong Kong, among others, to secure Aramco's international listing." The related discusses Aramco's plans in more depth and was covered in this review.

CLASSROOM APPLICATION: The article may be used in any course discussing public offerings of shares, particularly internationally, and/or minority shareholders.

QUESTIONS: 

 

1. (Advanced) What is Aramco?

 

2. (Introductory) What action has the U.K. securities regulator taken? Why has the regulator taken this step?

 

3. (Advanced) Define the terms "initial public offering" and "listing" as used in this article.

 

4. (Advanced) How might listing of Aramco on the London Stock Exchange help the U.K. "following its decision to leave the European Union?"

 

5. (Advanced) What are minority shareholders? How are minority shareholders' interests at risk in any entity?

 

6. (Advanced) How are minority shareholder at risk when dealing with a sovereign-owned entity such as Aramco? You may refer to the related article to find out about the size of the minority (noncontrolling) interest being sold by Aramco.

READ THE ARTICLE



 

RELATED ARTICLES: 
Aramco IPO is Still on Track for 2018, Saudi Official Says
by Benoit Faucon
Oct 18, 2017
Page: B16

Reviewed By: Judy Beckman, University of Rhode Island

 

"U.K. Regulator Adopts Rules That May Help Woo Aramco," by Ben Dummett, The Wall Street Journal, June 9, 2018
https://www.wsj.com/articles/saudi-oil-minister-downplays-prospect-of-aramco-abandoning-ipo-1508269060

‘No change’ in plans to publicly list company in 2018, he says

Saudi Arabia still plans to publicly list a portion of its state oil company in 2018, the kingdom’s oil minister said Tuesday, after reports that the effort may be abandoned.

“We are on track,” Saudi oil minister Khalid al-Falih said on Tuesday outside the Oil and Money energy conference in London.

Doubts about the IPO of Saudi Arabian Oil Co., better known as Aramco, have grown in recent days as news organizations including The Wall Street Journal have reported that the kingdom may not go forward with the plan. The Journal reported last week that Aramco was interested in selling a stake to a private investor and that a Chinese company had made an offer.

 

Asked if Saudi Arabia still planned a local listing for Aramco in Riyadh and an international listing, Mr. Falih said, “No change.”

“You will know the venue and the exact date in due course,” said Mr. Falih, who also is Aramco’s chairman.

Prince Mohammad bin Salman, the kingdom’s heir apparent, announced the IPO of up to 5% of Aramco in January 2016 and estimated the company’s value at between $2 trillion and $3 trillion. If that valuation held true, the IPO could fetch over $100 billion—by far the largest ever.

The Journal has reported that the IPO has been delayed by questions over the valuation and difficulty untangling the vast state company from the government.


Teaching Case From The Wall Street Journal Weekly Accounting Review on June 15, 2018

What to Consider Before You Change Your Residence Because of the New Tax Law

By Tom Herman | Jun 11, 2018

TOPICS: Individual Taxation, Tax Audits, Tax Law

SUMMARY: "Among the biggest changes [in the 2017 tax law] is a provision limiting deductions for state and local taxes [SALT]...the changes have created a greater incentive for many taxpayers living in high-tax areas, including New York City, California, New Jersey and Connecticut to consider..." moving to another location. Some individuals, for example, have homes in two locations and are considering spending greater time in another home. Other implications generating tax concerns are that individuals are "thinking about selling a business, or large amounts of securities, in the not-too-distant future." The author cautions that many people think only time spent in each of two locations, for example, determines which serves as a taxpayer's primary domicile. Many factors could be considered; "residency audits-some of the most intrusive audits imaginable-are becoming more and more common...."

CLASSROOM APPLICATION: The article may be used in an individual income tax class discussing itemized deductions, the new tax law, or determination of taxpayer domicile.

QUESTIONS: 

 

1. (Introductory) What is a taxpayer's "domicile"?

 

2. (Advanced) How is this status of taxpayer domicile determined? Why is this determination important?

 

3. (Advanced) What is the state and local tax deduction (also known as SALT)? What are the terms of this deduction in 2017 and prior?

 

4. (Introductory) What about this deduction changed with implementation of the new tax law in 2017?

 

5. (Advanced) How does this tax law change interact with issues related to determining a taxpayers' domicile? In your answer, comment on auditing a taxpayer for domicile.

READ THE ARTICLE



 

Reviewed By: Judy Beckman, University of Rhode Island

 

"What to Consider Before You Change Your Residence Because of the New Tax Law," by Tom Herman, The Wall Street Journal, June 11, 2018
https://www.wsj.com/articles/what-to-consider-before-you-change-your-residence-because-of-the-new-tax-law-1528682701?mod=djem_jiewr_AC_domainid

Limits on deductions for state and local taxes have created a greater incentive for taxpayers living in high-tax states

For some people, saving taxes under the new law could be a moving experience.

Among the biggest changes is a provision limiting deductions for state and local taxes to $10,000 a year ($5,000 for a married person filing a separate return), starting this year and scheduled to expire at the end of 2025. Also, the standard deduction amounts rose sharply.

These changes have created a greater incentive for many taxpayers living in high-tax areas, including New York City, California, New Jersey and Connecticut, to consider becoming tax refugees. This includes upper-income taxpayers who have more than one home and want to claim a home in a lower-tax area as the one that counts for tax purposes. It also includes some taxpayers who are considering fleeing entirely from a high-tax area.

Moving for tax reasons isn’t new. But the new law “has unquestionably led increasing numbers of people to consider moving,” says Kerry O’Rourke Perri, a partner in the private-clients group at the law firm White & Case LLP. That’s especially so among taxpayers in high-tax areas thinking about selling a business, or large amounts of securities, in the not-too-distant future.

“There’s a real interest in this topic because of the new federal legislation. We have clients where the tax savings run in the millions,” says Mark S. Klein, chairman of Hodgson Russ LLP, and a co-author of the 2018 edition of “New York Residency and Allocation Audit Handbook.”

Warning: This isn’t as simple as it may sound. What may seem like a clear-cut change in your home for tax purposes may strike state tax auditors as a tax dodge. Rules and audit policies can vary by state, and many misconceptions have sprung up, says Sidney Kess, senior consultant at Citrin Cooperman and of counsel to Kostelanetz & Fink.

Here are a few thoughts and recommendations from lawyers and other tax professionals:

New limits: Some people assume the new $10,000 limit applies to each taxpayer, which would be $20,000 for married couples filing jointly. Wrong. The cap is $10,000 whether you’re single or if you’re filing a joint return ($5,000 if married and filing separately), says Mark Luscombe, principal analyst at Wolters Kluwer Tax & Accounting.

 

IRS pushback: Some states have taken legislative action, or are considering steps, designed to combat the impact of the new limits. But the Treasury Department and Internal Revenue Service plan to propose regulations likely to be a powerful counterattack. “Despite these state efforts to circumvent the new statutory limitation on state and local tax deductions, taxpayers should be mindful that federal law controls the proper characterization of payments for federal income tax purposes,” the IRS said recently.

Key factors in New York: Lawyers say clients often assume the only thing that matters is how much time they spend in a high-tax state. That’s typically very important but not the only factor in at least several states, such as New York and California.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on June 22, 2018

Executives Fear Trade Conflicts Could Dent Economic Growth

By Ezequiel Minaya, Tatyana Shumsky, and Nina Trentmann | Jun 17, 2018

TOPICS: CFO, Chief Financial Officer, Managerial Accounting

SUMMARY: "Corporate finance leaders...[say they see] an increasingly cloudy long-term economic outlook play[ing] out against the backdrop of trade spats and geopolitical risk." Global growth this year is expected to come out at 3.9% but "the IMF warns that the boost from the U.S. tax cuts will fade beginning in 2019 [and]...economists surveyed by The Wall Street Journal worry that a recession could begin in 2020.... Some CFOs say a downturn appears overdue, amid signs of tightening credit and labor markets." The article quotes one CFO, Donald Allen of Stanley Black & Decker that he spends at least 40% of his time on contingency planning, consulting a a variety of external experts.

CLASSROOM APPLICATION: The article may be used to discuss the variety of issues address by CFOs and, as a consequence, their corporate finance staffs, particularly in a managerial accounting class.

QUESTIONS: 

 

1. (Introductory) What proportion of his time does the CFO for toolmaker Stanley Black &Decker spend on contingency planning?

 

2. (Advanced) What activities make up the task of "contingency planning"?

 

3. (Advanced) Consider your learning in the academic disciplines comprising an accounting and/or business degree. From which disciplines are you learning to understand the contingency planning issues discussed in this article?

 

4. (Advanced) What is free cash flow? How does the uncertainty describe in this article relate to the need for a company to have available free cash flow?

READ THE ARTICLE



 

Reviewed By: Judy Beckman, University of Rhode Island

 

"Executives Fear Trade Conflicts Could Dent Economic Growth By Ezequiel Minaya, Tatyana Shumsky, and Nina Trentmann, The Wall Street Journal, June 17, 2018
https://www.wsj.com/articles/executives-fear-trade-conflicts-could-dent-economic-growth-1529227800?mod=djem_jiewr_AC_domainid

Uncertainty over tariffs and tightening credit and labor markets could offset boosts from the U.S. tax overhaul

Corporate finance leaders are worried that the good times won’t last as an increasingly cloudy long-term economic outlook plays out against the backdrop of trade spats and geopolitical risk.

The passage of the U.S. tax overhaul eliminated significant uncertainty and strengthened earnings for many companies. Economic data from Washington to Beijing has been strong as global growth is estimated to climb to 3.9% this year, according to the International Monetary Fund. Capital spending by companies in the S&P 500 rose about 24% to $166 billion during the first three months of the year compared with 2017, according to Credit Suisse Group AG data.

“That’s a very business friendly environment to be operating in, better than in the recent past,” said John Shrewsberry, Wells Fargo WFC -0.79% & Co.’s finance chief.

Longer-term forecasts are less optimistic. The IMF warns that the boost from the U.S. tax cuts will fade beginning in 2019. Economists surveyed by The Wall Street Journal worry that a recession could begin in 2020 as the Federal Reserve raises interest rates.

 

Some CFOs say a downturn appears overdue, amid signs of tightening credit and labor markets. And the specters of trade tensions and political turmoil from Mexico to London to Washington are haunting even the rosiest of company outlooks.

The widely cited Global Economic Policy Uncertainty Index surged 64% between January and May, reaching its highest level in a year even as the capital spending boom got under way.

Nick Bloom, an economics professor at Stanford University and an author of the index, attributed the surge to U.S. President Donald Trump’s tougher stance on trade, saying the leader “means business in introducing tariffs and pulling away” from the Group of Seven industrialized nations.

The White House is levying tariffs on tens of billions of dollars of Chinese goods starting in July, a move that is likely to spark retaliation from China. The Trump administration also is seeking to rewrite the North American Free Trade Agreement with Canada and Mexico.

The trade conflicts have given businesses pause, said Mark Zandi, chief economist at Moody’s Analytics. He said companies are clearly increasing capital outlays, but he believes the investment growth would be greater without the trade tensions.

“I think that it is having an impact on investment decisions and hiring decisions,” Mr. Zandi said. “Businesses are not pulling back. But they are not fully engaging. Investment spending growth is good. But I think it would be even stronger if not for this cloud created by these trade tensions.”

The uncertainty surrounding tariffs and trade both in the U.S. and globally has forced Donald Allan, chief financial officer at tool maker Stanley Black & Decker Inc., SWK 1.05% to double the amount of time he spends on contingency planning.

“I’m spending at least 40% of my time on that type of stuff, if not more,” Mr. Allan said, adding that he frequently consults a variety of external experts from investment bankers to lobbyists to industry associations to get a range of perspectives.

The goal is to make sure “that we’re effectively managing all of the risks but also making sure that we’re not overreacting,” Mr. Allan said.

For Verizon Communications Inc., VZ 2.32% the concern tied to trade friction was any possible impact it could have on the company’s supply chain, said CFO Matthew Ellis. The scope of any disruption is likely to be limited as the telecommunications giant is focused on the U.S., though the company imports some networking equipment from overseas.

“You do your best to make sure you have contingency plans,” he said. “You think through, ‘Am I solely reliant on one particular supplier, one outcome?’”

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on June 22, 2018

The Bull Market's Next Test: Slower Earnings Growth

By Akane Otani | Jun 18, 2018

TOPICS: Analysts' Forecasts, Financial Statement Analysis, Profitability

SUMMARY: "...[M]any analysts say the first quarter [of 2018] could represent a peak in [U.S. corporate] profit growth ["when U.S. corporations increased their earnings at 25%, the fastest pace since the second half of 2010"]. Earnings growth is expected at 19% in the second quarter, 21% in the third and 17% in the fourth...Earnings are expected to grow only in the single- to low-double-digit range next year." Historical trends indicate that stock market rallies fizzle after earnings growth peaks and growth turns negative; but in cases in which earnings growth peaks and then continues positive at a slower pace, stock markets have continued to grow.

CLASSROOM APPLICATION: The article may be used to discuss price-earnings ratios or the relationship between corporate earnings and stock prices.

QUESTIONS: 

 

1. (Advanced) What does the author mean when writing that accelerating earnings growth has kept "share valuations from getting too stretched as [stock] prices rose"? Hint: in your answer, define the price-earnings ratio and explain how it is used to assess corporate stock valuations.

 

2. (Introductory) What factors have led to the rising earnings growth in recent quarters?

 

3. (Introductory) What is the expected future rate of growth in corporate earnings?

 

4. (Advanced) Who is making these projections about corporate earnings-the companies themselves or someone else? Explain your answer.

READ THE ARTICLE



 

Reviewed By: Judy Beckman, University of Rhode Island

 

"The Bull Market's Next Test: Slower Earnings Growth," by Akane Otani, The Wall Street Journal, June 18, 2018
https://www.wsj.com/articles/the-bull-markets-next-test-slower-earnings-growth-1529236800?mod=djem_jiewr_AC_domainid

Corporate earnings expanded 25% in the first quarter, a new high and a possible peak for growth

U.S. corporate earnings growth looks poised to slow from a blistering pace, posing a potential new challenge to a long bull market that is already contending with slower global-growth momentum and rising interest rates.

Earnings growth has accelerated in recent quarters, helping drive major U.S. stock indexes to new highs and keeping share valuations from getting too stretched as prices rose. That expansion reached a new high in the first quarter, when U.S. corporations grew their earnings at 25%, the fastest pace since the second half of 2010, according to FactSet.

Now, many analysts say the first quarter could represent a peak in profit growth. Earnings growth is expected at 19% in the second quarter, 21% in the third and 17% in the fourth, according to FactSet. Earnings are expected to grow only in the single- to low-double-digit range next year.

A peak in earnings growth doesn’t always signal that rallies are about to fizzle, and analysts recognize that earnings growth would inevitably slow following a one-time boost from the federal tax overhaul. Moreover, not all analysts are convinced that profit growth has to slide. With the U.S. economy showing renewed signs of strength and consumer and small-business confidence riding high, some analysts say earnings growth can remain near the current lofty levels.

But a steep drop off in earnings growth in the months ahead would come at an inopportune time. After a nine-year bull run, stock prices reflect a rosy outlook that is already showing signs of fading on a number of fronts. The global growth momentum that powered stocks higher at the end of last year is slowing in Europe and other major economies. The Federal Reserve indicated on Wednesday it expects to raise interest rates at least four times this year, and the threat of a trade war looms after the U.S. and China announced new tariffs against each other on Friday.

Those and other concerns have deflated the stock market after a big year in 2017. The S&P 500 has risen just 4% this year and has been essentially flat since January. The index has gone 97 trading days since its last all-time high—the longest record drought since the period from May 2015 to July 2016, according to the WSJ Market Data Group. On Friday, the S&P 500 fell 0.1%, while the Dow Jones Industrial Average lost 0.3% and posted its biggest one-week decline since March.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on June 22, 2018

Your Home-Equity Loan May Now Be a Lot More Expensive

By Laura Saunders | Jun 16, 2018

TOPICS: Individual Income Taxation, Tax Law

SUMMARY: Home equity loans and lines of credit (HELOCs) totaled approximately 1.5 million loans (750,000 LOCs) for a total value of approximately $30 billion loans ($160 billion LOCs) in both 2016 and 2017. Many Americans use such loans for any purpose and deduct the interest payments. The 2017 tax law makes several changes affecting the use of such loans. The most significant change is that the law limits the interest deduction to only that amount related to funds used to "buy, build, or substantially improve" the home against which the loan is taken.

CLASSROOM APPLICATION: The article may be used in an individual income tax class.

QUESTIONS: 

 

1. (Advanced) What is a home equity loan? A home equity line of credit?

 

2. (Introductory) For what purposes might a home equity loan or credit line be used? Ignore tax deductibility in this answer.

 

3. (Advanced) Summarize the status of tax deductibility of interest on home equity loans and credit lines prior to the 2017 tax law change.

 

4. (Introductory) How did the 2017 tax law change deductibility of interest on home equity loans and lines of credit?

 

5. (Advanced) Explain your understanding of the phrase "your home as ATM" in the (paper version) title of this article.

READ THE ARTICLE



 

Reviewed By: Judy Beckman, University of Rhode Island

 

"Your Home-Equity Loan May Now Be a Lot More Expensive," by Laura Saunders, The Wall Street Journal, June 16, 2018
https://www.wsj.com/articles/mergers-to-make-at-t-comcast-worlds-most-indebted-companies-1529314201?mod=djem_jiewr_AC_domainid

Media giants could carry a combined $350 billion of bonds and loans

A wave of expected big media mergers would transform AT&T Inc. and Comcast Corp. into the two most indebted companies in the world, a standing that carries uncharted risks for investors in the firms’ bonds.

AT&T has bought Time Warner Inc., and Comcast hopes to purchase most of 21st Century Fox Inc. The companies would carry a combined $350 billion of bonds and loans, according to data from Dealogic and Moody’s Investors Service. The purchases are meant to provide additional income to help the acquirers weather turmoil sweeping their industries. But if the mergers falter, the record debt loads will give AT&T and Comcast little margin for error, fund managers and credit ratings analysts say.

 

“It’s a very big number,” said Mike Collins, a bond fund manager at PGIM Fixed Income, which manages $329 billion of corporate debt investments. “It has fixed-income investors a little nervous and rightfully so.”

The debt-fueled buyouts by AT&T and Comcast are extreme examples of a decadelong surge in corporate borrowing that is stoking investor anxieties about what will happen as the economy slows and global interest rates rise. The ratio of debt to corporate earnings, commonly called leverage, has also risen, giving companies less financial cushion to absorb market shocks.

Global corporate debt excluding financial institutions now stands at $11 trillion, and the median leverage for such companies rated investment grade has jumped 30% since the eve of the financial crisis in 2007, according to Moody’s research. Most companies issue new loans and bonds to repay debt, and investors are concerned about how companies will refinance their record-breaking debt loads when capital markets experience their next significant downturn.

Officials at AT&T and Comcast say the refinancing risk from their postdeal debt would be minimal because they plan to quickly repay much of the debt with cash generated from the combined businesses. AT&T, for example, is expected to produce $8 billion to $10 billion of free cash flow—or cash from operations minus capital spending—that could be applied to debt reduction, analysts say. It is also common for telecom companies to carry high debt because they invest heavily in their networks and their customers provide them with reliable revenue.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on June 22, 2018

21st Century Fox Agrees to Higher Offer From Disney

By Keach Hagey and Erich Schwartzel | Jun 20, 2018

TOPICS: Antitrust, business combinations, Strategy

SUMMARY: The article describes the Disney offer for 21st Century Fox. Disney's offer totals a combined $71.3 billion in cash and stock, a significant increase over Disney's orginal $52.4 billion all stock offer. The related article describes the deal as a horizontal merger if either Comcast or Disney is successful because both potential acquirers, "like Fox, produce television shows and movies...." The related video describes strategic reasons for the significant recent merger and acquisition activity in the media and entertainment industries.

CLASSROOM APPLICATION: The article may be used to discuss strategies behind mergers and acquisitions and regulatory review of such transactions in a class on business combinations.

QUESTIONS: 

 

1. (Introductory) What factor(s) is (are) driving change in the media and entertainment industry?

 

2. (Advanced) Why does the change you describe in answer to question 1 lead to merger and acquisition activity?

 

3. (Introductory) What factor(s) is (are) described in the article as favoring Disney's chances of acquiring Fox over Comcast's chances?

 

4. (Advanced) Define the terms horizontal merger and vertical integration.

 

5. (Advanced) Refer to the related article. Into which category of business combinations does the proposed acquisition of 21st Century Fox-by either Disney or Comcast--fit?

READ THE ARTICLE



 

VIEW THE VIDEO



 

RELATED ARTICLES: 
Comcast, Disney Battles Loom
by Erich Schwartzel and Joe Flint
Jun 15, 2018
Page: B1

Reviewed By: Judy Beckman, University of Rhode Island

 

"21st Century Fox Agrees to Higher Offer From Disney," by Keach Hagey and Erich Schwartzel, The Wall Street Journal, June 20, 2018
 https://www.wsj.com/articles/fox-disney-announce-new-deal-1529496937?mod=djem_jiewr_AC_domainid

Disney to pay more and add a cash component; Fox calls pact superior to Comcast’s bid

Walt Disney Co. raised its offer to purchase most of 21st Century Fox FOX 0.65% to more than $71.3 billion in cash and stock, topping an unsolicited offer from rival Comcast Corp. and escalating the bidding war for the coveted media properties.

Disney ’s DIS 0.42% new offer is far higher than its original deal, $52.4 billion in stock, and surpasses Comcast’s all-cash offer of roughly $65 billion. In addition to having the higher offer, Disney DIS 0.42% said it also has a regulatory advantage over Comcast in winning a company to help it fight back against new-media competitors like Netflix Inc.

Fox, in a news release, said the new Disney DIS 0.42% deal “is superior to the proposal” made by Comcast earlier this month. A Comcast spokeswoman had no immediate comment.

Disney and Comcast are battling for prized media assets including the Twentieth Century Fox film and TV studio; U.S. cable networks FX and regional sports channels; international assets such as Sky PLC and Star India; and Fox’s one-third stake in the streaming service Hulu.

Fox and Disney were negotiating terms of an amended agreement over the weekend and had the outlines of a deal by Tuesday, though they were nailing down details like the mix of cash and stock, a person close to the situation said.

Disney submitted its bid Wednesday ahead of a Fox board meeting in London, another person familiar with the situation said. Fox Executive Chairman Rupert Murdoch and Disney Chief Executive Bob Iger met to discuss the new pact.

Disney agreed to pay Fox shareholders roughly 50% in cash and 50% in stock. If the current deal closes, Fox shareholders would own 19% of the combined company, compared with 25% under the old deal.

Some observers have said it might make sense for Disney and Comcast to divide the Fox assets between themselves rather than go through a bidding war, but Mr. Iger said the idea of splitting the businesses is a nonstarter. “We have an agreement in place with [Fox] that precludes that,” he said on a conference call Wednesday.

Disney also has time on its side, Mr. Iger said, because its deal with Fox has been through several months of regulatory review. “We believe that we have a much better opportunity, both in terms of approval and the timing of that approval, than Comcast does,” he said.

The CEO also highlighted how Fox’s programming would boost his company’s efforts to launch a Disney-branded streaming service next year and compete directly with Netflix. “Direct-to-consumer distribution has become an even more compelling proposition in the six months since we announced the deal. The consumer is voting—loudly,” he said.

Content Creation

As tech firms have increasingly plowed money into original content, Hollywood has been scrambling to keep up

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on June 22, 2018

 

", The Wall Street Journal, June
 

 

Continued in article

\




Humor for June 2018

Accountant Goalie Scott Foster Attends NHL Awards Show, Is Funnier Than Jim Belushi ---
https://goingconcern.com/accountant-goalie-funnier-jim-belushi/?mod=article_inline
Thank you Barbara Scofield for the heads up


Police say at least one rat slipped through a hole in the back of an ATM in northeastern India and ate more than $19,000 in currency ---
https://www.snopes.com/ap/2018/06/22/india-rats-19000-meal/


The New Red Hen Menu ---
https://iamjessekelly.com/2018/06/24/the-new-red-hen-menu/


Watch a gutsy squirrel steal a doughnut from cop ---
https://www.nola.com/crime/index.ssf/2018/06/watch_a_gutsy_squirrel_steal_a.html

 


Steve Martin & Robin Williams Riff on Math, Physics, Einstein & Picasso in a Smart Comedy Routine ---
http://www.openculture.com/2018/06/steve-martin-robin-williams-heady-comedy-routine.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+OpenCulture+%28Open+Culture%29

 


Forwarded by Paula

 An Elementary School Teacher had twenty-six students in her class. She presented each child in her classroom the 1st half of a well-known proverb and asked them to come up with the remainder of the proverb. It's hard to believe these were actually done by first graders.

 

Their insight may surprise you.

While reading, keep in mind that these are first-graders, 6-year-olds, because the last one is a classic.

 

1.

Don't change horses

until they stop running.

2.

Strike while the

bug is close.

3.

It's always darkest before

Daylight Saving Time.

4.

Never underestimate the power of

termites.

5.

You can lead a horse to water but

how?

6.

Don't bite the hand that

looks dirty.

7.

No news is

impossible.

8.

A miss is as good as a

Mr.

9.

You can't teach an old dog new

math.

10.

If you lie down with dogs, you'll

stink in the morning.

11.

Love all, trust

me.

12.

The pen is mightier than the

pigs.

13.

An idle mind is

the best way to relax.

14.

Where there's smoke there's

pollution.

15.

Happy the bride who

gets all the presents.

16.

A penny saved is

not much.

17.

Two's company, three's

the Musketeers.

18.

Don't put off till tomorrow what

you put on to go to bed.

19.

Laugh - whole world laughs with you, cry and

you have to blow your nose.

20.

There are none so blind as

Stevie Wonder.

21.

Children should be seen and not

spanked or grounded.

22.

If at first you don't succeed

get new batteries.

23.

You get out of something only what you

see in the picture on the box.

24.

When the blind lead the blind

get out of the way.

25.

A bird in the hand

is going to poop on you.

And the WINNER and last one!

26.

Better late than

pregnant.


Life on the Front Porch Forwarded by Paula

On the first day, God created the dog and said, “Sit all day by the door of your house and bark at anyone who comes in or walks past. For this I will give you a life span of twenty years.”

 

The dog said, “That’s a long time to be barking.  How about only ten years and I’ll give you back the other ten?”

 

And God said that it was good.

 

On the second day, God created the monkey and said, “Entertain people, do tricks, and make them laugh.. For this, I’ll give you a twenty-year life span.”

 

The monkey said, “Monkey tricks for twenty years? That’s a pretty long time to perform. How about I give you back ten like the dog did?”

 

And God again said that it was good.

 

On the third day, God created the cow and said, “You must go into the field with the farmer all day long and suffer under the sun, have calves and give milk to support the farmer’s family. For this, I will give you a life span of sixty years.”

 

The cow said, “That’s kind of a tough life you want me to live for sixty years. How about twenty and I’ll give back the other forty?”

 

And God agreed it was good.

 

On the fourth day, God created humans and said, “Eat, sleep, play, marry and enjoy your life. For this, I’ll give you twenty years.”

 

But the human said, “Only twenty years? Could you possibly give me my twenty, the forty the cow gave back, the ten the monkey gave back, and the ten the dog gave back; that makes eighty, okay?

 

“Okay,” said God, “You asked for it.”

 

So that is why for our first twenty years, we eat, sleep, play and enjoy ourselves. For the next forty years, we slave in the sun to support our family. For the next ten years, we do monkey tricks to entertain the grandchildren. And for the last ten years, we sit on the front porch and bark at everyone.

 

Life has now been explained to you.

 

There is no need to thank me for this valuable information. I’m doing it as a public service. If you are looking for me, I will be on the front porch.


Forwarded by Paula

An Irish priest was transferred to Texas.

Father O'Malley rose from his bed one morning. It was a fine spring day in his new west Texas mission parish. He walked to the window of his bedroom to get a deep breath of the beautiful day outside.

He then noticed there was a jackass lying dead in the middle of his front lawn. He promptly called the local police station.

The conversation went like this:


"Good morning. This is Sergeant Jones. How might I help you?"


"And the best of the day te yerself. This is Father O'Malley at St. Ann's Catholic Church. There's a jackass lying dead in me front lawn and would ye be so kind as to send a couple o'yer lads to take care of the matter?"


Sergeant Jones, considering himself to be quite a wit and recognizing the foreign accent, thought he would have a little fun with the good father, replied, "Well now Father, it was always my impression that you people took care of the last rites!"


There was dead silence on the line for a long moment.


Father O'Malley then replied: "Aye, 'tis certainly true; but we are also obliged to notify the next of kin first, which is the reason for me call."


Forwarded by Paula
How to pour 15 jagermeister shots at once.

https://www.youtube.com/watch?v=gd0adk53iuc

 




Humor June 2018--- http://faculty.trinity.edu/rjensen/book18q2.htm#Humor0618.htm

Humor May 2018--- http://faculty.trinity.edu/rjensen/book18q2.htm#Humor0518.htm

Humor April 2018--- http://faculty.trinity.edu/rjensen/book18q2.htm#Humor0418.htm

Humor March 2018--- http://faculty.trinity.edu/rjensen/book18q1.htm#Humor0318.htm 

Humor February 2018--- http://faculty.trinity.edu/rjensen/book18q1.htm#Humor0218.htm

Humor January 2018--- http://faculty.trinity.edu/rjensen/book18q1.htm#Humor0118.htm 

Humor December 2017--- http://faculty.trinity.edu/rjensen/book17q4.htm#Humor1217.htm

Humor November 2017--- http://faculty.trinity.edu/rjensen/book17q4.htm#Humor1117.htm 

Humor October 2017--- http://faculty.trinity.edu/rjensen/book17q4.htm#Humor1017.htm

Humor September 2017--- http://faculty.trinity.edu/rjensen/book17q3.htm#Humor0917.htm

Humor August 2017--- http://faculty.trinity.edu/rjensen/book17q3.htm#Humor0817.htm

Humor July 2017--- http://faculty.trinity.edu/rjensen/book17q3.htm#Humor0717.htm

Humor June 2017 --- http://faculty.trinity.edu/rjensen/book17q3.htm#Humor0717.htm

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

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

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

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

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

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

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




And that's the way it was on June 30, 2018 with a little help from my friends.

 

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

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

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

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

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

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

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

 

 

 

May 2018

F        Bob Jensen's New Additions to Bookmarks

May 2018

Bob Jensen at Trinity University 


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

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

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

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

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

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

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

 

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

 

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

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

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

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

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

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

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

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

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

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




Scott Edward Bonacker, 63, Rogersville, Missouri departed this life Monday, May 7, 2018 after a short but courageous battle with cancer ---
https://www.legacy.com/obituaries/news-leader/obituary.aspx?n=scott-edward-bonacker&pid=188947418&fhid=12404

Jensen Comment
It was only a very short time ago that we ceased having Scott's valuable contributions to the AECM listserv ---
http://listserv.aaahq.org/cgi-bin/wa.exe?HOME

He was probably our all-time most active practitioner on the AECM. Whereas practitioners in large CPA firms are usually discouraged by their supervisors from becoming involved in academic debates on a listserv like the AECM, Scott worked for a very small firm and, I think, was pretty much his own boss. Since Scott was so interested in academics and academic debates he probably missed his calling in life by not becoming a professor. He really had a curious mind and spent a lot of time scanning the new media.

Scott had a liberal leaning and was never hesitant to challenge me in a polite way on the AECM. He probably disappointed some members of the AECM by not fitting the stereotype of a "conservative" practicing accountant. Scott also had a wide perspective regarding what he thought was on-topic for the AECM.

Scott was so unique on the AECM I doubt that any accounting practitioner will rise to take his place.

Special thanks to Gary Zeune for calling my attention to Scott's passing ---
http://www.theprosandthecons.com/


Ph.D. Alumni of Major USA Accounting Doctoral Programs ---
http://www.jrhasselback.com/AtgDoct/XSchDoct.pdf

Almost 40 years ago (academic year 1977-1978) the Accounting Faculty Directory included a third section that listed the Accounting doctorates granted by each school.

Included here is an updated replication of that former section.

James R. Hasselback 6-7-2016

Jensen Comment
It would be extremely helpful if this list was updated further with such designations as gender and race/ethnicity. Unfortunately, Jim probably did not collect these details.


Correactology® or How to Identify a Pseudoscience ----
https://mcgill.ca/oss/article/general-science-quackery/correactologyr-or-how-identify-pseudoscience

Is accountics science a pseudoscience?
Bob Jensen's threads on real science versus pseudoscience -
--
http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm#Pseudo-Scienc


How Economists Became So Timid The field used to be visionary. Now it’s just dull ---
https://www.chronicle.com/article/How-Economists-Became-So-Timid/243326?cid=cr&utm_source=cr&utm_medium=en&elqTrackId=e2d09de47e544696abef42de6455758f&elq=0d2c3cc821f040c7ae28da603abc6bb5&elqaid=18957&elqat=1&elqCampaignId=8559

Jensen Comment
Could we say the same thing about accounting research? In particular what academic accounting research discovery contributed in a known way by the practicing profession?
Why did the profession of accountancy lose interest in the research and publications of academic accountants?

Here's where to start looking among thousands of academic accounting articles:
MAAW's Table of Contents Service Update ---
http://maaw.info/MAAWContents.htm
What do you think is the best visionary article that the practicing profession overlooked?


Correactology® or How to Identify a Pseudoscience ----
https://mcgill.ca/oss/article/general-science-quackery/correactologyr-or-how-identify-pseudoscience

Bob Jensen's threads on real science versus pseudoscience ---


New Compilation and Review Report Requirements Issued ---
https://www.journalofaccountancy.com/news/2018/may/aicpa-compilation-and-review-report-requirements-201818993.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=24May2018


Congress Sends Trump Bill With Senior Financial Abuse Reporting Section ---
https://www.thinkadvisor.com/2018/05/23/congress-sends-trump-bill-with-senior-financial-ab/?slreturn=20180424092034


Convert your Excel PivotTable to a formula-based report ---
https://www.journalofaccountancy.com/issues/2018/may/convert-pivottable-to-formula-based-excel-report.html?utm_source=mnl:globalcpa&utm_medium=email&utm_campaign=23May2018

New Features Coming to Excel ---
https://www.fm-magazine.com/news/2018/may/new-excel-features-office-365-201818706.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=18May2018


AICPA recommends IRS FAQs on virtual-currency taxation (bitcoin and crypto currency taxation) ---
https://www.journalofaccountancy.com/news/2018/may/virtual-currency-tax-201819073.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=31May2018


The Atlantic:  As younger generations become more racially diverse, many states are allocating fewer tax dollars to public colleges and universities ---
https://www.theatlantic.com/politics/archive/2018/05/american-higher-education-hits-a-dangerous-milestone/559457/

Jensen Comment
The article misleadingly overlooks the major causes of reduced spending for higher education.
Soaring Medicaid expenses have become the biggest expenditure items in most state budgets, expenditures that cannot be as easily reduced as expenditures for higher education. Couple Medicaid with underfunded pensions for state workers and we see funding for higher education being left in political dust.

By way of illustration look at the Medi-Cal portion ($101.5 billion) of the 2018-19 pie chart for California at
http://www.ebudget.ca.gov/2018-19/pdf/BudgetSummary/HealthandHumanServices.pdf

For California the higher education budget for 2018-19 is proposed at $33.7 billion in comparison ---
http://www.ebudget.ca.gov/2018-19/pdf/BudgetSummary/HigherEducation.pdf

Click on "States" in the upper left corner to see states grading as to fiscal responsibility and debt crises ---
https://www.statedatalab.org/

In other words the "radical diversity" issue is not so much a cause of reduced support higher education as is a budgeting choice issue devoting the lion's share of state budgets to health and welfare, especially Medicaid. And a major cause of the increase in Medicaid spending is the way citizens are figuring out how to divert long-term assisted living and nursing home expenses to Medicaid. If families plan ahead more than five years in advance, they can funnel more of their parents and grandparents resources into their own pockets and shift the long-term nursing care expenses over to Medicaid. And then they complain that the states are paying less for their children's state-supported higher education.

Medicare and Medicaid were never intended by government to pay for so much long-term nursing care of the middle class, but by one means or another schemes have been devised to make long-term nursing care and the cost of dying for the middle class as well as the poor. Medicaid is picking up a larger share of long-term nursing costs and Medicare is picking up the cost of dying (hospital, medication, and doctor bills). The cost of dying became the largest budget item in Medicare and is exploding as the population of the USA ages. This is also the major cause, along with underfunded pensions, of funds being diverted by states from higher education to Medicaid.

The bottom line is that as the population ages we're seeing a massive shift in state (and Federal) spending from the young to the old as education money is massively being diverted to Medicaid (and Medicare).


Tesla Doesn’t Burn Fuel, It Burns Cash ---
https://www.bloomberg.com/graphics/2018-tesla-burns-cash/


When you come to a fork in the road, take it..
Yogi Berra

Are ebooks dying or thriving? The answer is yes ---
https://qz.com/1240924/are-ebooks-dying-or-thriving-the-answer-is-yes/

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


How Seattle's Economic Illiteracy Kills Jobs (and creates homelessness) ---
http://reason.com/archives/2018/05/16/how-seattles-economic-illiteracy-hurts-b

Seattle Scales Back Tax in Face of Amazon’s Revolt, but Tensions Linger ---
https://www.nytimes.com/2018/05/14/technology/seattle-amazon-headquarters-tax.html

SEATTLE — After intense lobbying by local businesses and a bold threat by Amazon to curtail development in its hometown, the Seattle City Council on Monday approved a smaller and more limited tax on big companies than originally envisioned.

The new tax — dubbed the “Amazon Tax” by locals — will fund affordable housing and homeless services in a city whose economic boom, driven in no small part by Amazon, has priced many residents out of the area and forced some onto the streets.

Amazon, which halted two major expansion projects in Seattle in protest over the larger tax increase, said it was disappointed even with the smaller tax package, although the company said it would restart the planning process for one of its new buildings. It was still exploring the possibility of subleasing a second building that a developer is currently building.

 

The council had originally considered an annual “head” tax of $500 per full-time employee for Amazon and other large employers, but the amended measure that passed reduced that figure to $275. Instead of the $75 million a year the tax was originally expected to raise, it will bring in less than $50 million. The council also included a sunset provision that would require the tax to be reauthorized in five years.

The compromise failed to defuse tensions between Amazon and the city it has called home for the last 24 years.

Even though the company decided to resume one of its building projects, Drew Herdener, an Amazon vice president, said in a statement, “We remain very apprehensive about the future created by the council’s hostile approach and rhetoric toward larger businesses, which forces us to question our growth here.”

But the company’s tactics in Seattle has also garnered concern among other cities bidding to bring Amazon’s second headquarters to town.

Twenty finalist locations across North America have been aggressively wooing Amazon to win up to 50,000 high-paying jobs that its second headquarters would bring. In some of those places, there is opposition growing over the tax incentives that some city and state governments have agreed to give Amazon in return for being selected. And Amazon’s hardball politics in Seattle has further soured some local leaders.

“I absolutely find it unacceptable to see politically threatening behavior as is occurring there,” said Robin Kniech, a member of the City Council in Denver, one of the finalists for Amazon’s second headquarters. “It certainly doesn’t send a message that you expect to be a part of the community.”

Continued in article


U of Akron Professor Wanted to Boost Women's Grades (to attract majors)
https://www.insidehighered.com/quicktakes/2018/05/17/u-akron-professor-wanted-boost-womens-grades?utm_source=Inside+Higher+Ed&utm_campaign=6ed1c43123-DNU20180111&utm_medium=email&utm_term=0_1fcbc04421-6ed1c43123-197565045&mc_cid=6ed1c43123&mc_eid=1e78f7c952

Jensen Comment
Of greater concern is grade inflation in general to attract majors. This is where academic professionalism is really put to the test. Fortunately, in some disciplines like engineering, nursing, medicine, law, education, and accounting there are licensing examinations that can embarrass colleges with severe grade inflation in some disciplines. The GRE and other admissions tests also serve to keep grading more professional.


Bid-Rigging Business as Usual in Detroit ---
https://www.freep.com/story/news/local/michigan/detroit/2018/03/09/fbi-detroit-demolition-bid-rigging/410259002/

May 18, 2018 message from Tom Golden

Thanks, Bob! Very interested in your opinion.

 
Thought you might be interested in this Detroit Free Press article of an investigation I am running looking into the City's stewardship of $258MM in TARP money for demoing blighted homes. Normally stuff like this is never seen by the public but was released by a FOIA. Reads like a movie script. The guy i interviewed resigned 3 weeks after and the FBI picked up the case. More to come.
https://www.freep.com/story/news/local/michigan/detroit/2018/03/09/fbi-detroit-demolition-bid-rigging/410259002/

Tom has a new book out (fiction) that I ordered ---
https://www.amazon.com/Sunday-Night-Fears-Halloran-Book-ebook/dp/B07CNGPXBS/ref=sr_1_1?ie=UTF8&qid=1526216868&sr=8-1&keywords=sunday+night+fears+book&dpID=51Odjs0OgqL&preST=_SY445_QL70_&dpSrc=srch


Berkshire Hathaway reported a $1.14 billion loss in the first quarter, its first net loss since 2009, due largely to an accounting rule chief executive Warren Buffett called a "nightmare" ---
http://www.businessinsider.com/berkshire-hathaway-annual-meeting-operating-profit-net-loss-2018-5


Seven Female Denver Law Profs To Receive $2.7m In EEOC Settlement Of Equal Pay Claim ---
http://taxprof.typepad.com/taxprof_blog/2018/05/seven-female-denver-law-profs-to-receives-27m-in-eeoc-settlement-of-equal-pay-claim.html


Pennsylvania’s looming pension crisis ---
https://www.statedatalab.org/news/detail/pennsylvanias-looming-pension-crisis

May 18, 2018 reply from Tom Amlie

This has been a slow-motion train wreck in PA. For a number of years in the early 2000s, when the market was hot, they thought there was no need to fund the pension plan since returns were so high. At the same time they increased the benefits from 2% per year of service to 2.5% per year of service. When the chickens on the way back to the roost were finally on the horizon, they found themselves in a deep hole. I don't recall the exact numbers, but pension contributions in my local school district were slated to go from 5% of payroll to more than 30% of payroll over a window of about 8 years. Local school district budgets which were hard to balance in 2009, with pension contributions at 5% of payroll, are now facing huge program cuts.

Tom Amlie

The CPA Journal:  Accounting, Politics, and Public Pensions ---
https://www.cpajournal.com/2018/05/18/accounting-politics-and-public-pensions/


Inverted Yield Curve: It’s Definitely Not Different This Time ---
https://finance.townhall.com/columnists/michaelpento/2018/05/22/inverted-yield-curve-its-definitely-not-different-this-time-n2483203?utm_source=thdaily&utm_medium=email&utm_campaign=nl

Bob Jensen's tutorial on how yield curves are used by accountants to value the enormous number of interest rate swaps on balance sheets ---
http://faculty.trinity.edu/rjensen/acct5341/speakers/133swapvalue.htm

Top universities now have Bloomberg terminals to teach accounting and finance students how yield curves are utilized in financial asset valuations. Trinity University obtained a Bloomberg terminal in 2010 and keep it for student use in the campus library. If your university does not have such a terminal it's high time you put in a request for such a terminal.


How Tax Code Changes Hurt Home Owners ---
https://www.accountingweb.com/tax/individuals/how-tax-code-changes-hurt-home-owners?source=ei053018



Living on Intangibles With Negative Tangible Assets
 England's  First 2018 Billion Dollar Scandal:  Carillion KPMG auditors under fire ---
 https://www.thetimes.co.uk/edition/business/carillion-auditors-under-fire-8xpnmlnw0

The Big Four Caught in a Scandalous Groupie
Key findings from the MPs' report into Carillion's collapse ---

https://www.theguardian.com/business/2018/may/16/mps-dole-out-the-blame-over-carillions-collapse

. . .

Auditors

Advertisement

One of the most eye-catching suggestions in the report is that the big four auditors – KPMG, PwC, EY and Deloitte – be referred to the Competition and Markets Authority, which should consider whether they ought to be broken up forcibly. The quartet earned £72m from the company in 10 years and were described as a “cosy club incapable of providing the degree of independent challenge needed”.

KPMG

·         Received £29m in fees over 19 years as Carillion’s auditor.

·         Branded “complicit” in the company’s “questionable” accounting practices, the report said “complacently signing off its directors’ increasingly fantastical figures”.

Deloitte

·         Internal auditor was paid more than £10m but “failed in its risk management and financial controls role”.

·         Did not identify “terminal failings” in risk management and financial controls, or “too readily ignored them”.

EY

·         Took £10.8m for “six months of failed turnaround advice”.

·         Advised on deferral of payments to pension scheme, HMRC and suppliers. “Their own fees, however, were not deferred”.

PwC

·         Hired to manage insolvency as the only auditor with no conflict of interest, meaning it could “name its price”.

·         Fees for first eight weeks’ work alone was £20.4m.

·         “PwC are continuing to gain from Carillion, effectively writing their own pay cheque, without adequate scrutiny”.

Continued in article

Bob Jensen's threads on the legal woes of the Big Four (and other biggies) ---
http://faculty.trinity.edu/rjensen/fraud001.htm


Metacognition:  This Amazingly Simple Flash Card Technique Lets You Learn Anything in 5 Minutes and Remember It Forever ---
https://www.inc.com/minda-zetlin/this-amazingly-simple-technique-lets-you-learn-anything-in-5-minutes-remember-it-forever.html

Jensen Comment
This works well for a short stack of flash cards, but it hardly works for a 900 page biology textbook or a 1,200 page intermediate accounting textbook.

Bob Jensen's threads on metacognition are at
http://faculty.trinity.edu/rjensen/265wp.htm

Jensen Comment
The flash card technique in my opinion works well in terms of a relatively small stack of flash cards such as for learning the basics of bidding in the game contract bridge. However, for wide ranging things such as becoming a Grand Master at contract bridge the best approach for metacognive memory is seeking out on your own to find answers (such as playing lots of games of tournament bridge).

The Business Activity Model (BAM) experiment for two sequential courses in intermediate accounting at the University of Virginia and Villanova provides a perfect example. Instructors replaced the textbook and lectures that provided correct answers with a complicated realistic case that contained all kinds of errors. Students were then turned loose to find answers on their own from any sources they chose for research. The key to better memory is to learn on your own rather than to memorize from textbooks and lectures. The BAM experiment is similar to working on the job as an accountant trying to unravel the mistakes of a lousy real-world bookkeeping system.

One of the hardest things for teachers is resisting urges to reveal answers to students. Of course after examinations teachers at last have to reveal correct answers.

 Another hard thing for teachers is the greater risk of low teaching evaluations. A typical BAM student comment was: "Everything I learned in this course I had to learn on my own."

One of the main outcomes of the experiment was that after graduation there was a marked improvement in passage rates on the CPA examination for these universities. The metacognitive benefit of learning on your own is long-term memory.

For a summary of the BAM experimental outcomes go to
http://faculty.trinity.edu/rjensen/265wp.htm


PwC Whistleblower Alleges Fraud in Audits of Silicon Valley Companies ---
http://www.pogo.org/our-work/articles/2018/pwc-whistleblower-faults-silicon-valley-auditing.html

Bob Jensen's threads on PwC's legal woes ---
http://faculty.trinity.edu/rjensen/fraud001.htm
Scroll down to PwC


An Insincere Embezzler

From Caleb Newquist on May 16, 2018 ---
http://goingconcern.com/accounting-news-big4-carillion-blockchain-deloitte/

Judge orders restitution, apology letters for victims in Watford City embezzlement [BT]
Here’s a new one:

Hannah Lloyd, 39, pleaded guilty Thursday to three felony counts of theft. As part of her sentencing, Northwest District Judge Daniel El-Dweek ordered Lloyd to pay restitution in approximate amounts of $139,000 to the Watford City Park District, $50,000 to the Watford City Golf Course and $56,000 to Rink Construction, as well as write apology letters to the victims.

In my imagination, Ms. Lloyd phoned in the first apology. Something like:

Dear Watford City Golf Course,

I’m sorry.

Hannah.

Then the judge scolds her for an insincere letter and forces her to re-write it until he’s happy with it.

I’d like to see more judges require embezzling accountants to write apology letters. “You’re going to apologize for what you’ve done, and we’re going to sit here until you get it right!” This sounds like a decent sentence for most first-time embezzlers, frankly.

 


India's national railway prepares for switch to accrual accounting The switch from cash-based to accrual-based financial statements is the biggest accounting reform India Railways will go through in 70 years ---
https://economictimes.indiatimes.com/industry/transportation/railways/indian-railways-gets-ready-for-accrual-accounting/articleshow/64020859.cms

Jensen Comment
Maybe the word "depreciation" was recently translated into Hindi.
The railway might even be shopping for a computer.


The year-old PCAOB mandate to disclose a company's audit-firm engagement partner has a surprising effect on investors, a research experiment suggests.---
http://ww2.cfo.com/auditing/2018/04/new-pcaob-rule-sways-investor-decisions-audit-partner/

Since the results of this study truly surprised me, I will quote the ending of the article where the authors themselves point out some limitations of the research.
Behavioral Research in Accounting
Article Volume 30, Issue 1 (Spring 2018)
http://aaajournals.org/doi/full/10.2308/bria-51853

CONCLUSIONS AND IMPLICATIONS

We design and perform an experiment to examine investor reaction to audit partner disclosure and to determine whether it facilitates accounting information contagion above and beyond any that might occur due to a shared audit firm and industry. In so doing, we find that prospective investors are significantly less likely to invest in a peer firm linked to a contaminated firm via a shared audit partner than when the organizations are only linked via a shared audit firm. We also find support for the notion that the contagion effect works by causing investors to reassess the content and credibility of financial statements issued by linked firms. Finally, we find some evidence to suggest that knowledge of the partner's name increases the extent to which investors attribute blame to the partner for a negative financial statement/audit outcome (specifically, a restatement).

Inferences from our analyses should be made in light of certain limitations. First, for the sake of brevity, participants were only provided with limited information rather than a full set of financial information. While we did utilize key financial statement ratios, the possibility exists that other information within a complete set of financial statements could moderate our results. Second, the majority of our participants were recruited and participated in the study online via Qualtrics; while these participants were experienced investors, the extent to which such participants were invested in the decision is likely to be less than that of an actual investor making decisions with his or her own funds. Third, we used fictitious audit firm names in the study. Thus, it is unknown how previous firm reputation would moderate the results of audit partner disclosure; however, this limitation presents opportunities for future research (e.g., firm familiarity may minimize the partner contagion effect).

We offer other interesting avenues for future research. First, our findings indicate that investors' decisions were mediated by the credibility of the financial information provided (i.e., their assessment of the likelihood of a restatement). Subsequent studies can more fully explore other potential causes for the effect and whether the credibility of the financial information provided is a mediator for contagion effects driven by factors unrelated to the financial statement audit (e.g., shared industry, shared directors). In addition to potential additional mediators, future studies can investigate potential moderators of the effect we observe in our experiment (e.g., the reason for the restatement, the extent of auditor culpability, and the level of audit partner disclosure salience). Second, future research can explore the extent to which an audit partner-induced contagion effect may occur due to positive information (e.g., an audit partner uncovering a complicated fraud scheme at a new client). That is, based on the existing research, we define a contagion effect as relating to a negative event; however, it is possible that positive news can also result in information transfer, particularly with respect to the “track record” of a particular partner. The extent to which, and under what circumstances, partner disclosure affects investors' attribution of blame or credit to the engagement partner may impact outcomes that are important to audit firms (e.g., client retention, legal liability). Finally, the transfer of information from one client via an audit partner to another client suggests a fusing of the audit partner's and audit client's reputations. If audit partners are motivated to achieve many of the same goals as management, in order to protect their reputation and/or client portfolio, then APD may result in the audit partner's immediate, short-term incentives being more closely aligned with client management's. Thus, future studies can explore the impact of investor reaction to APD on audit partner independence and decision making.

 Jensen Comment
At least this study was not a cheap shot using students as surrogates for decision makers
.

Keep in mind, however, that millions of these people turn portfolio decision making over to fund managers (think pension funds and mutual funds) or rely heavily on financial analysts. The decision to turn portfolio decision over to experts is not random. My guess is that investors who choose to study financial statements and make their own portfolio decisions may be a unique subset of investors who can bias the outcomes of a study like this.


Behavioral Research in Accounting
Article Volume 30, Issue 1 (Spring 2018)
http://aaajournals.org/toc/bria/30/1

Main Articles

1

 

Field Evidence about Auditors' Experiences in Consulting with Forensic Specialists

Stephen Kwaku Asare and Arnold M. Wright
Abstract | Full Text | PDF (463 KB) 

Free Access

 

27

 

Audit Partner Disclosure: An Experimental Exploration of Accounting Information Contagion

Tamara A. Lambert, Benjamin L. Luippold and Chad M. Stefaniak
Abstract | Full Text | PDF (367 KB) 

No Access

 

39

 

The Effect of Multiple Auditors on Deception Detection in a Client Inquiry Setting

Holderness D. Kip Jr.
Abstract | Full Text | PDF (399 KB) 

No Access

 

59

 

Budgeting Audit Time: Effects of Audit Step Frame and Verifiability

Eldar M. Maksymov, Mark W. Nelson and William R Kinney Jr.
Abstract | Full Text | PDF (291 KB) 

Free Access

 

75

 

Tax Incentives and Target Demographics: Are Tax Incentives Effective in the Health Insurance Market?

Michaele Morrow, Shane R. Stinson and Marcus M. Doxey
Abstract | Full Text | PDF (347 KB) 

No Access

Research Notes

99

 

Researching Juror Judgment and Decision Making in Cases of Alleged Auditor Negligence: A Toolkit for New Scholars

Jonathan H. Grenier, Andrew Reffett, Chad A. Simon and Rick C. Warne
Abstract | Full Text | PDF (435 KB) 

No Access

 

111

 

A Technical Guide to Using Amazon's Mechanical Turk in Behavioral Accounting Research

Steve Buchheit, Marcus M. Doxey, Troy Pollard and Shane R. Stinson
Abstract | Full Text | PDF (169 KB) 

 


Toyota to invest $170 million in Mississippi plant, create 400 jobs ---
https://www.msn.com/en-us/money/companies/toyota-to-invest-dollar170-million-in-mississippi-plant-create-400-jobs/ar-AAwodYw?ocid=spartandhp


In Europe, the financial picture is getting darker. Economic growth on the continent has been lackluster this year, with Germany's pace of expansion cut in half ---
https://www.bloomberg.com/news/articles/2018-05-14/germany-set-for-slowdown?cmpid=BBD051518_BIZ&utm_medium=email&utm_source=newsletter&utm_term=180515&utm_campaign=bloombergdaily

The U.S. is threatening sanctions against the European Union after the World Trade Organization ruled Airbus received illegal government funding, costing Boeing sales.---
https://www.bloomberg.com/news/articles/2018-05-15/wto-says-boeing-hurt-in-airbus-case-paving-way-for-eu-sanctions?cmpid=BBD051518_BIZ&utm_medium=email&utm_source=newsletter&utm_term=180515&utm_campaign=bloombergdaily


GASB Rule Sheds Light on Tax Abatements (corporate tax breaks) ---
https://www.cjr.org/watchdog/corporate-tax-breaks.php


CPA Journal:  The Decision Relevance of Financial Reporting ---
https://www.cpajournal.com/2018/03/02/decision-relevance-financial-reporting-2/

The End of Accounting and the Path Forward
by Arthur J. Radin, CPA and Thomas Selling
https://www.cpajournal.com/2017/12/14/icymi-end-accounting-path-forward/

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

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

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

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

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

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

Comment 2
Added on December 19, 2017

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

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

Baruch Lev's many writings suggest that the biggest controversy in accountancy is how intangibles are measured and disclosed. See the many books and papers cited at his home page at
http://www.stern.nyu.edu/faculty/bio/baruch-lev

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

My best illustration of this is what Baruch has to say about Enron's intangibles as documented at
http://faculty.trinity.edu/rjensen/theory02.htm#***EnronIntangibles

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

 My answer is at
http://faculty.trinity.edu/rjensen/theory02.htm#***EnronIntangibles

 

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

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

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

 


Barclays hit by solar scandal (misleading sales pitch for loans)  ---
https://www.thetimes.co.uk/edition/business/barclays-hit-by-solar-scandal-70fmt0d2w


Warren Buffett's Berkshire Hathaway dumps its entire IBM stake (IBM) ---
http://markets.businessinsider.com/news/stocks/warren-buffett-berkshire-hathaway-dumps-entire-ibm-stake-2018-5-1023387039


The Changing Landscape of Business Risk ---
http://www.visualcapitalist.com/the-changing-landscape-of-business-risk/


How to Mislead With Statistics
Who pays the most tax in Europe?
http://www.euronews.com/2018/04/26/who-pays-the-most-tax-in-europe-

Jensen Comment
You've probably heard me warn repeatedly that when taxes are compared it can be misleading unless you also compare what those taxes are paying for in family living. Income tax rates in the USA are relatively low and highly progressive with nearly half of the taxpayers paying zero income taxes. But this is misleading since things like health care and public education are paid out of other taxes and/or personal savings. Even when comparing nations with national health care plans funded heavily out of income taxes, comparing tax rates can be misleading. Firstly there are taxes other than income taxes such as VAT taxes and sales taxes. Secondly, not all national health care programs are equivalent in terms of how certain coverages are paid for. In Germany, for example, the public health plan is rather minimal and most Germans that can afford it have private supplemental medical insurance. My neighbors from England at the moment are back in the U.K. arranging to sell a parent's home for nursing home care expenses. Nursing home care in the U.K. is covered in the national health plan but revenues from home sales must be applied to this care --- so I'm told by my neigbors.

In Europe taxes supposedly pay for college education and/or job training, but less than half the young people are admitted to programs funded by tax dollars ---
http://faculty.trinity.edu/rjensen/HigherEdControversies.htm#Tertiary
Other people depend upon companies to fund on-the-job training, and many people are not allowed into college unless they study in other countries or take distance education courses such as MOOCs..


INCOME TAX EVASION: A THEORETICAL ANALYSIS ---
http://www3.nccu.edu.tw/~klueng/tax paper/1.pdf


One in Every Six Retirees in the USA is a Millionaire (on paper before taxes at least) ---
https://www.bloomberg.com/news/articles/2018-05-03/america-is-minting-more-millionaire-retirees-than-ever

Jensen Comment
Having close to $1 million in total savings doesn't really go very far for people that retire at around age 65. With low interest rates it's virtually impossible to live to live on the after-tax income. For example, if part of that $1 million is your $250,000 house that you live in the house generates no cash; instead it drains cash for property taxes and maintenance. Your stock market portfolio may be doing pretty well, but liquidating that for living expenses may deplete most of your capital if you live a long life, especially if there are years of expensive assisted living/nursing care years.

Most of your $1 million is savings is probably pre-tax such that spending it for retirement entails paying those long-deferred taxes. And don't rely on Social Security benefits to pay for much more than your Medicare premiums and supplemental premiums.

If you own your own home and have an added $1 million in savings, a lifetime annuity for you and your partner used to be a pretty good deal when interest rates were above 6%. Now that interest rates are close to zero lifetime annuities lost their luster big time.

The bottom line is that being a millionaire when you retire is not such a good deal unless you are a multi-millionaire.


IRS Taxpayer Advocate Service ---
https://www.irs.gov/taxpayer-advocate
Go here before contacting a scam service advertised on television

What the IRS Isn’t Telling You or Your Clients ---
https://www.accountingweb.com/aa/auditing/what-the-irs-isnt-telling-you-or-your-clients?source=tx052118


Bill Benter did the impossible: He wrote an algorithm that couldn’t lose at the track. Close to a billion dollars later, he tells his story for the first time ---
https://www.bloomberg.com/news/features/2018-05-03/the-gambler-who-cracked-the-horse-racing-code


The U.S. Post Office saw a shipping and package income of $19.5 billion last year, which is up 11.8 percent compared to the previous year---
https://www.washingtonpost.com/business/economy/trump-personally-pushed-postmaster-general-to-double-rates-on-amazon-other-firms/2018/05/18/2b6438d2-5931-11e8-858f-12becb4d6067_story.html?noredirect=on&utm_term=.8fa239501249 

Jensen Comment
The USPS is heavily bogged down in joint costs and fixed costs. In light of this a great student assignment in accounting would be do investigate how the USPS operationally calculates product line "income." Stress should be placed on how misleading these "income" figures can be when making decisions like product line pricing and product line service investments.


Tax:  5,000 Pastors Rally To Defend Housing Tax Break Ruled Unconstitutional ---
http://taxprof.typepad.com/taxprof_blog/2018/04/5000-pastors-rally-to-defend-housing-tax-break-ruled-unconstitutional.html


Unemployment Claims Fall to 48-Year Low ---
http://thehill.com/policy/finance/385010-unemployment-claims-fall-to-48-year-low

Towns with unfilled jobs are handing out money, student-debt relief and home-purchase assistance to lure potential employees–one by one ---
https://www.wsj.com/articles/how-bad-is-the-labor-shortage-cities-will-pay-you-to-move-there-1525102030


Dealing With Excel's Ctrl Key Paradox ---
https://www.accountingweb.com/technology/excel/dealing-with-excels-ctrl-key-paradox?source=pe050418


Adrienne:  Has Microsoft Excel Ruined the World?
http://goingconcern.com/has-microsoft-excel-ruined-world/

Jensen Comment
It's nice to hear from Adrienne since she ended her "Junior Accountant" blog. Excel is an app, albeit a very complicated and wildly popular evolving app. Most any app or tool before we had "apps" can also lead to errors.

When I was a "Junior Accountant" in the Denver Office of E&E (now E&Y) I was sent each year to audit a local tire manufacturer. One year I detected a strange outcome that a gasoline station in Ogallala, Nebraska had 999,999 million tires on consignment. This was a computing error in the era punched-card computing, long before spreadsheet software was invented. The error turned out to be what techies called a "summary punch" error that significantly overstated the inventory of our client.

My point here is that Excel did not ruin the world due to its computing errors since computing tools before Excel also made errors. In fact, functions (think IF functions) in Excel can be built into the application to avoid such serious inventory overstatement errors.

Probably one of the best error checking tool ever invented for accounting is double-entry bookkeeping --- trial balances have to balance. However, trial balances that balance are no guarantees that errors were not made. It's probably safe to say that there's no computing tool that's error free even though the computing tools just keep getting better and better.


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

MIT:  How to get blockchains to talk to each other ---
https://www.technologyreview.com/s/611187/how-to-get-blockchains-to-talk-to-each-other/

MIT:  In Blockchain We Trust ---
https://www.technologyreview.com/s/610781/in-blockchain-we-trust/

Russian programmers have built up an outsize presence in the world of blockchain, crypto currencies, and other virtual assets ---
https://qz.com/1267356/why-are-there-so-many-russians-involved-in-crypto-and-icos/

Blockchain could be your solution to spreadsheet fatigue ---
http://blog.aicpa.org/2018/03/blockchain-could-be-your-solution-to-spreadsheet-fatigue.html#sthash.ZxLlLupt.dpbs

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

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/

Facebook is getting into blockchain — here's what it might be building ---
https://futurism.com/facebook-blockchain-team-what-are-they-up-to/

MIT Business of Blockchain 2018 Coverage ---
https://www.technologyreview.com/collection/business-of-blockchain-2018-coverage/

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

 


New Kenyan law could make global corporate tax evasion easier ---
https://issafrica.org/iss-today/will-new-legislation-turn-kenya-into-a-tax-haven
Student Question
How will this differ from Cayman Island tax evasion?
https://en.wikipedia.org/wiki/Cayman_Islands


Automating in Excel: A worksheet display tip ---
https://www.fm-magazine.com/news/2018/apr/excel-automated-file-names-201818490.html?utm_source=mnl:globalcpa&utm_medium=email&utm_campaign=02May2018


Apple Posts Impressive Numbers:  Are They Creatively Managed?
Apple Inc. is currently rated as having Aggressive Accounting & Governance Risk (AGR). This places them in the 14th percentile among all companies in North America, indicating higher accounting and governance risk than 86% of companies ---
https://finance.townhall.com/columnists/jerrybowyer/2018/05/02/finding-a-worm-in-the-apple-earnings-report-n2476781?utm_source=thdaily&utm_medium=email&utm_campaign=nl


SEC:  AUDITOR INDEPENDENCE WITH RESPECT TO CERTAIN LOANS OR DEBTORCREDITOR RELATIONSHIPS ---
https://www.sec.gov/rules/proposed/2018/33-10491.pdf


Budweiser brewer orders 800 Nikola hydrogen-powered semi-trucks ---
https://www.motorauthority.com/news/1116563_budweiser-brewer-orders-800-nikola-hydrogen-powered-semi-trucks
Also see
https://www.engadget.com/2018/05/03/anheuser-busch-orders-nikola-hydrogen-trucks/

Budweiser maker Anheuser-Busch reserves 40 Tesla electric trucks ---
https://www.reuters.com/article/us-tesla-trucks-buyers/budweiser-maker-anheuser-busch-reserves-40-tesla-electric-trucks-idUSKBN1E11V9

Jensen Comment
The point here is that the fuel-cell model is not dead, and things are not yet promising for electric semi-trucks according to engineers at Carnegie-Mellon University.

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


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

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

AICPA recommends IRS FAQs on virtual-currency taxation (bitcoin and crypto currency taxation) ---
https://www.journalofaccountancy.com/news/2018/may/virtual-currency-tax-201819073.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=31May2018

Gilfoyle's entire PowerPoint presentation explaining cryptocurrency from HBO's 'Silicon Valley' --- it's both useful and hilarious ---
http://www.businessinsider.com/silicon-valley-gilfoyles-full-cryptocurrency-powerpoint-presentation-2018-5

Crypto Crime Wave:  From stickups and drug deals to white-collar scams, cryptocurrency-related crime is soaring—and law enforcement is scrambling to keep up ---
https://www.wsj.com/articles/the-crypto-crime-wave-is-here-1524753366

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

WARREN BUFFETT: Bitcoin is 'probably rat poison squared' ---
http://markets.businessinsider.com/currencies/news/bitcoin-price-warren-buffett-says-probably-rat-poison-squared-2018-5-1023494784

MIT:  Let's Destroy Bitcoin ---
https://www.technologyreview.com/s/610809/lets-destroy-bitcoin/

What is Bitcoin, and How Does it Work?
https://www.howtogeek.com/141374/htg-explains-what-is-bitcoin-and-how-does-it-work/

What’s the Difference Between Bitcoin, Bitcoin Cash, Bitcoin Gold, and Others?
https://www.howtogeek.com/349263/whats-the-difference-between-bitcoin-bitcoin-cash-bitcoin-gold-and-others/

MIT:  A Canadian hydropower operation put out the welcome mat for bitcoin miners. Shortly thereafter, it was overrun ---
https://www.technologyreview.com/s/610786/bitcoin-is-eating-quebec/

The Dumb Money: The definitive explanation of why Bitcoin is stupid ---
https://jacobinmag.com/2018/04/bitcoin-cryptocurrency-monetary-system

Blockchain is not only crappy technology but a bad vision for the future ---
https://medium.com/@kaistinchcombe/decentralized-and-trustless-crypto-paradise-is-actually-a-medieval-hellhole-c1ca122efdec

MIT:  In Blockchain We Trust ---
https://www.technologyreview.com/s/610781/in-blockchain-we-trust/

Everything (well not really everything) You Wanted to Know About Blockchain (But Were Afraid to Ask) ---
https://scholarlykitchen.sspnet.org/2018/04/03/everything-always-wanted-know-blockchain-afraid-ask/

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

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

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

Blockchain Is Pumping New Life Into Old-School Companies Like IBM ---
https://www.bloomberg.com/news/articles/2017-12-26/blockchain-pumping-new-life-into-old-school-companies-like-ibm?cmpid=BBD122617_BIZ&utm_medium=email&utm_source=newsletter&utm_term=171226&utm_campaign=bloombergdaily

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


Zorba:  Fully Integrated Corporate Reporting ---
https://zorba-research.blogspot.ca/

Zorba:  How to Build a Smart Decision Making System ---
https://zorba-research.blogspot.ca/2018/05/how-to-build-smart-decision-making.html

Zorba:  Plan Carefully in Moving to the Cloud ---
https://zorba-research.blogspot.ca/2018/04/plan-carefully-in-moving-to-cloud.html


EY:  Updated FRD on Bankruptcies, liquidations and quasi-reorganizations ---
http://www.ey.com/ul/en/accountinglink/frd-bb1840-bankruptcies--liquidations-and-quasi-reorganizations

EY:  Foreign Currency Matters ---
http://www.ey.com/ul/en/accountinglink/frd-bb2103-foreign-currency-matters

EY:  SEC Updates

Piwowar to step down
SEC Commissioner Michael Piwowar announced that he will resign on the earlier of 7 July 2018 or the swearing in of his successor. If Mr. Piwowar leaves before a successor is sworn in, the Commission will have four members, which could adversely affect the timing of SEC rulemaking.

 

Bricker discusses the US financial reporting structure
Wes Bricker, chief accountant of the SEC, provides an overview of the Financial Reporting Structure for US public companies in a video posted on the SEC’s website. The SEC also posted three graphics that identify the participants in the US and international financial reporting process and show their roles and relationships.

 

Bricker speaks at the 2018 Baruch financial reporting conference
Wes Bricker, chief accountant of the SEC, highlighted various matters pertaining to new accounting standards, accounting for the effects of income tax reform and non-GAAP financial measures in a speech at the 2018 Baruch College financial reporting conference. 

He also discussed the importance of audit firms appointing independent directors or independent advisory council members with meaningful governance responsibilities. These outside perspectives can foster audit quality and safeguard against noncompliance threats and the resulting costs to the reputation of a firm, its network, and the audit profession generally, he said

 


Comparability and Predictive Ability of Loan Loss Allowances – the Role of Accounting Regulation versus Bank Supervision

CFS Working Paper, No. 591, 2018

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3174016
70 Pages Posted: 19 May 2018  

Günther Gebhardt

Goethe Universität Frankfurt am Main

Zoltán Novotny-Farkas

Lancaster University - Management School

Date Written: May 5, 2018

Abstract

We investigate whether and how the shift from discretionary forward-looking provisioning to the restrictive incurred loss approach under International Financial Reporting Standards (IFRS) in the European Union (EU) affects the cross-country comparability and predictive ability of loan loss allowances. Given bank supervisors’ keen interest in comparable and adequate loan loss allowances, we also examine the role of supervisors in determining financial statement effects around IFRS adoption. We find that the application of the incurred loss approach has led to more comparable loan loss allowances. However, some differences persist in countries where supervisors were reluctant to enforce the incurred loss approach. Our results also suggest that the predictive ability of loan loss allowances improved following IFRS adoption. Finally, in supplemental analyses we document that increased comparability of loan loss allowances is associated with the cross-country convergence of the risk sensitivity of bank leverage indicating an improvement in the effectiveness of market discipline in the EU.

Keywords: comparability, loan loss allowances, IFRS, bank accounting, supervisory intervention

JEL Classification: M41, M48, G21


Exploring the Scientific Landscape of Internal Audit Research: A Bibliometric Analysis

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3178362
65 Pages Posted: 18 May 2018  

Joel Behrend

University of Duisburg-Essen, Mercator School of Management

Marc Eulerich

University of Duisburg-Essen, Mercator School of Management

Date Written: May 14, 2018

Abstract

Addressing the heavily increased attention on internal auditing in the post-SOX era, this paper aims to unravel the scientific metamorphosis of the topic within current accounting research, including the different scientific sub-areas that define it. In an attempt to extent the scant body of literature reviews that has focused on the internal audit function (IAF), we pursue an empirical approach to analyze the scientific structures and provide a variety of directions for future internal audit research. In this context, citation patterns extracted from 170 research articles published in five major accounting journals are being studied by combining co-citation and social network analysis in order to investigate different existing research domains of internal auditing and to discover the core work that has been done in this area. The scientific landscape of internal auditing can be characterized as profoundly fragmented and deeply rooted into different adjacent domains of accounting research. Identified subcategories from which research on internal auditing is derived can be summarized as Corporate Governance, Auditor Independence, Auditing Professionalization, Audit Committee Effectiveness, Reliance on Internal Auditing, Internal Control over Financial Reporting, and finally the Regulatory Framework. Additionally, results reveal the existence of a pivotal nucleus of research that emphasizes the increasingly important construct of internal audit quality.

The focus of this study lies on the analysis of major accounting journals, namely The Accounting Review, Contemporary Accounting Research, Journal of Accounting Research, Journal of Accounting Economics and Accounting, Organizations and Society and is restricted onto the years from 1926 to 2016.

Keywords: Internal Audit, Internal Audit Function, Bibliometrics, Co-citation analysis


Analysis of Panasonic Group in Terms of Activity-Based-Costing, Just-in-Time Production, and Quality and Environment
Costing

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3159960
20 Pages Posted: 17 May 2018  

Ibrahim Ouassini

University of the West of Scotland - Finance and Accounting, Students

Date Written: April 10, 2018

Abstract

This paper illustrates how might Panasonic Group implements JIT, ABC, and environmental costing.

Keywords: Just In Time, Activity Based Costing, environmental costing, Panasonic Group, Accounting, Finance


Tilting the Evidence: The Role of Firm-Level Earnings Attributes in the Relation between Aggregated Earnings and Gross Domestic Product

 

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3179080
33 Pages
Posted: 17 May 2018  

Ryan T. Ball

The Stephen M. Ross School of Business at the University of Michigan

Lindsey A. Gallo

University of Michigan, Stephen M. Ross School of Business

Eric Ghysels

University of North Carolina Kenan-Flagler Business School; University of North Carolina (UNC) at Chapel Hill - Department of Economics

Date Written: May 15, 2018

Abstract

We examine whether the contribution of firm-level accounting earnings to the informativeness of the aggregate is tilted towards earnings with specific financial reporting characteristics. Specifically, we investigate whether considering the volatility of earnings relative to the volatility of cash flows at the firm level (smoothness) increases the informativeness of aggregate earnings for future nominal GDP, and if so, whether macroeconomic forecasters use this information efficiently. This study innovates on recently developed mixed data sampling methods in the construction of an aggregate earnings growth measure by allowing each firm's contribution to the aggregate to vary as a function of earnings smoothness. We find that the aggregate is tilted towards firms with smoother earnings and that this composition of aggregate earnings outperforms traditional weighting schemes in the association with future GDP growth. Further, this tilted aggregate has a stronger positive association with forecast revisions; in fact, analysts who utilize earnings the most in their forecasts appear to fully impound the informativeness of earnings smoothness. Our results synthesize and span parallel yet distinct streams of research on the role of accounting earnings in firm-level and macroeconomic outcomes and suggest an important role for financial reporting characteristics in the aggregate.


Prudential Supervisors’ Independence and Income Smoothing in European Banks

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3172753
51 Pages Posted: 16 May 2018  

Beatriz Garcia Osma

Universidad Carlos III de Madrid - Department of Business Administration

Araceli Mora

University of Valencia - Department of Accounting

Luis Porcuna-Enguix

University of Valencia

Date Written: May 3, 2018

Abstract

We investigate the role of prudential supervisors’ independence in affecting income smoothing behavior in European banks. Powerful national supervisors are predicted to influence the accounting practices of their supervised entities, shaping the properties of the accounting numbers they prepare. In particular, we study whether greater independence of powerful supervisors from the government and from the industry is associated with lower income smoothing. We use the mandatory adoption of a single set of accounting standards in Europe as an exogenous shock to the influence of prudential supervisors over national banks’ accounting practice. Our results confirm that political and industry independence of the supervisor are important determinants of income smoothing. This suggests that independence of prudential supervisors is a desirable governance characteristic, with positive impacts on financial transparency.

Keywords: Income Smoothing; Prudential Supervisors; Independent Supervisors; European Banking Industry; IAS 39; Single Supervisory Mechanism

JEL Classification: G21; G38; M40


The Association between Changes in Accounting Estimates and Accounting Restatements

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3170603
43 Pages Posted: 16 May 2018  

Philip Beaulieu

University of Calgary

B. Louise Hayes

University of Guelph - Department of Management

Lev Timoshenko

University of Calgary - Haskayne School of Business

Date Written: November 27, 2017

Abstract

This paper investigates the relationship between changes in accounting estimates and subsequent restatements. Theory suggests that depending on the underlying reason for an estimate change, this relationship can be either negative (for changes in estimates made in response to new developments or management having obtaining new information) or positive (for changes in accounting estimates made with an objective of managing earnings or changes that are not reliably estimated and are poorly audited). We hypothesize and find a positive relationship between changes in estimates and restatements. There is also support for the prediction that the presence of a change in accounting estimate(s) is associated with an increased likelihood of subsequent restatement to correct intentional misstatement. The findings of the study are of interest to accounting academics, regulators, and audit practitioners.

Keywords: changes in accounting estimates, financial restatements, financial reporting quality

JEL Classification: M40


Estimating Latent Asset-Pricing Factors

CEPR Discussion Paper No. DP12926

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3178097
45 Pages Posted: 15 May 2018  

Martin Lettau

University of California - Haas School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Markus Pelger

Stanford University - Management Science & Engineering

Date Written: May 2018

Abstract

We develop an estimator for latent factors in a large-dimensional panel of financial data that can explain expected excess returns. Statistical factor analysis based on Principal Component Analysis (PCA) has problems identifying factors with a small variance that are important for asset pricing. We generalize PCA with a penalty term accounting for the pricing error in expected returns. Our estimator searches for factors that can explain both the expected return and covariance structure. We derive the statistical properties of the new estimator and show that our estimator can find asset-pricing factors, which cannot be detected with PCA, even if a large amount of data is available. Applying the approach to portfolio data we find factors with Sharpe-ratios more than twice as large as those based on conventional PCA and with significantly smaller pricing errors.

Keywords: Anomalies, Cross Section of Returns, expected returns, high-dimensional data, Latent Factors, PCA, Weak Factors

JEL Classification: C14, C38, C52, C58, G12


The Early Years of the Financial Accounting Foundation and the Financial Accounting Standards Board, 1972 to 1980: The ‘Special Relationship’ with the AICPA

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3170425
22 Pages Posted: 14 May 2018  

Stephen A. Zeff

Rice University - Jesse H. Jones Graduate School of Business

Date Written: April 28, 2018

Abstract

In this paper, the author documents the American Institute of Certified Public Accountants’ “special relationship” with the Financial Accounting Foundation and the Financial Accounting Standards Board, such that questions could be raised about whether these latter two bodies were truly independent of the Institute and of the practicing profession during the years from 1972 to 1980.

Keywords: Independence, Standard Setting, AICPA, FAF, FASB

JEL Classification: M41


The 'Tax Cuts and Jobs Act' Impact on Deferred Taxes and the Valuation of an Entity

International Journal of Business and Applied Social Science (IJBASS), Vol. 4, Issue 4, April 2018

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3171370
5 Pages Posted: 14 May 2018  

Paul Schauer

Bowling Green State University - Accounting & Management Information Systems

Date Written: May 1, 2018

Abstract

Financial analysts generally view deferred taxes as an accounting aberration that has little impact on the valuation of an entity. The headlines in financial publications that focus on the recent decrease in federal corporate income tax rates impact on deferred tax assets and liabilities and the resulting effect on net income changed that. This article provides an explanation of the origination of deferred taxes and their impact on the valuation of an entity.

Keywords: deferred tax asset, deferred tax liability, valuation


Judging Banks' Risk by the Profits They Report

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3169730
53 Pages Posted: 10 May 2018  

Ben S. Meiselman

Johns Hopkins University

Stefan Nagel

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research

Amiyatosh K. Purnanandam

University of Michigan, Stephen M. Ross School of Business

Date Written: April 26, 2018

Abstract

In competitive capital markets, portfolios of risky debt claims have high systematic risk exposure in bad times if they offer a high "yield" in good times. We apply this idea to measurement of bank risk. Rather than trying to directly measure asset risks on the balance sheet — the typical (manipulation-prone) approach in model-based regulation — we explore high rates of profit in good times as an indicator of systematic tail risk exposure. We show empirically, for cross-sections of banks in the financial crisis of 2007–2008 as well as the savings and loan crisis of the 1980s, that high accounting profitability prior to the crisis predicts high systematic tail risk of equity market values during the crisis, and most strongly so if pre-crisis profits arise from non-interest income or are paid out as dividends and managerial compensation. Pre-crisis profit measures do a better job in predicting systematic tail risk than conventional measures based on risk-weighted assets.

Keywords: Risk of Financial Institutions, Systemic Risk, Risk Measurement

JEL Classification: G20, G30


Fair Value Accounting, Earnings Management, and the Case of Bargain Purchase Gain

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3167597
46 Pages Posted: 9 May 2018  

Steven B. Lilien

City University of New York - Stan Ross Department of Accountancy

Bharat Sarath

Rutgers, The State University of New Jersey - Accounting

Yan Yan

Fairleigh Dickinson University

Date Written: April 6, 2018

Abstract

The new accounting standard (FASB ASC 805) requires acquiring firms to estimate the fair value of net assets acquired and recognize the excess amount over purchase price as a bargain purchase gain, a component of current earnings. The flexibility in fair value measurement provides acquiring management with discretion to determine the amount of the bargain purchase gain, and thereby, inflate income. This paper investigates the association between bargain purchase gains booked by the acquirer and smoothing of acquirers’ earning performance across time. We find that bargain purchase gains, and in particular, the level-3 fair value estimates of intangible assets acquired, have consistently been used to smooth earnings but that such smoothing activities are not associated with long-term market returns.

Keywords: bargain purchase gain, ASC 805, fair value measurement, ASC 820, earnings management

JEL Classification: M40, M41


Audit Personnel Salaries and Audit Quality

Review of Accounting Studies, Forthcoming

Kelley School of Business Research Paper No. 18-42

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3167538
60 Pages Posted: 8 May 2018  

Jeffrey L. Hoopes

University of North Carolina (UNC) at Chapel Hill - Accounting Area

Kenneth J. Merkley

Cornell University - Samuel Curtis Johnson Graduate School of Management

Joseph Pacelli

Indiana University - Kelley School of Business - Department of Accounting

Joseph H. Schroeder

Indiana University - Kelley School of Business - Department of Accounting

Multiple version iconThere are 2 versions of this paper

Date Written: March 2018

Abstract

This study examines the relation between audit personnel salaries and office-level audit quality. We measure audit personnel salaries at the associate, senior and manager ranks for Big 4 audit offices from 2004 to 2013 using unique individual auditor level data obtained from the U.S. Department of Labor. We find that offices that pay lower salaries have a higher percentage of clients that experience restatements. In related analyses, we also find lower levels of audit quality when audit employees are paid less relative to other lines of service in accounting firms (tax, consulting, etc.). Finally, we document positive and significant associations between salary and fees, suggesting that audit offices pass some of the cost of higher labor onto their clients. Overall, our findings provide important initial evidence on the role of audit salary and its relation to audit quality and audit fees.

Keywords: Audit Personnel Salary, Audit Quality, Salary Determinants, Audit Fees

JEL Classification: M41, M42, M51, M52


The Effect of Large-Firm Audits on Municipal Bond Rating Decisions

Auditing: A Journal of Practice & Theory, Vol. 13, No. 1, 1994

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3166282
Posted: 8 May 2018  

Arthur C. Allen

Univ. of Nebraska - Lincoln

Date Written: 1994

Abstract

Municipal accounting information is widely believed to be useful to creditors in assessing bond default risk (e.g., Wallace 1985; Wilson and Howard 1985). Users of accounting information perceive that Big 8 auditors provide higher quality audits both for corporations (Shockley and Holt 1983; McKinley et al. 1985) and municipalities (Baskin 1986). Concern about the reliability of local government audits has been heightened by the U.S. General Accounting Office’s (GAO) (1986) recent findings that some audits do not comply with professional standards, especially audits by smaller auditors. Local government audits are relied on by the federal government, as well as the bond market, to discover material errors. Big 8 audits may signal higher “quality,” where quality is defined as a reduced probability that the financial statements contain a material misstatement. This study investigates the relationship between auditor type and the usefulness of municipal accounting information to predict bond ratings.

Raters’ perceptions of the usefulness of accounting information are assessed by examining the association between accounting information and bond ratings. Bond ratings are predicted for cities that employ Big 8 auditors, and a separate model is estimated for cities that employ non-Big 8 auditors. The observations for the two models are matched by size. The empirical analysis supports the hypothesis that Big 8 audits are associated with the ability of accounting information to accurately predict municipal bond rating decisions. By comparison, this study finds that accounting information associated with non-Big 8 audits is not able to predict municipal bond rating decisions better than random chance. This study provides insights as to the relationship between auditor type and the perceived usefulness of accounting information.

Keywords: local government, auditing, bond ratings

JEL Classification: M42,G24


Using a Hidden Markov Model to Measure Reporting Systems

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3166423
56 Pages Posted: 8 May 2018  

Kai Du

Pennsylvania State University - Department of Accounting

Steven J. Huddart

Pennsylvania State University, University Park - Department of Accounting

Lingzhou Xue

Pennsylvania State University - Department of Statistics

Yifan Zhang

Pennsylvania State University - Department of Marketing

Date Written: April 20, 2018

Abstract

We use a hidden Markov model (HMM) to develop a measure of earnings informativeness without relying on proxies of firms’ latent economic states. In the model, each firm’s underlying states follow a Markov process and are only imperfectly revealed by accounting signals. We estimate the model using a Markov chain Monte Carlo (MCMC) procedure with a Bayesian hierarchical framework that accommodates cross-sectional heterogeneity. We show that the informativeness measure is incrementally predictive of the external indicators of low-quality accounting (i.e., restatements, Accounting and Auditing Enforcement Releases (AAERs), SEC comment letters). It is positively associated with the forward earnings response coefficient. Our measure is particularly useful among smaller firms, for which traditional measures of accounting quality (e.g., accruals quality) are more susceptible to measurement noise. The framework also provides a measure of conservatism that is associated with asymmetric timeliness and the determinants of conservatism.

Keywords: Hidden Markov Model, Informativeness, Accounting Quality, Conservatism, MCMC Method

JEL Classification: C11, C13, M41


Replication and Robustness Analysis of 'Energy and Economic Growth in the USA: A Multivariate Approach'

CAMA Working Paper No. 18/2018

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3167667
45 Pages Posted: 7 May 2018  

Stephan Bruns

Department of Economics, University of Göttingen

Johannes König

Department of Economics and INCHER, University of Kassel

David I. Stern

Australian National University (ANU) - Crawford School of Public Policy

Date Written: April 24, 2018

Abstract

We replicate Stern (1993, Energy Economics), who argues and empirically demonstrates that it is necessary (i) to use quality-adjusted energy use and (ii) to include capital and labor as control variables in order to find Granger causality from energy use to GDP. Though we could not access the original dataset, we can verify the main original inferences using data that are as close as possible to the original. We analyze the robustness of the original findings to alternative definitions of variables, model specifications, and estimation approach for both the (almost) original time span (1949- 1990) and an extended time span (1949-2015). p-values tend to be substantially smaller if energy use is quality adjusted rather than measured by total joules and if capital is included. Including labor has mixed results. These findings tend to largely support Stern’s (1993) two main conclusions and emphasize the importance of accounting for changes in the energy mix in time series modeling of the energy-GDP relationship and controlling for other factors of production. We also discuss how the inclusion of the original author in designing the replication study using a pre-analysis plan can help to counterbalance the incentive of replicating authors to disconfirm major findings of the original article to increase the probability of getting published.

Keywords: Replication, robustness analysis, sensitivity analysis, energy, GDP, Divisia index, Granger causality

JEL Classification: Q43, C32, C52


The Ongoing Debate About the Impact of the 150-Hour Education Requirement on the Supply of Certified Public Accountants

Issues in Accounting Education, Vol. 27, No. 4, 2012

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3166252
Posted: 6 May 2018  

Arthur C. Allen

Univ. of Nebraska - Lincoln

Angela M. Woodland

Montana State University - Bozeman

Date Written: Fall 2012

Abstract

In an earlier paper in this journal, Allen and Woodland (2006; hereafter AW) provided evidence that the 150-hour education requirement for licensure significantly reduced the number of candidates taking and passing the CPA exam, but had little effect on pass rates. Gramling and Rosman (2009; hereafter GR) extended AW by examining the number of candidates based on whether the 150-hour requirement applies to the exam or for licensure, concluding that the 150-hour requirement does not reduce the number of candidates taking and passing the exam. In this paper, we reopen the discussion of whether the 150-hour education requirement affects entrants into the accounting profession by comparing the AW and GR research designs and conclusions. We conclude that the GR research design yields results about whether differences in 150-hour implementation methods affect the number of candidates taking and passing the exam, but does not directly provide evidence about whether the 150-hour education requirement itself affects the number of candidates.

Keywords: 150-Hour Requirement, Accounting Education

JEL Classification: M42, M48


A Model of Stock Prices Leading Earnings

Managerial Finance, Forthcoming

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3158657
Posted: 5 May 2018  

Jay Junghun Lee

University of Massachusetts Boston

Date Written: April 8, 2018

Abstract

Prior literature suggests that stock prices lead earnings in reflecting value-relevant information because accounting income incorporates information discretely to satisfy recognition principles while stock prices incorporate it continuously. Using the future earnings response coefficient (FERC) methodology, this study derives a model that relates the recognition lag of earnings to the incremental informativeness of future anticipated earnings in equity prices after controlling for current realized earnings. The analytical FERC model shows that the pricing coefficient on future earnings is positive in the presence of stock prices leading earnings. More importantly, the pricing coefficient on future earnings increases with the recognition lag but the pricing coefficient on current earnings decreases with the lag. The results suggest that recognition principles that intend to enhance the reliability of earnings inadvertently lower the timeliness of earnings and thus shift the investors’ demand for value-relevant information from current realized earnings to future anticipated earnings. In addition, this study confirms the FERC model as an empirical model that investigates the extent to which stock prices lead earnings.

Keywords: Stock Prices Leading Earnings, Return-Earnings Relation, Future Earnings Response Coefficient (FERC), Recognition Lag, Timeliness


Performance Auditing for Islamic Banks

Islamic Economic Studies, Vol. 5, No. 1 & 2, 1998

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3165343
15 Pages Posted: 20 Apr 2018  

Muhammad Akram Khan

Auditor General of Pakistan

Date Written: April 01, 1998

Abstract

Although the Islamic finance is making continuous progress, yet the Islamic banks still face criticism from keen observers that they have adopted such techniques of financing which closely resemble interest-based finance. The difficulty with Islamic banks is that they feel hesitant to adopt profit-loss sharing in the contemporary environment. They are afraid that their clients may misreport or mismanage their funds leading to large-scale losses. Being trustees of public funds they think the risk in profit-loss sharing is very high. In this situation, development of appropriate accounting and auditing standards is the need of the day. Performance auditing, being a recent expansion in the scope of auditing holds a promise. The paper introduces the concept of performance auditing and shows how the Islamic banks can use it to their advantage. The paper also proposes a set of strategic measures for the Islamic banks to put performance auditing in practice.


 

 




From the CFO Journal's Morning Ledger on May 31, 2018

The Financial Reporting Council, the U.K. regulator for reporting, accounting and audit, has filed formal complaints against the auditors and two former finance executives of Autonomy Corp. PLC. This comes after Hewlett-Packard Co. bought the British software company for $11 billion in 2011 but afterwards wrote down the value of its acquisition as doubts about Autonomy's accounting practices emerged, reports Ms. Trentmann.

The conduct of auditors Deloitte LLP, Richard Knights and Nigel Mercer, as well as of former CFO Sushovan Hussain and former Vice President of Finance, Stephen Chamberlain, fell significantly short of standards expected of them, the FRC said in a statement.


From the CFO Journal's Morning Ledger on May 29, 2018

Good morning. Finance chiefs are increasingly tying their floating-rate debt payments to benchmarks that are rising at a slower pace than interest rates, in a bid to mitigate higher financing costs, report the WSJ's Ben Eisen and Matt Wirz.

The rejiggering among companies comes as rates have climbed this year, spurred by increases from the U.S. Federal Reserve, expectations for a pickup in inflation and an increase in government debt sales to fund last year’s tax-cut package.

The rate at which banks lend to each other for three months has been rising much faster than the rate at which they lend for one month, pushing the gap in April between the two to its widest since 2009. The three-month U.S. dollar London interbank offered rate has climbed 0.62 percentage point this year to 2.32%, while the one-month counterpart has climbed a comparably meager 0.41 point to 1.98%.

Accordingly, more than half of junk-rated corporate loans recently had interest payments tied to one-month Libor, up from less than a quarter at the beginning of 2016, according to data tracked by Wells Fargo & Co. on about $500 billion of loans. The share of loans tied to three-month Libor has been dwindling.

Jensen Comment
Most of the interest rate hedging illustrations in FAS 133 and 138 use LIBOR. Sadly, most of those outstanding illustrations were not carried into the Codification database. I had my students study the original FAS 133 and 138 illustrations.

FAS 138 explains the role of benchmarking in interest rate hedging.


From the CFO Journal's Morning Ledger on May 25, 2018

The U.S. Public Company Accounting Oversight Board censured Deloitte & Touche LLP and imposed a $500,000 penalty against the Big Four firm for overlooking material accounting errors during three consecutive audits of Jack Henry & Associates Inc., a Missouri-based IT provider for banks and credit unions, reports Accounting Today.


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

Over 98% of companies listed in major large and mid-cap indices in the U.K., Germany, Italy, Spain and the Netherlands are audited by one of the Big Four accounting firms -- Ernst & Young LLP, Deloitte Touche Tohmatsu Ltd., KPMG LLP and PricewaterhouseCoopers LLP -- according to Audit Analytics review of 2017 fiscal year data. The remaining 1% of a total of more than 600 companies were audited either by BDO LLP or Grant Thornton LLP.


From the CFO Journal's Morning Ledger on May 18, 2018

Kroger Co. has struck a deal with a British grocer known for its use of warehouse robots, as the biggest U.S. grocery chain aims to supercharge its online delivery business in the face of competition from Amazon.com Inc. and Walmart Inc


From the CFO Journal's Morning Ledger on May 18, 2018

The American Institute of CPAs has asked the Internal Revenue Service to provide “maximum flexibility” in its rules for the new centralized partnership audit regime, according to a Wednesday letter the industry group sent to the regulator.

The proposed rules, issued in February, govern how partnership audits will be conducted and how tax is assessed and collected from taxpayers conducting business through partnerships, reports CFO Journal's Tatyana Shumsky.

The AICPA, in its letter, urged the IRS to offer a simplified procedure for adjusting the tax attributes of an audited partnership and its partners. The group also made recommendations for flexibility around how the IRS applies rules governing remittance by a former partner, and successor rules for mergers and divisions.

 U.S. corporations spent $23 billion on analytics in 2017, either through internal teams or external consulting firms, according to a report released Thursday by consulting industry researcher Source Global Research.

Companies ramped up analytics spending by 11% as they combed over large data sets to develop insights that guide the future and explain the past, the report said. Around $10 billion went to building in-house analytics teams, while roughly $13 billion was spent on external consultants.

The report analyzed the number of people working in analytics-related roles at 130 Fortune 500 companies and surveyed 199 senior executives at large U.S. companies, reports CFO Journal's Tatyana Shumsky


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

Fiat Chrysler employees knew of emissions cheating, documents in shareholder suit claim
Fiat Chrysler Automobiles NV
employees believed the auto maker used illegal software in diesel-powered vehicles to cheat on U.S. emissions tests and concealed it from regulators, according to allegations by plaintiffs’ lawyers in federal court documents unsealed Monday.


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

Tesla executives step away
Tesla Inc.
will be without two important executives just as the electric-car maker struggles to boost production of its first mass-market vehicle and faces doubts about its ability to raise cash. The company's fundraising options are fraught with complications, reports the WSJ's Sam Goldfarb.

Elon Musk reveals new details about how Tesla is restructuring ---
http://www.businessinsider.com/teslas-elon-musk-reveals-details-about-company-restructuring-2018-5


What is GDPR?
A look at the European data privacy rules that could change tech
-
--
https://www.nbcnews.com/tech/internet/what-gdpr-look-european-data-privacy-rules-could-change-tech-n868646

From the CFO Journal's Morning Ledger on May 12, 2018

Good morning. Finance chiefs considering marketing budgets or decisions around user data should keep a close eye on Europe, where a new data privacy law is soon going into effect. The rule is set to trigger a battle over what information companies can collect and could have ramifications for digital advertising, writes the WSJ’s Sam Schechner.

The new law forbids companies from forcing users to turn over personal information as a condition of using their services. So while a pizza shop needs your address to deliver your pizza and a chat app service needs your selfie if you want to send it to friends, the reasons driving why some internet behemoths require user’s personal data are less clear cut.

“The crux of this argument is going to be the legitimacy of the behavioral advertising business model,” said Omer Tene, vice president of the International Association of Privacy Professionals. “Behavioral advertising” is the name for the business, worth tens of billions of dollars per year, that allows companies to show users targeted advertising based on their internet activity.

The debate could end up in the courts for years, with the potential to weaken either the European Union’s new data-privacy law or impact the business models of ad-reliant giants like Facebook Inc. and Alphabet Inc.'s Google.

 


From the CFO Journal's Morning Ledger on May 10, 2018

Sears stock roars on Amazon tie-up
Sears Holdings Corp.
shares jumped 16% after the company announced a tire service partnership with Amazon.com Inc., part of Chief Executive Edward Lampert's plan to turnaround the troubled retailer, reports Reuters.


Francine:  How new accounting rules boosted Tesla’s numbers ---
https://www.marketwatch.com/story/tesla-adjusts-numbers-for-impact-of-new-revenue-rules-that-also-helped-it-beat-estimates-2018-05-07

A new accounting rule helped electric car maker Tesla Inc. to post a first-quarter revenue beat, and the company also used the change to book a stealth adjustment to its running total of accumulated losses.

Tesla reported revenues of $3.4 billion compared with analyst expectations of revenues of $3.2 billion, up from $2.7 billion a year ago.

However, Tesla TSLA, +1.62%  also took advantage of the new rules to revise the estimate in its first-quarter filing of the impact of the new rules on its accumulated deficit for prior years.

Tesla has an accumulated deficit, instead of retained earnings, because it has booked losses for years. In its annual report released in February the company said it would be able to reduce its accumulated deficit by $520 million pretax at the beginning of 2018, as a result of the new revenue recognition accounting rules that allow the company to post revenue from leased cars much faster.

Continued in article

Read: New accounting rules trim Tesla deficit and promise faster future revenues

See also: Opinion: Elon Musk acted like a jerk, and Tesla stock paid the price

From the CFO Journal's Morning Ledger on May 9, 2018

Dish Network profit boosted by new accounting rules
New revenue accounting standards buoyed Dish Network Corp.’s net income by around 7% during its latest quarter, the company’s finance chief said Tuesday.

The new accounting rules require companies to recognize revenue from contracts at the time the promised goods and services are delivered to a customer, reports CFO Journal's Ezequiel Minaya. The uniform standard, which became effective for public companies this year, replaces a patchwork of industry-specific rules with the aim of making comparisons of revenue and fiscal performance easier.

The rules also affect how and when companies report the costs associated with delivering their products and services.


From the CFO Journal's Morning Ledger on May 8, 2018

Walmart bets $15 billion on e-commerce in India
Walmart Inc.
is set to spend $15 billion for a 75% stake in Flipkart Group, an Indian e-commernce startup which has burned through mountains of cash.


From the CFO Journal's Morning Ledger on May 4, 2018

Good morning. Executives at large U.S. companies reported the strongest earnings gains in more then seven years, fueled by the decline in the effective tax rate, report the WSJ's Theo Francis and Richard Rubin. 

More than half of the combined net-income growth reported by 200 large public companies for the first quarter stemmed from the drop in the tax rate to 21% from 35%, a Wall Street Journal analysis of quarterly financial data found.

At a third of the companies, tax expenses fell in dollar terms even as pretax income rose, boosted by strong revenue growth and the expanding economy. “It’s clearly not just the economy” driving corporate profits, said Joseph LaVorgna, chief economist for the Americas at Natixis, a corporate and investment bank. “Change in tax policy is part of it.”

Many companies are returning their tax savings to investors. The amount spent on share buybacks in the first quarter rose by more than 50% over the fourth quarter of 2017, and by two-thirds over the first quarter of 2017, according to S&P Dow Jones Indices. Companies have also set plans to invest in expansion and new technology, and some paid one-time bonuses to employees.


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

Tesla under pressure to fulfill solar panel promises
Executives at Tesla Inc. are facing another financial challenge. Installations of the company's home solar panels are declining and the business is under pressure to fulfill promises it made to investors, just as the U.S. tax overhaul presents new risks to the industry.


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

U.S. jury convicts former Autonomy CFO of fraud
A federal jury found Autonomy Corp.’s former financial chief guilty of falsifying financial statements and exaggerating the British software maker’s value before its sale to 
HP Inc. for $11 billion in 2011.


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

AICPA offers guidance on achieving UN sustainability goals
The Association of International CPAs has released a guide to how management accountants can help their organizations fulfill the United Nations’ Sustainable Development Goals, Accounting Today reports.




Teaching Case From The Wall Street Journal Weekly Accounting Review on April 27, 2018

Earnings Are Strong, but Rewards Are Scarce

By Michael Wursthorn and Akane Otani | Apr 23, 2018

TOPICS: Earning Announcements, Earnings Forecasts

SUMMARY: This article focuses on a plot of share price changes against earnings surprises for the S&P 500 firms which have so far reported first quarter 2018 results. Also included are plots of analysts' forecast revisions since December 2017 for the first quarter performance, quarterly earnings growth rates from 2014to 2018, and the timing status of first quarter 2018 expected reporting of results. The article may be used to explain the ways in which analysts inform the market of earnings expectations and markets react to announcements of actual results.

CLASSROOM APPLICATION: The article may be used in a financial reporting class discussing earnings forecasts.

QUESTIONS: 

 

1. (Introductory) How many of the S&P 500 companies have reported their first quarter 2018 results as of April 23, 2018?

 

2. (Introductory) Refer to the related graphic. When are most of the S&P 500 companies expected to report their earnings results?

 

3. (Advanced) What is an "earnings surprise"? How many companies have shown positive earnings surprises as opposed to negative surprises so far in reporting first quarter results?

 

4. (Advanced) Does the stock price of companies reporting negative earnings surprises always react negatively? What factors do you think influence these stock price reactions?

READ THE ARTICLE



 

Reviewed By: Judy Beckman, University of Rhode Island

 

"Earnings Are Strong, but Rewards Are Scarce," by Michael Wursthorn and Akane Otan, The Wall Street Journal, April 23, 2018
https://www.wsj.com/articles/earnings-are-strong-but-rewards-are-scarce-1524423695?mod=djem_jiewr_AC_domainid

Companies are expected to report 18% jump in earnings for the quarter, the highest growth rate since 2011

Earnings season is in full swing, with 17% of the companies in the S&P 500 having reported quarterly results through Friday and the majority of the firms in the index on deck over the next two weeks.

In all, the companies are expected to report an 18% jump in earnings for the quarter, according to FactSet, which would mark the highest growth rate since the first quarter of 2011. Analysts have been steadily raising that estimate in recent months as companies have touted the benefits of a lower tax rate, a healthy consumer and higher oil prices.

Of the companies that have reported so far, 80% have posted per-share earnings that beat expectations of Wall Street analysts, with the companies on average topping estimates by 5.9%. Both of those metrics are ahead of five-year averages. At the sector level, health-care, energy and real-estate companies in the index have delivered the highest percentage of better-than expected performances, while materials and consumer-discretionary firms have underperformed.

Market moves, meanwhile, have been muted. Companies that reported stronger-than-expected earnings have seen their shares on average rise by 0.1% two days before the earnings release through two days after, well below the five-year average increase of 1.1%. And the companies that disappointed by posting weaker-than-expected numbers have seen their shares slide 0.9% over the same period, much smaller than the five-year average decline of 2.4%.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on April 27, 2018

Volkswagen Plans First U.S. Bond Sale After Emissions Scandal

By Nina Trentmann | Apr 23, 2018

TOPICS: Debt

SUMMARY: The article describes Volkswagen's plans to issue bonds in the face of $1.8 billion of bonds maturing this year and another $1.75 billion in 2019. The company has not issued dollar-denominated debt since its diesel scandal broke in 2015 and "could issue between $1.5 to $2 billion in dollar-denominated debt this year, said a banker familiar with the company." The company has used short-term financing until now but "tested the waters" with an issuance of euro denominated debt in 2017. The article also specifically describes the company's cash levels, outstanding debt, and earnings in 2017.

CLASSROOM APPLICATION: The article may be used to discuss factors influencing a company's planned debt issuance. It also may be used when covering foreign currency transactions to emphasize that this Germany company issues dollar-denominated debt, though specific foreign exchange issues are not addressed.

QUESTIONS: 

 

1. (Introductory) Volkswagen was a "frequent debt issuer before the diesel scandal." What was the diesel scandal? You may refer to the link in the article to help with your answer.

 

2. (Advanced) How did Volkswagen obtain needed financing between the initial announcement of the diesel scandal and today? Define each of the types of debt described in the article.

 

3. (Advanced) What debt maturities is Volkswagen facing? Why are the types of debt defined in answer to the question above not appropriate for re-financing this maturing debt?

 

4. (Advanced) Where is Volkswagen headquartered? Why do you think the company issues dollar-denominated debt as well as debt denominated in other currencies?

READ THE ARTICLE



 

Reviewed By: Judy Beckman, University of Rhode Island

 

"Volkswagen Plans First U.S. Bond Sale After Emissions Scandal," by Nina Trentman, The Wall Street Journal, April 23, 2018
https://www.wsj.com/articles/volkswagen-plans-first-u-s-bond-sale-after-emissions-scandal-1524475801?mod=djem_jiewr_AC_domainid

German auto maker wants to affirm credibility with investors through its first U.S. debt offering since 2015

Volkswagen AG VLKAY -0.40% is looking to return to the U.S. bond market for the first time since its emissions scandal, a move that would seal a successful turnaround for the German auto maker.

A frequent debt issuer before the diesel scandal, Volkswagen has relied on a €20 billion ($24.7 billion) bridge loan, asset-backed securities and commercial paper to cover its financial needs.

The company already has tested the waters in Europe, where its €8 billion bond issued a little over a year ago was snapped up by investors. It isn’t clear when the U.S. deal would come to market or what the size of such an offering would be.

The auto maker’s Chief Financial Officer Frank Witter said reopening access to the bond market was a key focus of his job, which he took on less than a month after it was revealed in September 2015 that the German auto maker systematically cheated on emissions tests in the U.S.

The recent management shake-up at the German auto maker hasn’t altered it debt plans, the company said. Herbert Diess was appointed as chief executive of the auto maker earlier this month, abruptly replacing Matthias Müller. Mr. Witter also took on oversight of the company’s information technology unit as part of the changes. VW reports earnings on April 26.

Mr. Witter has been laying the groundwork for a comeback over the past 2½ years meeting with scores of investors, bankers and analysts. He said he was “bluntly open” about the company’s strengths and weaknesses with them.

“The communication we have seen from [Mr.] Witter has been a huge improvement compared with what we saw from Volkswagen in the past,” said Kristina Church, an analyst at Barclays PLC.

Still, there is more work ahead to rehabilitate the company’s reputation with investors. Default insurance on Volkswagen debt is more expensive than for other car makers, including Japanese competitor Toyota Motor Corp. , a sign that investors remain cautious.

Volkswagen, which last issued U.S. debt in May 2015, has $1.8 billion of bonds maturing this year, and another $1.75 billion in 2019. The auto maker could issue between $1.5 to $2 billion in dollar-denominated debt this year, said a banker familiar with the company.

“You always, particularly when you return [to the bond market], want to size the deal right,” said Mr. Witter.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on April 27, 2018

Google Parent Posts Surge in Profit, but Expenses Also Jump

By Douglas MacMillan | Apr 24, 2018

TOPICS: Capital Expenditures, Earnings, Investments

SUMMARY: Alphabet, Inc., parent of search engine Google and other entities, reported first quarter 2018 results showing soaring ad revenues. The results also reflect increasing operating costs and capital expenditures. The related article emphasizes the exposure Facebook faces for its ad revenue-based business model. "Alphabet's earnings also got a multibillion-dollar boost from the company's stakes in startups including Uber Technologies, Inc...." The related article also discusses how Google, through Waymo, acquired .34% of Uber's equity; that increase was in addition to Alphabet's 2013 investment of $258 million in Uber when the company had a $3.76 billion valuation.

CLASSROOM APPLICATION: The article may be used in any level of class covering financial reporting with questions 1 through 3; questions 4 through 6 cover investment accounting.

QUESTIONS: 

 

1. (Introductory) What is the main source of revenue for Google? How is this revenue source trending?

 

2. (Introductory) What are capital expenditures? How do Google's capital expenditures in the last three quarters of 2017 and the first of 2018 compare to periods before that?

 

3. (Advanced) Do capital expenditures impact the company's quarterly operating performance? Explain.

 

4. (Advanced) Describe the general accounting model for marketable securities including definitions of trading securities, available for sale securities and held to maturity securities.

 

5. (Advanced) "Alphabet's first-quarter earnings received a boost from a change in accounting rules that caused the company to begin reporting the current fair value of nonmarketable securities, including its valuable stake in ride-hailing giant Uber." How does this change for nonmarketable securities compare to reporting for marketable securities?

 

6. (Introductory) Based on the information given in the related article, how do you think the company determined the amount to report for its investments in Uber and other emerging technology companies?

READ THE ARTICLE



 

RELATED ARTICLES: 
Heard on the Street: Google's Ad Success Will Turn Heads
by Dan Gallagher
Apr 23, 2018
Page: B14

Reviewed By: Judy Beckman, University of Rhode Island

 

"Google Parent Posts Surge in Profit, but Expenses Also Jump," by Douglas MacMillan, The Wall Street Journal, April 24, 2018
https://www.wsj.com/articles/alphabets-earnings-soar-as-sales-continue-to-climb-1524514801?mod=djem_jiewr_AC_domainid

Google parent Alphabet Inc. GOOGL 0.02% posted surging profits as advertisers kept swarming to the search giant amid a global debate about internet privacy that threatens to affect its main revenue generator.

Alphabet’s earnings also got a multibillion-dollar boost from the company’s stakes in startups including Uber Technologies Inc. but were tempered by the costliest spending spree in its 14-year history as a public company.

Net profit jumped 73% to $9.4 billion in the first quarter, up from $5.4 billion in the same period last year, a performance that highlights the firm’s huge lead in the global market for online ads. The earnings growth was Alphabet’s strongest since the fourth quarter of 2009.

Advertising revenue, which accounts for nearly all of the company’s top line, soared 24% to $26.6 billion. Revenue from “Other Bets,” a segment which includes Waymo self-driving cars, totaled $150 million, an increase of 14% from the same period last year.

The results landed while regulators in Washington are considering getting tougher on internet privacy. While most of the attention on the issue has focused on Facebook Inc., many observers believe Google’s dominant role online means the firm will also be subject to tougher scrutiny. The European Union is also moving forward with a sweeping set of rules called the General Data Protection Regulation, which goes into effect May 25. The new law could affect the revenue of Alphabet, which has already announced some changes to the way it collects consent from visitors of sites displaying its ads.

 

Companies found in violation of the sweeping regulation will face fines of up to 4% of their annual global revenue.

Asked about the impact of the European regulations on a call with analysts Monday, Chief Executive Sundar Pichai said Google has spent more than a year preparing to be compliant. Because Google derives most of its revenue from search ads, which rely less on personal targeting, much of its business won’t be affected by the changes, he said.

Alphabet’s first-quarter earnings received a boost from a change in accounting rules that caused the company to begin reporting the current fair value of nonmarketable securities, including its valuable stake in ride-hailing giant Uber.

Alphabet attributed about $3 billion of its net profit increase to the value of those securities, though the company didn’t break out individual holdings or disclose what portion of that increase was made up by Uber.

The fair value of Uber shares is something of a mystery. Last December, Uber backers and employees sold shares to a group of investors led by SoftBank Group Corp. at a $48 billion valuation—a roughly 30% discount to the last time it sold new shares to investors, at a $68 billion valuation.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on April 27, 2018

Hasbro's Sales Take a Hit From Collapse of Toys 'R' Us

By Paul Ziobro | Apr 23, 2018

TOPICS: Earning Announcements, Income Tax

SUMMARY: Hasbro, Inc., reported first quarter 2018 results that showed a 16% decline in sales; $15.7 million in severance costs related to transforming its sales group to more rapidly move to online sales focus; and a charge of $47.8 million, or 38 cents per diluted share, due to the federal tax law change. The company lost $112.5 million overall. The company's stock price gained 6.3% on Monday, April 22, 2018.

CLASSROOM APPLICATION: The article may be used in any level of class covering financial reporting with questions 1, 2, 3, 4, and 6. Question 5 is appropriate for classes covering income tax accounting.

QUESTIONS: 

 

1. (Introductory) What does Hasbro Inc. do?

 

2. (Introductory) How has the Toys 'R' Us bankruptcy impacted Hasbro? Specifically describe the impact on the first quarter of 2018 financial results.

 

3. (Introductory) What management changes has Hasbro impacted as a result of these events? How long does the company think it will take to see improvement in operating results from these management changes?

 

4. (Advanced) What were Hasbro's overall first quarter 2018 results? You may refer directly to the company's press release to help answer this question. It is available at https://www.wsj.com/articles/PR-CO-20180423-904234

 

5. (Advanced) Explain your understanding of how the federal tax law change signed in 2017 which reduced corporate tax rates could result in a large expense of $47.8 million. Refer again to the press release, scrolling down to the third paragraph under "Non-GAAP Adjustments."

 

6. (Introductory) How did Hasbro's stock price react to the announcement of these results? Does this reaction surprise you?

READ THE ARTICLE



 

Reviewed By: Judy Beckman, University of Rhode Island

 

"Hasbro's Sales Take a Hit From Collapse of Toys 'R' Us By Paul Ziobro, The Wall Street Journal, April 23, 2018
https://www.wsj.com/articles/hasbros-sales-take-a-hit-from-collapse-of-toys-r-us-1524492856?mod=djem_jiewr_AC_domainid

Toy maker laying off executives, accelerating overhaul of sales team to better adapt to online shift

Hasbro Inc. HAS -0.60% on Monday blamed a 16% decline in first-quarter sales on the liquidation of Toys “R” Us Inc. and said it has sped up an overhaul of its sales organization for a world where more toys are sold online.

Toys “R” Us is closing stores in the U.S. and other markets, causing big drops in sales for Hasbro toys like Transformer action figures and My Little Pony dolls. The retailer, which filed for bankruptcy in September, was done in by a lofty debt load and difficulty competing amid the rise of Amazon.com Inc. and online shopping.

To cope with the shift online, Hasbro is laying off executives in its commercial operations and bringing in people with more expertise in e-commerce. In doing so, the company scrapped plans for more gradual steps starting later this year, Hasbro Chief Executive Brian Goldner said Monday.

For the first quarter, Hasbro logged $15.7 million in severance costs tied to the “transformation” of its sales group.

“Consumers’ shopping and buying actions are moving in all directions, from brick-and-mortar to omnichannel while adding mobile,” Mr. Goldner said on an earnings call. About 20% of the Pawtucket, R.I., company’s sales occur online.

Hasbro rival Mattel Inc. last week announced an executive shakeup that will give the toy maker its fourth CEO in as many years as it struggles to end a sales slump.

Jefferies toy analyst Stephanie Wissink said Hasbro already was viewed as being ahead of its peers in adapting to the new marketplace, and the moves suggest the company sees bigger changes in store.

“This is a clear signal to us that the balance of power in toy retail is shifting toward Amazon and the dot-coms,” Ms. Wissink said.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on April 27, 2018

KPMG Gets Cold Shoulder From GE Shareholders

By Michael Rapoport | Apr 26, 2018

TOPICS: Audit Committee, Auditing

SUMMARY: "Shareholders at General Electric Co. approved KPMG LLP on Wednesday [April 25, 2018] as the company's auditor for another year, ..." the 110th year for one of the longest running tenures of U.S. auditors. Issues leading up to only 64.9% of GE shareholders voting favorably have been covered in this weekly review of the related article. They include problems with GE's accounting that are now under investigation by the Securities and Exchange Commission (SEC) and concerns with internal issues in KPMG LLP's operations, both also described in the current article.

CLASSROOM APPLICATION: The article may be used in an auditing class.

QUESTIONS: 

 

1. (Introductory) Did General Electric Co. (GE) shareholders ratify KPMG LLP as the company's auditor?

 

2. (Advanced) Why are the shareholder meeting and selection of auditor newsworthy in this case? Specifically focus on the factors related to GE itself.

 

3. (Introductory) What problems has KPMG LLP faced in its own operations?

 

4. (Advanced) What extraordinary step has KPMG LLP taken to address its own problems? Why is such a step so extraordinary?

READ THE ARTICLE



 

RELATED ARTICLES: 
GE Is Urged to Drop Auditor KPMG
by Thomas Gryta and Joann S. Lublin
Apr 05, 2018
Page: B3

Reviewed By: Judy Beckman, University of Rhode Island

 

"KPMG Gets Cold Shoulder From GE Shareholders," by Michael Rapoport, The Wall Street Journal, April 26, 2018
https://www.wsj.com/articles/kpmg-follows-pwc-in-adding-independent-directors-to-its-board-1524680342?mod=djem_jiewr_AC_domainid

GE shareholders approved KPMG as company’s auditor, but only after a large level of opposition

Shareholders at General Electric Co. GE -1.76% approved KPMG LLP on Wednesday as the company’s auditor for another year, but only after a large level of opposition in the wake of GE’s accounting issues and criticism from proxy-advisory firms.

Only 64.9% of GE shareholders voted to ratify KPMG as GE’s auditor, according to preliminary figures released at GE’s annual meeting. That represents one of the highest levels of shareholder opposition to an auditor at any company in recent years, according to data from consulting firm Audit Analytics.

The vote at GE adds to KPMG’s woes, which also include a scandal in which former partners were indicted in January over allegations that people at the firm had access to secret information from a regulator. Separately Wednesday, KPMG announced it plans to take the unusual step of adding independent directors to its board, a move aimed at improving the firm’s corporate governance.

GE has said the Securities and Exchange Commission is investigating some of its accounting practices, including its need for increased reserves in its insurance operations and its accounting for long-term service agreements. KPMG, which has been GE’s auditor for 109 years, didn’t flag any of the problems.

Earlier this month, Institutional Shareholder Services and Glass Lewis & Co., the two biggest proxy-advisory firms, both recommended that GE shareholders vote against reappointing KPMG as GE’s auditor. ISS cited “the apparent extent of GE’s previously undisclosed liabilities and accounting issues.”

The level of opposition was “extraordinary,” said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. “I think for the (GE) board it’s got to be a rather sobering vote.”

GE said in a statement that its audit committee, which reviews the appointment of the company’s outside auditor each year, “will certainly be taking this indication from our shareowners into account.” A KPMG spokesman couldn’t be reached for comment on the vote.

Shareholder votes on reappointing auditors are typically all but automatic, with only token opposition. Last year, 94.3% of GE shareholders voted in favor of KPMG.

The latest GE vote marks only the fifth time since 2015 that an auditor for an S&P 500 company has won less than 90% support from shareholders, according to ISS Analytics. According to the Audit Analytics data, in more than 15,000 shareholder votes to ratify auditors at public companies from 2013 to 2017, there were only 22 cases, less than 0.2%, in which more than 25% of shareholders were opposed.

In another possible sign of discontent, shareholders at Wells Fargo & Co. approved KPMG’s status as the bank’s auditor this week with 91.1% of votes after Glass Lewis recommended a “no” vote. Critics have questioned why KPMG failed to catch the bank’s sales-practice scandal and other problems it has experienced in the past few years.

KPMG’s move to appoint new outside directors, though, is more of a response to the firm’s information-leak scandal. That incident led to the firing of a handful of partners in 2017 and the indictment of five people in January. KPMG and prosecutors say the partners improperly got advance word of which of its audits were to be reviewed by regulators at the Public Company Accounting Oversight Board in their annual inspections of the firm. That could have made KPMG better able to prepare for the inspections, which are closely watched as a barometer of the firm’s audit quality.

“In 2017, certain events, and the actions of a few former colleagues, caused us to take a deeper dive into examining our culture and values, and to assess with fresh eyes how we could improve,” Lynne Doughtie, KPMG’s U.S. chairwoman and chief executive, wrote in an article published Wednesday in trade publication Accounting Today.

The new directors will “provide a valuable sounding board to management” and will “further diversify the boardroom dialogue,” Ms. Doughtie wrote.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on May 11, 2018

Dish Network Profit Boosted by New Accounting Rules

By Ezequiel Minaya | May 09, 2018

TOPICS: Earning Announcements, Revenue Recognition

SUMMARY: In announcing Dish Network Corp. earnings, CFO Steve Swain said on Tuesday, May 8, 2018, that "new revenue accounting standards buoyed...net income by around 7% during its latest quarter...Prior to the adoption of (the new standards), certain sales incentive payments made to third-party retailers were booked as incurred....Now these costs are deferred over the average customer life." The company's income tax expense also dropped 44% due to the new tax law passed in 2017.

CLASSROOM APPLICATION: The article may be used to discuss new requirements under the revenue recognition standard.

QUESTIONS: 

 

1. (Advanced) What is the underlying model of accounting under the new revenue recognition requirements?

 

2. (Introductory) When were the new revenue recognition requirements adopted? When are they being implemented by most publicly traded U.S. companies?

 

3. (Advanced) What part of the new revenue recognition requirement benefited Dish Network Corp.'s first quarter 2018 results? Does this surprise you? Explain your answer.

 

4. (Introductory) What other factors besides the new revenue accounting impacted Dish Network's results?

READ THE ARTICLE



 

Reviewed By: Judy Beckman, University of Rhode Island

 

"Dish Network Profit Boosted by New Accounting Rules," by Ezequiel Minaya, The Wall Street Journal, May 9, 2018
https://blogs.wsj.com/cfo/2018/05/09/dish-network-profit-boosted-by-new-accounting-rules/?mod=djem_jiewr_AC_domainid

A Dish Network satellite dish is shown on a residential home in Encinitas, Calif., U.S., Nov. 8, 2017. Photo: Reuters

New revenue accounting standards buoyed Dish Network Corp.’s net income by around 7% during its latest quarter, the company’s finance chief said Tuesday.

The positive impact from the regulatory shift wasn’t enough, however, to offset the exodus of subscribers that pushed the company’s first quarter profit down 2% when compared to the same period last year.

The new accounting rules require companies to recognize revenue from contracts at the time the promised goods and services are delivered to a customer. The uniform standard, which became effective for public companies this year, replaces a patchwork of industry-specific rules with the aim of making comparisons of revenue and fiscal performance easier. The rules also affect how and when companies report the costs associated with delivering their products and services.

“Prior to the adoption of (the new standards), certain sales incentive payments made to third-party retailers were booked as incurred,” said Steve Swain, the chief financial officer of the company, during a conference call Tuesday. “Now these costs are deferred over the average customer life.”

The rule change “positively impacted DISH’s net income by $27 million,” Mr. Swain said. He also added that the company’s income tax for the period dropped 44% to $116 million mostly due to to the recently passed U.S. tax legislation, which lowered the corporate tax rate to 21% from 35% previously.

Still, the satellite-TV company’s earnings fell to $368 million for the quarter, down from $376 million during the same period last year. Revenue for the period slipped about 6% to $3.46 billion.

The company reported that net pay-TV subscribers declined by 94,000 in quarter. Traditional cable-TV companies have been pressured by customers’ growing preference for streaming and on-demand services. Dish officials declined to give further comment.

The new accounting standards were developed and released in 2014 by the Financial Accounting Standards Board (FASB) and their European counterpart, the International Accounting Standards Board (IASB).

Late last year, SEC officials said they noticed a 15% rise in inquires surrounding revenue recognition from companies as the deadline for implementation approached. Commission officials have said that they will refrain initially from issuing comment letters scrutinizing company compliance with the new standard during the early stages of enforcement.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on May 11, 2018

Revenue Surge Boosts State Coffers

By Jon Kamp and Joseph De Avila | May 07, 2018

TOPICS: Governmental Accounting, State Income Tax

SUMMARY: In addition to a strengthening U.S. economy, federal tax law has helped to improve state budgets, "but analysts caution the boost is temporary." An analyst at the Rockefeller Institute of Government cautions that states should not expect the good times to continue as economic growth may stall beyond 2019. But times are good in fiscal 2018. Pennsylvania's director of its Independent Fiscal Office says "taxes on income and sales are both coming in higher than expected." Connecticut is seeing a one-time surge in income-tax revenue from hedge-fund managers recognizing offshore earnings ahead of a looming tax deadline. Minnesota is reporting an expected $329 million fiscal surplus. In contrast to this year's good news, "the National Association of State Budget Officers has chronicled widespread problems in the past two years from states' revenue falling short of estimates because of a variety of factors."

CLASSROOM APPLICATION: The article may be used in a governmental accounting class or in an individual income tax class. Concepts of budget-to-actual comparisons or variance analysis also are incorporated into the article.

QUESTIONS: 

 

1. (Introductory) What two types of state government revenues are discussed in the article?

 

2. (Advanced) In general, how do state governments account for these revenues?

 

3. (Introductory) Connecticut received a revenue boost from one-time payments. How are these one-time payments driven by the change in U.S. Federal tax law?

 

4. (Introductory) Refer to the graphic entitled "Revenue Bump." Describe what is shown in the graph-what is trending up this year?

 

5. (Advanced) How does improving financial health help states with a "'more timely and less acrimonious' budget-making process"?

READ THE ARTICLE



 

Reviewed By: Judy Beckman, University of Rhode Island

 

"Revenue Surge Boosts State Coffers," by Jon Kamp and Joseph De Avila, The Wall Street Journal, May 7, 2018
https://www.wsj.com/articles/state-budgets-get-lift-from-economy-tax-bill-1525604400?mod=djem_jiewr_AC_domainid

Federal tax law has helped, but analysts caution the boost is temporary

An improved national economy is easing pressure on state budgets.

Budget officials from Utah to Connecticut are reporting better tax revenues and say their fiscal outlook has brightened, thanks to an expanding economy and job growth. The effects of the new federal tax law also increased revenue figures, but analysts caution that lift will be temporary for many states.

“Unlike last year, we’re seeing broad-based strength,” said Matthew Knittel, who directs Pennsylvania’s Independent Fiscal Office. Taxes on income and sales are both coming in higher than expected, reflecting factors like rising employment and wages, he said.

This marks a turnabout from 2017, when Pennsylvania lawmakers struggled through a lengthy showdown over a $2.3 billion budget gap that spanned two fiscal years. Estimates are still preliminary, but Mr. Knittel said the current shortfall is much smaller.

The National Association of State Budget Officers has chronicled widespread problems in the past two years from states’ revenue falling short of estimates because of a variety of factors. All but four states end their fiscal years on June 30, and 33 of them have to write brand-new budgets in time for the next fiscal year.

This time around, “we’re not seeing retrenchment of those figures,” John Hicks, Nasbo’s executive director. “We’re either seeing them left alone or slightly bumped up.”

States reporting stronger-than-expected revenue include Minnesota and Utah, where officials say strong economies have fattened government coffers. Minnesota is on pace to have a $329 million surplus, while Utah will pull in $500 million in additional cash for the coming fiscal year.

“Good job growth, good wage growth” drove the state’s favorable tax-revenue figures, said Phil Dean, Utah’s budget director. Minnesota budget officials expect the state’s income and job growth will continue through 2019, further padding tax revenues.

In general, the federal tax law limited some tax breaks but couldn’t touch state tax rates. As a result, in many cases, existing state taxes on personal and corporate income are applying to a broader tax base and yielding more money. Some of those revenue increases are temporary and some states have moved to give back at least some of that revenue to their residents.

In Connecticut, which has been dogged by fiscal weakness for years, state budget officials in late April projected a $1.34 billion surge in excess income-tax revenue.

Connecticut’s windfall comes with major caveats: about half is coming from one-time payments from hedge-fund managers racing to beat a tax deadline on some past offshore earnings, said Ben Barnes, the state’s budget chief. Also, the numbers could have been boosted by residents cashing in stock at the end of 2017 to pay taxes on capital gains to take full advantage of the state and local tax deduction, which the new federal tax law capped, he said.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on May 11, 2018

MetLife Will Take Over Pensions for 41,000 FedEx Retirees

By Leslie Scism | May 08, 2018

TOPICS: Pensions

SUMMARY: "MetLife Inc. has reached an agreement with FedEx Corp. to take responsibility for about $6 billion of pension payments to approximately 41,000 retirees and beneficiaries, one of the biggest risk-transfer deals for U.S. life insurers in recent years." As previously covered in January 2018 in this Review (see the related article), MetLife has disclosed past errors in finding retirees for payment; analysts had speculated that such disclosures might have affected MetLife's ability to sell new annuity contracts such as this.

CLASSROOM APPLICATION: The article may be used when discussing pension obligations. Internal control concepts also are mentioned based on issues discussed in the related article.

QUESTIONS: 

 

1. (Introductory) Why is MetLife assuming responsibility to make pension payments to FedEx Corp. retirees? In your answer, describe what it means to purchase an annuity to satisfy pension obligations.

 

2. (Introductory) Why must MetLife report "reserves" for the pension payments it is obligated to make?

 

3. (Advanced) What is the balance sheet classification of the item described as "reserves" in the article?

 

4. (Advanced) What past disclosure did MetLife make about its record keeping and controls over pension benefit payments? Why should that disclosure impact the company's ability to conduct its business, or "strike new deals" as termed in the article?

READ THE ARTICLE



 

RELATED ARTICLES: 
MetLife Says Pension Shortfall Will Prompt Financial Revisions
by Leslie Scism
Jan 30, 2018
Page: B1

Reviewed By: Judy Beckman, University of Rhode Island

 

"MetLife Will Take Over Pensions for 41,000 FedEx Retirees," by Leslie Scism , The Wall Street Journal, May 8, 2018 ---
https://www.wsj.com/articles/metlife-will-take-over-pensions-for-41-000-fedex-retirees-1525819146?mod=djem_jiewr_AC_domainid

With about $6 billion in pension payments, deal is one of biggest for U.S. life insurers in recent years

MetLife Inc. MET 0.41% has reached an agreement with FedEx Corp. FDX 0.18% to take responsibility for about $6 billion of pension payments to approximately 41,000 retirees and beneficiaries, one of the biggest risk-transfer deals for U.S. life insurers in recent years.

The transaction is smaller than Prudential Financial Inc.’s groundbreaking $25 billion transaction in 2012 to oversee pensions for 110,000 General Motors Co. retirees. It also is smaller than a $8.4 billion transaction that same year in which Prudential began paying pensions of 41,000 Verizon Communications retirees.

But it is larger than most since 2012. Pension-risk-transfer deals generally have been below $5 billion in pension obligations since GM and Verizon, according to benefits experts.

 

The new transaction follows recent disclosures of mistakes made by MetLife’s pension-risk transfer business. It has said it failed in past years to properly search for 13,500 people in private-sector pension plans for whom it owed payments, some from as far back as the 1990s.

The insurer had reduced its reserves for pension obligations at the time, thus improperly boosting profits in years past. In detailing its fourth-quarter 2017 earnings, MetLife said it had bolstered its reserves by $510 million pretax to bring them up to the level that it says will now correctly reflect what it owes.

MetLife executives have said the company is working to locate all the people owed money and to pay them interest.

Some analysts have asked whether the disclosures would affect the company’s ability to strike new deals. In a research note Tuesday, Wells Fargo Securities analyst Sean Dargan said the FedEx transaction is “a vote of confidence” and a sign that the insurer “can move on” from the bad publicity.

In the new MetLife transaction, FedEx will purchase a group annuity contract from a MetLife unit, and the insurer will assume responsibility for making benefit payments to the retirees or their beneficiaries, the insurer said. The transaction won’t change the amount of the monthly benefit for any person.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on May 11, 2018

AmTrust Affirms SEC Investigation

By Michael Rapoport | May 05, 2018

TOPICS: Disclosure, Materiality

SUMMARY: AmTrust Financial Services Inc. has received inquiries from the Securities and Exchange Commission over accounting practices and other matters since 2013. The company has just disclosed this fact in a proxy filing one month before AmTrust shareholders must vote on a deal that would take the company private. The company's spokeswoman states that management "carefully reviewed the matter and determined that it was not material and that disclosure was not required...[but that] the company now believes it is appropriate to voluntarily disclose the matter in the proxy [statement]...."

CLASSROOM APPLICATION: The article may be used in a class discussing materiality and disclosure-either financial reporting or auditing.

QUESTIONS: 

 

1. (Introductory) For how long has AmTrust been receiving inquiries about its accounting practices and other matters? What entity is making the inquiry?

 

2. (Advanced) What factors define whether an item being considered for disclosure is material?

 

3. (Advanced) Does the spokeswoman's statements about the timing for disclosing this matter satisfy your curiosity? What other factors could influence this timing?

READ THE ARTICLE



 

RELATED ARTICLES: 
AmTrust Revises Earnings Downward
by Michael Rapoport
Apr 05, 2017
Page: B13

Reviewed By: Judy Beckman, University of Rhode Island

 

"AmTrust Affirms SEC Investigation," by Michael Rapoport , The Wall Street Journal, May 5, 2018
https://www.wsj.com/articles/amtrust-has-been-under-an-sec-investigation-for-five-years-1525456747?mod=djem_jiewr_AC_domainid&tesla=y

New York insurer says it is cooperating with probe, which it describes as ‘ongoing’

AmTrust Financial Services Inc. AFSI -0.53% on Friday disclosed it has been under investigation by the Securities and Exchange Commission for nearly five years over its accounting practices and other matters.

In a proxy filing with the SEC, the New York insurer said that since June 2013, it “has been responding to an investigation by the SEC, which in its course has included” a review of its accounting for its loss and loss-adjustment reserve estimates for major business lines and segments, its investment in life settlement contracts, and its acquisition of captive insurance companies in Luxembourg.

The company described the SEC inquiry as “ongoing” and said it has cooperated with the probe. AmTrust said it can’t predict when or how the inquiry will end or whether it could have a material impact on the company.

The Wall Street Journal reported in April 2017 that AmTrust’s accounting has been the subject of an SEC investigation, and AmTrust and the SEC previously had discussed some of the accounting matters in back-and-forth comment letters that have been made public. But the company hadn’t publicly disclosed the SEC probe before Friday.

The Journal’s reporting of the SEC probe a year ago came in the wake of an assortment of problems for AmTrust, including a restatement of three years’ worth of earnings in early 2017 and a delayed filing of the company’s annual report. AmTrust has denied any wrongdoing and at the time said short-sellers, investors who benefit from a stock’s decline, had spread false information about the company.

An AmTrust spokeswoman on Friday said many companies receive inquiries from SEC staff, and that in the past, “We carefully reviewed the matter and determined that it was not material and that disclosure was not required.” The company now believes it is “appropriate to voluntarily disclose the matter in the proxy” filed Friday, she said.

The disclosure comes a month before AmTrust shareholders are scheduled to vote June 4 on a $2.7 billion deal that would take the company private, by selling itself to Chairman and Chairman and Chief Executive Barry Zyskind, AmTrust’s controlling Karfunkel family and private-equity firm Stone Point Capital LLC. Mr. Zyskind said in March that becoming a private company would enable AmTrust “to focus on long-term decisions, without the emphasis on short-term results.”

The going-private deal would pay AmTrust shareholders $13.50 a share. On Friday, AmTrust’s shares fell less than 0.1%, to $13.04.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on May 11, 2018

Toyota to Invest in Two Canadian Plants

By Adrienne Roberts | May 05, 2018

TOPICS: Capital Budgeting, Capital Expenditures

SUMMARY: Toyota is planning upgrades to two plants in Ontario, Canada, to produce both gasoline-powered and hybrid versions of the RAV4. The vehicles are sold in Canada and shipped to the U.S.; the vehicle is Toyota's most popular in Canada and is a best-seller in the U.S. However, the investment is subject to some uncertainty because of the upcoming renegotiation of the North American Free Trade Agreement (NAFTA). One potential change is an increase in the percentage of parts that must be made in the U.S. for a product to avoid tariffs when imported to the U.S. Another risk is with the potential change in consumer tastes: the related article highlights the waning demand for Japanese sedans that is driving significant discounting in price to maintain sales.

CLASSROOM APPLICATION: The article may be used in a managerial accounting course when discussing capital budgeting and production budgets for more than one product line to highlight the subjective nature of some factors entering into decision-making.

QUESTIONS: 

 

1. (Introductory) What factors have influenced Toyota's decision to make significant investment in two plants in Ontario Canada?

 

2. (Introductory) List all factors identified in the article indicating the risks associated with this this capital investment.

 

3. (Advanced) Refer to the related article. What further risk could harm the financial results obtained from this new investment in the manufacturing plants?

 

4. (Advanced) Refer to your cost or management accounting textbook discussion of capital expenditure (or capital budgeting) decision-making. Summarize the methods used to analyze these decisions.

 

5. (Advanced) Can all of the factors highlighted in this article be included in the method of analysis that you describe above? Explain your answer.

READ THE ARTICLE



 

RELATED ARTICLES: 
Japanese Bet on Sedans Goes Bad
by Sean McLain
May 03, 2018
Page: B3

Reviewed By: Judy Beckman, University of Rhode Island

 

"Toyota to Invest in Two Canadian Plants," by Adrienne Roberts, The Wall Street Journal, May 5, 2018 ---
https://www.wsj.com/articles/toyota-to-invest-918-million-in-two-canadian-assembly-plants-1525460601?mod=djem_jiewr_AC_domainid&tesla=y

Investment will create 450 jobs at two plants in Ontario

Toyota Motor Corp. TM 0.05% plans to invest $918 million in two plants in Ontario, Canada.

The move marks one of the largest investments in Canada’s shrinking auto industry in recent years. But it comes amid uncertainty as the Trump administration pushes to complete by later this month the renegotiation of the North American Free Trade Agreement, which could rewrite some auto-industry trade rules.

Toyota’s investment will go to factories that build both gasoline-powered and hybrid versions of the RAV4 compact sport-utility vehicle, which will be fully re-engineered.

Factory upgrades are scheduled to be completed by late 2019 and create about 450 new jobs.

President Donald Trump has repeatedly threatened to withdraw the U.S. from Nafta unless he gets more favorable terms that ultimately would boost American factory jobs. U.S. administration officials have proposed tightening the treaty’s so-called rules of origin to require a higher percentage of parts to be made in the U.S. to avoid tariffs, though the U.S. has softened some of its demands in recent talks.

Canada has been losing automotive jobs to Mexico over the past two decades. Mexico is seen as an attractive place to produce vehicles and auto parts because of its aggressive development incentives and the broad reach of Mexico’s free trade agreements.

Mexico has captured nine of the past 11 announced new assembly plants for the continent between 2011 and 2016, according to a recent report by the Center for Automotive Research.

The country, which produces about 20% of vehicles made in North America, is expected to significantly increase car production to more than five million vehicles by the end of the decade, the group said.

Ontario and the federal government of Canada will provide a grant of $171 million to support Toyota’s investment.

The RAV4s built at the Ontario plants are sold in Canada and shipped to the U.S., where they are among Toyota’s top sellers. The RAV4 was Toyota’s best-selling vehicle in the U.S. in 2017, with sales of the vehicle topping 400,000.

The RAV4 is also Toyota’s most popular vehicle in Canada, and the company sold more than 50,000 units in the country last year.

Toyota previously built its popular Corolla compact car in Canada, but last year announced it would move production to a new plant in Guanajuato, Mexico.

Toyota later changed course following criticism from Mr. Trump and said it would build the Corolla at a $1.6 billion assembly plant in Alabama with Mazda Motor Corp. that will be up and running by 2021. The auto maker will move some truck production to the plant under construction in Mexico.

Toyota is also in the midst of a planned $10 billion investment in the U.S. that it aims to spend over the next five years as it revamps its plants to support its new engineering architecture. Around the same time last year the auto maker announced a $1.3 billion investment in its Camry sedan plant in Kentucky.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on May 18, 2018

Solar-Panel Makers See Daylight

By Erin Ailworth | May 12, 2018

TOPICS: Managerial Accounting, Tax Law

SUMMARY: The article describes the state of solar energy installation and solar panel manufacturing in the U.S. Discussion focuses on three companies that have decided to invest in U.S. manufacturing facilities. The factors making such a decision viable include changes in section 179 deductions for business investment that are part of the tax law signed in 2017 as well as the proposed tariffs currently being discussed. INSTRUCTORS SHOULD REMOVE THE FOLLOWING ANSWER TO THE FIRST QUESTION BEFORE DISTRIBUTING TO STUDENTS. JinkoSolar Holding Co. is listed first in the article and is Chinese. The other two companies listed in the article are U.S.-headquartered. First Solar Inc. is headquartered in Tempe, AZ. SunPower Corp. is headquartered in San Jose, Calif., and has offices in North America, Europe, Australia, Africa and Asia according to its investor relations web page. Students will have to search on the web for these companies.

CLASSROOM APPLICATION: The article may be used in a managerial accounting class discussing capital budgeting or in a tax class discussing the impact of the 2017 tax law and current tariff proposals.

QUESTIONS: 

 

1. (Advanced) What companies listed in the article have invested in U.S. manufacturing of solar panels? Where are these companies headquartered?

 

2. (Introductory) What factors have influenced solar panel manufacturers' decisions to invest in U.S. production facilities rather than elsewhere in the world?

 

3. (Introductory) How much of the solar capacity installed in the U.S. in 2017 was manufactured here? How much of an increase in U.S. production is planned by the companies mentioned in the article?

 

4. (Advanced) How do tariffs and income tax rates impact companies' decisions on where to locate manufacturing facilities? Describe how these factors impact calculations made in support of capital budgeting or capital investment decisions.

 

5. (Advanced) The tax overhaul signed into law in 2017 "allows businesses to immediately write off investments in assets..." How else might companies write off their assets for tax purposes? In your answer, define the terms "Section 179" and "MACRS."

READ THE ARTICLE



 

Reviewed By: Judy Beckman, University of Rhode Island

 

"Solar-Panel Makers See Daylight," by Erin Ailworth , The Wall Street Journal, May 12, 2018
https://www.wsj.com/articles/solar-panel-makers-ramp-up-u-s-manufacturing-plans-1526040000?mod=djem_jiewr_AC_domainid

Tax overhaul, tariffs on imported solar cells make manufacturing in the U.S. more compelling, companies say

Solar panel makers are stepping up U.S. manufacturing, and it isn’t all because of President Donald Trump’s tariffs on imported solar panels.

At least three panel companies have announced manufacturing plans in the U.S. in recent months. China’s JinkoSolar JKS 1.44% Holding Co. is opening a factory in Jacksonville, Fla. SunPower Corp. has agreed to acquire struggling panel maker SolarWorld SWVK -0.28% Americas Inc. First Solar Inc. FSLR 1.31% plans to open a new factory in Ohio, where it already has some panel-making operations.

The increases are relatively small compared with U.S. demand for solar panels. But they show momentum in a sector that has been largely stagnant in America. Solar manufacturing is likely to get another lift as demand increases in California, which voted this week to mandate solar panels on nearly all new homes in the state starting in 2020.

First Solar Chief Executive Mark Widmar said the company’s decision to boost U.S. manufacturing capacity wasn’t driven by tariffs, but another change in U.S. policy: the tax overhaul recently passed by Congress and signed into law by Mr. Trump.

Those changes will allow businesses to immediately write off investments in assets, Mr. Widmar said, making manufacturing in the U.S. “much more compelling than it was a year ago.” By adding production in America, Mr. Widmar added, his company also is spending less to deliver panels to U.S. customers than if shipping from Malaysia.

First Solar also has a tariff-related edge over competitors in the marketplace: its panels are made with a thin-film technology exempted from the trade protection.

Imports accounted for 91% of the 10.6 gigawatts worth of solar capacity installed in the U.S. in 2017, according to data from the Solar Energy Industries Association and GTM Research. When fully ramped up, the new U.S. factories being opened by JinkoSolar and First Solar together will be capable of producing 1.6 gigawatts of panels a year.

Tom Werner, chief executive of SunPower, said tariffs were the primary catalyst for his company’s acquisition of SolarWorld Americas, one of the manufacturers that petitioned the Trump administration for trade protection.

The purchase will allow SunPower to revive SolarWorld’s manufacturing operations in Oregon, where the company will produce panels along with panel and cell facilities it already has in Mexico, Malaysia and the Philippines.

“The premium for being an American manufacturer is more relevant than it used to be,” Mr. Werner said. “It’s just so top-of-mind now—more so than before.”

He said he hoped California’s mandate “inspires new home builders across the nation to power their communities with renewable energy.”

JinkoSolar is betting that U.S. manufacturing will be a good bet even when the tariffs expire after four years.

Sebastian Liu, the company’s director of investor relations, said it has sold 5 gigawatts worth of panels in the U.S. in recent years and had been looking to expand its manufacturing footprint into America even before tariffs were on the table.

The company expects to begin panel production in Florida as early as late August and has agreed to supply utility NextEra Energy Inc. with 2.75 gigawatts, or some 7 million panels, over four years.

“The local manufacturing will help Jinko respond to our newest customers’ demands in a quicker way,” Mr. Liu said

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on May 18, 2018

Symantec Isn't Quite the Bargain

By Dan Gallagher | May 12, 2018

TOPICS: Audit Committee, Board of Directors

SUMMARY: In discussing its fiscal fourth quarter results for the period ended March 31, 2018, Symantec Corp.'s Board of Directors Audit Committee has announced an internal investigation into allegations made by a former employee. An update to this announcement is the subject of this article; the related article covers the intitial announcement. Neither has specified the allegations except to say that there are concerns "...regarding the Company's public disclosures including commentary on historical financial results, its reporting of certain Non-GAAP measures including those that could impact executive compensation programs, certain forward-looking statements, stock trading plans and retaliation." (Source: Exhibit 99.02 to Form 8-K disclosure on May 14, 2018, available at https://www.sec.gov/Archives/edgar/data/849399/000119312518163279/d589355dex9902.htm

CLASSROOM APPLICATION: The article may be used to discuss the role of an audit committee. It also may be used to discuss the connection between stock prices and disclosure or uncertainty in financial reporting.

QUESTIONS: 

 

1. (Introductory) What does Symantec Corp. do?

 

2. (Advanced) What is the role of a board of directors' audit committee?

 

3. (Advanced) Access the text of the press release regarding this matter on the web site of the Securities and Exchange Commission (SEC) at https://www.sec.gov/Archives/edgar/data/849399/000119312518163279/d589355dex9902.htm Summarize what the company disclosed in one or two sentences. The related article also may help you answer this question.

 

4. (Introductory) How significant was the Symantec stock price reaction to this announcement?

 

5. (Advanced) Does the disclosure seem to warrant this reaction? Explain your reasoning.

READ THE ARTICLE



 

RELATED ARTICLES: 
Symantec Discloses Internal Investigation
by Maria Armental
May 10, 2018
Online Exclusive

Reviewed By: Judy Beckman, University of Rhode Island

 

"Symantec Isn't Quite the Bargain," by Dan Gallagher, The Wall Street Journal, May 12, 2018
https://www.wsj.com/articles/symantec-no-safety-margin-1526065818?mod=djem_jiewr_AC_domainid

Cybersecurity provider looks cheap after selloff, but internal probe raises too many questions

In cybersecurity, it pays to be paranoid. Investors in Symantec SYMC -2.70% are following that advice.

The company, which provides security software to both businesses and consumers, shed a third of its market value Friday after it announced that its audit committee was investigating concerns raised by a former employee. The disclosure was made in the company’s fiscal fourth quarter report late Thursday, which also included a revenue outlook for the current fiscal year that was below Wall Street’s forecasts. Symantec said it notified the Securities and Exchange Commission, and executives declined to take questions of any nature on the subsequent conference call

The reaction was predictably harsh. At least five brokers cut their buy ratings on the stock, downgrading the shares to neutral. Symantec’s share price was below $19 at midday, which was about the level the stock was trading at when the company split off from its Veritas data storage business to focus solely on cybersecurity in early 2016. The result is a stock trading around 12 times forward earnings, making Symantec one of the cheapest plays in cybersecurity.

But that doesn’t make for a bargain. While Symantec gave no further details on the internal probe, it did warn that the resulting investigation could affect its previously reported financials as well as its outlook. That makes both past and future numbers hard to rely on.

And the company has not exactly been free of drama before. Symantec cycled through three CEOs in four years before current chief Greg Clark got the job in mid-2016. And LifeLock, the identity-protection business bought later that year for $2.3 billion, has previously been in hot water with federal regulators over its advertising practices

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on May 18, 2018

Why Ford's Big China Wager is Faltering

By Christina Rogers and Trefor Moss | May 11, 2018

TOPICS: Product strategy, Quality Costs

SUMMARY: "Ford has long sold cars in China, where it has several assembly factories and joint ventures. As Ford added more models and expanded the number of dealerships, the country generated profits for Ford." However, in 2014, as measured by passenger car sales, Ford was in sixth place and "it plunged to 18th place in the first three months..." of 2018. Analysts attribute the drop largely to Ford's failure to innovate and customize its cars for technology-loving Chinese customers. Further, "Ford's global-car approach-one vehicle to be sold in all markets world-wide-was limiting in China, where tastes differ from the U.S. and Europe, and made its cars more expensive to produce than the low-cost models churned out by competitors."

CLASSROOM APPLICATION: The article may be used to discuss product innovation, product cost, and quality control in a managerial accounting class.

QUESTIONS: 

 

1. (Introductory) The article states that Ford has long sold and manufactured in China. However, where has the engineering to design the vehicles been done? How has this impacted the appeal of Ford's products in the Chinese market?

 

2. (Introductory) How has Ford explained their results in China?

 

3. (Advanced) What are the three components of product cost?

 

4. (Introductory) What factors impact the cost of Ford's products offered in China?

 

5. (Advanced) Which of the three components of product cost do you think is impacted by these factors? Explain your answer.

READ THE ARTICLE



 

Reviewed By: Judy Beckman, University of Rhode Island

 

"Why Ford's Big China Wager is Faltering," by Christina Rogers and Trefor Moss, The Wall Street Journal, May 11, 2018
https://www.wsj.com/articles/why-fords-big-china-wager-is-faltering-1525950005?mod=djem_jiewr_AC_domainid

Auto maker ranks as the 18th-largest by passenger-car sales in China for the first three months of 2018

Ford Motor Co.’s F +0.78% big bet on China, the world’s biggest auto market, has yet to pay off.

The auto maker began a $5 billion investment plan in the country in 2006, building more models locally, adding dealerships and expanding factory space in a bid to catch up with rivals such as General Motors Co. and Volkswagen AG .

After an initial boost, Ford’s car sales are stalling. In 2014, the auto maker ranked as the sixth-largest by passenger-car sales in China. It plunged to 18th place in the first three months of this year, according to research firm LMC Automotive. Analysts attribute the drop largely to Ford’s failure to innovate and customize its cars for technology-loving Chinese customers.

Ford has long sold cars in China, where it has several assembly factories and joint ventures. As Ford added more models and expanded the number of dealerships, the country generated profits for Ford.

But Ford’s China business posted a loss in the first quarter of 2018, as the company launched a new effort to turn its operations in the country around. While the Chinese joint-venture operations contributed $138 million to Ford’s quarterly profit, that gain was more than offset by engineering costs for future products aimed at the local market, Ford’s finance chief said during an April earnings call.

Ford’s challenges in China add to the tasks facing Chief Executive Jim Hackett, who has embarked on an ambitious cost-cutting program and has to improve margins in Ford’s core U.S. business, even as the auto maker plays catch-up with rivals on electric and autonomous vehicle technology.

Further, trade tensions between the U.S. and China are threatening to create market uncertainty at a time when Ford is getting ready to spend even more in China, including a plan to import Chinese-built Focus compact cars to the U.S. starting next year.

Chinese customs authorities have been “slow walking” some Ford imports for a few weeks, a person familiar with the matter said on Wednesday. Some Ford cars awaiting import into the country have been held up by unusually lengthy port inspections and other red tape, the person said.

Ford executives say a barrage of new China-focused products—50 launches are due by 2025—will spark a turnaround, but some local sales staff are dubious.

“There is a saying: Distant water cannot slake an immediate thirst,” said Shang Yongwei, a Ford salesman in Dalian, in northern China. “Ford does not understand Chinese consumers, who love new things.”

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on May 18, 2018

Pay, Performance Often at Odds

By Vanessa Fuhrmans | May 15, 2018

TOPICS: Executive Compensation

SUMMARY: Academic research by Herman Aguinis, management professor at Geogre Washington University, and others finds that CEO "stars are often underpaid while average performers are often overpaid....One reason...is that boards often set CEO pay by benchmarking the average compensation for leaders at a peer group of companies and setting performance targets accordingly...." That works best only if CEO performance doesn't vary too greatly from the average. Disparity also appears to persist. In studying the earnings of more than 4,000 CEOs against their performance metrics, these researchers find virtually no overlap between the top 1% of CEOs in terms of performance with the top 1% of pay; only 20% of those CEOs overlap when considering the top 10% of each category. The article proceeds to discuss specific cases of CEOs and companies experiencing unusual circumstances. One such case is Steve Wynn's pay during the period he stepped down as CEO; another is Allergan PLC showing negative 21% returns due to patent setbacks for one of its products while the CEO received a 700% pay increase based on performance in other areas.

CLASSROOM APPLICATION: The article may be used to give context to discussion of executive compensation contracts and the accounting for them in a financial reporting class.

QUESTIONS: 

 

1. (Advanced) Refer to the related graphic entitled "Pay for Performance?" Summarize the information you see there.

 

2. (Advanced) "Many firms condition a big share of pay on three-year performance metrics that are only partially affected by a single bad year...." How does that fact potentially explain the results in the graphic "Pay for Performance?"

 

3. (Introductory) What academic research is referenced in this article? Summarize the findings discussed in the article.

 

4. (Advanced) Does the answer you give to question 2 explain the findings in the academic research on executive compensation? Support your answer.

READ THE ARTICLE



 

Reviewed By: Judy Beckman, University of Rhode Island

 

"Pay, Performance Often at Odds," by Vanessa Fuhrmans, The Wall Street Journal, May 18, 2018 ---
https://www.wsj.com/articles/ceo-pay-and-performance-dont-match-up-1526299200?mod=djem_jiewr_AC_domainid

The S&P 500 CEOs who received the biggest pay increases scored middling shareholder returns

The best-paid CEOs don’t necessarily run the best-performing companies.

Corporate boards have tried for years to tie chief executive compensation to the results they deliver. The better the company and its shareholders do, the more the top boss should be paid, or so the pay-for-performance mantra goes. In reality, CEO pay and performance often don’t match up, and 2017 was no exception.

Among S&P 500 CEOs who got raises last year, the 10% who received the biggest pay increases scored—as a group—in the middle of the pack in terms of total shareholder return, according to a Wall Street Journal analysis of data from MyLogIQ LLC and Institutional Shareholder Services.

Similarly, the 10% of companies posting the best total returns to shareholders scored in the middle of the pack in terms of CEO pay, the data show.

“Stars are often underpaid, while average performers are often overpaid,” said Herman Aguinis, a professor of management at George Washington University School of Business.

One reason for the mismatch is that boards often set CEO pay by benchmarking the average compensation for leaders at a peer group of companies and setting performance targets accordingly, Mr. Aguinis said. That works if CEO performance doesn’t vary too greatly from the average. But a study co-written by Mr. Aguinis and published last week in the journal Management Research found that, much like with professional athletes, there were vast differences in the performance of CEOs.

The disparity between chief executive compensation and performance appears to persist over longer periods, too, Mr. Aguinis said. In the study, researchers analyzed the earnings of more than 4,000 CEOs over the course of their tenures against several performance metrics. They found virtually no overlap between the top 1% of CEOs in terms of performance and the top 1% of highest earners. Among the top 10% of performers, only a fifth were in the top 10% in terms of pay.

In 2017, only two out of the 20 highest-paid CEOs who didn’t leave their jobs before the end of the year landed in the top 20 for shareholder return.

Robert Kotick of Activision Blizzard Inc., ATVI -0.14% known for “Call of Duty,” “World of Warcraft” and other videogames, made $28.7 million and posted a 76% return. Steve Wynn was paid $34.5 million, while Wynn Resorts Ltd. posted a 98% total return. Mr. Wynn stepped down as CEO in February amid sexual-assault allegations, which he has denied.

Many firms condition a big share of pay on three-year performance metrics that are only partially affected by a single bad year, compensation consultants say.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on May 18, 2018

Choosing the Right Vehicle for Your Cash

By Jason Zweig | May 12, 2018

TOPICS: Interest Rates

SUMMARY: "If you're borrowing from Mercedes at 4% and lending your money right back at 2.5%, you need a financial adviser even more than you need a car," writes Mr. Zweig in the final sentence of this article. The assessment stems from a direct mailing to Mercedes Benz owners, or those who lease vehicles, offering an investment in short-term securities yielding 2.5%. The article discusses the attractiveness of the rate compared to bank accounts and highlights the reasons for the difference, including risk as a general creditor, lack of federal deposit insurance on the funds, and loss of diversification benefits found in mutual funds. Finally, the article concludes with a comparison of rates available with other investment opportunities.

CLASSROOM APPLICATION: The article may be used when discussing time value of money to provide realistic examples of interest rates available in today's markets. It also may be used when discussing corporate short term debt.

QUESTIONS: 

 

1. (Introductory) What offering to Mercedes Benz owners has the company made?

 

2. (Advanced) Why do you think the company is making this private offering?

 

3. (Introductory) What types of investments are available to individuals who want to earn some return on idle cash? What interest rates are available on those investments?

 

4. (Advanced) Why should investors demand a higher rate of return on an investment with Mercedes-Benz manufacturer Daimler-Benz than rates offered by banks on insured deposits or by mutual funds?

 

5. (Advanced) Explain the author's concluding statement that an individual should not lend to Daimler-Benz at 2.5% if he or she is leasing or borrowing to finance a vehicle at a 4% rate. What is a better use of the $10,000 minimum that is required to take up this offer?

READ THE ARTICLE



 

Reviewed By: Judy Beckman, University of Rhode Island

 

"Choosing the Right Vehicle for Your Cash," by Jason Zweig, The Wall Street Journal, May 12, 2018
https://blogs.wsj.com/moneybeat/2018/05/11/mercedes-wants-to-borrow-money-from-you-should-you-bite/?guid=BL-MBB-68210&mod=djem_jiewr_AC_domainid&dsk=y

Short-term corporate notes offer more yield but less safety

This spring, tens of thousands of people who own or lease a Mercedes-Benz vehicle are receiving an unusual direct-mail offer: an invitation to invest in short-term securities from Mercedes paying a 2.5% annual rate.

That looks like a limousine of yield alongside the jalopy rates of less than 1% you get right now on most bank accounts, certificates of deposit or money-market funds.

Whether the Mercedes cash vehicle or others like it are right for you depends primarily on whether you think of cash as an offensive or defensive investing weapon.

If you urgently need to squeeze more income out of your cash, it might make some sense to put a small portion in such a high-yielding issue. Many investors, however, regard cash as a bulwark against the risk of loss elsewhere in their portfolio — and in the other aspects of their life, for that matter.

In that case, cash is no place to run unnecessary risks, no matter how small.

The Mercedes offering, launched in 2014 and sold more widely since last year, is called a privately placed floating-rate demand note. You generally can’t invest unless you earn at least $200,000 a year ($300,000 if you file taxes jointly) or have $1 million in net worth, not counting your primary residence.

There’s no public market for the securities, which are issued by Mercedes-Benz Financial Services USA. You can withdraw your money at will and receive the proceeds back in two to three business days, according to the company.

MBFS is the arm of Daimler that provides loan and lease financing for Mercedes and other cars, trucks and commercial vehicles sold by Daimler. The interest rate is set weekly by a committee of executives at Mercedes-Benz Financial; it last changed on March 26, to 2.5% from 2%.

Several other companies have issued short-term, floating-rate demand notes directly to the public, including Ally Financial, Caterpillar Financial Services Corp., Duke Energy, Ford Motor Credit Corp., and General Motors Financial Co.

By marketing these securities largely to employees or customers, companies can cheaply diversify their sources of funding. Individual investors will often settle for lower rates than the professional investors who buy companies’ debt in the public market.

In general, these issues are unsecured; you will have to wait in line behind other creditors if an issuer ends up struggling to pay the interest or principal. Nor is this kind of debt covered against loss by the Federal Deposit Insurance Corporation.

So far, several hundred investors have bought several hundred million dollars of the Mercedes-Benz Financial notes, according to people familiar with the program. The minimum investment is $10,000.

Above all, when you invest in a demand note, you trade off higher yield for lower diversification.

“Most of our investors that we talk to say it’s not about diversification for them; they’ve got that throughout their investment portfolio,” says Chad Bowles, manager of the demand-notes program at Mercedes-Benz Financial. “This is really to fill a void, to replace a money-market fund, CDs or other instruments for a higher rate of return.”

Money-market mutual funds, however, spread their bets widely to minimize risk. They tend to hold a mix of short-term debts and other assets from the U.S. Treasury and other government issuers, banks, financial firms and industrial companies.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on May 18, 2018

 

", The Wall Street Journal, May
 

 

Continued in article


 

 

 

 

 

 

 

 

 

 

 

\




Humor for May 2018

Humor for May 2018

SNL:  Mothers Day Remembrance for the Day You Were Born
http://taxprof.typepad.com/taxprof_blog/2018/05/mothers-day-remembrance-the-day-you-were-born.html

Buffett & Munger’s Funniest Moments ---
http://ritholtz.com/2018/05/buffett-mungers-funniest-moments/

Pelican Attacks College Graduation (Video) ---
http://www.1029thebuzz.com/2018/04/29/pelican-attacks-college-graduation-video/

Pun competitions prove that it's possible to elevate these groan-worthy jokes into an art form ---
https://www.esquire.com/entertainment/books/a15872842/in-defense-of-puns/


TED Talk With Humor and Inspiration
Emily Levine: How I made friends with reality
https://www.ted.com/talks/emily_levine_how_i_made_friends_with_reality?utm_source=newsletter_weekly_2018-05-26&utm_campaign=newsletter_weekly&utm_medium=email&utm_content=talk_of_the_week_image

Bob Hope Quotes --- https://www.brainyquote.com/authors/bob_hope

 


Question
How was copper wire invented?

Answer
It happened when two accountants were arguing over a penny.

Probably an old joke among many at my recent birthday celebration.

Bob Jensen's threads on accounting humor ---
http://faculty.trinity.edu/rjensen/FraudEnron.htm#Humor


Forwarded by Paula

Codger Quiz….

Great mental exercise for the “elderly” crowd.  Which of the following names are you familiar with?

1. Monica Lewinsky

2. Spiro Agnew

3. Benito Mussolini

4. Adolf Hitler

5. Jorge Bergoglio

6. Alfonse Capone

7. Vladimir Putin

8. Linda Lovelace

9. Saddam Hussein

10. Tiger Woods

You had trouble with #5, didn't you?

You know all the liars, criminals, adulterers, murderers, thieves, sluts, and cheaters, but you don't know the Pope??

 


Forwarded by Paula

What happens if you get scared half to death twice?

I checked into the Hokey Pokey Clinic, and then turned myself around.

This is my step ladder; I never knew my real ladder.

My wife said I never listen to her or something to that effect.

Frog parking only --- all others will be toad.

If you think eduaction is costly, try ignorence.

Ban shredded cheese to make America grate again.

 




Humor May 2018--- http://faculty.trinity.edu/rjensen/book18q1.htm#Humor0518.htm

Humor April 2018--- http://faculty.trinity.edu/rjensen/book18q1.htm#Humor0418.htm

Humor March 2018--- http://faculty.trinity.edu/rjensen/book18q1.htm#Humor0318.htm 

Humor February 2018--- http://faculty.trinity.edu/rjensen/book18q1.htm#Humor0218.htm

Humor January 2018--- http://faculty.trinity.edu/rjensen/book18q1.htm#Humor0118.htm 

Humor December 2017--- http://faculty.trinity.edu/rjensen/book17q4.htm#Humor1217.htm

Humor November 2017--- http://faculty.trinity.edu/rjensen/book17q4.htm#Humor1117.htm 

Humor October 2017--- http://faculty.trinity.edu/rjensen/book17q4.htm#Humor1017.htm

Humor September 2017--- http://faculty.trinity.edu/rjensen/book17q3.htm#Humor0917.htm

Humor August 2017--- http://faculty.trinity.edu/rjensen/book17q3.htm#Humor0817.htm

Humor July 2017--- http://faculty.trinity.edu/rjensen/book17q3.htm#Humor0717.htm

Humor June 2017 --- http://faculty.trinity.edu/rjensen/book17q3.htm#Humor0717.htm

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

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

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

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

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

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

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




And that's the way it was on May 31, 2018 with a little help from my friends.

 

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

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

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

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

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

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

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

 

 

April 2018

 

        Bob Jensen's New Additions to Bookmarks

April 2018

Bob Jensen at Trinity University 


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

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

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

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

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

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

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

 

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

 

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

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

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

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

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

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

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

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

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

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




Ph.D. Alumni of Major USA Accounting Doctoral Programs ---
http://www.jrhasselback.com/AtgDoct/XSchDoct.pdf

Almost 40 years ago (academic year 1977-1978) the Accounting Faculty Directory included a third section that listed the Accounting doctorates granted by each school.

Included here is an updated replication of that former section.

James R. Hasselback 6-7-2016

Jensen Comment
It would be extremely helpful if this list was updated further with such designations as gender and race/ethnicity. Unfortunately, Jim probably did not collect these details.


State Income Taxes Ranked From Highest to Lowest
http://www.businessinsider.com/state-income-tax-rate-rankings-by-state-2018-2


The Federal budget for 2017 ---
http://ritholtz.com/2018/04/federal-budget-2017/

Jensen Comment
Note that even before the 2018 corporate tax cuts the corporate income tax has been a shrinking part of the Federal budget of the most recent decades. I've long been an advocate of replacing it with a VAT tax but liberals and conservatives alike hate that idea.

Medicare and Medicaid are the least sustainable entitlements predicted for the future.

Interest on government debt is a huge worry since foreign interests (think China and the oil-rich nations of the Middle East) own so much of it with the threat that one day these large investors will stop rolling over their investments in USA debt.

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

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

How Americans Get Health Insurance ---
http://ritholtz.com/2017/08/americans-get-health-insurance/


New IFRS conceptual framework revises foundational reporting concepts ---
https://www.journalofaccountancy.com/news/2018/mar/ifrs-framework-revisions-201818675.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=30Mar2018

Jensen Comment
Alas! Now if standard setters could just operationally define net earnings as something other than a plug that makes the balance sheet balance.


The Atlantic:  A Powerful New Weapon in the Fight Against Shoddy Statistics ---
https://www.theatlantic.com/science/archive/2018/04/a-groundbreaking-new-mathematical-tool/557903/


How To Automatically Add Citations And Bibliographies To Microsoft Word ---
https://www.howtogeek.com/349774/how-to-automatically-add-citations-and-bibliographies-to-microsoft-word/


Creative Accounting --- https://en.wikipedia.org/wiki/Creative_accounting

From a New Yorker Cartoon
"Elmer, only a new accounting idea can save this company."

Creativity:  19 creative accounting schemes for money-losing startups ---
https://qz.com/1263214/pro-forma-accounting-19-creative-schemes-for-money-losing-startups/

Jensen Comment
While things are going from bad to worse at General Electric accounting creativity seems to have failed in the financial markets. But the classic teaching case on creative accounting is still Enron ---
http://faculty.trinity.edu/rjensen/FraudEnron.htm

Bob Jensen's threads on accounting creativity (e.g., earnings management) ---
http://faculty.trinity.edu/rjensen/theory02.htm#Manipulation

 



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

Blockchain could be your solution to spreadsheet fatigue ---
http://blog.aicpa.org/2018/03/blockchain-could-be-your-solution-to-spreadsheet-fatigue.html#sthash.ZxLlLupt.dpbs

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

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


Stanford on the Science Behind Cambridge Analytica's Psychological Profiling:  Does it Really Work?
https://www.gsb.stanford.edu/insights/science-behind-cambridge-analytica-does-psychological-profiling-work?utm_source=Stanford+Business&utm_campaign=31ffe41aea-Stanford-Business-Issue-136-4-29-2018&utm_medium=email&utm_term=0_0b5214e34b-31ffe41aea-70265733&ct=t(Stanford-Business-Issue-136-4-29-2018)


Consumer Financial Protection Bureau (CFPB) seeks record fine against Wells Fargo for abuses ---
https://www.reuters.com/article/us-wells-fargo-accounts-fine-exclusive/exclusive-u-s-watchdog-seeks-record-fine-against-wells-fargo-for-abuses-sources-idUSKBN1HG2PO?il=0


Francine:  This next accounting rule change will add liabilities to every balance sheet ---
https://www.marketwatch.com/story/this-next-accounting-rule-change-will-add-liabilities-to-every-balance-sheet-2018-04-24

A big change in lease accounting due in January of 2019 will affect every public and private company in the U.S., just like the tax revamp and the new rules for recording revenue that took effect for most public companies in January.

The new rules require companies to record liabilities for operating leases on their balance sheet for the first time ever. As the deadline draws closer, public companies are required to include a discussion of the potential future impact of the new rule on their financial statements.

But many companies appear unprepared for the change, according to Michael Keeler, chief executive of LeaseAccelerator Inc., a provider of software-as-a-service, or SaaS, for enterprise lease accounting.

Keeler told MarketWatch that most companies started their revenue-recognition efforts late and are using the same resources for lease accounting changes: “So they could not get started earlier on lease accounting.”

Only 13% of companies surveyed at the end of March told LeaseAccelerator that a project team had already been created to work on implementing the new rules.

“We’re in the tornado now,” said Keeler. “Maybe 25% of companies have gotten started or even made a decision on what system they will use to make the change. The lack of implementation progress suggests there is still a long road to compliance for many large lessees, since each will have to implement new lease accounting systems, policies and controls.”

Under the new rule, companies leasing assets, or lessees, will have to recognize a “right-of-use” asset and a lease liability for virtually all of their leases. The new standard retains the current dual approach on the income statement, requiring leases to be classified as either operating or financing. The accounting on the lessor side is similar to the current approach.

The U.S. accounting standards setter, the Financial Accounting Standards Board (FASB), and its international counterpart, the IASB, started working on the rule change in 2006 as part of a global effort to align their two sets of standards and address concerns about the current approach.

Continued in article


How the new estate tax rules could reduce charitable giving by billions ---
https://theconversation.com/how-the-new-estate-tax-rules-could-reduce-charitable-giving-by-billions-94879


Square Root Costing: The only costing methodology based on an accurate understanding of complexity costs, say the co-founders of Wilson Perumal ---
http://ww2.cfo.com/budgeting/2018/04/square-root-costing-a-better-method/

Bob Jensen's threads on cost and managerial accounting ---
http://faculty.trinity.edu/rjensen/theory02.htm#ManagementAccounting


Excel expert Liam Bastick derives a formula to display the name of the workbook automatically ---
https://www.fm-magazine.com/news/2018/apr/excel-automated-file-names-201818490.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=20Apr2018


Future predictions: revolutionising the accuracy of business forecasting ---
https://www2.monash.edu/impact/articles/future-predictions-revolutionising-the-accuracy-of-business-forecasting/


Nothing Ever Changes in Division 1:  2018 New Colleges (Kansas and North Carolina) Are Named in FBI's Basketball-Corruption Inquiry ---
https://www.chronicle.com/article/New-Colleges-Are-Named-in/243091?cid=at&utm_source=at&utm_medium=en&elqTrackId=a27c9467e42247b08af2e0f2dbbc1167&elq=d6726c6e75f14f9795b2381d76401686&elqaid=18583&elqat=1&elqCampaignId=8351

Bob Jensen's threads on college athlete scandals ---
http://faculty.trinity.edu/rjensen/HigherEdControversies2.htm#Athletics


Elizabeth Warren favors having the IRS create software for filing many more taxpayer returns ---
https://www.vox.com/2016/4/13/11417676/elizabeth-warren-tax-return-free-filing-tax-day-intuit-hr-block-turbotax-automatic-simple

Jensen Comment
This might put TurboTax, TaxAct, and other tax software companies out of business, but it may not eliminate the need for professional tax help and return filing by tax specialists, CPAs, and attorneys. Senator Warren's proposal would simplify filing of tax returns but not simplify most of the very complicated USA Income Tax Code that confuses so many taxpayers.

The article is critical of the present IRS free-filing program that's allegedly used only by less than 3% of the taxpayers even though nearly 50% of the taxpayers who file tax returns owe no income taxes.

Comparisons of the filing simplicity of other nations with the USA is misleading because their income tax laws are so simple compared to the exceedingly complicated USA Tax Code. Also many of those nations rely on taxes other than income taxes such as the VAT tax that's popular in Europe. Another example is the way the USA provides complicated income tax relief for medical services and medications compared to other nations with relatively simple national health care plans that do not complicate income tax filing.

Reply from Barbara Scofield

An additional complication is the interaction of state returns and federal returns. I do volunteer tax preparation with AARP Tax Aide which targets low income senior citizens. Many of our clients come because the state of Kansas gives a refundable tax credit for property tax paid by those who meet the age and income requirements. To file for this "homestead credit," the taxpayers must file federal and state returns, even though they have had no tax withheld from their social security and do not meet the thresholds to file taxes. We have to trick the software by adding $1 of Other income, which we call "For Filing Purposes" so that the software will be willing to efile the returns.

The "homestead credit" is a great program, but it breaks my heart when clients get back the $250 they paid in property tax, which suggests that the value of their home is incredibly low.

Barbara W. Scofield, PhD, CPA
Professor of Accountancy
Washburn University
HC 311L Topeka, KS 66621


Satterthwaite Presents Electing Into A Value-Added Tax ---
http://taxprof.typepad.com/taxprof_blog/2018/04/satterthwaite-presents-electing-into-a-value-added-tax-today-at-nyu.html


Why will Subway close another 500 stores after closing nearly 1,000 stores last year?
http://www.businessinsider.com/subway-to-close-another-500-stores-2018-4


Retailers Closing the Most Stores

https://247wallst.com/special-report/2018/04/26/retailers-closing-the-most-stores-3/?utm_source=247WallStDailyNewsletter&utm_medium=email&utm_content=APR272018A&utm_campaign=DailyNewsletter


Kentucky has ditched its so-called progressive income tax in favor of a flat rate tax (overriding the Governor's veto) ---
http://www.wkyt.com/content/news/House-overrides-Gov-Bevins-tax-bill-veto-479659283.html


Vox:  Energy storage is considered a green technology. But it actually increases carbon emissions ---
https://www.vox.com/energy-and-environment/2018/4/27/17283830/batteries-energy-storage-carbon-emissions

MIT:  This battery advance could make electric vehicles far cheaper ---
https://www.technologyreview.com/s/610792/this-battery-advance-could-make-electric-vehicles-far-cheaper/

Sila Nanotechnologies has pulled off double-digit performance gains for lithium-ion batteries, promising to lower costs or add capabilities for cars and phones.

For the last seven years, a startup based in Alameda, California, has quietly worked on a novel anode material that promises to significantly boost the performance of lithium-ion batteries.

Sila Nanotechnologies emerged from stealth mode last month, partnering with BMW to put the company's silicon-based anode materials in at least some of the German automaker’s electric vehicles by 2023. A BMW spokesman told the Wall Street Journal the company expects that the deal will lead to a 10 to 15 percent increase in the amount of energy you can pack into a battery cell of a given volume. Sila’s CEO Gene Berdichevsky says the materials could eventually produce as much as a 40 percent improvement (see “35 Innovators Under 35: Gene Berdichevsky”).

For EVs, an increase in so-called energy density either significantly extends the mileage range possible on a single charge or decreases the size and cost of the batteries needed to reach standard ranges. For consumer gadgets, it could alleviate the frustration of cell phones that can’t make it through the day, or it might enable power-hungry next-generation features like bigger cameras or ultrafast 5G networks.

Researchers have spent decades working to advance the capabilities of lithium-ion batteries, but those gains usually only come a few percentage points at a time. So how did Sila Nanotechnologies make such a big leap?

Berdichevsky, who was employee number seven at Tesla, and CTO Gleb Yushin, a materials scientist at the Georgia Institute of Technology, recently provided a deeper explanation of the battery technology in an interview with MIT Technology Review

 


AAUP Annual Faculty Compensation Data for 2017-18 ---
https://www.chronicle.com/article/how-much-did-professors-earn/243085?cid=db&elq=e723fbc6b5444b05a5336833608d3969&elqCampaignId=8341&elqTrackId=0e0a84a9c6ce4879b9d54b79a8764ff4&elqaid=18566&elqat=1

In 2017–18, average salaries for full-time continuing faculty members increased by 3.0 percent over the previous academic year, or by 1.1 percent after adjusting for inflation. Presidents of institutions participating in the AAUP’s Faculty Compensation Survey are paid 4.78 times more than fulltime faculty members, on average.

Accompanying this year’s report are two data snapshots that serve to situate the report’s results within the larger national discussion about retirement benefits, state funding of higher education, and early-career faculty. Drastic cuts in state appropriations have often affected faculty at public colleges and universities more than other public employees as legislators have targeted higher education budgets. And states with catastrophic decreases in support for higher education have typically faced a corresponding financial crisis caused by the underfunding of public pensions. The coming retirement crisis for employees under forty is worsened for early-career faculty because of their late entry into the workforce relative to other employees.

This year’s report explores some of the benefits full-time faculty receive. Many of the broader societal trends affecting retirement and health benefits hit faculty especially hard. What appear to be very generous retirement benefits for some faculty become much less generous when the mobility required for early-career faculty is considered. Some public institutions seem to offer better retirement benefits than private institutions but are not paying into Social Security for their employees. The continually increasing costs of health care have also affected faculty—while premiums for employer-covered health-care plans rose by 3 percent nationally in 2017, the average increase in employer contributions at reporting institutions was below that (and was negative at private religiously affiliated institutions). The data gathered by the AAUP can help explore such nuances in a complicated compensation landscape.

Download the report as a pdf.

Continued in article


Finance:  Usage of Variance Analysis Is, Well, Variable ---
http://ww2.cfo.com/budgeting/2018/04/usage-of-variance-analysis-is-well-variable/

Jensen Comment
Variance analysis like mean analysis and regression analysis have common drawbacks, especially when examining past data over extended periods of time. Probably the biggest risk is non-stationary time series that naive statistics researchers often ignore. For example, changes in product mix can lead to non-stationary comparisons. Also new regulations and/or taxes laws can be troublesome as will be the case in the USA between 2017 and 2018.


MD&A --- https://en.wikipedia.org/wiki/Financial_statement#Management_discussion_and_analysis

April 25, 2018 Message from Tom Selling

https://www.sec.gov/litigation/admin/2018/33-10485.pdf

Interesting for omission of discussion in MD&A of their data breaches and risk factor disclosures.  Generally, the SEC complains that risk factor disclosures are too lengthy and obscure the material risks that a company faces.  I find this to be an interesting case, because it could be example of the practice of selective misrepresentation:  establishing a record of integrity in order to be able to misrepresent at a more opportune time.  Also, interesting to note that risk factor disclosures have only required in ’34 Act since S-OX (or thereabouts).  Prior to that time they were only required when a company was raising capital.


McDonald's said its new college tuition funding program became available through changes in the new U.S. tax law
http://www.mlive.com/business/ann-arbor/index.ssf/2018/03/mcdonalds_investing_150_millio.html

McDonald's Corp. is earmarking $150 million for college-tuition assistance for its employees, the fast food giant announced Wednesday, March 29.

The money will fund its Archways to Opportunity education program, which assists employees with college tuition assistance at community colleges, universities or trade schools and connect them with English language courses and education advising services.

McDonald's said the funding was available through changes in the U.S. tax law implemented by the Trump administration, which lowered the corporate income tax rate.

Eligible crew members can get up to $2,500 and managers up to $3,000 a year in college tuition assistance, starting May 1 and retroactive to Jan. 1 of this year.

Jensen Comment
In some ways this is a better program than those of Starbucks and Walmart that only provide a single alternative for a college degree. I hope McDonald's can significantly add to funds to this program in the future.

Hopefully, this will inspire other business firms to follow suit with their tax breaks in the new tax bill.


Auburn Is Hiring 500 Tenure-Track Faculty Members (mostly STEM specialists)  ---
https://www.chronicle.com/article/Auburn-Is-Hiring-500/242968?cid=db&elqTrackId=f7fdc8f92f3c4d43b00e0d2e2593e0f6&elq=2369ae57e1764c7a8bec0b3c4cdb4104&elqaid=18396&elqat=1&elqCampaignId=8248

Jensen Comment
My ophthalmologist is in Auburn's online MBA program for physicians.


Growing debt among older Americans threatens their retirement ---
https://www.cnbc.com/2018/04/04/growing-debt-among-older-americans-threatens-retirement.html

Jensen Comment
This should read "may threaten their retirement." There are circumstances where more debt is beneficial for seniors. For example, when mortgage rates were below 4% I refinanced my huge mortgage. This did not add to the amount of debt but it put 30 years back on the maturity date. I could easily have paid off that debt by writing a check from my tax exempt fund, but the tax-exempt fund lowers by income taxes due in part by having a mortgage interest deduction on my tax return. The return from my tax exempt fund is about equal to the interest rate on my mortgage. I can then pocket my income tax savings to save for if and when they haul me off to a nursing home. By the way, nursing home insurance was always too expensive in my opinion, and the costs of such insurance recently doubled. For some this insurance is a good idea, but not for me.

Note that my investment choice may not, and probably is not, good advice for you. Each person's investment circumstance is unique. Don't necessarily be a copycat. Young people face more inflation risk than us oldsters. Think CREF rather than TIAA.


Complicated Rules About Getting Medicaid to Pay for Nursing Home Care

Here's one of the best articles explaining the circumstances of income and Medicaid payments for a nursing home ---
https://www.nolo.com/legal-encyclopedia/when-will-medicaid-pay-nursing-home-assisted-living.html

Also see
https://www.medicareinteractive.org/get-answers/cost-saving-programs-for-people-with-medicare/medicare-and-medicaid/medicaid-eligibility-for-medicare-beneficiaries-who-need-long-term-care-in-a-nursing-home

Bob Jensen's threads on Financial Literacy and Personal Finance ---
http://faculty.trinity.edu/rjensen/Bookbob1.htm#InvestmentHelpers
 


History? When the Tax Court Justified Deductions for Legal Fees in a Proxy Fight ---
https://www.accountingweb.com/tax/individuals/when-the-tax-court-justified-deductions-for-legal-fees-in-a-proxy-fight?source=tx041618


A portion of a lump-sum Social Security disability payment ruled includible in gross income ---
https://www.journalofaccountancy.com/issues/2018/mar/social-security-disability-payment-gross-income.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=29Mar2018

Credit for the Elderly or the Disabled at a Glance ---
https://www.irs.gov/credits-deductions/individuals/credit-for-the-elderly-or-the-disabled


GE Urged to Dump Auditor KPMG After 109 Years by Proxy Advisers ---
https://www.wsj.com/articles/ge-urged-to-dump-auditor-kpmg-after-109-years-by-proxy-advisers-1522964791

ISS, Glass Lewis recommend shareholders vote against keeping KPMG

The two largest proxy advisory firms are recommending that General Electric Co. GE 1.13% fire KPMG LLP as its auditor after 109 years, in light of accounting issues at the industrial giant.

Institutional Shareholder Services made the unusual move on Thursday, saying shareholders should vote against keeping KPMG because of “the apparent extent of GE’s previously-undisclosed liabilities and accounting issues.” Glass, Lewis & Co. published a similar recommendation on Tuesday.

Earlier this year, GE disclosed massive charges related to insurance operations, including a need to put $15 billion into reserves over seven years, and said the Securities and Exchange Commission is investigating some of its accounting practices.

Glass Lewis said it generally supports a company’s auditors choice “except when we believe the auditor’s independence or audit integrity has been compromised.”

KMPG and its predecessor firms have audited GE’s books since 1909, one of the longest auditor-client relationships. KPMG has hundreds of staffers that work on the account, which generated $142.9 million in fees last year.

“It’s extremely rare for ISS to recommend against management auditor ratification proposals” when fees aren’t an issue, said Subodh Mishra, executive director at ISS. Just one such resolution over the past decade has failed to pass, according to ISS Analytics.

Representatives for GE and KMPG had no immediate comment.

Despite the unusual rebuke from ISS, KPMG is unlikely to lose the GE account. Investors rarely reject an outside auditor recommended by a corporate board, according to Charles Elson, head of the Weinberg Center for Corporate Governance at University of Delaware.

“I don’t recall shareholders ever voting out an auditor” for a large public company, Mr. Elson said. But “a strong vote against KPMG would prompt the reconstituted board to consider replacing them next year.’’

In its proxy, GE cites the benefits of having the same auditor for more than a century, including “institutional knowledge” to handle audits in more than 90 countries for GE. It notes that changing auditors requires “a significant time commitment that could distract from management’s focus on financial reporting and internal controls.”

In its report, ISS said the reasons to keep the same audit firm need to be balanced “against the risk that a long-tenured auditor can become too close to a client, and the potential for a new auditor to uncover problems previously unidentified.”

Long-tenured auditors aren’t unusual. Half the 30 companies in the Dow Jones Industrial Average have used the same audit firm since at least the mid-1960s, and only two have switched to new auditors in the past 15 years.

Both ISS and Glass Lewis are recommending shareholders elect all of GE’s board nominees. GE has restructured its board in recent months, removing several long-tenured members and shrinking the board’s size to 12.

The proxy firms also recommended that GE investors support a shareholder resolution urging a separation of the roles of CEO and chairman. ISS cited the long-term underperformance of the company and a recent Wall Street Journal article that ISS said revealed “the board may have been overly deferential to the CEO and overly reliant on him for information about the company.”

With the planned exit of GE’s lead independent director, Jack Brennan, in 2019, there could be an opportunity to revisit the leadership structure.

 

KPMG hit by Hong Kong High Court in $400 million China Medical fraud ---
https://www.reuters.com/article/us-china-audit-papers/kpmg-hit-by-hong-kong-high-court-in-400-million-china-medical-fraud-idUSKBN1H60E0

Six ex-accountants at the KPMG and the PCAOB were accused of arranging to obtain and misuse confidential information about plans to inspect audits ---
https://www.wsj.com/articles/former-kpmg-executives-charged-with-conspiracy-1516640050

Living on Intangibles With Negative Tangible Assets
England's Latest Billion Dollar Scandal:  Carillion KPMG auditors under fire
---
https://www.thetimes.co.uk/edition/business/carillion-auditors-under-fire-8xpnmlnw0

Bob Jensen's threads about the history of KPMG's troubles ---
http://faculty.trinity.edu/rjensen/fraud001.htm


A brief history of the scatter plot—data visualization’s greatest invention ---
https://qz.com/1235712/the-origins-of-the-scatter-plot-data-visualizations-greatest-invention/

Bob Jensen's threads on data visualization ---
http://faculty.trinity.edu/rjensen/352wpvisual/000datavisualization.htm 
 


Women Say LuLaRoe’s Legging Empire Is a Scam ---
https://www.bloomberg.com/news/features/2018-04-27/thousands-of-women-say-lularoe-s-legging-empire-is-a-scam?cmpid=BBD042718_BIZ&utm_medium=email&utm_source=newsletter&utm_term=180427&utm_campaign=bloombergdaily


Tesla Has a Big Cash Flow Apart from the Model 3 Production That's Burning $6,500 Per minute ---
https://www.bloomberg.com/news/articles/2018-04-06/hidden-by-model-3-mess-tesla-s-other-problem-is-about-to-emerge?cmpid=BBD040618_BIZ&utm_medium=email&utm_source=newsletter&utm_term=180406&utm_campaign=bloombergdaily

With all the car-making troubles that are hounding Tesla Inc. these days -- from the Model 3 bottlenecks to the furious cash burn -- it’s easy to overlook the company’s SolarCity headache.

But 16 months after Chief Executive Officer Elon Musk kicked up controversy by acquiring the solar-panel installer founded by two of his cousins, its obligations are a strain on Tesla’s finances. The $2 billion purchase came with a $2.9 billion debt load, and a chunk of that is soon coming due. That’s bad timing for a company churning through about $6,500 a minute and trying to stave off the need for another capital raise.

“SolarCity debt may not be the immediate cause of Tesla’s problems, but it certainly isn’t helping right now,” said Alexander Diaz-Matos, an analyst at credit research firm Covenant Review LLC.

Tesla representatives declined to comment for this story. The solar business generated positive cash flow last year, according to the company.

Debt Coming Due

Tesla’s debt runs the gamut -- convertible bonds, promissory notes, term loans, cash-equity debt, asset-backed securities. Most of the total is tied to Tesla the automaker.

Read more: Tesla May Need to Recharge Coffers to Make Model 3 Go
https://www.bloomberg.com/news/articles/2018-04-03/musk-needs-to-recharge-tesla-s-finances-to-make-the-model-3-go

For investors, the focus has largely been on the cash burn linked to struggles speeding up production of the Model 3, the sedan Musk is betting will be the first to bring electric cars to the masses. There’s also fresh concern over Tesla’s Autopilot after the fatal crash of a Model X last month that occurred while the driver-assistance system was engaged.

Continued in article

Tesla could run out of cash before the end of the year — here's how Elon Musk could change that ---
http://www.businessinsider.com/how-elon-musk-could-fix-tesla-cash-problems-2018-4

North American plants are making about 70 models more quickly (and profitably) than the Tesla Model 3 inefficiently sucking up cash ---
https://www.bloomberg.com/news/articles/2018-04-03/as-tesla-struggles-its-rivals-make-far-more-with-less

The very robots hat Musk says will revolutionize the car industry are baking in Tesla's mistakes and costing far more money than they're worth, they say ---
 http://www.businessinsider.com/tesla-robots-are-killing-it-2018-3

From an MIT Newsletter on February 5, 2018

Tesla’s worker struggles

The car maker is trying to get out from under a cloud that has hovered over working conditions in its Fremont, California factory for some time now.
On the floor: Some employees have said they receive “
near the lowest pay in the automotive industry and struggle to get workers’ compensation. Reports of injury rates have been blamed on the company not following through on policies like rotating workers every two hours.
A push for change: The Tesla Fremont plant is the only non-union, US-owned automotive plant in the country. Elon Musk was
not happy about the push to unionize last year as a result of dissatisfaction with working conditions.
Making things safer: Tesla is getting set to automate worker rotations. According to
Buzzfeed, it is also hiring a medical director, and looking to increase the number of doctors it staffs on site. Tesla expects its serious injury rate for 2017 to be below the national average, a major improvement from 2015, when it was double the averag
e.


Why have billions of dollars in venture-capital funding poured into the post and parcel industry in the last two years?
http://www.big4.com/big4-thought-leader-interviews/accenture-reports-billions-pumped-into-disrupting-postal-delivery-services/


IRS Databook for 2017 ---
https://www.irs.gov/pub/irs-soi/17databk.pdf


England:  Accounting Watchdog (FRC) to Bite Big Four Harder with 10 Million Pound Fines ---
https://www.reuters.com/article/us-britain-accounts-regulator/accounting-watchdog-to-bite-harder-with-10-million-pound-fines-idUSKBN1HG0SP

. . .

Clarke recommended an increase in fines to 10 million pounds or more for seriously poor audit work from a Big Four accounting firm, meaning PwC, KPMG, EY and Deloitte, who check the books of most international blue-chip companies.

The FRC also accepted other recommendations from Clarke to make greater use of non-financial penalties and to exclude dishonest auditors from the accounting profession for at least 10 years.

However, fines will be discounted in line with the level of cooperation during an investigation to encourage early settlement, the FRC said.

A 10 million pound fine is still small compared with penalties imposed by Britain’s Financial Conduct Authority for breaches of financial rules.

Britain’s ICAEW accounting industry body has already warned that exacting retribution through big fines could harm the marketplace by prompting some firms to quit auditing.


Kawaller:  2018 Update on Hedge Accounting Rules ---
https://www.cpajournal.com/2018/04/11/update-on-hedge-accounting-rules/

Bob Jensen's free tutorials on hedge accounting rules (including a huge glossary)  ---
http://faculty.trinity.edu/rjensen/caseans/000index.htm


What does it take to recover assets from despots and corrupt officials? ---
https://www.aicpastore.com/FraudDetectionandPrevention/kleptocracy-considerations---not-just-for-crooked-/PRDOVR~PC-WC1602256/PC-WC1602256.jsp?utm_source=mnl:cpald&utm_medium=email&utm_campaign=23Apr2018


California Running Ponzi Scheme with Unclaimed Property Program ---
https://townhall.com/columnists/brucebialosky/2018/04/22/california-running-ponzi-scheme-with-unclaimed-property-program-n2472108

NFL has no comment on Eli Manning’s pending fraud trial  ---
https://www.msn.com/en-us/sports/nfl/nfl-has-no-comment-on-eli-manning’s-pending-fraud-trial/ar-AAw9zNC?ocid=spartandhp

Wells Fargo will pay $1 billion to federal regulators to settle charges tied to misconduct at its mortgage and auto lending business ---
https://www.msn.com/en-us/money/companies/wells-fargo-to-pay-dollar1-billion-over-home-and-car-loan-abuses/ar-AAw6Nzx?ocid=spartandhp

Lance Armstrong Settles a $100 Million Fraud Lawsuit With the U.S. Postal Service for $5 Million ---
http://time.com/5247734/lance-armstrong-settles-federal-fraud-suit/?utm_source=time.com&utm_medium=email&utm_campaign=the-brief&utm_content=2018042011am&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%22716946%22%2c%22NEWSLETTER%22%3a%22THE_BRIEF%22%2c%22ZIP%22%3a%22035864237%22%2c%22COUNTRY%22%3a%22%22%7d


AICPA:  Report finds big fraud problems for small businesses ---
https://www.journalofaccountancy.com/news/2018/apr/acfe-report-big-fraud-problems-small-businesses-2018-18780.html

How cyber criminals are now targeting tax pros to cash in on fraudulent returns ---
https://www.msn.com/en-us/money/taxes/how-cyber-criminals-are-now-targeting-tax-pros-to-cash-in-on-fraudulent-returns/ar-AAvTPwh?ocid=spartandhp

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


The scandal surrounding Malaysia's state development fund 1MDB has gripped the country for years.
http://www.bbc.com/news/world-asia-33447456

 . . .

Malaysia Development Bhd, set up by Mr Najib in 2009, was meant to turn Kuala Lumpur into a financial hub and boost the economy through strategic investments.

But it started to attract negative attention in early 2015 after it missed payments for some of the $11bn it owed to banks and bondholders.

Then the Wall Street Journal (WSJ) reported it had seen a paper trail that allegedly traced close to $700m from the fund to Mr Najib's personal bank accounts.


Why is the US intervening now?

The Department of Justice alleges $3.5bn (£2.6bn) was misappropriated from 1MDB.

"The Malaysian people were defrauded on an enormous scale," Deputy FBI Director Andrew McCabe said at a news conference.

Mr Najib is not named in the suit. But it refers to "Malaysian Official 1", described as "a high-ranking official in the Malaysian government who also held a position of authority with 1MDB".​

The move reflects an intention by the US to open new fronts in its fight against illicit finance.

It also sets up a rare confrontations between the US and Malaysia, which is considered an important partner in the fight against terrorism.

 Continued in article

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


GASB releases guidance on debt disclosures pertaining to direct borrowing, direct placements ---

https://www.statedatalab.org/news/detail/gasb-releases-guidance-on-debt-disclosures-pertaining-to-direct-borrowing-direct-placements


Supreme Court considers whether states should have power to tax all online sales ---
https://www.msn.com/en-us/money/companies/supreme-court-considers-whether-states-should-have-power-to-tax-all-online-sales/ar-AAvV7n2?ocid=spartandhp
Attempts to legislate this in the 2018 Congress were declared dead


Why did the Clinton Foundation send a $37 million grant for the Clinton-Bush Haiti Fund in 2010 to a Baltimore post office box when the CBHF told federal tax authorities that its only office... ?
https://www.lifezette.com/polizette/how-37-million-from-the-clinton-foundation-disappeared-in-baltimore/


Law School Applicants From Top Colleges Decreased 7% In 2017, Down 45% Since 2008 ---
https://associatesmind.com/2018/03/30/top-university-students-avoiding-law-school-2018-edition/

. . .

Despite the Trump Bump increase in overall applications to law school, top university students are still not coming back. Not that surprising really. The practice of law is not looking that great recently. And there are so many other interesting, high-paying jobs on the STEM rout or finance, it’s no wonder that smart students are staying away.

Continued in article

Jensen Comment
I'm sure this is complicated with many underlying causes. Among the top causes has to be the cost of three years of law school coupled with the debt burden already accumulated by many graduates of top college. Certainly the lower hiring rates of law firms are huge factors, including the trend toward using "robots" to do legal research. Also many of the common legal documents like leasing contracts, wills, promissory notes, etc. are available cheaply online.

Competition for top students who can afford graduate school has heated up in the 21st Century. Medical schools are admitting higher numbers of students on top of other expanding medical career alternatives. Top MBA programs are thriving, especially those providing multinational careers.

Bob Jensen's threads on the ups and downs of law schools ---
http://faculty.trinity.edu/rjensen/HigherEdControversies.htm#OverstuffedLawSchools


Lean Accounting --- https://en.wikipedia.org/wiki/Lean_accounting

MAAW's Blog:; How lean accounting promotes lean in the organization ---
http://maaw.blogspot.com/2018/03/how-lean-accounting-promotes-lean-in.html


Jim Martin's summary of some of the Chapters in Christensen, C. R., D. A. Garvin, and A. Sweet. (Eds.) 1991. Education for Judgment: The Artistry of Discussion Leadership. Harvard Business School Press ---
http://maaw.blogspot.com/2018/04/education-for-judgment.html


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

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

Crypto Crime Wave:  From stickups and drug deals to white-collar scams, cryptocurrency-related crime is soaring—and law enforcement is scrambling to keep up ---
https://www.wsj.com/articles/the-crypto-crime-wave-is-here-1524753366

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

MIT:  Let's Destroy Bitcoin ---
https://www.technologyreview.com/s/610809/lets-destroy-bitcoin/

What is Bitcoin, and How Does it Work?
https://www.howtogeek.com/141374/htg-explains-what-is-bitcoin-and-how-does-it-work/

What’s the Difference Between Bitcoin, Bitcoin Cash, Bitcoin Gold, and Others?
https://www.howtogeek.com/349263/whats-the-difference-between-bitcoin-bitcoin-cash-bitcoin-gold-and-others/

MIT:  A Canadian hydropower operation put out the welcome mat for bitcoin miners. Shortly thereafter, it was overrun ---
https://www.technologyreview.com/s/610786/bitcoin-is-eating-quebec/

The Dumb Money: The definitive explanation of why Bitcoin is stupid ---
https://jacobinmag.com/2018/04/bitcoin-cryptocurrency-monetary-system

Blockchain is not only crappy technology but a bad vision for the future ---
https://medium.com/@kaistinchcombe/decentralized-and-trustless-crypto-paradise-is-actually-a-medieval-hellhole-c1ca122efdec

MIT:  In Blockchain We Trust ---
https://www.technologyreview.com/s/610781/in-blockchain-we-trust/

Everything (well not really everything) You Wanted to Know About Blockchain (But Were Afraid to Ask) ---
https://scholarlykitchen.sspnet.org/2018/04/03/everything-always-wanted-know-blockchain-afraid-ask/

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

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

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

Blockchain Is Pumping New Life Into Old-School Companies Like IBM ---
https://www.bloomberg.com/news/articles/2017-12-26/blockchain-pumping-new-life-into-old-school-companies-like-ibm?cmpid=BBD122617_BIZ&utm_medium=email&utm_source=newsletter&utm_term=171226&utm_campaign=bloombergdaily

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


How to Mislead With Statistics
Chronicle of Higher Education:  Colleges With the Lowest and Highest Student-to-Faculty Ratios, Fall 2016 -
--
https://www.chronicle.com/article/Colleges-With-the-Lowest-and/243056?cid=wb&utm_source=wb&utm_medium=en&elqTrackId=7ac75e616679422090804fe9511ee199&elq=6b15a52427684424b982e1bd30f5e7c9&elqaid=18727&elqat=1&elqCampaignId=8441

Jensen Comment
These rankings ignore the variances of programs within universities, especially professional programs. For example, universities like Harvard and Pennsylvania have very high student-faculty ratios in business, law, medicine, etc. relative to music programs. It's not uncommon at the Harvard Business School to have classes of 90+ students while some research professors in science have zero or only a few students.

Having a low student-faculty ratio does not guarantee small classes. Many universities have large lecture classes for elementary core courses in order to free up faculty for advanced courses.

There's often a huge difference between graduate and undergraduate class sizes, also this is not always the case in professional studies such as the Harvard Business School example mentioned above. Prestigious law schools sometimes have very large classes.

There's sometimes a huge difference between onsite class sizes and online class sizes (think University of Florida)

Some universities are embarrassed by low student-faculty ratios that they wish were ten times greater (think of the struggling Chicago State University that is close to bankruptcy and empty classrooms).

There's also a huge difference between how to define "faculty," especially "faculty" teaching in huge online programs that are much more likely to be adjunct non-tenured faculty who have their primary careers in the professional world rather than in academe.

 


State of America’s Libraries 2018 ---
https://americanlibrariesmagazine.org/blogs/the-scoop/state-of-americas-libraries-2018/

Jensen Comment
Libraries carry a lot of the out-of-print items that are not available on Amazon or they are not available at reasonable used book prices.

Having said this I'm finding it really convenient these days to download Amazon books (a lot of them free or virtually free) directly into my PC rather than into my Kindle. It is really convenient to have these books stored on hard drives. Amazon has a nifty app for downloading books directly into a PC or mobile device other than a Kindle.

Research libraries are still getting ripped off by exorbitant oligopoly subscription fees, but some of the top research libraries (think Cornell) are fighting back ---
http://faculty.trinity.edu/rjensen/FraudReporting.htm#ScholarlyJournals


After Glen's humor links this morning I hate to forward this sad news from a Chronicle of Higher Education newletter

Two years ago, the U.S. Education Department under President Barack Obama revoked the recognition of the Accrediting Council for Independent Colleges and Schools, which accredited many for-profit colleges. But last month a federal judge ruled that Obama's Education Department had "procedurally erred." The judge remanded the case to President Trump's education secretary, Betsy DeVos, to reconsider the evidence. On Tuesday the department restored its recognition of the accreditor. That means that more than 100 colleges still accredited by the council will remain eligible to receive federal student aid, for now. Read Eric Kelderman's article to learn what's at stake.

Also See
https://www.insidehighered.com/quicktakes/2018/04/04/devos-restores-recognition-profit-accreditor-terminated-obama-administration?utm_source=Inside+Higher+Ed&utm_campaign=7247688b4a-DNU20180111&utm_medium=email&utm_term=0_1fcbc04421-7247688b4a-197565045&mc_cid=7247688b4a&mc_eid=1e78f7c952


The 'Official' IRS Audit Rate Is 0.7%, But The 'Real' Audit Rate Is 6.2% ---
http://taxprof.typepad.com/taxprof_blog/2018/03/the-official-irs-audit-rate-is-07-but-the-real-audit-rate-is-62.html


This is the second article published by The Accounting Review in recent decades that does not contain equations. The other article was also an accounting history paper by Alan Sangster.
Congratulations Alan --- you've accomplished two miracles!

Alan Sangster (2018)
Pacioli's Lens: God, Humanism, Euclid, and the Rhetoric of Double Entry
The Accounting Review: March 2018, Vol. 93, No. 2, pp. 299-314.
https://doi.org/10.2308/accr-51850 

This paper investigates why, in 1494, the Franciscan friar and teacher of mathematics, Luca Pacioli, published an instructional treatise describing the system of double entry bookkeeping. In doing so, it also explores the rhetoric and foundations of double entry through the lens of Pacioli's treatise. Recent findings on Pacioli's life and works, his writings, and the medieval accounting archives are combined to identify how he was inspired by his faith and his humanist beliefs to give all merchants access to the practical mathematics and the bookkeeping they required. The paper finds that Pacioli's teaching method was inspired by Euclid, his Franciscan education, and his humanist beliefs, and that Pacioli reveals a simplicity in the then-unrecognized axiomatic foundation of double entry that has been largely overlooked. The findings represent a paradigm shift in how we perceive Pacioli, his treatise, and double entry.

"The Genesis of Double Entry Bookkeeping," by Alan Sangster, The Accounting Review, Volume 91, Issue 1 (January 2016) ---
http://aaajournals.org/doi/full/10.2308/accr-51115
The above link has a pay wall.

The emergence of double entry bookkeeping marked the shift in bookkeeping from a mechanical task to a skilled craft, and represented the beginnings of the accounting profession. This study seeks to identify what caused this significant change in bookkeeping practice. I do so by adopting a new accounting history perspective to investigate the circumstances surrounding the emergence of double entry in early 13th century Italy. Contrary to previous findings, this paper concludes that the most likely form of enterprise where bookkeeping of this form emerged is a bank, most likely in Florence. Accountability of the local bankers in Florence to the Bankers Guild provided a unique external impetus to generate a new form of bookkeeping. This new bookkeeping format provided a clear and unambiguous picture of the accounts of all debtors and creditors, along with the means to check that the entries between them were complete and accurate.

I. INTRODUCTION

Historians generally accept that the “Italian method” of double entry bookkeeping, based upon making entries of equal amounts to the debit and credit of two different accounts, was the foundation for modern accounting. Although all modern accounting systems rely upon the principle of duality enshrined in that technique, we do not understand how this system emerged. This unanswered question is the focus of this paper: What led to the emergence of double entry bookkeeping?

The importance of this question to accountants is that the emergence of double entry marked the point at which accounting evolved from a mechanical task that virtually anyone could perform to become a skilled craft. It signaled the beginnings of the accounting profession. By identifying what led to this development, we learn about our roots and improve our understanding of the importance of our discipline and of its place in the economic history of the past millennium.

I adopt a “new accounting history” perspective that reflects the historical context, the local conditions, and the language and vocabulary in which this particular practice was articulated (Miller and Napier 1993, 631). I incorporate these factors and surviving records of the period to understand the reasons behind the change in bookkeeping practice that gave rise to the emergence of double entry bookkeeping.

The motivation for this study was the recent publication of a best-selling book that has popularized the history of double entry bookkeeping. Its title—Double Entry: How the Merchants of Venice Shaped the Modern World and How their Invention Could Make or Break the Planet (Gleeson-White 2011)—tells us that Venetian merchants invented double entry bookkeeping, but did they?

Various scholars have speculated upon the origin of double entry bookkeeping, including Rossi (1896), Besta (1909), Littleton (1927, 1931, 1933), Peragallo (1938), Melis (1950), Zerbi (1952), de Roover (1971), Lee (1972, 1973a, 1973b, 1977), and Martinelli (1974). However, with the exception of Rossi and Littleton and, to a lesser extent, Martinelli, they focus on the presence of an enterprise-wide accounting system based upon double entry, something that tells us little of the origins of double entry many years earlier. To identify how, where, why, and by whom double entry was first developed, the conditions that gave rise to it are likely to be more fundamental than the circumstances of its first identifiable enterprise-wide application. Consequently, in looking for the genesis of double entry bookkeeping, I focus on how and where the concept of double entry originated, the circumstances that led to its development, and, particularly, which professional group first developed it.

I follow the approach adopted by Rossi and Littleton. Littleton also considered what the terminology of double entry tells us of its origins. However, neither of them specifically sought to identify the group that developed the method, nor where it first emerged. This study builds upon and extends their work. We know with certainty that the technique of double entry emerged in the 13th century in Italy. Unfortunately, no complete set of documentation from that period has survived. The earliest confirmed instance of its enterprise-wide application is from the final year of the 13th century (Lee 1977), while the evidence indicates that this was many decades after the technique first appeared.1

Previous studies document that double entry bookkeeping emerged in different places at different times, and that the form it took varied from place to place. However, these various forms all share the fundamental characteristic of “dual entries” that serve as the starting point in the shift to double entry bookkeeping. Dual entries require that when accounts were being maintained for the parties to and/or items involved in a transaction, for each entry made in one account, an equal and opposite “contra entry” must be made in another account. To that end, I begin this study by seeking instances of items being recorded in a consistent dual form that could then have developed into a recognizable form of double entry bookkeeping.

The difference between dual entry and double entry lies in how the contra entry is recorded. In double entry, each entry in an account must include the location of the account in which the contra entry has been made. No such information is provided in dual entry. Therefore, I include this essential requirement in the definition of double entry in this study. That is, my approach requires that this additional step be included in order for bookkeeping entries to qualify as double entry bookkeeping.

This is an appropriate definition for double entry for two further reasons. The account books of this period were solely for debtors and creditors (Goldthwaite 2009) and entries were sometimes made transferring amounts between two of these accounts, such as between the accounts of a debtor and a creditor. In such cases, dual entry occurs by chance because an equal amount is entered on the opposite sides of two accounts. In contrast, as defined here, the emergence of double entry stemmed from the belief that each entry should include the location of the contra entry. This conscious step marked the genesis of double entry bookkeeping. At this point, bookkeeping moved from being a device used to maintain a historical record of a transaction to a method that enabled rapid confirmation that the transaction had been entered accurately in both accounts. It had become important to ensure that entries were made correctly. This also marked the point at which bookkeeping shifted from being a mechanical task to a skilled craft, requiring far more care and attention, and signaling the beginnings of the accounting profession.

This step was the common starting point for double entry, the link among all the Italian variants of double entry bookkeeping that were in use during the 13th to 17th centuries. These variants included “mingled accounts” (Martinelli 1974) with credits immediately below the debits, and vice versa; account books with debtor accounts at the front and creditor accounts at the back; bilateral account books with the debit and credit entries in each account on opposite-facing pages; and bilateral account books with the debit and credit entries of each account in two columns of the same page. All of these formats had their own variants in word sequence and in the manner in which dates, cross-references, and amounts were entered. The commonality in the basic underlying rationale of double entry bookkeeping enabled all these variants to merge into one unified method many centuries later. Beyond the scope of this study, the emergence of double entry bookkeeping eventually led to another phase in the evolution of accounting, which ended with firms combining the details in their accounts to calculate profits and losses. This subsequent double entry-based accounting system (Gurskaya, Kuter, Deliboltoayn, and Zinchenko 2012) combined all accounts, represented initially in lists of balances and then in income statements and balance sheets.

Contribution This study contributes to the debate concerning the conditions that gave rise to modern bookkeeping and accounting by amending and extending previous theories. I introduce a context focused in the city of Florence, as opposed to the entire country of Italy. My approach embraces explanatory conditions that are unique to Florence and would explain the emergence of double entry there before other locations. The continuous threat of external scrutiny and penalties for failure to meet standards present only in Florence were conditions that demanded an effective response by bankers. Adopting double entry was the ideal response.

Continued in article

Jensen Comment
Just think about it --- two TAR articles
without equations!
Next thing we know there may be articles that are not General Linear Model studies using purchased data bases or hypothetical assumptions for mathematical analysis.

Times may be changing, but I would not count on it just yet.

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


What is the difference between warranty service on a lawn tractor purchased on Amazon versus Sears?

Sears to close last store in Chicago, the city that helped launch its growth into a major retail presence ---
http://www.chicagotribune.com/business/ct-biz-sears-closing-last-chicago-store-20180412-story.html

Jensen Comment
Gangland Chicago is no longer a safe place for anchor stores in some shopping malls, although Sears troubles extend well beyond security (think Amazon online competition). What's really sad about the demise of Sears is having to rely on other local retailers or Amazon) that do not repair what they sell in the boondocks.

I don't need a new lawn tractor, but this made me think about warranty support for something really heavy to ship like a lawn tractor. For what I think is a reasonably-priced at-home-warranty Sears will send a repair technician many miles to my home to fix heavy items like lawn tractors, refrigerators, microwaves, washing machines, etc.  Here's what one customer writes about a lawn tractor purchased from Amazon ---
https://www.amazon.com/Husqvarna-YTA24V48-Continuously-Variable-Transmission/dp/B019ZN119G/ref=sr_1_9?s=lawn-garden&ie=UTF8&qid=1523737302&sr=1-9&keywords=lawn+tractor

Customer Quotation
I love most things about this machine (the lawn tractor purchased from Amazon)
but I have a problem I think others should note. First let's make clear that I live in a very rural area. That means there is only one approved service location in my area (and far away). That said, I had problems with the transmission from the day I first drove it (purchased March 17, 2017). Reverse was almost impossible to hit and then it was impossible. I called to find my nearest service location as it is still under warranty. The treatment I got was awful! This man claims Husqvarna does not back up its warranty, that he has many customers ahead of me and can't guarantee my repair would be under warranty, and chided me for not buying locally (he is a dealer, of course). So I still have a tractor that will not go into reverse, have no local options for service under warranty, will have to pay for repairs myself I guess. This is something to consider before purchase. Had I known I might have elected another option.
Unhappy Customer

Jensen Comment
If he bought the lawn tractor from a nearby Sears store or online a Sears repair technician would come to his house and either fix a warranty-repair problem or Sears would deliver a new lawn tractor (or refrigerator or washing machine, etc.). I really, really hope our nearby Sears store stays in business for those huge and heavy items that I now have under 14 extended Sears warranties. You pay extra for the home service, but for me in the mountains it's worth the price. By the way, last summer Sears delivered to my home warranty replacements for a dehumidifier and an edging machine that Sears technicians decided could not be repaired. I paid no added cost for the new replacements of these older machines. Plus our washing machine had free repairs for a new transmission and some other parts. The Sears home service contract also includes one free maintenance visit every year to do such things as clean filters and check belts.

What is not clear is whether Amazon would've sent the customer quoted above a shipping label if he tried to return the Husqvarna lawn tractor to Amazon within 30 days. On most products Amazon will take back items within 30 days and pay the return shipping costs (no matter what you don't like about the product). This may not apply to really heavy items like lawn tractors that can't be returned via UPS. I think Amazon makes you deal with the manufacturer for such heavy items like lawn tractors under the manufacturer's (often lousy) warranty. Give me a Sears at-home warranty any day.

So where did I buy a tractor when I wanted one somewhat larger than I could purchase from Sears (with a loader, snow thrower, mower, and chipper attachments)?
I went to the closest dealer --- a New Holland dealer slightly less than 20 miles from our cottage. New Holland house calls were free during the warranty period, and now I pay $100 extra for a house call or when the dealer hauls the tractor in for full service.

Some big box stores (like Home Depot) will provide local warranty service for items that they don't service in the store. Typically they outsource this service to local technicians (mechanics, plumbers, electricians) and rely on the manufacturers to pay for warranty services. They usually will work on your behalf when you have troubles with a claim filed with the manufacturer ---
https://www.protection-plans.com/content/thd/en/IndoorGarden/Index#/how-plan-works
Years ago I purchased a new Amana refrigerator from a local store that did not work when it was delivered. The local store said it would have Amana pay for new compressor but not replace the refrigerator. I then contacted Amana myself and got Amana to pay the local store for a new replacement refrigerator. Some manufacturers are better than others about honoring warranties.

Here in the boondocks I would not buy a heavy item like a lawn tractor online from Amazon. I would buy one from Sears either online or at a store.

NYT:  Should We Be Optimistic About (Brick and Mortar) Retail?
https://www.nytimes.com/2018/04/13/business/dealbook/retail-industry.html


New York Times:  A $76,000 Monthly Pension: Why States and Cities Are Short on Cash ---
https://www.nytimes.com/2018/04/14/business/pension-finance-oregon.html

A public university president in Oregon gives new meaning to the idea of a pensioner.

Joseph Robertson, an eye surgeon who retired as head of the Oregon Health & Science University last fall, receives the state’s largest government pension.

It is $76,111.

Per month.

That is considerably more than the average Oregon family earns in a year.

Oregon — like many other states and cities, including New Jersey, Kentucky and Connecticut — is caught in a fiscal squeeze of its own making. Its economy is growing, but the cost of its state-run pension system is growing faster. More government workers are retiring, including more than 2,000, like Dr. Robertson, who get pensions exceeding $100,000 a year.

The state is not the most profligate pension payer in America, but its spiraling costs are notable in part because Oregon enjoys a reputation for fiscal discipline. Its experience shows how faulty financial decisions by states can eventually swamp local communities.

Oregon’s costs are inflated by the way in which it calculates pension benefits for public employees. Some of the pensions include income that employees earned on the side. Other retirees benefit from long-ago stock market rallies that inflated the current value of their payouts.

For example, the pension for Mike Bellotti, the University of Oregon’s head football coach from 1995 to 2008, includes not just his salary but also money from licensing deals and endorsements that the Ducks’ athletic program generated. Mr. Bellotti’s pension is more than $46,000 a month.

The bill is borne by taxpayers. Oregon’s Public Employees Retirement System has told cities, counties, school districts and other local entities to contribute more to keep the system afloat. They can neither negotiate nor raise local taxes fast enough to keep up. As a result, pensions are crowding out other spending. Essential services are slashed.

Continued in article

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/


The Spanish American War Tax (1898-2006) ?
https://taxfoundation.org/spanish-american-war-tax-1898-2006/


The Effects of PCAOB Inspections on Auditor-Client Relationships
by Andrew A. Acito, Chris E. Hogan, and Richard D. Mergenthaler
The Accounting Review: March 2018, Vol. 93, No. 2, pp. 1-35
https://doi.org/10.2308/accr-51811 

We investigate whether PCAOB-identified audit deficiencies lead to higher audit fees or turnover likelihood for clients of Big 4 auditors. To examine this, we identify areas of GAAP related to PCAOB deficiencies for each auditor. We then use textual analysis to identify how important the deficiencies are to clients to measure each client's exposure to deficient auditing. We find that this measure positively relates to audit fees and that this association is moderated by client bargaining power. Auditor turnover is also higher when deficiency exposure is high relative to what it would be for peer auditors, but we only observe this relation for smaller clients and do not find it is affected by client bargaining power. Finally, we find that companies switching Big 4 auditors tend to select an auditor resulting in lower deficiency exposure. These results have implications for understanding how PCAOB inspection reports affect the market for audit services.


 A Technical Guide to Using Amazon's Mechanical Turk in Behavioral Accounting Research
by Steve Buchheit, Marcus M. Doxey, Troy Pollard, and Shane R. Stinson
Behavioral Research in Accounting: Spring 2018, Vol. 30, No. 1, pp. 111-122
https://doi.org/10.2308/bria-51977 

Multiple social science researchers claim that online data collection, mainly via Amazon's Mechanical Turk (MTurk), has revolutionized the behavioral sciences (Gureckis et al. 2016; Litman, Robinson, and Abberbock 2017). While MTurk-based research has grown exponentially in recent years (Chandler and Shapiro 2016), reasonable concerns have been raised about online research participants' ability to proxy for traditional research participants (Chandler, Mueller, and Paolacci 2014). This paper reviews recent MTurk research and provides further guidance for recruiting samples of MTurk participants from populations of interest to behavioral accounting researchers. First, we provide guidance on the logistics of using MTurk and discuss the potential benefits offered by TurkPrime, a third-party service provider. Second, we discuss ways to overcome challenges related to targeted participant recruiting in an online environment. Finally, we offer suggestions for disclosures that authors may provide about their efforts to attract participants and analyze responses.


The Post Office is Bleeding Money, But Its Parcel Services Are Doing OK ---
https://www.vox.com/2018/3/30/17176852/trump-amazon-post-office


'Patience is wearing thin': Wall Street is souring on IBM's turnaround story ---
http://www.businessinsider.com/ibm-stock-fall-as-investors-grow-impatient-after-q1-earnings-2018-4


Are client meals deductible after the Tax Cuts and Jobs Act? ---
https://www.thetaxadviser.com/newsletters/2018/apr/are-client-meals-deductible-after-tcja.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=16Apr2018?


The HHS Office of Inspector General (OIG) has found that, by exploiting Obamacare’s expansion of the program, California has enrolled hundreds of thousands of ineligible adults in Medicaid. Consequently, the state has bilked the federal government out of more than $1 billion in funding to which the state was not entitled.
https://spectator.org/california-commits-massive-medicaid-fraud/

Jensen Comment
Nearly half of the Medicaid recipients in Illinois were found to be not elgible for Medicaid due to their income levels.


Opinion: Is science really facing a reproducibility crisis, and do we need it to? ---
http://www.pnas.org/content/115/11/2628

Ohio State Professor Admits Falsifying Data, Quits ---
https://www.insidehighered.com/quicktakes/2018/04/02/ohio-state-professor-admits-falsifying-data-quits?utm_source=Inside+Higher+Ed&utm_campaign=4167f5c7f9-DNU20180111&utm_medium=email&utm_term=0_1fcbc04421-4167f5c7f9-197565045&mc_cid=4167f5c7f9&mc_eid=1e78f7c952

McGill dept chair says she was blindsided by coauthor’s plagiarism ---
https://retractionwatch.com/2018/04/03/mcgill-dept-chair-says-she-was-blindsided-by-coauthors-plagiarism/

Jensen Comment
This brings back memories of all the accounting professor co-authors that were blindsided by Jim Hunton's data fabrication in numerous published accounting papers that were subsequently retracted by multiple publishers ---
http://faculty.trinity.edu/rjensen/Plagiarism.htm#ProfessorsWhoPlagiarize

RETRACTIONS From Just The Accounting Review Alone

1707
 
Partial Retraction: Section IV: Survey in R&D Capitalization and Reputation-Driven Real Earnings Management
Nicholas Seybert
Citation | Full Text | PDF (437 KB) | Supplemental Material 
open access
1709
 
Retraction: Potential Functional and Dysfunctional Effects of Continuous Monitoring
James E. Hunton, Elaine G. Mauldin and Patrick R. Wheeler
Citation | Full Text | PDF (377 KB) | Supplemental Material 
open access
1711
 
Retraction: Financial Reporting Transparency and Earnings Management
James E. Hunton, Robert Libby and CheriL. Mazza
Citation | Full Text | PDF (358 KB) | Supplemental Material 
open access
1713
 
Retraction: Does the Form of Management’s Earnings Guidance Affect Analysts’ Earnings Forecasts?
Robert Libby, Hun-Tong Tan and James E. Hunton
Citation | Full Text | PDF (384 KB) | Supplemental Material 
open access
1715
 
Retraction: Capital Market Pressure, Disclosure Frequency-Induced Earnings/Cash Flow Conflict, and Managerial Myopia
Sanjeev Bhojraj and Robert Libby
Citation | Full Text | PDF (297 KB) | Supplemental Material 
open access
1717
 
Retraction: An Assessment of the Relation Between Analysts' Earnings Forecast Accuracy, Motivational Incentives and Cognitive Information Search Strategy
James E. Hunton and Ruth Ann McEwen
Citation | Full Text | PDF (458 KB) | Supplemental Material 

 

New AH (Accounting Horizons)  Retractions Listed in the September 2015 Edition of Accounting Horizons ---
http://aaajournals.org/toc/acch/current

 

RETRACTIONS

743
 
Retraction: The Impact of Client and Auditor Gender on Auditors' Judgments
Anna Gold, James E. Hunton and Mohamed I. Gomaa
Citation | Full Text | PDF (363 KB) | Supplemental Material 
open access
745
 
Retraction: Does Graduate Business Education Contribute to Professional Accounting Success?
Benson Wier, Dan N. Stone and James E. Hunton
Citation | Full Text | PDF (364 KB) | Supplemental Material 
open access
747
 
Retraction: Sampling Practices of Auditors in Public Accounting, Industy, and Government
Thomas W. Hall, James E. Hunton and Bethane Jo Pierce
Citation | Full Text | PDF (368 KB) | Supplemental Material 
open access
749
 
Retraction: Is Analyst Forecast Accuracy Associated With Accounting Information Use?
Ruth Ann McEwen and James E. Hunton
Citation | Full Text | PDF (347 KB) | Supplemental Material 
open access
751
 
Retraction: Performance of Accountants in Private Industry: A Survival Analysis
James E. Hunton and Benson Weir
Citation | Full Text | PDF (397 KB) | Supplemental Material 
open access
753
 
Retraction: Hierarchical and Gender Differences in Private Accounting Practice
James E. Hunton, Presha E. Neidermeyer and Benson Wier
Citation | Full Text | PDF (408 KB) | Supplemental Material 

REPORT OF JUDITH A. MALONE, BENTLEY UNIVERSITY ETHICS OFFICER, CONCERNING DR. JAMES E. HUNTON
July 21, 2014 ---
http://faculty.trinity.edu/rjensen/Plagiarism.htm#ProfessorsWhoPlagiarize

 


U.K. Lawmakers Begin Probe Into $18 Billion of Missing VAT ---
https://www.bloomberg.com/news/articles/2018-03-26/u-k-lawmakers-begin-probe-into-18-billion-of-missing-vat


Microbusiness --- https://en.wikipedia.org/wiki/Micro-enterprise

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


Can you use a fake name on Facebook ---
https://www.howtogeek.com/347128/can-you-use-a-fake-name-on-facebook/

There are also a couple(?) of other rules your name must abide by. It can’t include:

Symbols, numbers, weird capitalization, and the like.

A mix of characters from different languages.

A title like Doctor or Father.

Words that aren’t your name; for example, I couldn’t have “Majestic Harry Guinness” as mine, no matter how much I wanted it.

Offensive or suggestive words.

Continued in article

 


EY:  First Quarter 2018 Standard Setter Update ---
http://www.ey.com/Publication/vwLUAssetsAL/StandardSetterUpdate_02314-181US_19April2018/$FILE/StandardSetterUpdate_02314-181US_19April2018.pdf

Contents Financial Accounting Standards Board ........................................... 1
Securities and Exchange Commission .......................................................... 12
Public Company Accounting Oversight Board ...............................................19
Auditing Standards Board ............................................................................. 20
Governmental Accounting Standards Board ................................................. 24
Effective date matrices .................................................................................. 27

 

 


Zorba:  AI - Develop, Outsource or Buy? ---
https://zorba-research.blogspot.ca/2018/04/ai-develop-outsource-or-buy.html

Zorba:  Need for A Stronger Role for Libraries in Digital Information Consumption ---
https://zorba-research.blogspot.ca/2018/04/need-for-stronger-role-for-libraries-in.html

Zorba:  What We Mean by Information Integrity ---
https://zorba-research.blogspot.ca/2018/04/what-we-mean-by-information-integrity.html

Zorba:  The need for Technology Training ---
https://zorba-research.blogspot.ca/2018/03/the-need-for-technology-training.html

 

 





How Students' Ethnicity Influences Their Respect for Teachers

Asian Review of Accounting, Vol 22 (2): 159 - 178, 2014

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3146722
Posted: 3 Apr 2018  

Elaine Rose Evans

Macquarie University - Department of Accounting and Finance; Macquarie University, Faculty of Business and Economics

Rachel F. Baskerville

Victoria University of Wellington - School of Accounting and Commercial Law

Kate Wynn-Williams

University of Otago - Department of Accountancy and Finance

Shirley Gillett

University of Otago

Date Written: May 1, 2014

Abstract

The purpose of this paper is to investigate whether ethnicity makes a difference to the level of respect given to teachers by tertiary accounting students. In particular, it examines whether ethnicity has an impact on students’ perceptions regarding their teachers’ attributes and behaviors, which in turn influences their respect for their teachers.

First year accounting students, both domestic and international, were surveyed in New Zealand, Australia and the UK, using a purpose-designed online questionnaire. “Ethnicity” was categorized according to first language, resulting in three categories: Home, Chinese and Other International. Student responses to quantitative questions regarding attributes and behaviors were analyzed using MANOVA and ANOVA. Open-ended questions provided further insight into student perceptions.

Regarding teachers’ attributes, statistically significant differences are seen between the ethnic groups in qualifications, classroom control and professional qualifications or work experience, but not in teachers’ behaviors. The open-ended questions provided student contributions regarding respect. These included “clarity” and “good English skills.”

This research contributes to debates over the impact of ethnic diversity in the classroom. It also contributes to the debate over the definition of the concept of “ethnicity.” A comparison between three countries is unusual; all have significant numbers of international students. Value is added through the findings, which challenge often-held assumptions regarding stereotypical “Chinese learners.” The findings will also assist teachers who have large numbers of international students in their classrooms.

Keywords: Student Ethnicity, Student Respect, Teacher Attributes, Teacher Behaviour

JEL Classification: I21, I29


Using an Online Homework Management System in Tax Accounting: Does it Advance Learning?

International Journal of Learning Technology, 11(1): 44-65, 2016

SSRN
 

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3151973 35 Pages Posted: 3 Apr 2018  

Ramon Rodriguez

Idaho State University

Murphy Smith

Texas A&M University-Corpus Christi-Department of Accounting

Abstract

This paper presents effects of an online homework management system (OHMS) in a tax accounting course. An examination is made of student performance and perceptions with and without use of an OHMS in an undergraduate upper-level tax accounting course. Students indicated that they perceived their learning performance was enhanced due to use of the OHMS; however, this perception was not supported by the actual performance results. Empirical evidence indicates that an OHMS does not increase student learning performance. At the same time, an OHMS does provide an objective measurement of homework performance along with instant and convenient feedback to students.

Keywords: Online homework, homework management systems, online pedagogy, learning productivity

JEL Classification: M4

 


 Accounting Historians Engaging with Scholars Inside and Outside Accounting: Issues, Opportunities and Obstacles

Accounting History, Volume 22 issue 4, pp. 403-424

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3146707

Posted: 2 Apr 2018  

Rachel F. Baskerville

Victoria University of Wellington - School of Accounting and Commercial Law

Nieves Carrera

Universidad Carlos III de Madrid - Department of Business Administration

Delfina Gomes

University of Minho - School of Economics and Management

Alessandro Lai

University of Verona

Lee D. Parker

RMIT University

Date Written: August 22, 2017

Abstract

Originating in a panel presentation at the eighth Accounting History International Conference, this study offers a reflection on the issues, opportunities and obstacles which may arise when accounting historians engage with other accounting scholars and scholars outside of accounting.

Supporting the view that accounting scholars need and should make an effort to engage with other scholars inside and outside accounting, various aspects are considered as enhancing the interdisciplinarity of accounting history research.

Then, issues such as researchers and the community, research problems, theories, methods and data are addressed. The opportunities arising from interdisciplinary interactions with a wide range of scholars are then developed. Finally, the potential obstacles are addressed.

Interdisciplinarity has enhanced the growth of accounting history research (Carnegie and Napier, 2012). This is particularly accentuated by the growing call for studying accounting as a social practice (see, for example, Burchell et al., 1994; Carnegie and Napier, 1996; Gomes, 2008; Hopwood, 2005; Miller, 1994; Potter, 2005), which significantly expanded the domain of accounting. Within accounting history research, new research topics, research approaches and the use of different theoretical perspectives and methodological approaches drawn from other disciplines have increased the potentialities and dimensions of the investigations undertaken (Gomes, 2008). Nonetheless, ‘much historical accounting research continues to use conventional economic and functionalist explanations to provide a theoretical underpinning that helps to make sense of the evidence’ (Carnegie and Napier, 2017: 74).

In fact, mainstream accounting research does not embrace this social conception of accounting and, as stated by Merchant (2008), ‘Currently, in the United States, accounting research using economics-based paradigms, theories, and jargon and using either analytical research methods or analysis of large samples of archival (“objective”) data rules the roost’ (p. 901). Despite this, and aligned with the so-called ‘interdisciplinary and critical perspectives on accounting’ project (Broadbent and Laughlin, 2013; Carnegie and Napier, 2017), accounting history research is seen as inherently interdisciplinary and as adopting innovative theoretical frameworks.

However, as suggested by Gomes et al. (2011) (see also, Gomes et al., 2015), a practical strategy for enhancing the impact of accounting history research is to foster the engagement with diverse groups of scholars, both accounting researchers and scholars from other disciplines. This study aims to stimulate and call for interdisciplinary accounting history research. In fact, this study clearly supports the view that accounting historians need and should make an effort to engage with other scholars inside and outside accounting.

Nonetheless, and although accounting historians have been stimulated previously to engage with other scholars and interdisciplinarity has been advocated, it is necessary to consider how accounting historians may foster this engagement and to debate the issues and obstacles, and the interesting opportunities for accounting and accounting history research of the genre.

The following structure is adopted in this study. First, three aspects are considered for enhancing the interdisciplinarity of accounting history research: (1) the coming of age, (2) expanding horizons and (3) the window of time, all of which portray aspects of the accounting history academy. Then, we address particular issues that need to be considered by accounting historians when aiming to integrate insights from other disciplines and to engage with scholars both within and outside accounting.

The opportunities arising from interdisciplinary interactions are then reviewed. Finally, the potential obstacles which may prevent accounting scholars from engaging in interdisciplinary research are addressed. These obstacles can be overcome by the development of robust communication and the invention of a new genre of discourse and research focus and by working with those outside our discipline and embracing the challenge of the new and the different
.

Keywords: accounting, accounting history, accounting history research and publication, interdisciplinary accounting history

JEL Classification: M40


Application of Time Series Analyses in Big Data: Practical, Research, and Education Implications

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3148726

37 Pages Posted: 30 Mar 2018  

Zabihollah Rezaee

University of Memphis - School of Accountancy

Alireza Dorestani

Northeastern Illinois University - College of Business and Management

Sara Aliabadi

Northeastern Illinois University - College of Business and Management

Date Written: June 1, 2017

Abstract

The application of Big Data and time series models is currently at an early stage. This paper examines the relevance and use of time series analyses for Big Data and business analytics by discussing the emergence of Big Data in business, presenting time series models, and providing an example of how time series models can be efficiently and effectively applied in accounting and auditing using Big Data. Using sophisticated Big Data and time series models, millions of transactions can be searched to spot patterns and detect abnormalities and irregularities. The time series model and Big Data analysis presented in this paper provide policy, practical, educational, and research implications. Businesses and management can use our suggested time series model and Big Data analysis in their predictive models of managerial strategies, decisions, and actions. Business schools and accounting programs can integrate the time series model, Big Data and data analytics into business and accounting education.

Keywords: big data, time series, data analytics, business analytics

Cross Country Determinants of Early Stage Necessity and Opportunity Motivated Entrepreneurship: Accounting for Model Uncertainty

Journal of Small Business Management, Vol. 56, pp. 243-280, 2018

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3152676

38 Pages Posted: 30 Mar 2018  

Boris Nikolaev

Emory University - Oxford College

Christopher Boudreaux

Florida Atlantic University

Leslie E. Palich

affiliation not provided to SSRN

Date Written: March 2018

Abstract

Model uncertainty is one of the most pervasive challenges in the social sciences. Cross‐country studies in entrepreneurship have largely ignored this issue. In this paper, we evaluate the robustness of 44 possible determinants of early‐stage opportunity‐motivated entrepreneurship (OME) and necessity‐motivated entrepreneurship (NME) that are broadly classified in four groups: (1) economic variables, (2) formal institutions, (3) cultural values, and (4) legal origins and geography. The results, which are based on a representative world sample of up to 73 countries, suggest that institutional variables associated with the principles of economic freedom are most robustly correlated with OME and NME. Our findings also identify net income inequality and Scandinavian legal origins as weakly robust predictors of both types of entrepreneurial activity. Furthermore, we find that log GDP per capita is only a weakly robust predictor of NME, but not OME. We discuss implications for future research.


Education Technology and Student Privacy

Elana Zeide, Education Technology and Student Privacy, 70–84 (Evan Selinger, Jules Polonetsky, & Omer Tene eds., 2018) The Cambridge Handbook of Consumer Privacy

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3145634
15 Pages
Posted: 30 Mar 2018  

Elana Zeide

Princeton University - Center for Information Technology Policy; Yale University - Information Society Project; Seton Hall School of Law, Gibbons Institute

Date Written: March 21, 2018

Abstract

Education is increasingly driven by big data. New education technology (ed tech) creates virtual learning environments accessible online or via mobile devices. These interactive platforms generate a previously unimaginable array and detail of information about students’ actions both within and outside of classrooms. This information not only can drive instruction, guidance, and school administration, but also better inform education-related decision-making for students, educators, schools, ed tech providers, and policymakers. This chapter describes the benefits of these innovations, the privacy concerns they raise and the relevant laws in place. It concludes with recommendations for best practices that go beyond mere compliance.

Data-driven education tools have the potential to revolutionize the education system – and, in doing so, provide more access to better quality, lower-cost education and broader socioeconomic opportunity. Learners can access world-class instruction online on demand without having to be physically present or enroll in expensive courses. “Personalized learning” platforms, for example, use detailed, real-time learner information to adjust instruction, assessment, and guidance automatically to meet specific student needs. Information collected during the learning process gives researchers fodder to improve teaching practices.

Despite their potential benefits, data-driven education technologies raise new privacy concerns. The scope and quantity of student information has exploded in the past few years with the rise of the ed tech industry. Schools rely on educational software created by private companies that collect information about students both inside and outside of classroom spaces.

Three characteristics of the education context call for more stringent privacy measures than the caveat-emptor consumer regime.

First, student privacy protects particularly vulnerable individuals – maturing children and developing learners. Traditional rules seek to prevent students’ early mistakes or mishaps from foreclosing future opportunities – the proverbial “permanent record.”

Second, students rarely have a choice regarding educational privacy practices. In America, education is compulsory in every state into secondary school. Most schools deploy technology on a classroom- and school-wide basis due to practical constraints and a desire to ensure pedagogical equality.

Third, the integration of for-profit entities into the school information flow is still novel in the education system. American education institutions and supporting organizations such as test providers and accreditors have traditionally been public or non-profit entities with a primary mission to promote learning and academic advancement.

This chapter suggests best practices to cultivate the trust necessary for broad acceptance of new ed tech and effective learning spaces. These include accounting for traditional expectations that student information stays in schools, in contrast to the caveat emptor underpinning of the commercial context, as well as providing stakeholders with sufficient transparency and accountability to engender trust.


The Association between Information Technology Investments and Audit Risk

Journal of Information Systems, Vol. 30, No. 1, Spring 2016

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3148690

24 Pages Posted: 29 Mar 2018  

Shipeng Han

University of Massachusetts Dartmouth

Zabihollah Rezaee

University of Memphis - School of Accountancy

Ling Xue

Georgia State University

Joseph H. Zhang

University of Memphis

Date Written: 2016

Abstract

Advances in information technology (IT) have changed the way that companies conduct business, prepare their financial statements, and have their financial statements audited. On one hand, IT decreases audit risk by improving operation and internal control effectiveness, which may decrease inherent and internal control risk. On the other hand, the complexity of IT introduces unconventional risks for companies and their auditors, especially by creating challenges for auditors when auditing the effectiveness of internal controls and detecting accounting irregularities. Thus, the relationship between clients’ IT investments and audit risk deserves research attention. Using IT data of U.S. firms from 2000 to 2009, we find that IT investments are positively related to audit fees (and abnormal audit fees), the probability of auditors’ issuance of a going-concern opinion, and the likelihood of auditors’ Type II errors. Furthermore, we find that auditor tenure moderates the relationship between IT investments and audit fees due to the learning effect.

Keywords: information technology investments, audit risk, audit fees, auditor tenure


Burnout Among University Accounting Educators in Australia and New Zealand: Determinants and Implications

Accounting & Finance, Vol. 58, Issue 1, pp. 255-277, 2018

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3151110
SSRN

23 Pages
Posted: 28 Mar 2018  

Gillian Vesty

RMIT University

VG Sridharan

Deakin University

Deryl Northcott

The Auckland University of Technology

Steven Dellaportas

RMIT

Date Written: March 2018

Abstract

Increased teaching workloads combined with pressures to publish in limited outlets has intensified the burnout potential among accounting educators in Australia and New Zealand. However, amongst the few studies on tertiary accounting education, the focus has so far been only on burnout arising from student contact intensity. We broaden this literature by examining how other worklife characteristics contribute to burnout. Based on 158 responses from Australian and New Zealand accounting academics, we find evidence for emotional exhaustion due to high workload. However, professional efficacy continues to remain high. Qualitative responses offer deeper insights on how various burnout factors are interrelated.

Keywords: Burnout, Emotional exhaustion, Maslach Burnout Inventory, Professional efficacy, Tertiary accounting


Predicting Accounting Misconduct: The Role of Firm-Level Investor Optimism

Journal of Business Ethics, Forthcoming


SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3146950

75 Pages
Posted: 25 Mar 2018  

Shantaram P. Hegde

University of Connecticut - School of Business

Tingyu Zhou

Concordia University, Montreal, Canada

Date Written: March 13, 2018

Abstract

Motivated by a large literature on how firm-specific resources (such as leadership and management skills, strategies, organizational capabilities and intellectual properties) drive firm performance, we propose and find that heterogeneity in investor optimism regarding firm-specific attributes plays a very important role in influencing the managerial propensity to manipulate financial statements. When firm-level investor optimism is moderate, the incidence of accounting misconduct increases, but it decreases when investors are highly optimistic. Further, market reaction to the announcement of financial restatements is more negative when investors held more optimistic firm-specific beliefs at the time of initial misstatement. These findings are robust to alternative firm-specific optimism measures linked to analysts, general investors and unsophisticated individual investors, controls for market-wide consumer sentiment unexplained by macroeconomic factors, economy-wide and industry-level optimism, potential selection bias and reverse causality. Our analysis highlights the importance of firm-level investor optimism in predicting, preventing and detecting accounting misconduct.

Keywords: Investor Optimism, Financial Reporting, Accounting Misconduct, Irregularity, Earnings Management, Market Reactions

JEL Classification: G10, G14, G34, G38


Importance of Transaction Costs for Asset Allocations in FX Markets

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3143970

56 Pages Posted: 24 Mar 2018  

Thomas Andreas Maurer

Washington University in St. Louis - John M. Olin Business School; London School of Economics & Political Science (LSE)

Luca Pezzo

Washington University in Saint Louis, John M. Olin Business School, Students

Date Written: March 20, 2018

Abstract

Taking transaction costs into account in a mean-variance portfolio optimization significantly improves the out-of sample performance. Using FX market returns of 29 currencies from 1976 to 2016, we document that the out-of-sample Sharpe Ratio after costs is 0.7 for a portfolio which ignores transaction costs in the optimization (MV), while it is 0.9 for a portfolio which accounts for costs in the optimization (MV-TC). The difference is due to a substantial reduction in transaction costs paid by MV-TC compared to MV, while the performance before transaction costs is almost identical across the two strategies. Correctly accounting for the correlation between assets is important. A portfolio that accounts for transaction costs but assumes assets are uncorrelated has a Sharpe ratio of 0.76, which is statistically significantly smaller than the Sharpe ratio of MV-TC.

Keywords: Transaction Costs, Mean-Variance, Optimization, Asset Allocation, Foreign Exchange, Carry Trade

JEL Classification: F31, G11, G15


Basic Audit Data Analytics with R

 

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3142207
157 Pages
Posted: 22 Mar 2018  

Theophanis C. Stratopoulos

University of Waterloo - School of Accounting and Finance

Gregory Sheilds

Independent

Date Written: March 16, 2018

Abstract

Accounting professors, students and many auditors need readily available, non-proprietary training material on audit data analytics (ADA). This need was identified at the panel discussion on data analytics at the AAA meeting in San Diego (August 2017). Several attendees stated that they need materials (instructions, cases, data, and code) to first train themselves in the basics of ADA and then use the same materials to teach the topic in their classes. In addition, feedback from a survey contracted by the CPA Canada Audit Data Analytics Committee (Hampton and Stratopoulos 2016) indicated that, outside of the big four public accounting firms, there are relatively limited opportunities for training existing auditors in the use of data analytics.

“Basic Audit Data Analytics with R” is intended to meet the need noted above. The training uses the software R because it is open-source (free) and it provides virtually endless possibilities to those who learn it. The cases, including practice problems, use comprehensive large data sets for an entire company accessed from the HUB of Analytics Education. Millions of data points are updated regularly.

The primary learning objective is to provide trainees with capabilities required to perform entry level ADA. This means that - given a set of well-defined objectives and a reasonably clean data set - those who have successfully taken the training should have an understanding of how basic data analytics can be effectively applied in a aspects of a financial statement audit. These basics include: 1. Setting ADA objectives. Identify aspects of audit where the audit team can use data analytics tools to obtain audit evidence. 2. Data Understanding: Identify sources of data, collect and extract data, become familiar with data structure, identify data quality issues. 3. Data Preparation: Be able to clean and transform data to enable effective and efficient analysis. 4. Modeling: Explain the model underlying the ADA in plain English. 5. Evaluation: Leverage statistical and logical techniques to evaluate how valuable a model is, what has been found, and what to do with the results. 6. Communication and Documentation: Communicate and document the results of the ADA and use new insights obtained to help answer questions and solve problems.

 

Keywords: Audit, Data Analytics, R


The Theory and Practice of Corporate Risk Management: Evidence from the Field

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3143797

56 Pages Posted: 22 Mar 2018 Last revised: 3 Apr 2018

Erasmo Giambona

Syracuse University - Whitman School of Management - Finance Department; James D. Kuhn Center for Real Estate

John R. Graham

Duke University; National Bureau of Economic Research (NBER)

Campbell R. Harvey

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER); Duke Innovation & Entrepreneurship Initiative

Gordon M. Bodnar

Johns Hopkins University - Paul H. Nitze School of Advanced International Studies (SAIS)

Date Written: March 13, 2018

Abstract

We survey more than 1,100 risk managers from around the world on their risk management policies, goals, and perceptions. We find evidence consistent with some of the traditional theories of risk management, but not with all. We then analyze the reasons beyond “why” or “why not” firms hedge. We find that almost 90% of the risk managers in non-financial firms hedge to increase expected cash flows. We also find that 70%-80% of the risk managers say that they hedge to smooth earnings or to satisfy shareholders’ expectations. Our analysis also suggests that regulatory changes (e.g., Dodd-Frank Act of 2010) and new accounting rules put in place to increase market stability might discourage corporate hedging. Finally, we provide comprehensive evidence about hedging in the context of six forms of risk: interest rate, foreign exchange, commodity, energy, credit, and geopolitical risk. Among other things, we find that operational hedging is more common than hedging with financial contracts in all risk areas except foreign exchange.

Keywords: Corporate risk management, Expected cash flows, Risk aversion, Agency theory, Credit rationing, Information uncertainty, Financial distress, Dodd-Frank, Regulations, Operational/financial hedging methods

JEL Classification: G32, G38, M16, M41


The Impact of Firm Identity on Accountants’ Error Reporting Decisions: An Experimental Investigation

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3145231

39 Pages Posted: 22 Mar 2018  

Stephen Kuselias

Providence College

Christine E. Earley

Providence College -School of Business

Stephen Perreault

Providence College

Date Written: March 21, 2018

Abstract

Recent regulatory and professional developments have increased the frequency with which public accountants work and interact with professionals from other accounting firms. We posit that competitive pressures are particularly salient when clients retain accountants from different firms to perform audit, tax, and/or consulting services, and examine whether the disclosure decisions of professional accountants could be biased in a manner consistent with these pressures. We conduct two experiments in settings where professional services are commonly split among different firms: the provision of non-audit tax services and the completion of a group audit. We find that, when clients retain different accounting firms to perform professional services, accountants share information about possible financial statement errors in ways that protect their competitive advantage over their rivals, although the specific effects differ between the audit and tax settings. Our results have important implications for financial reporting quality and provide new insights regarding the effects of interfirm collaboration.

Keywords: non-audit tax services, group audits, knowledge spillover, knowledge sharing, audit quality, financial reporting quality

JEL Classification: M40, M41, M42


Bitcoin: Speculative Bubble, Financial Risk and Regulatory Response

Butterworths Journal of International Banking and Financial Law (2018), Vol. 33(3), pp. 178-182

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3141234

5 Pages Posted: 20 Mar 2018  

Lerong Lu

Dickson Poon School of Law, King's College London

Date Written: March 1, 2018

Abstract

In this article, the author tracks developments in bitcoin trading and considers regulatory responses.

Key Points:

● 2017 has witnessed a so-called bitcoin bubble, as entrepreneurs and professional investors rushed into the market to take a bet on the upcoming cryptocurrency age. The price of a bitcoin exceeded $19,300 in December 2017, worth only $0.06 in July 2010.

● The popularity of bitcoin mining and trading activities has raised legal and regulatory concerns pertaining to anti-money laundering, evasion of forex regulations, the illegal fundraising of start-ups by Initial Coin Offerings (ICOs), as well as a potential financial crisis.

● Global financial regulators have acted proactively to regulate bitcoin. Most recently, China, once accounting for 90% of bitcoin trading volume, issued an immediate ban of ICOs and ordered the reorganisation of three major bitcoin exchanges: OKCoin, Huobi and BTCC. Over-The-Counter (OTC) transactions have not been affected.

● Financial authorities in certain countries have been testing state-backed cryptocurrencies
.

Keywords: bitcoin, cryptocurrency, financial bubble, financial regulation, initial coin offering


Client-to-Auditor Employment Offers and Auditor Independence in the Post Sarbanes-Oxley Era

Journal of Accounting and Finance, 17 (7): pp. 194-212.

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3140942

19 Pages Posted: 19 Mar 2018  

Reginald Wilson

University of Southern Mississippi

Date Written: 2017

Abstract

Ninety-six nonprofessional investors indicate that public accounting firms’ independence is perceived to be more impaired than non-public firms when the firm audits a client who has offered a job to a member of the audit team. Although perceptions of both firms’ objectivity improve as the strength of the independence safeguards increase, public company auditors are perceived as being more objective than non-public company auditors. These results bolster the argument for unified accounting standards. This study is the first to investigate nonprofessional investors’ perceptions of the issue, despite their prominence in the capital markets.

Keywords: Auditor Independence; Revolving Door Phenomenon; Nonprofessional Investors


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 




CFO Journal:  Companies that perform the best in managing health-care costs employ every effective strategy more often than do companies that bear high costs ---
http://ww2.cfo.com/health-benefits/2018/03/no-mystery-restrain-health-costs/


 

 

 

 

 


From the CFO Journal's Morning Ledger on April 27, 2018

Amazon more than doubles profit
Amazon.com Inc.’s profit topped $1 billion for the second straight quarter, a notable achievement for a company with a reputation for plowing nearly every dollar it earns into long-term investments.


From the CFO Journal's Morning Ledger on April 26, 2018

Facebook profit soars
Facebook Inc.
net income rose 63% to nearly $5 billion in its first earnings report after touching off widespread data-privacy concerns, a success that highlighted the company’s central place in the digital economy.


From the CFO Journal's Morning Ledger on April 25, 2018

Good morning. Decision makers at large U.S. companies are coming under pressure to appoint more women to their boards as quotas and other blunt-force measures have boosted the number of female board members at their European peers, reports the WSJ's Vanessa Fuhrmans.

In Italy, Germany and several other European nations, the number of women on big company boards has tripled and, in some cases, quadrupled in recent years, according to a new report by Corporate Women Directors International, a research and advocacy group.

In the U.S., the share of women on S&P 500 company boards rose 1 percentage point last year to 22%, according to Spencer Stuart, an executive recruitment firm. It said one big reason is the lack of boardroom turnover: The average director stays on more than eight years.

Several institutional investors, including State Street Global Advisors and state pension funds in Massachusetts, California and New York, are prodding companies to diversify, threatening to vote against certain board members at firms lacking female directors.

 

Bob Jensen's threads on professional women ---
http://faculty.trinity.edu/rjensen/Bookbob2.htm#Women


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

Good morning. Rehabilitating a company's reputation after a crisis can be a challenging task for the chief financial officer, as Volkswagen AG's Frank Witter found out. The finance chief is preparing Volkswagen's return to the U.S. bond market for the first time since its emissions scandal, a move that would seal a successful turnaround for the German auto maker.

A frequent debt issuer before the 2015 diesel scandal, Volkswagen has relied on a €20 billion ($24.7 billion) bridge loan, asset-backed securities and commercial paper to cover its financial needs.

The company already has tested the waters in Europe, where its €8 billion bond issued a little over a year ago was snapped up by investors. He was "bluntly open about our strengths and weaknesses," Mr. Witter told CFO Journal, "since there was absolutely no trust."

Volkswagen, which last issued U.S. debt in May 2015, has $1.8 billion of bonds maturing this year, and another $1.75 billion in 2019. The auto maker could issue between $1.5 to $2 billion in dollar-denominated debt this year, said a banker familiar with the company.


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

Lease accounting standard forecast to hit U.S. firms
More than three-quarters of the top 100 U.S. companies with the biggest lease obligations expect to see a material impact on their balance sheet from the new lease accounting standard, reports Accounting Today.


From the CFO Journal's Morning Ledger on April 19, 2018

100 million reasons for Amazon’s success. 
More than 100 million people globally are now paying for Amazon Prime, a sign of how Amazon has used the service to evolve from an online marketplace that struggled with profitability into an e-commerce powerhouse.

April 19, 2018 Reply from Jagdish Gangolly

Bob,

If there are 100 million customers, if the rates are the same worldwide, the revenue from prime membership by itself should be 10 billion. I doubt it spends as much on deliveries.

I have been a prime member right from day 1. They raised the fees a few years ago, when I did the calculus and determined it was worth it. It is convenient, customer service is outstanding. There were times when I did not receive the package (or it was stolen; these days people follow the couriers around just to steal stuff), I called them and they sent me replacements. Once I got an expensive thing ($500+) that was broken, and they replaced it. Another time when the goods were lost in transit, they gave me credit.

But the future of Amazon is probably not in online merchandising, but in their outstanding cloud services. I see that happening already. They outsource merchandising to a very large set of smaller outfits, and concentrate on customer relationship management. They maintain control by constantly evaluating the QoS of these merchandisers. Some of them are so scared of Amazon that they try their best to be nice to the customers too.

The only people shafted in this game are the Amazon employees, especially the ones on the conveyor line. I hoep one of these days Bezos realizes that it is those employees that make Amazon great.

Amazon has many competitors, all big: Microsoft, IBM, Oracle, HP, Google to name just five. But Amazon just about got there first, and their cloud services are incredible. I expect Google to be their main cloud competitor in a few years.

Regards,

Jagdish

 


From the CFO Journal's Morning Ledger on April 18, 2018

Four big banks enjoy $2.3 billion windfall from tax law
The four largest banks in the U.S. -- JPMorgan, Wells Fargo & Co., Citigroup Inc. and Bank of America Corp. -- just cashed in the first installment of benefits corporate America will reap from the new federal tax law. The haul: more than $2.3 billion.


From the CFO Journal's Morning Ledger on April 18, 2018

Good morning. U.S. and European firms are looking to splash out on dividends and share buybacks as they report higher earnings on the back of the U.S. corporate tax overhaul and an improving economic outlook in Europe, reports the WSJ's Jon Sindreu. Among big listed companies in the U.S. and Europe, about 71% and 83%, respectively, are expected to increase dividends in 2018, the highest share in at least a decade, according to research by JPMorgan Chase & Co.

Dividends per share are set to grow at an annual pace of around 8% for the S&P 500 and 6% for the Euro Stoxx 50 -- the fastest rate since early 2016 and early 2015, respectively -- based on upgraded analysts’ estimates for the next 12 months.

Share buybacks are expected to increase in the U.S. to $800 billion in 2018 from $530 billion last year, according to JPMorgan. Once buybacks are added, stocks in the U.S. and Europe both yield around 5%, investors said.

This comes as corporate cash is piling up. S&P 500 companies, excluding financials, had $2.39 trillion in cash and investments in 2017, up from $2.2 trillion in 2016, writes the WSJ's Ben Eisen.


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

The growing pains of a surging population
Idaho is the fastest-growing state in the U.S. But the state and its capital, Boise, are challenged by the byproducts of growth: skyrocketing housing prices, labor shortages and worsening traffic congestion.

Jensen Comment
Keep in mind that rate of growth in this case is measured as percentage growth that's affected by a relatively small denominator relative to more populated states like Texas.


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

Good morning. U.S regulators proposed another step to ease pressure on the country's banks by allowing them to phase in the impact of a new accounting rulereports the WSJ's Michael Rapoport. This comes as big banks -- while reporting solid results -- still wait for the effects of the lower corporate tax rate to kick in and a major overhaul of post-crisis banking rules is in the works. Some banks had been concerned that the new rule -- issued by the Financial Accounting Standards Board in June 2016 -- could cut into their regulatory capital. The rule will require banks to book all expected losses from their loans as soon as they are issued, and could compel some banks to significantly boost their loan-loss reserves.

Under the proposal approved for public comment by the U.S. Federal Reserve on Friday, banks can take up to three years to phase in the impact of the new rule on their regulatory capital, a relief at a time when loan growth remains below expectations.

Future bank performance depends on whether loan growth picks up on the back of lower taxes and stronger corporate investment, writes the WSJ's Aaron Back.As much as we’re all eager to see the benefit,” said JPMorgan Chase & Co. CFO Marianne Lake, “we have to recognize that tax reform is still in its early stages.” JPMorgan Chase and Citigroup Inc. on Friday both beat analyst estimates for first quarter earnings. Bank of America Corp., set to report results on Monday, is also expected to post higher earnings after the tax code changes.


From the CFO Journal's Morning Ledger on April 12, 2018

U.S. recycling in danger of landing on trash pile.
Scrap paper, plastic and metal are among the U.S. products facing new trade barriers in China. That could become a problem, as no other country has the recycling capacity that China has, according to industry experts.

Jensen Comment
When I lived in San Antonio our recycling bags were picked up by expensive trucks purchased by the city. For a school project a high school student tracked several of these trucks with a video camera and revealed a scandal that the recycling bags were dumped in the same landfill as the regular city trash trucks. It was only after this San Antonio Express News revelation that the city admitted it did not have the capacity to recycle all the plastic and other stuff that residents thought they were recycling.


From the CFO Journal's Morning Ledger on April 12, 2018

John Paulson owes $1 billion to IRS
John Paulson won fame after he made one of the greatest financial bets of all time, wagering against subprime mortgages ahead of last decade’s financial crisis. What comes next? One of the largest-ever personal tax bills.

John Paulson won fame after he made one of the greatest financial bets of all time. What comes next? One of the largest-ever personal tax bills.

By April 17, the hedge-fund manager must make federal and state tax payments of about $1 billion, on top of roughly $500 million in taxes he paid late last year, said people close to the firm. That sum is so big it dwarfs the maximum amount the Internal Revenue Service will allow any single taxpayer to pay with a single check. (That’s $99,999,999, in case you’re wondering.)

Mr. Paulson bet big against subprime mortgages ahead of last decade’s financial crisis, earning about $15 billion of profits for his funds and approximately $4 billion for himself. He deferred the bulk of the taxes on these profits, using a tax provision available at the time to hedge-fund managers, said the people close to the firm. Now the bill is due.

 Continued in article

 

 

 


From the CFO Journal's Morning Ledger on April 12, 2018

IESBA rewrites code of ethics for accountants
The International Ethics Standards Board for Accountants has overhauled its code of ethics to make it simpler to navigate, use and enforce, reports Accounting Today.

The International Ethics Standards Board for Accountants has released a new code of ethics for accountants that’s been rewritten to make it simpler to navigate, use and enforce.

The International Code of Ethics for Professional Accountants (including International Independence Standards) clarifies how accountants should cope with independence and ethics issues and incorporates major revisions in the underlying conceptual framework. Highlights include revised “safeguards” that align threats to compliance with fundamental principles. The document also includes stronger independence provisions pertaining to long association of audit employees with clients.

New and revised sections for professional accountants in business relate to preparing and presenting information; and how to deal with pressure to breach fundamental principles. The document offers clear guidance for accountants in public practice on which relevant provisions for business accountants apply to them. New guidance stresses the importance of understanding facts and circumstances when exercising professional judgment. Other new guidance describes how compliance with the fundamental principles supports the exercise of professional skepticism in audits and other assurance engagements.

Continued in article


From the CFO Journal's Morning Ledger on April 12, 2018

Levi's CFO turns to robots to help keep the books
Levi Strauss & Co.
is introducing robotic software to its finance function as the company’s efforts to automate the production of its iconic jeans have extended to the back office, said Chief Financial Officer Harmit Singh.


The US's national debt spiked $1 trillion (to over $20 trillion) in less than 6 months of late 2017---
http://www.businessinsider.com/us-national-debt-spiked-1-trillion-in-less-than-6-months-2018-2
|USA Debt Clock --- http://www.usdebtclock.org/
USA unbooked entitlements commitments are now over $100 trillion

From the CFO Journal's Morning Ledger on April 10, 2018

CBO sees annual deficits exceed $1 trillion by 2020
The U.S. Congressional Budget Office said the federal budget deficit would total $804 billion this year, 43% higher than it had projected last summer, and exceed $1 trillion a year starting in 2020. The deficit was $665 billion in the fiscal year ended Sept. 30

Bob Jensen's threads on deficits and entitlements ---
http://faculty.trinity.edu/rjensen/Entitlements.htm
 


Financial Reporting Council (UK) --- https://en.wikipedia.org/wiki/Financial_Reporting_Council

From the CFO Journal's Morning Ledger on April 10, 2018

 U.K. FRC to extend oversight of audit firms
The Financial Reporting Council, the U.K.'s regulator for audit, accounting and reporting, said Tuesday it plans to enhance its oversight of large audit firms. This is to avoid systematic deficiencies within firms’ networks, disruption in the provision of statutory audit services and instability in the financial sector, the FRC said in a statement.

England:  Accounting Watchdog (FRC) to Bite Big Four Harder with 10 Million Pound Fines ---
https://www.reuters.com/article/us-britain-accounts-regulator/accounting-watchdog-to-bite-harder-with-10-million-pound-fines-idUSKBN1HG0SP

. . .

Clarke recommended an increase in fines to 10 million pounds or more for seriously poor audit work from a Big Four accounting firm, meaning PwC, KPMG, EY and Deloitte, who check the books of most international blue-chip companies.

The FRC also accepted other recommendations from Clarke to make greater use of non-financial penalties and to exclude dishonest auditors from the accounting profession for at least 10 years.

However, fines will be discounted in line with the level of cooperation during an investigation to encourage early settlement, the FRC said.

A 10 million pound fine is still small compared with penalties imposed by Britain’s Financial Conduct Authority for breaches of financial rules.

Britain’s ICAEW accounting industry body has already warned that exacting retribution through big fines could harm the marketplace by prompting some firms to quit auditing.

 


From the CFO Journal's Morning Ledger on April 8, 2018

Consulting becomes cash cow for Big Four accounting firms
A push towards consulting and advisory brings additional revenue, but also additional risks for the Big Four accounting firms 
Deloitte Touche Tohmatsu Ltd., PricewaterhouseCoopers LLP, Ernst & Young LLP and KPMG LLP


From the CFO Journal's Morning Ledger on April 8, 2018

Good morning. European executives are targeting U.S. companies as a brighter economic landscape at home and abroad boosts buyer confidence. The drop in the U.S. corporate tax rate to 21% makes U.S. businesses more alluring to European buyers, as does the pullback in the U.S. dollar, which is down nearly 15% against the euro since Dec. 2016.

Swiss pharmaceuticals company Novartis AG said Monday it has agreed to buy U.S.-based AveXis Inc. for $8.7 billion, the latest in a string of European acquisitions in the U.S. involving big names such as Sanofi SA and AXA SA. Other European companies, including JCDecaux SAWärtsilä Corp. and Smurfit Kappa Group PLC also said they are looking for opportunities in the U.S.

European companies spent $47.26 billion on U.S. targets since the beginning of the year, through April 5, according to Dealogic. That is the highest deal value for this period since 2006 and up from $37.59 billion worth of deals struck in the same period last year.

However, uncertainty about Washington’s stance on foreign takeovers could make some buyers pause. Deal makers are also likely to proceed with caution amid escalating trade tensions between the U.S. and China, which have triggered wild swings in global markets.


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

GE urged to dump long-time auditor
The two largest proxy advisory firms are recommending that General Electric Co. fire KPMG LLP as its auditor after 109 years amid accounting issues at the industrial giant.


As private capital increases, public markets are shrinking: The number of public companies has fallen by more than half since 1996
From the CFO Journal's Morning Ledger on April 3, 2018

Good morning. An initial public offering was for decades a sign of success for a new company and its executives, but the appeal of public markets has waned over the past ten years -- as evidenced by the declining number of U.S. IPOs and publicly listed companies.

Meanwhile, private markets have more than doubled in size over the same period, surpassing the growth of public stocks and bonds available to all investors, a WSJ analysis found. That’s transforming how companies grow, concentrating investing in fewer hands and raising concerns about oversight, write the WSJ’s Jean Eaglesham and Coulter Jones.

At least $2.4 trillion was raised privately in the U.S. last year. That widened a gap that emerged in 2011 with the public markets, which raised $2.1 trillion, according to the Journal’s analysis of tens of thousands of securities filings and data provider Dealogic. Deals known as private placements, the largest chunk of the private markets, raised at least $1.6 trillion for businesses last year.

The boom in such private dealings unquestionably helps some businesses grow. Private capital can encourage innovation by enabling companies to take risks without reporting the immediate impact on profits, one reason for why the expansion of private markets has been important to Silicon Valley. Companies are also waiting longer to go public, or avoid a listing altogether, because private markets allow them to raise money without the regulatory burdens.

But as private capital increases, public markets are shrinking: The number of public companies has fallen by more than half since 1996. This “de-equitization” of the U.S. concerns some regulators and challenges some of the fundamentals of corporate governance. “There are fewer investment opportunities for Main Street investors,” Securities and Exchange Commission Chairman Jay Clayton told a congressional panel last year.

 


From the CFO Journal's Morning Ledger on March 30, 2018

Barclays to pay $2 billion to resolve securities claims. 
Barclays PLC
agreed to pay $2 billion in civil penalties to resolve U.S. Justice Department claims that the U.K. lender fraudulently sold mortgage securities that helped fuel the financial crisis, causing investors “enormous losses,” the government said Thursday.

Wells Fargo just agreed to pay $1.2 billion to settle 'shoddy' mortgage practices (phony property appraisals, loans with zero chance of repayment passed upstream to Fannie and Freddie, etc.) ---
http://www.businessinsider.com/wells-fargo-mortgage-settlement-2016-4

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

The root cause of the fraud was the ability of lenders (often felon criminals) to issue mortgages ten or more times the value of the real estate collateral and then sell those mortgages upstream to Fannie Mae, Freddie Mack, and Wall Street Banks without bearing any risk of 1005 certain defaults on those mortgages. These default risks became the poison of the mortgages later sold in CDO bond portfolios that later brought down Bear Stearns, Lehman Bros,, Merrill Lynch, etc.
http://faculty.trinity.edu/rjensen/2008Bailout.htm#Sleaze

Marvene was a poor and unemployed elderly woman who lost her shack to foreclosure in 2008.
That's after Marvene stole over $100,000 when she refinanced her shack with a subprime mortgage in 2007.
Marvene wants to steal some more or at least get her shack back for free.
Both the Executive and Congressional branches of the U.S. Government want to give more to poor Marvene.
Why don't I feel the least bit sorry for poor Marvene?
Somehow I don't think she was the victim of unscrupulous mortgage brokers and property value appraisers.
More than likely she was a co-conspirator in need of $75,000 just to pay creditors bearing down in 2007.
She purchased the shack for $3,500 about 40 years ago ---

The Rest of Marvene's Story --- http://faculty.trinity.edu/rjensen/FraudMarvene.htm


From the CFO Journal's Morning Ledger on March 30, 2018

VW has parked around 300,000 diesel vehicles in U.S
Volkswagen A.G.
has paid more than $7.4 billion buy back about 350,000 U.S. diesel vehicles through mid-February and has been storing them at 37 secure storage facilities around the U.S., Reuters reports.

Jensen Comment
Perhaps this raises an ethical question about selling these vehicles in China or Russia or Panama or Africa etc.

 

How Volkswagen walked away from a near-fatal crash
The revelation of a systematic effort to cheat on emissions tests—employees wrote software that made diesel cars appear cleaner than they were—brought Volkswagen to its knees, ended the career of its long-standing chief executive officer, and shattered a 70-year reputation for engineering-led competence. For a time it looked like Volkswagen might not survive, at least not recognizably, a prospect so alarming in Germany that Chancellor Angela Merkel stepped in to do damage control for what is arguably the country’s most important industrial giant.


From the CFO Journal's Morning Ledger on March 30, 2018

Under Armour discloses breach
Under Armour Inc.
said that some personal details of about 150 million user accounts were accessed in a breach of its food and nutrition app and website MyFitnessPal, Reuters reports


From the CFO Journal's Morning Ledger on March 30, 2018

Judge dismisses Exxon lawsuit against climate-change probes.
A federal judge has thrown out a lawsuit that
Exxon Mobil Corp.
had filed to stop government investigations into the company’s assertions about climate change.


From the CFO Journal's Morning Ledger on March 29, 2018

German unemployment rate hits record low
Germany’s jobless total dropped more than expected in March and the unemployment rate hit a record low of 5.3%, data showed on Thursday, reflecting the strength of a labor market that has become the linchpin of a consumer-led upswing, reports Reuters.


Shell Bets on Renewable Energy
From the CFO Journal's Morning Ledger on March 29, 2018

Good morning. Finance chiefs, like other top executives, are expected to decide when a trend is a fad or the beginning of a movement. For crude oil giant Royal Dutch Shell PLC this means hitching its wagon to the renewable energy sector, writes WSJ's Sarah Kent.

The British-Dutch company has been on a spree of small but strategic acquisitions in the power sector. Shell bought a utility, an electric-car charging business and a stake in a solar-power company, part of a broader long-term plan to marry its huge natural-gas output with a futuristic utility business.

Shell is making a bet it can profit from changes to the power market as renewables begin to play a bigger role, combining its large energy-trading division and massive natural-gas supply—the world’s largest from a non-state-backed company—to fill gaps when the sun doesn’t shine or wind doesn’t blow. Eventually, Shell said it could even compete with tech companies, crunching data about how and when customers use electricity to give them a better deal.

If all goes to plan over several decades, Shell said it would produce gas at the well, use it to produce electricity and then sell power to homes, businesses and electric-vehicle charging stations—a similar model to its oil-rig-to-gas-station petroleum business.

It “makes us future proof in a world where electricity becomes the biggest game in town,” said Maarten Wetselaar, Shell’s head of gas and new energies in a recent interview.

 




Teaching Case From The Wall Street Journal Weekly Accounting Review on April 6, 2018

Last-Minute Tips as Tax Day Approaches

By Laura Saunders | Mar 31, 2018

TOPICS: Individual Taxation, Tax Planning

SUMMARY: One the of first "tips" in this column is to start thinking about 2018 taxes. Estimating 2018 taxes under the new tax law, then checking 2018 withholding and estimated tax payment plans, are critical steps to take now. "U.S. officials have revised the tables that employers use to withhold taxes from paychecks....But these broad-based changes are imprecise...[and] raise take-home pay too much in some cases....If withholding isn't adjusted, some people will owe large balances due next spring even if they get an overall tax cut." Other points made in the article relate to charitable deductions, ability to make IRA contributions to reduce 2017 taxes, and the process for filing an extension.

CLASSROOM APPLICATION: The article may be used in an individual income tax class.

QUESTIONS: 

 

1. (Introductory) What resources are available for taxpayers to estimate 2018 taxes under the new law signed by President Trump in December 2017?

 

2. (Advanced) How is it possible that some taxpayers could "owe large balances due next spring" even if they receive a tax cut under the new tax law?

 

3. (Introductory) What can a taxpayer do if he or she estimates that taxes will be owed in April 2019?

 

4. (Advanced) How can one estimate "number of filers who benefit from deducting charitable donations...will drop from about 36 million for 2017 to about 16 million for 2018..."? Who made this estimate?

 

5. (Introductory) What strategies does this author recommend taxpayers undertake now in April 2018?

READ THE ARTICLE



 

Reviewed By: Judy Beckman, University of Rhode Island

"Last-Minute Tips as Tax Day Approaches," by Laura Saunders, The Wall Street Journal, March 31, 2018
https://www.wsj.com/articles/last-minute-tips-as-tax-day-approaches-1522402201?mod=djem_jiewr_AC_domainid

As deadline to file 2017 taxes draws near, start thinking about this year’s taxes.

As the mad dash to file 2017 tax returns nears the finish line, here is the most important tip: with forms in hand, start thinking about this year’s taxes.

Congress passed the biggest tax overhaul in three decades late last year, and most provisions took effect Jan. 1. Americans who don’t check now to learn the changes’ effects—especially on paycheck withholding and deductions—could face surprise tax bills next spring.

Here are the most important steps to take now for next year’s return, in addition to several tips for 2017. An estimated 45 million filers still haven’t finished their returns as the April 17 deadline approaches.

Project taxes for 2018. The overhaul will lower taxes for about 65% of filers and raise them for about 6% on 2018 tax returns, according to the Tax Policy Center. The rest will see no net change. These results don’t include indirect effects, such as from corporate tax cuts or increased federal borrowing.

A host of online calculators can estimate how you will fare, including this one from WSJ. If your income won’t vary too much, plug in the information from your 2017 return. Many tax preparers are also providing clients with projections.

Check 2018 withholding and estimated payments. To put tax cuts into workers’ pockets faster, U.S. officials have revised the tables that employers use to withhold taxes from paychecks. Millions of workers have seen a bump up in pay.

But these broad-based changes are imprecise. They raise take-home pay too much in some cases, especially if the filer had prior large deductions for state and local taxes. If withholding isn’t adjusted, some people will owe large balances due next spring even if they get an overall tax cut.

To address this issue, the IRS has posted a new withholding calculator. To use it, enter information from your most recent paycheck and tax return. Then adjust take-home pay if necessary.

For those making quarterly payments of estimated taxes, it is also important to see where you stand. See the IRS’s new Form 1040-ES for 2018.

Rethink 2018 charitable deductions. The overhaul made landmark revisions to exemptions, deductions and credits.

In particular, the number of filers who benefit from deducting charitable donations on Schedule A will drop from about 36 million for 2017 to about 16 million for 2018, according to the Tax Policy Center.

Donors who want a tax break for their donations should determine the new law’s effect on them. Those who won’t be filing Schedule A every year may want to “bunch” two or more years of gifts into one to surmount the higher hurdle to a write-off.

Tax-cutting moves for 2017. There still are a few ways to cut last year’s taxes.

Many savers can open or fund individual retirement accounts by April 17 and receive a 2017 tax deduction for contributions up to $5,500 ($6,500 for those 50 years and older). For more details on contribution limits, see IRS Publication 590-A.

Taxpayers can also deduct allowable contributions to Health Savings Accounts made by April 17, but only if the account was set up by the end of 2017.

If you need extra time to file. Filing Form 4868 by April 17 extends the filing deadline until Oct. 15. It can be e-filed either through a tax-prep service or the IRS’s website, or filed on paper.

But remember: An extension to file isn’t an extension to pay. To avoid late-payment penalties, filers must pay 90% of their total tax bill by April 17. Underpayments incur an interest charge, which rises to 5% annually as of April 1.

If you can’t pay. Don’t ignore this issue. Non-filers owe interest plus a host of penalties that mount rapidly. The statute of limitations usually doesn’t begin until a return is filed.

The IRS advises taxpayers with a shortfall to file on time and pay as much as possible. Also consider filing IRS Form 9465 to request a payment plan. According to an IRS spokesman, rapid approval is highly likely if the amount owed is less than $50,000 and can be paid within six years. The request can be filed online.

Penalties will still be due, but they will be far smaller than those for non-filers.

Corrections & Amplifications
Changes to withholding tables used by employers sometimes raise take-home pay too much. An earlier version said the changes lowered take-home pay too much. (March 30, 2018)

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on April 6, 2018

Why Are States So Strapped for Cash? There Are Two Big Reasons

By Cezary Podkul and Heather Gillers | Mar 29, 2018

TOPICS: Governmental Accounting

SUMMARY: The article opens with comments by then-U.S. Secretary of Health and Human Services, Michael Leavitt, at an October 2008 conference. He gave one of HHS's first-ever annual projection of Medicaid cost. The current status of Medicaid spending by states is bearing out those projections. "As state and local officials prepare their next budgets, many are finding that spending decisions have already been made for them by two must-fund line items...: Medicaid...and public-employee health and retirement costs." The increasing burden on state budgets of Medicaid spending and contributions for state employees' retirement benefits "...consume about one out of every five tax dollars collected by state and local governments." The article also discusses the impact on cities, tying together the issues due to the impact of reduced state aid to cities and towns. The cases of Hartford, Connecticut and East Lansing, Michigan are discussed.

CLASSROOM APPLICATION: The article may be use in a governmental accounting class.

QUESTIONS: 

 

1. (Introductory) What were the top three spending items in state budgets in 1964? What are the top 3 as of 2014?

 

2. (Advanced) Why are the high costs of Medicaid and retiree benefits so difficult for state and local governments to manage now?

 

3. (Advanced) What choices do state and local governments have in order to resolve these issues?

 

4. (Introductory) Specifically refer to the November 2017 election results in East Lansing, Michigan. What did the results force the city to do?

 

5. (Introductory) How has the president of the Michigan State University undergraduate student body reacted to the budget situation in Michigan?

READ THE ARTICLE



 

Reviewed By: Judy Beckman, University of Rhode Island

 

"Why Are States So Strapped for Cash? There Are Two Big Reasons," by Cezary Podkul and Heather Gillers, The Wall Street Journal, March 29, 2018
https://www.wsj.com/articles/why-are-states-so-strapped-for-cash-there-are-two-big-reasons-1522255521?mod=djem_jiewr_AC_domainid

The only speaker standing between state budget officers and the opening cocktail hour at a Washington conference was the U.S. Secretary of Health and Human Services. What he said left no one in a celebratory mood.

Medicaid costs, said then-Secretary Michael Leavitt, were projected to grow so fast that within 10 years they would “crowd out virtually every other category of spending.” State spending on higher education, infrastructure and safety, he predicted, would all get squeezed.

Nearly 10 years after that October 2008 speech, Mr. Leavitt’s prediction—part of HHS’s first-ever annual projection of Medicaid’s costs—is looking prescient.

As state and local officials prepare their next budgets, many are finding that spending decisions have already been made for them by two must-fund line items that barely mattered when baby boomers such as Mr. Leavitt were growing up: Medicaid, the state-federal health insurance program for the poor and disabled, and public-employee health and retirement costs.

These days, they consume about one out of every five tax dollars collected by state and local governments. That is the highest share since Medicaid was created in 1965. Postretirement health benefits, which are harder to quantify, add to that burden and have cumulatively cost states more than $100 billion since 2008, according to government financial disclosures compiled by Merritt Research Services.

Those costs are outpacing growth in tax revenue year after year. In 2016, state and local governments collected about $136 billion more in taxes than they did in 2008, adjusting for inflation. Two-thirds of those additional dollars went to fund pensions and Medicaid, according to a Wall Street Journal analysis of Commerce Department spending data.

“The more we stare at the data, the more we realize all roads lead back to Medicaid and pensions,” says Dan White, a director at Moody’s Analytics who has studied the issue.

The resulting revenue squeeze is making it harder for governments to pay for core services such as education, infrastructure, police and fire protection.

It also is fueling bitter state budget battles. Twenty-two states faced budget shortfalls in 2017. Ten couldn’t agree on a new budget before the start of their next fiscal year. Illinois’s credit rating was downgraded nearly to junk status.

To save money, states are sending less aid to cities. Many cities, in turn, are increasing fees and fines on everything from garbage collection to parking tickets. Others, such as Hartford, Conn., have teetered on the brink of bankruptcy.

The cash crunch is likely to get worse. Federal actuaries predict that Medicaid’s annual cost, which was $595 billion in 2017, will exceed $1 trillion in 2026. States and many localities pay about 38% of that tab. The remainder is covered by the federal government.

Continued in article

Medicaid costs, said then-Secretary Michael Leavitt, were projected to grow so fast that within 10 years they would “crowd out virtually every other category of state spending ---
https://www.wsj.com/articles/why-are-states-so-strapped-for-cash-there-are-two-big-reasons-1522255521
Jensen Comment
Medicare and Medicaid are also unsustainable in the Federal Budget unless huge entitlement reforms are legislated.
One problem with Medicaid is that tens of millions of people are collecting it who are not really eligible. For example, an audit in Illinois reveals nearly half the people had incomes too high to be collecting Medicaid.
The biggest fraud is for heirs to confiscate the estate of a parent before death (e.g., by selling the home and confiscating savings) so that the parent can stay free in a nursing home.

 

The HHS Office of Inspector General (OIG) has found that, by exploiting Obamacare’s expansion of the program, California has enrolled hundreds of thousands of ineligible adults in Medicaid. Consequently, the state has bilked the federal government out of more than $1 billion in funding to which the state was not entitled.
https://spectator.org/california-commits-massive-medicaid-fraud/

Medicaid costs, said then-Secretary Michael Leavitt, were projected to grow so fast that within 10 years they would “crowd out virtually every other category of state spending ---
https://www.wsj.com/articles/why-are-states-so-strapped-for-cash-there-are-two-big-reasons-1522255521
Jensen Comment
Medicare and Medicaid are also unsustainable in the Federal Budget unless huge entitlement reforms are legislated.
One problem with Medicaid is that tens of millions of people are collecting it who are not really eligible. For example, an audit in Illinois reveals nearly half the people had incomes too high to be collecting Medicaid.
The biggest fraud is for heirs to confiscate the estate of a parent before death (e.g., by selling the home and confiscating savings) so that the parent can stay free in a nursing home.

April 8, 2018 reply from Elliot Kamlet

Hi Bob

You wrote: The biggest fraud is for heirs to confiscate the estate of a parent before death (e.g., by selling the home and confiscating savings) so that the parent can stay free in a nursing home. It's worse than that. You use the term fraud which implies an illegal action for which the perpetrator may be subject to civil and/or criminal penalties.

In that context, it's not fraud since it is legal to perform the behavior you bring up. See this article for example.
https://ask.superlawyers.com/new-york/elder-law/will-new-york-state-take-my-home-and-my-other-assets-before-i-can-qualify-for-medicaid-to-pay-for-a-nursing-home-or-home-care/6375a357-79d9-48e8-b8d4-104f8868afe7.html

The greatest concern expressed by my clients is whether or not they will outlive their money, particularly when it comes to paying for nursing home care. Many times they are under the misconception that their regular coverage, such as Medicare, will pay for long-term care at home or in a facility. Although Medicare and other health insurance will often pay for limited stays at a facility for skilled needs or rehabilitation, they will not pay for permanent long-term care.

The only private insurance that pays for such care is long-term care insurance, which very few people have acquired, either because of its expense, or because they were denied the coverage due to their health histories. The only insurance that pays for such long-term care is Medicaid. In NY, an applicant for Medicaid cannot own more than $14,400.00 in assets (bank accounts, annuities, cash value of life insurance policies, etc.), and, if being cared for at home, keep approximately $800.00 of monthly income. If the Medicaid recipient is at home, the home is not counted. If the Medicaid recipient is in a nursing home, all of his or her income, except for a $50.00 per month allowance, is required to be contributed to his or her care. Often, the conclusion that nursing home care, or 24-hour home care is necessary, is presented suddenly to the patient and/or family, before a hospital discharge. If the patient is in a hospital, discharge planning to a facility or home is done within a 48-hour period, giving the family very little time to explore options, or even knowledge as to the quality of nursing homes or care agencies.

Continued in article

April 8, 2018 reply from Bob Jensen

Hi Elliot,

I think you made my point by linking to the article that states that the Medicaid patient is limited to assets of $14,400:

 

$14,400.00 in assets (bank accounts, annuities, cash value of life insurance policies, etc.), and, if being cared for at home, keep approximately $800.00 of monthly income.
 If the Medicaid recipient is at home, the home is not counted.

 

Firstly the fraud begins by early confiscation of an elderly parent's assets to get them down to $14,400. It's illegal to do so if the intent is to known to defraud Medicaid.

 

If the elderly person is placed in a nursing care facility, I assume the person's home is included in the "assets" limited to $14,400. Apparently in New York, the home can be excluded if the person has home care instead of being placed in a nursing care facility. But in that case Medicaid generally pays much less of the 24/7 nursing care expenses of at-home care. So this is not necessarily a good deal for the heirs.

 

In anticipation of a nursing care facility being a better deal, they may think long term and sell a parent's home 5-10 years in advance, putting the cash in an investment portfolio, and then pilfering the portfolio down to $14,400 in advance of putting grandma in a nursing care facility. 

 

My barber got away with this. He sold his mother's home 8 years ahead of when she had to into a long-term care facility and rented her a home which he owned as a rental property. She did not seem to mind since taking care of the big house was a burden to her. He says he got away with an enormous rental fee that pilfered away her estate. Then when the time came to move her into a long-term care facility Medicaid footed the bill for thousands of dollars each month. She stayed in the nursing care facility for over 10 years.

 

In the USA states vary with respect to how assets allowed for Medicaid to pay for nursing care ---
https://www.aarp.org/health/medicare-insurance/info-08-2011/paying-for-nursing-homes-ask-the-experts.html

 

Over the years I've been making false claims about some national health care plans. I've mistakenly assumed that no matter what the person's estate that the United Kingdom will pay for nursing home care. The owners of an inn down the road from my cottage in New Hampshire are both from England. They were recently back in England to help get an elderly parent move into a nursing care facility. When I said that at least this was free in the UK Dick corrected me. He said they had to sell the parent's home and use the proceeds toward the cost of long-term care in the UK. I did not research the parameters of having to do so, but Dick claims they had to use the proceeds from the home sale to pay for long-term care in this particular instance.

 

Thus there are probably frauds in the UK much like there are frauds in the USA where the home is sold years and years in advance so the heirs can pilfer the portfolio away before the parent must be placed in a nursing care facility.

Bob

 

 


Teaching Case From The Wall Street Journal Weekly Accounting Review on April 6, 2018

U.S. Fiscal Future Won't Be Like Its Carefree Past

By Greg Ip | Mar 29, 2018

TOPICS: Debt, Governmental Accounting

SUMMARY: The article reports on a recent report from Moody's Investor s service assessing the state of U.S. federal indebtedness and interest payments relative to total revenue, both as projected following the recent tax cut and in 2017 as compared to other nations. The aging U.S. population means that our entrepreneurial nature which has fueled economic growth to support growing debt may be declining: "business dynamism by some measures and economic growth have both declined.... Republicans have long argued the solution to deficits is less spending, not higher taxes. This, however, vastly, oversimplifies matters. Much of the upward pressure on federal social spending comes from aging, which can't be reversed, which means benefits would have to be cut."

CLASSROOM APPLICATION: The article may be used in a governmental accounting course to discuss overall federal deficits and indebtedness.

QUESTIONS: 

 

1. (Advanced) What is a governmental deficit?

 

2. (Introductory) Based on the overall discussion in the article, describe the status of the U.S. federal government debt.

 

3. (Advanced) Refer to the graphic entitled "Credit Check." What component of U.S. debt service is addressed? How do the two graphs analyze debt service in different ways? In your answer, define the term "debt service."

READ THE ARTICLE



 

Reviewed By: Judy Beckman, University of Rhode Island

 

"U.S. Fiscal Future Won't Be Like Its Carefree Past," by Greg Ip, The Wall Street Journal, March 29, 2018
https://www.wsj.com/articles/u-s-fiscal-future-wont-be-like-its-carefree-past-1522244675?mod=djem_jiewr_AC_domainid

The country is shrinking its tax base just as interest expenses surge and social programs get harder to cut

If you think the federal debt is bad, the bigger picture is worse.

A recent report from Moody’s Investors Service shows why. Moody’s is to governments what Experian is to individuals: a monitor of creditworthiness. The U.S., Moody’s report shows, is blessed with extraordinary advantages when it comes to borrowing. Yet it is about to experience a dramatic loss of financial freedom because it is shrinking its tax base just as interest expenses surge and social programs get harder to cut. It is like someone who borrows freely thanks to his rich parents but can’t keep a steady job and won’t curb his lifestyle.

No, the U.S. isn’t about to turn into Greece. Indeed, Moody’s rates U.S. government credit as AAA, the highest possible, which means the probability a Treasury bondholder gets back less than 100 cents on the dollar is effectively zero. Moody’s notes the U.S. capacity to borrow is in a class of its own: trading in Treasury bonds exceeds that of the rest of the Group of Seven major industrial countries together. The dollar’s share of global currency reserves is double that of all others combined. All this means that there are ample lenders when the U.S. wants to borrow.

The U.S.’s underlying economic prowess is also without peer: it is rich and diversified, produces most of its own food and energy, has a growing population, and it is entrepreneurial and competitive.

But those assets are all legacies of the U.S.’s past, and some are eroding: business dynamism by some measures and economic growth have both declined, and the population is aging. If the U.S. pivots toward less trade and immigration, the ratings company warns, that may “swing the balance of risks for long-term growth to the downside.”

Slow growth can be managed with the right fiscal policies. This is where it gets worrisome. In the U.S., interest swallowed 8% of federal revenue last year, the highest of all AAA-rated countries. As interest rates return to normal and debt keeps rising, Moody’s thinks it will hit 21.4% in 2027. This severely limits the government’s flexibility to respond to emergencies, whether a financial crisis, a recession, or a war, not to mention longer-term priorities such as education and research. It is “a good proxy of the stress you may see on the prioritization of funds,” says William Foster, an analyst at Moody’s. “As interest is rising, that crowds out other spending.”

U.S. taxes are relatively low, which in theory leaves plenty of room to raise them if needed. But creditworthiness depends not just on the ability but the willingness to pay. No country’s voters like to pay taxes but Americans are much more resistant than their counterparts in, for example, Scandinavia, where high government spending corresponds to high taxes.

While Moody’s doesn’t address partisan divisions in the U.S., those have also narrowed fiscal options. Republicans adamantly oppose tax increases, and indeed just passed a tax cut on party lines that is projected to slash revenue to just 16% of GDP, a level normally only seen when the economy is weak, not at full strength as it is now. Democrats have proposed rolling back some of those tax cuts—to fund new spending.

Republicans have long argued the solution to deficits is less spending, not higher taxes. This, however, vastly oversimplifies matters. Much of the upward pressure on federal social spending comes from aging, which can’t be reversed, which means benefits would have to be cut. Moody’s says in a crisis wealthy countries in theory can tolerate lower social benefits because that doesn’t impoverish people. But it goes on to note that income inequality and poverty are both higher in the U.S. than among its wealthy peers, and thus “it may have less flexibility” to cut entitlements.

Even Republicans have little appetite for cutting spending. President Donald Trump threatened Friday to veto a bill funding the government for the rest of the fiscal year because it didn’t spend enough on a border wall. “We’re in a full-blown era of free-lunch economics where no one says no to anyone anymore,” says Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a watchdog.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on April 6, 2018

Rules of Engagement: How Cities Are Courting Amazon's New Headquarters

By Laura Stevens, Shibani Mahtani and Shayndi Raice | Apr 02, 2018

TOPICS: Governmental Accounting

SUMMARY: Strategies used by finalist cities for the Amazon second home base, dubbed HQ2, include showing the younger population of talent available in the location by visiting their preferred residential locations; having Amazon visitors speak with university leaders, and even conducting tours via bicycles rather than cars. The selected location "...could bring nearly 50,000 jobs and more than $5 billion in investment over nearly two decades." The related article lists the 20 finalist cities for Amazon's HQ2 and discusses tax incentives offered to the company.

CLASSROOM APPLICATION: The article may be used in a governmental accounting course to discuss the types of incentives cities and states may offer to companies.

QUESTIONS: 

 

1. (Advanced) Summarize Amazon's plans that have led to cities and towns competing against one another. How was the proposal process begun? How many locations submitted proposals? Refer to links and related articles to assist in your answer.

 

2. (Advanced) According to the related article, what are the concerns with offering tax breaks to specific companies to entice them to locate in a particular city, county, or state?

 

3. (Introductory) Amazon will visit potential locations. Describe the visits, including who will host them.

 

4. (Introductory) Based on the information in the main article, what factors seem likely to influence Amazon's choice of location for HQ2?

READ THE ARTICLE



 

RELATED ARTICLES: 
Amazon Homes In on Tax Breaks
by Laura Stevens and Shayndi Raice
Oct 19, 2017
Online Exclusive

Reviewed By: Judy Beckman, University of Rhode Island

 

"Rules of Engagement: How Cities Are Courting Amazon's New Headquarters," by Laura Stevens, Shibani Mahtani and Shayndi Raice, The Wall Street Journal, April 2, 2018
https://www.wsj.com/articles/rules-of-engagement-how-cities-are-courting-amazons-new-headquarters-1522661401?mod=djem_jiewr_AC_domainid

Finalists for the company’s second home base break out bicycles to win over the internet giant

Don’t get too fancy. Head to edgier, trendier neighborhoods. And definitely stay on time.

These are a few of the tricks cities are deploying in their all-out effort to woo Amazon.com Inc.’s AMZN -3.20% new headquarters, a move the online retailer says could bring nearly 50,000 jobs and more than $5 billion in investment over nearly two decades. Amazon executives have quietly visited more than half of the cities on its list of 20 finalists, which are vying to host what it calls HQ2, according to people familiar with the matter. The visits, which started in recent weeks, have included Dallas, Chicago, Indianapolis and the metropolitan Washington, D.C., area.

Amazon hasn’t provided much guidance on what it expects from the site visits. It has asked for breakout sessions on education and talent, plus visits to the sites it is considering, all within a strict time frame of two days, max. The rest is up to local officials.

As a result, officials of candidate cities are scrutinizing the company’s business practices to concoct the perfect 48-hour-or-less-visit that could win over Amazon.

Details of the visits are scarce. Amazon, which has said it plans to announce the winning suitor later this year, has advised HQ2 candidates to keep this phase private. And city officials are loath to spill any tricks that could give their rivals an advantage.

Still, people familiar with the visits describe whirlwind trips with Amazon’s small economic-development team. Led by Holly Sullivan, it examines data provided by the cities—such as the ACT and SAT scores of local high-school students— and asks probing questions regarding how much talent Amazon can attract.

Municipal officials said that while Amazon has some of the quirky features of a hotshot technology company—it lets employees bring thousands of dogs to its Seattle campus and gives out free bananas at two campus stands—it doesn’t offer many of the other trappings associated with working at a tech giant, such as free meals. Amazon is “a frugal-ass company,” said a city official working to win the project. “They’re making a 100-year decision…. All of the extra fluffy stuff is fluff.”

So, many cities are nixing the fancy hotels, dinners at the governor’s mansion, private planes and small gifts that are typical core aspects of a traditional site visit, said people familiar with the matter. “We were concerned that if we went over the top, it would push them away,” said a person involved in one site visit.

Instead, they are attempting to be creative by bringing in university officials, younger people and professionals who can speak to talent and growth in the area. Officials are adding visits to trendier neighborhoods to highlight the draw for younger employees. And cities have even ferried Amazon executives around by bicycle and boat.

“Amazon is working with each HQ2 candidate city to dive deeper on their proposals and share additional information about the company’s plans,” an Amazon spokesman said in a written statement. The spokesman confirmed site visits were taking place.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on April 6, 2018

Tesla Shares Sink as Musk Jokes About Bankruptcy

By Tim Higgins | Apr 03, 2018

TOPICS: Cash, Cash Flow

SUMMARY: The article describes market reaction to an April Fool's Day tweet by Tesla CEO Elon Musk. The reaction is based partly on concerns about Tesla's cash position; 'last week, Moody's Investors Service downgraded Tesla's credit rating and cautioned about the company's outlook, citing concerns about cash levels." The related article specifically describes cash levels and cash flow concerns; it mentions customer deposits which make up a large portion of the company's cash balance.

CLASSROOM APPLICATION: The article may be used when discussing bankruptcy, cash balances including customer deposits and restricted cash, or debt and stock issuances.

QUESTIONS: 

 

1. (Introductory) What did Tesla CEO Elon Musk do on April 1? What happened to the company's stock price as a result?

 

2. (Advanced) Define the term bankruptcy. Why was the April Fool's tweet a bit "too close for comfort" to current concerns about Tesla's financial performance?

 

3. (Introductory) What is Moody's Investors Service? What did Moody's report about Tesla?

 

4. (Advanced) Refer to the related article. Why might Tesla need to raise capital in the near future? What options are available to raise funds? What are the concerns with each option?

 

5. (Introductory) Specifically explain how the company's current cash position is described in the related article. In your answer, define the term customer deposits and explain their part in this description.

READ THE ARTICLE



 

RELATED ARTICLES: 
Tesla Is Running Short on Time
by Charley Grant
Mar 28, 2018
Online Exclusive

Reviewed By: Judy Beckman, University of Rhode Island

 

"Tesla Shares Sink as Musk Jokes About Bankruptcy," by Tim Higgins , The Wall Street Journal, April 3, 2018
https://www.wsj.com/articles/tesla-shares-sink-as-musk-jokes-about-bankruptcy-1522682691?mod=djem_jiewr_AC_domainid

CEO’s Aprils Fools tweet comes as electric-vehicle maker prepares to release hotly-anticipated production results

Tesla Inc. TSLA -2.10% shares sank more than 7% Monday, suggesting investors were in no laughing mood over Chief Executive Elon Musk’s bankruptcy jokes as the electric-vehicle maker grapples with the aftermath of a fatal crash and prepares this week to release production results.

The drop to $248 a share in early trading extended a selloff that has lopped off 36% from the stock since its peak in September.

Mr. Musk delivered his April Fools’ tweet (“Tesla Goes Bankrupt”), in which he joked Tesla failed to raise enough cash in a last-ditch Easter Egg sale, at a time when his company’s cash position is under real scrutiny. Last week, Moody’s Investors Service downgraded Tesla’s credit rating and cautioned about the company’s outlook, citing concerns about cash levels.

Cash worries are nothing new for Tesla, but the stakes have grown as it has taken on more than $10 billion in debt. Mr. Musk avoided bankruptcy in 2008, which he often talks about publicly.

Tesla’s report on first-quarter production results this week will provide insight into whether the car maker is on track to reach its target of making 5,000 Model 3 sedans a week by the end of June, a goal it already postponed twice.

The Model 3 sedan, which began assembly in July, was supposed to help the company reach 500,000 units overall this year, about five times what it sold last year. Tesla’s target for the end of March was 2,500 Model 3s, a number the company likely missed, Philippe Houchois, an analyst for Jefferies, wrote in a research note Monday.

Mr. Musk’s April Fools’ Day tweet followed several tough days for Tesla. Since the market closed Thursday in New York, it announced what is believed to be its largest recall ever over a possibly defective bolt in the Model S. It also was dealt a rebuke from the National Transportation Safety Board after it publicly released information about a fatal crash involving its Autopilot system.

At about 3 p.m. Eastern Daylight Time on Sunday, Mr. Musk laid the groundwork for his mischief with a tweet saying important news was coming.

“Despite intense efforts to raise money, including a last-ditch mass sale of Easter Eggs, we are sad to report that Tesla has gone completely and totally bankrupt, you can’t believe it,” Mr. Musk posted at around 6 p.m. Mr. Musk followed up with additional postings, including one of him holding a sign that reads “Bankwupt!”

On Monday, Mr. Musk clarified his joke, tweeting: “Obviously, I’m not going to do an April Fool’s joke about going bankwupt if I thought there was a chance it would actually happen (sigh.)”

Tesla spokesmen didn’t respond to a request for comment.

The Tesla CEO is a prolific user of Twitter . He often engages his followers, takes questions about the business and, at times, lobbies President Donald Trump on political issues.

Mr. Musk wasn’t the only auto executive in an April Fools mood. Toyota Motor Corp.’s Lexus teamed up with 23andMe Inc. for a video about using DNA to customize cars. And Porsche AG said it would make a 700-horse-power electric tractor that “will be the fastest accelerating agricultural vehicle in the world.”

Mr. Musk’s humor, though, stood apart. “I’ve never heard of a CEO” joking about bankruptcy, David Whiston, an analyst for Morningstar Research Services LLC, said in an email.

 

Continued in article

Tesla Has a Big Cash Flow Apart from the Model 3 Production That's Burning $6,500 Per minute ---
https://www.bloomberg.com/news/articles/2018-04-06/hidden-by-model-3-mess-tesla-s-other-problem-is-about-to-emerge?cmpid=BBD040618_BIZ&utm_medium=email&utm_source=newsletter&utm_term=180406&utm_campaign=bloombergdaily

With all the car-making troubles that are hounding Tesla Inc. these days -- from the Model 3 bottlenecks to the furious cash burn -- it’s easy to overlook the company’s SolarCity headache.

But 16 months after Chief Executive Officer Elon Musk kicked up controversy by acquiring the solar-panel installer founded by two of his cousins, its obligations are a strain on Tesla’s finances. The $2 billion purchase came with a $2.9 billion debt load, and a chunk of that is soon coming due. That’s bad timing for a company churning through about $6,500 a minute and trying to stave off the need for another capital raise.

“SolarCity debt may not be the immediate cause of Tesla’s problems, but it certainly isn’t helping right now,” said Alexander Diaz-Matos, an analyst at credit research firm Covenant Review LLC.

Tesla representatives declined to comment for this story. The solar business generated positive cash flow last year, according to the company.

Debt Coming Due

Tesla’s debt runs the gamut -- convertible bonds, promissory notes, term loans, cash-equity debt, asset-backed securities. Most of the total is tied to Tesla the automaker.

Read more: Tesla May Need to Recharge Coffers to Make Model 3 Go
https://www.bloomberg.com/news/articles/2018-04-03/musk-needs-to-recharge-tesla-s-finances-to-make-the-model-3-go

For investors, the focus has largely been on the cash burn linked to struggles speeding up production of the Model 3, the sedan Musk is betting will be the first to bring electric cars to the masses. There’s also fresh concern over Tesla’s Autopilot after the fatal crash of a Model X last month that occurred while the driver-assistance system was engaged.

Continued in article

Tesla could run out of cash before the end of the year — here's how Elon Musk could change that ---
http://www.businessinsider.com/how-elon-musk-could-fix-tesla-cash-problems-2018-4

North American plants are making about 70 models more quickly (and profitably) than the Tesla Model 3 inefficiently sucking up cash ---
https://www.bloomberg.com/news/articles/2018-04-03/as-tesla-struggles-its-rivals-make-far-more-with-less

The very robots hat Musk says will revolutionize the car industry are baking in Tesla's mistakes and costing far more money than they're worth, they say ---
 http://www.businessinsider.com/tesla-robots-are-killing-it-2018-3

From an MIT Newsletter on February 5, 2018

Tesla’s worker struggles

The car maker is trying to get out from under a cloud that has hovered over working conditions in its Fremont, California factory for some time now.
On the floor: Some employees have said they receive “
near the lowest pay in the automotive industry and struggle to get workers’ compensation. Reports of injury rates have been blamed on the company not following through on policies like rotating workers every two hours.
A push for change: The Tesla Fremont plant is the only non-union, US-owned automotive plant in the country. Elon Musk was
not happy about the push to unionize last year as a result of dissatisfaction with working conditions.
Making things safer: Tesla is getting set to automate worker rotations. According to
Buzzfeed, it is also hiring a medical director, and looking to increase the number of doctors it staffs on site. Tesla expects its serious injury rate for 2017 to be below the national average, a major improvement from 2015, when it was double the averag
e.

 


Teaching Case From The Wall Street Journal Weekly Accounting Review on April 13, 2018

GE Urged to Dump Auditor KPMG After 109 Years by Proxy Advisers

By Thomas Gryta and Joann S. Lublin | Apr 05, 2018

TOPICS: Auditing, Auditor Changes

SUMMARY: "Earlier this year, GE disclosed massive charges related to insurance operations, including a need to put $15 billion into reserves over seven years, and said the Securities and Exchange Commission is investigating some of its accounting practices." Two proxy advisory firms, Institutional Shareholder Services and Glass, Lewis & Co., are recommending that shareholders vote against retaining KPMG as auditor after 109 years in that role. This relationship is one of the longest auditor-client relationships in the U.S.

CLASSROOM APPLICATION: The article may be used in an auditing class to discuss auditor tenure.

QUESTIONS: 

 

1. (Introductory) What is auditor tenure? How long is KPMG's tenure with GE?

 

2. (Advanced) Who hires a company's auditor?

 

3. (Introductory) What happened this year to cause investor advisory firms to recommend that shareholders not ratify the choice of auditor put forth in GE's proxy statement?

 

4. (Advanced) Could the length of time KPMG has served as GE's auditor-or the length of any auditor/client relationship-- affect the likelihood of discovering material errors and weaknesses in internal control, resulting in restatements and revisions of estimates? Support your answer.

 

5. (Advanced) What factors do you think would lead GE shareholders not to reject proposal for KPMG as auditor?

READ THE ARTICLE



 

Reviewed By: Judy Beckman, University of Rhode Island

 

"GE Urged to Dump Auditor KPMG After 109 Years by Proxy Advisers," by Thomas Gryta and Joann S. Lublin, The Wall Street Journal, April 5, 2018
https://www.wsj.com/articles/ge-urged-to-dump-auditor-kpmg-after-109-years-by-proxy-advisers-1522964791?mod=djem_jiewr_AC_domainid

ISS, Glass Lewis recommend shareholders vote against keeping KPMG

The two largest proxy-advisory firms are recommending that General Electric Co. GE -0.58% fire KPMG LLP as its auditor after 109 years, in light of accounting issues at the industrial giant.

Institutional Shareholder Services made the unusual move on Thursday, saying shareholders should vote against keeping KPMG because of “the apparent extent of GE’s previously-undisclosed liabilities and accounting issues.” Glass, Lewis & Co. published a similar recommendation on Tuesday.

Earlier this year, GE disclosed massive charges related to insurance operations, including a need to put $15 billion into reserves over seven years, and said the Securities and Exchange Commission is investigating some of its accounting practices.

Glass Lewis said it generally supports a company’s auditors choice “except when we believe the auditor’s independence or audit integrity has been compromised.”

KPMG and its predecessor firms have audited GE’s books since 1909, one of the longest auditor-client relationships. KPMG has hundreds of staffers that work on the account, which generated $142.9 million in fees last year.

“It’s extremely rare for ISS to recommend against management auditor ratification proposals” when fees aren’t an issue, said Subodh Mishra, executive director of communications at ISS. Just one such resolution over the past decade has failed to pass, according to ISS Analytics.

Representatives for GE and KPMG had no immediate comment.

Despite the unusual rebuke from ISS, KPMG is unlikely to lose the GE account. Investors rarely reject an outside auditor recommended by a corporate board, according to Charles Elson, head of the Weinberg Center for Corporate Governance at University of Delaware.

“I don’t recall shareholders ever voting out an auditor” for a large public company, Mr. Elson said. But “a strong vote against KPMG would prompt the reconstituted board to consider replacing them next year.’’

In its proxy, GE cites the benefits of having the same auditor for more than a century, including “institutional knowledge” to handle audits in more than 90 countries for GE. It notes that changing auditors requires “a significant time commitment that could distract from management’s focus on financial reporting and internal controls.”

In its report, ISS said the reasons to keep the same audit firm need to be balanced “against the risk that a long-tenured auditor can become too close to a client, and the potential for a new auditor to uncover problems previously unidentified.”

Long-tenured auditors aren’t unusual. Half the 30 companies in the Dow Jones Industrial Average have used the same audit firm since at least the mid-1960s, and only two have switched to new auditors in the past 15 years.

Both ISS and Glass Lewis are recommending shareholders elect all of GE’s board nominees. GE has restructured its board in recent months, removing several long-tenured members and shrinking the board’s size to 12.

The proxy firms also recommended that GE investors support a shareholder resolution urging a separation of the roles of CEO and chairman. ISS cited the long-term underperformance of the company and a recent Wall Street Journal article that ISS said revealed “the board may have been overly deferential to the CEO and overly reliant on him for information about the company.”

With the planned exit of GE’s lead independent director, Jack Brennan, in 2019, there could be an opportunity to revisit the leadership structure.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on April 13, 2018

How Did the Big Four Auditors Get $17 Billion in Revenue Growth? Not From Auditing

By Michael Rapoport | Apr 07, 2018

TOPICS: Audit Firms, Audit Quality, Auditing Services, Consulting

SUMMARY: As of this year, the revenues to the Big Four accounting firms have come more from consulting, $56 billion in total, than from auditing, which totaled $47 billion. "Since 2012, the firms' combined global revenue from consulting and other advisory work has risen 44%, compared with just 3% growth from auditing." The article discusses concerns such as conflicts of interest and inattention to auditing; points from the opposite view, such as the question of whether audit quality might be improved from having these other types of engagements, also are discussed.

CLASSROOM APPLICATION: The article may be used in an auditing class to discuss issues of types of services that public accounting firms may provide.

QUESTIONS: 

 

1. (Introductory) What are the major lines of business for public accounting firms?

 

2. (Introductory) Which line of business provides the most revenues to the largest public accounting firms? Which line of business provides the most growth in revenues?

 

3. (Advanced) What are the concerns about these trends in the lines of business conducted by the largest public accounting firms?

 

4. (Introductory) What did a U.K. regulator propose to resolve concerns described above?

 

5. (Advanced) "I'm not quite convinced that pure audit firms will be linked with higher audit quality" said an accounting and auditing professor from Germany, Patrick Velte. Professor Michael Shaub of Texas A&M University seems to disagree: he "would love" to see audit-only firms which are separate from the corporate consulting. With which person do you agree? Support your answer.

READ THE ARTICLE



 

Reviewed By: Judy Beckman, University of Rhode Island

 

"How Did the Big Four Auditors Get $17 Billion in Revenue Growth? Not From Auditing," by Michael Rapoport, The Wall Street Journal, April 7, 2018 ---
https://www.wsj.com/articles/how-did-the-big-four-auditors-get-17-billion-in-revenue-growth-not-from-auditing-1523098800?mod=djem_jiewr_AC_domainid

Consulting is now a cash cow for accounting firms, raising concerns about conflicts of interest

Audit firms have a tough job. Some critics think they shouldn’t have a second one.

For years, the Big Four accounting firms have pushed into consulting, seeking growth their core auditing businesses weren’t providing. Since 2012, the firms’ combined global revenue from consulting and other advisory work has risen 44%, compared with just 3% growth from auditing.

The result is that the bulk of the firms’ revenue now comes from consulting and advisory, $56 billion last year, compared to only $47 billion from auditing. Five years earlier, auditing pulled in roughly the same amount—$46 billion—while consulting and advisory’s haul was only $39 billion.

But that $17 billion growth in consulting and advisory revenue has come with concerns about the potential for conflicts of interest and loss of focus on auditing at the four firms, Deloitte Touche Tohmatsu, PricewaterhouseCoopers, Ernst & Young and KPMG.

Last month, comments from a U.K. regulator revived an old debate: Should the Big Four be broken up, with corporate auditing separated from consulting? That would leave audits handled by separate firms that do nothing but that type of work.

Some observers think “audit-only” firms are an idea whose time has finally come. They think it will make audits better and spur competition.

“I would love to see that,” said Michael Shaub, a Texas A&M University accounting professor.

But the industry says it helps to have auditing and consulting under the same roof. That setup gives the auditors easier access to technology and expertise about their clients’ businesses. It “provides the structure, breadth and depth of technical skills and industry expertise necessary to deliver high-quality audits,” said Mark Weinberger, Ernst & Young’s global chairman.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on April 13, 2018

Dollar Falls as Trade Jitters Return

By Sam Goldfarb | Apr 06, 2018

TOPICS: Foreign Currency Translation

SUMMARY: This article and the article discuss the gyrations in U.S. currency value caused by trade tensions both with China and in relation to potential NAFTA renegotiation. 'The U.S. dollar...is down 7.6% over the last 12 months...It has typically climbed aginst emerging-market currencies when investors are concerned about a trade war, while falling against the Japanese yen, which tends to serve as a refuge for traders during ties of political or economic uncertainty. On Friday, the dollar's losses against the yen ad euro outweighed its gains against emerging-market currencies."

CLASSROOM APPLICATION: The article may be used to discuss current issues when introducing foreign currency translation.

QUESTIONS: 

 

1. (Introductory) What economic factors are the primary drivers of the value of currencies? In your answer, comment on why the U.S. jobs report is mentioned in this article.

 

2. (Introductory) According to the author, what happens to currencies in times of potential trade war?

 

3. (Advanced) Did the U.S. dollar react in the way explained by the author? Support your answer.

 

4. (Advanced) How are the U.S., Canada, and Mexico's prospects of negotiating the North American Free Trade Agreement (NAFTA) described in the related article? How have currencies reacted to that assessment?

READ THE ARTICLE



 

RELATED ARTICLES: 
Dollar Gains Against Yen as Riskier Assets Rebound
by Sam Goldfarb
Apr 04, 2018
Page: ##

Reviewed By: Judy Beckman, University of Rhode Island

 

"Dollar Falls as Trade Jitters Return," by Sam Goldfarb, The Wall Street Journal, April 6, 2018
https://www.wsj.com/articles/dollar-wavers-after-jobs-report-1523022098?mod=djem_jiewr_AC_domainid

Investors also wary about ongoing trade issues between the U.S. and China

The dollar fell Friday as renewed trade jitters sent investors into assets perceived as relatively safe stores of value like the Japanese yen.

The WSJ Dollar Index, which gauges the U.S. currency against a basket of 16 others, was down 0.2% to 83.99 in late afternoon trading in New York. The dollar was down 0.4% against the Japanese yen to ¥106.92.

The U.S. dollar has fallen for five straight quarters and is down 7.6% over the last 12 months, as expectations of accelerating growth and tightening monetary policy abroad have pushed investors out of the currency.

Most recently, the dollar has also reacted to escalating trade tensions with China. It has typically climbed against emerging-market currencies when investors are concerned about a trade war, while falling against the Japanese yen, which tends to serve as a refuge for traders during times of political or economic uncertainty.

On Friday, the dollar’s losses against the yen and euro outweighed its gains against emerging-market currencies. Investors sought haven assets when a Chinese official said that the country was “prepared to hit back forcefully and without hesitation” after President Donald Trump said the U.S. was considering tariffs on an additional $100 billion in imports from China.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on April 13, 2018

U.S. Manufacturers Worry Tariffs Could Undermine Recovery

By Andrew Tangel and Harriet Torry | Apr 09, 2018

TOPICS: Foreign Currency Translation, Managerial Accounting

SUMMARY: "Manufacturers are expressing trepidation that a burgeoning rebound in blue-collar jobs could be undermined by an all-out trade war with China." The article discusses trends in the manufacturing sector since November 2016 and both the positive and negative potential impacts to manufacturing of a trade war.

CLASSROOM APPLICATION: The article may be used in a managerial or cost accounting class to discuss current issues.

QUESTIONS: 

 

1. (Introductory) What have been the trends in the U.S. manufacturing sector since the November 2016 election?

 

2. (Introductory) What factors do manufacturing executives cite as reasons for the trends?

 

3. (Advanced) Why does the National Association of Manufacturers oppose tariffs?

 

4. (Advanced) What specific costs might increase if the Trump Administration imposes the tariffs on Chinese imports that have been threatened?

 

5. (Advanced) What trade-off might manufacturers make if the tariff-driven cost increases occur?

READ THE ARTICLE



 

RELATED ARTICLES: 
Trade Threats Are Real But Risk Hard to Gauge
by James Mackintosh
Apr 10, 2018
Online Exclusive

Reviewed By: Judy Beckman, University of Rhode Island

 

"U.S. Manufacturers Worry Tariffs Could Undermine Recovery," by Andrew Tangel and Harriet Torry, The Wall Street Journal, April 9, 2018 ---
https://www.wsj.com/articles/u-s-manufacturers-worry-tariffs-could-undermine-recovery-1523279378?mod=djem_jiewr_AC_domainid

Trade war could bring significant added costs for manufacturers and American consumers, industry group says

Manufacturers are expressing trepidation that a burgeoning rebound in blue-collar jobs could be undermined by an all-out trade war with China.

Manufacturing, long the sick patient in the U.S. economy as multinationals outsourced jobs, has added nearly 300,000 positions since the November 2016 election, increasing payrolls in 16 of the past 17 months. That included 22,000 positions last month. Overtime hours are up and orders are on the rise, making the current stretch among the strongest for the manufacturing sector in decades.

Manufacturing executives and economists point to a range of factors supporting hiring and investment. They include strong global growth, elevated consumer and business confidence, a softer dollar supporting exports, a domestic housing rebound, and lower tax rates that are encouraging business investment.

Tariffs are meant to support domestic producers by raising the cost of imports, but manufacturers are voicing concerns about the downside of tariffs meant to help the industry compete with low-cost labor from China. The Trump administration has threatened to slap tariffs on $50 billion in products sent from China to the U.S., mostly intermediate goods and not finished consumer products, and on $100 billion more.

The National Association of Manufacturers said its members agree Chinese theft of intellectual property and unfair trade threatens American companies, but it opposes tariffs.

Tariffs “are likely to create new challenges in the form of significant added costs for manufacturers and American consumers,” Jay Timmons, the association’s chief executive, said in a statement last week. Tariffs also “run the risk of provoking China to take further destructive actions against American manufacturing workers.”

China has threatened strong retaliation against any action by the U.S. against its exports.

Generac Holdings Inc., a Wisconsin generator manufacturer, has hired about 200 new employees over the last six months, but Aaron Jagdfeld, the company’s CEO, said the company’s good fortunes and hiring needs could be undercut by tariffs, which would increase its input costs.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on April 13, 2018

Investors Want More Transparency About YouTube's Sales, Profit

 

By Douglas MacMillan | Apr 10, 2018

TOPICS: Segment Reporting

SUMMARY: The article discusses Google's segment reporting-or lack thereof. The U.S. Securities and Exchange Commission has corresponded with the company about its minimal reporting of segment information in correspondence summarized in the article. Of particular interest is YouTube. A graphic shows estimates of the video site's revenue, growth, audience, and other data points; YouTube is estimated to be potentially larger than Netflix. "Analysts have used the SEC's line of inquiry as an opening to push an argument that the video site is undervalued."

CLASSROOM APPLICATION: Questions ask students to identify the accounting requirements to disclose segments and to understand how the decision-making process among company leadership defines how information is reported in the financial statements.

QUESTIONS: 

  1. (Advanced) One analyst says about Google, "I find it amazing that they haven't shared this data for so long and it's so fundamental to their overall ad business." What accounting standard establishes requirements for companies to disclose substantial components of the business?
  2. (Introductory) "The rules [accounting standards] give companies flexibility to disclose results for different segments based on how they are managed." Explain this statement.
  3. (Advanced) Access Google's 2017 10-K annual report in the company website athttps://abc.xyz/investor/pdf/20171231_alphabet_10K.pdf Scroll to p. 27. How does Google present information about its business segments?
  4. (Advanced) Why would Google parent company Alphabet, Inc., not want to separately disclose information about YouTube?
  5. (Introductory) The article discusses correspondence between Alphabet, Inc. and the U.S. Securities and Exchange Commission (SEC). What was the nature of that correspondence?
  6. (Advanced) Access www.sec.gov. Search for company filings by Alphabet, Inc. and select CIK 0001652044 from the list. Filter the filing results for "upload," the label given to SEC correspondence. Select the letter dated November 8, 2017 and scroll to page 2. What is the nature of the questions asked? Why does the SEC ask these questions-what do they help determine?
  7. (Introductory) If Google doesn't separately disclose information about YouTube, then explain how you think that information in the graphic entitled "YouTube vs. Netflix" was determined.

 

READ THE ARTICLE


 

Reviewed By: Judy Beckman, University of Rhode Island

 

"Investors Want More Transparency About YouTube's Sales, Profit," by Douglas MacMillan, The Wall Street Journal, April 10, 2018
https://www.wsj.com/articles/investors-want-more-transparency-about-youtubes-sales-profits-1523365201?mod=djem_jiewr_AC_domainid

Among other reasons, they argue that a lack of disclosure around YouTube could be undervaluing Alphabet, the video site’s parent company

YouTube is a financial juggernaut predicted by analysts to generate more revenue this year than half the companies listed on the S&P 500 index.

The video site, tucked inside Google’s business, is also a financial enigma.

Its parent company, Alphabet Inc., GOOGL -0.05% doesn’t share YouTube’s sales or profit, saying it isn’t necessary because the product is part of a broader suite of ad-supported businesses.

 

Some investors and others have renewed calls for more transparency from YouTube in light of accounting rules and recent questions raised by the Securities and Exchange Commission about its disclosures. They say YouTube has become a material part of Alphabet’s business and an important driver of its growth, warranting quarterly disclosure of its revenue, costs and profitability. Some investors are also arguing that the lack of disclosure around YouTube could potentially be undervaluing Alphabet.

“I find it amazing that they haven’t shared this data for so long and it’s so fundamental to their overall ad business,” said Ross Gerber, chief executive of Gerber Kawasaki Wealth & Investment Management, which owns about 4,200 Alphabet shares worth about $4.3 million, or about 0.5% of Gerber’s assets.

A YouTube spokeswoman declined to comment. Analysts have said breaking out YouTube’s financials could give competitors insight into its operations.

The SEC late last year prodded the company to explain why it doesn’t share YouTube data, according to regulatory filings in February. Accounting rules require companies to disclose revenue for operating segments that account for 10% of a company’s total revenue, profit or combined assets. YouTube’s numbers are included in Alphabet’s advertising figure.

Analyst estimates of YouTube’s revenue for this year range from $11 billion to $20 billion, representing 10% to 18% of Alphabet’s estimated overall revenue of $134 billion for 2018, according to S&P Global Market Intelligence. That means YouTube could have more revenue than competitor Netflix Inc., which generated $11.7 billion last year.

In the letters, the SEC cited international accounting rules that require companies to break out revenue from business units in ways that show how cash flows could be affected by economic factors and how financial data is reviewed by a company’s top decision maker.

The SEC frequently questions public companies about why they don’t break out results for specific business divisions. But public accounting rules limit the agency’s ability to compel more disclosure.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on April 20, 2018

Why Mattel and Hasbro Workers Are a World Apart on Pay

By Theo Francis | Apr 13, 2018

TOPICS: Disclosure Requirements, Disclosures

SUMMARY: Companies began reporting median worker pay in SEC filings for the 2017 reporting period. Toy companies Hasbro, Inc., and Mattel, Inc., disclosures are compared in this article. There is an interactive graphic, "Check Your Pay," which identifies individual firms by industry.

CLASSROOM APPLICATION: The article may be used in any class discussing disclosures. Questions also integrate data analytics and the statistical concept of a median.

QUESTIONS: 

 

1. (Advanced) Hasbro, Inc. and Mattel, Inc. have disclosed the pay to their median workers. What financial disclosure regulation has required this? You may need to refer to related articles to answer this question.

 

2. (Introductory) How different are the median pay amounts disclosed by these two toy manufacturers? What drives that difference in compensation? In your answer, include a definition of the term "median."

 

3. (Advanced) Refer to the graphic entitled "Check Your Pay." How does this graphic reflect the use of data analytic techniques applied to public financial reporting? In your answer, define the term "data analytics."

 

4. (Introductory) What company has a median pay of approximately $250,000? What factors do you think lead to this anomaly or outlier observation?

READ THE ARTICLE



 

RELATED ARTICLES: 
In a First, U.S. Firms Reveal Workers' Pay Gap With CEO
by Theo Francis and Vanessa Furhrmans
Mar 12, 2018
Online Exclusive

Reviewed By: Judy Beckman, University of Rhode Island

 

"Why Mattel and Hasbro Workers Are a World Apart on Pay," by Theo Francis, The Wall Street Journal, April 13, 2018
https://www.wsj.com/articles/why-mattel-and-hasbro-workers-are-a-world-apart-on-pay-1523611801?mod=djem_jiewr_AC_domainid

Toy giants have similar revenue but different median pay

To see why global-supply chains have supplanted domestic manufacturing, look no further than Transformers action figures and Barbie dolls—and employee-pay figures publicly traded companies are disclosing for the first time.

Hasbro Inc., HAS -1.62% which sells Transformers, as well as Star Wars and My Little Pony figures and many other toys and games, paid a typical worker about $74,000 last year.

Meantime, at rival Mattel Inc., MAT +3.60% which sells American Girl dolls and Ghostbusters action figures in addition to Barbies and other playthings, the figure was closer to $6,300.

Those figures come courtesy of new public-company disclosures this spring that reveal median pay for employees. Companies have some leeway in how they report the figure, which identifies the worker who is paid at the midpoint for all employees. But the numbers for Hasbro and Mattel highlight two distinct business models, at least for now.

More than three-quarters of the 35,280 people who work for Mattel are employed outside the U.S. Most work in manufacturing plants, many of them in low-wage regions in Asia, including China. Indeed, Mattel said in its proxy filing that its median employee is a factory worker in Malaysia.

Mattel, which is based in El Segundo, Calif., didn’t disclose the median wage for its U.S. employees but did note the pay is more than quadruple the global figure it is required to disclose under new Securities and Exchange Commission rules.

By contrast, Hasbro, which is based in Pawtucket, R.I., said it employed about 5,400 people on Dec. 31, or not quite a sixth of Mattel’s head count. A little more than half worked in the U.S. Both firms had roughly $5 billion in revenue last year.

Why the stark contrasts in two such similar companies? Mattel makes many of the toys and games it sells, and so owns or operates its own factories, and employs the people working in them. Over the years, Mattel has said it does so to maintain better control over quality and because managers have felt it was more efficient than contracting out.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on April 20, 2018

Banks Get a Break on Accounting Rule

By Michael Rapoport | Apr 16, 2018

TOPICS: Banking, Loan Loss Allowance

SUMMARY: The current expected credit loss model (CECL) requires banks to record estimates of the entire amount of expected loan losses as soon as loans are recorded. The objective of this model is to avoid delayed reporting of loan losses which occurred during the credit crisis from the historical analysis approach to accounting for loan and other receivable losses. Banks have been concerned about the impact of this new accounting requirement on their regulatory capital. "The regulators' proposal, issued Friday, will allow banks to take three years to phase in the impact on their regulatory capital."

CLASSROOM APPLICATION: The article may be used in a class discussing banking, the CECL model, or regulation in general.

QUESTIONS: 

 

1. (Introductory) What is a bank's "regulatory capital"?

 

2. (Advanced) What accounting change has been implemented in relation to loan losses? Who implemented this accounting change?

 

3. (Introductory) How will bank regulators allow a different treatment for loan loss accounting? For how long will the regulators allow this difference?

 

4. (Advanced) What is the impact of having these different accounting requirements on the bank's accounting systems?

READ THE ARTICLE



 

Reviewed By: Judy Beckman, University of Rhode Island

 

"Banks Get a Break on Accounting Rule By Michael Rapoport , The Wall Street Journal, April 16, 2018
https://www.wsj.com/articles/banks-get-a-break-on-accounting-rule-1523871001?mod=djem_jiewr_AC_domainid

Regulators float changes to regulation on loan losses that will give banks more wiggle room

Banking regulators proposed softening the blow of a new accounting rule that will force banks to book losses on soured loans more quickly.

Some banks had been concerned the rule could cut into their regulatory capital, since it will require them to book all expected losses from their loans as soon as they are issued, and could compel some banks to significantly boost their loan-loss reserves.

The regulators’ proposal, issued Friday, will allow banks to take three years to phase in the impact of the accounting change on their regulatory capital. The proposal also calls for a variety of tweaks in how loan-loss reserves are counted in regulatory capital, and it would allow banks to delay having the loan-loss change affect their regulatory “stress tests” until the 2020 testing cycle.

The new loan-loss accounting rule itself will still go into effect as scheduled: Some banks will begin adopting it as soon as next January, with publicly traded banks required to adopt it by 2020.

The Federal Reserve on Friday approved the proposal for public comment, and the Federal Deposit Insurance Corp. is scheduled to address it at a board meeting Tuesday.

The Financial Accounting Standards Board, which sets accounting rules for U.S. companies, issued the loan-loss rule in June 2016. Currently, banks don’t book loan losses until they have evidence the losses will actually occur, but critics said that method led banks to be too slow in recording losses after the 2008 financial crisis. The new approach, requiring booking of all expected losses immediately, is intended to give investors more timely information to gauge a bank’s health.

Some banks have complained the rule will be too burdensome, and that its impact could be especially harsh if economic conditions happen to be poor when they adopt the new loan-loss accounting method. Last year the Treasury Department said banking regulators should “carefully review” the rule’s impact on banks’ capital.

Public comments will be due 60 days after the regulators’ proposal is published in the Federal Register.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on April 20, 2018

Supreme Court Weighs Widening States' Reach on Online Sales Taxes

By Richard Rubin and Laura Stevens | Apr 16, 2018

TOPICS: Sales Taxes

SUMMARY: Goods sold on Amazon by third party sellers are not subject to sales tax under current tax rules "from the era of mail-order catalogues." The Supreme Court will now "consider whether states can subject goods sold by independent merchants online to sales taxes." The case, South Dakota v. Wayfair Inc., is to be heard Tuesday, April 17, 2018 and a decision is expected by the end of June.

CLASSROOM APPLICATION: The article may be used when covering sales taxes in a financial reporting class or a tax class.

QUESTIONS: 

 

1. (Introductory) When a business collects sales taxes, what is the accounting entry?

 

2. (Introductory) What must a business do with sales taxes it has collected?

 

3. (Advanced) Do you think a new requirement to collect sales taxes would be difficult for online sellers who operate through platforms such as Amazon? Explain your answer.

 

4. (Advanced) According to the Government Accountability Office (GAO), "between $3.9 billion and $6.2 billion in taxes could have been collected...in 2017...." How do you think this was determined?

 

5. (Advanced) What is the GAO? (Hint: access the web site www.gao.gov )How does assessing the impact of non-collection of tax by states fall within its purview?

READ THE ARTICLE



 

Reviewed By: Judy Beckman, University of Rhode Island

 

"Supreme Court Weighs Widening States' Reach on Online Sales Taxes By Richard Rubin and Laura Stevens, The Wall Street Journal, April 20, 2018
https://www.wsj.com/articles/supreme-court-set-to-weigh-online-sales-taxes-1523790801?mod=djem_jiewr_AC_domainid

Smaller vendors on Amazon and other platforms could find their goods subject to levies

Billions of dollars of goods sold each year by independent merchants on Amazon.com and other online marketplaces would be vulnerable to state sales taxes for the first time if justices decide to reverse a quarter-century-old precedent in a case before the Supreme Court this week.

In the case, South Dakota is seeking to overturn a longtime precedent under which states can’t require retailers to collect sales taxes unless the companies have a physical presence in the state. While Amazon.com Inc. itself collects sales taxes on its own products, it does not on most others’ sales through its platform.

Justices on Tuesday will hear arguments in the case, South Dakota v. Wayfair Inc., and a decision is expected by the end of June.

The current tax rules—from the era of mail-order catalogs—helped fuel the rise of internet commerce and spurred frustration among brick-and-mortar retailers, shopping-mall owners and state governments.

Tax and legal experts expect the court to overturn the precedent, freeing states to collect levies on future cross-state transactions. It isn’t clear what new standard might take its place or what rules states might impose.

President Donald Trump recently put the issue of sales-tax collection in the spotlight as part of his repeated attacks on Amazon, which people close to the White House attribute largely to his dislike of coverage of his administration by the Washington Post, owned separately by Amazon Chief Executive Jeff Bezos. Mr. Trump said that Amazon avoids taxes and that its growing dominance is “putting many thousands of retailers “out of business.”

The biggest effects would be felt on online marketplaces, where between $3.9 billion and $6.2 billion in taxes could have been collected on goods sold by smaller vendors in 2017, according to the Government Accountability Office. On such marketplaces, run by Amazon, eBay Inc. and others, independent sellers give the platforms a cut of their sales.

Merchants selling goods on Amazon’s global marketplace last year made up nearly two-thirds of gross merchandise volume, which totaled $313.4 billion, according to Factset analyst estimates. Half of all items sold come from those small or midsize businesses, according to Amazon.

A few states, including Washington and Pennsylvania, have already started trying to tax third-party online marketplace sales, and those efforts could accelerate after a Supreme Court decision.

“It could be read as a green light to ‘Go for it, states,’ and they will go for it,” said Richard Pomp, a law professor at the University of Connecticut.

The 1992 opinion, in the case of Quill Corp. v. North Dakota, held that the Constitution’s commerce clause limited interstate tax enforcement without congressional assent. Justice John Paul Stevens said it was up to Congress to set nationwide rules for cross-border sales-tax enforcement, but Congress hasn’t done so.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on April 20, 2018

Taxes Are Hard-So Is Pronouncing New Tax Law Acronyms Like FDII

 

By Richard Rubin and Theo Francis | Apr 13, 2018

TOPICS: Tax Law

SUMMARY: This article is a comic discussion of acronyms mostly stemming from the new tax law in particular. Older generation tax lawyers and accountants pronounce one acronym differently than do millennials because of their frame of reference. Called Foreign-Derived Intangible Income, or FDII as abbreviated, one 35-year-old senior manager at Grant Thornton LLP says he will stay with the pronunciation "Fiddy" "in the absence of published guidance from the government." The older generation, such as University of Michigan law and economics professor James. R. Hines, Jr., pronounces it "Foedee," similar to other tax provisions related to foreign income. Other provisions in the new tax law are also discussed in the article, even those still in need of an acronym. "Journalists and commentators have struggled to find clear, succinct and still accurate ways to refer to what is formally known as the 'treatment of deferred foreign income upon transition to participation exemption system.'"

CLASSROOM APPLICATION: The article may be used for a bit of comic relief for students learning difficult tax material.

QUESTIONS: 

  1. (Introductory) Why is there a divide between older versus younger tax attorneys and accountants regarding pronunciation of an acronym for an item in the new tax law?
  2. (Advanced) Consider the acronym for the minimum tax on U.S. companies' foreign income, the Global Intangible Low-Taxed Income provision. Do you think those who drafted the law for Congress were intentional in the acronym GILTI?
  3. (Advanced) What happened to the transcript of an earnings conference call when a CFO discussed the GILTI tax and its expected impact on his company?

 

READ THE ARTICLE


 

Reviewed By: Judy Beckman, University of Rhode Island

 

"Taxes Are Hard-So Is Pronouncing New Tax Law Acronyms Like FDII," by Richard Rubin and Theo Francis, The Wall Street Journal, April 13, 2018
https://www.wsj.com/articles/you-say-fiddy-i-say-foedeeno-one-knows-what-to-call-new-tax-provisions-1523545935?mod=djem_jiewr_AC_domainid

WASHINGTON—Fiddy isn’t just a rapper’s name anymore. In 2018, it’s a tax break.

Technically, it is a deduction in the new tax law, for Foreign-Derived Intangible Income, available to U.S. exporters. FDII, as it’s abbreviated, could cause a trans-Atlantic spat over whether it violates international trade rules.

It’s already causing a squabble over something else—how to pronounce FDII.

The “F” comes from “foreign,” so some tax lawyers call it “FOE-dee,” putting it alongside FOGEI and FORI, longstanding international tax acronyms for Foreign Oil and Gas Extraction Income and Foreign Oil Related Income.

Phooey to Foedee, says a younger crowd with a rare tax-meets-hip-hop sensibility and a familiarity with the rapper 50 Cent, also known as Fiddy and famous for his album “Get Rich or Die Tryin’.”

“In the absence of published guidance from the government, I’m going with Fiddy,” says Shamik Trivedi, a 35-year-old senior manager at the Grant Thornton LLP accounting firm in Washington.

University of Michigan law and economics professor James R. Hines Jr. , 59 years old, puts himself staunchly in the Foedee camp. “Millennials,” he says. “What are you going to do?”

Others eschew both acronym pronunciations, says Catherine Schultz, vice president for tax policy at the National Foreign Trade Council: “Some people are saying, ‘I’m just going to say eff dee eye eye, because the other two sound silly.’ ”

The Fiddy-Foedee ferment is part of a broader struggle among tax professionals to come up with common names and terms for new provisions in last year’s tax overhaul.

The name of the tax law itself has tax experts doing linguistic gymnastics because it’s a mouthful, thanks to a last-minute squabble as Congress rushed to complete the legislation.

Democrats raised a procedural challenge and Republicans couldn’t muster the 60 votes needed to call it the Tax Cuts and Jobs Act, as they wanted. President Donald Trump’s choice, the Cut Cut Cut Act, was never really on the table.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on April 20, 2018

IRS Extends Tax Filing for One Day After Computer Problems

By Richard Rubin | Apr 18, 2018

TOPICS: IRS

SUMMARY: The IRS issued a one-day, penalty-free extension for tax filers after suffering an all-day computer breakdown on Tuesday that prevented taxpayers from filing returns electronically on the day 2017 payments were due.

CLASSROOM APPLICATION: The article may be used to discuss this current event in an individual income tax class.

QUESTIONS: 

 

1. (Introductory) What happened with Internal Revenue Service (IRS) computers on April 17, 2018?

 

2. (Introductory) What has the IRS done to resolve the issue?

 

3. (Advanced) The introductory paragraph states that the computer glitch occurred "on the day tax payments were due." Why do you think the author did not say "tax return filings" instead?

 

4. (Advanced) Identify and list the factors that led to the IRS glitch on April 17, 2018 as described in the article.

READ THE ARTICLE



 

Reviewed By: Judy Beckman, University of Rhode Island

 

"IRS Extends Tax Filing for One Day After Computer Problems." by Richard Rubin, The Wall Street Journal, April 18, 2018
https://www.wsj.com/articles/irs-experiencing-computer-problems-1523982788?mod=djem_jiewr_AC_domainid

Acting commissioner apologizes for inconvenience; agency says tax-filing systems now working again

WASHINGTON—The IRS issued a one-day, penalty-free extension for tax filers after suffering an all-day computer breakdown on Tuesday that prevented taxpayers from filing returns electronically on the day 2017 payments were due.

The Internal Revenue Service blamed the problem on a hardware error, and the glitch exposed the information-technology challenges that agency officials have been warning about for years. The systems were back up and running late Tuesday.

The IRS said taxpayers don’t need to do anything to receive the extra day. They now have until midnight Wednesday to file and pay their 2017 income taxes. They can also seek a routine six-month extension that is normally available. But for those people payments are still due in April.

“This is the busiest tax day of the year, and the IRS apologizes for the inconvenience this system issue caused for taxpayers,” said the agency’s acting commissioner, David Kautter. “The IRS appreciates everyone’s patience during this period. The extra time will help taxpayers affected by this situation.”

During Tuesday’s outage, the IRS said taxpayers should continue filing returns as usual. The agency was having difficulty receiving returns from tax preparers, including large companies such as TurboTax maker Intuit Inc. and H&R Block Inc., Mr. Kautter told House subcommittees on Tuesday.

Rep. Kevin Brady (R., Texas), chairman of the House Ways and Means Committee, said the agency’s problems show the need for the series of bipartisan bills that House members aim to pass this week, including one aimed at creating a strategic plan for IRS technology needs.

“Tax Day is always a frustrating day for hardworking Americans, and the IRS issues today certainly heighten that frustration for taxpayers,” Mr. Brady said. “It’s another reminder of the critical need to modernize the IRS and refocus them to become a ‘Taxpayer First’ agency.”

Earlier in the day, the committee’s top Democrat, Rep. Richard Neal of Massachusetts, called on the agency to ensure that taxpayers wouldn’t be penalized for the outage.

“Tax Day is already a stressful time for millions of Americans, even when everything goes right,” Mr. Neal said. “Given this news, I hope that the IRS will make accommodations so that every taxpayer attempting to file today has a fair shot to do so without penalty.”

TurboTax on Tuesday was still receiving returns and was holding them until the IRS is ready to accept them again, said Ashley McMahon, a company spokeswoman. H&R Block issued a similar statement.

Most Americans have already filed their 2017 income taxes, but millions do so as the deadline nears for filing or seeking an extension. Last year, the IRS received about five million returns on the final day of the filing season.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on April 20, 2018

 

", The Wall Street Journal, April
 

 

Continued in article

 




Humor for April 2018

The best jokes on Twitter about Zuck's congressional testimony ---
http://www.businessinsider.com/mark-zuckerberg-congressional-testimony-jokes-memes-2018-4
They aren't very good


Glen Gray forwarded this link to a video of two accountants arriving at the office in the morning.
http://www.youtube.com/watch?v=1efDVBDLDDw
The term "junior" in this case means workers who are not yet partners (probably 99.9% who will never be partners)
The funniest parts of the video are subtle, like the brown shoes and the argyle socks
Comedian Gobel on the Johnny Carson shoe had a quip about brown shoes
https://www.youtube.com/results?search_query=george+gobel+dean+martin+bob+hope+on+johnny+carson
When late-night television was funny if not politically correct

Gobel ribbed Carson about coming on last and having to follow major stars Hope and Martin. He quipped to Carson, "Did you ever get the feeling that the world was a tuxedo and you were a pair of brown shoes?", to which Carson, Hope, Martin, and the audience came unglued with laughter. After the laughter died down, ...

Ed Scribner forwarded this link to a school answering machine ---
https://youtu.be/Pwghabw4N80
See Snopes at
https://www.snopes.com/fact-check/high-school-confidential-2/


Watch the Queen make a joke about Trump’s helicopter — which makes Sir David Attenborough giggle ---
http://www.businessinsider.com/watch-queen-elizabeth-make-a-joke-about-trumps-helicopter-obama-buckingham-palace-2018-4


“I don’t know anything about any cocaine,” Posey said, according to a police report. “It’s a windy day. It must have flown through the (car) window and into my purse.” ---
http://kdvr.com/2018/04/08/florida-woman-blames-windy-day-for-cocaine-found-in-purse/


Forwarded by Paula

A Scotsman appeared before St. Peter at the Pearly Gates.

"Have you ever done anything in your life of particular merit?" St. Peter asked.

"Well, I can think of one thing," the Scotsman replied. "On a trip to the outskirts of Glasgow, I came upon a gang of bikers who were threatening a young woman. I asked them to leave her alone but they wouldn't listen. So, I approached the largest and most tattooed biker and smacked him in the face, kicked his bike over, ripped out his nose ring, and threw it on the ground. I yelled, 'Now, back off or I'll kick the s - - t out of all of you!'"

St. Peter was impressed, "When did this happen?"

"A couple of minutes ago."


From a Chronicle of Higher Education Newsletter on April 4, 2018

April Fools’ Day pranks on college campuses are something of a tale of two cities. On the one hand, student newspapers often publish joke issues full of insider humor, sketchy satire, and what someone thought was funny. The results are typically sophomoric at best, offensive at worst. On the other hand, faculty members and administrators pull off rare but exalted pranks that, largely because of who they are — serious scholars, officials fearing bad publicity, presidents aching to keep everyone happy — are memorable beyond others.

In 2012, for example, we reported that editors at two student papers had resigned after their parody issues offended many readers. By contrast, in 2015, a Biola University professor “delighted his students with an impressively choreographed — and exceedingly nerdy — piece of pedagogy.” In 2009 the College of Wooster's president responded to a spoof issue by announcing that the newspaper had started a free laundry service for use by anyone at the college. And one of the best pranks ever was the Johns Hopkins University’s announcement, in 2010, that it had corrected a longstanding typo by dropping the “s” in “Johns.”

Kids skip school for Cubs home opener, run into school-missing principal at ballpark ---
https://www.wpxi.com/news/hot-topics/kids-skip-school-for-cubs-home-opener-run-into-schoolmissing-principal-at-ballpark/731661697

Is this 1921 cartoon the first ever meme?
http://www.bbc.com/news/blogs-trending-43783521

Time Magazine:  Uranus Smells Terrible. There, We Said it ---
http://time.com/5252381/uranus-stinks-smell/?utm_source=time.com&utm_medium=email&utm_campaign=the-brief-pm&utm_content=2018042417pm&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_TBP_D67FCAE7-F3B7-4357-9082-476F8ACD8245%22%2c%22SUBID%22%3a%2284575328%22%2c%22JOBID%22%3a%22721066%22%2c%22NEWSLETTER%22%3a%22THE_BRIEF_PM%22%2c%22ZIP%22%3a%2235864237%22%2c%22COUNTRY%22%3a%22%22%7d


Forwarded by Paula

An Irish daughter had not been home for over three years.

Upon her return home, her father yelled at her, "Where have ye been all this time?

Why did ye not write to us? Not even a line! Why didn't ye call? Can ye not understand what ye put yer ol' mother thru?"

 

The girl, crying, replied, sniff....sniff.... "Dad, I was too embarrassed for I became a prostitute."

 

Ye what?!! Out of here, ye shameless hussy! Sinner! Ye're a disgrace to this Catholic family, so ye are."

 

"OK Daddy, as ye wish... I just came back to give Mommy this luxurious fur coat, a cheque for 2 million pounds and the title deed to an eight bedroom mansion. For me little brother Shamus, this solid gold Rolex.

And for ye, Daddy, the sparkling new limited edition convertible Mercedes parked out front plus a life membership to the Limerick Country Club."

 

She takes a deep breath and continues, "And an invitation for ye all to spend New Year's Eve on board me new yacht in the Caribbean."

 

"Now what was it ye said ye had become?" her father asked.

 

The girl, crying again, said, sniff...sniff... "A prostitute Daddy." sniff...sniff.

 

"Oh! Me goodness! Ye scared me half to death girl! I thought ye said ye had become a PROTESTANT! Come here and give yer ol' Dad a big hug"

 


Forwarded by Don

 

Grins and Snickers

I was in the six item express lane at the store quietly fuming.
Completely ignoring the sign, the woman ahead of me had slipped into the check-out line pushing a cart piled high with groceries. Imagine my delight when the cashier beckoned the woman to come forward looked into the cart and asked sweetly, "So which six items would you like to buy?"


Wouldn't it be great if that happened more often?


------------------------------ ------------------------------


Because they had no reservations at a busy restaurant, my elderly neighbor and his wife were told there would be a 45 minute wait for a table.
"Young man, we're both 90 years old," the husband said. "We may not have 45 minutes."
They were seated immediately.


------------------------------ ------------------------

The reason Politicians try so hard to get re-elected is that they would "hate" to have to make a living under the laws they have passed.


------------------------------ ------------------------


All eyes were on the radiant bride as her father escorted her down the aisle. They reached the altar and the waiting groom. The bride kissed her father and placed something in his hand.
The guests in the front pews responded with ripples of laughter. Even the priest smiled broadly.
As her father gave her away in marriage, the bride gave him back his credit card.


------------------------------ ------------------------


Women and cats will do as they please, and men and dogs should relax and get used to the idea.


------------------------------ -----------------------

Three friends from the local congregation were asked, "When you're in your casket, and friends and congregation members are mourning over you, what would you like them to say?"
Artie said, "I would like them to say I was a wonderful husband, a fine spiritual leader, and a great family man." 
Eugene commented, "I would like them to say I was a wonderful teacher and servant of God who made a huge difference in people's lives.." 
Al said, "I'd like them to say, 'Look, he's moving!'"


------------------------------ ------------------------------ 


Smith climbs to the top of  Mt.  Sinai to get close enough to talk to God.

Looking up, he asks the Lord.. "God, what does a million years mean to you?"
The Lord replies, "A minute."
Smith asks, "And what does a million dollars mean to you?"
The Lord replies, "A penny."
Smith asks, "Can I have a penny?"
The Lord replies, "In a minute."


------------------------------ -------------------


A man goes to a shrink and says, "Doctor, my wife is unfaithful to me. Every evening, she goes to Larry's bar and picks up men. In fact, she sleeps with anybody who asks her! I'm going crazy. What do you think I should do?"

"Relax," says the Doctor, "take a deep breath and calm down. Now, tell me, exactly where is Larry's bar?"


------------------------------ -------------------


John was on his deathbed and gasped pitifully, "Give me one last request, dear," he said.

"Of course, John," his wife said softly.
"Six months after I die," John said, "I want you to marry Bob."
"But I thought you hated Bob," she said..
With his last breath John said, "I do!"

------------------------------ --------


A man goes to see the Rabbi. '
"Rabbi, something terrible is happening and I have to talk to you about it."
The Rabbi asked, "What's wrong?"
The man replied, "My wife is going to poison me."
The Rabbi, very surprised by this, asks, "How can that be?"
The man then pleads, "I'm telling you, I'm certain she's going to poison me. What should I do?"
The Rabbi then offers, "Tell you what. Let me talk to her, I'll see what I can find out and I'll let you know."
A week later the Rabbi calls the man and says, "I spoke to your wife on the phone for three hours. You want my advice?
The man said, "Yes" and the Rabbi replied, "Take the poison."

 

 

 




Humor April 2018--- http://faculty.trinity.edu/rjensen/book18q1.htm#Humor0418.htm

Humor March 2018--- http://faculty.trinity.edu/rjensen/book18q1.htm#Humor0318.htm 

Humor February 2018--- http://faculty.trinity.edu/rjensen/book18q1.htm#Humor0218.htm

Humor January 2018--- http://faculty.trinity.edu/rjensen/book18q1.htm#Humor0118.htm 

Humor December 2017--- http://faculty.trinity.edu/rjensen/book17q4.htm#Humor1217.htm

Humor November 2017--- http://faculty.trinity.edu/rjensen/book17q4.htm#Humor1117.htm 

Humor October 2017--- http://faculty.trinity.edu/rjensen/book17q4.htm#Humor1017.htm

Humor September 2017--- http://faculty.trinity.edu/rjensen/book17q3.htm#Humor0917.htm

Humor August 2017--- http://faculty.trinity.edu/rjensen/book17q3.htm#Humor0817.htm

Humor July 2017--- http://faculty.trinity.edu/rjensen/book17q3.htm#Humor0717.htm

Humor June 2017 --- http://faculty.trinity.edu/rjensen/book17q3.htm#Humor0717.htm

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

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

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

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

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

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

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




And that's the way it was on April 30, 2018 with a little help from my friends.

 

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

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

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

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

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

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

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