New Bookmarks
Year 2018 Quarter 3:  July 1 - September 30 Additions to Bob Jensen's Bookmarks
Bob Jensen at Trinity University

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

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

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

574 Shields Against Validity Challenges in Plato's Cave ---
http://faculty.trinity.edu/rjensen/TheoryTAR.htm

Choose a Date Below for Additions to the Bookmarks File

 

2018

September

August

July

 

 

 

September 2018

Bob Jensen's New Additions to Bookmarks

September 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




Keeping Faculty Current in Emerging Business Topics ---
https://www.aacsb.edu/blog/2018/september/keeping-faculty-current-in-emerging-business-topics

Jensen Comment
Among departments and schools of accountancy, I would previously have recommended that every unit appoint one faculty member to liaison with the Commons of the AAA. But in recent years the virtual ignoring of the Commons by elected officials of the AAA has made the Commons a wasted expense of the AAA. I don't recommend doing away with the Commons. I recommend that each new President of the AAA make it a priority to restore use of the Commons by AAA members. Until this happens we cannot really look to the Commons for "Emerging Accounting Topics."

The best thing at the moment might be for each school or department of accounting to appoint a liaison subscriber to the AECM Listserv also funded by the AAA.
That liaison can then send email messages to local accounting faculty and students for AECM messages deemed of possible interest to faculty and students. Hopefully, liaison faculty will also become contributors to the AECM rather than merely lurkers. The quality of AECM messaging should become of concern to all subscribers. As an active contributor to the AECM I would like to become more of a lurker while new subscribers contribute more and more of "Emerging Accounting Topics" plus some of those interesting Off Topic topics that generate feedback on the AECM.
http://listserv.aaahq.org/cgi-bin/wa.exe?HOME

The Guardian:  Why are so many YouTubers finding themselves stressed, lonely and exhausted? ---
https://www.theguardian.com/technology/2018/sep/08/youtube-stars-burnout-fun-bleak-stressed

Jensen Comment
I hesitate to say that this is also a problem for bloggers, but most of the faculty bloggers in accountancy dropped out or greatly slowed down, including some of my favorites like The Grumpy Old Accountants, Accounting Education News, Accountinator, Accounting Cycle, Building Business Value, FraudBytes (nothing for nine months), MyEMBA, Pondering the Classroom, RandomThoughts (nothing in nine months), Really Engaging Accounting, Stephen Lynn's Blog, Stategic Management Accounting, Teaching Managerial Accounting, The Professor's Perspective, The Summa, The TaxDoc Spot, The Trite's E-Business Blog (Jerry still has a Zorba blog), The Accounting Coach, The XBRL Canada Blog, Thinking Outside the Box, Tic Marks, Análise de Balanço, Globaliconta, Ideias Contábeis, and Professor Lopes de Sá. The Accounting Onion is temporarily out of action, but it will probably return when Tom has fewer irons in the fire.

I suspect virtually every other academic discipline had short-lived blogs by faculty who burned out of blogging or ceased blogging for whatever reasons.

The AECM Listserv is a unique forum where accounting educators (and others) enter into debates as well as add news items. Many of the most active contributors, however, have dropped out such that there are many lurkers and only a few actives. I miss some of the former actives who liked to needle me and egg me on. I also miss some genuine experts who broadened my understanding of the world (like David Fordham) and some who were outrageous (like David Albrecht).

What is really disappointing to me is that I can't think of an accounting educator from a prestigious university who blogs. Accountics scientists rarely stick their heads out of the ground. If I'm missing somebody here please let me know! They sometimes contribute working papers to SSRN, but the SSRN has a wall preventing interactive exchanges with authors. It's like they don't want to be bothered by readers.

I really, really miss the Grumpy Old Accountants because they adopted the Abe Briloff (Barrons) style of criticizing published financial statements. I also miss Accounting Education News that kept me up to date on happenings on the other side of the pond.


British politician pledges to break up 'cartel' of big four accounting firms in radical overhaul ---
https://www.businessinsider.com/british-politician-pledges-to-break-up-cartel-of-big-four-accounting-firms-in-radical-overhaul-2018-9

How much does Deloitte depend upon auditing and assurance services revenues (even though most of us knew consulting brings in more revenue, we probably did not know how auditing/assurance stacks up against other revenue sources)?
What service revenues are second to consulting?

https://goingconcern.com/deloitte-2018-global-revenue/
Beware of revenue growth rates by global regions. There's a denominator effect when comparing growth rate of an infant versus growth rate of a teenager.


Things are looking up with this Excel function (vector analysis) ---
https://www.fm-magazine.com/news/2018/sep/excel-lookup-function-201819273.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=24Sep2018

Microsoft Excel: Including an '&' in headers and footers ---
https://www.journalofaccountancy.com/issues/2018/sep/excel-headers-ampersand.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=19Sep2018


Citation Cartels:  You Have to Play the Game in Order to Be In the Game--
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3242052


Office 2019 Arrived:  Here's why you probably won't care ---
https://www.howtogeek.com/367311/office-2019-is-rolling-out-in-the-next-few-weeks-heres-why-you-probably-wont-care/


The Uneasy History Of Experiential Education in U.S. Law Schools ---
http://taxprof.typepad.com/taxprof_blog/2018/09/the-uneasy-history-of-experiential-education-in-us-law-schools.html

Jensen Comment
There are many important things about experiential learning apart from learning content. For example, when the academic requirement to sit for the CPA exam was increased to 150 credits many students would've ceased majoring in accounting if the largest CPA firms and many other companies had not added a modest (often only six week) internship option to lure students back into the fold. Students in general really are attracted to internships. For some it's their first exposure to the professional world of working. These internships contribute a small amount to cover the cost of an extra year or more in college.

I worked part-time for Ernst & Ernst in Denver (now Ernst & Young)  three years while earning BS and MBA degrees. Although I'd also worked various jobs over eight years before that (as well as farm work as a small child) my E&E job was the first time I wore a white shirt and tie to work under what was then E&E's very strict dress and professional behavior code.

One huge problem with experiential learning is that the learning content can be highly variable and hard to control in a curriculum plan. Most colleges insist that internships be more than low-level (think clerical) activities. But that's not saying much about a curriculum plan. Some universities require that student write papers about their experiences. But it's almost impossible to evaluate those feedbacks for grading purposes.

Extensive experiential learning can really cut into hoped for content in a curriculum plan. It's really, really hard to obtain consistency over what different students learn in different assignments. And in many, many instances students can't be blamed when the learning component of their "jobs" falls apart for reasons beyond their control.


A record $6.2 billion settlement won’t be enough to end Visa and Mastercard’s long-running feud with the U.S.’s biggest retailers ---
https://www.bloomberg.com/news/articles/2018-09-18/visa-mastercard-reach-6-2-billion-settlement-over-swipe-fees
There’s a separate class of merchants fighting for changes to Visa and Mastercard’s business practices.


States’ deregulatory push threatens CPA licensure ---
https://www.journalofaccountancy.com/news/2018/sep/deregulatory-push-threatens-cpa-licensure-201819465.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=10Sep2018


Enormous amounts of food are wasted during manufacturing – here's where it occur
https://phys.org/news/2018-09-enormous-amounts-food.html

Jensen Comment
This may be a cost that accountants are ignoring by looking at llocated incurred costs rather than opportunity values.


Many students aren't aware of the variety of opportunities that come with an accounting degree and a CPA credential ---
http://blog.aicpa.org/2018/09/schools-in-inspiring-the-next-generation-of-cpas.html#sthash.6W4HzqqO.dpbs


CPA Journal:  Mixing Old and New Teaching Methods to Get Better Student Results ---
https://www.cpajournal.com/2018/09/14/mixing-old-and-new-teaching-methods-to-get-better-student-results/


Print Edition of The Economist for slightly less $1 Per Issue (weekly issues)

Message from an AECM subscriber (Professor Ethan Kinory at Rutgers)

I've maintained a subscription to The Economist for over 4 years using Discountmags.com, and I've always managed to renew at $51!
https://www.discountmags.com/magazine/the-economist?offer=ETSPECIAL

One potential deal breaker is that this is a print-only subscription. I hope members enjoy this deal! It is a small contribution to a fantastic forum.

Ethan

Jensen Comment
This is a much better deal that what I can find on Amazon. I currently pay much more for the print edition and electronic access.
You might want to look for other good deals as well from Discountmags.com

This might make an interesting case study of pricing decisions in a cost/managerial accounting course. I doubt that with mailing expenses the $1 per issue contributes much, if anything, to recovery of expenses of printing each issue. Where is the publisher recovering fixed costs in this instance? Why is the publisher selling print issues so cheap to discount seeking customers? This may be CPV analysis in the extreme. I could see this happening with high-volume magazines, but The Economist is not Sports Illustrated.

Some large city newspaper publishers have dropped print editions. I recently read that Philadelphia no longer has printed daily newspapers. The daily editions are now only available online.


Stanford University:  A study finds that companies have come up with a new variant on backdating stock options to reap windfall profits--
Click Here


A Comprehensive Approach To Law School Access Admissions ---
http://taxprof.typepad.com/taxprof_blog/2018/08/a-comprehensive-approach-to-law-school-access-admissions.html

Shameful: Lack of Diversity in the CPA Profession ---
https://cpatrendlines.com/2010/03/02/shameful-lack-of-diversity-in-the-cpa-profession/

Jensen Comment
Statistics on diversity in the "CPA Profession" can be very misleading. Firstly, the "CPA Profession" is only a part, not even a majority part, of the total accounting profession. Passing the CPA examination and obtaining the experience requirements to become a CPA are not required for many, many types of accounting jobs. Accounting careers are highly varied in both the public and private sectors. Secondly, those minority college graduates who do become CPAs face tremendous opportunities to leave the public accounting profession. Sometimes clients will offer almost whatever it takes to lure minority CPA's away from the CPA firms.

My point here is that there should not be a knee-jerk reaction that the enormous shortage of minority partners in CPA firms is ipso facto evidence of negative prejudice. Firstly, very few CPA firm recruits (white and minority) ever expect or even want to become CPA firm partners. Many of those recruits start out in CPA firms for the training, experience, and the fact that it's often easier to land the first job in a CPA firm for whites and minorities provided they have good grades. Many, however, cannot or otherwise do not pass the CPA examination. Others pass the CPA examination but really never want to become partners due the many negatives about becoming a CPA firm partner, including lots of out-of-town travel, expectations of bringing in new clients and keeping existing clients happy, stress of job performance such as missing something really important in an client's audit or a client's tax return or a client's accounting system.

Retaining African Americans in the Accounting Profession---
https://4f2bur4nuye2cgakm2rm61qk-wpengine.netdna-ssl.com/wp-content/uploads/2010/03/Howard-U-Retaining-African-Americans-In-Accounting-Profession.pdf  ---


Insider Trading’s Odd Couple: The Goldman Banker and the NFL Linebacker ---
https://www.bloomberg.com/news/features/2018-09-28/insider-trading-s-odd-couple-the-goldman-banker-and-the-nfl-linebacker?mbid=nl_hps_5bae9ed7e5ae6a094d00191c&CNDID=31837029

How to Avoid Becoming a Scam Victim ---
https://www.journalofaccountancy.com/issues/2018/sep/avoid-becoming-a-scam-victim.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=27Sep2018

Those Phony IRS Scams Threatening to Put You in Jail
New technologies aided a massive phone scam, but investigators turned the tables on the scheme, which allegedly caused ‘hundreds of millions of dollars’ in taxpayer losses ---
https://www.journalofaccountancy.com/issues/2018/sep/tigta-irs-impersonation-scam.html?utm_source=mnl:globalcpa&utm_medium=email&utm_campaign=12Sep2018

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


The Federal Reserve has increased interest rates by a quarter-point to a target range of 2% to 2.25%, marking the third increase this year ---
https://www.bloombergquint.com/global-economics/fed-raises-rates-and-says-more-coming-brushing-off-trump-jabs

Mortgage rates rose to their highest levels in seven years ---
https://www.bloomberg.com/news/articles/2018-09-27/u-s-mortgage-rates-rise-to-the-highest-in-more-than-seven-years?cmpid=BBD092718_BIZ&utm_medium=email&utm_source=newsletter&utm_term=180927&utm_campaign=bloombergdaily


Report: New York sitting on a debt bomb ---
https://www.statedatalab.org/news/detail/report-new-york-sitting-on-a-debt-bomb


The CEO of Denmark's biggest bank is out after a $235 billion money laundering scandal ---
https://www.businessinsider.com/danske-bank-ceo-resigns-estonian-money-laundering-scandal-2018-9


Tax Court: Payment on Ex-Spouse’s Student Debt is Alimony ---
https://www.accountingweb.com/tax/individuals/tax-court-payment-on-ex-spouses-student-debt-is-alimony?source=ei092618

Jensen Comment
That's consistent with taxing student debt payments by employers as compensation --- something that's increasingly common in this labor-shortage economy.


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

Power of Attorney --- https://en.wikipedia.org/wiki/Power_of_attorney

Why You Should Pick the Executor of Your Will Carefully — Part Two ---
https://www.accountingweb.com/tax/individuals/why-you-should-pick-the-executor-of-your-will-carefully-part-two?source=ei092618

Jensen Comment
Actually I think it's much, much more important to be careful choosing the law firm handling the estate. It's quite common for the law firm handling the estate be the same one as the firm that made out the will. But there are exceptions where the will was made out in a state different from the state of residence at the time of death. It's easier in most cases to have a new will made out for people that move out of state. 

When my father died five years after the death of my mother the law firm took care of almost everything for both estates, including filing the income taxes for the estates. As the only child and executor of my dad's will my job was almost entirely clerical --- that of paying bills of the estate. The law firm gave me great instructions on how to handle everything. When there are multiple heirs, choosing the executor becomes more important because there's some opportunity for fraud and error, as is usually the case for anyone hold a power of attorney. My job was a bit easier since I was the only heir and my parents both lived their entire lives in Iowa. 

Several years after I sold the Iowa farm that I inherited the Iowa Department of Revenue sent me a somewhat threatening letter challenging me on how the farm was valued at the time of death for tax purposes. However, when I told them who the Iowa law firm was that handled the estate valuation and tax returns it put an end to all questions about the valuation and tax filings. That law firm apparently had a wonderful (or perhaps scary) reputation with the tax authorities.


NBA star Zaza Pachulia's former Wisconsin accountant charged with tax fraud ---
https://www.jsonline.com/story/news/crime/2018/08/27/nba-star-zaza-pachulias-wisconsin-accountant-charged-tax-fraud/1087592002/

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


Who says that public sector accounting is more transparent than private sector accounting?
Why is public employee disability claim data being kept secret? ---

https://www.statedatalab.org/news/detail/why-is-public-employee-disability-claim-data-being-kept-secret


GASB clarifies majority equity interest reporting rules ---
https://www.journalofaccountancy.com/news/2018/sep/gasb-reporting-rules-majority-equity-interest-201819637.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=05Sep2018


Tesla's chief accountant quits after one month on the job ---
https://markets.businessinsider.com/news/stocks/tesla-stock-price-chief-accountant-resigns-2018-9-1027517271

Jensen Comment
W'e'll probably never know if he found some of the buried bodies.


NYT:  The Empty Storefronts of New York ---
https://www.nytimes.com/interactive/2018/09/06/nyregion/nyc-storefront-vacancy.html


Illinois is better off bankrupt ---
https://www.statedatalab.org/news/detail/illinois-is-better-off-bankrupt-3


The Atlantic:  New Trade Deal Shows How Trump Is Getting His Way ---
https://www.theatlantic.com/international/archive/2018/10/trump-nafta-canada/571795/

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

Good day. Executives at companies operating in Canada under the rules of the North American Free Trade Agreement can breathe a sigh of relief. The U.S. and Canada reached a dramatic, last-minute deal on Sunday to revise the trade pact, The Wall Street Journal reports.

At last, a deal: The pending agreement will allow Canada to join an accord reached in late August between the U.S. and Mexico and diminishes the prospects for President Trump to follow through on his threats either to kill Nafta outright or to break the trilateral pact into separate pieces.

 

Nafta 2.0: The new accord, to be officially called the U.S.-Mexico-Canada Agreement makes significant changes to the rulebook that has governed continental commerce since 1994. The biggest impact is expected to be on the region’s largest industry, autos, requiring a greater portion of vehicles to be made in North America and with high-wage labor in the U.S. and Canada.

 

A new set of rules: The new deal for the first time sets rules for financial-services and digital businesses that have emerged since the bloc was created, aimed at pleasing sectors from drugmakers to Wall Street.

 

Jensen Comment
I hope the politically warring does not come along intent on destroying the accord for political gains.

 


Tesla shares are getting clobbered after the SEC sues Elon Musk (TSLA) ---
https://markets.businessinsider.com/news/stocks/tesla-stock-price-elon-musk-sued-by-the-sec-2018-9-1027574392

From the CFO Journal's Morning Ledger on September 27, 2018

Good day. The U.S. Securities and Exchange Commission sued Tesla Inc. Chief Executive Elon Musk for securities fraud and sought to remove him from the company over allegedly false and misleading tweets. The move highlights the risks companies face in an era of informal, immediate social media discourse.

Critical words: The SEC's complaint lays out Mr. Musk's discussions with representatives of a sovereign investment fund that precipitated the tweets. The complaint identified four critical statements the SEC says are false.

“The most significant of these is just the two-word sentence fragment ‘funding secured’,” Harvey Pitt, a former SEC chairman, told CFO Journal's Tatyana Shumsky. “When you say funding is secured that means whatever the agreement is, you have the right to call upon the financing that you've arranged.”

Not everything goes: The SEC’s complaint also alleges that Mr. Musk did not follow the procedures and due diligence expected of companies prior to making a big announcement. It is unclear whether Mr. Musk canvassed investors for their support of the deal or sought the approval of Tesla's independent directors, said Mr. Pitt. Mr. Musk called the suit unjustified.

“You can’t just say, 'We're going to offer everybody $420 a share and it's all done except for the shareholder vote,' " said Mr. Pitt, who is CEO and managing director of Kalorama Partners LLC. "That is not the way the real world works.” 

Elon Musk settles fraud charges with SEC for infamous 'funding secured' tweet, must step down as Tesla chairman and pay $20 million fine (plus another $20 million for the company) ---
https://www.businessinsider.com/teslas-elon-musk-settles-with-sec-must-step-down-as-chairman-2018-9

Jensen Editorial
I don't think there's any serious analyst that seriously believes Elon Musk was intent on turning Tesla over to oil-producing Saudi Arabia. Any serious analyst must realize that Musk intended only to manipulate Tesla's stock prices for the purpose of punishing short sellers. Such CEO manipulation of his or her company's share prices is clearly illegal, and there's no reason Musk should not have been punished like any other CEO. The irony is that after the SEC lawsuit short sellers made billions.

It's a little like the recent Yankees pitcher CC Sabathia being ejected from game, two innings shy of $500G bonus. No serious baseball analyst seriously denies that Sabathia intentially struck the batter with a 90+ mile an hour fast ball. In fact Sabathia later confessed that it was on purpose ---
https://www.foxnews.com/sports/yankees-pitcher-cc-sabathia-ejected-from-game-two-innings-shy-of-500g-bonus
I doubt that Elon Musk will ever confess to intentionally manipulating Tesla stock prices, but it's a wink wink denial that seemingly cost him plenty but was small change to this billionaire. It may hurt to lose the chairmanship of the Tesla board. But Musk is still the all-important CEO of Tesla and his other corporations.


The CPA Journal:  The 2018 Guidance for Goodwill Impairment ---
https://www.cpajournal.com/2018/09/26/the-new-guidance-for-goodwill-impairment/

 

KPMG’s “Unusual Twist”
While KPMG's strategy isn't uncommon among corporations with lots of units in different states, the accounting firm offered an unusual twist: Under KPMG's direction, WorldCom treated "foresight of top management" as an intangible asset akin to patents or trademarks.
 

See  http://faculty.trinity.edu/rjensen/FraudEnron.htm#WorldcomFraud

Bob Jensen's threads on goodwill and other asset impairment issues ---
http://faculty.trinity.edu/rjensen/theory02.htm#Impairment


CPA Journal:  A Positive Look at Accounting Education ---
https://www.cpajournal.com/2018/09/20/icymi-a-positive-look-at-accounting-education/

Academic Accounting (Accountics) Research:  A Negative Look at Accounting Research (What Went Wrong?) ---
http://faculty.trinity.edu/rjensen/theory01.htm#WhatWentWrong

 


Kleiman: Low-End Regressivity ---
http://taxprof.typepad.com/taxprof_blog/2018/09/kleiman-.html


Engler: Goodwill Hunting Gone Bad — Tax Law's Outmoded Treatment Of Goodwill
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3051265

Goodwill reflects the positive consumer association with a business. Goodwill thus overlaps with trademarks and other related assets. This close association impedes the separation of goodwill value from such related assets. Difficulties thus arise when the tax law treats goodwill more (or less) favorably than related intangible assets.

For instance, the tax law previously denied any depreciation deductions for goodwill. Business buyers thus often allocated their costs away from goodwill and towards related assets like depreciable customer lists. The IRS responded with the initial “goodwill hunting” wave, challenging taxpayers’ low goodwill valuations. Congress addressed this litigious area in 1993 with new, matching depreciation rules for purchased goodwill and related intangible assets.

But the goodwill hunting problem remains, albeit with reversed roles, due to other provisions which treat goodwill more favorably than other intangibles. Taxpayers now overstate goodwill with the government in defense against this second goodwill hunting wave. For instance, U.S. corporations inflate goodwill on transfers to foreign subsidiaries given a special gain avoidance rule on such transfers for goodwill. While recent regulations have lessened these particular attempts, the Treasury Department’s limited authority prevented a full response for these subsidiary transfers. In addition, similar inconsistent tax rules incentivize high goodwill claims by taxpayers to obtain either more favorable capital gains rates or better foreign tax credit usage.

This Article proposes four precise fixes to counteract these negative goodwill manipulations. These changes efficiently draw upon existing tax provisions. Such utilization of tried and tested provisions counteracts the status quo bias against untested reform proposals. These four changes together forge a common theme: the pressing need for a more uniform tax treatment of goodwill and other closely-related intangibles. With these changes, Congress would restore the positive association of goodwill back to the tax law.

Continued in article

Tax:  Recent Developments in Individual Taxation ---
https://www.thetaxadviser.com/issues/2018/sep/recent-developments-individual-taxation.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=11Sep2018


Amazon plants fake packages in delivery trucks as part of an undercover ploy to 'trap' drivers stealing ---
https://www.businessinsider.com/amazon-sets-traps-for-drivers-2018-9


GOP Tax Law Properly Taxes Churches On Free Parking/Mass Transit Provided To Their Employees ---
http://taxprof.typepad.com/taxprof_blog/2018/09/zelinsky-gop-tax-law-properly-taxes-churches-on-free-parkingmass-transit-provided-to-their-employees.html

Jensen Comment
This can also hit colleges that provide free campus parking to employees. However, I assume that the "worth" of free employee parking is taxable. If surrounding businesses also provide free parking to employees and the public at large the financial worth is fairly low.

Also subsidies must be considered. If a college in a highly congested area provides employee parking for $100 per year the "worth" of that parking may be much higher than $100 per year. At the same time free parking at our local church in these mountains is virtually zero since nearby public parking is always available and always free. There's only one store in Sugar Hill and it only has two part-time employees.

There's also a question of whether to tax a store owner? If the store employees are taxed for free parking should the owner also be taxed even when she's parking on her own land? Also is there a residency exemption if the owner lives above the store?

Worth can be difficult to measure. Our favorite hotel (a Holiday Inn) near the Harvard Medical School charges $15 per day for parking (at least that was the charge when we stayed there some years back). At the same time the Marriott Hotel a few blocks away charged $35 per day. I think employees at both hotels were given free parking (I don't now if there were free mass transit benefits). Presumably employees of both hotels would now be taxed for free parking, but would Marriott Employees be taxed more than Holiday Inn employees?


The Wall Street Journal Ranks the Top USA Colleges ---
https://www.wsj.com/news/collection/college-rankings-2019-714fd054?mod=djcm_engmt_cr19_em&mi_u=711942031

Jensen Comment
Years ago the WSJ differed from other media outlets that ranked colleges by focusing more on opinions of recruiters that hired graduates. Recruiters sometimes sought out the "best buys" in the sense of finding respected colleges whose graduates were somewhat easier to hire with somewhat lesser deals than it takes to get a Harvard MBA graduate. This appears to no longer be the case, although the WSJ is somewhat vague about what sets its rankings apart.  It appears that "value for the money" is a major criterion. This leads to some bias toward state-supported universities, but not entirely with Harvard and Stanford in the Top 10 in terms of Value for the Money. The small Barea College (Christian in heritage)  takes top honors on this criterion --- where students work to get free tuition, room, and board to supplement their scholarships. The accounting program appears to be unique in that, with four-credit courses, students can complete the program in virtually eight semesters. Most universities have three credit courses and take five or more years to complete the 150-credit requirement to sit for the CPA exam ---
http://catalog.berea.edu/en/Current/Catalog/Departments-of-Study/Economics-and-Business/Public-Accounting-Option


Governments Default on Debt More than You Think ---
https://mises.org/wire/governments-default-debt-more-you-think


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

US Navy Launches Blockchain Research in Mission to Improve Tracking System (for lifetime of each major part) ---
https://www.coindesk.com/us-navy-launches-blockchain-research-in-mission-to-improve-tracking-system/

Lawmaker plans 3 bills on blockchain development ---
https://bitcoinmagazine.com/articles/us-congressman-drafts-blockchain-development-bills/

The required step before AI and blockchain ---
https://www.journalofaccountancy.com/newsletters/2018/sep/required-step-ai-blockchain.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=20Sep2018

How financial institutions are using distributed ledgers & blockchain technology to transform businesses in 2018 ---
https://www.businessinsider.com/beyond-bitcoin-report-2018-3

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

Bitcoin, the Regression Theorem, and the Emergence of a New Medium of Exchange ---
https://mises.org/library/bitcoin-regression-theorem-and-emergence-new-medium-exchange

Jim Borden:  I Don’t Get Bitcoin – but This Video Explains It Really Well ---
https://www.jborden.com/i-dont-get-bitcoin-but-this-video-explains-it-really-well/

CPAs’ top 5 questions about blockchain, cryptocurrencies ---
https://www.journalofaccountancy.com/newsletters/2018/jul/5-questions-blockchain-cryptocurrencies.html?utm_source=mnl:globalcpa&utm_medium=email&utm_campaign=26Sep2018

What Will Cryptocurrency Be Like in 10 Years? ---

https://readwrite.com/2018/09/18/what-will-cryptocurrency-be-like-in-10-years/

A glimpse into the dark underbelly of cryptocurrency markets ---
https://medium.com/@nic__carter/a-glimpse-into-the-dark-underbelly-of-cryptocurrency-markets-d1690b761eaf



Blockchain Implications for Tax (expensive AICPA Webcast) ---
https://www.aicpastore.com/Tax/blockchain-implications-for-tax/PRDOVR~PC-WC1820339/PC-WC1820339.jsp?utm_source=mnl:cpald&utm_medium=email&utm_campaign=20Sep2018

Risks and returns of cryptocurrencies ---

https://voxeu.org/article/risks-and-returns-cryptocurrencies

Blockchain and Bitcoins – Notes From the Sidelines
http://www.jamesrpeterson.com/home/2018/09/blockchain-and-bitcoins-notes-from-the-sidelines.html

The US SEC has suspended two trading products, one Bitcoin-related and the other Ethereum-related, that are listed as exchange-traded funds (ETFs) on the Stockholm Stock Exchange ---
https://www.cnbc.com/2018/09/10/sec-suspends-trading-in-cryptocurrency-products-over-etf-confusion.html?utm_source=MIT+Technology+Review&utm_campaign=7d7b27327d-EMAIL_CAMPAIGN_2018_02_27_COPY_01&utm_medium=email&utm_term=0_997ed6f472-7d7b27327d-153727301

Hackers are illegally generating Monero, Bitcoin and other cryptocurrencies by exploiting a software flaw that was leaked from the U.S. government ---
https://www.bloomberg.com/news/articles/2018-09-19/hackers-target-bitcoin-with-leaked-nsa-software-tip-report-says?cmpid=BBD091918_BIZ&utm_medium=email&utm_source=newsletter&utm_term=180919&utm_campaign=bloombergdaily

The Great Cryptocurrency Crash of 2018 ---
https://mises.org/power-market/great-cryptocurrency-crash-2018


Which numerical computing language is best: Julia, MATLAB, Python or R?
https://voxeu.org/content/which-numerical-computing-language-best-julia-matlab-python-or-r


Secular Stagnation Theory --- https://en.wikipedia.org/wiki/Secular_stagnation_theory

Don’t Get Into a Knife Fight with Larry Summers ---
https://marginalrevolution.com/marginalrevolution/2018/09/dont-get-knife-fight-larry-summers.html
Larry Summers is not happy with Joseph Stiglitz’s piece The Myth of Secular Stagnation


NYT:  EU Ends Inquiry Into Luxembourg’s Tax Deal With McDonald’s ---
http://taxprof.typepad.com/taxprof_blog/2018/09/ny-times-eu-union-ends-inquiry-into-luxembourgs-tax-deal-with-mcdonalds.html


CPA Journal:  Practical Illustrations of the New Leasing Standard for Lessees ---
https://www.cpajournal.com/2018/09/06/icymi-practical-illustrations-of-the-new-leasing-standard-for-lessees/


Universal Savings Accounts a Silver Lining in GOP Tax Reform ---
http://reason.com/archives/2018/09/13/universal-savings-accounts-a-silver-lini


France:  Who paid the 75% tax on millionaires?
http://taxprof.typepad.com/taxprof_blog/2018/09/guillot-presents-who-paid-the-75-tax-on-millionaires-today-at-uc-berkeley.html


MAAW's Blog:  Table of Contents Updates for Abacus, Accounting Horizons, and Accounting Organizations and Society 2018 ---
http://maaw.blogspot.com/2018/09/updates-for-abacus-accounting-horizons.html
Jensen Content
MAAW provides this service for most academic accounting journals and other journals. It's a tremendous service.


The proportion of incoming cellphone calls placed by scammers could leap to 45% by early next year from 29% this year ---
https://madmikesamerica.com/2018/09/report-almost-half-of-us-cell-phone-calls-will-be-scams-by-next-year/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+madmikesamerica%2FYhiN+%28madmikesamerica%29


As public company auditors prepare to deliver new information in auditors’ reports, firms need to develop consistent processes for determining what should be disclosed.---
https://www.journalofaccountancy.com/issues/2018/oct/critical-audit-matters-reporting.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=02Oct2018


Sears' CEO is making a last-ditch effort to avoid bankruptcy ---
https://www.businessinsider.com/sears-ceo-proposes-restructuring-to-avoid-bankruptcy-2018-9

Jensen Comment
Of course bankruptcy does not necessarily end operations. Much depends upon what sustainability debt relief can bring.


Sweden to Finland:  A Mega Bank Just Joined the Euro Zone; It's Too Big to Fail ---
https://www.bloomberg.com/news/articles/2018-09-30/a-mega-bank-just-joined-the-euro-zone-and-it-s-too-big-to-fail
Jensen Comment
How can a move from Sweden to Finland or England to Holland mean so much more than a move from Connecticut to Massachusetts?
Let me count the ways!


How Puerto Rico Became The Newest (Legal) Tax Haven For The Super Rich ---
http://taxprof.typepad.com/taxprof_blog/2018/09/how-puerto-rico-became-the-newest-tax-haven-for-the-super-rich.html

Apart from the super rich, why does the pharmaceutical industry in Puerto Rico encompasses more than half of all manufacturing done in Puerto Rico? ---
https://en.wikipedia.org/wiki/Pharmaceutical_industry_in_Puerto_Rico


SU 2016-14:  SPECIAL REPORT Major Changes for Nonprofit Organizations Just Around the Corner ---
https://mail.google.com/mail/u/0/#inbox/FMfcgxvzKksLSHXCGdVHcbRHfpsQqLCP


What Makes The Night Watch Rembrandt’s Masterpiece? (relating this to accountancy is a bit of a stretch)
http://www.openculture.com/2018/10/makes-night-watch-rembrandts-masterpiece.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+OpenCulture+%28Open+Culture%29

Jensen Comment
The above tidbit has nothing to do with accountancy per se. But it does bring to mind, for me at least, those very notable changes in financial reporting systems since the 1940s era of Paton and Littleton's historical cost reporting. For example, there were controversial precursors of exit value reporting, most notably MacNeal's Truth in Accounting book in 1939. This is not what I have in mind for the "Night Watch" NW analogy. But what I do have in mind is the FAS 115 standard that eventually required exit value reporting for marketable securities in financial reporting --- a significant departure from historical cost reporting. Then there's John Canning's 1929 thesis Economics of Accountancy that was a precursor to FAS 33 on current (replacement cost) accountancy. The NW analogy is FAS 33 that set current cost accounting into motion (at least for about five years before being abandoned). It's not that FAS 33 and FAS 115 were "masterpieces." But they set significant things into motion much like Rembrandt's Night Watch.

There are various other examples of NW motion setting such as FAS 106, FAS 123R, FAS 133,  and other illustrations that weren't exactly complete paradigm shifts but were happenings that set important things into motion for financial reporting to date. The test of a NW analogy is that the change results in significant differences in financial reporting numbers and financial decisions of companies (although FAS 33 did not impact such decisions like some of the other NW analogies like FAS 106, FAS 123R, and FAS 133).


 

EY:  SEC Comments and trends publications and webcast ---
https://www.ey.com/Publication/vwLUAssetsAL/SECCommentsTrends_04321-181US_24September2018/$FILE/SECCommentsTrends_04321-181US_24September2018.pdf

 Our 2018 SEC Comments and Trends – An analysis of current reporting issues publication and its companion SEC Reporting Update publication, 2018 trends in SEC comment letters, explain what the staff of the Securities and Exchange Commission (SEC) is focusing on in its comments. The publications also provide best practices for responding to comment letters and will help you plan for the year-end reporting season.

 

In our SEC Comments and Trends publication, we discuss in detail the SEC staff’s focus areas in its reviews of public filings during the year ended 30 June 2018. Our publication notes the ongoing decline in the number of comment letters issued by the SEC staff and identifies the top comment areas by industry.

 

Our SEC Reporting Update publication points out areas of focus of comment letters issued to early adopters of the new revenue standard, which may indicate areas the SEC staff will focus on when reviewing filings by the much larger population of registrants that adopted the standard in 2018. It also highlights areas the SEC staff may focus on next, such as disclosures about cybersecurity and how companies will be affected by new accounting standards on leases and credit impairment, and their completion of accounting for the effects of income tax reform.

EY:  How the new leases standard affects engineering and construction entities ---
https://www.ey.com/Publication/vwLUAssetsAL/TechnicalLine_04349-181US_ECLeases_20September2018/$FILE/TechnicalLine_04349-181US_ECLeases_20September2018.pdf

EY:  New SEC interim reporting requirement to reconcile changes in stockholders’ equity ---
https://www.sec.gov/rules/final/2018/33-10532.pdf

Registrants will have to consider whether they will need to expand their disclosures to comply with the SEC’s Disclosure Update and Simplification release (DUSTR) adopted in August. While most of the amendments eliminate outdated or duplicative disclosure requirements, the final rule amends the interim financial statement requirements to require a reconciliation of changes in stockholders’ equity in the notes or as a separate statement. This analysis should reconcile the beginning balance to the ending balance of each caption in stockholders’ equity for each period for which an income statement is required to be filed and comply with the remaining content requirements of Rule 3-04 of Regulation S-X. As a result, registrants will have to provide the reconciliation for both the year-to-date and quarterly periods and comparable periods in Form 10-Q but only for the year-to-date periods in registration statements.

 

The rule does not prescribe the format of the presentation as long as the appropriate periods are provided. Examples of presentations that would be acceptable include:

 

A single statement/presentation that reconciles the components and total of shareholders’ equity from the prior year-end to the balances/subtotals at the end of the first quarter and continuing the reconciliation to the balances/subtotals at the end of each succeeding quarter with comparative reconciliations for the prior year periods

 

One statement/presentation that reconciles those components and the total for both the year-to-date period and comparable prior year period and a second statement/presentation that reconciles the beginning and ending balances/subtotals for both the quarterly period and comparable period

 

DUSTR will be effective 30 days after it is published in the Federal Register. If the rule is published in the Federal Register more than 30 days before the due date of the 30 September Form 10-Q, it is possible that the reconciliation could be required in those financial statements. The SEC staff is expected to clarify whether the effective date is based upon the filing date or balance sheet date (in which case it would not be effective for calendar year-end third quarters).

EY:  Comment letter on the PCAOB Draft Strategic Plan for 2018-2022

. . .

General views on the Draft Plan

We commend the Board’s forward-looking approach in the Draft Plan as we all grapple with the fastmoving business environment and technological disruption. Adjusting to the dynamic environment is critical for the PCAOB, the profession and all of the PCAOB’s stakeholders. The pace and nature of change and auditors’ increasing ability to review and utilize significant amounts of data present new risks as well as tremendous opportunities to enhance the value of the audit to investors and others.

The PCAOB’s Draft Plan outlines important and sensible goals and objectives that we believe will focus PCAOB actions on promoting higher levels of audit quality and protecting investors in today’s fluid environment. The plan identifies several important risks to audit oversight and also recognizes the extensive opportunities for the PCAOB and its various stakeholders — including firms, audit committees, preparers, investors and academics — to work together to advance audit quality and investor protection.

We have identified certain areas of the Draft Plan that we believe merit further discussion, given their importance to audit quality and effective oversight. Below, we provide some additional comments and suggestions for the Board’s consideration in three areas: evolution of PCAOB reporting to drive audit quality improvements; meeting the challenge of the evolving technological landscape; and stakeholder engagement and communication. We also refer the Board to the comment letter on the Draft Plan from the Center for Audit Quality (CAQ), which identifies additional areas for consideration. We look forward to engaging with the PCAOB along with other stakeholders to advance the implementation of the Strategic Plan.

Evolution of PCAOB reporting to drive audit quality improvements

We welcome the PCAOB’s objective of reporting on inspection activities to “provide more timely and relevant feedback,”3 as we believe the PCAOB has the opportunity to advance audit quality through its publicly issued reports on inspection findings. We agree that enhanced reporting could help firms prevent and remediate deficiencies. We believe it also should give other consumers of the reports information that can be more readily understood and used. Today, most of what is reported is

Continued in article


EY:  FASB issues guidance on accounting for implementation costs in cloud computing arrangements ---
https://www.ey.com/Publication/vwLUAssetsAL/TechnicalLine_04271-181US_CloudComputing_6September2018/$FILE/TechnicalLine_04271-181US_CloudComputing_6September2018.pdf

What you need to know 

 • The FASB issued new guidance requiring a customer in a cloud computing arrangement (i.e., hosting arrangement) that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets or expense as incurred. This may be a change in practice for some entities.

• Capitalized implementation costs related to a hosting arrangement that is a service contract will be amortized over the term of the hosting arrangement, beginning when the module or component of the hosting arrangement is ready for its intended use.

• The guidance is effective for calendar-year public business entities in 2020. For all other calendar-year entities, it is effective for annual periods beginning in 2021 and interim periods in 2022. Early adoption is permitted.

 

Overview
The Financial Accounting Standards Board (FASB or Board) issued final guidance1 requiring a customer in a cloud computing arrangement that is a service contract to follow the internaluse software guidance in Accounting Standards Codification (ASC) 350-402 to determine which implementation costs to capitalize as assets. The Board said its intent was to reduce potential diversity in practice in accounting for the costs of implementing cloud computing arrangements (i.e., hosting arrangements) that are service contracts. Stakeholders had asked the Board to address this issue after it amended ASC 35040 in 2015 to include guidance on how to evaluate whether a hosting arrangement includes an internal-use software license.




See if your favorite news outlet reports that Amazon raised its minimum wage from $7.25 to $15 per hour --- many news outlets  will cherry pick this item to ignore
From the CFO Journal's Morning Ledger on October 2, 2018

Good day. Amazon.com Inc. on Tuesday said it was raising the minimum wage it pays all U.S. workers to $15 an hour, a move that could dial up pressure on other retailers to hike pay and benefits for their employees, The Wall Street Journal reports.

 

Money, money, money: Amazon's new minimum wage will kick in Nov. 1, covering more than 250,000 current employees and 100,000 seasonal holiday employees. The company said it also will start lobbying for an increase in the federal minimum wage, currently at $7.25 an hour.

 

Will others follow? Amazon's move comes as only a fraction of U.S. companies are redirecting savings from the tax-code overhaul into employees' wallets. A new survey of 152 companies by executive-recruitment firm Korn Ferry International revealed 14% were funneling part of their tax-cut savings into base salary increases. A poll of 1,500 companies by consulting firm Mercer LLC showed only 4% are redirecting tax savings to budgets for bigger paychecks.

 

Cost concerns: Companies are reluctant to grant higher-than-usual pay raises in part because it adds to their fixed labor costs, compensation experts said. “They’re doing everything they can to avoid seeing their permanent payroll go up,” said Bill Ravenscroft, senior vice president at Adecco Group AG, which recruits workers for companies.

 Jensen Comment
It's so much harder for small businesses (I think of our struggling and tiny Franconia Hardware Store and our small Bed and Breakfast hotels that really struggle seasonally) to pay $15 and offer the same fringe benefits as Amazon, Walmart, Starbucks, and the other worldwide giants. Starbucks and Walmart even offer free college tuition.

 


Tim Berners-Lee has a plan to fix the web (who did not invent the Internet in the 1960s but did invent the web 20 years later)  ---
https://medium.com/@timberners_lee/one-small-step-for-the-web-87f92217d085

Jensen Comment
This seems to be a little far-fetched to me. If I'm buying products (or services) from Amazon on a weekly basis it's inconceivable that Amazon cannot easily know my buying habits. Amazon has to keep track of my history of orders for a variety of legitimate reasons such as for purposes of verifying my refund requests. Also Amazon cannot be paid by my credit card unless I give them my credit card number. Laws can be passed to prevent Amazon from sharing my buying information with outsiders. However, laws should not be passed to keep Amazon from knowing my buying information or from fining Amazon if hackers manage to steal my information from Amazon.

Does anybody else see the moral hazard in this EU privacy law?
From the CFO Journal's Morning Ledger on October 1, 2018

A European Union privacy watchdog could fine Facebook Inc. as much as $1.63 billion for a data breach announced Friday in which hackers compromised the accounts of more than 50 million users, if regulators find the company violated the bloc’s strict new privacy law.

Jensen Comment
It's a little like making a law where the government fines a bank billions just because it got robbed. Isn't this an incentive to train and equip bank robbers for the purpose of robbing banks?


 

How China Steals Intellectual Property
From the CFO Journal's Morning Ledger on September 27, 2018

Good day. Beijing is increasingly deploying an array of tactics to pry intellectual propertysometimes coercively—from U.S. companies in a phenomenon that is central to the trade fight between the two countries, The Wall Street Journal reports.

Tool set: China’s methods include pressuring U.S. partners in joint ventures to relinquish technology, using local courts to invalidate American firms’ patents and licensing arrangements, dispatching antitrust and other investigators, and filling regulatory panels with experts who may pass trade secrets to Chinese competitors.

 

Widespread issue: About one in five members of the American Chamber of Commerce in Shanghai say they have been pressured to transfer technology, according to a survey conducted in the spring. Of those companies, 44% in aerospace and 41% in chemicals report “notable pressure.” China considers both industries strategically important.

 

Costly brinkmanship: As Washington turns up the tariffs threats on Beijing to influence China's stance on intellectual property, the stakes are also rising for the broader economy. The U.S. economy could shrink about 2% in the first year of a trade war with the rest of the world, while China and other economies could gain, according to new research published Wednesday by the European Central Bank.

 

China also faces risks: The longer tariffs remain in place, the more multinationals that want to sell to the U.S. will seek alternatives to China to source production. Taiwan and Thailand are already marketing themselves as alternatives, the WSJ’s Greg Ip reports. 


Cookie Jar Accounting --- https://en.wikipedia.org/wiki/Cookie_jar_accounting

Cookie Jar Accounting Fraud Conviction
From the CFO Journal's Morning Ledger on September 26, 2018

Good day. The former chief financial officer of Bankrate Inc., the financial services and marketing company, was sentenced to 10 years in prison for securities and accounting fraud that resulted in $25 million in shareholder losses, the U.S. Justice Department said Tuesday.

Guilty plea: Edward DiMaria, 53 years old, pleaded guilty in June to one count of conspiracy to make false statements to the company’s accountants, falsify the company’s books, records and accounts, and commit securities fraud, as well as one count of making false statements to the Securities and Exchange Commission.

 

Cookie jar: Mr. DiMaria admitted to conspiring and directing a scheme to artificially inflate Bankrate’s earnings through “cookie jar” or “cushion” accounting, a practice in which a company keeps a large quantity of reserves from an economically successful year on its books to boost its earnings results, while incurring them against losses during weaker quarters.

Pay it back: Mr. DiMaria was also ordered to pay restitution of $21.2 million to Bankrate’s shareholders. “The significant sentence handed down today underscores the serious nature of corporate fraud and the damage it causes to shareholders and to the public’s trust in our financial markets,” Assistant Attorney General Brian A. Benczkowski said in a statement.


From the CFO Journal's Morning Ledger on September 25, 2018

Large merchants including Amazon.com Inc., Target Corp. and Home Depot Inc. are pushing the right to reject some rewards credit cards in a move that's likely to upset some consumers.


From the CFO Journal's Morning Ledger on September 25, 2018

Multinational companies, backed by the U.S. Chamber of Commerce, say the Internal Revenue Service is incorrectly denying them refunds on their 2017 tax returns.


From the CFO Journal's Morning Ledger on September 24, 2018

The gap between the price of a new and used vehicle is as wide as it has been in years, pushing an increasing number of U.S. consumers to the used-car lot and putting pressure on auto makers to deepen discounts on new cars to keep them competitive.

 Jensen Comment
The gap will probably get wider as interest rates increase both leasing and car loan rates.


From the CFO Journal's Morning Ledger on September 24, 2018

Germany, one of the world’s main maritime players, saw its commercial fleet shrink by a third over the past six years, becoming the biggest loser in a vicious industry slump that has reshaped global shipping.

Jensen Comment
The purported maritime slump surprised me in these supposed boom times before tariffs kick in to possibly reduce ocean shipping.


Stock Buybacks Lift Earnings
From the CFO Journal's Morning Ledger on September 24, 2018

Good day. Last December’s U.S. tax overhaul is boosting corporate profits, helping companies fund record stock buybacks -- a move that makes their results look better by raising the per-share earnings they highlight for investors, The Wall Street Journal's Michael Rapoport and Theo Francis report.

A new record: S&P 500 companies bought back $189 billion of their own shares in the first quarter, and a similar number -- if not more -- is expected for the second quarter, according to S&P Dow Jones Indices. By contrast, S&P 500 buybacks totaled no more than $137 billion in any of the six quarters before the tax overhaul.

Some firms are more aggressive than others: Apple Inc. repurchased 112.8 million shares in the quarter that ended in June, contributing 5 cents to its earnings of $2.34 a share. Union Pacific Corp. repurchased about 4% of its shares in the second quarter, helping earnings per share climb substantially faster than net income. Thanks to buybacks, Southwest Airlines Co.’s quarterly per-share earnings rose even though its profit fell from a year earlier.

Giving back to shareholders: The buybacks aren’t necessarily done for the purpose of increasing per-share earnings. Many companies say they want to return excess capital to shareholders. Others intend to offset new shares issued to employees as compensation. But the benefits to per-share earnings from buybacks can help a company’s result compare more favorably to Wall Street forecasts.


Do you know what a Ruku device will do?
From the CFO Journal's Morning Ledger on September 21, 2018

ESPN said it has signed up more than 1 million paying subscribers for the streaming service it launched in April, a boost of confidence for majority-owner Walt Disney Co.’s effort to win over cable TV cord-cutters.

Jensen Comment
Our cable company, Spectrum, bought out Time Warner cable. For about a year things remained pretty much the same. Now Spectrum, that has the cable monopoly in our region, is commencing to behave more like a monopoly. On October 9, 2018 it's shifting to all digital. In the fine print this entails having to pay extra to rent (by the month) a cable box that was not a necessary item needed under Time Warner. Also Spectrum pulled some of the most popular channels out of the basic package and mixed them with a bunch of junk channels. For example, I like the commercial-free American Movie Classics channel that plays older movies. This has been a free channel for as long as I can remember. Now in order to get AMC I have to pay $20 per month extra for it and 174 junk channels that I will never watch. Forget it --- I can do without AMC as long as I can get NetFlix.

But the way, Spectrum requires only one rented cable box per household, although the company would love to rent you a cable box for every TV set in your house. As long as you rent at least one cable box, you can attach a Ruku device and install a Spectrum app for your other TV sets ---
https://en.wikipedia.org/wiki/Roku
You can buy a Ruku device for under $50 from Walmart with various other models available from Amazon.

I've not yet installed my new Ruku device on our front room TV set. I'm hoping it will also allow me to access NetFlix. The only way I can access my wireless NetFlix in the den where I now have a cable box is also have a DVD player attached to the TV. The DVD player brings up buttons for NetFlix and other streaming services. But I don't need a DVD player on my second TV set. It's not so much the money. My wife just hates all the cords in all my nests.

By the way the cable technician who brought me a new high-speed router was very honest. He said that the new Spectrum router was a good thing but that I did not need the accompanying Spectrum wireless device for an added $5 per month. He said my ancient NetGear wireless was better than the Spectrum wireless.


Accountants Are Making More Errors
From the CFO Journal's Morning Ledger on September 21, 2018

Good day. The number of material accounting mistakes made by U.S. public companies declined every year since 2006, but preliminary data for this year indicate a reversal.

Do-over: During the first six months of 2018, 65 companies detected accounting mistakes significant enough to require them to restate and refile entire financial filings to regulators, compared with 60 companies for the same period last year, according to Audit Analytics.

 

It's in the details: The uptick came as finance teams were overhauling corporate accounting paperwork to comply with the new U.S. tax law and new revenue accounting rules.

 

In many instances CFOs and their staffs had to go over past financial reports to recalculate the value of tax credits or liabilities, or to assess how past results would look under new rules. In the process, companies including Seneca Foods Corp. and Camping World Holdings Inc. found errors that triggered restatements.


What  Italian politics (flat-rate taxation and universal income) and USA politics (think border wall, free higher education, and Medicare-for-All) have in common?
From the CFO Journal's Morning Ledger on September 20, 2018

Italy’s new populist government is facing a difficult decision: How to reconcile its expensive election promises with the reality of the country’s fragile finances

Jensen Comment
The solution is really simple. Confiscate all the wealth of the top 50% of highest income companies and individuals.
Oops! That won't provide near enough.

Alexandria Ocasio-Cortez Won't Say How She'll Pay for $40 Trillion Medicare-for-All Platform CNN's Jake Tapper kept asking the socialist candidate where the money would come from. Eventually, he gave up ---
http://reason.com/blog/2018/09/17/alexandria-ocasio-cortez-wont-say-how-sh
Jensen Comment
In fairness Medicare-for-All will only start out at a mere $4 trillion a year if we ignore population growth and leave out some of the most expensive coverages like organ transplants and long-term nursing care and the most expensive medicines.

Free college for all won't be so bad as long as we leave out the good colleges.

The border wall is cheaper if stack old tires. Maybe we can even provide minimum income of $50,000 per year to undocumented immigrants using assigned border gateways to the promised land.

To my knowledge the only minimum income experiment that survived to date is the very limited experiment in Stockton, California. Canada and Finland dropped their plans like hot potatoes.

Let's all keep our eyes peeled on Italy's minimum income experiment.


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

The U.S. Commodity Futures Trading Commission ordered Bank of America Corp. to pay a $30 million civil penalty for what it called attempted manipulation of the swaps and derivatives benchmark, reports Reuters.


It pays big to show disrespect for police --- More companies should join the  Kaepernick ("Police are Pigs socks") bandwagon
From the CFO Journal's Morning Ledger on September 20, 2018

Nike Inc. has sold 61% more merchandise since the controversial advertising campaign featuring former National Football League quarterback Colin Kaepernick appeared earlier this month, reports Reuters. Meanwhile, investors are seeking greater transparency from Nike related to its political spending at its annual general meeting.

Jensen Comment
You can join the bandwagon by buying Kaepernick T-shirts, jerseys, and sweat shirts from Amazon
---
https://www.amazon.com/s/ref=nb_sb_ss_i_5_11?url=search-alias%3Dfashion-mens&field-keywords=kaepernick+jersey&sprefix=Kaepernick+%2Caps%2C241&crid=30R3RLI7664Q0


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

Roughly 100 companies account for the vast majority of an estimated $2.7 trillion in profits parked abroad, a group that has so far repatriated about $143 billion. About two-thirds of the money came from two corporations— networking-equipment giant Cisco Systems Inc. and drugmaker Gilead Sciences Inc. 


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

Credit Suisse Group AG was deficient in its anti-money laundering compliance processes regarding its relationships with the world soccer governing body and the Brazilian and Venezuelan state-oil firms, Swiss financial regulator Finma said.


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

Three of the Big Four accounting firms in the U.S. now have women in the corner office, but auditing still has a large gender gap. Only 15% of the “engagement partners” in charge of each S&P 500 company’s audit are women, according to a study to be published this week by the CFA Institute.


Robots in the Accounting and Finance Department
From the CFO Journal's Morning Ledger on September 14, 2018

Danish insulin producer Novo Nordisk A/S is turning towards robotic process automation to reduce the amount of manual tasks in its finance function.

“We will be deploying more robots in our finance processes,” the company's finance chief, Karsten Munk Knudsen, told CFO Journal’s Nina Trentmann.

One of Novo’s goals is to reduce the number of invoices that require handling by a human, he said, and to cut down on costs and errors. The company has also started experimenting with chatbots that are assisting the finance team, said Mr. Knudsen.


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

Apple Inc., Volkswagen AG and about 20 other global manufacturers found themselves on the defense when Amnesty International reported two years ago that the cobalt in some of their batteries was dug up by Congolese miners and children under inhumane conditions. Many of the companies said they would audit their suppliers and send teams to Congo to fix the problem. But their efforts haven’t kept hand-dug cobalt out of the industry supply chain.


From the CFO Journal's Morning Ledger on September 10, 2018

A robust economy drove U.S. wages higher in August, new evidence that workers are gaining bargaining power with their employers as the nation’s pool of available labor tightens.


From the CFO Journal's Morning Ledger on September 10, 2018

The exit of Tesla Inc.’s accounting chief on Friday, after only a month on the job, places a spotlight on the high turnover of executives at the electric car maker. It also highlights the challenges the company could face attracting and retaining talent amid increased regulatory scrutiny and recent controversial actions of its founder, CFO Journal's Tatyana Shumsky and Nina Trentmann report.

 

More than 50 executives have departed the company during the past 24 months and Chief Accounting Officer Dave Morton is among the latest. His tenure at Tesla coincided with an unusual bout of public scrutiny. Mr. Morton joined the company on Aug. 6, one day before Chief Executive Elon Musk used social media to float the prospect of taking Tesla private.

Jensen Comment
It appears that Elon Musk's threat to take Tesla private was more of a ploy to punish short sellers than to actually take Tesla private. But he probably failed to realize that manipulating the market in this manner is really against the law. The good news for him is that the SEC is so short of enforcement resources that Elon might get away with his misdeed this time.

The sad news is that Tesla's turnover of executives is almost as bad as the turnover in Trump's White House staff.


From the CFO Journal's Morning Ledger on September 4, 2018

Good morning. When President Trump last month asked financial regulators to consider allowing public companies to report results on a semiannual, rather than quarterly, basis, he said the change would reduce costs and offer greater flexibility. That cost saving -- in terms of audit fees -- is likely to benefit smaller companies more than larger firms, lawyers and accountants said. 

For audit costs, size matters: Accelerated and large accelerated filers paid audit fees of $541 per $1 million of revenue to their independent auditors in 2016, the latest full-year data available. By contrast, smaller reporting companies that posted positive revenue in 2016, a group of 1,554 companies, paid $3,345 per $1 million in revenue, according to an analysis from consulting firm Audit Analytics conducted for The Wall Street Journal.

 

It's complicated: An external auditor's review of three quarterly filings -- or Form 10-Qs -- in total account for roughly 15% to 20% of the overall audit cost, according to two former audit partners of two large accounting firms. (The fourth quarter results are filed as part of the annual report, which includes the annual audit). However, eliminating two such reviews would not slash two-thirds of the cost, they said, as the mid-year review would be more robust and command higher fees.

Other risks: CFOs could also run the risk of making selective disclosures — sharing non-public information with only a handful of stakeholders — as certain investors ask for additional insights.

“There’s a chance you would be spending more time taking follow-up calls from analysts asking for the more detailed information they’re used to seeing in the 10-Q,” said Keith Higgins, former director of the Securities and Exchange Commission's division of corporation finance.


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 




 


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

Trump Asks SEC to Ease Earnings Reporting

By Dave Michaels, Michael Rapoport, and Jennifer Maloney | Aug 18, 2018

TOPICS: SEC, Securities and Exchange Commission

SUMMARY: President Trump has "...asked regulators to review a decades-old requirement that public companies release earnings quarterly..." Arguments for and against quarterly reporting versus less frequent intervals are presented. The related article focuses on the viewpoint "probably" held by investors that the cost of reduced transparency from less frequent reporting outweighs the benefits of that change. It also cites a recent paper published in The Accounting Review by Kraft, Vashishtha, and Venkatachalam from its Duke website location https://sites.duke.edu/vashishtha/files/2017/05/KVV-April-26-2017.pdf?mod=article_inline entitled "Frequent Financial Reporting and Managerial Myopia."

CLASSROOM APPLICATION: The article may be used in any level of financial reporting class, especially when discussing the concept of timeliness and the periodicity assumption.

QUESTIONS: 

 

1. (Introductory) What entity has President Trump asked to conduct a review of the frequency of financial reporting by publicly traded companies?

 

2. (Advanced) Why is this agency the appropriate entity to conduct this review? (Hint: access the website at www.sec.gov)

 

3. (Advanced) What is the periodicity assumption in preparing financial reports? How are the periodicity assumption and related concepts integral to the arguments being discussed in this article?

 

4. (Introductory) Summarize the arguments, according to the article, in favor of reducing the frequency of financial reporting by publicly traded companies.

 

5. (Introductory) Summarize the arguments, according to the article, against reducing the frequency of financial reporting by publicly traded companies.

 

6. (Advanced) Refer to the related article. What does the author expect will happen to stock prices as a result? What is the reasoning for this expectation?

READ THE ARTICLE



 

VIEW THE VIDEO



 

RELATED ARTICLES: 
The Higher Cost of Less Information
by Justin Lahart
Aug 18, 2018
Page: B12

Reviewed By: Judy Beckman, University of Rhode Island

 

"Trump Asks SEC to Ease Earnings Reporting," by Dave Michaels, Michael Rapoport, and Jennifer Maloney, The Wall Street Journal, August 18, 2018
https://www.wsj.com/articles/trump-directs-sec-to-study-six-month-reporting-for-public-companies-1534507058?mod=djem_jiewr_AC_domainid

Executives say a change would promote longer-term planning, but investors see it reducing transparency

WASHINGTON—President Trump on Friday asked regulators to review a decades-old requirement that public companies release earnings quarterly, a change some executives support to promote longer-term planning but that some investors worry could reduce market transparency.

In a tweet Friday, Mr. Trump said he consulted “some of the world’s top business leaders” on steps to create jobs and make business “even better.” He said one had told him, “Stop quarterly reporting & go to a six month system.”

Mr. Trump asked the Securities and Exchange Commission to study the change, which the White House said was part of the administration’s push to ease business regulation to spur growth.

Many investors rely on the transparency of regular disclosure and crave more—even if some investors with a longer view frown at the short-term focus. Companies oblige by providing more than the SEC requires them to—conference calls with question-and-answer sessions, lengthy news releases, detailed financial supplements and much else.

Federal securities rules have required quarterly reporting since 1970, when the SEC required it as part of a formalization of stock-exchange practices that preceded the agency’s creation in 1934.

SEC Chairman Jay Clayton, a Trump appointee, said in a statement that the agency is studying “the frequency of reporting.”

The regulator plans to issue a document next week that seeks input on how to promote a long-term focus among public companies and investors, according to a person with knowledge of the SEC’s plans.

Business groups such as the U.S. Chamber of Commerce think scaling back the frequency of reports is a good idea. “We would welcome an overhaul of a 1930s-era disclosure system that is not user-friendly and no longer meets the needs of a 21st century economy,” said Tom Quaadman, executive vice president of the Chamber’s Center for Capital Markets Competitiveness.

Continued in article


Unreliable Accounts: How Regulators Fabricate Conceptual Narratives to Diffuse Criticism

SSRN

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3222559

63 Pages Posted: 14 Aug 2018  

Karthik Ramanna

Harvard Business School; University of Oxford - Blavatnik School of Government

Date Written: July 5, 2018

Abstract

In 2010, the U.S. accounting rulemaker (FASB) updated its longstanding constitution to eliminate “reliability” as a fundamental accounting property. FASB argued that “reliability” was misunderstood in practice and that this amendment clarified its original intent. Drawing on primary archival resources and field interviews with regulators, I provide evidence that the change also sought to legitimize the rise of fair-value accounting. By eliminating the need for accounting to be “reliable,” the change attempted to neutralize concerns about the subjectivity in fair-value estimates. Such subjectivity can facilitate accounting manipulation, and some fair-value rules can be attributed to lobbying by managers who stand to benefit. The change illustrates “conceptual veiling,” wherein regulators, seeking to diffuse criticism, including suspicions of capture, manufacture costly conceptual narratives for their actions.

Keywords: Capital Markets, Fair-Value Accounting, FASB, Regulatory Capture

September 1, 2018 reply from Tom Selling

My impression was that the nail in the coffin for reliability was SFAS 106, which was not about fair value measurement. It required accrual of costs for other post-employment benefits. At the time, it was estimated that it added $1 trillion in aggregate to the balance sheets of public companies. Opponents of the standard that the measurement of the liability was not reliable. Proponents said that any accrual was better than none.

Tom

September 2, 2018 reply from Bob Jensen

Hi Tom,

Market reactions to FAS 106 varied for a variety of reasons ---
https://www.jstor.org/stable/248592?seq=1#page_scan_tab_contents
The impact seemed to be largly to earnings effects. Of course most of the impact was due to recognition of the entire expense/liability than error in estimation. You're correct in that estimating measuring error in this case was virtually impossible.

The issue of whether FAS 106 numbers were less reliable than other numbers like pensions was formally studied. For example, see
https://onlinelibrary.wiley.com/doi/abs/10.1506/T0VC-Q15Y-W5QV-4UKQ
This supports your reliability assertion

The reliability issue of FAS 106 was, however, greatly mitigated by discounting the stream of future benefits costs. I would contend that the reliability issue is much greater when estimating exit values of 300+ Days Inn hotels in 1987 ---
http://faculty.trinity.edu/rjensen/theory02.htm

 

Levels of "Value" of an Entire Company

General Theory

Days Inns of America
(As Reported September 30, 1987)

Market Value of the Entire Block of Common Shares at Today's Price Per Share
(Ignoring Blockage Factors)

Not Available 
Day Inns of America
Was Privately Owned

Exit Value of Firm if Sold As a Firm
(Includes synergy factors and unbooked intangibles)

Not Available for
Days Inns of America

Sum of Exit Values of Booked Assets Minus Liabilities & Pref. Stock
(includes unbooked and unrealized gains and losses)

$194,812,000 
as Reported by Days Inns

Book Value of the Firm as Reported in Financial Statements 

$87,356,000 as Reported

Book Value of the Firm as Reported in the Financial Statements  After General Price Level Adjustments

Not Available for Days Inns

 

Neither $87,356,000 book value is the residual historical cost nor the $194,812,000 is a reliable estimate of "value in use" of the net assets of Days Inns in 1987. At that time Days Inns was very much a private and highly successful going concern contemplating an initial public offering (IPO). FAS 157 excludes $197,812,000 as an estimate of "value in use" since piecemeal liquidation of the hotels is most likely the "worst possible use" of these hotels. Their values also have high covariance valuation components, especially the covariance of the real estate values with the goodwill value and human capital values of Days Inns. Furthermore, value in use of these properties will greatly change if the sign on each hotel is changed from Days Inn to Holiday Inn. The reason is that phantasmagoric summation of all the first order to n-th order covariance terms.

 

Thanks,
Bob

september 10, 2018 reply from Bob Jensen

September 3, 2018 reply from Tom Selling

Bob,

Thanks for the valuable summary, which I will be thinking about further as I write.  For now, I’ll respond with a few quick observations:

One of the problems with FAS 33 was, and with GAAP in general, that the replacement cost estimates were the responsibility of management; hence, likely biased, and not effectively auditable.  I envisage a financial reporting system that drastically limits the role of management estimates – if not completely eliminating them from the balance sheet.

You do not mention that appraisers rely heavily on recent actual transactions of comparable properties.  In this manner, exit prices inform measures of entry costs.  You are correct that it is hard to reliably separate the land costs from building costs.  However, that is only needed for separating depreciation from other changes in current costs, which is a secondary issue for me.

As to benefitting analysts, deprival value as the measurement attribute is only one feature of S-OFA.  My goal is to produce a comprehensive basis of accounting that is only 200 pages long – as opposed to the 8,000 that is U.S. GAAP.  For one thing, even if estimates of replacement costs are more costly, the total cost of financial accounting should be much lower.

Best,

Tom

September 3, 2018 reply from Bob Jensen

Hi Tom,

Oh Wow!

I was not aware that you were proposing a radical departure from the tradition of financial reporting where the numbers are the primary responsibility of management with management also being responsible for the internal control system. Your ideas will totally change the traditional liability of management for financial reporting. Management may not be entirely off the hook, but the numbers and internal controls become the primary responsibility of a third party with management playing a lessor role in financial reporting. Wow!

The could well be a monumental book if the profession agrees that financial reporting of an entity is the responsibility of somebody other than management and that auditors are merely expressing an opinion that the numbers prepared by a third party conform to generally accepted accounting principles. 

The role of joint and several liability will still probably exist, but now the lion's share of that responsibility may not belong to either management or the external auditors --- 
https://en.wikipedia.org/wiki/Joint_and_several_liability 

Personally, I doubt that the appraisal profession will be willing and/or able to shoulder the primary responsibility of providing financial statements in the capital markets. For one thing there's great moral hazard in doing so. Enron management succeeded in totally deceiving both its Audit Committee and its Board of Directors. 

Think of the ease with which the same Enron crooks could've deceived the appraisers or colluded with the appraisers (appraisers currently have a pretty awful reputation since the criminal appraisals of mortgage properties leading up to the bursting of the real estate bubble in 2007).

Thanks,
Bob

 

September 3, 2018 reply from Tom Selling

Bob:

I began to articulate these views when I was invited to give a presentation to the Standing Advisory Group of the PCAOB on the topic of auditing estimates.  That morphed into two articles, which I expect that AECM members can access through their libraries if they are interested.  Note that we extensively address the issue of appraiser bias in the first article. 

If one is teaching auditing (I do not) perhaps the second article from the CPA Journal article might be useful as a basis of class discussion?

“The problem of management bias in accounting estimates: An investor perspective on root causes and solutions,”

Thomas I. Selling and Bo Nordlund:

https://www.sciencedirect.com/science/article/pii/S0007681315000609

 

Abstract

The standards of the PCAOB implicitly, yet unmistakably, presume that auditors are capable of eliminating the material effects of management bias by constraining point estimates to a ‘reasonable’ range. Yet, from inspection results of the PCAOB and its global counterparts we can confidently infer that auditors far too often fail to exercise sufficient skepticism of management's estimates. The consequences could be profound. Therefore, we are proposing fundamental changes to the rules of engagement between the auditor and its client. We would, incrementally over time, transfer the responsibility for financial statement judgments to independent appraisers. Auditing would become solely a verification service, and financial statements would better serve investors and the public interest.

 

“On the Coexistence of Professionalism and Commercialism in CPA Firms”

https://www.questia.com/magazine/1P3-3704766651/on-the-coexistence-of-professionalism-and-commercialism

 

Vincent Love argued in the February 2015 issue of The CPA Journal that auditors' independence and professionalism is significantly challenged by the expansion of audit films offering services beyond the traditional competencies of CPAs ("Can Professionalism and Commercialism Coexist in CPA Finns? Putting the Public Interest before Increased Profits," p. 6). This concents seem to be validated by regulators' reports of persistent problems with audit quality; however, the association between nonaudit services to nonclients and audit quality has not been established.

 

The purpose of this article is to argue that the main challenge to the profession lies within audit services themselves; specifically, the auditing of management's estimates. Instead of focusing on non-audit services, an accounting film can balance its business interests and the public interest by focusing audits on the verification of facts.

 

The Problem of Auditing Management's Estimates

 

Estimates by management have become ubiquitous in accounting. They are embedded in the economic lives of buildings and machinery, the loan loss allowances of banks on debts of unstable governments, and practically everything else in between. It would not be an understatement to claim that the quality of modem financial reporting rises and falls with the collective integrity of management's estimates. Yet, one should also expect that managements' estimates will be biased.

There is also this related blog post:

Look Beyond the Firms for the Root Causes of Audit Deficiencies

http://accountingonion.com/2014/04/look-beyond-the-firms-for-the-root-causes-of-audit-deficiencies.html

Best,

Tom

 

September 4, 2018 reply from Bob Jensen

Keep in mind that a driving factor for professional responsibility in most any profession, aside from criminal prosecution, in the USA is the risk of litigation and judgments against the deepest pockets in civil lawsuits. Time and time again CPA firms and their clients have shown they have very deep pockets when they've not been deemed professionally responsible.

You assume you can make "independent appraisers" more professional than "independent auditors." I'm very negative on the professionalism of appraisers who have minimal educational standards as a profession and minimal respect among the business community relative to the CPA profession. It will take decades of education reform, training, and litigation to bring the profession of appraisers up to speed. For one thing you do not mention that the "appraisal profession" is highly diverse in terms of education and standards. Appraisers of art work versus jewelry versus antiques versus real estate differ like day and night in terms of standards and education.

What's more likely to happen is that the CPA profession will add appraisal expertise to the attestation profession that's already existed for over 100 years. And you will then give license to CPAs to add more degrees of freedom to subjectivity in financial reporting. Personally, I don't think capital markets will be overjoyed in the newer types of numbers they are being fed.

I was not aware of the articles you referenced. I wonder how many AECMers were aware of those references. 

Also keep in mind that there's a huge difference between the numbers in audited financial statements versus the non- audited numbers in management forecasts. Empirical tests should be run on the capital market reactions to management forecasts versus forecasts of "appraisers" whomever they might be. A great many studies have been conducted over the years on the accuracy of management forecasts. I do not know of a single study comparing earnings forecasts of management versus earnings forecasts of "appraisers" whomever they might be. We do know that there are often enormous discrepancies between real estate appraisals.

Here are some other references of possible interest:

How Do Investors Assess the Credibility of Management Disclosures?
http://www.aaajournals.org/doi/abs/10.2308/acch.2004.18.3.185?code=aaan-site

How Disaggregation Enhances the Credibility of Management Earnings Forecasts ---
https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1475-679X.2007.00252.x

Thanks,
Bob Jensen

 

Added Comment by Bob Jensen
There are really two types of financial statements of interest here. The first is the traditional scorekeeping financial statement (e.g. a 10-K) traditionally used by financial analysts and used by Certified Value Appraisers to evaluate performance trends in earnings etc. Suppose shareholders' equity as audited in
$10 million. The purpose of the GAAP-prepared 10-K is not to put a value on the entire firm. It's purpose is primarily that of keeping score on financial performance under GAAP rules --- a scorekeeping set of numbers under GAAP for Company ABC.

The second type is a mergers and acquisitions (M&A) financial statement that presumably adjusts balance sheet items (e.g., real estate) to some type of value (think exit value of balance sheet items) plus intangibles not valued in a 10K report (think value of the company's human resources), and then adjusts the aggregation of all those items for synergies of this particular company into a total firm "value" to be used in merger and acquisition negotiations. In other words the Certified Value Appraiser (CVA 1) hired by the company puts numbers on things, including synergies, that external auditors cannot and will not validate under present auditing standards. Suppose that CVA 1's M&A value of ABC shareholders' equity is $40 million.

Suppose CVA 2 hired by the acquiring company XYC goes through the same type of exercise and places a $80 million value on ABC by adjusting for such things as the synergy of having XYZ owning all the items of value of ABC. It's a little like having a quarterback for the Steelers being worth $40 million to the Steelers but worth an estimated $80 if playing for the Eagles.

The biggest problems of the $40 million versus the $80 valuations of ABC are that those numbers cannot be reliably audited. A set of 10 different CVAs might put greatly different numbers on the maximum purchase price of ABC. The valuations of CVA 1 and CVA 2 are really just benchmarks that ABC and XYZ company owners will put on the negotiated purchase price.

But presumably the $10 million is auditable under GAAP rules such that the scorekeeping outcomes agreed to by either PwC or Ernst & Young if those firms both conducted first-rate audits according to GAAP.

We might argue like some accounting theorists (think Bob Sterling) that the $10 million is a useless number for any purpose. But empirical studies of GAAP earnings time and time again have shown that the $10 million is extremely valuable when compared with prior-year GAAP performance trends of ABC. It's not a very useful number for mergers and acquisitions mainly because of all the things not accounted for under GAAP (once again think of the unmeasured value of human resources).Vox:  Trump’s White House says wages are rising more than liberals think:  The White House is probably right ---
https://www.vox.com/2018/9/6/17823072/trump-cea-wages

I guess my question is whether CVA's are prepared by education and training to prepare CVA financial statements (that probably cannot be audited) that are more useful than the annual financial statements certified by Pwc or Ernst & Young?

I would argue that the day when investors and financial analysts will not easily give up their audited $10 million in favor of having either a $50 million CVA 1 number or an $80 million CVA 2 number or any other unaudited number in between.

To argue that CVAs are better at scorekeeping than ABC management, PwC, or Ernst & Young is to argue that all prior research pointing to value added of GAAP financial statements and audits is phony.

I'm not prepared to buy into the proposition that what we now teach in accountancy is phony just because we admit that there are many things of value to a company that we just cannot measure and audit. 
 

Maybe I'm just an old fudd not willing to make little of the importance of what I taught for most of my 40 years in academe. And I have the empirical evidence to bolster my confidence in what I taught some of those auditors for PwC and Ernst & Young

 

September 10, 2018 reply from Bob Jensen

A proposal for a monumental change in financial reporting:  An enormous paradigm shift
The Problem of Management Bias in Accounting Estimates:  An Investor Perspective on Root Causes and Solutions
https://www.sciencedirect.com/science/article/pii/S0007681315000609

Before getting into the article I might take issue with something Tom Posted to the AECM on September 3, 2018

Bob,

Thanks for the valuable summary, which I will be thinking about further as I write.  For now, I’ll respond with a few quick observations:

 

·     Tom Selling Reply
One of the problems with FAS 33 was, and with GAAP in general, that the replacement cost estimates were the responsibility of management; hence, likely biased, and not effectively auditableI envisage a financial reporting system that drastically limits the role of management estimates – if not completely eliminating them from the balance sheet.

·     You do not mention that appraisers rely heavily on recent actual transactions of comparable properties.  In this manner, exit prices inform measures of entry costs.  You are correct that it is hard to reliably separate the land costs from building costs.  However, that is only needed for separating depreciation from other changes in current costs, which is a secondary issue for me.

·     As to benefiting analysts, deprival value as the measurement attribute is only one feature of S-OFA.  My goal is to produce a comprehensive basis of accounting that is only 200 pages long – as opposed to the 8,000 that is U.S. GAAP.  For one thing, even if estimates of replacement costs are more costly, the total cost of financial accounting should be much lower.

Best,
Tom

Jensen Comment

The assertion that FAS 33 estimates "were not effectively auditable" is misleading in that he's proposing an appraisal system that's even less auditable than the government's price indexing system promoted in FAS 33.  It makes no sense to say that FAS 33 numbers are not effectively auditable because they were the responsibility of management for generating FAS 33 replacement cost (current cost) numbers. If being the responsibility of management makes them non-auditable then everything in a company's 10-K is not effectively auditable because all things in current 10-K reports are the responsibility of management. External auditors express and opinion about whether the GAAP numbers and disclosures in a 10-K conformed to the rules of GAAP. But the responsibility for everything including cash and inventory counts rests with management.

In other words, being the responsibility of management does not in and of itself make a 10-K incapable of being audited.

Entry value (replacement cost, current cost)  accounting never gained much traction in either the practice community or the academic community --- certainly not like exit value accounting expounded by various leading professors in the 20th Century. Historical cost accounting and replacement cost accounting are not really "value accounting" or "fair value accounting" --- which is a  point made over and over again by AC Littleton in his time and ignored by Tom.  Exit value accounting is value accounting or fair value accounting, but the estimates are estimated selling prices of each asset if the business is liquidated as a non-going concern.

The short-lived FAS 33 experiment in practice certainly never excited financial analysts or investors.  Beginning in 1979, FAS 33 required large corporations to provide a supplementary schedule of condensed balance sheets and income statements comparing annual outcomes under  three valuation bases --- Unadjusted Historical Cost, Price Level Adjusted (PLA) Historical Cost, and Replacement Cost Entry Value (adjusted for depreciation and amortization). Companies complained heavily that users did not obtain value that justified the cost  of implementing FAS 33 with replacement cost estimates.

Tom Selling previously could not explain why in the many years of replacement cost advocacy (going back at least as far as John Canning's 1929  thesis) and the FAS 33 experiment replacement cost accounting never really found traction in academe or the world in  investment analysts who never showed any interest in companies having to incur the huge costs of meaningful replacement cost financial statements.

FAS 33 was rescinded in 1986 by the FASB in FAS 89. Corporations complained heavily about the cost of implementation, and financial analysts did not reveal a whole lot of interest in FAS 33 data. I don't recall anybody mentioning concerns over management biasing the replacement cost estimates. There were more concerns about how replacement cost distorted earnings with unrealized "revenues" from price changes.

Empirical support for replacement cost accounting was weak or negative:

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

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

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

The Accounting Standards Committee in England also ran a similar experiment on replacement cost accounting  in SSAP 16 that was also rescinded ---
http://onlinelibrary.wiley.com/doi/10.1111/j.1467-6281.1996.tb00449.x/full

In his paper with Bo Nordlund, Tom Selling is now going to try to sell us on replacement cost accounting (misleadingly termed fair value accounting in their paper) on the basis that independent appraisers estimates of replacement costs are more independent than audited GAAP book values and earnings traditionally presented in financial statements like 10-K reports.
https://www.sciencedirect.com/science/article/pii/S0007681315000609

 

Abstract

The standards of the PCAOB implicitly, yet unmistakably, presume that auditors are capable of eliminating the material effects of management bias by constraining point estimates to a ‘reasonable’ range. Yet, from inspection results of the PCAOB and its global counterparts we can confidently infer that auditors far too often fail to exercise sufficient skepticism of management's estimates. The consequences could be profound. Therefore, we are proposing fundamental changes to the rules of engagement between the auditor and its client. We would, incrementally over time, transfer the responsibility for financial statement judgments to independent appraisers. Auditing would become solely a verification service, and financial statements would better serve investors and the public interest.

 

I will try to keep my comments Selling and Nordlund Paper as short as possible.
The paper proposes that independent appraisal firms take over the responsibility of financial reporting of businesses, especially corporations now subject to SEC financial reporting rules under GAAP promulgated by the FASB and tradition. Historical cost book values will be replaced by replacement cost book values (after depreciation) estimated by independent appraisers rather than management.

Firstly, I might say that to do so without complete transitioning by the rest of the world (think of 100+ nations reporting under IFRS) would lead to worldwide capital markets chaos if the USA diverged fundamentally from the rest of the world in financial reporting.  Presumably Selling and Nordlund are making a monumental proposal for the entire financial world. There's nothing wrong with proposing such a monumental upheaval in financial reporting. Just be aware that it's a truly monumental global paradigm shift that's entailed. I don't think the USA could go it alone.

Secondly, I might point out that I read the paper as wanting to reduce auditing to a clerical process of counting cash, counting inventory items, etc.:

Walter Schuetze has argued that auditors are incapable of judging the reasonableness of management's estimates  ( quoted from Page 505 of the paper)

However, our proposal is not to completely overhaul the annual audit, because many audit tasks are already verification tasks. Prominent examples include the verification of cash balances, the existence of assets and their historic costs, and supporting documentation to confirm contractual amounts due and owed.  (quoted from Page 505 of the paper)

Since CPA auditors are supposedly incapable of judging the "reasonable estimates of management" it follows that  Selling and Nordlund believe that CPA auditors are totally incapable of judging the reasonableness of replacement cost estimates of independent appraisers as well. Thus the only auditors left in the Big Four will be inexpensive clerks counting cash and inventory items unless the Big Four transitions to an oligopoly of Big Four appraisal firms.

Presumably, nobody will audit the replacement cost estimates of independent appraisers.

Would Big Four not be allowed to abandon financial auditing and transform themselves into independent appraisers?
In other words Selling and Nordlund could have auditing firms abandoning efforts to judge the reasonableness of management's estimates by making their own estimates as "independent appraisers."
.
Or would Walter Schuetze argue that auditors are incapable of becoming independent appraisers even though real estate agents are capable of learning to be financial statement replacement cost appraisers?

To date appraisers are either specialists in jewelry, real estate, insurance claims, etc. or they are business value appraisers estimating the total value of all the tangibles and intangibles of a business, including the value in use (synergy) value of a business in particular uses such as the total value of Tesla if purchased by Ford versus a different total value of Tesla if purchased by Chrysler.

Selling and Nordlund are not so naive as to believe that there is not tremendous range for subjective judgment differences in appraised values where 20 different appraisers might give you 20 differing estimates. They claim, however, that the range of difference will not be whole lot different than the range of error now existing in audited GAAP outcomes.

I disagree sharply here. Auditors with their GAAP and auditing regulations face huge limits to the degrees of freedom when allowing management in making judgments. And hovering overhead are the millions of lawyers seeking to sue on behalf of shareholders and creditors. Independent appraisers have many more degrees of freedom for subjectivity.

Selling and Nordlund rightly claim that there are countless instances where managers have persuaded auditors to cheat. They provide zero evidence of why it would not be even easier for managers to persuade appraisers to cheat. One year I paid a professional real estate appraiser to assess the value of our cottage and its surrounding land. His first question for me was:  Is this an appraisal to sell the property or is this an appraisal to reduce property taxes? The implication was that he would change the numbers somewhat to suit my purpose.

Lastly I have all sorts of objections to both exit value accounting and entry value (replacement cost) accounting. But I will forego repeating all of this today. I will, however, summarize my main objections to entry value (replacement cost, current cost) measurement:

  1. Don't call replacement cost accounting "value" or "fair value" accounting. Tom Selling does not like to write about replacement cost depreciation and other arbitrary accruals. Tom Selling does not like to dwell on the fact that in many, many instances existing assets or liabilities are impossible to replace with new versions that aren't markedly different in features. Often older assets like COBOL systems or other data storage and computing systems cannot be replaced in the used product markets.
     
  2. I really don't like making earnings more variable with unrealized (fictional) transitory changes in market prices or rates such as the highly variable value of land under Tesla's enormous factory complex in Freemont, California, value that depends heavily on type of use.  I was pleased when the FASB introduced Other Comprehensive Income to absorb some earnings variability such as gains and losses from the effective portions of financial hedges. Maybe OCI can be used to absorb replacement cost ups and downs that have not yet been realized.

The main issue I wanted to address today is that replacing audited management estimates in a 10-K with unaudited appraiser replacement cost estimates of items in a 10-K is not likely to yield benefits in excess of costs of this monumental change in financial reporting. If management can manipulate its auditors it most likely can manipulate its appraisers.

Do you think Enron could not have happened if financial statements were prepared by "independent appraisers?" Would Andersen's appraisers magically be more ethical than Andersen's auditors?

Do you think thousands and thousands of CPA auditors are simply going to wait on tables in restaurants rather than become "independent appraisers" working for mostly the same supervisors they had when they were GAAP auditors? The least profitable margins and riskiest profits of the Big Four are in auditing services. My guess is that the Big Four would love to replace auditing services with financial statement appraisal services if they can make billions in profits with higher margins and less litigation risk.

It will be wonderful for the Big Four if their appraisal estimates do not have to be validated and are less vulnerable in civil torts. Dream on!

Conclusion
I think what's going to happen is that the roles of management and CPA auditors will remain unchanged, although there's a lot or room for tightening up regulations such as SEC regulations. Auditors will, and should, face increased scrutiny regarding independence. Audit firms are also facing increased litigation risks that will force them to become better independent auditors or wind up out of business like Andersen.

The roles of business value appraisers, such as appraisers for merger and acquisition decisions, will remain the same with increasing disputes over required qualifications of those appraisers.

Final point. The tone of the Selling and Nordlund paper is that current audited financial statements are doing less and less good because there seem to be more and more scandals. They state on Page 508 that:

If history is our guide, none of this (PCAOB efforts to improve auditing) is working. GAAP is becoming more susceptible to management estimation bias, and the problems are getting worse. Accordingly, we have proposed to fundamentally change the rules of engagement between the auditor and its client by transferring the responsibility for financial statement judgments to (unaudited) independent appraisers.

This is like saying that police in the USA are doing less and less good because there are more scandals.
You don't measure success by only looking at only the scandals. You have to somehow give credit were credit is due rather than disproportionately look at only the scandals. Look at the countless good things police officers do each day, good things that mostly go unnoticed in the media. Empirical evidence in total shows that the existing financial reporting system is helping capital markets thrive. It's really, really dangerous to recklessly implement what is an untested paradigm shift.

There's always room for improvement in almost anything, and financial reporting is certainly something that continually needs to be studied and improved. But reckless paradigm shifts can do more harm than good. For example, MIT recently warned Californians that their new law requiring a shift to 100% renewable energy was going to do more harm than good. But the zealous California state legislature is not listening to the scientists this time and will destroy nuclear plants, oil refineries, and natural gas power plants much too quickly.

I suspect that Tom Selling and Bo Nordund will counter my criticisms above by saying that they want gradual experimentation long before implementation of a complete global paradigm shift in financial reporting.
The good news is that we can experiment before having to eradicate the existing infrastructure too rapidly. My favored multi-column reporting system is the answer. Traditional GAAP reporting can appear in Column 1. The Selling and Nordlund independent appraiser numbers of replacement costs can appear experimentally in Column 2 for a limited number of companies. If Column 2 benefits significantly exceed costs in capital markets, the numbers of experimental firms reporting this way can then be increased until we are assured that a paradigm shift will make capital markets much more effective and efficient.

My point here is that Selling and Nordlund really did not propose that their be a paradigm shift be as reckless as some of the socio-economic transitioning taking place in California today.


 

Another Jensen Comment

Hi XXXXX,

Thank you so much for sending me some information on what CVAs must learn. Perhaps I'm just over reacting to Tom Selling's proposal that CVAs take over the responsibility for corporate financial reporting (think 10-Ks) from business management and CPA auditors.

One thing I noticed in your attachment is that the assignments, like those assignments on CFA exams, rely heavily on corporate business financial statements generated by management and audited by CPAs.

It's also not clear about details used to teach how to synergize values. It's certainly not transitory day-to-day stock prices when a few puffs of marijuana by the CEO can send prices crashing. 

In 1987 Day's Inns was contemplating taking equity public or selling out to a larger chain. It spent a fortune paying for exit value appraisals on its 300+ hotels. However, what it discovered is that exit values are the worst way to value a company because no buyer of the high flying Days Inns in 1987 was interested in selling the properties off piecemeal. That would also be the case for Tesla today but not Sears

My point is that when a CVA comes inn to value Sears today exit value appraisals would be the focal point. But that would not be the case for valuing Tesla. For Tesla the CVA is assigned to compute synergy values such as what Tesla would be worth in an acquisition by Chrysler versus Ford versus Toyota. In all three cases the synergy values would be highly different between the three prospective buyers. 

And it's not clear what standards and what technical skills CVAs are taught about computing synergy values relative to what other professionals like CFAs are uniquely taught. Maybe I'm just being cynical here but I think appraisers, whether those certified as CVAs or appraisers certified by the AICPA or finance associations, 

When it comes to valuing Tesla in 2018 or Days Inns in 1987 my money is on the skills of CFAs due to the rigor and experience required to get that certification.

I do agree with you that the CVA credential is probably more rigorous for valuing Tesla than the CPA credential or anything else that the AICPA is going to come up with. But I don't think the CVA holders went through the education and training rigors relative to the CFAs.

I always remember Barbara Walters saying that getting her CFA credential was much tougher than getting her CPA credential.

But I'm not about to recommend that CFAs take over the responsibility for generating 10-K reports. The CFAs are experts at using 10-K reports, not generating them.

 

By the way, you are one of the very best long-term technical accounting contributors to the AECM.
Thank you for this
Bob Jensen

 

States’ deregulatory push threatens CPA licensure ---
https://www.journalofaccountancy.com/news/2018/sep/deregulatory-push-threatens-cpa-licensure-201819465.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=10Sep2018

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

CPAs Fight to Protect Part of Their Turf (in consulting valuation of intangibles)

By Michael Rapoport | Aug 21, 2018

TOPICS: Accounting Careers

SUMMARY: The AICPA has proposed offering Accredited Business Valuation (ABV) to individuals who do not already hold the CPA license. According to the AICPA web site (see https://www.aicpa.org/membership/join/abv-exam.html) "The Accredited Business Valuation (ABV ®) credential is granted exclusively by the AICPA to CPAs and qualified finance professionals who demonstrate considerable expertise in business valuation through their knowledge, skill, experience and adherence to professional standards." Obtaining the credential requires passing a two-part exam, though that requirement is waived for individuals holding the CFA from the CFA Institute, the CBV from the Canadian Institute of Chartered Business Valuators, or the AM or ASA from the American Society of Appraisers.

CLASSROOM APPLICATION: The article may be used to discuss accounting career plans or the increasing use of fair value as the required measurement method in financial accounting.

QUESTIONS: 

 

1. (Introductory) What factors have led to the AICPA proposing to expand its Accredited Business Valuation (ABV) credential?

 

2. (Introductory) Why are some CPAs rallying against this proposal?

 

3. (Advanced) Why do companies need work by business valuation experts in relation to the accounting function?

 

4. (Advanced) Discuss one area of accounting that you know of for which valuation expertise is needed. Why is the accounting requirement established in this way?

READ THE ARTICLE



 

Reviewed By: Judy Beckman, University of Rhode Island

 

"CPAs Fight to Protect Part of Their Turf," by Michael Rapoport, The Wall Street Journal, August 21, 2018 ---
https://www.wsj.com/articles/cpas-fight-to-protect-part-of-their-turf-1534757400?mod=djem_jiewr_AC_domainid

Some CPAs are fighting with their trade group about who gets to value complex assets for companies

Some CPAs are up in arms about a move by their industry’s main trade group to allow people from outside their ranks to be credentialed to help companies value complex assets.

Caught in the crossfire: companies that more than ever need specialists to help assess hard-to-value assets, like brand names and customer relationships. The demand for such services has grown dramatically in recent years into an industry that generates more than $4 billion in annual revenue, as those assets have grown more prominent on companies’ balance sheets.

That growing demand is what kicked off the fight in the first place. The American Institute of CPAs, the body that represents certified public accountants, decided to meet that demand by expanding the eligibility for its Accredited in Business Valuation credential.

The AICPA said in May that it would offer this designation—an ABV—to those who aren’t CPAs. The three-letter abbreviation is a denotation that financial professionals tack after their names, just like “CPA” itself.

But a group of prominent CPAs has objected fiercely. They contend making the ABV credential available more broadly will water down its significance and confuse businesses. They also say the AICPA acted behind closed doors, without consulting members who would be affected.

“It’s going to reduce the value of that brand in the marketplace,” said Harold G. Martin Jr., a Virginia CPA and ABV holder and a former chair of the AICPA’s conference on business valuation. He likens it to being allowed to become a medical specialist without first obtaining an M.D. degree.

The AICPA disagrees. “We actually think this is going to enhance the value of the ABV credential,” said Susan Coffey, the group’s executive vice president of public practice. “We’re not going to offer it to anyone who’s not qualified.”

Continued in article


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

SEC Mulls Opening Private Markets

By Dave Michaels | Aug 31, 2018

TOPICS: Regulation, SEC, Securities and Exchange Commission

SUMMARY: The chairman of the SEC, Jay Clayton says the agency wants to make it easier for smaller investors to get in on private companies. "The private markets are awash in capital these days...The question is, who is participating?" Private firms typically sell shares to "...sophisticated investors such as venture capitalists. There is typically less information available about the firms, increasing risk for investors." The SEC is planning to issue a Concept Release "...that will seek public comment on how to revamp the capital-raising process, including by expanding access to private stock sales." The SEC hopes to "...create more 'accredited' investors, such as by allowing in people who don't meet income or wealth thresholds but have professional licenses or advanced education."

CLASSROOM APPLICATION: The article may be used when discussing the corporate form of entity in a financial accounting class.

QUESTIONS: 

 

1. (Advanced) What is the difference between a public company and a privately held one?

 

2. (Introductory) Why have young growing companies held off from becoming public companies in recent years?

 

3. (Introductory) What rule changes does the chair of the Securities and Exchange Commission (SEC), Jay Clayton, think may help broaden the access to privately-held companies by smaller investors?

 

4. (Advanced) How will the SEC consider whether to expand access for smaller investors to invest in privately-held entities? That is, what process for doing so is discussed in the article?

READ THE ARTICLE



 

Reviewed By: Judy Beckman, University of Rhode Island

 

"SEC Mulls Opening Private Markets," by Dave Michaels, The Wall Street Journal, August 31, 2018
https://www.wsj.com/articles/sec-chairman-wants-to-let-more-main-street-investors-in-on-private-deals-1535648208?mod=djem_jiewr_AC_domainid

Jay Clayton outlines overhaul plans in interview, says changes could happen ‘pretty quickly’

NASHVILLE, Tenn.—The Securities and Exchange Commission wants to make it easier for individuals to invest in private companies, including some of the world’s hottest startups, the agency’s chairman said in an interview.

SEC Chairman Jay Clayton, a Trump appointee wrestling with how to boost flagging interest in public markets, said the commission also wants to take steps to give more individual investors a shot at companies that have been out of their reach because they haven’t gone public.

Companies including Uber Technologies Inc. and Airbnb Inc. have shunned the public markets in favor of private investors such as venture capitalists. For decades, regulators have typically walled off most private deals from smaller investors, who must meet stringent income and net-worth requirements to participate because of the added risk private investing holds.

Mr. Clayton said the SEC is now weighing a major overhaul of rules intended to protect mom-and-pop investors, with the goal of opening up new options for them.

“The private markets are awash in capital these days,” Mr. Clayton said Wednesday in Nashville, where he spoke to groups of entrepreneurs and business-school students. “The question is, who is participating?”

Private firms have grown outside the glare faced by public companies such as Tesla Inc., whose founder Elon Musk recently set off a firestorm by tweeting that he planned to take his company private. Mr. Musk has complained that public markets encourage short-term thinking and routinely sparred with short sellers betting against his company’s stock. His plan, which has since been abandoned, has triggered an SEC probe into whether his tweet was misleading. Mr. Clayton declined to discuss Tesla.

President Trump also has pressured the SEC to consider the balance between public and private markets, using Twitter two weeks ago to call on the SEC to study letting public firms report earnings every six months, instead of quarterly.

“I’m not wedded to a particular result, but I think we should look at it,” Mr. Clayton said in the interview, conducted Wednesday. He said that the commission is studying the move, and added that even if companies reported earnings less frequently they would still update investors on important trends.

Private securities, mostly off the radar of federal regulators, are usually sold to sophisticated investors such as venture capitalists. There is typically less information available about the firms, increasing risks for investors.

Those markets also have traditionally been a major source of fraud afflicting small investors. Securities firms with a higher number of troubled brokers are more likely to sell private stakes in companies, often targeting seniors, an analysis this year by The Wall Street Journal found.

Rules aim to protect individual investors from riskier private deals. Only those who meet certain wealth or income standards—such as household income of $300,000—can participate.

Adjusting the rules could offer Mr. Clayton, a former Wall Street deals lawyer, a way to make good on his goal to help small investors access more high-quality investments for retirement or other needs.

Continued in article


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

SurveyMonkey Parent Offers IPO Details Publicly

By Maureen Farrell | Aug 30, 2018

TOPICS: Initial Public Offerings

SUMMARY: "The parent company of SurveyMonkey, SVMK Inc., gave potential investors a first look at the online survey company's financials." The article links to the Form S-1 Registration Statement which has become public after having been filed earlier in 2018 on a confidential basis. "The filing reveals a company whose losses contractedsharply from 2016 to 2017, though revenue...ticked up only slightly."

CLASSROOM APPLICATION: The article may be used to discuss the IPO process and public versus private companies. It particularly may be used to complement the concurrent article on the Securities and Exchange Commission (SEC) planning to consider ways to allow more investors to access private markets.

QUESTIONS: 

 

1. (Advanced) Click on the link in the article to the "IPO filing" available directly at https://www.sec.gov/Archives/edgar/data/1739936/000119312518261892/d494258ds1.htm What form was filed by SVMK, Inc., the parent company of SurveyMonkey, on which this article is based?

 

2. (Advanced) When did this form become available? Was that the first time the company made a filing with the Securities and Exchange Commission (SEC)? Explain.

 

3. (Introductory) What financial trends did the author of this article glean from the filing?

 

4. (Introductory) For what purpose does the company intend to use financing obtained through its initial public offering (IPO)?

 

5. (Advanced) Return to the IPO filing and scroll down to the first page with SurveyMonkey logo. What is an "emerging growth company"? What disclosure requirement change does that category imply? Cite your source for this definition and information.

READ THE ARTICLE



 

Reviewed By: Judy Beckman, University of Rhode Island

 

"SurveyMonkey Parent Offers IPO Details Publicly," by Maureen Farrell , The Wall Street Journal, August 30, 2018
https://www.wsj.com/articles/surveymonkey-parent-files-publicly-for-ipo-1535579139?tesla=y

Do-it-yourself online survey company provides a first look at its financial profile

The parent company of SurveyMonkey, SVMK Inc., publicly disclosed details of its initial public offering Wednesday, giving potential investors a first look into the company’s financials.

The filing reveals a company whose losses contracted sharply from 2016 to 2017, though revenue for the do-it-yourself online survey company ticked up only slightly. SVMK made the IPO filing with the Securities and Exchange Commission public Wednesday, after filing confidentially earlier this year.

For calendar year 2017, the SurveyMonkey parent posted a net loss of $24 million on $218.8 million in revenue, compared with a loss of $76.4 million on $207.3 million in revenue in 2016.

The company, founded in 1999, provides survey software to people and companies seeking to gather data. It generates the majority of its revenue from sales of subscription products, and its user base is made up of more than 600,000 paying users across more than 300,000 organizations. In its filing, it outlined how the “virality” of its surveys helps it acquire new users cost-effectively. It also said that it is focused on converting unpaid users to paying ones.

The company has financed its business using a substantial amount of debt, and it plans to use proceeds from the IPO to partially repay it, as well as for working capital and paying down some income-tax obligations. The company said it had total aggregate debt of about $322 million as of June 30.

Continued in article


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

At Boeing Factory, Unfinished 737s Pile Up

By Andrew Tangel and Doug Cameron | Sep 03, 2018

TOPICS: Supply Chains

SUMMARY: "Boeing has secured a 90-day agreement with Renton, Wash., that allows the manufacturer to park four 737 airliners on a taxiway at the city's small airport. "Boeing's urgent request to store planes on the Renton airport taxiway came in late July, according to emails and other documents that city officials provided to The Wall Street Journal in response to a public-records request." The backlog is happening because suppliers of engines and the fuselage are having trouble keeping up with the high demand for this production driven by rapid growth in worldwide air travel. Those suppliers point to difficulties with their own smaller parts suppliers meeting demand. "Boeing delivered just 29...737s in July, though more than 50 mostly-finished jets roll off the production line each month." Airbus is facing similar challenges and also has undelivered planes near its factories. Both companies state that they plan to deliver as many aircraft as promised by the end of the year.

CLASSROOM APPLICATION: The article may be used in a managerial accounting class covering production bottlenecks, production budgets, and production forecasts.

QUESTIONS: 

 

1. (Advanced) What is a production budget? Who beyond company management is interested in Boeing's production plan?

 

2. (Advanced) What factors are leading Boeing to face a production bottleneck preventing delivery of its nearly-finished 737 aircraft? Include in your answer a definition of supply chains.

 

3. (Introductory) What party(ies) beyond Boeing's management are interested in the companies strategies to meet its yearly production budget and manage its supply chains?

READ THE ARTICLE



 

RELATED ARTICLES: 
Jet Makers Under Strain
by Robert Wall and Doug Cameron
Jul 16, 2018
Page: ##

Reviewed By: Judy Beckman, University of Rhode Island

 

"At Boeing Factory, Unfinished 737s Pile Up," by Andrew Tangel and Doug Cameron, The Wall Street Journal, September 3, 2018
https://www.wsj.com/articles/at-boeing-factory-unfinished-737s-pile-up-1535972401?mod=djem_jiewr_AC_domainid

Supplier bottlenecks threaten production at aerospace giant’s factory near Seattle

Boeing Co. BA 1.32% is facing a problem as it races to meet demand for single-aisle, fuel-efficient jets: where to store unfinished 737s piling up at a factory near Seattle.

One answer in late July was the taxiway of the small airport in Renton, Wash., next to its Boeing factory there.

“Boeing is running out of space,” Renton public works administrator Gregg Zimmerman wrote to city council members in a July 27 memo about the taxiway plan. “They have encountered an emergency production challenge that threatens to interfere with their ability to keep their airplane production lines running.”

A Boeing spokesman said the request for parking space was part of a “recovery plan” to get deliveries to match production rates. Mr. Zimmerman declined to comment.

The unfinished airplanes illustrate a challenge to Boeing, the world’s biggest aircraft manufacturer by sales, as it tries to make enough of its new 737 Max jets to meet fast-growing demand. Boeing and rival Airbus SE together have more than $1 trillion in orders for planes, driven by a global boom in air travel that is adding 100 million passengers a year.

Continued in article


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

Corporate Profits Take Off

By Harriet Torry and Theo Francis | Aug 30, 2018

TOPICS: Income Statement, Income Taxes, Profitability

SUMMARY: "The Commerce Department said Wednesday that its broadest measure of after-tax profits across the U.S. rose 16.1% in the quarter ended June 30 from a year earlier, the largest year-over-year gain in six years." The article discusses the impact of both the corporate tax rate reduction and growing sales. It also mentions earnings per share, dividends, and share buybacks.

CLASSROOM APPLICATION: The article may be used when discussing components of the income statement, earnings per share, and income tax reporting.

QUESTIONS: 

 

1. (Introductory) What income statement trends are discussed in this article? Be specific in listing income statement line items and the 2018 trends noted in the article.

 

2. (Advanced) Does the amount reported as income tax expense equal the amount of taxes paid by a corporation? Explain your answer.

 

3. (Advanced) Given your answer to question 2 above, do you think that "taxes paid by U.S. companies" is determined from their income statement amount? Again, explain your answer.

 

4. (Introductory) Refer to the graph entitled Falling Taxes, Rising Profits. Explain the components of the graph. Why do you think the graph fell so dramatically form 2010 forward?

 

5. (Introductory) What factor(s) led to a strong increase in earnings after tax among U.S. corporations in the quarter ended June 30 as compared to the same quarter in 2017?

READ THE ARTICLE



 

Reviewed By: Judy Beckman, University of Rhode Island

 

"Corporate Profits Take Off." by Harriet Torry and Theo Francis , The Wall Street Journal, August 30, 2018
https://www.wsj.com/articles/u-s-corporate-profits-soared-in-second-quarter-boosted-by-tax-cuts-and-economic-growth-1535559230?mod=djem_jiewr_AC_domainid

Commerce Department measured 16.1% year-over-year gain, the largest in six years

WASHINGTON—U.S. corporate profits boomed in the second quarter, boosted by large tax cuts and stronger economic growth than initially reported.

The Commerce Department said Wednesday that its broadest measure of after-tax profits across the U.S. rose 16.1% in the quarter ended June 30 from a year earlier, the largest year-over-year gain in six years.

Because of the lower corporate tax rate signed into law last year, taxes paid by U.S. companies in the quarter were down 33% from a year earlier, according to the government data, or more than $100 billion at an annual rate.

Strong economic growth also played a role. The Commerce Department revised upward its estimate of how fast the U.S. economy grew in the second quarter, to an annual rate of 4.2% from an earlier estimate of 4.1%.

Good economic news and robust corporate earnings reports have powered the stock market in recent weeks. On Wednesday, the S&P 500 index added 0.6%, while the tech-heavy Nasdaq Composite climbed 1%. Both set new highs. The Dow Jones Industrial Average closed up 61 points, or 0.2%, at 26124.57.

The government profit report capped a string of strong earnings by individual companies. Executives across a range of industries were largely upbeat in the recently completed earnings season.

Farm and construction equipment maker Deere & Co., for example, said healthy demand for road-building equipment has extended its order book well into 2019 and that the nation’s agricultural economy may prove strong even though many farmers are being hammered by retaliation abroad against recently imposed U.S. tariffs. Its sales in the second quarter rose 32% from a year earlier, to $10.3 billion.

“Overall, we are encouraged by the outlook for the rest of 2018 and the early interest for our latest technology,” Deere & Co. Chief Financial Officer Rajesh Kalathur told investors on Aug. 17.

One worry is that as the impetus from tax cuts wanes, profit and economic growth could slow next year and beyond. Executives in earnings calls also expressed concerns about Trump administration trade policy and the risk of rising barriers to sales at home and abroad.

Still, analysts see little sign of a letup in earnings momentum this year, though Wall Street projections for 2019 point toward a modest slowdown.

For now, rising profits could fuel economic growth in the coming months.

“Businesses have more money to continue boosting investment in the second half of the year,” said Roiana Reid, an economist at Berenberg Capital Markets. Companies “will need to increase production to meet strong domestic demand and replenish inventories,” she said.

Per-share earnings for companies in the S&P 500 rose 24.8% over the second quarter of 2017, the second-fastest rate since late 2010 and trailing only this year’s first quarter, according to data from Thomson Reuters that incorporates analysts’ adjustments to results. That rate is projected to slow to 9.3% by next year’s second quarter.

Continued in article


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

Move to Semiannual Reporting Would Benefit Small Companies the Most

By Tatyana Shumsky | Sep 04, 2018

TOPICS: SEC, Securities and Exchange Commission, Auditing Services

SUMMARY: The article follows on previous coverage of President Trump asking the Securities and Exchange Commission (SEC) to consider semi-annual rather than quarterly reporting (see the related article). While moving to semi-annual reporting would benefit smaller companies, "the cost savings likely wouldn't be significant for larger firms." Costs of external audits are estimated relative to total revenues; concepts related to internal costs of financial reporting also are discussed. Potential cost savings from reduced frequency of periodic reporting are assessed via conversations with two former audit partners and one former member of the leadership of the SEC's Division of Corporate Finance.

CLASSROOM APPLICATION: The article may be used to discuss costs of financial reporting in an auditing or financial reporting class.

QUESTIONS: 

 

1. (Advanced) How often do publicly traded companies provide financial reports to U.S. markets? What audit services are required to be conducted for each of those reports?

 

2. (Introductory) "In terms of accounting costs, size matters." Explain this statement made in the article.

 

3. (Introductory) What costs of financial reporting are considered in this article? From where did the author obtain the information about those costs?

 

4. (Advanced) Consider the internal costs discussed in the article. Do you think these costs would be completely eliminated if external reporting requirements were reduced to twice yearly? Explain your answer.

 

5. (Advanced) Define the concept of timeliness in relation to the qualitative characteristics of financial reporting. With what primary qualitative characteristic is timeliness associated?

 

6. (Advanced) Do you think the discussion in this article addresses costs associated with degrading this qualitative characteristic in financial reporting? Explain your answer.

READ THE ARTICLE



 

RELATED ARTICLES: 
Trump Asks SEC to Ease Earnings Reporting
by Dave Michaels, Michael Rapoport, and Jennifer Maloney
Aug 18, 2018
Page: A1

Reviewed By: Judy Beckman, University of Rhode Island

 

"Move to Semiannual Reporting Would Benefit Small Companies the Most," by Tatyana Shumsky |, The Wall Street Journal, September 4, 2018
https://www.wsj.com/articles/move-to-semiannual-reporting-would-benefit-small-companies-the-most-1536053400?mod=djem_jiewr_AC_domainid

If the U.S. stopped requiring reports on a quarterly basis, the cost savings likely wouldn’t be significant for larger firms

When President Trump last month asked financial regulators to consider allowing public companies to report results on a semiannual basis, rather than quarterly, he said the change would reduce costs and offer greater flexibility.

But in terms of accounting costs, size matters. The anticipated cost savings would benefit smaller public companies, but the change probably wouldn’t make a substantial difference for larger firms, lawyers and accountants said.

Accelerated and large accelerated filers—companies that have earlier deadlines to file annual reports with regulators—paid audit fees of $541 per $1 million of revenue to their independent auditors in 2016, the latest full-year data available. By contrast, smaller reporting companies that recorded revenue in 2016, a group of 1,554 firms, paid $3,345 per $1 million in revenue, according to an analysis from consulting firm Audit Analytics conducted for The Wall Street Journal.

The disparity reflects the fixed costs involved in performing annual audit and review work, as well as the economies of scale that can make large companies more efficient. For smaller companies, absolute costs matter more because they represent a greater share of potential profit.

Not all financial reports require the same level of effort. Public companies file three quarterly reports that require only a review by outside accountants. The fourth—the annual report, which includes fourth-quarter results—requires an audit.

The first three quarterly reviews together account for roughly 15% to 20% of the overall audit cost, according to two former audit partners of large accounting firms. However, eliminating two of those three reviews wouldn’t slash two-thirds of the cost, they said, as the midyear review would be more robust and command higher fees.

Still, the external accountant’s review is only one aspect of the price tag of the quarterly report. Finance chiefs must close the books, coordinate with other executives to review the figures and compose managements’ analysis to be shared with investors. Companies also often work with both internal and external lawyers to update risk and legal disclosures required by regulators, adding to preparation costs.

Those costs—and any potential savings—are difficult to measure. Companies don’t disclose how much time executives spend on quarterly filings, or the legal fees spent on the endeavor.

If twice-a-year reporting becomes a reality, CFOs will be faced with a dilemma: Apply the time savings to financial planning, analysis and the improvement of operations. Or keep distributing the quarterly performance figures, which analysts and investors prize. (Last year, most companies took 4½ days to close their books for a quarter).

“Could you move to a system where you relied on a press release in quarters one and three, and then just a semiannual and annual report? Yeah, I think the markets could adapt to that,” said Keith Higgins, the former director of the corporation finance division of the U.S. Securities and Exchange Commission.

It is unclear whether public company executives want the regulator to seriously consider scrapping the quarterly reporting system. The SEC asked the public to comment on the frequency of interim reporting in 2016.

One response, from Ernst & Young LLP, addressed that question. The accounting firm said the shift could benefit smaller companies not listed on a national exchange. An Ernst & Young spokeswoman declined to provide further comment.

A switch to semiannual reporting also presents risks. Companies that are planning to conduct a follow-on round of financing will need to decide whether to give potential investors more frequent financial snapshots, said Anna Pinedo, a partner at corporate law firm Mayer Brown LLP.

Continued in article


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

SEC Is Back at Full Strength

By Dave Michaels | Sep 06, 2018

TOPICS: SEC, Securities and Exchange Commission

SUMMARY: Elad Roisman joined the Securities and Exchange Commission at 37 years old after the U.S. Senate voted 85 to 14 to approve his appointment. Mr. Roisman was formerly the chief counsel for the Senate Banking Committee. His appointment completes the five-member Commission comprised of three Republicans and two Democrats. The article notes that Chair Jay Clayton will need Mr. Roisman's vote to pass regulations imposing new requirements to better ensure broker-dealers act in the best interests of their clients. Other proposals mentioned in the article reduce regulation, more consistent with Republican view, such as relaxing Sarbanes-Oxley internal control testing and reporting for smaller companies.

CLASSROOM APPLICATION: The article may be used in a financial reporting class to discuss the organization of the entity which regulates financial reporting or an auditing class given the article's mention of changing internal control testing requirements.

QUESTIONS: 

 

1. (Advanced) What is the purpose of the Securities and Exchange Commission? You will find information at www.sec.gov.

 

2. (Advanced) How many staff work for the SEC? In what five divisions do the SEC staffers work? (Again, you may refer to www.sec.gov)

 

3. (Introductory) Based on statements in the article, describe Mr. Roisman's career path to this position on the SEC.

 

4. (Introductory) What accounting and auditing requirement does SEC Chair Jay Clayton want to relax? For what type of companies does he want to make this change?

 

5. (Advanced) Based on statements given in the article, describe the SEC's process for implementing this, or any other, proposed regulatory change.

READ THE ARTICLE



 

Reviewed By: Judy Beckman, University of Rhode Island

 

"SEC Is Back at Full Strength," y Dave Michaels, The Wall Street Journal, September 6, 2018 ---
https://www.wsj.com/articles/sec-is-back-at-full-strength-with-five-members-1536168160?mod=djem_jiewr_AC_domainid

Senate confirms Republican lawyer Elad Roisman as commissioner; move creates a majority for some deregulatory measures

WASHINGTON—The Senate confirmed Elad Roisman to join the Securities and Exchange Commission, giving the regulator a fifth and final member as it prepares to impose restrictions on stockbroker advice while loosening the reins on some public companies.

Mr. Roisman, 37 years old, will join the SEC after working for several years on the Senate Banking Committee, where he was the panel’s chief counsel. The Senate approved him 85-14.

The Republican will succeed Michael Piwowar, who stepped down in July and joined the Milken Institute on Wednesday as executive director of its center for financial markets.

The SEC is a 4,600-person agency largely run by its chairman, Jay Clayton, a political independent appointed by President Trump. The agency’s four commissioners must vote to approve any new regulations as well as litigation or settlements that arise from enforcement investigations. Commissioners don’t manage the SEC’s staff, but can influence the federal agency’s agenda by negotiating with the chairman over regulations or the terms of enforcement cases.

The SEC has had a full complement of five members for only six months of Mr. Clayton’s tenure, which began in May 2017. The number dropped to four when Mr. Piwowar left.

Mr. Roisman will join the SEC when Mr. Clayton needs a majority of commissioners to approve rules that would impose new constraints on stockbrokers who deal with retail investors.

The SEC’s proposal would require brokers to act in the best interest of clients, barring the picking of lackluster or unsuitable investments because they make more money for them or the brokerage firm.

The SEC’s Democratic commissioners have shown unhappiness with the plan, saying the proposed requirements are so ambiguous that they won’t change the status quo. Mr. Clayton argues they would go well beyond the current standard, boosting protections for investors.

But the Democrats’ skepticism means Mr. Clayton would probably need Mr. Roisman’s vote—as well as support from Republican Commissioner Hester Peirce—to finish the regulation.

“Chairman Clayton will soon have another Republican commissioner whose vote will be critical on controversial matters,” said David Tittsworth, a lawyer at Ropes & Gray LLP who previously led the Investment Adviser Association.

Mr. Roisman also could have a hand in deregulatory proposals that make it easier for companies to raise capital by selling stock and debt.

Mr. Clayton wants to open private markets to more individual investors, while scaling back some requirements on small public companies. Speaking to an audience in Nashville, Tenn., last week, Mr. Clayton called for exempting more smaller companies from needing an audit of their internal controls designed to prevent accounting fraud or errors.

Mr. Roisman will become the latest SEC commissioner to join the regulator after working in the Senate. Ms. Peirce also is a former banking panel staffer. She and Mr. Roisman both worked at the SEC earlier in their careers.

In his Senate role, Mr. Roisman helped draft legislation that called for rolling back some financial regulations put in place after the 2008 financial crisis.

Continued in article


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

Gen Z Is Coming to Your Office. Get Ready to Adapt.

By Janet Adamy | Sep 07, 2018

TOPICS: Accounting Careers

SUMMARY: "Gen Z totals about 67 million, including those born roughly beginning in 1997 up until a few years ago. Its members are more eager to get rich than the past three generations but are less interested in owning their own businesses, according to surveys... Now they are eschewing student debt, having seen prior generations drive it to records, and trying to forge careers that can withstand economic crisis." The article tells the story of Sean McKeon, a senior at Miami University of Ohio who is entering the public accounting profession after interning at EY and obtaining an offer of permanent employment there.

CLASSROOM APPLICATION: The article focuses on workplace behaviors of Gen Z in contrast to millennials and may be used in any class to discuss accounting careers.

QUESTIONS: 

 

1. (Introductory) How do you react to the use of descriptions such as "Gen Z", "millennials", and "baby-boomers"?

 

2. (Advanced) Can you understand a need to describe generations of workers to those in management positions likely to read the Wall Street Journal? Explain your answer.

 

3. (Introductory) Do you think that the description of "Gen Z" workers given in the opening paragraphs of this article is accurate? In your answer, quote the description that you use to provide this answer.

 

4. (Advanced) Sean McKeon "set his sights on a Big Four accounting firm" as a start to a "recession-proof" career. Do you think the public accounting profession is "recession-proof"? Explain your answer.

READ THE ARTICLE



 

Reviewed By: Judy Beckman, University of Rhode Island

 

"Gen Z Is Coming to Your Office. Get Ready to Adapt," by Janet Adamy, The Wall Street Journal, September 7, 2018
https://www.wsj.com/graphics/genz-is-coming-to-your-office/?mod=djem_jiewr_AC_domainid

The generation now entering the workforce is sober, industrious and driven by money. They are also socially awkward and timid about taking the reins.

Sean McKeon was 11 years old when the 2008 financial crisis shot anxiety through his life in Hudson, Ohio. He remembers his father coming home stressed after the Federal Deposit Insurance Corp. took over the bank where he worked. A teacher asked classmates if their parents cut back that Christmas. They all said yes.

That unsettling time shaped the job plans he hatched in high school. “I needed to work really hard and find a career that’s recession-proof,” says Mr. McKeon, now 21. He set his sights on a Big Four accounting firm. He interned at EY in Cleveland and will become an auditor there after graduating from Miami University in Oxford, Ohio, next year.

About 17 million members of Generation Z are now adults and starting to enter the U.S. workforce, and employers haven’t seen a generation like this since the Great Depression. They came of age during recessions, financial crises, war, terror threats, school shootings and under the constant glare of technology and social media. The broad result is a scarred generation, cautious and hardened by economic and social turbulence.

Gen Z totals about 67 million, including those born roughly beginning in 1997 up until a few years ago. Its members are more eager to get rich than the past three generations but are less interested in owning their own businesses, according to surveys. As teenagers many postponed risk-taking rites of passage such as sex, drinking and getting driver’s licenses. Now they are eschewing student debt, having seen prior generations drive it to records, and trying to forge careers that can withstand economic crisis.

Early signs suggest Gen Z workers are more competitive and pragmatic, but also more anxious and reserved, than millennials, the generation of 72 million born from 1981 to 1996, according to executives, managers, generational consultants and multidecade studies of young people. Gen Zers are also the most racially diverse generation in American history: Almost half are a race other than non-Hispanic white.

With the generation of baby boomers retiring and unemployment at historic lows, Gen Z is filling immense gaps in the workforce. Employers, plagued by worker shortages, are trying to adapt.

Continued in article


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

Investor Test Case in Volkswagen Emissions Scandal Goes to Court Next Week

By William Boston | Sep 07, 2018

TOPICS: Contingent Liabilities, IFRS

SUMMARY: A case by VW investors began on Monday September 10, 2018 in Braunschweig, It is a test suit because German law does not allow for class action lawsuits. "If successful, it could unleash a barrage of similar claims related to the emissions cheating, which has already cost the company about $27 billion in fines, penalties and compensation....Shareholders who suffered significant losses from the sudden price drop [of VW shares upon announcement of the U.S. Environmental Protection Agency accusation that VW violated U.S. environmental law] now claim...that management waited too long to warn them of the risks...." They "...are seeking billions of dollars in compensation." The article includes a timeline graphic of events showing that VW has booked a $6.5 billion provision when the article states that the possibility for this lawsuit alone is an $11 billion finding.

CLASSROOM APPLICATION: The article is useful to consider reporting for contingent liabilities and provisioning with a company using IFRS.

QUESTIONS: 

 

1. (Introductory) Summarize the emissions scandal in which Volkswagen has been embroiled since 2015.

 

2. (Introductory) According to the article, what has been the total cost of VW's diesel emissions scandal?

 

3. (Introductory) What was the impact of this scandal on the company's share price?

 

4. (Introductory) How has this stock price reaction led to the litigation beginning now in Braunschweig?

 

5. (Introductory) What differences in German legal practices from those in the U.S. could impact the outcome of this legal challenge?

 

6. (Advanced) Summarize the requirements to account for these legal uncertainties under International Financial Reporting Standards (IFRS). Cite the standards under IFRS.

 

7. (Advanced) Refer specifically to IAS 37 paragraph 92. What does that paragraph allow?

 

8. (Advanced) Refer to the Volkswagen AG 2017 annual report available in English online at https://www.volkswagenag.com/en/InvestorRelations/news-and-publications/Annual_Reports.html Search for the company's citation of IAS 37.92 Where does VW reference this standard? Cite all instances that you find.

READ THE ARTICLE



 

RELATED ARTICLES: 
Volkswagen's Emissions Bill Could Surpass $25 Billion
by William Wilkes
Feb 01, 2017
Online Exclusive

Reviewed By: Judy Beckman, University of Rhode Island

 

"Investor Test Case in Volkswagen Emissions Scandal Goes to Court Next Week," y William Bosto, The Wall Street Journal, September 7, 2018 ---
https://www.wsj.com/articles/investor-test-case-in-volkswagen-emssions-scandal-goes-to-court-next-week-1536256548?mod=djem_jiewr_AC_domainid

Outcome of lawsuit brought by Deka Investment would inform rulings on hundreds of other pending investor lawsuits

BERLIN— Volkswagen AG VOW3 1.23% could have to pay as much as $11 billion in damages related to its diesel emissions-cheating scandal if a German court sides with investors in a lawsuit that goes to trial next week.

The suit represents the most significant outstanding legal challenge still facing the company in the wake of the three-year-old scandal.

The case that will be heard starting Monday in a court in Braunschweig, near Volkswagen’s headquarters in Wolfsburg, is a test suit. If successful, it could unleash a barrage of similar claims related to the emissions cheating, which has already cost the company about $27 billion in fines, penalties and compensation.

On Sept. 18, 2015, U.S. environmental authorities accused Volkswagen of violating environmental law after it admitted to installing illegal software on more than 500,000 diesel vehicles sold in the U.S. It later admitted to installing the software on nearly 11 million vehicles world-wide, the bulk of them in Europe.

The allegations sent Volkswagen shares falling 37% from the closing price the day before the announcement to €106 on Sept. 22, when Volkswagen first issued a statement to financial markets warning of risks to the company’s earnings from potential penalties in the aftermath of the U.S. Environmental Protection Agency’s complaint.

Shareholders who suffered considerable losses from the sudden price drop now claim in the lawsuit that management waited too long to warn them of the risks and are seeking billions of dollars in compensation. “This is the largest outstanding legal risk for the company,” said Arndt Ellinghorst, automotive analyst at Evercore ISI, a London-based brokerage.

A decision in favor of investors, including some of the largest investment funds in the world, is far from certain. In addition to the complex technical issues to be resolved, German courts rarely grant large awards for damages in civil litigation cases.

“It will be difficult to prove that management deliberately misinformed the market in order to manipulate the share price,” Mr. Ellinghorst said.

Because Germany doesn’t allow U.S.-style class-action lawsuits, the case being heard in Braunschweig is a test case, brought by Deka Investment GmbH, one of the biggest investment funds in Germany.

The outcome of Deka’s lawsuit would inform the rulings on approximately 1,668 additional pending lawsuits that seek as much as €9.2 billion ($10.7 billion) in damages from Volkswagen.

In Volkswagen’s rebuttal, viewed by The Wall Street Journal, the company’s lawyers argue that management couldn’t have foreseen the enormous fines and penalties sought by U.S. authorities for the company’s violations. An analysis by the company’s lawyers at the time concluded that based on precedent, potential penalties would be so low as to have “no relevance for financial markets.”

“There was a paradigm shift in the Volkswagen case,” said a person familiar with Volkswagen’s defense, adding that the EPA has “changed its way of handling such cases.”

The largest fine imposed on an auto company for environmental violations until then was in 2014, when the EPA and U.S. Justice Department imposed a fine on Hyundai Motor Co. of $91 a vehicle, or about $100 million in total.

Continued in article

 


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

CFOs Look to Automate Tasks to Free Up Capacity

By Nina Trentmann | Sep 11, 2018

TOPICS: Accounting Careers

SUMMARY: "Nearly half of all tasks in corporate finance departments will be automated within three years..." is the opening sentence to this article. This and other information about the proportion of work done by computers now and in the future is gleaned form a survey conducted by Accenture of over 700 finance leaders (CFOs) of U.S. companies. The future for the finance and accounting function is not bleak: "The main advantage is to save employees' time to perform other tasks,... said [David Axson, managing director of Accenture Strategy]. 'We are not seeing a lot of headcount reduction at the moment...."

CLASSROOM APPLICATION: The article may be used to discuss accounting careers and knowledge for the future in an Accounting Information Systems or other class.

QUESTIONS: 

 

1. (Introductory) Who conducted the survey and wrote the report on which this article is based? Explain what you know about this firm.

 

2. (Advanced) List all descriptions of the respondents to the Accenture survey given in this article.

 

3. (Advanced) What are the major findings from the Accenture survey as reported in this article?

READ THE ARTICLE



 

Reviewed By: Judy Beckman, University of Rhode Island

 

"CFOs Look to Automate Tasks to Free Up Capacity," by Nina Trentmann, The Wall Street Journal, September 11, 2018
https://blogs.wsj.com/cfo/2018/09/11/cfos-look-to-automate-tasks-to-free-up-capacity/?mod=djem_jiewr_AC_domainid

Nearly half of all tasks in corporate finance departments will be automated within three years, freeing up capacity that finance chiefs can redeploy to develop the business, according to a study by Accenture Strategy, a unit of Accenture PLC.

Thirty-four percent of finance tasks at large global companies are already done by algorithms and robots, and that figure is set to rise to 45% in 2021, over 700 finance leaders said in the survey due out Wednesday.

Some firms are expected to go further than that, said David Axson, managing director of Accenture Strategy. “Companies are targeting to automate around 80% of their finance activities,” he said. “Tasks that are done by people today will soon be done by machines,” he said.

The use of advanced analytics and artificial intelligence by companies has more than doubled compared to 2014, according to Accenture. More than 70% of companies are using advanced analytics, up from 32% in 2016, while more than 60% of firms are deploying artificial intelligence compared to 28% in 2016.

Core duties such as processing transactions, accounting, controlling, compliance and reporting will be automated first, Mr. Axson said. At the moment, finance staff on average spend between 60% and 70% of their time on these tasks, he added.

The main advantage is to save employees’ time to perform other tasks, Mr. Axson said. “We are not seeing a lot of headcount reduction at the moment,” he said.

Close to 60% of surveyed companies had annual revenues of between $1 billion and $5 billion, Accenture said.

With the advance of technology comes a strategic shift in the role of the CFO, Mr. Axson said.

“Finance chiefs are becoming much more integral to the overall business,” he said. About eight in 10 CFOs see identifying and targeting new business opportunities as one of their main responsibilities, the survey found. Seventy-seven percent think it is in their remit to spearhead business-wide operational transformation.

Continued in article


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

Regulators Win Ruling On Digital Coin Deals
Judge Lets Cryptocurrency Fraud Case Go Forward, In Win for SEC

By Alexander Osipovich | Sep 12, 2018

TOPICS: Regulation, SEC, Securities and Exchange Commission

SUMMARY: "Regulators scored a victory in their crackdown on cryptocurrency crimes as a judge ruled that initial coin offerings are subject to U.S. securities-fraud laws."

CLASSROOM APPLICATION: The article may be used in any financial accounting or auditing class to discuss initial coin offerings (ICOs).

QUESTIONS: 

 

1. (Introductory) What are initial coin offerings (ICOs)?

 

2. (Advanced) How are ICOs similar to transactions regulated by the Securities and Exchange Commission (SEC)?

 

3. (Advanced) What is the benefit to regulators of winning a judge's ruling in a criminal trial filed in New York? Has the individual who conducted the ICO been found guilty? Explain your answer.

READ THE ARTICLE



 

Reviewed By: Judy Beckman, University of Rhode Island

 

"Regulators Win Ruling On Digital Coin Deals," by Alexander Osipovich, The Wall Street Journal, September 12, 2018
https://www.wsj.com/articles/judge-lets-cryptocurrency-fraud-case-go-forward-in-win-for-sec-1536704792?tesla=y

For first time a federal court weighs in on the government’s jurisdiction over ICOs in a criminal case

Regulators scored a victory in their crackdown on cryptocurrency crimes as a judge ruled that initial coin offerings are subject to U.S. securities-fraud laws.

Judge Raymond Dearie ruled on Tuesday that Maksim Zaslavskiy would need to stand trial on fraud charges related to ICOs, rejecting the Brooklyn businessman’s effort to have the case tossed out.

The ruling in the Eastern District of New York was the first time a federal court had weighed in on the government’s jurisdiction over ICOs in a criminal case, lawyers said. It will likely strengthen the hand of U.S. authorities going after alleged bad actors in the multibillion-dollar business.

In an ICO, a firm creates a new cryptocurrency and sells it to investors to raise money. Such offerings surged in popularity last year, and many operators touted them as way for startups to raise capital without the onerous regulations and hefty fees of a traditional initial public offering. ICO promoters cashed in on interest stoked by the success of bitcoin to raise money for projects ranging from instant messaging to cannabis.

Regulators have been wary of the craze. The Securities and Exchange Commission has said many ICOs are unregistered securities offerings, making them potentially illegal, and warned that many could be fraudulent.

ICOs have continued despite mounting regulatory scrutiny. Some $12 billion was raised in ICOs from January through the end of June, according to research firm Autonomous NEXT.

Federal prosecutors filed criminal fraud charges against Mr. Zaslavskiy last year in connection with two ICOs he had allegedly promoted. One, for a new digital coin called REcoin, was purportedly backed by real estate, while the other, Diamond Reserve Coin, was supposedly backed by diamonds. The SEC is pursuing civil charges of securities fraud against the businessman in a parallel case.

Mr. Zaslavskiy has pleaded not guilty and denied committing fraud. One of his lawyers, Jason Nagi, was not immediately able to comment on Tuesday.

The businessman’s lawyers had argued that the virtual currencies in the case weren’t securities under U.S. law and therefore his activities weren’t within the scope of the government’s enforcement powers. But Judge Dearie dismissed those arguments, writing that a “reasonable jury” could “conclude that Zaslavskiy promoted investment contracts (i.e. securities) through the RECoin and Diamond schemes.”

The ruling was relatively narrow in scope—it only settled the question of whether Mr. Zaslavskiy’s case would go to trial. But it was a significant victory for the SEC and Justice Department, whose views on digital tokens now have the blessing of a federal judge, according to Gary DeWaal, special counsel at Katten Muchin Rosenman LLP.

“This will certainly empower the Justice Department to bring other cases in this space,” Mr. DeWaal said. “The courts are confirming the regulators’ position.”

Representatives of the SEC and the U.S. Attorney’s Office for the Eastern District of New York, which is leading the criminal case against Mr. Zaslavskiy, declined to comment.

Continued in article


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

Despite Tax Rewrite, Profits From Abroad Return Slowly

By Richard Rubin and Theo Francis | Sep 17, 2018

TOPICS: Tax Law

SUMMARY: "U.S. companies have moved cautiously in repatriating profits stockpiled overseas in response to last year's tax-law rewrite, after the Trump administration's assertions that trillions of dollars would come home quickly and supercharge the domestic economy." The authors of the article "...reviewed securities filings from 108 publicly traded companies accounting for the vast majority of an estimated $2.7 trillion in profits parked abroad, and asked each company what it was doing with the funds. In their filings and responses, they said they have repatriated about $143 billion so far this year. About two-thirds of the money came from two corporations-networking-equipment giant Cisco Systems Inc. and drugmaker Gilead Sciences Inc. Beyond that, companies have announced plans to repatriate an additional $37 billion."

CLASSROOM APPLICATION: The article may be used in an international or corporate tax class or in an international or multi-national accounting class.

QUESTIONS: 

 

1. (Advanced) What does it mean to repatriate foreign earnings?

 

2. (Advanced) What tax provisions encouraged U.S. based multinational companies to accumulate foreign earninngs and not repatriate them?

 

3. (Introductory) What changes in the tax law enacted in 2017 were expected to lead companies to repatriate earnings?

 

4. (Advanced) How did the Wall Street Journal conduct the analysis to assess which companies would be likely to repatriate earnings after the tax law change? Explain where you think the information came from.

 

5. (Introductory) What have the authors concluded from this analysis conducted by the WSJ?

READ THE ARTICLE



 

Reviewed By: Judy Beckman, University of Rhode Island

 

"Despite Tax Rewrite, Profits From Abroad Return Slowly," by Richard Rubin and Theo Francis, The Wall Street Journal, September 17, 2018
https://www.wsj.com/articles/companies-arent-all-rushing-to-repatriate-cash-1537106555?mod=djem_jiewr_AC_domainid

President Trump had said trillions of dollars would flow back to the U.S. quickly in the wake of the new tax law, but a WSJ analysis finds many companies are taking their time

U.S. companies have moved cautiously in repatriating profits stockpiled overseas in response to last year’s tax-law rewrite, after the Trump administration’s assertions that trillions of dollars would come home quickly and supercharge the domestic economy.

The tax-law revamp ended the practice of taxing U.S. companies when they bring home foreign profits. Companies long complained that profit earned abroad was trapped and held it in foreign subsidiaries to avoid additional taxes.

 

The new law imposes a one-time tax on those old earnings—whether or not money is repatriated. It also removes federal taxes on subsequent repatriations and makes future foreign profits generally free from U.S. taxes.

“We expect to have in excess of $4 trillion brought back very shortly,” President Trump told executives assembled at his golf course in Bedminster, N.J., in August. “Over $4 [trillion], but close to $5 trillion, will be brought back into our country. This is money that would never, ever be seen again by the workers and the people of our country.”

The Wall Street Journal reviewed securities filings from 108 publicly traded companies accounting for the vast majority of an estimated $2.7 trillion in profits parked abroad, and asked each company what it was doing with the funds. In their filings and responses, they said they have repatriated about $143 billion so far this year.

About two-thirds of the money came from two corporations—networking-equipment giant Cisco Systems Inc. and drugmaker Gilead Sciences Inc. Beyond that, companies have announced plans to repatriate an additional $37 billion. Some with the largest stockpiles, including Apple Inc., have made general promises to repatriate profits without saying when or how much.

More than a dozen large companies, including General Electric Co. and Boston Scientific Corp. , have said they don’t need past foreign earnings in the U.S. or have no immediate plans to bring cash home. Far more are waiting or won’t say.

Many provided no information beyond vague public filings. That includes Microsoft Corp. , Alphabet Inc. and other companies that held some of the largest foreign cash piles before the tax law.

In all, while repatriations have soared past pre-2018 levels, independent analysts don’t expect anywhere near the $4 trillion Mr. Trump has touted.

The Commerce Department estimates that companies brought back $305.6 billion in the first quarter of 2018. The government figure includes small and closely held firms and surpassed the total repatriated in all of 2016 and 2017 combined.

Continued in article


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

Women Rarely Run the Biggest Audits at the Big Four Accounting Firms

By Michael Rapoport | Sep 16, 2018

TOPICS: Accounting Careers, Auditing Services, PCAOB

SUMMARY: The CFA Institute conducted a study analyzing the newly required audit partner signatures through the data filed on Form AP with the Public Company Accounting Oversight Board (PCAOB). The research finds that women partners are engaged on only 15% of the audits of S&P 500 firms and only 11% of the audits of S&P100. These trends exist in contrast to the fact that three of the four largest public accounting firms are headed by women: Cathy Engelbert at Deloitte, Lynne Doughtie at KPMG and Kelly Grier at EY head their firms. "The Big Four firms differ significantly in terms of the number of women who are engagement partners, according to the study. At Deloitte, 20.8% of S&P 500 engagement partners are women, compared with 16.3% at PwC, 12.9% at EY and 10.6% at KPMG."

CLASSROOM APPLICATION: The article may be used in an auditing class or any time to discuss accounting careers.

QUESTIONS: 

 

1. (Advanced) Access the database of engagement partners available on the PCAOB website at https://pcaobus.org/Pages/form-ap-reporting-certain-audit-participants.aspx. According to the lead information on this web site (and also this WSJ article), why does the PCAOB require this information?

 

2. (Advanced) What search terms can be used with this database of public company audit engagement partners?

 

3. (Advanced) What is the CFA Institute? (Hint: you may access their website at https://www.cfainstitute.org/)

 

4. (Introductory) What search term did the CFA Institute use to identify its sample for analysis?

 

5. (Introductory) Why is the Institute interested in this analysis of public company audit engagement partners? Is this reason the same as the objective identified by the PCAOB (see question 1)? Explain your answer.

 

6. (Advanced) Do these findings influence your thoughts about a career in public accounting? Explain your answer.

READ THE ARTICLE



 

Reviewed By: Judy Beckman, University of Rhode Island

 

"Women Rarely Run the Biggest Audits at the Big Four Accounting Firms," by Michael Rapoport , The Wall Street Journal, September 16, 2018
https://www.wsj.com/articles/women-rarely-run-audits-at-the-big-four-accounting-firms-1537106401?mod=djem_jiewr_AC_domainid

Only 15% of “engagement partners” in charge of each S&P 500 company’s audit are women, study says

Three of the Big Four accounting firms in the U.S. now have women in the corner office, but auditing still has a large gender gap.

A forthcoming study suggests women are underrepresented among the accounting-firm partners who head the outside audits of America’s biggest public companies. Only 15% of the “engagement partners” in charge of each S&P 500 company’s audit are women, according to the study by the CFA Institute, which represents chartered financial analysts. The study is expected to be published this week.

In addition, according to the study, women are even less likely to head the audits of the largest companies—only 11% of the engagement partners for the audits of S&P 100 companies are women—as well as old-line companies that have been with their current audit firms for decades.

The big accounting firms often serve as “a natural pipeline” to train people who later become chief financial officers, controllers and audit-committee members at public companies, said Sandra Peters, the CFA Institute’s head of financial-reporting policy. If there aren’t enough women among engagement partners trained in complex financial matters, she said, not as many women could show up in senior financial positions in the corporate realm.

The Big Four firms say they are taking steps to improve opportunities for women and increase the number of female partners.

PricewaterhouseCoopers LLP said women accounted for 30% of the 2018 partner class and it is “laser-focused on enhancing female representation on all of our teams at every professional level.”

Women also made up 30% of newly promoted partners at Ernst & Young LLP in the Americas this year. The firm said it is ”committed to even greater representation of women and diversity.”

Deloitte LLP said it continues “to invest significantly to develop, sponsor and mentor women as our lead client engagement partners.” KPMG LLP declined to comment.

The CFA Institute study draws on newly available data about engagement partners, whom the firms have had to identify since a new regulation requiring it went into effect last year. The new rule from the Public Company Accounting Oversight Board is intended to improve audit partners’ accountability and give investors a sense of their track records.

The dearth of women among engagement partners “is something we wouldn’t have been able to see before without this data,” Ms. Peters said.

Women tend to enter the accounting field in numbers close to those of men, and Cathy Engelbert at Deloitte, Lynne Doughtie at KPMG and Kelly Grier at EY head their firms. But that hasn’t translated into equality at the partnership level: Women make up 51% of the full-time staff at U.S. accounting firms but only 24% of partners and principals, according to data from a separate study earlier this year from the Accounting MOVE Project, which promotes more women in accounting. Various possible reasons have been cited, from a lack of role models to a desire for more work-life balance as women ascend through the ranks.

The Big Four firms differ significantly in terms of the number of women who are engagement partners, according to the study. At Deloitte, 20.8% of S&P 500 engagement partners are women, compared with 16.3% at PwC, 12.9% at EY and 10.6% at KPMG

Continued in article


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

UPS CFO Targets Cost, Efficiency Improvement in Transformation

By Tatyana Shumsky | Sep 14, 2018

TOPICS: Cost Management, Earnings Per Share

SUMMARY: This article is based on an interview with Richard Peretz, chief financial officer of United Parcel Service, Inc. "The parcel delivery company on Thursday launched a variety of incremental cost-cutting and operational efficiency programs to offset its investments to transform and modernize its network." UPS recorded a pre-tax transformation charge of $263 million in the second quarter primarily due to the severance expense associated with early retirement offering. "UPS also is deploying software robots to automate certain back-office tasks. The company first tested robotic process automation last year, deploying robots in bank-record reconciliations...."

CLASSROOM APPLICATION: The article may be used in a managerial or financial accounting course.

QUESTIONS: 

 

1. (Advanced) Refer to both the primary and related articles. Is UPS focused only on cost cutting in its attempt to improve its profitability? Explain your answer.

 

2. (Introductory) How far into the future is UPS forecasting the impact of current actions on earnings per share (EPS)?

 

3. (Introductory) Why does centralizing the procurement function for items such as fuel and tires help to improve profitability?

 

4. (Advanced) If they are producing cost savings, then why did UPS report a charge (or expense) of $263 million in the second quarter of 2018 in relation to these changes? In your answer, state your understanding of the nature of the $263 million cost.

 

5. (Introductory) What accounting function has the company begun to automate?

READ THE ARTICLE



 

RELATED ARTICLES: 
UPS Lays Out Plans for More-Profitable Shipping
by Paul Ziobro
Sep 13, 2018
Online Exclusive

Reviewed By: Judy Beckman, University of Rhode Island

 

"UPS CFO Targets Cost, Efficiency Improvement in Transformation," by Tatyana Shumsky , The Wall Street Journal, September 14, 2018 ---
https://blogs.wsj.com/cfo/2018/09/14/ups-cfo-targets-cost-efficiency-improvement-in-transformation/?mod=djem_jiewr_AC_domainid

Cost reductions will drive the bulk of the earnings gains that United Parcel Service Inc. expects to reap from a new corporate transformation plan, the delivery giant’s finance chief, Richard Peretz, told CFO Journal.

The parcel delivery company on Thursday launched a variety of incremental cost-cutting and operational efficiency programs to offset its investments to transform and modernize its network.

 

UPS expects the transformation effort to boost adjusted earnings per share by $1.00 to $1.20 by 2022. The company in July confirmed its 2018 full-year adjusted earnings guidance range of $7.03 to $7.37.

 

The parcel delivery company is centralizing the procurement and sourcing function across its global operations, a project that will deliver roughly one-third of the earnings improvements, Mr. Peretz said. UPS spends between $20 billion and $25 billion a year on commodities such as fuel and tires, and currently some business units are negotiating with vendors on a local level, Mr. Peretz said. “We’re lifting all that and making it one global conversation,” he said.

 

The voluntary early retirement program UPS launched in April is another effort aimed at cutting costs. The company offered buyouts to a select group of U.S. employees who will depart the UPS on a staggered schedule over the next 12 months.

The program aims to flatten the company’s management structure while also accelerating decision-making across the organization as new managers are given greater responsibilities.

 

UPS recorded a pre-tax transformation charge of $263 million in the second quarter primarily due to the severance expense. The company expects annual savings of about $200 million per year once outgoing executives cycle out in the second half of 2019.

UPS also is deploying software robots to automate certain back-office tasks. The company first tested robotic process automation last year, deploying robots in bank-record reconciliations, Mr. Peretz said.

 

The company is reorganizing its finance and accounting teams so that employees are grouped by function -- such as banking or revenue -- rather than by country, Mr. Peretz said. The new structure will create economies of scale across functions and make it easier to respond to regulatory changes that affect multiple geographies, he said.


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

Investor Confidence Slips Amid Concern Over Trump, Trade Tensions

By Ezequiel Minaya | Sep 18, 2018

TOPICS: Auditing Services

SUMMARY: The Center for Audit Quality (www.theCAQ.org) has conducted a 2018 Main Street Investor Survey. Investors confident in U.S. capital markets comprise 74% of respondents, down from 85% in 2017. "Eighty-one percent of all survey-takers, meanwhile, said they were confident in public company auditors, down 3 percentage points."

CLASSROOM APPLICATION: The article may be used in an auditing class to discuss the role of the audit and auditor in supporting investor confidence in capital markets.

QUESTIONS: 

 

1. (Advanced) What is the Center for Audit Quality? (Hint: access their website at www.thecaq.org)

 

2. (Introductory) What is the purpose of the 2018 Main Street Investor Survey? Why do you think the CAQ conducts the survey?

 

3. (Introductory) What factors did survey respondents cite as concerns when expressing a lack of confidence in U.S. capital markets?

 

4. (Advanced) What role do auditors fill in supporting confidence in capital markets?

 

5. (Introductory) What are the survey findings of the role of auditors and the system of reporting by public companies?

READ THE ARTICLE



 

Reviewed By: Judy Beckman, University of Rhode Island

 

"Investor Confidence Slips Amid Concern Over Trump, Trade Tensions." by Ezequiel Minaya , The Wall Street Journal, September 18, 2018 ---
https://blogs.wsj.com/cfo/2018/09/18/investor-confidence-slips-amid-concern-over-trump-trade-tensions/?mod=djem_jiewr_AC_domainid

Investor confidence in capital markets has slipped compared to last year because of concerns over leadership in the White House and trade tensions, according to an annual survey from a nonprofit that represents public-company auditors.

Seventy-four percent of investors felt confident in U.S. capital markets, according to the 2018 Main Street Investor Survey, which was conducted by the Washington-based Center for Audit Quality. That’s down 11 percentage points from the 2017 survey.

 

Of those expressing confidence, 19% agreed that the economy was growing and will continue to improve, while 16% were buoyed by strong U.S. stock performance.

Among poll-takers who expressed a lack of confidence, 38% blamed a “lack of leadership in the Trump administration,” while an additional 20% indicated a “fear of trade war or uncertainty around the status of free trade agreements,” according to the survey.

 

Eighty-one percent of all survey-takers, meanwhile, said they were confident in public company auditors, down 3 percentage points.

 

“Investors overall are confident in our system, they are confident in auditors and U.S. publicly-traded companies,” said Cindy Fornelli, executive director of the Center for Audit Quality.

 

The organization’s survey gathered the opinion of participants with at least $10,000 invested in capital markets. The poll was gathered online from 1,100 participants between Aug 20 and Aug. 21. The results have an margin of error of 3%.

U.S. President Donald Trump said Monday he will impose fresh tariffs on about $200 billion in Chinese goods as part of his efforts to pressure Beijing to change its commercial practices. This round of tariffs target thousands of goods ranging from luggage to seafood, extending the impact to a broad swath of American consumers. China retaliated with tariffs on $60 billion of U.S. goods.

 

And while the U.S. stock market edged higher Tuesday — the Dow Jones Industrial Average climbed 0.71% — shrugging off the White House moves and Beijing’s response, bullish sentiment dipped recently among financial advisers surveyed in the latest weekly Investors Intelligence poll.

 

The percentage of financial advisers who are bullish on the market fell to 57.7% from 60% a week ago, while bearish sentiment ended slightly higher at 18.3% from 18.1% last week, according to Investors Intelligence.

Respondents in that poll cited concerns over the lack of growth in autos and housing sector and weakness in commodities.


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

Tesla Is Subject Of DOJ Probe

By Tim Higgins and Dave Michaels | Sep 18, 2018

TOPICS: Disclosure Requirements

SUMMARY: "Tesla Inc....said the Justice Department has opened an investigation into the company following Chief Executive Elon Musk's surprise tweet in August that he had secured funding to possibly take the electric-car maker private." The company has made the announcement within a month of receiving the request; Tesla also said it hasn't received a subpoena. The fact that the inquiry is from the Justice Department may indicate that governmental agencies view a possible investigation as criminal; "'if there is a civil case to be brought, the SEC would bring it,' said...a former SEC enforcement attorney."

CLASSROOM APPLICATION: The article may be used in a financial reporting class covering disclosure or corporate governance.

QUESTIONS: 

 

1. (Introductory) What disclosure led to Tesla CEO receiving this Justice Department inquiry?

 

2. (Introductory) What has been the company's stock price reaction to the disclosure and to subsequent events?

 

3. (Introductory) According to the article, is this inquiry likely considering criminal or civil wrongdoing?

 

4. (Introductory) According to the article, what is the role of the U.S. Securities and Exchange Commission in this inquiry?

 

5. (Advanced) Refer to the statement by Ben Kallo, an analyst for Baird Equity Research. What are the "fundamentals" underlying an investment in stock? How does investing in a company's stock demand more than "strong fundamentals"?

 

6. (Advanced) Do you think these events call into question the fitness of Elon Musk to serve as CEO of a publicly traded company? Explain your answer.

READ THE ARTICLE



 

RELATED ARTICLES: 
Elon Musk Tweets He is Considering Taking Tesla Private
by Mike Colias and Miriam Gottfried
Aug 08, 2018
Page: ##

Reviewed By: Judy Beckman, University of Rhode Island

 

"Tesla Is Subject Of DOJ Probe By Tim Higgins and Dave Michaels, The Wall Street Journal, September 18, 2018 ---
https://www.wsj.com/articles/tesla-says-it-received-a-voluntary-request-for-documents-from-the-doj-1537291596?mod=djem_jiewr_AC_domainid

Request for documents came after CEO Elon Musk’s tweet in August

Tesla Inc. TSLA +0.14% on Tuesday said the Justice Department has opened an investigation into the company following Chief Executive Elon Musk’s surprise tweet in August that he had secured funding to possibly take the electric-car maker private.

The company said that last month it received a “voluntary request for documents” from the Justice Department, generally the first step in a federal investigation of this kind. Tesla said it hasn’t received a subpoena, a request for testimony or any other formal request.

Tesla said it is cooperating with the probe. “We respect the DOJ’s desire to get information about this and believe that the matter should be quickly resolved as they review the information they have received,” the company said in a statement.

A Justice Department spokeswoman declined to comment. Bloomberg News earlier reported the Justice Department had opened a criminal investigation against Tesla.

Shares of Tesla were down 3.2% in midday trading.

On Aug. 7, Mr. Musk surprised investors when he tweeted that he was considering taking Tesla private at $420 a share, about 20% above the stock’s trading price earlier that day. In his tweet, Mr. Musk said the buyout had “funding secured,” without providing any details.

Days later it was revealed that Mr. Musk was still lining up investors and funding for a proposed deal.

The Securities and Exchange Commission is also investigating Mr. Musk’s funding claim and subpoenaed Tesla seeking information from each of its directors. Some investors have sued Mr. Musk and the company, saying the CEO misled them and they lost money as a result.

Continued in article

Tesla shares are getting clobbered after the SEC sues Elon Musk (TSLA) ---
https://markets.businessinsider.com/news/stocks/tesla-stock-price-elon-musk-sued-by-the-sec-2018-9-1027574392

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

Good day. The U.S. Securities and Exchange Commission sued Tesla Inc. Chief Executive Elon Musk for securities fraud and sought to remove him from the company over allegedly false and misleading tweets. The move highlights the risks companies face in an era of informal, immediate social media discourse.

Critical words: The SEC's complaint lays out Mr. Musk's discussions with representatives of a sovereign investment fund that precipitated the tweets. The complaint identified four critical statements the SEC says are false.

“The most significant of these is just the two-word sentence fragment ‘funding secured’,” Harvey Pitt, a former SEC chairman, told CFO Journal's Tatyana Shumsky. “When you say funding is secured that means whatever the agreement is, you have the right to call upon the financing that you've arranged.”

Not everything goes: The SEC’s complaint also alleges that Mr. Musk did not follow the procedures and due diligence expected of companies prior to making a big announcement. It is unclear whether Mr. Musk canvassed investors for their support of the deal or sought the approval of Tesla's independent directors, said Mr. Pitt. Mr. Musk called the suit unjustified.

“You can’t just say, 'We're going to offer everybody $420 a share and it's all done except for the shareholder vote,' " said Mr. Pitt, who is CEO and managing director of Kalorama Partners LLC. "That is not the way the real world works.” 

Elon Musk settles fraud charges with SEC for infamous 'funding secured' tweet, must step down as Tesla chairman and pay $20 million fine (plus another $20 million for the company) ---
https://www.businessinsider.com/teslas-elon-musk-settles-with-sec-must-step-down-as-chairman-2018-9

 

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


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

 

", The Wall Street Journal, September
 

 

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on September 28, 2018

 

", The Wall Street Journal, September
 

 

Continued in article

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 




Humor for September  2018

Creatove CPA Vanity License Plates ---
https://www.journalofaccountancy.com/newsletters/2018/sep/accounting-cpa-vanity-license-plates.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=07Sep2018
Can you think of some creative professor license plates?
Examples:  ITEACH , IEXCEL, ITOUGH, IMEASY (might be taken the wrong way), ITSANA, ITSANF, C=MEAN, JRPROF, SRPROF

Burglary suspect’s getaway vehicle gets stuck in manure ---
https://nypost.com/2018/09/02/burglary-suspects-getaway-vehicle-gets-stuck-in-manure-cops/?utm_source=reddit.com

Forwarded by Ed Scribner
Admissions discussion always reminds me of an applicant we had who wrote a letter explaining that his low grades in high school and his low test scores were a result of his "attention defecate [sic] disorder."

Attorney Michael Avenatti claims his relations with porn star Stormy Danniels was strictly "professional." What he failed to clarify is whether that was his profession or her profession.
Bob Jensen

How Comedians Are Turning #MeToo Into Laughs ---
Click Here

College Humor --- https://en.wikipedia.org/wiki/CollegeHumor

College Humor ---
http://www.collegehumor.com/

This video forwarded by Paula is not only funny it shows how most of really don't have the video-making skills of the true, and very patient, pros in making videos ---
https://mail.google.com/mail/u/0/#inbox/164d430b30f86dbd?projector=1&messagePartId=0.1 

CBS News:  Zoo accused of painting donkeys to look like zebras
https://www.cbsnews.com/news/zoo-accused-of-painting-donkeys-to-look-like-zebras/

Amazon facial recognition 'wrongly' matches 28 members of Congress with criminal mugshots ---
https://www.washingtonexaminer.com/policy/technology/amazon-facial-recognition-wrongly-matches-28-members-of-congress-with-criminal-mugshots
Mark Twain said members of Congress are the most criminal class in America

21 jokes Obama made in office that had his daughters cringing ---
https://www.businessinsider.com/dad-jokes-obama-2018-8

Man busted on moped with $100+ worth of Walmart steaks in pants, Nash deputies say ---
https://www.cbs17.com/news/local-news/man-busted-on-moped-with-100-worth-of-walmart-steaks-in-pants-nash-deputies-say/1335279363
Jensen Comment
Gives a whole new meaning to rump roasts.

The case for puns as the most elevated display of wit ---
https://qz.com/1344927/the-case-for-puns-as-the-most-elevated-display-of-wit/

Here are a few things that are effectively legal in San Francisco: drugs, public defecation and shoplifting. And here are some of the things that are banned or will be banned in the City by the Bay. Straws. Fur coats. Bottled water. Eating at work. Vaping liquids. Upholstered furniture. Plastic bags. Pet stores. Electric scooters. Coffee cups and packing peanuts. Tropical fish. The McDonald’s Happy Meal ---
https://www.frontpagemag.com/fpm/270883/san-francisco-bans-everything-daniel-greenfield
Jensen Comment
I think banned "eating at work" means eating free meals provided by the employer (a move to support restaurants). You can still bring your lunch box and a thermos. I don't understand banning bottled water, but it's probably the plastic bottles that are banned. You can bring your own water and coffee in a thermos and drink out of the lid. It's best to place store merchandise behind unbreakable glass walls. It would also be best to wear plastic baggies over your shoes when walking on the streets, but plastic baggies are banned. Jumping is the new craze on SF streets --- that and sliding. Scooters became a popular means of pushing through the poop until the scooters were banned. Changing a bike tire can be hazardous to your health

From the CFO Journal's Morning Ledger on July 30, 2018

Walmart Inc. is exploring a subscription video-streaming service that would seek to challenge Netflix Inc. and Amazon.com Inc. by offering programming that targets Middle America, according to people familiar with the plans.

Jensen Comment
Aside from using the F-word less than 1,000 times per movie, I'm not sure what Middle America programming entails. If Walmart decides to produce movies it has an advantage in producing both comedies and erotica. All it has to do is use it's own security camera footage of how people are dressed in Walmart stores ---
https://www.providr.com/now/worst-walmart-customers/

Jim Borden:  Can Computers Write Funny Jokes? ---
https://www.jborden.com/can-computers-be-funny/

Comedy Wildlife Photography Awards - in pictures ---
https://www.theguardian.com/artanddesign/gallery/2018/sep/13/comedy-wildlife-photography-awards-in-pictures

Ig Nobel (Improbable Research) Winners ---
https://www.improbable.com/ig/winners/
Scroll down for the 2018 awards

Telling it like it "ain't"
Hilarious: Weatherman 'Braces' Hurricane Winds As 2 Bros Casually Stroll By In Background ---
https://townhall.com/tipsheet/timothymeads/2018/09/15/hilarious-weatherman-braces-storm-as-2-bros-casually-stroll-by-in-background-n2519280?utm_source=thdaily&utm_medium=email&utm_campaign=nl&newsletterad=&bcid=1ac475c339607f066dc6f5f27e89ce7b&recip=17935167

 

Forwarded by Paula

Why  isn't the number 11 pronounced  onety-one?


 If 4 out of 5 people SUFFER from diarrhea...does that mean that one out of five enjoys  it?
                        

  
  Why do croutons come in airtight packages?

Aren't  they just stale bread to begin with?
                       

If people from Poland are called Poles, then why aren't people from Holland called  Holes?

  

                       
 If a pig loses its voice, is it disgruntled?
                    
 Why is  a person who plays the piano called a pianist, but a person who drives a race car is not called a racist?
          
If it's true that we are here to help  others, then what exactly are the others here for?

 

If lawyers are disbarred and clergymen  defrocked, then doesn't it follow that electricians  can be delighted, musicians denoted, cowboys deranged, models deposed, tree surgeons debarked, and dry cleaners  depressed?

        
Do Lipton Tea employees take 'coffee breaks?'
                    

What  hair color do they put on the driver's licenses of bald  men?
                        
I  thought about how mothers feed their babies with tiny little spoons and forks, so I wondered what do Chinese mothers use, Toothpicks?
                                              
Why do  they put pictures of criminals up in the Post Office? What are we supposed to do, write to them?  Why don't they just put their pictures on the postage stamps so the mailmen can look for them while they deliver the mail?
                         
Is it true that you never really learn to swear until you learn to drive?
                         
If a cow laughed, would milk come out of her nose?
                        


Whatever happened to Preparations A through G?
 


Why,  Why, Why do we press  harder on the remote control when we know the batteries are getting weak?

Why do banks charge a fee due to insufficient funds; when they already know you're broke?

Why is it that when  someone tells you that there are one billion stars in the universe you believe them, but if they tell you there is wet paint you have to touch it to check?

Why doesn't Tarzan have a beard?

Why does Superman stop bullets with his chest, but ducks when you throw a revolver at him?

Why did Kamikaze pilots wear helmets?

Whose cruel idea was it to put an "s" in the word "lisp"?

If people evolved from apes, why are there still apes?

Why is it that, no matter what color bubble bath you use, the bubbles are always white?

Is there ever a day that mattresses are not on sale?

Why do people constantly return to the refrigerator with hopes that something new to eat will have materialized?

Why do people run over a string a dozen times with their vacuum cleaner, then reach down, pick it up, examine it and then put it down to give the vacuum one more chance?

How do those dead bugs get into the enclosed light fixtures?

Why is it that whenever you attempt to catch something that's falling off the table you always manage to knock something else over?

Why, in winter, do we try to keep the house as warm as it was in summer when we complained about the heat?

Do you  ever wonder why you gave me your e-mail address in the first  place?

And A FAVORITE:
The statistics on sanity say that one  out of every four persons is suffering from some sort of mental  illness. Think of your three best friends.

If they're OK..? (then it's  you!)


Forwarded by Paula

From:  https://www.alphadictionary.com/fun/headlines.html

Dr. Beard's Collection from the Columbia School of Journalism

·         Autos killing 110 a Day; Let's Resolve to do Better

·         Blind Woman Gets New Kidney from Dad she Hasn't Seen in Years

·         British Left Waffles on Falkland Islands

·         Child's Death Ruins Couple's Holiday

·         Child's Stool Great for Use in Garden

·         Cold Wave Linked to Temperatures

·         Deaf Mute Gets New Hearing in Killing

·         Dealers will Hear Car Talk at Noon

·         Dr. Ruth to Talk about Sex with Newspaper Editors

·         Drunk Drivers Paid $1,000 in 1984

·         Enraged Cow Injures Farmer with Ax

·         Eye Drops Off Shelf

·         Farmer Bill Dies in House

·         Grandmother of Eight Makes Hole in One

·         If Strike isn't Settled Quickly it May Last a While

·         Iraqi Head Seeks Arms

·         Is There a Ring of Debris around Uranus?

·         Juvenile Court Tries Shooting Defendant

·         Kicking Baby Considered To Be Healthy

·         Killer Sentenced to Die for Second Time in 10 Years

·         Police Begin Campaign to Run Down Jaywalkers

·         Quarter of a Million Chinese Live on Water

·         Queen Mary Having Bottom Scraped

·         Reagan Wins on Budget, but More Lies Ahead

·         Robber Holds Up Albert's Hosiery

·         Safety Experts Say School Bus Passengers Should be Belted

·         Shot Off Woman's Leg Helps Nicklaus to 66

·         Smokers are Productive, but Death Cuts Efficiency

·         Something Went Wrong in Jet Crash, Experts Say

·         Soviet Virgin Lands Short of Goal Again

·         Squad Helps Dog Bite Victim

·         Stiff Opposition Expected to Casketless Funeral Plan

·         Stolen Painting Found by Tree

·         Teacher Strikes Idle Kids

·         Two Convicts Evade Noose, Jury Hung

·         Two Sisters Reunite after Eighteen Years at Checkout Counter

·         Two Soviet Ships Collide - One Dies

·         War Dims Hope for Peace

·         William Kelly was Fed Secretary

Gathered from E-mail and the Internet

·         Enfield (London) Couple Slain; Police Suspect Homicide

·         Red Tape Holds Up New Bridges

·         Man Struck By Lightning Faces Battery Charge

·         New Study of Obesity Looks for Larger Test Group

·         Astronaut Takes Blame for Gas in Spacecraft

·         Kids Make Nutritious Snacks

·         Local High School Dropouts Cut in Half

·         Hospitals are Sued by Seven Foot Doctors

·         Typhoon Rips Through Cemetery; Hundreds Dead

·         Lawmen from Mexico Barbecue Guests

·         Lung Cancer in Women Mushrooms

·         Man is Fatally Slain

·         Milk Drinkers are Turning to Powder

·         Miners Refuse to Work after Death

·         Never Withhold Herpes from Loved One

·         Nicaragua Sets Goal to Wipe out Literacy

·         NJ Judge to Rule on Nude Beach

·         Organ Festival Ends in Smashing Climax

·         Panda Mating Fails - Veterinarian Takes Over

Suspicious Statements beneath the Headlines: From the Mailbox of Dave Berry

·         David Davidson sent an article from the Tybee News containing this statement about the mayor of Tybee Island, Ga.: "He also said an older woman suffered a broken hip when a dog pounced on her and read a long letter from someone supporting the dog ban."

·         Tim O'Marra sent in an article from the Skagit Valley (Washington) Heraldcontaining this sentence: "Suspecting the action was suspicious, the officer ordered both of them to raise their hands."

·         Chaz Liebowitz sent in an article from The Miami Herald that begins: "Davie police are searching for a man with a .25-caliber semi-automatic handgun to rob a convenience store Wednesday."

·         Several readers sent in an article from the Richmond Times-Dispatch concerning a dump-truck driver who "dropped more than 59,000 pounds of processed human excrement on Interstate 295" and was charged with "failure to contain his load."

·         Sue Colson sent in a "Police Blotter" item from the Port Aransas (Texas) South Jetty, consisting entirely of this fascinating statement: "No goat was found in the trunk of a vehicle when an officer responded to a complaint on East Avenue G at about 1:20 p.m."

 

 




Humor September 2018--- http://faculty.trinity.edu/rjensen/book18q3.htm#Humor0918.htm 

Humor August 2018--- http://faculty.trinity.edu/rjensen/book18q3.htm#Humor0818.htm   

Humor July 2018--- http://faculty.trinity.edu/rjensen/book18q3.htm#Humor0718.htm 

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 September 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

 

 

 

August 2018

Bob Jensen's New Additions to Bookmarks

August 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




FASB's Free Webcast for Accounting Educators ---
https://event.webcasts.com/starthere.jsp?ei=1201693&tp_key=ca0cd72b05


Big Data Trends You Can Study ---
https://pureb2b.com/blog/big-data-trends-2018/


So Your Wife Embezzled $500,000 and the IRS Wants to Tax You (yes, embezzled funds are taxable) ---
https://www.wsj.com/articles/so-your-wife-embezzled-500-000-and-the-irs-wants-to-tax-you-1533288602
Jensen Comment
What's not clear is why is wife subsequently wanted the IRS to get her husband's "blood" (you have to read the article).
Thank you Elliot Kamlet for the heads up.


Wells Fargo & Co. agreed to pay $2.09 billion to settle with the U.S. Justice Department over the sale of toxic mortgage-backed securities in the lead-up to the financial crisis ---
https://www.wsj.com/articles/wells-fargo-agrees-to-2-09-billion-settlement-for-crisis-era-mortgage-loans-1533147302?mod=searchresults&page=1&pos=1&mod=djemCFO_h
This is on top of all the subsequent fines paid by Wells Fargo & Co. for unrelated subsequent crimes. What a lousy company.

Peter, Paul, and Barney: An Essay on 2008 U.S. Government Bailouts of Private Companies ---
http://faculty.trinity.edu/rjensen/2008Bailout.htm



Concerns About Climate Change Only Go So Far

Canada’s Liberal government is scaling back elements of its planned carbon-tax regime to address worries from the business community about global competition ---
https://www.wsj.com/articles/canada-scales-back-carbon-tax-plans-1533150307?mod=searchresults&page=1&pos=1&mod=djemCFO_h



The IRS Scandal, Day 1921: Federal Judge Approves $3.5 Million Payout From IRS To >100 Tea Party Groups To Settle Targeting Claims ---
http://taxprof.typepad.com/taxprof_blog/2018/08/the-irs-scandal-day-1920-federal-judge-approves-35-million-payout-from-irs-to-100-tea-party-groups-t.html


 

MoneySmart: Teaching Resources From the Australian Government ---  www.moneysmart.gov.au/teaching/teaching-resources


 

A Comprehensive Approach To Law School Access Admissions ---
http://taxprof.typepad.com/taxprof_blog/2018/08/a-comprehensive-approach-to-law-school-access-admissions.html

Shameful: Lack of Diversity in the CPA Profession ---
https://cpatrendlines.com/2010/03/02/shameful-lack-of-diversity-in-the-cpa-profession/

Jensen Comment
Statistics on diversity in the "CPA Profession" can be very misleading. Firstly, the "CPA Profession" is only a part, not even a majority part, of the total accounting profession. Passing the CPA examination and obtaining the experience requirements to become a CPA are not required for many, many types of accounting jobs. Accounting careers are highly varied in both the public and private sectors. Secondly, those minority college graduates who do become CPAs face tremendous opportunities to leave the public accounting profession. Sometimes clients will offer almost whatever it takes to lure minority CPA's away from the CPA firms.

My point here is that there should not be a knee-jerk reaction that the enormous shortage of minority partners in CPA firms is not ipso facto evidence of negative prejudice. Firstly, very few CPA firm recruits (white and minority) ever expect or even want to become CPA firm partners. Many of those recruits start out in CPA firms for the training, experience, and the fact that it's often easier to land the first job in a CPA firm for whites and minorities provided they have good grades. Many, however, cannot or otherwise do not pass the CPA examination. Others pass the CPA examination but really never want to become partners due the many negatives about becoming a CPA firm partner, including lots of out-of-town travel, expectations of bringing in new clients and keeping existing clients happy, stress of job performance such as missing something really important in an client's audit or a client's tax return or a client's accounting system.

Retaining African Americans in the Accounting Profession---
https://4f2bur4nuye2cgakm2rm61qk-wpengine.netdna-ssl.com/wp-content/uploads/2010/03/Howard-U-Retaining-African-Americans-In-Accounting-Profession.pdf  ---


 

Cashless Society --- https://en.wikipedia.org/wiki/Cashless_society

Going Cashless: What Can We Learn from Sweden’s Experience? ---
http://knowledge.wharton.upenn.edu/article/going-cashless-can-learn-swedens-experience/


Even though Rhode Island has a huge pension underfunding problem:  Rhode Island pension system honored for financial reporting ---
https://www.statedatalab.org/news/detail/rhode-island-pension-system-honored-for-financial-reporting

Jensen Comment
Bravo for Rhode Island. Illinois will never win such an honor.


The Biggest Antitrust Story You’ve Never Heard ---
Click Here


California's Proposition 13 --- https://en.wikipedia.org/wiki/California_Proposition_13_(1978)
Keeping the Hollywood Movie Stars Happy
California homeowners get to pass low property taxes to their kids. It's proved highly profitable to an elite group ---

http://www.latimes.com/politics/la-pol-ca-california-property-taxes-elites-201808-htmlstory.html


The University of Kentucky might give a green light for teachers to profit from selling their own assigned writings to their students ---
http://taxprof.typepad.com/taxprof_blog/2018/08/university-of-kentucky-faculty-committee-recommends-that-tenured-professor-not-be-fired-for-assignin.html

Jensen Comment
This does not appear to yet be a done deal, but it's not what many (most?) universities condone due to moral hazard. There are alternatives such as giving the profits back to students or the university itself. \

Accounting scholars know that there's more to this debate than just profits. In very large courses (think multiple section courses with 2,000+ students each term) sales of textbooks at a single university can go a long way toward recover of fixed costs. The publishers still benefit from fixed cost recovery even if the teacher gives a share of the profits back to their (politically correct singular version) students. Fixed cost recovery could be a factor in getting the book published in the first place. This could especially be a factor in specialty books published by university presses where global sales are often very, very small --- the reason that major publishing houses won't publish the low-sales volume specialty books.


2018:  Best Inventory Management Software with Accounting ---
https://www.accountingweb.com/community/blogs/stevenhgallagher/best-inventory-management-software-with-accounting?source=ei081518

Bob Jensen's badly neglected (especially neglected cloud software) accounting software threads are at
http://faculty.trinity.edu/rjensen/Bookbob1.htm#SoftwareAccounting


The Only Way for Academic Research Respect is Replication
The Guardian:  “Open science is now the only way forward for psychology”
---

https://replicationnetwork.com/2018/08/24/in-the-news-the-guardian-august-23-2018/

Accountancy:  Where Equations = Truth
Replication is a rare happening in academic accounting research journals where leading journals editors (thankfully not all)  protect their authors and referees by discouraging submissions of  commentaries and as well as replications ---

http://faculty.trinity.edu/rjensen/TheoryTAR.htm


PCAOB:  Updated guidance highlights key changes in the auditor’s report ---
https://www.journalofaccountancy.com/news/2018/aug/auditors-report-key-changes-201819609.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=28Aug2018


There are more than a million electric vehicles in Europe ---
https://www.theguardian.com/environment/2018/aug/26/electric-cars-exceed-1m-in-europe-as-sales-soar-by-more-than-40-per-cent
The article does not say how many are hybrids that still add range using gasoline. The article does report:

The UK sold 30,040 plug-in cars and vans in the first half of the year. Sales of fully electric cars dipped by 6% but plug-in hybrids surged by 50%.

When comparing the USA with Europe keep in mind that Europe has more than twice the population and many more tourists than the USA.

Among the USA's 17.2 million car and truck sales were 105,963 sales of electric vehicles in 2017, up from 2016 sales of 75,815 vehicles (mostly sedans) ---
https://cleantechnica.com/2017/09/09/usa-fully-electric-car-sales-82-2017/
Virtually all automobile manufacturers, however, are betting heavily on an explosion in electric vehicle sales in the next decade. This includes Ford's announced $11 billion investment in 2018.
The jury is still out regarding future values of used electric cars and costs of replacement batteries.

The first electric vehicle will make history when it was sold for a profit by the company that made it.
 At the moment most electric cars in the USA are owned by upper income drivers (subsidized by taxpayers for purchase prices and zero road taxes) who also own a conventional gasoline-powered car. In smaller nations like Norway the EV may be the driver's only vehicle. Norway creates incentives to buy an electric car by making battery recharging free.
However, owning a any car in Norway is a luxury.


Outrage and Confusion Over the $999 Price of an Introductory Accounting Textbook ---
https://www.insidehighered.com/digital-learning/article/2018/08/28/universitys-999-online-textbook-creates-confusion-and-outrage?utm_source=Inside+Higher+Ed&utm_campaign=55a2a7bcd3-DNU_COPY_01&utm_medium=email&utm_term=0_1fcbc04421-55a2a7bcd3-197565045&mc_cid=55a2a7bcd3&mc_eid=1e78f7c952


The CPA Journal:  Are Audit Committees Worth the Cost?
https://www.cpajournal.com/2018/08/24/are-audit-committees-worth-the-cost/

Jensen Comment
There are some questions that are impossible to answer. For example, it's impossible to answer the question of whether audits are worth the cost? That's because it's impossible to have any idea how many frauds and data errors have been prevented by requiring audits in the world of publicly-owned companies since the 1930s. There is slight, not overwhelming evidence, before the 1930s that audits were important because companies were audited even when audits were not required. However, this could've been more for window dressing to sell stock.

The same question arises with respect to whether audit committees are worth the cost? We will never know how much audits are more effective and beneficial from the standpoint of frauds and errors prevented. We can document instances where audit committees failed to do their job (think Enron), but there's less evidence on the benefits that arose because audit committees did great work. Or maybe not that they did great work, but that their presence discouraged fraud and errors.

This of course in no way suggests that efforts should not be made continuously to improve audit committee performance. The above article addresses possible reforms.


Free XBRL App and Video

August 1, 2018 message from Zane Swanxon

Students and faculty may want an online reference tool for XBRL tags, accounting terms, ASC for working papers, and GAAP codification. Check out a free app designed for mobile devices at
www.askaref.com

  It has a video showing a sample search which I have condensed to 1 and 1/2 minutes in the app at 

Search Example Video.

  See below for a look at start page aspects.

Have a good school year!

Zane

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

 


August 1, 2018 Message from Bill McCarthy

For those on AECM who teach AIS data modeling (with or without REA patterns), two MSU students – Kevin Hoard and Diego Lopez – have developed a UML modeling tool (with Widom/Ullmann database extensions if needed) that is easy and quite portable.  We now use it for exams at MSU.  Here is a copy with instructions embedded.  For those attending the AAA meeting in Washington, I will be explaining the origin and use of this tool on Wednesday morning in the FASTCA session.

Another AIS learning tool for free use is here:  http://smu.sg/rea/

SEOW Poh Sun of Singapore Management University developed this REA tutorial for which he will be presented the 2018 AAA-TLC Outstanding Instructional Contribution Award on Monday morning in DC.

Bill McCarthy

Michigan State University

 


Can Montana Force the IRS to Break the Law? ---
http://yalejreg.com/nc/can-montana-force-the-irs-to-break-the-law/


New Leases Standard About to Really Blow Up Drug Store Chains’ Balance Sheets ---
https://goingconcern.com/leases-standard-blow-up-drug-store-balance-sheets/

Bob Jensen's threads on lease accounting ---
http://faculty.trinity.edu/rjensen/theory02.htm#Leases


Francine:  FASB rules could address problem leading to GE insurance loss ---
https://www.marketwatch.com/story/new-accounting-rule-aims-to-solve-problem-highlighted-by-ges-multi-billion-dollar-insurance-loss-2018-08-16


Is this the way the IRS returns favors to Congress?
A whistleblower made this shocking allegation to me last week: the IRS was tipping off members of Congress to corporate takeovers so the elected officials could profit from insider trading ---
https://nypost.com/2018/08/15/whistleblower-makes-shocking-irs-insider-trading-allegations/


A 35-year-old who dropped out of high school had a vision of a utopian future for China, the US, and the world — and it's led her to the forefront of a controversial education services tech startup worth $3 billion ---
https://www.businessinsider.com/inside-vipkid-cindy-mi-and-3-billion-startups-teacher-community-2018-8


A growing number of Americans over age 65 are filing for bankruptcy just to get by, and it could signal a larger problem in the US ---
https://www.businessinsider.com/older-americans-are-filing-for-bankruptcy-during-retirement-2018-8

Jensen Comment
One of the main problems is that workers factored in Social Security benefits as part of their monthly income after retirement. What they failed to account for is that Medicare, Medicare D, and Medicare supplemental insurance leaves almost nothing out of SS benefits for other living expenses. Although SS benefits are taxable, most poorer recipients probably pay little or no income taxes since nearly half of the people who file tax returns do not owe any income taxes. The killer is the cost of the Medicare benefits. One option is to declare bankruptcy and go on Medicaid, But declaring bankruptcy has its own drawbacks including the possible loss of a home. Some folks intend to be helped by their children, but all too often their children aren't reliable in this regard. Their needs for financial help may be part of the problem.


Tax and reporting implications of rewards-program points (think frequent flier points and credit card cash back rewards) ---
https://www.thetaxadviser.com/issues/2018/aug/receipt-redemption-rewards-program-points.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=10Aug2018


States’ workarounds to the state and local tax deduction limitation ---
https://www.thetaxadviser.com/issues/2018/aug/workarounds-state-local-tax-deduction-limitation.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=13Aug2018


MIT:  How to tell if you’re arguing with a Bob (er make that Bot) ---
https://www.technologyreview.com/s/611831/how-to-tell-if-youre-arguing-with-a-bot/


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

Focus on blockchain's risks before the rewards ---
https://www.fm-magazine.com/issues/2018/aug/blockchain-risks-and-rewards.html?utm_source=mnl:globalcpa&utm_medium=email&utm_campaign=29Aug2018

Inside Higher Ed:  Blockchain Gains Currency in Higher Ed ---
https://www.insidehighered.com/news/2018/08/13/rising-profile-blockchain-academe?utm_source=Inside+Higher+Ed&utm_campaign=aaef3c1c7d-DNU_COPY_01&utm_medium=email&utm_term=0_1fcbc04421-aaef3c1c7d-197565045&mc_cid=aaef3c1c7d&mc_eid=1e78f7c952

Despite lingering skepticism about the future of cryptocurrencies like Bitcoin, the technology behind them is becoming a focus of university teaching and research.

When he was in graduate school and working toward a doctorate in computer science, Arthur Carvalho made a life-changing decision.

 

“It was 2012, and my friend suggested that we invest some money in Bitcoin,” he recalled. At the time, one Bitcoin was valued at around $13. At its peak valuation in late 2017, the price had jumped to almost $18,000.

“I would be a millionaire now,” Carvalho said. “But I told my friend, ‘I don’t trust this thing.’ I thought it was a scam.”

 

He didn’t get rich from Bitcoin, but he did become interested in cryptocurrencies and how they work.

“I followed the development of cryptocurrencies really closely,” he said. “I took a personal interest in learning more about the technology.”

 

Carvalho is now an assistant professor of information systems and analytics at the Farmer School of Business at Miami University in Ohio, where there's a growing consensus among faculty that blockchain -- the technology behind cryptocurrencies like Bitcoin -- is worth watching.

 

Carvalho's colleagues are not unique; interest in blockchain technology is growing fast in the business world -- and universities and colleges are responding. Many professors are incorporating blockchain into their teaching, and several universities have developed full courses devoted to the technology. In the process, they are providing the emerging discipline, once seen as unserious, with intellectual legitimacy. This summer Columbia University and Stanford University both launched blockchain research centers, following in the footsteps of the Massachusetts Institute of Technology's Digital Currency Initiative, which launched as part of the MIT Media Lab in 2015; MIT was among the first institutions to create such a program.

 

At Miami University, business school faculty members had started mentioning blockchain and cryptocurrencies in lectures, but it wasn’t until students from the Miami University Blockchain Club, one of the largest student-led clubs on campus, started asking for more detail about how the technology works that faculty members started to seriously consider creating a blockchain curriculum.

“We agreed that blockchain is a technology that is here to stay,” said Carvalho, “so we decided to develop a three-credit-hour course.”

The course is scheduled to start in spring 2019 and will teach the theory of how blockchain works, as well as potential real-world applications. The course will be cross-disciplinary and cover topics related to business, computer science and mathematics.

 

Though several universities have introduced courses on cryptocurrencies, there are few that focus on blockchain technology for undergraduates, said Carvalho.

“I don’t even have a textbook -- everything has been developed from zero.”

 

Changing Attitudes in Academe

There is a lot of hype, and hyperbole, about blockchain -- It has been described as bigger than the internet” in terms of its potential impact on society -- but it is no exaggeration to say that the potential applications of blockchain technology are numerous.

 

By storing information about financial and other transactions as "blocks" across a network, rather than at one central location, blockchain technology creates a digital record that is transparent, easily verifiable and extremely difficult to tamper with.

The technology is already being used to securely process financial transactions without the need for banks. Major supermarkets such as Walmart are using blockchain to track items in their food supply chain, and health-care providers are exploring how blockchain might give patients greater ownership of their medical records. Even universities are getting in on the action and using blockchain to issue digital degrees that can be easily verified by employers.

Chris Wilmer, assistant professor of chemical and petroleum engineering at the University of Pittsburgh, is co-founder and managing editor of a peer-reviewed journal for blockchain-related research called Ledger (University Library System, University of Pittsburgh). When the journal was launched in 2014, there were just “a few brave academics” conducting research on blockchain, and even fewer peer-reviewed journals in which to publish, says Wilmer.

Just a few years ago, there was a lot of stigma attached to researching cryptocurrencies, said Wilmer. "People thought it was a scam, or illegal," he said.

“Academics were worried about their reputation,” he said. “Now it’s everywhere.”

Wilmer said acceptance of this research has occurred in part because of some “semantic jujitsu.” While research on Bitcoin, cryptocurrencies and blockchain is related, the term "Bitcoin" can still “make people’s hair stand on end,” said Wilmer. “Calling it blockchain has helped a lot.”

 

Submissions to Ledger have grown substantially, he said. In its first year, the journal received about a submission a month; now it gets one or two a week. Popular research questions include whether cryptocurrencies could cope with billions of users and the pros and cons of various consensus algorithms -- the process by which the integrity of data in the blockchain is ensured.

Some of the first scholars to publish in Ledger were lawyers, said Wilmer. Academics addressing blockchain research questions now come from a broad range of disciplines, including computer science, mathematics, economics, business and, to a lesser extent, the social sciences.

 

“I think interest will grow,” said Wilmer. “Many people are still just dipping their toes.”

 

Meeting Employer Demand

Growing interest in blockchain by employers has presented them an opportunity to provide workers professional and continuing education. Peter McAliney, executive director for online and extended learning at Montclair State University’s center for continuing and professional education, recently spearheaded the launch of three professional blockchain certificates -- one covering the basics, one for developers and one focusing on applications of blockchain in the financial sector.

The three certificate courses cost between $1,995 and $4,250 and are delivered in partnership with The Blockchain Academy -- a company that offers corporate training and education in blockchain.

McAliney said Montclair State plans to eventually incorporate blockchain into various courses. In the short term, the continuing education certificates fill an immediate need for people who “can go out and apply” blockchain technology to real-world problems in the public and private sector, he said.

Continued in article

 

Internet of Things --- https://en.wikipedia.org/wiki/Internet_of_things

THE BLOCKCHAIN IN THE IoT REPORT: How distributed ledgers enhance the IoT through better visibility and create trust ---
https://www.businessinsider.com/the-blockchain-in-the-iot-report-2017-6

Focus on blockchain's risks before the rewards ---
https://www.fm-magazine.com/issues/2018/aug/blockchain-risks-and-rewards.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=10Aug2018

The World Bank is facilitating the creation of what it says will be the first bond to be fabricated and managed with blockchain ---
https://www.cnbc.com/2018/08/10/world-bank-picks-commonwealth-bank-for-worlds-first-blockchain-bond.html

US News and World Report: Blockchain is creating a surge of job opportunities ---
https://money.usnews.com/careers/applying-for-a-job/articles/2018-07-25/how-to-benefit-from-the-blockchain-job-boom

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

MIT:  It’s too dangerous to conduct elections over the internet, they say, and West Virginia’s new plan to put votes on a blockchain doesn’t fix that ---
https://www.technologyreview.com/s/611850/why-security-experts-hate-that-blockchain-voting-will-be-used-in-the-midterm-elections/


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

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

Basis in Accounting --- https://en.wikipedia.org/wiki/Basis_of_accounting

Cryptocurrency investors are considered to have a capital asset for tax purposes, meaning a key component of correctly determining the tax treatment of the investment is establishing its basis ---
https://www.thetaxadviser.com/issues/2018/aug/basis-issues-cryptocurrency.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=22Aug2018

 

Hey, Paul Krugman: Here’s What Bitcoin Is Good for ---
http://reason.com/archives/2018/08/14/hey-paul-krugman-heres-what-bitcoin-is-g

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

Venezuela just devalued its currency by 95% and pegged it to a cryptocurrency ---
https://www.businessinsider.com/venezuela-devalues-bolivar-and-pegs-it-to-cryptocurrency-2018-8

2018:  The US Financial Crimes Enforcement Network (FinCEN) receives more than 1,500 cryptocurrency-related suspicious activity reports every month ---
Click Here


Law (and Accounting) Firms Looking To Game The New Tax Law? Think Again ---
http://taxprof.typepad.com/taxprof_blog/2018/08/law-firms-looking-to-game-the-new-tax-law-think-again.html


MIT:  Improving Strategic Execution With Machine Learning ---
https://sloanreview.mit.edu/article/improving-strategic-execution-with-machine-learning/


Short Term Management Mania
Donald Trump’s sudden interest in quarterly earnings reports, explained ---
https://www.vox.com/2018/8/19/17755348/trump-twitter-quarterly-earnings-sec-indra-nooyi
 

Jensen Comment
There are many good things about frequent financial reporting, not the least of which is that frequent might make insider trading a bit less advantageous (certainly not perfectly). But frequent reporting also leads to questionable short-term management decisions. Exhibit A is the apparent attempt by Tesla to make it appear in its latest quarterly financial report that it was having less cash flow problems. Tesla resorted to the gimmick of delaying cash payments to suppliers. Delaying payments of bills does not make obligations go away, and more often than not such delays make cash flow problems worse for the long run. Please don't take this as meaning that I want to do away with quarterly reporting. I simply point out that there are good things and bad things to consider. Short term mania is an enormous problem in the world of business management. Much of it is caused by pegging managerial compensation to short term financial performance. This leads to decisions that can harm the long-term profitability of a company. The classical example is when a company defers maintenance expenses in such a way that these delays cause more expensive long-term solutions. Think of the expense of keeping a bridge safe versus expense of rebuilding a collapsed bridge.

A 2003 survey of public company CFOs found that 78% of these executives would sacrifice long-term value in order to hit their quarterly earnings targets ---
https://www.wsj.com/articles/the-end-of-quarterly-reporting-not-much-to-cheer-about-1534540127?mod=djemCFO_h


When you need to look up data in a spreadsheet and HLOOKUP and VLOOKUP won’t work, another approach (INDEX MATCH) might do the job ---
https://www.fm-magazine.com/news/2018/aug/microsoft-excel-index-match-201819265.html?utm_source=mnl:globalcpa&utm_medium=email&utm_campaign=22Aug2018

Microsoft Excel: Create a picture-based dashboard report ---
https://www.journalofaccountancy.com/issues/2018/aug/excel-picture-based-dashboards.html?utm_source=mnl:globalcpa&utm_medium=email&utm_campaign=15Aug2018

Meet the 15-year-old who's the Microsoft Excel world champion (which is a real thing) ---
https://www.cnn.com/2018/08/08/us/microsoft-excel-champion-trnd/index.html


Truth in Accounting, a national group focused on the transparency of government financial information, pushes each state to adopt a system like the one just put in place by Missouri ---
https://www.statedatalab.org/news/detail/missouri-aims-at-government-transparency-with-new-financial-website


The Pension Hole for U.S. Cities and States Is the Size of Japan’s Economy ---
https://www.wsj.com/articles/the-pension-hole-for-u-s-cities-and-states-is-the-size-of-japans-economy-1532972501?mod=djemCFO_h

For the past century, a public pension was an ironclad promise. Whatever else happened, retired policemen and firefighters and teachers would be paid.

That is no longer the case.

Many cities and states can no longer afford the unsustainable retirement promises made to millions of public workers over many years. By one estimate they are short $5 trillion, an amount that is roughly equal to the output of the world’s third-largest economy.

 

Certain pension funds face the prospect of insolvency unless governments increase taxes, divert funds or persuade workers to relinquish money they are owed. It is increasingly likely that retirees, as well as new workers, will be forced to take deeper benefit cuts.

In Kentucky, a major pension plan covering state employees had about 16% of what it needs to fulfill earlier promises, according to the Public Plans Database, which tracks state and local pension funds, based on 2017 fiscal year figures. A fund covering Chicago municipal employees had less than 30% of what it needed in that fiscal year, according to the same database. New Jersey’s pension system for state workers is so underfunded it could run out of money in 12 years, according to a Pew Charitable Trusts study.

When the math no longer works the result is Central Falls, R.I., a city of 19,359. Today, retired police and firefighters are wrestling with the consequences of agreeing to cut their monthly pension checks by as much as 55% when the town was working to escape insolvency. The fiscal situation of the city, which filed for bankruptcy in 2011, has improved, but the retirees aren’t getting their full pensions back.

“It’s not only a financial thing,” said 73-year-old former Central Falls firefighter Paul Grenon, who retired from the department after a falling wall punctured his lung, broke his back and five ribs, and left him unable to climb ladders. “It really gets you sick mentally and physically to go through something like this. It’s a betrayal, as far as I’m concerned.”

Uncertainty over public pensions is one reason some Americans are reaching retirement age on shaky financial ground. For this group, median incomes, including Social Security and retirement fund receipts, haven’t risen in years. They have high average debt, and are often using savings for their children’s educations and to care for their elderly parents.

The public pension arose from the aftermath of the U.S. Civil War. New York was the first city in the U.S. with a pension fund for injured police officers in 1857 and then for firefighters in 1866. The concept of a public pension plan for government workers became widespread in the early decades of the 20th century. The understanding was employees would accept relatively lower pay in exchange for richer, guaranteed benefits once they retired.

Continued in article

Jensen Question
Should GASB have done more to help prevent this ignorant, and in some cases fraudulent, build up of unsustainable debt?

July 31, 2018 reply from Zane Swanson

Hi Bob,

  You might be on to something.  My 1st web search (see below) indicated that the pension standard changed (~2012)  awhile ago to address the liability problem.  As an example, my web search of the 2017 pension fund accounting for Oklahoma City shows a rough balance of assets and liabilities. However, a worksheet when the future benefits will paid was not disclosed.   I always thought GASB Accounting reporting is supposed to be for sustainability social imperatives, but can you (voters or elected officials)  tell from a "one shot" number what should be going on?   You might check your local government reports if you have better clarity.

Regards,

Zane


CPA Journal: Are Sustainability Rankings Consistent Across Ratings Agencies?
https://www.cpajournal.com/2018/07/26/icymi-are-sustainability-rankings-consistent-across-ratings-agencies/


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

A member of Congress dipped her toes into crypto — and likely took a big hit ---
https://markets.businessinsider.com/currencies/news/ethereum-litecoin-crypto-purchases-by-representative-tulsi-gabbard-2018-8-1027478098

Basis in Accounting --- https://en.wikipedia.org/wiki/Basis_of_accounting

Cryptocurrency investors are considered to have a capital asset for tax purposes, meaning a key component of correctly determining the tax treatment of the investment is establishing its basis ---
https://www.thetaxadviser.com/issues/2018/aug/basis-issues-cryptocurrency.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=22Aug2018


India's Biggest Successes Versus the Biggest Failures in Tax Reform ---
https://www.bna.com/insight-gst-indiaa-n73014481712/


Y Combinator Startup Course for Entrepeneurs s different from Y Combinator's core accelerator programme, which has helped famous startups such as Airbnb, Reddit, and Stripe
 https://en.wikipedia.org/wiki/Y_Combinator

Y Combinator, a startup course that's harder to get into than Harvard, accepts all 15,000 applicants into Startup School after a major screwup ---
https://www.businessinsider.com/y-combinator-accepted-15000-startups-into-startup-school-2018-8


August 2, 2018 Message from Richard Campbell

This is a link that a friend of mine provided who is a retired IRS tax code writer sent me. She said that there is widespread apprehension within the IRS that many taxpayers will be severely under-withheld because of a lack of knowledge of the changes. The new withholding tables provide a false sense of security.

https://taxchanges.us/

 Richard Campbell


McKinsey Consulting:  Zero-based productivity: The power of informed choices ---
https://www.mckinsey.com/business-functions/operations/our-insights/zero-based-productivity-the-power-of-informed-choices


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

Sustainability --- https://en.wikipedia.org/wiki/Externality

Farmers are drawing groundwater from the giant Ogallala Aquifer faster than nature replaces it ---
https://theconversation.com/farmers-are-drawing-groundwater-from-the-giant-ogallala-aquifer-faster-than-nature-replaces-it-100735

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

The commons is the cultural and natural resources accessible to all members of a society, including natural materials such as air, water, and a habitable earth. These resources are held in common, not owned privately. Commons can also be understood as natural resources that groups of people (communities, user groups) manage for individual and collective benefit. Characteristically, this involves a variety of informal norms and values (social practice) employed for a governance mechanism

The Digital Library of the Commons defines "commons" as "a general term for shared resources in which each stakeholder has an equal interest".[2]

The term "commons" derives from the traditional English legal term for common land, which are also known as "commons", and was popularised in the modern sense as a shared resource term by the ecologist Garrett Hardin in an influential 1968 article called The Tragedy of the Commons. As Frank van Laerhoven and Elinor Ostrom have stated; "Prior to the publication of Hardin's article on the tragedy of the commons (1968), titles containing the words 'the commons', 'common pool resources', or 'common property' were very rare in the academic literature."[3]

Some texts make a distinction in usage between common ownership of the commons and collective ownership among a group of colleagues, such as in a producers' cooperative. The precision of this distinction is not always maintained.

The use of "commons" for natural resources has its roots in European intellectual history, where it referred to shared agricultural fields, grazing lands and forests that were, over a period of several hundred years, enclosed, claimed as private property for private use. In European political texts, the common wealth was the totality of the material riches of the world, such as the air, the water, the soil and the seed, all nature's bounty regarded as the inheritance of humanity as a whole, to be shared together. In this context, one may go back further, to the Roman legal category res communis, applied to things common to all to be used and enjoyed by everyone, as opposed to res publica, applied to public property managed by the government

Continued in article

Jensen Comment
The Ogallala Aquifer pending crisis is a good example of how sustainability accountancy must take into account externalities and commons issues in financial reporting. This also illustrates how it may not be feasible for a firm to invest more for its own sustainability in the presence of so many other firms and organizations that feed on the commons. For a Kansas wheat farmer there just are no great investment alternatives for water when the Ogallala Aquifer is no longer a cost-effective source of water. There is no ocean near Kansas such that desalinization is not a practical alternative. What is going to prevent Kansas from becoming a desert?

Bob Jensen's threads on sustainability accounting ---
http://faculty.trinity.edu/rjensen/theory02.htm#TripleBottom

 


Don't look for this news in the progressive press
U.S. Workers Get Biggest Pay Increase in Nearly a Decade ---

https://www.wsj.com/articles/u-s-employment-costs-rose-in-the-second-quarter-1533040473


IRS Regulations:  Why IRC Section 199A is a Joke ---
https://www.accountingweb.com/community/blogs/craig-smalley/why-irc-section-199a-is-a-joke?source=tx082718


Why ‘Nigerian Prince’ scams continue to dupe us ---
https://theconversation.com/why-nigerian-prince-scams-continue-to-dupe-us-98232


Online Investors Consult Astrology To Chart Their Financial Courses ---
https://www.wsj.com/articles/SB90898207490808000

Jensen Comment
A lot of strange things happen (think rumors) can influence transient market prices. In my opinion astrology is complete nonsense except maybe as a conversation starter in a singles bar. However, if I was an active trader (which I'm not) I would pay attention to nonsense things used by other investors to set bid and ask prices in the stock market or most any other market (think commodities). For example, I might consult an astrologist if I became convinced that astrology was affecting prices. At this point I'm still not convinced about astrology, but I am convinced about weather forecasts affecting commodity prices. The problem is that when causal factors (like rainfall) millions of other investors are on the leading edge making it harder to out predict the pros.


How to Mislead With Statistics
Average Starting Salaries For Graduates Of The 144 Law Schools Ranked By U.S. News ---
https://www.usnews.com/education/best-graduate-schools/top-law-schools/paying/articles/2018-07-26/what-type-of-salary-you-can-expect-with-your-law-degree

Jensen Comment
What can be misleading about this ranking? Firstly, how well does this survey take varying benefits into account. Some law firms first pay all or part of student loans whereas other first pay zero. Some law firms have generous maternity leaves. Others do not.

Probably the most misleading is that opportunity factor that may be reflected negatively in the starting salary. Government agency starting salaries for law graduates may be low but there's always that hoped for opportunity to jump ahead of a lot of lawyers in a firm when that firm is looking for former regulators (think SEC lawyers, DOJ lawyers, etc.). Many young government lawyers are seeking those springboards to the top of private sector law firms.

Some law firms are in enormously expensive living cost regions (think San Francisco and Palo Alto) whereas others are in relatively low cost regions (think Manchester, NH). Even back in dark ages when I was teaching accounting in San Antonio some of our graduates were amazed, at least initially, that it was sometimes easier to get an offer from a San Francisco accounting firm than a San Antonio accounting firm. Guess why?

Some law firms do not have to pay as much simply because so many young graduates want to live in particular locales (think graduates from the University of Denver law school who want to live near skiing).

These rankings would be improved if they provided information on medians, means, standard deviations, and kurtosis. I would rather see a ranking based upon the top 10% of the graduates versus the bottom 10% of the graduates of each law school.


June 2018 Median Household Income ---
https://finance.townhall.com/columnists/politicalcalculations/2018/08/01/june-2018-median-household-income-n2505800?utm_source=thdaily&utm_medium=email&utm_campaign=nl


The Cleveland Browns released linebacker Mychal Kendricks on Thursday after federal prosecutors charged him with insider trading (which he admitted) ---
https://www.businessinsider.com/mychal-kendricks-cut-insider-trading-2018-8


The SEC charged a cloud executive with insider trading after he allegedly saved his brothers from $600,000 in losses ---
https://www.businessinsider.com/sec-charged-former-qualys-executive-insider-trading-allegations-2018-8


The Insane Saga of the Fake Saudi Prince Who Scammed Miami's Rich and Famous ---
https://www.vice.com/en_us/article/bjbnd8/the-insane-saga-of-the-fake-saudi-prince-who-scammed-miamis-rich-and-famous

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


How to Mislead With Statistics
Chicago's declared Chicago is on the firmest financial footing in years, but taxpayers should understand that the pitch is deeply misleading ---

http://www.chicagobusiness.com/opinion/how-emanuel-misleading-you-citys-debt


KPMG is the only Big Four firm not among Vault's Top 10 consulting firms ---
https://goingconcern.com/vault-best-consulting-firms-2019/

KPMG was fined 2.1 million pounds ($2.7 million) by the UK's Financial Reporting Council following its admission of another crappy audit ---
https://www.bloomberg.com/news/articles/2018-08-20/kpmg-s-annus-horribilis-continues-with-fine-for-ted-baker-audits

Another Former KPMG Employee Gets Into Trouble for Insider Trading ---
https://www.bloomberg.com/news/articles/2018-08-09/ex-kpmg-auditor-convicted-of-insider-trading-on-swiss-takeover

A federal court has refused to dismiss a putative class action lawsuit in which accounting firm KPMG L.L.P. is being charged with securities law violations in connection with its audit of a now-bankrupt Miller Energy Resources Inc. ---
https://www.businessinsurance.com/article/20180807/NEWS06/912323214/Investors-suit-against-KPMG-can-proceed .

Bob Jensen's threads on KPMG and other large auditing firm lawsuits ---
http://faculty.trinity.edu/rjensen/fraud001.htm


United Kingdom:  FRC Didn’t Want Grant Thornton U.K. to Feel Left Out of All the Disciplinary Fun ---
https://goingconcern.com/financial-reporting-council-sanctions-grant-thornton-misconduct/

Bob Jensen's threads on Grant Thornton ---
http://faculty.trinity.edu/rjensen/fraud001.htm
Scroll Down to Grant Thorntion


Prospect Theory in Cognitive Psychology --- https://en.wikipedia.org/wiki/Prospect_theory

Why the Most Important Idea in Behavioral Decision-Making Is a Fallacy ---
https://blogs.scientificamerican.com/observations/why-the-most-important-idea-in-behavioral-decision-making-is-a-fallacy/

Also see doubts raised ---
http://ritholtz.com/2018/08/loss-aversion-fallacy/


“Big Four” accountancy firms, mired in scandals, are so bad at auditing they’ve become a danger to capitalism (Financial Times) ---
https://www.ft.com/content/dd2f4686-9961-11e8-ab77-f854c65a4465
Not a free article


The IRS Rehired Hundreds of Fired Employees (uncluding those fired for misconduct, chronic absenteeism, and poor performance) ---
http://taxprof.typepad.com/taxprof_blog/2018/08/the-irs-has-rehired-hundreds-of-fired-employees-congress-should-step-in-1.html
Do leopards change their spots?


NPR:  Truth in Accounting CEO questions New Mexico’s reliability in reporting state finances ---
http://www.krwg.org/post/truth-accounting-ceo-questions-new-mexicos-reliability-reporting-state-finances

Jensen Comment
Both in the USA and worldwide the public sector is often less reliable than the private sector about financial reporting reliability. One of the main reasons is that taxpayers don't have a whole lot of power deciding how much they pay corrupt public officials in taxes. Investors, on the otherhand, have more more discretion on how to allocate investment funds except to the extent that they have delegated that power to investment funds.


Beyond robotics: How AI can help improve the audit process ---
http://blog.aicpa.org/2018/08/beyond-robotics-how-ai-can-help-improve-the-audit-process.html#sthash.TLAmV76h.dpbs


Accounting firm PricewaterhouseCoopers LLP has launched a program that allows some new recruits to work the hours they want, reports the BBC ---
https://www.bbc.co.uk/news/business-45353786?mod=djemCFO_h
Jensen Comment
It's not clear whether this flex-time policy is restricted to the United Kingdom or if this is a worldwide policy.

It would seem that this policy is difficult to implement for audit teams on location in client's offices, especially when the client located out of town. Can PwC have half of the audit team sightseeing in Paris while the other half is working in the office of a client?
When I was a new E&E recruit we were sometimes scheduled out of town to test check inventories on Sundays when a client's plant was shut down.


What proportion of CEOs of leading corporations have humanities degrees (only)? ---
https://theconversation.com/the-few-humanities-majors-who-dominate-in-the-business-world-100999


Sexual Assaults:  What nation has the most sexual violence in 2018?
https://theconversation.com/india-has-a-sexual-assault-problem-that-only-women-can-fix-101366
Jensen Comment
This article may be misleading for a number of reasons. Firstly, there may be selection bias in that some developing nations were not included in the survey. Secondly, the data may not be uniformly accurate for nations included in the survey. In some nations sexual assaults are more apt to go unreported than in other nations. Some nations like Sweden are also accused of under-reporting sexual assaults for political reasons. My guess is that around the world sexual assault statistics are the least-accurate crime statistics reported by governments.


Accountants are paid more in what USA cities (largely due to living costs being higher and some other factors)?
https://www.journalofaccountancy.com/news/2018/aug/cities-with-high-accounting-salaries-201819620.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=30Aug2018
In most of these instances new recruits may have to team up in order to afford housing? When children arrive many seek transfers to where housing is cheaper or move outward for very long commutes.


IASB to review how goodwill is calculated under IFRS ---
https://www.reuters.com/article/accounts-regulator-goodwill/global-accounting-body-to-consider-revamping-goodwill-rule-idUSL8N1VK4NH


Summaries of the Teaching Domain Statements of the 2017 Cook Prize Winners
Valaria P. Vendrzyk and Nancy A. Bagranoff
Issues in Accounting Education: May 2018, Vol. 33, No. 2, pp. 1-8.
https://doi.org/10.2308/iace-10583 

The American Accounting Association (AAA) awarded the first J. Michael and Mary Anne Cook/Deloitte Foundation Prize (Cook Prize) in August 2015. The generosity of the Cooks and Deloitte has allowed the AAA to recognize, honor, inspire, and motivate the very best teachers of accounting among us. Last year, Issues in Accounting Education published an article that summarized the domain teaching statements of the 2015 and 2016 prize winners. This article provides the same for the 2017 honorees.

Learning about the teaching philosophies and approaches of our best teachers can perhaps bring us closer to answering the important and difficult question, “What is great teaching?” Academe has long struggled to explain how we can identify the attributes that constitute excellent pedagogy. We also have difficulty in developing rubrics to evaluate teaching success, beyond saying that we “know it when we see it.” Student evaluations, portfolio reviews, classroom visits, teaching statements, and alumni surveys all provide some data regarding teaching performance and, perhaps, excellence, but they provide little help to those aspiring to be great.

One of this year's honorees, Professor Susan Curtis, inspires thinking on this topic. She recently shared that she has listened to the recipients of the Cook Prize each year as they presented their teaching philosophies and approaches at a dedicated AAA Annual Meeting session. She has looked to identify common themes. What Susan observed was passion, dedication to craft, and personalization. However, she has come to realize that no one secret ingredient exists that makes for great teaching. All instructors must consider their own styles, comfort levels, and personalities. This approach makes sense. An introvert can be incredibly effective by using a very different approach to teaching than that of an extrovert. A faculty member, who is so gifted that he or she might skip over steps in mastering new knowledge, might need to approach the classroom differently from someone who needs to “figure things out.” Someone with greater quantitative skills might reason and explain differently than a teacher who is more oriented to right-brain thinking. Each great teacher has found his or her own way.

In addition to observing others, some literature exists to guide us as we consider what makes a great teacher. An excellent reference for a faculty member who wishes to know how to be a better educator is Ken Bain's book, What the Best College Teachers Do. In short, Bain notes that teaching is about learning. Bain would agree with Susan Curtis that one could garner much information by observing effective teachers. But he would caution that, “[t]o benefit from what the best teachers do, however, we must embrace a different model, one in which teaching occurs only when learning takes place” (Bain 2004, 173). The focus is on the learning, not the great lecture. You will see that the best teachers learn from people like Ken Bain, and in the narrative below, Ed Outslay relates how he has built a teaching philosophy around this book.

Two books that focus on learning are Small Teaching, by James Lang (2016), and Make It Stick, by Peter Brown, Henry Roediger, and Mark McDaniel (2014). These books are excellent resources for faculty who wish to understand how their students learn and how to teach them to best affect that learning. In reading through the materials on teaching provided by the Cook nominees, you will find that many of these great teachers read books like those mentioned here. They study the art and science of education and think about it regularly. One previous Cook award winner, Joe Ben Hoyle, encourages colleagues to challenge themselves to be just 5 percent better each year. Incremental improvements in how we promote student learning make excellence achievable for everyone. As you read through the domain teaching statements of this year's Cook awardees, you will find that they reveal more about student learning than they do about the construction of their PowerPoint slides or lecture notes.

The Cook Prize Committee has the challenge of identifying great teaching. Each year, the nominations committee of the AAA recommends a pool of candidates in each of three categories: graduate, undergraduate, and two-year college. Then the Cook Prize Selection Committee, which has the enviable task of sorting through dozens of narratives from award nominees, meets at least twice annually to discuss the process and choose the awardees. The winners of the prize, who receive a significant cash award and a medal, are recognized at the AAA Annual Meeting, which includes a session where the most recent Cook Prize winners discuss their teaching philosophy and approach.

Reading the statements from the nominees is surely one of the greatest privileges a teacher could have. These narratives demonstrate that many of our colleagues study the art and science of teaching and practice it in depth. The narratives also humble the reader. Many of us like to think we are good or excellent teachers. The Cook Prize nominees are on a different plane. The prize is meant to inspire, and in the third year of this award, the three nominees selected do so as exemplars of our teaching craft. Below we share wisdom from this year's winners. Each of these Master Teachers has inspired hundreds of students throughout their careers in the spirit of the way the award's mission is envisioned.


 

RECIPIENTS AND THEIR STATEMENTS (IN ALPHABETICAL ORDER)

Susan M. Curtis: Winner of the 2017 Undergraduate Cook Prize

Dr. Susan M. Curtis is a Lecturer in the Gies College of Business, Department of Accountancy at the University of Illinois. Dr. Curtis holds a Bachelor of Arts degree in Anthropology from Grinnell College and a Ph.D. in Accountancy from the University of Illinois, where she has been teaching as a full-time faculty member since 2000. Her research interest lies in auditor judgment and decision-making. Professor Curtis teaches very large section sizes and her students appreciate her energy and innovation. She has won several previous recognitions for her teaching, including being named the Outstanding Professor by Delta Sigma Pi, Outstanding Faculty member by the University of Illinois Greek Community, and the Illinois Student Senate Faculty Award. Professor Curtis has published accounting education articles in journals that include Issues in Accounting Education and the Journal of Accounting Education. She is Associate Editor at Accounting Education: An International Journal, and an editorial board member for both Issues in Accounting Education and Journal of Accounting Education. Dr. Curtis frequently presents pedagogy papers at AAA meetings and is an active contributor to the Teaching, Learning, and Curriculum section.

Statement by Professor Curtis.

My teaching is rooted in three broad goals for accounting education. I believe that accounting education should serve as a gateway to careers that offer the potential of sustained economic well-being for the student. By fostering integrity and informed citizenship, it should lead to ethically applied financial services work that improves well-being in global society. Finally, or perhaps foremost, it should develop students' foundation for lifetime learning. As an accounting teacher I aim for my students to achieve the curricular goals set for my courses, but also aim for my students to gain at least an appreciative understanding of the broader goals of accounting education.

Continued in article


A Review of the Archival Literature on Audit Partners
by Clive S. Lennox and Xi Wu (2018)
Accounting Horizons: June 2018, Vol. 32, No. 2, pp. 1-35.
https://doi.org/10.2308/acch-51942

The last decade has witnessed a boom in archival studies examining auditing at the partner level. This research is timely because audit partners' names in the United States have been publicly disclosed starting in 2017. This paper reviews the existing archival literature on audit partners, discusses some concerns with certain aspects of the literature, and provides some suggestions for future research.


From Accounting Horizons: June 2018, Vol. 32, No. 2

Economic Analysis of Proposed PCAOB Standards: Finding a Path Forward

Christine Nolder and Zoe-Vonna Palmrose
Abstract | Full Text | PDF (298 KB)

DISCUSSION OF: Economic Analysis of Proposed PCAOB Standards: Finding a Path Forward

Sridhar Ramamoorti
Abstract | Full Text | PDF (130 KB)

Taxation and Corporate Risk-Taking
by Dominika Langenmayr and Rebecca Lester
The Accounting Review: May 2018, Vol. 93, No. 3, pp. 237-266
https://doi.org/10.2308/accr-51872 

We study whether the corporate tax system provides incentives for risky firm investment. We analytically and empirically show two main findings: first, risk-taking is positively related to the length of tax loss periods because the loss rules shift some risk to the government; and second, the tax rate has a positive effect on risk-taking for firms that expect to use losses, and a weak negative effect for those that cannot. Thus, the sign of the tax effect on risky investment hinges on firm-specific expectations of future loss recovery.


Research Forum on Auditing in a Changing Environment
Auditing:  A Journal of Practice and Theory
Volume 37, Issue 2 (May 2018)
http://aaajournals.org/toc/ajpt/current

163

Research Forum on Auditing in a Changing Environment

Mary Canning, Yves Gendron and Brendan O'Dwyer
Citation | Full Text | PDF (31 KB) 

No Access

 

165

Auditing in a Changing Environment and the Constitution of Cross-Paradigmatic Communication Channels

Mary Canning, Yves Gendron and Brendan O'Dwyer
Citation | Full Text | PDF (156 KB) 

No Access

 

175

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

Lisa Baudot, Kristina C. Demek and Zhongwei Huang
Abstract | Full Text | PDF (266 KB) 

No Access

 

197

An Exploration of Offshoring in Audit Practice and the Potential Consequences of Associated Work “Redesign” on Auditor Performance

Denise Hanes Downey
Abstract | Full Text | PDF (503 KB) 

No Access

 

225

Continuous Auditing's Effectiveness as a Fraud Deterrent

George C. Gonzalez and Vicky B. Hoffman
Abstract | Full Text | PDF (1129 KB) 

No Access

 

249

Evaluating the Change Process for Business Risk Auditing: Legitimacy Experiences of non-Big 4 Auditors

Joost van Buuren, Christopher Koch, Niels van Nieuw Amerongen and Arnold M. Wright
Abstract | Full Text | PDF (229 KB) | Supplemental Material 

 


 

Accounting Historians Journal
Volume 45, Issue 1 (June 2018)
http://aaajournals.org/toc/aahj/current

Main Articles

1

The Account Books of the Soranzo Fraterna (Venice 1406–1434) and Their Place in the History of Bookkeeping

Maria Ryabova
Abstract | Full Text | PDF (310 KB) 

Full Access

 

29

Asset Impairment and Depreciation before the 15th Century

Mikhail Kuter, Marina Gurskaya, Angelina Andreenkova and Ripsime Bagdasaryan
Abstract | Full Text | PDF (1977 KB) 

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45

An Introduction to Corporate Accounting Standards: Detecting Paton's and Littleton's Influences

Stephen A. Zeff
Abstract | Full Text | PDF (265 KB) 

Full Access

 

69

Does Stewardship Still Have A Role?

Anthony D. Miller and David Oldroyd
Abstract | Full Text | PDF (216 KB) 

Full Access

 

83

From Theatrical to Scientific Reviewing: The Case of Nikolay Blatov (1875–1942)

Irina Lvova and Dina Lvova
Abstract | Full Text | PDF (233 KB) 

Full Access

 

101

Accounting History Research Topics—An Analysis of Leading Journals, 2006–2015

Gary P. Spraakman and Martin Quinn
Abstract | Full Text | PDF (158 KB) 

Full Access

 

115

A Historical Study of the First 30 Years of Accounting Horizons

Stephen A. Zeff and Thomas R. Dyckman
Abstract | Full Text | PDF (240 KB) 

Full Access

Salmagundi

133

Salmagundi

Gloria Vollmers
Citation | Full Text | PDF (21 KB) 

Full Access

 

135

My Accounting Theory Seminar

Stephen A. Zeff
Citation | Full Text | PDF (66 KB) 

 


Rice University:  Steve Zeff's Accounting Theory Seminar
Stephen A. Zeff
 Accounting Historians Journal: June 2018, Vol. 45, No. 1, pp. 135-140.
https://doi.org/10.2308/aahj-10574 

PREAMBLE

This preamble explains the reasons for the design and composition of my Accounting Theory seminar, which is a three-hour required course in the spring semester of the fifth year of the Master of Accounting Program at Rice University. The enrollment is between 25 and 30 students.

There is no standard format or scope for an Accounting Theory seminar, and I assume that many instructors pattern such seminars after one of the available Accounting Theory textbooks. The authors of two of these textbooks do refer to the names of the major accounting theorists (but sometimes only in footnotes), yet discuss their valuation models only perfunctorily. Almost half of one of the two textbooks' content, and two-thirds of the other's, is given over to explaining the architecture of, and conceptual issues involving, the balance sheet, income statement, and cash flow statement as well as to an expansive treatment of conceptual issues arising in a number of important topical areas, including deferred taxes, pensions, and leases. They are, in reality, “applied” theory textbooks. A third Accounting Theory textbook adopts an economics/finance focus throughout and does not discuss the valuation models or even mention the accounting theorists or their works by name, the lone exception being Paton and Littleton's 1940 monograph. By contrast, the aim of my seminar is to acquaint students, in some depth, with the major accounting theorists of the first seven decades of the past century and with the distinctive valuation models which they espoused. Those seven decades were the “golden age” of conceptual normative argument, which has collectively influenced, albeit unwittingly, the thinking of standard setters, academics, and even practitioners to this day. It is an inheritance which today's students should come to appreciate, and which will provide them with a large framework for thinking about, and resolving, valuation issues later in their careers. Valuation is central to accounting, and it is therefore central to my seminar.

I think it is important that the instructor place the names of the major theorists at the fore in a theory seminar and not in the shadows of the background. In this way, when students read or hear a reference to such major theorists as Canning, Sweeney, Paton and Littleton, Edwards and Bell, or Chambers, they will readily identify the valuation model with which they are associated, which will help organize their thinking about the issues at hand. While Sweeney and Edwards and Bell, for example, both advocated entry-price accounting, their models were different in very important respects. Thus, tapping the large body of writings on valuation models is not just a matter of arraying entry price, exit price, historical cost, and discounted cash flow proponents into four classes. Each theorist, or pair of theorists, advanced their own unique model, and in my seminar I focus on the individual theorists (their backgrounds, the explanatory support for their model, the influences on their thinking, and the impact of their thinking on others), thus bringing out the important and fundamental differences between and among theorists in regard to both their models and their supporting justifications.

People drive events, and it is essential to characterize the roles of the leading thinkers and advocates of change in accounting—for example, Henry Rand Hatfield, William A. Paton, George O. May, Leonard Spacek, Maurice Moonitz, Robert Sprouse, Robert Trueblood, George Sorter, and David Solomons.

Beyond the assigned readings in the works of these major theorists, and about their works written by others, my seminar also devotes a session to the widely documented decline of professionalism—in favor of commercialism—in the Big N public accounting firms during the last three decades of the past century. An important consequence of this decline has been the weakening of the auditor's backbone when dealing with aggressive managements.1 This discussion provides students with an important context in which to understand and appreciate the culture of the firms they will shortly join. I devote the two final sessions to the evolution and current state of the U.S. and international standard-setting process, as well as to the “political” forces that have affected the resulting standards, often with serious adverse consequences for sound financial reporting. Examples abound. One was the immense pressure brought on the standard-setters from the 1950s to the 1990s to accede to merger-minded companies that insisted on using “pooling of interests” accounting, which allowed the use of historical cost accounting to record the assets and liabilities of the company being acquired. Another, from the 1960s until recently, was the “political” pressure which interested parties brought on standard-setters not to require long-term property and equipment lessees to display their lease assets and liabilities in their balance sheet. The bringing of these “political” pressures is an important institutional dimension that students should learn, and I believe that it is seldom, if ever, discussed in any depth in intermediate and advanced accounting courses.

In my seminar, I place considerable emphasis on the historical evolution of ideas, institutions, practices, and standards—nationally and internationally—and especially to point out the causes and effects among them.

Continued in article

Jensen Comment
In a conversation last week, Steve lamented that accounting history is less and less a part of accounting education curricula in the 21st Century. I tend to agree. He uses the accounting theory course at Rice University to keep accounting history alive in a required course in the masters program (Rice dropped it's short-lived doctoral program years ago).  I tend to agree, but I also think room has to be made in an accounting theory course for the types of risk contracting taking place in the 21st Century that is entirely unlike any contracting that took place before the 1980s.

Accounting theory probably varies more than any other course in the curricula of global universities. I confess that I focused more on the evolution of selected accounting standards rather than a broad-based history seminar like that taught by Professor Zeff. In particular in my theory course I focused on the evolution of the very complicated FAS 133 for which there really was no accounting history of the FASB to lean on when writing this very long and complicated standard. What made FAS 133 unique is that there really was not any history for many of the contracts that had to be accounted for in FAS 133. For example, prior to the 1980s interest rate swap contracting did not exist. In less than a decade there were over $1 trillion of such contracts, many being used for cash management ---
http://faculty.trinity.edu/rjensen/acct5341/acct5341.htm

Teaching accounting history is important, and I did mention the works of many earlier accounting theorists in my theory course. However, one of the problems of earlier theory is that there really is not suitable theory for the complicated contracting that takes place in risk management in the 21st Century of business corporations. Many 21st Century financial contracts were unheard of in the days of McNeal, Canning, Scott, Paton, Littleton, Edwards & Bell, Stuabus,  Ijiri, Chambers, etc. ---
 

It is best to look at accounting history as a foundation and the beyond accounting history for the teaching of newer types of contracts never encountered by the theorists listed above.
Examples of these newer types of contracts not encountered by our well-known theorists in history include the following:

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

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

Financial Structures --- https://en.wikipedia.org/wiki/Structuring

An excellent exercise in a current accounting theory class is to relate these newer types of contracts to the conflicting theories of McNeal, Canning, Scott, Paton, Littleton, Edwards & Bell, Stuabus, Ijiri, Chambers, etc
Then ask students to propose new theories to fit where historical theories to date are highly deficient for newer types of contracting.
An example from the 1990s is where the FASB decided that it had to book derivative financial instruments like newly-invented interest rate swaps at current exit values --- but where in some cases under FAS 133 changes in derivative contract values affect current earnings and in other cases (hedging) do not affect current earnings.

FAS 133 entails new FASB theory built upon old theory. The new theory is quite complicated because some types of hedging derivatives (cash flows and foreign currency hedges) keep value changes out of earnings by using OCI and others (fair value hedges) do not use OCI. Students should learn the reasons why the FASB did not use "one-size fits all" theory for FAS 133 hedge accounting. Much of the pressure for complications in FAS 133 theory came from current financial analysts who had strong feelings regarding speculation versus hedging. Still unresolved are many issues in portfolio hedging.


Karl Popper --- https://en.wikipedia.org/wiki/Karl_Popper

The impossibility—and the necessity—of distinguishing science from nonscience. ---
https://www.weeklystandard.com/daniel-sarewitz/all-ye-need-to-know

Academic Accountancy Can Hardly be Called a Science Since There's Zero Pressure to Replicate One-Time Findings ---
http://faculty.trinity.edu/rjensen/TheoryTAR.htm


When the American Accounting Association introduced the Journal of Financial Reporting it was announced that this journal, unlike The Accounting Review, would publish more commentaries/discussions about published articles and to encourage replications of the research. As of 2017 the record was not so great on replications, but the journal started out by doing better regarding commentaries and discussions

Volume 2, Issue 1 (Spring 2017)
What is not clear is why there's not been an issue published since Spring 2017

Research Articles

1

The Use of Residual Income Valuation Methods by U.S. Sell-Side Equity Analysts

John R. M. Hand, Joshua G. Coyne, Jeremiah R. Green and X. Frank Zhang
Abstract | Full Text | PDF (1424 KB) 

Full Access

 

31

Do Investors Benefit from Selective Access to Management?

Brian J. Bushee, Michael J. Jung and Gregory S. Miller
Abstract | Full Text | PDF (259 KB) 

Full Access

 

63

Commentary on: Selective Disclosure

Richard M. Frankel
Citation | Full Text | PDF (83 KB) 

Full Access

 

69

Implied Cost of Equity Capital Estimates as Predictors of Accounting Returns and Stock Returns

Stephannie A. Larocque and Matthew R. Lyle
Abstract | Full Text | PDF (250 KB) 

Full Access

 

95

Commentary on: Implied Cost of Equity Capital Estimates as Predictors of Accounting Returns and Stock Returns

Charles C. Y. Wang
Citation | Full Text | PDF (163 KB) 

Full Access

 

107

10-K Disclosure Repetition and Managerial Reporting Incentives

Richard A. Cazier and Ray J. Pfeiffer
Abstract | Full Text | PDF (370 KB) 

Full Access

 

133

Discussion of: 10-K Disclosure Repetition and Managerial Reporting Incentives

Travis A. Dyer, Mark H. Lang and Lorien Stice-Lawrence
Abstract | Full Text | PDF (157 KB) 

What has happened to the Journal of Financial Reporting since the above publication in 2017?


Asset Impairment and Depreciation before the 15th Century
by Mikhail Kuter, Marina Gurskaya, Angelina Andreenkova, and Ripsime Bagdasaryan
Accounting Historians Journal: June 2018, Vol. 45, No. 1, pp. 29-44
https://doi.org/10.2308/aahj-10575 

This paper investigates impairment and depreciation accounting in the 13th to 15th century. It finds that the first known instance of impairment accounting was in 1321, while for depreciation, it was 1399 not, as has previously been claimed, 1299. The study demonstrates the difference in approach at that time between the two forms of adjustment and shows that impairment was the original form of adjustment for reduction in asset values, a form that was applied in situations where physical assets had been lost, or deteriorated, or devalued over the reporting period. In contrast, depreciation was algorithmic, linked to a time-based straight-line depreciation charge equivalent to 10 percent per annum. These findings not only relocate recognition of the emergence of depreciation provisions to the end of the 14th century but, also, from France to Spain. However, in both cases, in Italian firms with Italian accountants.


Quality Costs --- https://en.wikipedia.org/wiki/Quality_costs

India’s booming solar sector has one major flaw: poor quality ---
https://qz.com/india/1345508/poor-quality-solar-panels-may-ruin-indias-renewable-energy-boom/


Foreign-derived intangible income deduction: Tax reform's overlooked new benefit for US corporate exporters ---
https://www.thetaxadviser.com/newsletters/2018/aug/foreign-derived-intangible-income-deduction.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=03Aug2018


Call Option Failures:  African governments’ quest for cheap electricity ---
https://qz.com/africa/1344681/africas-electricity-shortage-needs-higher-power-tariffs/
Jensen Question
Why aren't home and business solar/wind investments more successful.
One answer is the cost of things using electricity. To run pump you have to have a well or other source of water. If there's a town well you also need an infrastructure of delivery pipes. To cook and wash clothing with electricity you need appliances.


EY (With 2,200 Lawyers) Seeks To Disrupt BigLaw With Acquisition Of Alternative Legal Services Tech Company—Tax Law Practices Are Most At Risk ---
http://taxprof.typepad.com/taxprof_blog/2018/08/ey-with-2200-lawyers-seeks-to-disrupt-biglaw-with-acquisition-of-alternative-legal-services-tech-com.html

Renowned U.K. Legal Eagles PwC Made Almost $92 Million in Law Revenues in the Past Year ---
https://goingconcern.com/pwc-legal-u-k-92-million-revenues/


The Financial Crisis Cost Every American $70,000, Fed Study Says ---
Click Here

Jensen Comment
The root causes were as follows:

1. A nationwide super bubble of real estate prices that inspired buyers speculate in real estate (land and buildings) financed with subprime mortgages. Buyers intended to turn the properties over before subprime rates on mortgages gave way to higher rates --- Z
https://en.wikipedia.org/wiki/Subprime_lending 

2. Fraud entered into real estate and mortgage lending every step of the way. The major catalyst was government policy of buying mortgages (think Fanny Mae and Freddie Mack) with zero percent of the default risk borne by issuers of mortgages. Many fraudsters started issuing mortgages way above property values. For example, a criminal lender in Phoenix issued a mortgage for over $100,000 to a woman on welfare who purchased a shack for $3,500. Greedy real estate appraisers went wild in overvaluing properties for fraudulent lenders and buyers. The government and Wall Street investment bank bought up hundreds of billions of dollars in  poisoned mortgages  (where buyers had no hope of paying off the debt).

3. The Wall Street investment banks (like Lehman Bros. and Merrill Lynch) who realized they were holding huge amounts of poisoned mortgages tried to diversify the risk by including them in portfolios of solid mortgages. These portfolios were then sold as collateralized debt obligation (CDO) bonds to buyers such as Saudi Arabia. But the CDO bonds were sold with recourse such that when the USA real estate bubble burst those investment banks did not have enough liquidity to buy the CDO bonds back. Then came the government bailout in which some banks (think Goldman) were bailed out by the government and some were forced into bankruptcy (think Lehman Bros.) While all of this was going ton deeply troubled banks were getting fraudulent AAA credit ratings from greedy credit raters (think Moodys).

What happened before, during, and after the 2008 government bailout is explained in much detail at
http://faculty.trinity.edu/rjensen/2008Bailout.htm

The Financial Crisis Cost Every American $70,000, Fed Study Says ---
Click Here


FASB takes big steps on disclosure effectiveness ---
https://www.journalofaccountancy.com/news/2018/aug/fasb-disclosure-effectiveness-201819617.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=29Aug2018


EY:  FASB changes requirements for fair value measurement disclosures ---
https://www.ey.com/Publication/vwLUAssetsAL/TothePoint_04244-181US_FairValueDisclosureFramework_29August2018/$FILE/TothePoint_04244-181US_FairValueDisclosureFramework_29August2018.pdf

EY:  FASB changes how insurers measure and disclose liabilities for long-duration insurance contracts ---
https://www.ey.com/Publication/vwLUAssetsAL/TothePoint_04171-181US_Long-durationInsuranceContracts_15August2018/$FILE/TothePoint_04171-181US_Long-durationInsuranceContracts_15August2018.pdf

EY:  Private Company Reporting Update: How the new revenue standard will affect private companies ---
https://www.ey.com/Publication/vwLUAssetsAL/PrivateCompanyReportingUpdate_04090-181US_ClientImplementation_6August2018/$FILE/PrivateCompanyReportingUpdate_04090-181US_ClientImplementation_6August2018.pdf

EY: How the new leases standard affects oil and gas entities ---
https://www.ey.com/Publication/vwLUAssetsAL/TechnicalLine_04098-181US_OilGasLeases_31July2018/$FILE/TechnicalLine_04098-181US_OilGasLeases_31July2018.pdf

EY:  A closer look at the guidance on accounting for share-based payments to nonemployees ---
https://www.ey.com/Publication/vwLUAssetsAL/TechnicalLine_03947-181US_Nonemployees_2August2018/$FILE/TechnicalLine_03947-181US_Nonemployees_2August2018.pdf

What you need to know

• The FASB aligned the guidance on share-based payments to nonemployees with that for share-based payments to employees, with certain exceptions.

• The measurement of equity-classified nonemployee awards will be fixed at the grant date, and entities will measure the cost of awards subject to a performance condition using the outcome that is probable at the balance sheet date.

• Entities may use the expected term to measure nonemployee options or elect to use the contractual term as the expected term, on an award-by-award basis.

• Entities will recognize a cumulative-effect adjustment to retained earnings for equityclassified nonemployee awards for which a measurement date has not been established and liability-classified nonemployee awards that have not been settled.

• The guidance is effective for PBEs in annual periods beginning after 15 December 2018, and interim periods within those years. For all other entities, it is effective in annual periods beginning after 15 December 2019, and interim periods within annual periods beginning after 15 December 2020. Early adoption is permitted for entities that have adopted the new revenue guidance.

 

Overview

The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-071 to simplify the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions.

Continued in article


Zorba:  Cybersecurity - Looking to the Banks for Guidance
https://zorba-research.blogspot.com/2018/08/cyberecurity-looking-to-banks-for.html

Zorba:  Balancing Human and AI Activities ---
https://zorba-research.blogspot.com/2018/08/balancing-human-and-ai-activities.html

Zorba:  How AI is Affecting Accountants ---
https://zorba-research.blogspot.com/2018/08/how-ai-is-affecting-accountants.html

 




 


Calculating Auditor Industry Specialist Tenure: Code from Gaver and Utke (2018)

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3212035
16 Pages
Posted: 1 Aug 2018  

Steven Utke

University of Connecticut - Department of Accounting

Date Written: July 11, 2018

Abstract

Gaver and Utke (2018) show that auditor industry specialist measures can be improved by accounting for the length of time an auditor has been a specialist (specialist tenure) in addition to auditor market share. In this note, I provide the code for calculating Gaver and Utke’s (2018) specialist tenure variables to enable subsequent researchers to use these variables. While this code focuses on industry specialist tenure, accounting for tenure may also be important as archival audit researchers begin measuring audit expertise in areas other than industry expertise, such as auditing goodwill.

Keywords: Auditor Changes, Auditor Tenure, Industry Specialization

JEL Classification: M40

 


Global Market Inefficiencies

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3223539
70 Pages
Posted: 1 Aug 2018  

Söhnke M. Bartram

Warwick Business School - Department of Finance

Mark Grinblatt

University of California, Los Angeles (UCLA) - Finance Area; Yale University - International Center for Finance; National Bureau of Economic Research (NBER)

Multiple version iconThere are 5 versions of this paper

Date Written: July 31, 2018

Abstract

We use point-in-time accounting data to estimate monthly out-of-sample fair values of over 25,000 stocks from 36 countries with a novel methodology. A simple trading strategy based on deviations from fair value yields statistically and economically significant risk-adjusted returns in most regions, especially the Asia Pacific. Differences in the signal’s monthly alphas of 40-70 basis points between emerging and developed markets contrast with findings of prior research about the relative efficiency of these two market types. Globally, pre-transaction-cost alphas, which are unrelated to known anomalies, are positively related to trading costs, but exceed country-specific institutional trading costs. Thus, global equity markets are inefficient, but are relatively less efficient in counties with quantifiable market frictions, particularly trading costs, that deter arbitrageurs.

Keywords: International Finance, Valuation, Asset Pricing, Market Efficiency, Fundamental Analysis, Point-in-Time, Theil-Sen, Transaction Costs

JEL Classification: G11, G14, G15

 


Spreading the Bread With 17 Authors

Valuing the Global Mortality Consequences of Climate Change Accounting for Adaptation Costs and Benefits

University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2018-51

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3224365
115 Pages
Posted: 1 Aug 2018 Last revised: 2 Aug 2018

Tamma Carleton

University of California, Berkeley

Michael Delgado

Rhodium Group

Michael Greenstone

University of Chicago - Department of Economics; Becker Friedman Institute for Economics; National Bureau of Economic Research (NBER)

Trevor Houser

Rhodium Group

Solomon Hsiang

University of California, Berkeley; National Bureau of Economic Research

Andrew Hultgren

University of California, Berkeley - Department of Agricultural & Resource Economics

Amir Jina

University of Chicago; National Bureau of Economic Research (NBER)

Robert E. Kopp

Rutgers, The State University of New Jersey - New Brunswick/Piscataway

Kelly McCusker

Rhodium Group

Ishan Nath

University of Chicago - Department of Economics

James Rising

London School of Economics & Political Science (LSE) - Grantham Research Institute on Climate Change and the Environment

Ashwin Rode

University of Chicago

Hee Kwon Seo

University of Chicago, Booth School of Business

Justin Simcock

Rhodium Group

Arvid Viaene

Analysis Group, Inc.; University of Chicago - Department of Economics

Jiacan Yuan

Rutgers, The State University of New Jersey - Department of Earth and Planetary Sciences

Alice Tianbo Zhang

Columbia University - School of International & Public Affairs (SIPA)

Date Written: August 1, 2018

Abstract

Using subnational data from 41 countries, we develop an empirical model of the mortality-temperature relationship that allows us to estimate effects where no mortality data exist and to account for the benefits of adaptation to climate. Importantly, we develop a revealed preference approach that bounds adaptation costs, even though they cannot be directly observed. Using future climate simulations, we compute a median willingness-to-pay of $20 (moderate emissions scenario) to $39 (high emissions scenario) to avoid the excess mortality risk caused by a 1t increase in CO2 emissions (2015 USD, 3% discount rate). Allocating these costs to 24,378 political units, we find substantial heterogeneity.


The Primacy of Numbers in Financial and Accounting Disclosures: Implications for Textual Analysis Research


SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3223757
34 Pages
Posted: 1 Aug 2018  

Federico Siano

Boston University - Department of Accounting

Peter D. Wysocki

Boston University Questrom School of Business

Date Written: July 31, 2018

Abstract

Numbers are central to financial and accounting disclosures, yet current textual analysis research generally ignores numbers within disclosures. We hypothesize and show that the prevalence of numbers within a corporate disclosure is highly correlated with the readability of the disclosure. More importantly, we show that prior findings on the links between disclosure readability and various economic outcomes are explained by the prevalence of numbers within the disclosures. We discuss implications for past and future research that attempts to analyze the determinants, attributes and outcomes of financial and accounting disclosures.

Keywords: Analyst Following, Disclosure, Quantitative Information, Readability, Textual Analysis

JEL Classification: D83, G14, M40, M41

 


Auditor Style and Financial Reporting Similarity

SSTRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3224602
50 Pages
Posted: 2 Aug 2018  

Joe Johnston

Illinois State University - Department of Accounting

Joseph Zhang

University of Memphis

Date Written: August 1, 2018

Abstract

In this study, we examine whether auditor style is related to financial reporting similarity. Based on the count of accounting items disclosed in eXtensible Business Reporting Language (XBRL) 10-K filings, we define financial reporting similarity in terms of the number of similar line items reported by a pair of firms and develop a measure of pairwise financial reporting similarity. Consistent with the auditor style literature, we find that firms that share the same auditor have more similar financial statements. We find robust results using alternative metrics of auditor style, including pairwise comovements of audit fees and audit timeliness. We also find that financial reporting similarity increases (decreases) when firms switch from having different (the same) auditors to having the same (different) auditors.

Keywords: XBRL, Auditor Style, Financial Reporting Similarity

JEL Classification: M41, M42

 


Corporate Scandals and Regulation

Journal of Accounting Research, Vol. 56, No. 2, 2018

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3213627
Posted: 2 Aug 2018
 

Luzi Hail

University of Pennsylvania - The Wharton School

Ahmed Tahoun

London Business School

Clare Wang

University of Iowa - Tippie College of Business

Multiple version iconThere are 3 versions of this paper

Date Written: May 1, 2018

Abstract

Are regulatory interventions delayed reactions to market failures or can regulators proactively pre‐empt corporate misbehavior? From a public interest view, we would expect “effective” regulation to ex ante mitigate agency conflicts between corporate insiders and outsiders, and prevent corporate misbehavior from occurring or quickly rectify transgressions. However, regulators are also self‐interested and may be captured, uninformed, or ideological, and become less effective as a result. In this registered report, we develop a historical time series of corporate (accounting) scandals and (accounting) regulations for a panel of 26 countries from 1800 to 2015. An analysis of the lead‐lag relations at both the global and individual country level yields the following insights: (1) Corporate scandals are an antecedent to regulation over long stretches of time, suggesting that regulators are typically less flexible and informed than firms. (2) Regulation is positively related to the incidence of future scandals, suggesting that regulators are not fully effective, that explicit rules are required to identify scandalous corporate actions, or that new regulations have unintended consequences. (3) There exist systematic differences in these lead‐lag relations across countries and over time, suggesting that the effectiveness of regulation is shaped by fundamental country characteristics like market development and legal tradition.

Keywords: accounting fraud; corporate scandals; capital market regulation; economics of regulation; law and finance; international accounting


Investor Behavior and the Benefits of Direct Stock Ownership

Journal of Accounting Research, Vol. 56, No. 2, 2018

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3213651
SSRN

Posted: 2 Aug 2018
 

Darren Bernard

London Business School - Department of Accounting

Nicole L. Cade

University of Pittsburgh - Accounting Group

Frank D. Hodge

University of Washington - Michael G. Foster School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: May 1, 2018

Abstract

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

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

JEL Classification: G32; G40; M41

 


The Materiality of Accounting Errors: Evidence From SEC Comment Letters

Contemporary Accounting Research, Forthcoming


SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3220458
Posted: 2 Aug 2018
 

Andrew Acito

Michigan State University

Jeffrey J. Burks

University of Notre Dame

W. Bruce Johnson

University of Iowa - Department of Accounting

Multiple version iconThere are 2 versions of this paper

Date Written: June 1, 2018

Abstract

We gain unique insights into materiality judgments about accounting errors by examining SEC comment letter correspondence. We document that managers typically use multiple quantitative benchmarks in their materiality analyses, with earnings being the most common benchmark. In most of the cases we review, managers deem the error immaterial despite exceeding the traditional “5 percent of earnings” rule of thumb, often in multiple periods and by a large degree. Instead of attempting to conceal these overages, managers tend to forthrightly acknowledge them, often asserting that the benchmark is abnormally low during the violation period. We find that 17 to 26 percent of these “low benchmark” assertions are suspect (although none of these “low benchmark” assertions are challenged by the SEC). We also document substantial variation in the extent to which qualitative factors are mentioned as considerations. The SEC generally is deferential toward managers’ arguments and judgments, but is more likely to challenge immateriality claims when managers admit there are qualitative factors that indicate errors are material.

Keywords: Materiality, Errors, Restatements, Sec Comment Letters

 


Performance Effects of Setting a High Reference Point for Peer‐Performance Comparison

Journal of Accounting Research, Vol. 56, No. 2, 2018

SSRN


Posthttps://papers.ssrn.com/sol3/papers.cfm?abstract_id=3213635 ed: 2 Aug 2018  

Henry Eyring

London School of Economics & Political Science (LSE); Harvard Business School

V. G. Narayanan

Harvard University - Accounting & Control Unit

Multiple version iconThere are 2 versions of this paper

Date Written: May 1, 2018

Abstract

We conduct a field experiment, based on a registered report accepted by the Journal of Accounting Research, to test performance effects of setting a high reference point for peer‐performance comparison. Relative to providing the median as a reference point for online students to compare themselves to, providing the top quartile: damps performance for those below the median, boosts performance for those between the median and top quartile, and, in the case of outcome but not process comparison, boosts performance for those above the top quartile. We do not find that either reference point yields a greater average performance effect. However, providing the more effective reference point in each partition of initial performance yields a 40% greater performance effect than providing either reference point uniformly. Students access the online courses intermittently over the span of a year. Our effects derive from small portions of our treatment groups — 5% in the case of process comparison and 26% in the case of outcome comparison — who accessed treatment and who were, on average, more active leading up to and during our intervention.

Keywords: Relative Performance Information; Reference Points; Performance; Social Comparison

 


Asset Specificity and Conditional Accounting Conservatism

Journal of Business Finance & Accounting, Vol. 45, Issue 7-8, pp. 839-870, 2018

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3225467
32 Pages
Posted: 3 Aug 2018  

Qingyuan Li

Wuhan University - School of Economics and Management

Li Xu

Washington State University, Vancouver

Date Written: July/August 2018

Abstract

Asset specificity, the redeployability of an asset to alternative uses, is a key determinant of an asset's resale value. Asset specificity has a direct impact on a firm's ongoing fair value determination, bankruptcy risk, liquidation value, and abandonment option. We document a significant negative association between asset specificity and conditional conservatism. Further tests reveal that this inverse relation manifests as bad news being less quickly incorporated in earnings as asset specificity increases. We find no difference in the extent to which good news is delayed in earnings for firms conditional on asset specificity. In addition, the documented association is stronger when asset specificity arises from lower within‐industry acquisition activity. The association is also more pronounced for firms that are in less competitive industries, have institutional investors, have limited access to the public debt market, and/or have more unsecured debt. Our findings are noteworthy for regulators and researchers given the recent interest in the determinants of conservatism.

Keywords: asset specificity, conditional conservatism, timely loss recognition

 


The Impact of Mandatory IFRS Reporting on Institutional Trading Costs: Evidence from Australia

Journal of Business Finance & Accounting, Vol. 45, Issue 7-8, pp. 797-817, 2018

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3225476
21 Pages
Posted: 3 Aug 2018  

Andrew Lepone

Macquarie University, Faculty of Business and Economics

Jin Boon Wong

University of Sydney - Discipline of Accounting

Date Written: July/August 2018

Abstract

This study examines the impact of mandatory International Financial Reporting Standards (IFRS) on the market quality of the Australian Securities Exchange (ASX) 200 constituent stocks. Using traditional metrics that are consistent with prior literature (i.e., bid‐ask spreads), the first stage analysis confirms that stock liquidity has improved. However, when the analysis is extended to consider the trading costs incurred by market participants (i.e., execution shortfall), results suggest liquidity has not changed significantly. The paper utilizes rich unique datasets that contain detailed trade information, and findings are robust after controlling for trade difficulty and market conditions. In the era of High Frequency Trading (HFT) and occurrences of ‘fleeting’ liquidity, this paper provides some evidence that while IFRS may have enhanced ‘visible’ bid‐ask spreads, tangible liquidity for market participants, particularly global institutional investors, has not improved significantly.

Keywords: accounting standards, Australian Securities Exchange, bid‐ask spreads, execution shortfall, fleeting liquidity, high frequency trading, IFRS, institutional investors, liquidity, market quality

 


Lean Accounting --- https://en.wikipedia.org/wiki/Cost_accounting#Lean_accounting

Conceptual Issues in Lean Accounting: A Review

The IUP Journal of Accounting Research & Audit Practices, Vol. XVI, No. 3, July 2017, pp. 54-63

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3214401
Posted: 4 Aug 2018
 

Vineeta Arora

Independent

G. Soral

Mohanlal Sukhadia University

Date Written: July 16, 2018

Abstract

In today’s business world, accounting is defined as not only a tool for measuring financial figures, but also a foolproof system that can measure and manage the value. This has forced the companies to re-think on their internal processes so that the process also meets the value definition of the customer. Lean accounting can be the answer to all the expectations raised. It is a principle-based operating system which can be expressed in terms of customer value, value stream, flow and pull with minimum interruption, pursuit of perfection, and empowered people. It is a systematic approach to eliminate waste like overproduction, waiting, transportation, inventory, over-processing, etc. through continuous improvement. The current cost accounting system earns profit by full utilization of resources, and is associated with large inventory, long lead time and poor delivery, while lean system earns profit through ‘maximized flow’ on pull from customers and elimination of waste, resulting in superior customer value, good quality, good delivery and shorter lead time. This paper tries to explore the conceptual issues of lean accounting, i.e., its meaning, definition, evolution, need, and also presents a comparison between lean accounting and traditional accounting which helps the readers to understand the term lean accounting clearly.


Accounting for Farms in India: An Analysis in the Context of Recognition, Measurement and Presentation of Financial Data

The IUP Journal of Accounting Research & Audit Practices, Vol. XVI, No. 3, July 2017, 34-53

SSRN

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3214385
Posted: 4 Aug 2018  

Haripriya Dutta

Tezpur University

Debabrata Das

Independent

Date Written: July 2017

Abstract

The farm accounting practice in India is said to be in its infant stage. This paper seeks to examine the rationale for a full-fledged farm accounting practice in the country. Literature reveals a strong relationship between the degrees of commercialization with that of the adoption of accounting practices. Therefore, the study attempts to examine the commercial traits in Indian farms, which genuinely envisage such practices in the sector. Thereafter, the existing practices of accounting in India are discussed by underscoring the measurement and valuation techniques of different farm account heads. Lastly, the study tries to draw attention to certain lacunas in the existing system. These are drawn using the authors’ own observations, supported by past research. As outcomes of the study, a considerable commercial appeal is seen in the Indian farm sector. Certain farm accounts heads and their respective treatments are provided to explore the existing system of farm accounting in the country. The drawbacks of present practice are found in terms of recognition, measurement and presentation of financial data.

 


Aristotle's Geometrical Accounting

Cambridge Journal of Economics, Forthcoming

SSRN

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2419927

41 Pages Posted: 4 Apr 2014 Last revised: 20 Jul 2017

Gerhard Michael Ambrosi

Jean Monnet Chair ad personam, University of Trier

Date Written: April 3, 2014

Abstract

Aristotle’s analysis of economic exchange in the Nicomachean Ethics involves two paradigms which he addresses separately but then he stresses that there is no difference between them: barter and monetary exchange. Each one of them is rendered here separately but in a mutually consistent way by using geometrical methods which were well established and widely used in Aristotle’s intellectual surroundings. In this framework Aristotle’s ‘monetary equivalence’ in exchange appears as an application of Euclid’s proposition Elements I,43 about the equality of geometrical complements in a rectangle.

Aristotle repeatedly refers to ‘own production’ when mentioning exchange between two artisans, say, ‘builder’ and ‘farmer’. The accounting worth of the quantity of ‘own production’ in terms of money is then Aristotle’s “worth” of an artisan. This interpretation helps to make sense of Aristotle’s statements of the type: ‘as builder to farmer, so food to houses’. We show that this statement is logical and plausible provided that the goods in question are measured as proportions of sales out of own production. This result solves one of the major riddles of Aristotle’s text on exchange.

Accounting of exchange should be seen in connection with Aristotle’s critique of the Pythagoreans’ concept of justice. He claims that they wrongly equate justice with ‘reciprocation’. The paper does not speculate about Aristotle’s alternatives. It just shows that his text on ‘reciprocation’ can be interpreted with reference to a consistent and interesting system of geometrical accounting. This might not be his own invention, but Aristotle’s writings are the sole literary source for systematic geometrical accounting of economic exchange. This definitely merits listing Aristotle’s passages on exchange as being among the most interesting texts of ancient economic analysis.

Keywords: Aristotle, accounting, exchange, reciprocation, Euclid, Pythagoreanism

Aristotle: Reciprocity in Exchange is Not Equity (Presentation Slides)

 

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3209198
12 Pages Posted: 7 Aug 2018  

Gerhard Michael Ambrosi

Jean Monnet Chair ad personam, University of Trier

Date Written: June 30, 2018

Abstract

Among some scholars of Aristotelian justice there is the conviction that in the Nicomachean Ethics (NE V,5) Aristotle propagated reciprocity as “true justice in exchange”. But in fact Aristotle wrote there explicitly: in many cases “reciprocity is at variance with Justice”. The paper deals with this contradiction. It builds on Ambrosi’s recent article on “Aristotle’s geometrical accounting” (
https://ssrn.com/abstract=2419927). It explains Aristotle’s seemingly strange statement: “[As] builder is to a shoemaker, so must such and such a number of shoes be to a house”. This expresses a formal economic relation, not an ethical postulate. When this formalism is enhanced by considerations of equity, only then do ethical considerations come in. Conclusion: Reciprocity is not justice in exchange if it lacks equity.

Keywords: Aristotle, equity, justice, ancient geometry, Euclid's Elements

JEL Classification: B4, B31, M490

 


What Information Matters to Investors at Different Stages of a Firm's Life Cycle?

SSRN

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3215389
39 Pages Posted: 7 Aug 2018  

Victoria Dickinson

University of Mississippi - Patterson School of Accountancy

Haim Kassa

Miami University

Philipp D. Schaberl

University of Northern Colorado - Monfort College of Business

Date Written: June 29, 2018

Abstract

We examine the role of reported accounting information (e.g., earnings and book values) relative to analysts’ earnings forecasts to determine what information is most relevant for explaining market value conditional on a firm’s life cycle stage. Using the life cycle measure developed in Dickinson (2011), we find that accounting information and analysts’ earnings forecasts are each informative for market values, but in differing ways conditional on a firm’s life cycle stage. In both returns and price specifications, we find that for growth and mature firms, investors put relatively more weight on analysts’ forecasts. Conversely, for introduction and decline firms, investors find accounting information more relevant for stock price and stock returns. However, consistent with Burgstahler and Dichev (1997), we find that book values are more relevant than earnings for firms that are more likely to exercise an abandonment option (i.e., introduction and decline firms). Overall, our findings are also consistent with our predictions derived from a simple learning model by Pastor and Veronesi (2009).

Keywords: Life Cycle, Value Relevance, Relative Relevance, Analysts’ Forecasts

 


How Did the Canadian Revenue Agency (CRA) Expect the Adoption of IFRS To Affect Corporate Tax Compliance and Avoidance?

Canadian Tax Journal/Revue Fiscale Canadienne, Vol. 66, No. 1, 2018

SSRN

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3195488
22 Pages Posted: 7 Aug 2018  

Oliver N. Okafor

Ryerson University - Ted Rogers School of Management

Dawn Mains

Southern Alberta Institute of Technology (SAIT)

Olayemi M. Olabiyi

Southern Alberta Institute of Technology (SAIT)

Hussein A. Warsame

University of Calgary

Date Written: March 29, 2018

Abstract

From 2008 to 2011, the Canada Revenue Agency (CRA) developed a series of bulletins distributed to its internal auditors, alerting them to the fact that the adoption of international financial reporting standards (IFRS) may affect corporate tax reporting. In this study, we review 10 CRA IFRS internal bulletins and one internal memorandum from the office of the director general. We discuss the accounting issues addressed in each bulletin, the tax risks and taxpayer actions identified by the CRA that could lead to corporate tax avoidance, and finally the CRA's prescriptions for detecting or deterring corporate tax avoidance. We found that the CRA did have concerns that the adoption of IFRS in 2011 and prior years, coupled with the discontinuation of Canadian generally accepted accounting principles (GAAP), could lead to various accounting issues, including increased risk that inappropriate tax adjustments would be made for certain enumerated items. This article presents preliminary evidence that accounting standards may affect corporate tax compliance and avoidance. The CRA's concerns are plausible since the starting point for the computation of taxable income is accounting net income. Many firms may engage in tax-avoidance behaviour when they adopt an accounting standard that lends itself to aggressive reporting. The interaction effects of the uncertainty created by the change in GAAP and the tax authority's heightened concern about corporate tax avoidance could be an important area for future study.

Keywords: IFRS, international financial reporting standards, compliance, CRA, tax avoidance, corporate income taxes

 


Variability of Accounting Restatement Measurement in Audit Quality Research

SSRN

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3216124
69 Pages Posted: 7 Aug 2018  

R. Drew Sellers

Kent State University - Department of Accounting

Michele D Meckfessel

University of Missouri at Saint Louis

Jadallah Jadallah

Saginaw Valley State University

Amirali Chaghervand

Kent State University

Date Written: July 18, 2018

Abstract

In this research note, we examine the application of three methods used to operationalize the financial restatement variable in empirical archival accounting literature. Research exploring financial reporting and audit quality often employs financial restatements as a proxy for low audit quality. A review of recent articles reveals three distinct variations in operationalizing the restatement variable: announcement date, first occurrence and all occurrences. Using a typical audit quality model and restatement data from 2003-2014 we find statistically distinct results from each of the three measurement choices evaluated. The results suggest an incorrect choice may subject research findings to reductions in explanatory power, risk of type 1 and type 2 errors, and altered direction (sign) of coefficients. Suggestions for applying the findings to select an appropriate measurement approach for a given research question are discussed.

Keywords: Audit Quality, Financial Restatements, Restatement Measurement

 


Quantum Entropy and Accounting

SSRN

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3220892
40 Pages Posted: 13 Aug 2018  

John C. Fellingham

Ohio State University (OSU) - Department of Accounting & Management Information Systems

Haijin Lin

University of Houston

Douglas Schroeder

Ohio State University (OSU) - Department of Accounting & Management Information Systems

Date Written: July 27, 2018

Abstract

In a previous paper we establish the equality between accounting numbers and information in a classical Arrow-Debreu economy. One of the conditions is complete market, that is, there exists an Arrow-Debreu security for every possible state realization. In this paper, we relax this condition and establish the equality between accounting numbers and information by exploring quantum information and measurement mathematics. In the revised domain expanded relationship, von Neumann entropy replaces Shannon entropy to capture the information effect.

Keywords: accounting, information, entropy

 


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

Basis in Accounting --- https://en.wikipedia.org/wiki/Basis_of_accounting

Cryptocurrency investors are considered to have a capital asset for tax purposes, meaning a key component of correctly determining the tax treatment of the investment is establishing its basis ---
https://www.thetaxadviser.com/issues/2018/aug/basis-issues-cryptocurrency.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=22Aug2018

 

An Analysis of High-Frequency Cryptocurrencies Prices Dynamics Using Permutation-Information-Theory Quantifiers

Chaos 28, 075511 (2018); DOI/10.1063/1.5027153

SSRN

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3220728

17 Pages Posted: 13 Aug 2018  

Aurelio F. Bariviera

Universitat Rovira i Virgili - Department of Business

Luciano Zunino

Centro de Investigaciones Opticas (CONICET La Plata - CIC)

Osvaldo A. Rosso

Universidade Federal de Alagoas

Date Written: July 26, 2018

Abstract

This paper discusses the dynamics of intraday prices of twelve cryptocurrencies during last months' boom and bust. The importance of this study lies on the extended coverage of the cryptoworld, accounting for more than 90% of the total daily turnover. By using the complexity-entropy causality plane, we could discriminate three different dynamics in the data set. Whereas most of the cryptocurrencies follow a similar pattern, there are two currencies (ETC and ETH) that exhibit a more persistent stochastic dynamics, and two other currencies (DASH and XEM) whose behavior is closer to a random walk. Consequently, similar financial assets, using blockchain technology, are differentiated by market participants.

Keywords: cryptocurrency; permutation entropy, permutation statistical complexity, complexity-entropy causality plane, informational efficiency

Jensen Comment
What the paper mostly demonstrates to me is how difficult it is to account for values in highly volatile markets.

 


Intangibles

SSRN

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3218586

51 Pages Posted: 14 Aug 2018  

Baruch Lev

New York University - Stern School of Business

Date Written: July 23, 2018

Abstract

The continued growth of intangible investments is the hallmark of developed economies, initiating significant changes in the business models, strategies and performance of business enterprises. Accounting standard‐setters, however, by and large, are oblivious to this world‐wide development. I establish in this study that this accounting resistance to change seriously harms investors and the economy‐at‐large, and accordingly I propose feasible remedial changes to the accounting system to adapt it to economic reality. I discuss implementation issues of the proposed change, and the reasons for the three-decade resistance of accounting standard‐setters to change the accounting of intangibles. Finally, in order to facilitate the accounting change, I outline a wide‐ranging, policy-oriented research agenda on intangibles and related issues.

Keywords: Intangibles, financial reports, accounting policies, technology, research agenda

Jensen 2018 Comment 1
As per usual in literally all Professor Lev's writings on intangibles he's absolutely correct in his analysis of the current deficiencies of accounting standards and published financial statements regarding intangibles.

In this paper he repeats most of his earlier criticisms of intangibles accounting in the first 24 pages of the paper. In comparison with critics of the matching principle (critics like Mary Barth and Tom Selling), I'm in total sympathy with Lev's pleas for improving income reporting in terms of the matching principle so elegantly and concisely summarized on the famous Paton and Littleton monograph.

Finally on Page 25 of the above paper Lev proposes what he claims to be "feasible" improvements to actual intangibles accounting that should be added to accounting standards.

III. So, What’s To Be Done?
Given the serious harms documented‐above to investors and the economy‐at‐large from the accounting distortions and information asymmetry surrounding intangible investments, a change in the accounting for intangibles obviously seems long overdue.
There is not much we, accountants, can do to reduce the inherent riskiness of intangibles, caused by their following unique attributes: (1) the virtual absence of markets in intangibles and the consequent limits on price revelation and risk diversification, evident
by the unsuccessful attempts to securitize intangibles,21 (2) the “sunkness” nature of many intangibles: when their development falters, like a drug under development failing a clinical test, the investment loss is frequently total, and (3) the “spillover” attribute of most intangibles, namely, non‐owners can frequently benefit from others’ intangibles, through reverse engineering or patent infringement, thereby reducing the benefits to owners (practically all smartphones look like Apples iPhone).22 The one thing that accountants can definitely do to decrease investors’ uncertainty and the consequent cost of capital is to improve the information investors have about intangibles by improving the relevant accounting rules, thereby reducing investors’ information risk.
 

To be sure, I am not the only one calling for such an accounting change: For example, in a recent survey of investors conducted by the Financial Accounting Standards Advisory Council (FASAC) concerning the top priorities for the FASB, investors placed intangibles in third place (312 points), virtually tied with second place, pensions (313 points), stating that current reporting on intangibles “Doesn’t provide decision useful information,” and that “Better information is needed.” (FASB, 2016). And yet, the accounting for intangibles hardly changed over the past four decades. I will, comment later on this bizarre resistance to change of standard‐setters, but first to my change proposal which is outlined thus.


Capitalize and amortize identifiable intangibles
In an accounting classic, published more than 75 years ago, Paton and Littleton (1940) characterized accounting’s objectives as:

1. Periodic income determination is the central function of financial accounting.
2. The fundamental problem of accounting is the division of the stream of costs incurred between the present and the future in the process of measuring periodic income. and
3. Accounting is not essentially a process of valuation.

Jensen 2018 Comment 2
As much as I would really like to support Professor Lev's urging for the FASB to put the priority of financial reporting back on the income statement rather than the balance sheet, I cannot do so in the case of intangibles by wishfully thinking we can put reliable numbers on most of the intangibles he proposes capitalizing like human resources of Apple Corporation, R&D of Google, future value of Tesla's battery patents, etc. In this paper he becomes more like a preacher rather than a realist. Putting enormous numbers into financial statements that are wildly unreliable and non-auditable will cause more harm than good to the state of financial reporting today. We can do much more about qualitative reporting of those intangibles, but to put numbers on those intangibles is worse than the majority of pre-election polling numbers of the USA presidential election outcome in 2016.

Here's part of a tidbit  that I wrote in 2017 ---
http://faculty.trinity.edu/rjensen/book17q4.htm

CPA Journal:  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 2017 Comment 1
This is my 2017 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.