Fall 2018 edition of Accounting Education News ---
http://aaahq.org/Research/Journals/Accounting-Education-News

Jensen Comment
This edition has a number of interesting links, including the links to the 2018 best paper awards.
Accountics scientists are still taking all the (yawn) awards.
I wonder if those "top" research papers had much effect on accounting course content.

My hypothesis is that the accountics scence bias is not so much due to the selection committees. It's instead the result of the aggressiveness of accountics scientists in nominating their own. The selection committees (I was on the Notable Contributions to the Accounting Literature Award) frequently have no alternatives to choose from other than accountics science papers. I wish the nominators would be forced to demonstrate how their nominated papers impacted or will impact classrooms.

In the past most of the award winning papers are long forgotten in both teaching and practice.

December 6, 2018 reply from Paul Williams

Bob,
You raise a crucial point.  I haven't looked at the link, but the AAA
changed the process for selecting the best papers in Horizons and
Issues.  In the past every paper that was published was eligible and
the membership voted for that slate.  The accountics folks found this
was too dicey since a paper could be selected that wasn't up to their
"standards."  So now there is some process invisible to the membership
that selects a slate of only five of the papers that are eligible.
All of the Horizons candidates this past time were financial reporting
related and methodologically acceptable.  Of course the AAA membership
apparently willingly pays for the privilege of being abused by the
accountics folk.  No wonder we continue themes about "becoming a
learned profession" or "imagining new accountings" because the AAA
continues to police accounting knowledge to purify it from any
heretical intrusions.  Heaven forbid we should let the entire
community decide what literature is best; they might get it wrong.
And the members get their noses rubbed in it without even a whimper of
protest.

 Paul

Under the Tax Cuts and Jobs Act, the parking benefits that churches, synagogues, hospitals, colleges and other nonprofits offer their employees are now taxable ---
https://www.politico.com/story/2018/12/16/congress-tax-reform-irs-churches-parking-1027598

Jensen Comment
I've not tracked what states with income taxes are also affected by this new rule. It's great to live in New Hampshire, but not in terms of Federal income tax.

This may be one of the first new taxes that Nancy Pelosi will try to repeal, but she will probably have to override President Trump among other hurdles to the tax elimination.

The Year 1552:  The First Arithmetic Book Printed in England

Luca Pacioi  --- https://en.wikipedia.org/wiki/Luca_Pacioli
There are at least two common mistakes with respect to Luca Pacioli (a close friend of Leonardo da Vinci). One is to assume Pacioli's famous 1494 book is an accounting book. Pacioli only used bookkeeping as an illustration of algebraic equations in his famous Summa mathematics book in 1494.
A second mistake is to assume Pacioli invented double-entry bookkeeping. The origins of double-entry bookkeeping are unknown and this type of bookkeeping is only illustrated by Pacioli in Summa.

From this wonderful mathematics history site on December 18, 2018 ---
https://www.maa.org/news/on-this-day

Cuthbert Tunstall died in Lambeth, London, England in 1559. He wrote (in Latin in 1552) the first arithmetic book printed in England, which he based on Pacioli's Summa de arithmetica.

More information about:
Cuthbert Tunstall
Luca Pacioli

Bob Jensen's threads on accounting history are at
http://faculty.trinity.edu/rjensen/theory01.htm#AccountingHistory

U.K. regulators proposed sweeping changes to rules governing British audit firms Tuesday in moves designed to increase competition, prevent conflicts of interest and restore public confidence in an industry tarnished by an accounting scandal that led to the collapse of one of Britain’s largest construction companies, report Michael Rapoport and CFO Journal’s Nina Trentmann.

The measures, if implemented, would see audit firms separate their auditing and consulting operations, introduce two-firm audits for large companies and replace the current auditing regulator. The changes were in part triggered by the scandal that brought down Carillion PLC.

In the wake of the construction company’s collapse, U.K. affiliates of the Big Four audit firms—KPMG LLP, PricewaterhouseCoopers LLP, Ernst & Young LLP and Deloitte Touche Tohmatsu Ltd.—have faced criticism that their auditing hasn’t been tough enough and they have been too cozy with their clients.

Excellent, Cross-Disciplinary Overview of Scientific Reproducibility in the Stanford Encyclopedia of Philosophy ---
https://replicationnetwork.com/2018/12/15/excellent-cross-disciplinary-overview-of-scientific-reproducibility-in-the-stanford-encyclopedia-of-philosophy/

Bob Jensen's threads on the lack of validity and replication research in accountancy ---
http://faculty.trinity.edu/rjensen/TheoryTAR.htm

Management accountants’ job prospects in 2019 ---
https://www.fm-magazine.com/news/2018/dec/management-accountants-job-prospects-2019-201820245.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=18Dec2018

Jensen Comment
Once again all this good news for management accountants does not translate to inexperienced new college graduates. Unlike CPA firms, the IRS, and consulting firms that yearly hire a great many inexperienced accountancy graduates, business firms do not create such great employment tracks for inexperienced management accountants. Note how the article above repeatedly stresses "skilled" management accountants where in most cases "skilled" also means experienced. That does not mean it's impossible for new graduates to become employed in managerial rather than financial accounting or AIS. But it does mean that there are many fewer opportunities for new managerial accounting graduates. A typical career path for newly graduated accounting majors is to get a job in financial accounting and then shift by various means into managerial accounting in the first few years of working after graduation. Colleges generally would love to add more courses in managerial accounting specialties if there were more entry level opportunities for such graduates.

Biggest Product Launches of 2018 ---
https://247wallst.com/special-report/2018/11/30/the-biggest-product-launches-of-2018/?utm_source=247WallStDailyNewsletter&utm_medium=email&utm_content=DEC032018a&utm_campaign=DailyNewsletter

Microsoft's surprising comeback over Apple is the outcome of two new CEOs with radically different game plans ---
https://www.businessinsider.com/microsoft-nadella-is-product-visionary-apple-tim-cook-isnt-2018-11

What PCAOB Inspectors Will Look for in 2019 ---
https://www.journalofaccountancy.com/news/2018/dec/pcaob-inspection-focus-2019-201820237.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=10Dec2018

New tax credit for paid family and medical leave ---
https://www.journalofaccountancy.com/issues/2018/dec/tax-credit-paid-family-medical-leave.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=04Dec2018

2018 CPA Journal:  Finding the Right Tax Software ---
https://www.cpajournal.com/2018/11/12/finding-the-right-tax-software/

Four types of retirement plans for small businesses: SEP, Simple IRA, 401(k), and Solo 401(k) ---
http://maaw.blogspot.com/2018/12/four-types-of-retirement-plans-for.html

Excel:  How to Use the FREQUENCY Function in Excel ---
https://www.howtogeek.com/398655/how-to-use-the-frequency-function-in-excel/

Excel:  Will Dynamic Arrays kill Data Tables, PivotTables?
https://www.fm-magazine.com/news/2018/dec/excel-dynamic-arrays-pivottables-data-tables-201820102.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=21Dec2018

Excel:  Tips for recovering broken Excel files ---
https://knowtechie.com/recover-broken-file-microsoft-excel/

Excel: What's new in Excel 2019 ---
https://www.journalofaccountancy.com/issues/2018/dec/microsoft-excel-2019-new.html?utm_source=mnl:globalcpa&utm_medium=email&utm_campaign=19Dec2018

Excel function focus: SEQUENCE and RANDARRAY ---
https://www.fm-magazine.com/news/2018/dec/excel-functions-sequence-randarray-201820101.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=17Dec2018

Excel:  Focus on 2 new functions: UNIQUE and FILTER ---
https://www.fm-magazine.com/news/2018/dec/excel-functions-unique-filter-201820091.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=12Dec2018

Excel:  This Excel change is more than SORT of a big deal ---
https://www.fm-magazine.com/news/2018/dec/microsoft-excel-sort-sortby-201820047.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=07Dec2018

Excel:  Part three of this series describes what happens when errors occur in Excel's new Dynamic Arrays capabilities ---
https://www.fm-magazine.com/news/2018/nov/excel-single-function-201820004.html?utm_source=mnl:adv&utm_medium=email&utm_campaign=03Dec2018

Excel:  Excel: Arrays, Tables, and ‘The Twilight Zone’ ---
https://www.fm-magazine.com/news/2018/nov/microsoft-excel-arrays-tables-201818973.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=03Dec2018

Federal Judge Sides with KPMG in Gender Discrimination Lawsuit ---
https://goingconcern.com/federal-judge-sides-with-kpmg-in-gender-discrimination-lawsuit/

Bob Jensen's threads on the two faces of KPMG are at
http://faculty.trinity.edu/rjensen/fraud001.htm

Report: Vermont among worst states when it comes to fiscal transparency

NOVEMBER 29, 2018 | by Bethany Blankley | TRUE NORTH REPORTS (VERMONT)
https://www.statedatalab.org/news/detail/report-vermont-among-worst-states-when-it-comes-to-fiscal-transparency

Wells Fargo Agrees to Pay $575 Million to Resolve State Investigations ---
https://www.nytimes.com/2018/12/28/business/wells-fargo-settlement.html

How the IRS was Gutted ---
https://www.propublica.org/article/how-the-irs-was-gutted

The IRS has been gutted. Last year, it had 9,510 auditors, down a third from 2010. The rate of audits themselves dropped 42 percent, and the agency’s budget has fallen $2 billion. While I don’t imagine many of you harbor especially warm and fuzzy feelings for the IRS, these are the biggest winners from the now thinly stretched agency, according to ProPublica: corporations and the wealthy.

IRS Releases New Shorter Form 1040 For 2018, With Six New Schedules ---
https://taxprof.typepad.com/taxprof_blog/2018/12/irs-releases-new-shorter-form-1040-for-2018-with-six-new-schedules.html

One of those humbling thoughts of life before computers
In your head can you compute the square root of 3,00000,00000,00000,00000,00000,00000,00000,00000?

From the Math On this Day site on December 22, 2018
https://www.maa.org/news/on-this-day

12-22-1669

"In a dark night, in bed, without pen, ink, or paper, or anything equivalent, I did by memory extract the square root of 3,00000,00000,00000,00000,00000,00000,00000,00000, which I found to be 1,73205,08075,68077,29353, ... and did the next day commit it to writing." - John Wallis
More information about:
John Wallis

Inside the massive (Nevada) factory where Tesla will soon make 60 percent of the world’s lithium-ion batteries ---
https://www.theverge.com/transportation/2018/11/30/18118451/tesla-gigafactory-nevada-video-elon-musk-jobs-model-3

Jensen Comment
Audit reports must now discuss both sustainability and financial risks. The above article seems to avoid mention of the biggest risk to this company --- the risk of being dependent upon an oligopoly of foreign-based lithium suppliers.

Lithium --- https://en.wikipedia.org/wiki/Lithium#Production

There's also some political risk, especially from the EU's revenue-salivating monopoly hunters ---
https://en.wikipedia.org/wiki/European_Union_competition_law

Google threatened with break up by EU over monopoly fears ---
https://www.independent.co.uk/life-style/gadgets-and-tech/news/google-eu-competiton-commission-threat-margrethe-vestager-search-monopoly-anti-trust-laws-a8273961.html

Amazon’s looming challenge: Europe’s antitrust laws ---
https://www.vox.com/policy-and-politics/2018/9/21/17887008/amazon-europe-antitrust-laws

Wired's Bold (Reckless) Claim:  "BMW's new electric car powertrain system totally torpedoes Tesla" ---
https://www.wired.co.uk/article/bmw-electric-car-powertain-tesla

FASB tweaks leases standard with new update ---
https://www.journalofaccountancy.com/news/2018/dec/fasb-tweaks-leases-standard-201820255.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=11Dec2018

Three lessons "It's a Wonderful Life" can teach you about revenue recognition ---
https://blog.aicpa.org/2018/12/3-lessons-its-a-wonderful-life-can-teach-you-about-revenue-recognition-.html#sthash.eYJD3GtC.dpbs

Apple can't sell some iPhones in Germany because of its legal war with Qualcomm ---
https://www.businessinsider.com/apple-qualcomm-iphone-germany-stores-2018-12

What state barely beat out Illinois for fiscal health?
Connecticut ranks 49th in terms of fiscal health
https://www.statedatalab.org/news/detail/connecticut-ranked-49th-for-fiscal-health
Massachusetts ranked 45th --- how wonderful!

Things to know about lease accounting implementation ---
https://www.journalofaccountancy.com/news/2018/nov/lease-accounting-standard-implementation-201820151.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=03Dec2018

How to Mislead With Statistics
Left-Leaning VOX: The $21 trillion Pentagon accounting error that can’t pay for Medicare-for-all, explained ---
https://www.vox.com/policy-and-politics/2018/12/3/18122947/pentagon-accounting-error-medicare-for-all

The US military budget is such a bloated monstrosity that it contains accounting errors that could finance two-thirds of the cost of a government-run single-payer health insurance system. All Americans could visit an unlimited array of doctors at no out of pocket cost. At least that’s a notion spreading on left-wing Twitter and endorsed and amplified by newly elected Rep. Alexandria Ocasio-Cortez, one of Democrats’ biggest 2018 sensations and an undeniable master at the fine art of staying in the public eye.

 

Unfortunately, it’s not true.

 

The idea spread like a game of telephone from a Nation article to the US Congress while losing a crucial point of detail: The Pentagon’s accounting errors are genuinely enormous, but they’re also just accounting errors — they don’t represent actual money that can be spent on something else.

Proponents of this vision have the political wind at their backs and continue to deploy the idea effectively to win intra-party arguments without really making any headway on the core obstacles to writing a Medicare-for-all bill that could become law. That said, to the extent that political power rather than concrete legislation is the goal, that’s probably for the best.

Misunderstandings fly around on Twitter all the time, and AOC’s level of policy knowledge is pretty typical for a member of Congress. But this particular flub is telling about progressive frustration over the double standard on military versus non-military spending, and also the fraught state of play regarding the push for a Medicare-for-all program.

The Pentagon’s mystery $21 trillion, explained

The underlying article by Dave Lindorff in the Nation that kicked this off is an investigative report into the Defense Department’s accounting practices. Lindorff reveals that Pentagon accounting is quite weak, that the department keeps flunking outside audits, that funds are shifted between accounts without proper oversight, and that overall documentation of what’s actually happening with the Pentagon’s vast budget is extremely poor.

Lindorff goes beyond these observations to allege that what’s happening amounts to deliberate fraud, the purpose of which is to persuade Congress to increase appropriations levels beyond what would otherwise be approved.

Continued in article

Jensen Comment
We really cannot compare proposed Medicare-for-All plan without more specific definitions of "Medicare-for-All" and the "cared for population." For example, Medicare currently does not pay for the enormous cost of long-term nursing care. Medicare only pays 80% of most of the things it does cover like hospital and doctor care.

Also Medicare has built up trust funds over the 50 years using payroll deductions from individuals and employers. The trust funds are not sustainable at predicted usage rates, but it's not like the existing Medicare program did not accumulate any finds for the elderly and disabled. A Medicare-for-All plan does not have 50 years of payroll deductions to help pay for an abrupt shock to the system.

Advocates of Medicare-for-All never mention that Medicare for all is mostly a private sector program where claims are serviced in the private sector along with private sector doctor, nursing, and medicine delivery of goods and services. Medicare is not like the U.K. system where most services are delivered by government employees.

The Nation's analysis of the Defense Department's expenses ignores the fact that even if we entirely eliminated the current Army, Navy, and Air Force the government's obligations to retired and disabled former military personnel would carry on for hundreds of billions of dollars into the indefinite future. And how long would the USA and its Medicare-for-All program survive without any Army, Navy, and Air Force?

The Nation's analysis is an example of totally irresponsible and misleading statistics.

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

The world's largest maker of cryptocurrency mining chips will likely lay off more than 50% of its staff, according to reports ---
https://www.businessinsider.com/bitmain-layoffs-2018-12

Bitcoin is close to becoming worthless ---
https://www.marketwatch.com/story/bitcoin-is-close-to-becoming-worthless-2018-12-03

NPR:  Why is the price of bitcoin fluctuating so wildly? ---
https://www.npr.org/2018/11/28/671133977/bitcoin-is-bouncing-around-again-here-are-some-possible-causes?utm_source=MIT+Technology+Review&utm_campaign=526e22c9f0-EMAIL_CAMPAIGN_2018_11_29_12_43&utm_medium=email&utm_term=0_997ed6f472-526e22c9f0-153727301

Forbes:  The Great Cryptocurrency Scam ---
https://www.forbes.com/sites/jayadkisson/2018/11/20/the-great-cryptocurrency-scam/#1939ffd0359f
Thank you Glen Gray for the heads up.

Washington Post:  The only currency worse than bitcoin is Venezuela’s ---
https://www.washingtonpost.com/business/2018/11/26/only-currency-worse-than-bitcoin-is-venezuelas/?noredirect=on&utm_term=.a227190bf99c
Jensen Comment
Under ASC 350 cryptocurrency is an intangible asset
Accounting Rule ASC 350 for Reporting Cryptocurrency as an Intangible Asset Subject to Value Impairment Tests
https://www.ey.com/Publication/vwLUAssetsAL/TechnicalLine_04623-181US_Cryptocurrency_18October2018/$FILE/TechnicalLine_04623-181US_Cryptocurrency_18October2018.pdf

Why might this be awful timing for the State of Ohio?
The people of Ohio can now pay their taxes in bitcoin ---
https://qz.com/1474124/the-people-of-ohio-can-now-pay-taxes-in-bitcoin/?utm_source=MIT+Technology+Review&utm_campaign=d039264ad8-EMAIL_CAMPAIGN_2018_11_26_12_44&utm_medium=email&utm_term=0_997ed6f472-d039264ad8-153727301

Bitcoin usage among major payment processors has dropped 80% ---
https://thenextweb.com/hardfork/2018/11/21/bitcoin-cryptocurrency-blockchain-usage/

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

Fraud is expected to cost the ad industry $44B in 2022 — here’s how blockchain could help stop it ---
https://www.businessinsider.com/the-blockchain-in-advertising-report-a-2018-10

Beyond Bitcoin: Here are some of the new use cases for distributed ledger technology ---
https://www.businessinsider.com/beyond-bitcoin-report-2018-3

Different Ways to Understand Blockchain ---
https://www.journalofaccountancy.com/podcast/ways-to-understand-blockchain.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=10Dec2018

AICPA's Blockchain Certificate ---
https://www.aicpastore.com/blockchain-fundamentals-for-accounting-and-finance/PRDOVR~PC-188140/PC-188140.jsp?utm_source=mnl:cpald&utm_medium=email&utm_campaign=10Dec2018

Walmart:  The robotic moppers will be deployed in US stores by the end of January ---
https://www.bloomberg.com/news/articles/2018-12-03/robot-janitors-are-coming-to-mop-floors-at-a-walmart-near-you

From David Giles on December 2, 2018
https://davegiles.blogspot.com/2018/12/december-reading-for-econometricians.html

December Reading for Econometricians

My suggestions for papers to read during December:

·                     Askanazi, R., F. X. Diebold, F. Schorfheide, & M. Shin, 2018. On the comparison of interval forecasts. PIER Working Paper 18-013, Penn. Institute for Economic Research, University of Pennsylvania.

 

·                     Meintanis, S. G., J. Ngatchou-Wandji, & J. Allison, 2018. Testing for serial independence in vector autoregressive models, Statistical Papers, 59, 1379-1410.

 

·                     Milas, C., T. Panagiotidis, & T. Dergiades, 2018. Twitter versus traditional news media: Evidence for the sovereign bond markets. Mimeo., Management School, University of Liverpool.

 

·                     Ollech, D., 2018. Seasonal adjustment of daily time series. Discussion Paper No. 41/2018, Deutsche Bundesbank.

 

·                     Sickles, R. C., W. Song, & V. Zelenyuk, 2018. Econometric analysis of productivity: Theory and implementation in R. Working Paper WP08/2018, Centre for Efficiency and productivity Analysis, Department of Economics, University of Queensland.

 

·                     Skeels, C. L. & F. Windmeijer, 2018. On the Stock-Yogo tables. Econometrics, 6 (4), 44.

Madoff Victims Recoveries to Date ---
https://www.bloomberg.com/graphics/2018-recovering-madoff-money/

US News and World Report:  How to Fix Chicago ---
https://www.usnews.com/news/cities/articles/2018-12-13/to-understand-chicagos-problems-look-to-the-mayors-office?fbclid=IwAR1GvtAs3KSiFm14MNQnyUMiH1G-x4xXmldqDHaEp6oysDKlUR89ptS1XnI
Jensen Comment
Personally, I think that it might be easier to fix Venezuela.

Chicago Mayor Rahm Emanuel endorses pension amendment to Illinois Constitution ---
https://www.illinoispolicy.org/chicago-mayor-rahm-emanuel-endorsing-pension-amendment-to-illinois-constitution/

Journey of a Product: A loaf of bread ---
https://notredamecobham.maps.arcgis.com/apps/MapSeries/index.html?appid=d4a7f880f26145a8a08855c102b4fa6b
Jensen Comment
The Website ignores some externalities. For example, bread (especially white bread) is converted into sugar in the human body, thereby increasing the demand for insulin in diabetics and possibly even contributing to lower life expectancy in society. This is an example where accountants accumulate costs of bread all the way to the store shelves but ignore intangible costs along the way including such other intangibles as air pollution costs of production and delivery, soil erosion losses, and on and on and on. On farms such resources as rain water and ground water may be treated as free or nearly-free goods by accountants.

From a Chronicle of Higher Education Newsletter on December 11, 2018

Quick hits.

·         The Foundation for Individual Rights in Education claims in a study released this morning that nine in 10 American colleges restrict their students' free speech.

·         U.S. Olympic Committee officials concealed their knowledge of sexual-abuse accusations against Larry Nassar for years, according to a report by a law firm hired by the committee.

·         George Washington University students are asking the institution not to end a project that honors the civil-rights legacy of Jackie Robinson.

·         A University of Indiana study finds that half of those who pursue careers as scientists at colleges will drop out of the field after five years.

·         Fliers with images of Adolf Hitler and swastikas were found throughout the State University of New York at Purchase.

·         An ex-fraternity leader at Baylor University, accused of rape two years ago, will not serve jail time after a district judge in Waco, Tex., accepted his plea bargain.

  A new study finds that colleges' endowment returns are markedly worse than those of other nonprofits.

Jensen Comment
I don't know why colleges' endowment returns tend to be lower, but if I were to investigate I would look for a tendency of colleges to look for longer term returns (think real estate) at the expense of higher short-run returns and risks.
 

The Pros and Cons of LLCs ---
https://www.journalofaccountancy.com/issues/2018/dec/llc-pros-and-cons.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=13Dec2018

How to Create a Syllabus --- www.chronicle.com/interactives/advice-syllabus

Tools and Tricks of the Trade ---
http://faculty.trinity.edu/rjensen/000aaa/thetools.htm

The Effects of Disclosing Critical Audit Matters and Auditor Tenure on Investors’ Judgments

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3294340
48 Pages Posted: 19 Dec 2018

Date Written: December 1, 2018

Keywords: Critical audit matters, auditor tenure, nonprofessional investors, financial reporting quality

JEL Classification: M40, M41, M42

Strategic Withholding and Imprecision in Asset Measurement

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3293414 
69 Pages Posted: 18 Dec 2018

See all articles by Jeremy Bertomeu

Jeremy Bertomeu

University of California, San Diego (UCSD) - Rady School of Management

Edwige Cheynel

University of California, San Diego (UCSD) - Rady School of Management

Davide Cianciaruso

HEC Paris - Accounting and Management Control Department

Date Written: November 30, 2018

Abstract

How precise should accounting measurements be, if management has discretion to strategically withhold? We examine this question by nesting an optimal persuasion mechanism, which controls what measurements are conducted, within a voluntary disclosure framework a la Dye (85) and Jung and Kwon (1988). In our setting, information has real effects because the firm uses it to make a continuous operating decision, increasing in the market's belief. Absent frictions other than uncertainty about information endowment, we show that imprecision can reduce strategic withholding but always decreases firm value. We then examine plausible environments under which, by contrast, there is an optimal level of imprecision featuring coarseness at the marginal discloser. We offer additional implications in the contexts of enforcement against strategic withholding and financing with collateralized assets.

Keywords: real effects, imprecision, voluntary disclosure, accounting standards

JEL Classification: G3, M4

Do International Differences in Certain Cultural Dimensions Lower Cross-Country Accounting Comparability Under IFRS? - An Examination of Risk Aversion and Materialism

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3284817
49 Pages Posted: 18 Dec 2018

See all articles by Byung Hun Chung

Byung Hun Chung

Nanyang Technological University (NTU) - Division of Accounting

Date Written: October 4, 2018

Abstract

I examine whether differences in cultural dimensions of risk aversion and materialism lower accounting comparability between countries that require IFRS. I posit that certain cultural beliefs and values affect the estimates and judgements of those involved in financial reporting, resulting in inconsistent reporting decisions and lower cross-country comparability. I find that having greater differences in risk aversion and materialism lowers comparability. In cross-sectional tests, I find weak evidence that stronger enforcement of IFRS moderates the decrease in the cross-country comparability. Having stronger legal or regulatory systems does not moderate the decrease in the comparability due to differences in risk aversion and materialism. These findings suggest that having strong enforcement regimes does not effectively moderate the impact of cultural differences on cross-country comparability. A possible explanation is that those in charge of the enforcement are affected by the same cultural beliefs and values as the reporting parties, making moderation less likely.

Keywords: IFRS, Comparability, National Culture

JEL Classification: M40

Price Discrimination in International Airline Markets

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3288276
52 Pages Posted: 17 Dec 2018

See all articles by Gaurab Aryal

Gaurab Aryal

University of Virginia - Department of Economics

Charles Murry

Boston College - Department of Economics

Jonathan W. Williams

University of North Carolina (UNC) at Chapel Hill - Department of Economics

Date Written: November 26, 2018

Abstract

We develop a model of inter-temporal and intra-temporal price discrimination by airlines to study the ability of different discriminatory mechanisms to remove sources of inefficiency and the associated distributional implications. To estimate the model’s multi-dimensional distribution of preference heterogeneity, we use unique data from international airline markets with flight-level variation in prices across time and cabins, and information on passengers' reason for travel. We find that current pricing practices grant late-arriving business passengers substantial informational rents and yield 81% of first-best welfare, with stochastic demand and asymmetric information accounting for 65% and 35% of the gap, respectively.

JEL Classification: D42, L00, L93

State of the Practice: Sustainability Standards for Infrastructure Investors

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3292469
94 Pages Posted: 17 Dec 2018

See all articles by Michael Bennon

Michael Bennon

Stanford University - Global Projects Center

Rajiv Sharma

Stanford University

Date Written: October 26, 2018

Abstract

Infrastructure development and investment has a profound impact on the environment and local communities, and governments worldwide have continued to develop and refine regulatory reviews for large infrastructure projects to better asses their environmental impacts. Environmental and social metrics for the institutional investors and fund managers that invest in and manage infrastructure, however, are a relatively new development. Today several sustainability assessment tools have been developed to assist infrastructure investors in measuring and managing the environmental and social impacts of their portfolios. This study includes a detailed review of a dozen assessment tools available to infrastructure investors with cross-sector investment portfolios. They include project screening tools, which may be used for the detailed assessment of an individual project, and accounting tools designed to standardize sustainability reporting across investors. The reviews include assessments of environmental criteria addressed, the assessment process, and the specific metrics included. The study draws conclusions as to the future of sustainability assessment in the infrastructure sector and the challenges in environmental and social metric development for infrastructure.

Keywords: Infrastructure Investment, Sustainability Metrics, Environmental Social and Governance Investment, Institutional Investment

Should FASB and IASB Be Responsible for Setting Standards for Nonfinancial Information?

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3272250
43 Pages Posted: 15 Dec 2018

See all articles by Richard Barker

Richard Barker

University of Oxford - Said Business School

Robert G. Eccles

University of Oxford - Said Business School

Date Written: October 12, 2018

Abstract

The goal of this ‘Green Paper’ is to contribute, in a neutral way, to a conversation that has been going on for some time amongst a variety of actors, concerning whether mandatory reporting standards are a prerequisite for effective ‘sustainability’ or ‘nonfinancial’ corporate reporting. Specifically, we ask whether the existing standard-setting regime for financial reporting – that of the US Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) – should be extended to include setting standards for nonfinancial information.

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

Practitioner Mentoring of Undergraduate Accounting Students: Helping Prepare Students to Become Accounting Professionals

Accounting & Finance, Vol. 58, Issue 4, pp. 939-963, 2018

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3300905
25 Pages Posted: 14 Dec 2018

See all articles by Ralph Adler

Ralph Adler

University of Otago

Carolyn Stringer

University of Otago

Date Written: December 2018

Abstract

Employers have long raised concerns about university accounting graduates' business awareness and understanding of the real world. This paper describes and explores the effectiveness of an undergraduate student mentoring programme for accounting majors that includes as one of its aims promoting students' real‐world understandings of accounting. The programme has been operating for the past 12 years at a large Australasian, research‐focused university and involves highly experienced business practitioners as mentors (i.e. partners of accounting firms, CFOs, COOs or CEOs), who represent a wide range of industries (e.g. Big Four, small/regional accounting firm, healthcare, manufacturing, retail). The programme has been associated with a high degree of success. Compared with a control group of students who did not participate in the mentoring programme, mentored students reported having better professional networks and a better understanding of the benefits and responsibilities of being a member of a professional accounting body. Some support was also found for mentored students having superior understandings of work and career opportunities. As encouraged by The Pathways Commission Report ([, 2012]) and the 2015 CPA Australia report Shaping the future of accounting in business education in Australia, the study's findings provide support for how a mentoring programme like the one described in this paper can assist with showcasing the wider purposes and career opportunities associated with the accounting profession, as well as forge closer linkages between accounting practitioners and accounting educators and better integration of accounting practice into accounting curricula.

Keywords: Mentoring, Accounting students, Real‐world, Business practitioner mentors, Group‐based mentoring

Non-GAAP Earnings and the Earnings Quality Trade-off

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3277318
47 Pages Posted: 14 Dec 2018

See all articles by Andrea Ribeiro

Andrea Ribeiro

NSW New South Wales (Government) - NSW Treasury

Yaowen Shan

University of Technology Sydney (UTS) - School of Accounting; Financial Research Network (FIRN)

Stephen L. Taylor

University of Technology Sydney; Financial Research Network (FIRN); Centre for International Finance and Regulation (CIFR)

Date Written: November 2, 2018

Abstract

Using a large sample of earnings press releases by Australian firms, we compare multiple attributes of non-GAAP earnings measures with their closest GAAP equivalent. We find that, on average, non-GAAP earnings are more persistent, smoother, more value-relevant, and have higher predictive power than their closest GAAP equivalent. However, the same set of non-GAAP earnings disclosures are also less conservative and less timely than their closest GAAP equivalent. The results are consistent with non-GAAP earnings measures reflecting a reversal of the trade-off between the valuation and stewardship roles of accounting inherent in accounting standards and the way they are applied. We also find that differences in several of these attributes between GAAP and non-GAAP earnings are more evident in larger firms, firms with lower market-to-book ratios, firms with a higher proportion of independent directors and firms that report profits rather than losses. Our evidence is consistent with the argument that accounting standards impose significant amounts of conditional conservatism at some cost to the valuation role of accounting information. Non-GAAP earnings measures can therefore be seen as a response to the challenges faced by a single GAAP performance measure in satisfying the competing demands of value relevance and stewardship.

Keywords: Non-GAAP disclosures, Earnings quality

JEL Classification: J33, M41

Accounting Regulations, Enforcement and Stock Price Crash Risk: Global Evidence in the Banking Industry

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3301014
48 Pages Posted: 14 Dec 2018

See all articles by Pejman Abedifar

Pejman Abedifar

University of St Andrews - School of Management

Ming Li

Wuhan University of Technology

Dean L. Johnson

Michigan Technological University - School of Business and Economics

Liang Song

Michigan Technological University

Date Written: October 28, 2018

Abstract

This paper uses the banking industry as a unique testing setting to examine the impact of accounting and enforcement regulations on stock price crash risk. We find that stocks are less likely to crash in countries with stricter enforcement standards and accounting regulations. More importantly, we provide evidence that the impact of accounting regulations is more significant in countries with stricter enforcement standards, suggesting that enforcement mechanisms and accounting regulations are complementary. We find that the main channels for accounting regulations and enforcement standards to affect stock price crash risk are regulations that strengthen information disclosure and improve the effects of direct supervision and external auditors. Our findings are robust after we include more control variables, employ regional regulatory developments as instrumental variables, conduct change regressions, use alternative measures of enforcement, and estimate in various subsamples. Our study has policy implications about how to design accounting regulations and enforcement mechanisms in a more effective manner.

Keywords: M41; M48

JEL Classification: accounting regulations; industry-specific enforcement standards; stock price crash risk; banking ind

The Effect of Auditor Litigation Risk on Client Access to Bank Debt: Evidence from a Quasi-Experiment

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3292619
47 Pages Posted: 13 Dec 2018

See all articles by Mahfuz Chy

Mahfuz Chy

University of Missouri at Columbia

Gus De Franco

Tulane University - A.B. Freeman School of Business

Barbara Su

Temple University - Fox School of Business and Management

Date Written: November 28, 2018

Abstract

We exploit state-level staggered shocks to third-party auditor legal liability in the U.S. to test whether auditor litigation risk affects client’s access to private debt markets. We argue that higher auditor litigation risk reduces the agency costs of debt by improving financial statement quality. Further, greater auditor litigation risk enhances the insurance value to creditors of the auditing process. Consistent with these arguments, we find that an exogenous increase in auditor litigation risk leads to both an increase in a client’s likelihood of receiving bank loans and the average amount of bank loans that the client receives. Our cross-sectional tests show that the effect of auditor litigation risk on clients’ access to debt finance is stronger when borrowers face ex-ante greater agency costs of debt and when creditors benefit more from the enhanced insurance value of auditors. Last, we also find that increased auditor litigation risk leads to an increase in the contractibility of accounting numbers, as proxied by the use of debt covenants, and a decrease in the cost of borrowing. To the best of our knowledge, we are the first to document these relations between auditor litigation risk and clients’ borrowing in a “clean” setting that ensures confidence in causal inferences.

Keywords: debt financing; auditor litigation risk; state liability laws

Company-Specific Characteristics and the Choice of Hedge Accounting for Derivatives Reporting: Malaysian Case

Abdullah, A., & Ismail, K. N. I. K. (2017). Company-Specific Characteristics and the Choice of Hedge Accounting for Derivatives Reporting: Malaysian Case. International Journal of Accounting, Auditing and Performance Evaluation, 13(3), 280-292. DOI: 10.1504/IJAAPE.2017.085183

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3286498
20 Pages Posted: 13 Dec 2018

See all articles by Azrul Abdullah

Azrul Abdullah

Universiti Teknologi MARA (Perlis); Accounting Research Institute

Ku Nor Izah Ku Ismail

Universiti Utara Malaysia - School of Accountancy

Date Written: 2017

Abstract

This paper investigates the adoption of hedge accounting by Malaysian listed companies in reporting their use of derivatives for hedging activities. Based on a sample of 300 Malaysian listed companies, we found that only 162 companies (54 percent) used derivatives to hedge their financial risks exposure and only 30 percent of the companies chose to apply hedge accounting. In addition, this study examines the relationship between the company specific characteristics and their application of hedge accounting. The logistic regression results showed that the decision to apply hedge accounting by Malaysian companies is positively influenced by the company size and leverage. The implications of the findings were discussed.

Keywords: Derivatives; Financial instruments; Hedge Accounting; Company Specific Characteristics

JEL Classification: G30; G32; G31

Impact of the Disclosure of Audit Engagement Partners on Audit Quality: Evidence from the United States

International Journal of Auditing (Forthcoming)

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3287685
Posted: 12 Dec 2018

See all articles by Mai Dao

Mai Dao

University of Toledo - College of Business Administration

Hongkang Xu

University of Massachusetts Dartmouth

Long Liu

University of Texas at San Antonio

Date Written: November 20, 2018

Abstract

The debate concerning the recent regulation in the United States mandating accounting firms to disclose engagement partners’ identity is ongoing. We examine the impact of the Public Company Accounting Oversight Board’s (PCAOB) requirement of disclosing engagement partners’ names on Form AP on the quality of audit engagements. Using two measures of audit quality (abnormal accruals and the probability of detecting material weaknesses in internal control), we find that disclosing engagement partners’ names is associated with a lower level of abnormal accruals and a higher probability of accounting firms detecting material weaknesses in internal control. Our study extends the contemporary research on the disclosure of engagement partners’ identification by providing additional evidence to the literature on this issue in the U.S. setting. Our study also provides evidence supporting the PCAOB’s perception that this disclosure leads to higher audit quality.

Keywords: engagement partners; audit quality; partner identification

Altera's Bonkers Accounting: Stock Compensation Really is a Cost

161 Tax Notes 339 (October 15, 2018)

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3299522
9 Pages Posted: 11 Dec 2018

See all articles by Calvin H. Johnson

Calvin H. Johnson

University of Texas at Austin - School of Law

Date Written: December 11, 2018

Abstract

In this article, Johnson discusses Altera v. Commissioner, 145 T.C. 91 (2015) on appeal in the Ninth Circuit and the regulations that would match the costs of stock compensation to foreign income under a qualified cost-sharing agreement, and he argues that there is no merit to professor Joseph A. Grundfest’s claims that stock compensation has no cost.

The Role of Accounting Conservatism in Capital Structure Adjustments

Journal of Accounting, Auditing and Finance, Forthcoming

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3285445
41 Pages Posted: 10 Dec 2018

See all articles by Santhosh Ramalingegowda

Santhosh Ramalingegowda

University of Georgia - Terry College of Business

Yong Yu

University of Texas at Austin

Date Written: November 15, 2018

Abstract

This study examines the relation between accounting conservatism and firms’ capital structure adjustments. We find that firms with more conservative financial reporting adjust their capital structure toward the target more quickly, especially within firms that rely more on external financing for adjustments. Further, we find that the positive effect of conservatism on adjustment speeds is concentrated in under-levered firms and this effect occurs through conservatism facilitating debt issuance. Additionally, we show that higher conservatism is associated with higher future profitability for under-levered firms. Taken together, our findings suggest that accounting conservatism plays an important role in facilitating under-levered firms’ adjustment of capital structure toward the target.

Keywords: conservatism, capital structure, adjustment speed, under-levered firms, over-levered firms

JEL Classification: G20, M41, M43

Show Us the Numbers: Grading the Financial Reports of Canada’s Municipalities

C.D. Howe Institute Commentary 524

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3283947
24 Pages Posted: 7 Dec 2018

See all articles by William B. P. Robson

William B. P. Robson

C.D. Howe Institute

Farah Omran

C.D. Howe Institute

Date Written: November 13, 2018

Abstract

In nearly all larger Canadian municipalities, obscure financial reports – notably, inconsistent presentations of key numbers in budgets and end-of-year financial statements – hamper councillors, ratepayers and voters who seek to hold their municipal governments to account. Simple information, such as how much the municipality plans to spend this year or how its spending plan this year compares with the previous year’s, is hard or impossible for a non-expert citizen or councillor to find. The differences between how the numbers appear in budgets and in financial results have real-world consequences. For example, by presenting net, rather than gross, budget figures, municipalities exclude key services such as water and the fees that fund them, obscuring key activities and understating both their revenue and expense. By using cash, rather than accrual, accounting, they exaggerate infrastructure investment costs, hide the cost of pension obligations, and make it hard to match the costs and benefits of their activities. Moreover, many municipalities approve their budgets after significant money has already been committed or spent in the fiscal year, fail to publish their fiscal year-end financial results in a timely way and bury key numbers deep in their documents. This report card grades the financial presentations of major Canadian municipalities in their most recent budgets and financial statements. Of those we assessed, Toronto, Durham Region, Kitchener, Quebec City, Longueuil and Montreal failed, providing little information in reader-friendly form. More happily, Surrey garners an A for clarity and completeness of its financial presentation, York Region is a close second with an A, while Vancouver and Markham are also good performers. We have two key recommendations. First, municipal governments should present their annual budgets on the same accounting basis as their year-end financial statements. Their budgets should use accrual accounting, recording revenues and expenses as the relevant activities occur. For their part, provincial governments that impede the use of accrual-based budgets – by mandating that cities present separate operating and capital budgets, for example – should stop doing so. Indeed, provinces should mandate cities to present accrual budgets so the fiscal pictures of municipalities and the province use the same transparent standard. Even in cases where a province is an impediment, municipalities could release the relevant information on their own – and they should. Second, budgets, like financial statements, should show city-wide consolidated, gross revenue and spending figures that represent the city’s full claim on its citizens’ resources and the full scope of its activities. These changes would help raise the financial management of Canada’s municipalities to a level more commensurate with their importance in Canadians’ lives.

Keywords: Public Governance and Accountability; Capital Projects Costs and Benefits; Property Taxes; Transparency of Public Finances; Urban Issues

Determinants of IPO Delisting: Lessons form Athens Stock Exchange

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3291263
Posted: 6 Dec 2018

See all articles by Michalis Makrominas

Michalis Makrominas

Independent

Yannis K Yannoulis

School of Economics and Business-Department of Accounting and Finance

Date Written: November 27, 2018

Abstract

Stock delisting is a commonly value destructive process imposing significant costs on investors, firms and public markets. A relatively recent surge in the number of delistings across international markets restates the question on the roots and causes of delisting. Using a hand-picked sample from the Athens Stock Exchange we investigate early warning signs of delisting manifested prior or on the day of the Initial Public Offering. Controlling for other factors, through a propensity score methodology, we find that the probability of delisting is positively associated with relative size issuance and earnings’ manipulation, and negatively associated with hot-issuance periods and the joint effect of audit quality and amount of information divulged through I.P.O. prospectus. In distinguishing between alternative cases of delisting, we find that the effects of audit quality, relative size offer and earnings’ manipulation are further accentuated for voluntary delisted firms. Our results are useful to regulators aiming at reversing the ongoing “listing gap”, not least, in the grossly under-researched Greek market.

Keywords: Accounting, Auditing, Corporate Governance, Delisting, Athens Stock Exchange

Attention Please: Does Audit Committee Directors’ Unequal Allocation of Attention to Multiple Directorships Affect Firms’ Earnings Management?

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3281826
Posted: 6 Dec 2018

See all articles by Henry He Huang

Henry He Huang

Yeshiva University - Sy Syms School of Business

Gerald J. Lobo

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

Chong Wang

The Hong Kong Polytechnic University

Jian Zhou

University of Hawaii at Manoa

Date Written: November 1, 2015

Abstract

We examine the relationship between audit committee directors’ unequal allocation of attention to multiple directorships and firms’ earnings management. We find that firms with a greater proportion of audit committee directors for whom the directorship is more important than their other directorships have lower abnormal accruals. These firms are also less likely to have securities litigation with GAAP violations, accounting restatements, and internal control weaknesses. Our study documents how audit committee directors’ unequal prioritization of their time and effort to different directorships affects the strength of accounting monitoring and thus highlights the importance of considering how much monitoring attention a firm would receive when hiring an audit committee director.

Keywords: multiple directorships, audit committees, earnings management

Accounting Discretion and Regulation: Evidence from Health Insurers and the Affordable Care Act

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3282300
63 Pages Posted: 6 Dec 2018

See all articles by Evan Eastman

Evan Eastman

Florida State University

David L. Eckles

University of Georgia - Department of Insurance, Legal Studies, Real Estate

Andrew Van Buskirk

Ohio State University (OSU) - Department of Accounting & Management Information Systems

Date Written: October 26, 2018

Abstract

Under the Patient Protection and Affordable Care Act (ACA), health insurers are required to spend a certain portion of premium revenue on policyholder benefits; the failure to do so triggers rebate payments to policyholders. The reported expenditure includes not only realized payments, but also estimated future payments for claims that have either not been reported or not been finalized. As a consequence, the ACA changed incentives for how firms estimate their claims and liabilities. We exploit pre-ACA variation in state-level regulation as well as granular claims information from insurers’ ACA filings to study how this type of regulatory oversight influences health insurer reporting. We find consistent evidence of reporting management in both the pre-ACA period and the post-ACA period. Specifically, we find that 1) prior to the ACA, insurers subject to state-level regulation overstated claims; 2) the ACA’s enactment led to previously-unregulated insurers increasing their claims overstatements; and 3) in the post-ACA period, insurers below ACA thresholds have systematically overstated their claims, leading to an estimated 10% underpayment of policyholder rebates. Our results show real and measurable consequences of reporting management, and illustrate how product-market regulation based on financial information is subject to manipulation by regulated firms.

Keywords: Earnings Management, Regulation, Health Insurance

Literature Review on Islamic Banking: Summarizing Articles in Islamic Banking

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3284586
28 Pages Posted: 2 Dec 2018

See all articles by Jassim Aljowder

Jassim Aljowder

Ahlia University

Date Written: November 14, 2018

Abstract

The objective of this article to review previous articles in Islamic banking in Bahrain. The aim of this paper is to know the level of the quality of previous studies conducted in Bahrain. The method used is Google scholar based on Literature review articles. The main findings show that Bahrain is proven by the fourteen Islamic Shari’ah compliant banks that served as their proper venue in adopting Islamic standards on their investments and financial statements. Findings also show that there is a need for future research to contribute to a better understanding and acceptability of the Islamic accounting standards such as AAOIFI.

Keywords: Islamic Banking, Islamic Accounting Standards, Zakah, Islamic Accounting

Gender Discrimination? Evidence from the Belgian Public Accounting Profession

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3258719
55 Pages Posted: 27 Nov 2018

See all articles by Kris Hardies

Kris Hardies

University of Antwerp

Clive S. Lennox

University of Southern California

Bing Li

City University of Hong Kong (CityUHK)

Date Written: October 1, 2018

Abstract

While prior studies document that women receive lower salaries and are less likely to be promoted compared with men, these findings could reflect intrinsic differences between men and women rather than gender discrimination. We provide new tests for discrimination by examining the fees generated by partners in accounting firms and the types of clients assigned to partners. We show that female partners are associated with fee premiums, but female partners are also less likely to be assigned to prestigious clients. To determine whether these patterns could be attributable to gender discrimination, we examine whether the associations are stronger in accounting offices that have a higher percentage of male partners, because this is where we would expect to find the most discrimination against women. Consistent with discrimination, the fee premiums to female partners are larger in offices with more male partners while the negative association between prestigious clients and female partners is stronger in offices with more male partners. Collectively, our findings are consistent with gender discrimination and are inconsistent with other possible explanations.

How U.S. GAAP Distorts the Effective Tax Rate As a Measure of Tax Avoidance

Kelley School of Business Research Paper No. 18-92

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3281289
37 Pages Posted: 26 Nov 2018

See all articles by Casey M. Schwab

Casey M. Schwab

Indiana University - Kelley School of Business - Department of Accounting

Bridget Stomberg

Indiana University - Kelley School of Business

Junwei Xia

Indiana University - Kelley School of Business

Date Written: November 8, 2018

Abstract

We examine how U.S. Generally Accepted Accounting Principles (GAAP) that govern accounting for income taxes can distort GAAP effective tax rates (ETRs) as a measure of corporate tax avoidance for poorly performing firms. We provide both detailed firm-specific examples and large-sample evidence on the magnitude and pervasiveness of these distortions among U.S. publicly-traded corporations. We also offer suggestions to researchers, policy makers, standard setters, investors and analysts for how to identify situations in which GAAP ETRs are likely affected by these rules and analyze potential approaches for obtaining a better measure of tax avoidance.

EY:  Financial Reporting Developments Earnings per share ---
https://www.ey.com/ul/en/accountinglink/frd-bb1971-earnings-per-share

EY: How the new revenue standard affects the insurance industry

What you need to know

• Entities in the insurance industry will need to consider whether to apply the new revenue and cost guidance in ASC 606 and ASC 340-40 to contracts that are outside of the scope of ASC 944.

• Contracts that may be in the scope of ASC 606 include contracts for administrative services (e.g., claims processing) without any insurance element.

• Insurance entities that enter into warranty contracts in the scope of ASC 944 should continue to apply that guidance.

• Non-insurance entities that enter into warranty contracts (e.g., car warranties, product warranties) will need to determine whether they should account for these contracts under ASC 606 or ASC 460-10.

Overview The new revenue recognition standard1 issued by the Financial Accounting Standards Board (FASB or Board) became effective2 for public entities for fiscal years beginning after 15 December 2017 and for interim periods therein. Nonpublic entities have to adopt the standard for fiscal years beginning after 15 December 2018, and interim periods within fiscal years beginning after 15 December 2019.

The new standard, which supersedes virtually all legacy revenue guidance in US GAAP, affects all entities that enter into contracts to provide goods or services to their customers (unless the contracts are in the scope of other US GAAP requirements).

 

EY: December 2018 Financial reporting briefs issued ---
https://www.ey.com/Publication/vwLUAssetsAL/FinancialReportingBriefs_05298-181US_20December2018/$FILE/FinancialReportingBriefs_05298-181US_20December2018.pdf

EY:  FASB proposes more amendments to help lessors apply the new leases standard ---
https://www.ey.com/Publication/vwLUAssetsAL/TothePoint_05315-181US_LessorCodificationImprovements_19December2018/$FILE/TothePoint_05315-181US_LessorCodificationImprovements_19December2018.pdf

EY:  2018 AICPA Conference on Current SEC and PCAOB Developments Compendium of significant accounting and reporting issues ---
https://www.ey.com/Publication/vwLUAssetsAL/AICPACompendium_05162-181US_16December2018/$FILE/AICPACompendium_05162-181US_16December2018.pdf

Summary Regulators and standard setters discussed a broad range of financial reporting topics and emerging issues last week at the annual AICPA Conference on Current SEC and PCAOB Developments (Conference) in Washington, D.C.

The speakers and panelists included representatives of the Securities and Exchange Commission (SEC or Commission), the Financial Accounting Standards Board (FASB or Board), the International Accounting Standards Board (IASB) and the Public Company Accounting Oversight Board (PCAOB) who shared their views on various accounting, financial reporting and auditing issues.

The overall theme of the Conference was how regulators, standard setters, preparers and auditors are responding to changes in accounting and auditing standards, new technologies and other risks and uncertainties in the market.

Highlights included:

New accounting standards — SEC staff members said their comments to registrants on their application of the new revenue recognition standard have focused on areas of significant judgment, such as the identification of performance obligations and the timing of revenue recognition. The staff encouraged companies to continue to improve and refine their disclosures based on their increasing experience with the standard and disclosures provided by their peers.

While several preparers cited the lack of available information technology (IT) solutions as a major challenge to their implementation of the new leases standard, representatives from the SEC and the FASB said the effective date of the standard will not be deferred.

ERISA --- https://en.wikipedia.org/wiki/Employee_Retirement_Income_Security_Act_of_1974
EY:  New AICPA auditing standard will change the requirements for ERISA plan audits and auditor’s report ---  
https://www.ey.com/Publication/vwLUAssetsAL/TothePoint_05177-181US_ERISAStandard_6December2018/$FILE/TothePoint_05177-181US_ERISAStandard_6December2018.pdf
 

EY:  SEC Financial Reporting Series Now Available

The publications in our SEC Financial Reporting Series have been updated to reflect final SEC rules, certain proposed rules and interpretive guidance issued through 31 October 2018:

 

·         2018 SEC annual reports – Form 10-K

·         2019 SEC quarterly reports – Form 10-Q

·         2019 proxy statements

·         Pro forma financial information

 

Zorba:  Companies Must Take More Responsibility for Education ---
https://zorba-research.blogspot.com/2018/12/companies-must-take-some-responsibility.html

Zorba:  AI for Better Customer Service ---
https://zorba-research.blogspot.com/2018/12/ai-for-better-customer-service.html

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

The U.S. Securities and Exchange Commission is pushing Amazon.com Inc. and other companies to disclose more about where they get their revenue; some companies are pushing back.

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

Good day. Stores wrapped up one of the strongest holiday seasons in years, with shoppers crowding retailers for last-minute Christmas gifts and delivery companies so far able to keep up with the surge in online orders, The Wall Street Journal reports.

Yuletide sales boost: Total U.S. retail sales, excluding automobiles, rose 5.2% from Nov. 1 through Dec. 19 compared with last year, according to Mastercard SpendingPulse, which tracks online and in-store spending with all forms of payment. Online sales continued to grow faster than sales overall, rising 18.3% during that time and accounting for 13% of total sales, the highest percentage ever recorded by Mastercard.

Keep it moving: United Parcel Service Inc. delivered 98.3% of packages on time through the four weeks since Thanksgiving, up from 94.1% last year, when the carrier struggled with too many parcels at times, according to ShipMatrix Inc., a software provider that analyzes shipping data. On-time performance for FedEx Corp. and the U.S. Postal Service came in at 96.9% and 98%, respectively, roughly the same as last year.

Everything must go: This is the last Christmas at Sears Holding Corp. for thousands of workers across the country after the company filed for bankruptcy protection. The promise of deep discounts has drawn customers back to Sears, making the day-to-day job more difficult.

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

The U.S. Public Company Accounting Oversight Board on Thursday adopted stricter standards for auditing accounting estimates and strengthened requirements for auditors that rely on the work of specialists.

The new rules direct auditors to pay more attention to addressing potential management bias, create a more uniform approach to substantive testing for estimates, and integrate risk management standards to focus on estimates with greater risk of material misstatements, the regulator said.

The regulator also bolstered requirements for how auditors evaluate the work of specialists, whether employed or engaged by the company, and how auditors supervise auditor-employed and auditor-engaged specialists

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

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

Good day. Walgreens Boots Alliance Inc. will turn to zero-based budgeting—a cost-management strategy that is coming back in fashion—as part of a plan by the drugstore chain to cut $1 billion in annual costs.

 

Deeper insights: Walgreens has started a 16-week assessment of its global cost base, with an initial focus on the U.S. and U.K. “At the end of that 16 weeks, we will have enormous transparency and granularity,” James Kehoe, the Deerfield, Ill., company’s finance chief, said Thursday during an earnings call. “We will know who spends what on what.”

 

More discipline: When managers approach operations with fresh eyes, they can reshape their organization by channeling funds to areas that will drive growth, said Steve Player, managing partner at consulting firm the Player Group. For some companies, the exercise can be expensive and overwhelming, and it can reveal undisciplined spending in pockets of the company.

 

Not frictionless: “ZBB strikes fear in the hearts of some managers,” said Nilly Essaides, senior director of research at the Hackett Group Inc.’s advisory practice. Deploying the practice also is challenging for managers who have spent years investing in and expanding their units, and can cause friction over where those funds are diverted.

Goodwill Impairments Continue to Climb Despite Strong Economy
From the CFO Journal's Morning Ledger on December 20, 2018

The value of goodwill impairments by U.S. public companies is on the rise as a period of synchronized global economic growth and booming stock markets appears to be drawing to a close.

Major goodwill impairments reported in 2018—including a major write-down by General Electric Co. —already exceed $40 billion, according to valuation firm Duff & Phelps LLC. That figure alone, which doesn’t account for the fourth quarter or smaller impairments, is up 16% from the total goodwill impairments of $35.1 billion recorded in 2017. Companies record goodwill on their balance sheets when they buy a business for more than the value of its hard assets, such as cash or factories. The acquiring company must then measure the fair value of its reporting units annually and, if that figure is less than the amount recorded on the books, reduce the value of the goodwill.

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

U.K. regulators proposed sweeping changes to rules governing British audit firms Tuesday in moves designed to increase competition, prevent conflicts of interest and restore public confidence in an industry tarnished by an accounting scandal that led to the collapse of one of Britain’s largest construction companies, report Michael Rapoport and CFO Journal’s Nina Trentmann.

The measures, if implemented, would see audit firms separate their auditing and consulting operations, introduce two-firm audits for large companies and replace the current auditing regulator. The changes were in part triggered by the scandal that brought down Carillion PLC.

In the wake of the construction company’s collapse, U.K. affiliates of the Big Four audit firms—KPMG LLP, PricewaterhouseCoopers LLP, Ernst & Young LLP and Deloitte Touche Tohmatsu Ltd.—have faced criticism that their auditing hasn’t been tough enough and they have been too cozy with their clients.

From the CFO Journal's Morning Ledger on December 18, 2018

Good day. U.S. Federal Reserve officials will debate this week how to telegraph less certainty about the path of interest rates without signaling they are done raising them, The Wall Street Journal reports.

Wordplay: Fed officials have been debating how and when to remove language from their postmeeting policy statements that says the central bank expects “further gradual increases” in interest rates. President Trump argued Monday that it was “incredible” that Fed policy members were considering raising interest rates again, continuing his public campaign against tighter monetary policy.

 

Economic outlook: The Fed expects U.S. economic growth to slow in the coming year, but the recent data remain solid. Employers are hiring at a pace strong enough to push down the already low unemployment rate. Retail sales and other measures of consumer spending have been strong. On the other hand, the rate-sensitive housing sector has slowed and manufacturing has sputtered.

Market response: U.S. government bond prices rose on Monday, reflecting expectations that Fed policy makers will scale back their forecasts for rate increases in 2019 and could also lower estimates for the pace of future growth

An Accounting Theory Question of Vehicle Leases Used as Debt Collateral

From the CFO Journal's Morning Ledger on December 17, 2018

Tesla Inc. sold $837 million of bonds backed by auto leases Friday, taking advantage of a rebound in investors’ sentiment toward the company to provide further support to its fast-growing leasing operation.

Jensen Comment
This raises interesting questions about possible mismatches in timing between collateral amortization and debt payoffs. The typical vehicle lease is for three years at which time the car or truck is usually put up for sale at a depreciated value. Presumably the lease is cancelled after three years and no longer has value as collateral (in fact it's value declines steadily over the three year lease period). What happens if the debt payoff does not match the lease amortization? Does the debt owner simply lose collateral value? Does this create accounting issues that students could possible debate.

One possibility is that new leases replace old leases along the way as collateral until the debt is repaid. I don't know if this happens in the real world.

Even though Tesla has never earned an annual profit and is highly leveraged, its debt is not as risky as it might seem since the company probably worth more than its debt if sold to another company like Ford or Chrysler or Volkswagen. It's most certainly not the same as loaning money to Sears before Sears became bankrupt.

But there's an technology risk for Tesla and other battery EV manufacturers. Suppose there's an enormous breakthrough in lowering the cost of fuel cell vehicles? Suppose there's an enormous breakthrough in hybrids (BMW thinks it's close to such a breakthrough) ?

My point is that there's enormous risk in both equity investing and long-term debt investing in Tesla, and vehicle lease collateral probably is not such great collateral for long-term debt.

From the CFO Journal's Morning Ledger on December 17, 2018

General Electric Co. is moving ahead with a plan to solicit bids for an independent auditor after the industrial conglomerate revealed a series of accounting issues earlier this year.

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

Global revenue at the Big Four accounting firms rose more than 10% in 2018, their strongest annual growth in at least a decade, as they continued a long shift toward consulting over their core auditing businesses.

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

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.

 

Jensen Comments on September 4, 2018
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.

From the CFO Journal's Morning Ledger on December 13, 2018

Apple Inc. plans to invest $1 billion building a new corporate campus in Austin, Texas, the company said Thursday, as the iPhone maker seeks to make good on its promises to strengthen its contributions to the American economy.

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

Organic- and natural-products maker Hain Celestial Group Inc. has settled charges brought by the U.S. Securities and Exchange Commission over its revenue-recognition practices, which had led to several quarters of delayed financial reports.

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

Good day. China agreed to reduce tariffs on U.S. autos to 15%, down from 40% currently, during a phone call with U.S. officials that opened the latest round of talks aimed at settling the trade dispute between the world's largest economies, The Wall Street Journal reports.

Tit-for-tat: It wasn’t clear when the change would take effect, but Washington is pushing Beijing to make concessions as soon as possible. President Donald Trump and President Xi Jinping earlier this month agreed to a 90-day truce to negotiate a settlement to the trade frictions.

Asking for a friend: An easing of tariffs on U.S.-made cars would help German auto makers. Daimler AG and BMW AG build cars and sport-utility vehicles in the U.S. and export them to China. They were hit hard by China’s move to levy a 40% border tax on U.S.-built cars and weighed moving some production out of the U.S. to China to meet local demand there and avoid the tariffs.

Masterplan: As part of the trade truce reached between Mr. Xi and Mr. Trump, Chinese officials are also considering making changes to the "Made in China 2025" plan, a state-led industrial policy aimed at enabling Chinese companies to dominate a number of industries such as artificial intelligence and robotics, said people familiar with the matter.

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

U.S. public companies paid a median of 2.5% more in 2017 to auditors for assuring that their financial statements are free from material misstatements, according to an annual survey by the Financial Education & Research Foundation.

The increase was nearly double the 1.3% median rise in audit fees recorded in 2016 and came as companies prepared to implement sweeping new revenue accounting rules, which became effective for most public companies in 2018, reports CFO Journal's Tatyana Shumsky. U.S. public companies were also preparing to adopt new lease accounting rules, which come into effect for fiscal years starting after Dec. 15, 2018.

FERF examined audit fees reported in securities filings by 6,340 U.S. public companies, and surveyed more than 250 financial executives at public and private companies as well as nonprofit organizations.

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

As the Big Four accounting firms in the U.K. are criticized over the quality of their audits, some investors worry about the work the companies have done on the audits of U.S. companies.

Elon Musk --- https://en.wikipedia.org/wiki/Elon_Musk

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

Tesla Inc. Chief Executive Elon Musk delivered a new barrage of criticism at the SEC, saying he doesn’t respect the agency and that his communications on Twitter haven’t been censored by the company.

Jensen Comment
On December 9 I watched the CBS Sixty Minutes interview with Elon ---
https://www.cbsnews.com/news/tesla-ceo-elon-musk-the-2018-60-minutes-interview/

The interview humanized Elon somewhat, but much of it seemed bitter --- his abusive childhood, his disdain for the SEC, and his suspicions that labor unions like the UAW are playing dirty tricks to win over his employees. As a young man he moved to the USA with virtually nothing and rose to be a multi-billionaire (much of it on paper). His American Dream rise to fame and fortune life seems to fit the old adage "truth is stranger than fiction."

He's a brilliant guy who started various companies and factories, but most of his time and most of the media focus on him seems to be with one company --- Tesla. This is also the case with this interview with veteran Lesley Stahl.

I'm in awe of Elon Musk as an innovator and living example of the American Dream. But if I were a shareholder (which I'm not) in Tesla or one of his other companies I would be concerned about his willingness to gamble with money invested in or loaned to his companies. For example, all Tesla patents are open sharing, many of which must be quite valuable. It seems to me these are gifts to competitors that, he openly admits, may put Tesla's future at risk. His troubles with the SEC appear to stem from his seeming attempts to manipulate stock prices --- and then he gets mad at the SEC regulators.

His attitude about his investors and regulators seems to be that "it's either my way or the highway." Exhibit A seems to be his ignoring of court-ordered requirements to have his Twitter Tweets pre-approved.

I wonder how open he is to what perhaps are Tesla's most profitable alternatives. For example, he may have reached a point where Tesla investors might be better off if it was sold Tesla to GM or Volkswagen or Ford or whomever. His ego at this point would probably prevent him from considering such alternatives. Investors may be better off if he purchased or leased an idle GM plant in Ohio even if it is located on UAW turf. I think he's paranoid about UAW turf.

This wonder man has so many irons in the fire (think Tesla, a new mega battery factory in Nevada, a space rocket company, and a earth tunneling company just for openers) that the stress he lives under must be enormous. He claims to sleep (catnap) most nights in his Tesla factory in spite of the alleged bad air quality of the factory.

His interview answers seemed flippant, but this could be either because he was aware of the short time frame for the entire interview or that he viewed even this interview as a waste of his valuable time. Lesley Stahl's questions seemed to be more negative than positive.

I keep remembering that Tesla and most of his other ventures have never had profitable years and are facing staggering cash flow worries (think hundreds and hundreds of millions of dollars).  But I also remember that Amazon faced many similar problems during early years of losses. Most of Elon's investors are looking forward to him to deliver them another Apple, Google, or Amazon. Perhaps they should worry more about a possible breakdown under stresses that, to me, seem completely overwhelming.

While I watched the December 9 interview I kept wishing I had the trained eyes of a brain scientist or physician --- an ability to study eye blinking and the head/lip movements that seemed to me that they might be revealing while I was too ignorant to pick up on their clues.

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

Good day. Canadian authorities in Vancouver have arrested Huawei Technologies Co.’s chief financial officer at the request of the U.S. government for alleged violations of Iranian sanctions, the latest move by Washington to crack down on the Chinese cellular-technology company, The Wall Street Journal reports.

Hearing pending: A spokesman for Canada’s justice department said Meng Wanzhou was arrested in Vancouver on Dec. 1 and is sought for extradition by the U.S. A bail hearing has been tentatively scheduled for Friday, according to the spokesman. Ms. Meng, the daughter of Huawei founder Ren Zhengfei, serves as the company’s CFO and deputy chairwoman.

Face-off: Ms. Meng’s arrest comes amid a year-long U.S. government campaign against a company it views as a national-security threat. In the past year, Washington has taken a series of steps to restrict Huawei’s business on American soil and, more recently, launched an extraordinary international outreach campaign to persuade allied countries to enact similar curbs. Because of that, Huawei is losing a chunk of business from one of its biggest and oldest Western customers.

 

More to come: U.S. authorities have suspected Huawei’s alleged involvement in Iranian sanctions violations since at least 2016, when the U.S. investigated ZTE Corp., Huawei’s smaller Chinese rival, over similar violations.

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

A Treasury-led task force is proposing that the U.S. Postal Service charge more for certain package deliveries, going after Amazon.com Inc. and other online retailers that President Trump has said benefit at the post office’s expense.

Jensen Comment
It would be most interesting to have students discuss this proposal in cost/managerial accounting courses that have CPV modules. Executives of the Post Office dispute claims that they lose money on Amazon's business. I suspect this is true, because the big loser for the Post Office is the drop in postage revenues caused by email and Internet communications. 

Revenues from first class postage market share plummeted while the Post Office still has to deliver mail to all of rural America, including Bob Jensen's remote mail box in the White Mountains.  

A big loser for the USPO is the cost of rural mail delivery, including driver, fuel, and vehicle costs. The added revenues from Amazon help to cover variable and fixed costs of rural mail delivery. It would be great if raising Amazon's postage fees did not result in a loss of revenue from Amazon. Unfortunately, other services like UPS and FedEx also deliver Amazon's packages (daily) to Bob Jensen's garage. At some point the USPO could be hurting itself with charging Amazon higher prices.

I personally think Amazon's business to date has helped rather than hurt the USPO. That does not, of course, mean that the USPO cannot benefit with reasonable price increases to online vendors like Amazon. 

As in most CPV problems, much depends upon the interaction of price changes with changes in variable and fixed costs. Unfortunately, the USPO could probably lose all of Amazon's business without seeing any decline in variable and fixed costs.

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

Alibaba Group Holding Ltd. and Amazon.com Inc. are squaring off in Europe—and not just in e-commerce, but also in the quickly growing cloud-computing market.

Jensen Comment
In theory both companies can benefit from this competition. The EU is extremely aggressive in fining large foreign companies under aggressive EU anti-trust legislation. Having competition restrains salivating anti-trust enforcers.

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

Good day. China is beginning to provide details of a weekend tariff truce with the U.S., after days of vague Chinese statements and a barrage of comments from President Trump and other administration officials, reports The Wall Street Journal. 

 

Carrot and stick: Mr. Trump expressed optimism Tuesday that China would hold to commitments made in Argentina last week, but indicated he was willing to pivot and continue a campaign of tariffs if China doesn’t move to end the trade dispute.

 

Detente: On Saturday, the two presidents and their negotiators worked toward a settlement of a trade dispute that has resulted in retaliatory tariffs and other geopolitical measures. At the meeting, Mr. Trump agreed to suspend a planned Jan. 1, 2019, increase in tariffs on $200 billion in Chinese goods to 25%, from 10%.

 

On various fronts: Meanwhile, German auto executives outlined plans for U.S. investments on Tuesday during meetings with President Trump and top White House officials, a strategy aimed at easing U.S. threats of auto tariffs. The senior executives of Germany’s biggest auto makers laid out proposals for financing new vehicles, plant expansions and cooperation with U.S. manufacturers.

From the CFO Journal's Morning Ledger on December 3, 2018

Good day. Executives' attempts to redirect the market's focus from short-term to long-term trends can spark a swift, negative response from Wall Street, The Wall Street Journal's John D. Stoll reports.

Bad Apple? Apple Inc. ended its practice of reporting quarterly sales numbers for individual units, saying a 90-day performance for iPhones isn't a proxy for the underlying strength of product lines. Its stock sank 6.6% on the day of the announcement. Apple's decision highlights the challenge for executives trying to justify major capital investments that can take years to pay off in an era when investors are fixated on three-month reporting periods.

 

Quarterly focus: Many critics of short-term thinking on Wall Street say the area most in need of immediate change is quarterly earnings. President Trump directed the Securities and Exchange Commission to study a move to six-month reporting following consultations with business leaders, including PepsiCo Inc. Chairman Indra Nooyi.

 

Private hopes: Barnes & Noble Inc. Chairman Leonard Riggio said in October the bookseller is considering going private because public shareholders may not be patient to weather a costly and extensive turnaround play.

From the CFO Journal's Morning Ledger on December 3, 2018

Where were the KPMG auditors?  Accounting problems at GE

Federal investigators are questioning former employees of General Electric Co. about intricate details in a legacy insurance business that led to accounting problems at the conglomerate in the past year.

The PCAOB is currently soliciting interested applicants for research fellowships. Applications are due no later than December 15, 2018.---
http://aaahq.org/Portals/0/documents/calls/2019/2018-09-14 Call for fellows 2019 FINAL.pdf

Ancient Inca Accounting and Messaging
How the Inca Used Intricately-Knotted Cords, Called Khipu, to Write Their Histories, Send Messages & Keep Records ---
http://www.openculture.com/2018/11/inca-used-intricately-knotted-cords-called-khipu-write-histories-keep-records.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+OpenCulture+%28Open+Culture%29

Bob Jensen's threads on accountancy history ---
http://faculty.trinity.edu/rjensen/theory01.htm#AccountingHistory

Converging Technologies Will Lead to ‘Continuous Auditing’---
http://ww2.cfo.com/technology/2018/11/converging-technologies-will-lead-to-continuous-auditing/

Cybercurrency --- https://en.wikipedia.org/wiki/Digital_currency

NPR:  Why is the price of bitcoin fluctuating so wildly? ---
https://www.npr.org/2018/11/28/671133977/bitcoin-is-bouncing-around-again-here-are-some-possible-causes?utm_source=MIT+Technology+Review&utm_campaign=526e22c9f0-EMAIL_CAMPAIGN_2018_11_29_12_43&utm_medium=email&utm_term=0_997ed6f472-526e22c9f0-153727301

Forbes:  The Great Cryptocurrency Scam ---
https://www.forbes.com/sites/jayadkisson/2018/11/20/the-great-cryptocurrency-scam/#1939ffd0359f
Thank you Glen Gray for the heads up.

Washington Post:  The only currency worse than bitcoin is Venezuela’s ---
https://www.washingtonpost.com/business/2018/11/26/only-currency-worse-than-bitcoin-is-venezuelas/?noredirect=on&utm_term=.a227190bf99c
Jensen Comment
Under ASC 350 cryptocurrency is an intangible asset
Accounting Rule ASC 350 for Reporting Cryptocurrency as an Intangible Asset Subject to Value Impairment Tests
https://www.ey.com/Publication/vwLUAssetsAL/TechnicalLine_04623-181US_Cryptocurrency_18October2018/$FILE/TechnicalLine_04623-181US_Cryptocurrency_18October2018.pdf

Why might this be awful timing for the State of Ohio?
The people of Ohio can now pay their taxes in bitcoin ---
https://qz.com/1474124/the-people-of-ohio-can-now-pay-taxes-in-bitcoin/?utm_source=MIT+Technology+Review&utm_campaign=d039264ad8-EMAIL_CAMPAIGN_2018_11_26_12_44&utm_medium=email&utm_term=0_997ed6f472-d039264ad8-153727301

Bitcoin usage among major payment processors has dropped 80% ---
https://thenextweb.com/hardfork/2018/11/21/bitcoin-cryptocurrency-blockchain-usage/

Bad Ending to a Boring Tale:  Community Activists Kill Elon Elon Musk's Plan for an Underground Freeway Tunnel in LA ---
https://motherboard.vice.com/en_us/article/yw7b3y/community-activists-kill-elon-musks-plan-for-an-underground-freeway-tunnel-in-la?utm_source=MIT+Technology+Review&utm_campaign=526e22c9f0-EMAIL_CAMPAIGN_2018_11_29_12_43&utm_medium=email&utm_term=0_997ed6f472-526e22c9f0-153727301

Proposed regs. outline new business interest expense limitation ---
https://www.journalofaccountancy.com/news/2018/nov/irs-business-interest-expense-limitation-201820190.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=28Nov2018

From The Guardian:  The Financial (Accounting) Scandal Nobody is Talking About
https://www.theguardian.com/news/2018/may/29/the-financial-scandal-no-one-is-talking-about-big-four-accountancy-firms

Accountancy used to be boring – and safe. But today it’s neither. Have the ‘big four’ firms become too cosy with the system they’re supposed to be keeping in check?

In the summer of 2015, seven years after the financial crisis and with no end in sight to the ensuing economic stagnation for millions of citizens, I visited a new club. Nestled among the hedge-fund managers on Grosvenor Street in Mayfair, Number Twenty had recently been opened by accountancy firm KPMG. It was, said the firm’s then UK chairman Simon Collins in the fluent corporate-speak favoured by today’s top accountants, “a West End space” for clients “to meet, mingle and touch down”. The cost of the 15-year lease on the five-story building was undisclosed, but would have been many tens of millions of pounds. It was evidently a price worth paying to look after the right people.

Inside, Number Twenty is patrolled by a small army of attractive, sharply uniformed serving staff. On one floor are dining rooms and cabinets stocked with fine wines. On another, a cocktail bar leads out on to a roof terrace. Gazing down on the refreshed executives are neo-pop art portraits of the men whose initials form today’s KPMG: Piet Klynveld (an early 20th-century Amsterdam accountant), William Barclay Peat and James Marwick (Victorian Scottish accountants) and Reinhard Goerdeler (a German concentration-camp survivor who built his country’s leading accountancy firm).

KPMG’s founders had made their names forging a worldwide profession charged with accounting for business. They had been the watchdogs of capitalism who had exposed its excesses. Their 21st-century successors, by contrast, had been found badly wanting. They had allowed a series of US subprime mortgage companies to fuel the financial crisis from which the world was still reeling.

“What do they say about hubris and nemesis?” pondered the unconvinced insider who had taken me into the club. There was certainly hubris at Number Twenty. But by shaping the world in which they operate, the accountants have ensured that they are unlikely to face their own downfall. As the world stumbles from one crisis to the next, its economy precarious and its core financial markets inadequately reformed, it won’t be the accountants who pay the price of their failure to hold capitalism to account. It will once again be the millions who lose their jobs and their livelihoods. Such is the triumph of the bean counters.

The demise of sound accounting became a critical cause of the early 21st-century financial crisis. Auditing limited companies, made mandatory in Britain around a hundred years earlier, was intended as a check on the so-called “principal/agent problem” inherent in the corporate form of business. As Adam Smith once pointed out, “managers of other people’s money” could not be trusted to be as prudent with it as they were with their own. When late-20th-century bankers began gambling with eye-watering amounts of other people’s money, good accounting became more important than ever. But the bean counters now had more commercial priorities and – with limited liability of their own – less fear for the consequences of failure. “Negligence and profusion,” as Smith foretold, duly ensued.

After the fall of Lehman Brothers brought economies to their knees in 2008, it was apparent that Ernst & Young’s audits of that bank had been all but worthless. Similar failures on the other side of the Atlantic proved that balance sheets everywhere were full of dross signed off as gold. The chairman of HBOS, arguably Britain’s most dubious lender of the boom years, explained to a subsequent parliamentary enquiry: “I met alone with the auditors – the two main partners – at least once a year, and, in our meeting, they could air anything that they found difficult. Although we had interesting discussions – they were very helpful about the business – there were never any issues raised.

Continued in article

The Defense Department's first ever agency-wide financial audit discovered problems that cost approximately $559 million to fix, the Pentagon said Thursday.---
https://www.cnn.com/2018/11/16/politics/pentagon-audit-500-million/index.html 
Jensen Wish
If only the total fix would be so easy or so cheap. The DOD will always be a fraud hole.

Teaching Case:  Solar panels: Basis and bonus depreciation ---
https://www.thetaxadviser.com/issues/2018/nov/solar-panels-basis-bonus-depreciation.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=19Nov2018

A recent Tax Court case illustrated several issues common to trades or business but in the unusual context of a taxpayer who purchased solar-powered electricity-generating equipment installed on a third-party "host" property.

The IRS found taxpayers Donald and Sheila Golan responsible for a tax deficiency of $150,694 and an accuracy-related penalty of $30,139 after examining their 2011 income tax return. The taxpayers challenged the assessment in Tax Court. The court's opinion in the case, Golan, T.C. Memo. 2018-76, addressed issues including whether the taxpayers:

• Established a basis in solar panels and related equipment for purposes of claiming an energy credit under Secs. 46 and 48 and a special allowance for depreciation under Sec. 168(k) (bonus depreciation);
• Satisfied the requirements of then-applicable Sec. 168(k)(5);

Background

In 2010, Donald Golan purchased as an investment solar equipment and its related rights and obligations from Solar Energy Equities LLC. The LLC offered discounted electricity to property owners in exchange for permission to install solar panels and related solar equipment on their properties. The LLC temporarily retained the burdens and benefits of ownership (including resulting tax credits and rebates) once contracts with the hosts were finalized. The LLC then sold the equipment to investors. Golan bought the equipment installed on three of the properties.

For all three properties, an application was filed with a local utility company for an interconnection agreement. The LLC entered into a power purchase agreement (PPA) with the owner of each host property; the LLC temporarily retained ownership of solar equipment and was responsible for any servicing or repairs. The PPA prohibited the host property from assigning the PPA to another party without the LLC's consent, but the LLC could assign its interest in the PPA to another party with 30 days' notice to the host. Once the solar panels were installed, the utility company informed the host of eligible rebates, which were then assigned to the LLC.

The sale to Golan was effected by: (1) a solar project asset purchase agreement; (2) Golan's promissory note; (3) Golan's guarantee; and (4) a bill of sale and conveyance. The purchase agreement specified that the "original use" of the solar equipment "shall commence on or after the Closing Date." The stated purchase price was $300,000, which was the sum of (1) a $90,000 down payment (due on the closing date in January 2011, but Golan did not pay any part of it in 2011); (2) a $57,750 credit for the rebates the LLC received from the utility company before the sale; and (3) Golan's promissory note in the principal amount of $152,250 with interest at 2%.

The note required Golan to pay toward the note all monthly revenue generated by the solar equipment. If the accrued interest exceeded the monthly receipts in any month, the difference would be carried forward and owed by Golan in future months. Conversely, monthly receipts exceeding the accrued interest and amortized principal would accelerate the loan's repayment.

The note was secured by the solar equipment, and, in the event of a default, the LLC agreed to seek recourse against the solar equipment before exercising any rights or remedies against Golan. However, the note also stated that Golan would be liable to pay any deficiency owed to the LLC if, in the event of foreclosure, a sale of the project assets was insufficient to pay all the amounts owed to the LLC under the note. Golan also signed a guarantee for the note and copies of the PPAs.

Basis in the solar equipment

The allowance of depreciation and the energy credit both depend on a taxpayer's having basis in the property, which under Sec. 1012 generally is the property's cost. Cost can include a promissory note issued in exchange for property.

In calculating the special allowance and energy credit, the taxpayers reported a basis in the solar equipment of $300,000 ($90,000 down payment, $57,750 credit for the utility company rebates the host property owners assigned to the LLC, and the $152,250 principal amount of the promissory note). The IRS argued that the Golans did not have basis in the solar equipment for 2011 because no money changed hands between Golan and the LLC that year.

The court noted that the $90,000 down payment was not paid in 2011; therefore, under Regs. Sec. 1.1012-1(a), the taxpayers could not add it to their basis for that year. The court also agreed with the IRS about the $57,750 — the record established the host property owners assigned the utility company rebates to the LLC, and as such, Golan did not receive them or report them as income. The court consequently found that the credit was a price reduction based on the LLC's receipt of the rebates. Because the rebates were not part of the solar equipment's cost to Golan, the taxpayers could not add the $57,750 credit to their basis in the solar equipment. However, the court further found that the $152,250 promissory note (a recourse obligation) was issued in exchange for the solar equipment, so the taxpayers could include the face amount of the note in their basis. Thus, the court determined that the basis in the solar equipment for 2011 was $152,250.

Bonus depreciation

Under Sec. 168(k)(1)(A), the depreciation deduction provided by Sec. 167 includes a special allowance for qualified property for the tax year in which the property is placed in service.

For 2011, the special allowance was 100% of the adjusted basis of certain qualified property. Qualified property had the following elements under then-applicable Sec. 168(k)(5) (these provisions were later moved, with modifications, into Sec. 168(k)(2)): (1) a recovery period of 20 years or less; (2) the original use of the property commenced with the taxpayer after Dec. 31, 2007; (3) the taxpayer acquired the property after Sept. 8, 2010, and before Jan. 1, 2012; and (4) the taxpayer placed the property in service before Jan. 1, 2012. The IRS agreed that the taxpayers satisfied the first two requirements but contended that they failed to meet the third and fourth requirements. Since the record established that Golan acquired the solar equipment in January 2011 and placed it in service in 2011, the court determined that he met the third and fourth requirements for bonus depreciation.

Sec. 465

Losses are allowed only to the extent of the aggregate amount at risk for an activity (Sec. 465(a)(1)). Any losses disallowed under this section for the tax year are treated as a deduction in the following tax year (Sec. 465(a)(2)). Under Sec. 465(b), a taxpayer is considered to be at risk for an activity with respect to amounts including:

1. The amount of money and the adjusted basis of other property the taxpayer contributed to the activity, and

2. Amounts borrowed for the activity to the extent that the taxpayer is personally liable for the repayment of those amounts, or has pledged property other than property used in the activity, as security for the borrowed amount.

However, if amounts borrowed for the activity are from a person who has an interest in the activity or from a related person to a person (other than the taxpayer) who has such an interest, those amounts are not considered to be at risk. The aforementioned exceptions, however, do not apply to an interest as a creditor in the activity or to an interest as a shareholder (Sec. 465(b)(3)).

Regs. Sec. 1.465-8 provides a detailed definition of a person who has a prohibited continuing interest under Sec. 465(b)(3):

If a borrower is personally liable for the repayment of a loan for use in an activity, a person shall be considered a person with an interest in the activity other than that of a creditor only if the person has either a capital interest in the activity or an interest in the net profits of the activity.

A capital interest in an activity entitles the holder to the distribution of the assets of the activity upon liquidation. An interest in net profits is not limited to the person who has ownership in the activity under Regs. Sec. 1.465-8. For example, an employee or independent contractor whose compensation is determined in any part by reference to the net profits of the activity is considered to have an interest in the net profits of the activity.

The IRS argued that the taxpayers were not at risk under Sec. 465 because the LLC owner retained a continuing prohibited interest in the solar equipment, which excluded the promissory note as a borrowed amount that established risk under Sec. 465(b)(3). Thus, the IRS contended, the taxpayers could not deduct a loss with respect to the solar activity.

 

Continued in article

Individual Retirement Account --- https://en.wikipedia.org/wiki/Individual_retirement_account

Deciding Between a Roth vs. Traditional IRA in 2018 ---
https://money.usnews.com/money/retirement/articles/deciding-between-a-roth-vs-traditional-ira

It's a new year. And that means it's time for investors to do what they could have done last year—but didn't.

Namely: make contributions to their 2013 individual retirement accounts. Indeed, an analysis of traditional and Roth IRA contributions made by Vanguard Group customers for the 2007 through 2012 tax years showed that, on average, 41% of the dollars contributed to IRAs for any given tax year are invested between January and April of the following year. Half of those dollars are contributed in the first half of April—the final weeks when contributions for the previous year can be made.

The study found only 10% of dollars are contributed in January of the corresponding tax year, the earliest month contributions can be made. "We are trying to encourage people to change their way of thinking and think about it sooner," says Maria Bruno, a senior investment analyst with Vanguard Investment Strategy Group. Valid Excuse?

There are legitimate reasons that big dollars flow into IRAs near the tax-filing deadline. At that point, taxpayers typically know whether their income for the prior year was low enough to qualify for deductible contributions, and can see by exactly how much a contribution would lower their tax bill.

But some advisers say the habit is one of the ultimate examples of investor laziness, nearly on par with not maxing out the company match for 401(k) contributions or not seeking retirement advice until after retirement.

"As humans we naturally procrastinate," says Mackey McNeill, an accountant and financial adviser in Bellevue, Ky.

Procrastination can be costly. The problem, advisers and retirement consultants say, is that investors who make IRA contributions at the last moment miss out on 16 months of potential gains (from January of one year until April of the following year), as well as the chance for those gains to compound over many years. Even if two investors contribute the same amount of money over the years, the person who starts earlier could end up with significantly more savings down the line.

Compare a saver who makes the maximum annual IRA contribution of $5,500 for those under age 50 in January of each year with another saver who contributes the same amount each April 15 of the following year. Over 31 years, assuming the money is invested in a moderate portfolio earning a hypothetical 7% annual return, the saver who makes full contributions in January could end up with $83,000 in additional savings after 30 years, even though both investors contributed equal amounts—about $170,500—overall, according to an analysis by Ms. McNeill. Tax Burden

Another downside to putting off contributions: It could add to your tax bills. Money in a taxable account over that 16-month period may incur gains that would have been deferred in an IRA, says Ed Slott, an accountant and founder of IRAHelp.com, a website for retirement savers.

Some pros say investors' excuses for not contributing as early as possible are looking thin. Most people don't see their income swing wildly from one year to the next, Ms. Bruno says. They can likely use last year's tax return to decide whether to make a contribution for the current tax year each January.

Procrastinators still have time to change their ways. Some can catch up if they now make their 2013 and 2014 contributions—a total of $11,000 for those under 50 contributing the maximum for each year, Ms. McNeill says. Those investors can then get in the habit of making their IRA contributions at the start of each year. (Investors 50 or older can contribute as much as $6,500 to their IRAs each year.)

While a doubled-up contribution is a lot to set aside at once, she says: "You've only got to make this change for one year."

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

A cryptocurrency millionaire is buying up land in Nevada’s desert to build a utopian village run on Ethereum — here are the design plans ---
https://www.businessinsider.com/photos-plans-blockchain-utopian-village-in-nevada-desert-2018-11

Accounting Rules for Reporting Cryptocurrency as an Intangible Asset Subject to Value Impairment Tests
https://www.ey.com/Publication/vwLUAssetsAL/TechnicalLine_04623-181US_Cryptocurrency_18October2018/$FILE/TechnicalLine_04623-181US_Cryptocurrency_18October2018.pdf

What you need to know

• Cryptocurrencies meet the definition of indefinite-lived intangible assets, and holders generally should account for these assets at historical cost less impairment pursuant to ASC 350.

• However, investment companies as defined under ASC 946 should account for their cryptocurrency investments as “other investments” and subsequently measure these assets at fair value through earnings. • Determining ownership of a cryptocurrency held through a third party may be challenging and could affect the determination of the appropriate accounting.

• Entities that engage in mining activities (that generate cryptocurrency) need to develop an accounting policy based on the application of current US GAAP to the economics of their mining transactions and disclose that policy.

• Entities that invest in cryptocurrencies need to have controls in place to safeguard the private key that provides access to the cryptocurrencies and to maintain complete and accurate books and records related to their cryptocurrency activities.

Overview The proliferation of cryptocurrencies and the lack of US GAAP guidance that specifically addresses cryptocurrencies have raised questions about how holders of these assets should account for them

 

What Makes Accounting Rules for Cryptocurrency Reporting So Difficult to Implement?  Rigged Markets
https://www.bloomberg.com/news/articles/2018-10-12/this-texas-finance-professor-sifts-data-for-signs-of-rigged-markets

MIT:  Using Cryptocurrency to Launder Money ---
Click Here 

Yale Invests in Crypto Fund That Raised $400 Million ---
https://www.bloomberg.com/news/articles/2018-10-05/yale-is-said-to-invest-in-crypto-fund-that-raised-400-million?cmpid=BBD100518_BIZ&utm_medium=email&utm_source=newsletter&utm_term=181005&utm_campaign=bloombergdaily

How much energy does bitcoin "mining" consume?
https://www.technologyreview.com/the-download/612355/no-bitcoin-probably-wont-doom-our-climate-but-we-have-no-idea-how-much/?utm_source=TR&utm_content=10-31&utm_source=MIT+Technology+Review&utm_campaign=db868b7fc4-EMAIL_CAMPAIGN_2018_10_31_12_13&utm_medium=email&utm_term=0_997ed6f472-db868b7fc4-153727301
Jensen Comment
A huge problem is that we don't know how many home "mines" there are in the world.
We do know that Iceland is very popular for bitcoins because of cheap geothermal energy.
We don't know that the global mining of bitcoins is using a massive amount of energy.

How three countries are creating the roadmap to a cashless society ---
https://www.businessinsider.com/global-payments-landscape-b-2018-9

Re-Engineering Big Audit -- Cautions From The Supply Side ---
https://www.jamesrpeterson.com/home/2018/11/judge-ive-listened-to-you-for-an-hour-and-im-none-the-wiser-barrister-none-the-wiser-perhaps-my-lord-b.html

Update from the UK Audit Regulator: The FRC’s Skipper Jumps Ship ---
https://www.jamesrpeterson.com/home/2018/10/up-date-from-the-uk-audit-regulator-the-frcs-skipper-jumps-ship-.html