My Latest Web Document
Over 400 Examples of Critical Thinking and Illustrations of How to Mislead With Statistics ---
http://faculty.trinity.edu/rjensen/MisleadWithStatistics.htm

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

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

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

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

Find a corporate home page quite easily by going to
https://en.wikipedia.org/wiki/List_of_companies_of_the_United_States

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

Videos hosted by the American Accounting Association have been authorized by their respective presenters / rightsholders. Access to presentation video content from the 2019 Annual Meeting is a Member Benefit ---
https://aaahq.org/Meetings/2019/Annual-Meeting/Video-Gallery

Jensen Comment
I suspect that we have to be careful about what we disclose about the presentations since all but one was a paid speaker who owns the rights to content.

I disagree with some of the points made by Terry Shevlin, but I will not elaborate much at this time except to say that he incorrectly trivialized classroom flipping, ignored the real problems of relevance of academic accounting research, and glossed over the genuine problem of lack of replication in accounting research. In fairness he did make some other very good points. Watch the video.

If I were to pick one of the big thing he overlooked it's that there are almost no academic bloggers in accountancy, and he failed to mention the AECM listserv. Ouch! Than hurts, because monthly we've address points he made and points he overlooked. He apparently never pays any attention to the AECM. But he's not unique. Virtually all AAA Presidents in history have ignored both the AECM and blogging in general. I think ignoring bloggers is a necessary condition to becoming an AAA President.

What really hurts is that over the past ten or so years the AAA Presidents have totally ignored the AAA Commons that the AAA is paying a huge amount of money to support the AAA Commons. When was there an AAA President that even used the AAA Commons for communications after the first two years of the Commons?

I think nearly every academic discipline has leading bloggers except for accounting . Where are the bloggers in academic accounting? It isn't just blogging. I don't think the AAA presidents in general have done much for education technology and promotion of research relevancy in the accounting profession itself.

I won't be looking for any communications of the AAA Commons from Terry Shevlin in his year as AAA President, and I most certainly won't be looking for any of his replies to our AECM messaging. Like virtually all accountics researchers, with one sort-of exception, he lives in a different world.

Aggressive use of non-GAAP numbers is creating a crisis in how investors, analysts, and the media report financial performance and value companies ---
https://www.cfo.com/gaap-ifrs/2019/09/has-non-gaap-reporting-become-an-accounting-chasm/

Bob Jensen's threads on non-GAAP measures ---
http://faculty.trinity.edu/rjensen/theory02.htm#ProForma

September 26, 2019 reply from Tom Selling

Bob,

Your reference to the EY publication on Article 11 of Regulation S-X is not correct.  Although Article 11 of Regulation S-X addresses “pro forma” information, it is for information that is required in filings – for example: the pro forma effect of an acquisition of a “significant subsidiary” (see Reg S-X, Rule 1-02w); or the issuance of debt securities..

For voluntary disclosures of non-GAAP measures of performance, which issuers sometimes refer to as “pro forma” information (this is the source of your confusion), two sets of rules can be applicable, depending on the circumstances:  Regulation G and Item 10(e) of Regulation S-K, Use of non-GAAP financial measures in Commission filings.

On the day, I consider myself even.  Earlier, there was the glaring mistake about your climate change retraction post.  Now, at least I got to make amends!

Best,

Tom

September 27, reply from Bob Jensen

In general I don't like "best" lists on most any topic because there are so many criteria for defining best. Unless the criterion or short list of criteria the list of "best" things may be more misleading than helpful.

Required reading: These are the books top professors at the best business schools in the country are having their MBA students read ---
https://www.businessinsider.com/books-mba-professors-business-school-harvard-stanford-kellogg-recommend

Jensen Comment
No accounting books are mentioned in the above article even though accounting is part and parcel to literally every MBA program in the world.  This begs the question of what accounting book would be your first choice to add to the list of above books. What about naming one in financial accounting and another in managerial accounting?
Here's one list ---
https://www.blog.consultants500.com/accounting-audit-advisory/top-15-accounting-books-recommended-most-times-by-business-owners-students-or-accounting-pros/
This points out a typical problem when recommending "best books." The problem is that there are so many subtopics like accounting theory, elementary accounting, accounting history, employee fraud, financial statement fraud, managerial decisions, investment decisions, small business accounting, etc. Another problem is that accounting interacts with so many other disciplines, especially economics and finance. Here's a list that shows some of this interaction
https://www.wikiaccounting.com/10-best-accounting-books-recommended-by-readers/

The above article's list of "Required Reading" is weak on taxation even though taxation does appear in some of the recommended books. If you had to recommend a taxation book what book would you recommend?

The above article's list of "Required Reading is weak on accounting information systems, artificial intelligence, and internal controls.  If you had to recommend an AIS book what book would you recommend?

Message from Ed Scribner on September 9, 2019

Ed's candidate:

Core Concepts of Accounting Information Systems by Simkin, at al.

https://www.vitalsource.com/products/core-concepts-of-accounting-information-systems-mark-g-simkin-james-l-v9781119373544?duration=120&gclid=CjwKCAjw8NfrBRA7EiwAfiVJpWhmV9ZZzKa7vLyT9ME_tYQa3ik7vgu5YoA_LOG--4278xtmWdJP1hoC2BgQAvD_BwE

Message from Bob Jensen on September 10, 2019

Paul,

It's ironic (eerie?) this morning that immediately after writing the following tidbit I would open your message recommending the works of Karl Polanyi.

Are some events in our lives predestined?

It may be a good idea in a business history course or an accounting history or theory course to compare the works of Polanyi and Drucker after reading the following tidbit.

Bob

 

When Corporations Changed Their Social Role—and Upended Our Politics
By Nicholas Lemann
The Wall Street Journal
September 6, 2019
https://www.wsj.com/articles/when-corporations-changed-their-social-roleand-upended-our-politics-11567782178?mod=searchresults&page=1&pos=1

 

Presidential elections in the U.S. are traditionally about economics. Next year’s vote, and others around the world, have the feeling, however, of being not just about how the economy is performing in the moment but about something more fundamental: the economic system. What drove the rise of Donald Trump and politicians like him elsewhere was the promise that a new government with new policies could restore a fondly remembered (by some) economic and social order from the past. Those politicians’ opponents on the left have a similar interest, though with completely different specifics, in remaking the political economy. It seems like centuries ago, though it was actually only four or five election cycles, when immediate economic conditions were a political issue but not the basic design of the economy.

 

What brought about this dramatic shift? To understand that, it’s necessary first to recall what the American economic order used to be and what made it come apart.

A good place to begin is at Bennington College in Vermont during the worst years of World War II. Two émigré Viennese intellectuals, Peter Drucker and Karl Polanyi, had holed up there to teach. Drucker, who went on to become probably the world’s most famous management consultant, was then in his early 30s, orderly and ambitious; Polanyi, more than a decade older, was messy and voluble and considerably to the left of Drucker politically. Each of them was working on a book proposing a large social vision for the second half of the 20th century.

 

Through the long Vermont winters, Drucker and Polanyi would trudge between each other’s houses in the snow so they could argue about their books. Polanyi’s “The Great Transformation” treated the rise of unimpeded modern capitalism as a vast, long-running social disaster. “At the heart of the Industrial Revolution of the 18th century,” he wrote, “there was an almost miraculous improvement in the tools of production, which was accompanied by a catastrophic dislocation of the lives of the common people.” The only possible lasting solution to the problem of capitalism, he believed, was for government to make itself such a forceful presence that the economy would be made the servant of society instead of society being the servant of the economy.

 

Drucker’s book was called “The Future of Industrial Man: A Conservative Approach.” The subtitle was apt. He saw the end product of the Industrial Revolution as the modern corporation, which was an institution he very much admired. Drucker thought government control of the economy would lead to “centralized bureaucratic despotism.” Instead, the corporation, on its own rather than under the government’s direction, must invent something heretofore unknown: “a functioning industrial society.”

 

Not long after “The Future of Industrial Man” was published, Drucker was surprised to get a call from an executive at General Motors —at that point, the ne plus ultra of corporations. How would he like to come to Detroit for a couple of years and find out how GM actually worked? Drucker eagerly accepted the offer, and in 1946 he published a book about what he had found, called “Concept of the Corporation.” There he reprised his theory in much more florid terms. “The large industrial unit has become our representative social actuality,” he declared, “and its social organization, the large corporation in this country, is our representative social institution.”

During his research, Drucker became friendly with GM’s president, Charles E. Wilson. (He’s the man remembered for saying, “For years I thought what was good for our country was good for General Motors, and vice versa.”) The two of them, according to Drucker, had conversations about GM’s social role that helped nudge Wilson toward negotiating, in 1950, the Treaty of Detroit, a five-year contract with the United Auto Workers that established annual raises, company-provided health insurance and pensions, and a measure of job security for workers as norms of American corporate life.

 

It was during this period that President Harry Truman was failing to achieve most of his Fair Deal, a proposed ramping up of the welfare state that included a prototype version of what liberal politicians would now call “Medicare for all.” That failure left government playing a role inconsistent with Karl Polanyi’s ideas and the corporation playing a role consistent with Drucker’s. Corporate employment was an American exceptionalist version of the welfare state.

 

It is stating the obvious to point out that this system no longer exists. One often hears calls for big corporations to be socially responsible—last month, the Business Roundtable added its voice in a statement signed by 181 corporate chief executives—but not for them to serve collectively as the major American social (rather than economic) institution. For a quarter-century or so during the mid-20th century, however, this was lived reality for millions of Americans who dutifully served the corporations where they worked until they retired at 65 on generous defined-benefit pensions, suppressing whatever independent or entrepreneurial impulses they may have had in exchange for the company’s loyalty to them. And a coterie of establishment-oriented liberal intellectuals trumpeted the arrangement as a not-half-bad social and political order, since a Western European welfare state seemed unachievable in the U.S.

 

So what happened? Besides being vulnerable because it was a product more of custom than of law, the corporation-based welfare state, in retrospect, had two major weaknesses. It mainly excluded large groups with rising aspirations, like racial and ethnic minorities and women, so they felt little stake in preserving the system. Even more consequentially, it depended on the corporation’s economic invulnerability and the quiescence of its shareholders.

Continued in article

Friedrich Hayek --- https://en.wikipedia.org/wiki/Friedrich_Hayek

September 10, 2019 Reply from Paul Williams

Bob, It might also be a good idea to have students read Hayek and Henry Simons.

The history of the ascension of neoliberalism as the dominant order first in Anglo Saxon countries (US and UK) and increasingly all over the world (even China) would be a classic example of the power of ideas and how the purposeful misrepresentation of those ideas can have bad intended consequences. Henry Simons, dean of the law school at U. of Chicago was a great admirer of Hayek and was instrumental in his coming to reside in the U.S. What both Simons and Hayek were concerned about was concentrated economic power. If people actually read Hayek they would know his argument about markets was not about economic efficiency but was a moral argument about liberty Ironically, Hayek envisioned a role for government that required government to be very powerful since its responsibility was to maintain a competitive order.

For Hayek a competitive order meant competition was quite literally human vs human. The greatest evil in Hayek's competitive order was monopoly, the evils of which he wrote about at great length. He went so far as to advocate that if any power became so concentrated it was the government's responsibility to essentially take over that business.

If one were to read Simons today, he sounds more like the Democratic candidates for president than he does today's vocal champions of "free markets." This story is an interesting one in that the Chicago folks (most notably Friedman and Director) who championed Hayek's ideology omitted a key principle in that they ignored completely the problem for a competitive order posed by the corporate form. Hayek would have included any concentrated economic power as being on the road to serfdom (see Elizabeth Anderson's Private Government, which chronicles how much control corporations have over peoples' lives).

Harcourt has written a history of this strange omission by the Chicago folks of Hayek's (and Adam Smith's) strong aversion to concentrated economic power (The Wealth of Nations, which the great admirers of Smith have also apparently never read, is a screed against concentrated economic power) titled The Illusion of Free Markets. Apparently the eliding of a central premise of Hayek and Smith was conveniently ignored because corporations were providing substantial monetary support to research coming out of Chicago in the 50s and 60s.

An excellent example of what Lessig labels dependence corruption. Note the funding of Chicago's Center for Research into the Behavior of Security Prices funded by Merrill-Lynch. You don't have to be a rocket scientist to connect those dots to see where accountics had its origins. I regard all those who have faith in markets intellectually questionable until they advocate for the abolition of the corporate form.

The irony of the self-proclaimed champions of Adam Smith's legacy being the creators of a world now dominated by concentrated economic power would be a valuable education for tomorrow's business leaders. That was Jack Behrman's reason for having us read Polanyi who showed us that the establishment of capitalism as the dominant social order was accomplished only by great violence and not as the result of the workings of some natural order. He also points out that the problem for capitalism is its inability to make commodities of labor, money, and nature.

Also ironic is how completely the ideas of the Friedman generation at Chicago have taken over the US academy. Accounting, whose essential function in society is a regulatory one (FASB, GASB, rule makers ad nausea) adopts as its fundamental perspective a hostility to regulation!! No wonder we are still not yet a "learned profession."

Jensen Comment

And yet today the best models of economic attainment in practice are the Scandinavian nations that are proudly capitalist with pressures to deregulate monopolies that have formed ---
https://www.decanter.com/wine-news/scandinavian-monopolies-will-last-five-years-102364/

Having said this, I hesitate to go deeply into comparison of any Scandinavian nation with the USA. The differences are immense beginning with both land mass and population mass of 350+ million residents versus nations with barely over 5 million residents. Smaller nations are uniquely able to implement democratic controls of capitalism abuses.

Capitalism movements seem to be doing more larger economies like China and India, although both of those nations seem unable to control corruptions lingering stubbornly on from their socialist histories.

I always ask the question of where there has been something better than underlying capitalism in the history of nations having more than a million people?

Why didn't any Scandinavian nation turn socialist?

Management Science:  Oversight and Efficiency in Public Projects: A Regression Discontinuity Analysis
https://pubsonline.informs.org/doi/abs/10.1287/mnsc.2018.3202

Excel:  Excel in Your Work ---
https://www.aicpastore.com/CareerPersonalDevelopment/excel-for-accounting-professionals-webcast-series/PRDOVR~PC-CL2EXAPSERIES/PC-CL2EXAPSERIES.jsp?utm_source=mnl:cpald&utm_medium=email&utm_campaign=27Sep2019

Excel:  Spreadsheet modellers can use the MOD function to obtain residuals and handle calculations at regular time intervals.---
https://www.fm-magazine.com/news/2019/aug/microsoft-excel-mod-function-forecast-models-201921634.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=27Aug2019

Excel:  A guide to key features in Excel for Office 365 ---
https://www.computerworld.com/article/3428640/excel-for-office-365-cheat-sheet.html

Excel:  How to Work with Trendlines in Microsoft Excel Charts ---
https://www.howtogeek.com/429126/how-to-work-with-trendlines-in-microsoft-exce

Oversight and Efficiency in Public Projects: A Regression Discontinuity Analysis

Big Four accounting firms bungle a third of US audits but are rarely fined ---
https://qz.com/1705744/big-four-accounting-firms-are-bungling-a-third-of-us-audits/?utm_source=google-news

Jensen Comment
This article is a bit misleading and should probably read bungled "parts" of the audits. For example, it's relatively common for audit firms to not do enough detail testing of some accounts and internal controls. But that certainly does not mean that insufficient detail testing led to losses incurred by creditors or shareholders. It is true, however, that audit firms are not paying enough attention to their PCAOB bad report cards. Audit firms are caught between clients resisting increased audit fees and the PCAOB wanting more time and money invested in audits.

What we don't want is for the audit firms to follow Andersen's (a now defunct huge auditing firm) path of almost totally bypassing detail testing. The PCAOB should probably be given more resources and power to enforce better audits.

Auditing became more difficult with the loss of paper trails --- making detail testing more technical and complicated when auditing in the clouds. This complexity is compounded by the increasingly complicated cybercrime that changes almost at the speed of light. Exhibit A is the explosion in the use of cryptocurrency (think bitcoin) that facilitates crime and greatly complicates traditional auditing. Also financial contracts have become much more complicated (think of the many innovations in leasing, investing, and insurance).

Auditors are also under pressures for fast decisions in circumstances calling for more delayed diagnostics.

Bob

 Achilles heels of the emergency room doctors: Delayed or missed diagnoses ---
https://www.reliasmedia.com/articles/26532-achilles-heels-of-the-ed-delayed-or-missed-diagnoses

But for the ED, such models suffer from three major drawbacks. The first is an assumption that decisions are made under optimal conditions, by rational beings, who understand and apply principles of probability theory. The second is that such models do not take into account the prevailing intrinsic and systemic error-producing conditions (EPCs) in most EDs, or violation-producing behaviors (VPBs) of clinical staff (see Table 1), that typically confuse and confound this approach. The third is that there is an incomplete appreciation of the widespread use of heuristics, the abbreviated shortcuts that permeate ED decision making. Many heuristics are driven by a cognitive disposition to respond (CDR) to a particular patient, in a particular situation.6,7 They are a necessary feature in this setting; but, in some cases, will prove insufficient for the task. When they fail, the outcome may be catastrophic. The influence of such CDRs, biases, and failed heuristics is beginning to enter medical decision-making models,8 and a recent catalogue has been . . .

Added Jensen Comment
One huge problem is that academic accountancy, unlike medicine and engineering, tends to ignore practical problems of the profession in favor of challenges more amenable to research methods and models that are not conducive to the real world ---
http://faculty.trinity.edu/rjensen/theory01.htm#WhatWentWrong
Accounting and auditing practitioners virtually gave up in looking to academic accounting journals for professional help. Similar problems arise where politicians and bureaucrats are not getting professional help from esoteric political science.

Chronicle of Higher Education:  How Political Science Became Irrelevant
The field turned its back on the Beltway
https://www.chronicle.com/article/How-Political-Science-Became/245777?utm_source=cr&utm_medium=en&cid=cr

In a 2008 speech to the Association of American Universities, the former Texas A&M University president and then-Secretary of Defense Robert M. Gates declared that "we must again embrace eggheads and ideas." He went on to recall the role of universities as "vital centers of new research" during the Cold War. The late Thomas Schelling would have agreed. The Harvard economist and Nobel laureate once described "a wholly unprecedented ‘demand’ for the results of theoretical work. … Unlike any other country … the United States had a government permeable not only by academic ideas but by academic people."

Gates’s efforts to bridge the gap between Beltway and ivory tower came at a time when it was growing wider, and indeed, that gap has continued to grow in the years since. According to a Teaching, Research & International Policy Project survey, a regular poll of international-­relations scholars, very few believe they should not contribute to policy making in some way. Yet a majority also recognize that the state-of-the-art approaches of academic social science are precisely those approaches that policy makers find least helpful. A related poll of senior national-security decision-makers confirmed that, for the most part, academic social science is not giving them what they want.

The problem, in a nutshell, is that scholars increasingly privilege rigor over relevance. That has become strikingly apparent in the subfield of international security (the part of political science that once most successfully balanced those tensions), and has now fully permeated political science as a whole. This skewed set of intellectual priorities — and the field’s transition into a cult of the irrelevant — is the unintended result of disciplinary professionalization.

The decreasing relevance of political science flies in the face of a widespread and longstanding optimism about the compatibility of rigorous social science and policy relevance that goes back to the Progressive Era and the very dawn of modern American social science. One of the most important figures in the early development of political science, the University of Chicago’s Charles Merriam, epitomized the ambivalence among political scientists as to whether what they did was "social science as activism or technique," as the American-studies scholar Mark C. Smith put it. Later, the growing tension between rigor and relevance would lead to what David M. Ricci termed the "tragedy of political science": As the discipline sought to become more scientific, in part to better address society’s ills, it became less practically relevant.

When political scientists seek rigor, they increasingly conflate it with the use of particular methods such as statistics or formal modeling. The sociologist Leslie A. White captured that ethos as early as 1943:

We may thus gauge the ‘scientific-ness’ of a study by observing the extent to which it employs mathematics — the more mathematics the more scientific the study. Physics is the most mature of the sciences, and it is also the most mathematical. Sociology is the least mature of the sciences and uses very little mathematics. To make sociology scientific, therefore, we should make it mathematical.

Relevance, in contrast, is gauged by whether scholarship contributes to the making of policy decisions.

That increasing tendency to embrace methods and models for their own sake rather than because they can help us answer substantively important questions is, I believe, a misstep for the field. This trend is in part the result of the otherwise normal and productive workings of science, but it is also reinforced by less legitimate motives, particularly organizational self-interest and the particularities of our intellectual culture.

While the use of statistics and formal models is not by definition irrelevant, their edging out of qualitative approaches has over time made the discipline less relevant to policy makers. Many pressing policy questions are not readily amenable to the preferred methodological tools of political scientists. Qualitative case studies most often produce the research that policy makers need, and yet the field is moving away from them.

Continued in article

Jensen Comment
This sounds so, so familiar. The same type of practitioner irrelevancy commenced in the 1960s when when academic accounting became "accountics science" --- About the time when The Accounting Review stopped publishing submissions that did not have equations and practicing accountants dropped out of the American Accounting Association and stopped subscribing to academic accounting research journals.

An Analysis of the Contributions of The Accounting Review Across 80 Years: 1926-2005 --- http://faculty.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm 
Co-authored with Jean Heck and forthcoming in the December 2007 edition of the Accounting Historians Journal.

Unlike engineering, academic accounting research is no longer a focal point of practicing accountants. If we gave a prize for academic research discovery that changed the lives of the practicing profession who would practitioners choose to honor for the findings?

The silence is deafening!

September 12, 2019 reply from Beryl D. Simonson

This continues to be a misunderstood topic. For a truly “bungled” audit follow the number of restatements that occur based on a PCAOB inspection report. That is not saying that the audit was well performed just because the numbers didn’t change. The great majority of inspection comments are not necessarily failures by the audit firm rather than surrenders because the PCAOB holds all of the cards if you fight to hard and there is no third part that reviews and affirms the PCAOB reports. Many of the comments deal with subjective matters as to how much work needs to be done in an area. It is as if the district attorney is always correct in bring charges.

Beryl

Beryl D. Simonson CPA

September 12, 2019 reply from Dennis Beresford

Bob,

I would add that the headline, which is often all that readers pay attention to, is erroneous. As the first line of the article states, the one-third error rate relates to the audits examined by the PCAOB while the headline implies the error rate is for all audits. I don’t know the actual percentage of Big 4 audits inspected each year but I suspect it is pretty small. And the PCAOB chooses those it inspects based on its beliefs about which ones are likely to be the most risky.

Finally, when you read the inspection reports it is clear that a fairly large number of the inspection findings are matters of judgment in which reasonable people could easily disagree. I know that the firms find it easier to accept most of these findings rather than fight them and create an adversarial relationship with the PCAOB. One or more of the firms tried taking hard line positions in early years of the inspections program and they quickly learned that it was a big mistake to do so.

Denny

Lease Accounting Change Makes EBITDA an Even Muddier Metric ---
https://news.bloombergtax.com/daily-tax-report/lease-accounting-change-makes-ebitda-an-even-muddier-metric

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

MIT:  China is about to launch its own digital currency. Here’s what we know so far ---
https://www.technologyreview.com/f/614314/china-is-about-to-launch-its-own-digital-currency-heres-what-we-know-so-far/?utm_campaign=the_download.unpaid.engagement&utm_source=hs_email&utm_medium=email&utm_content=76870798&_hsenc=p2ANqtz-9VujTcfuBpRY3fjRSFY-zTMLHyat8y68SrWKkpESDMsy622KwODAdbvCzlqDWNQ-lhp3jz-Pr7CF5rQQA0RbaYosaXXQ&_hsmi=76870798

Debt --- http://en.wikipedia.org/wiki/Debt

History of Money and Debt --- http://en.wikipedia.org/wiki/History_of_money

Mezzanine Debt/Equity --- https://en.wikipedia.org/wiki/Mezzanine_capital

Convertible Bond --- https://en.wikipedia.org/wiki/Convertible_bond

The Fuzzy Zone Between Debt and Equity
From the CFO Journal's Morning Ledger on October 6, 2014

U.S. companies including Tesla Motors Inc., Twitter Inc. and Priceline Group Inc. are selling bonds that can later be converted into stock shares at the fastest clip since 2008, the WSJ’s Mike Cherney reports. Businesses like to sell them because it gives them access to capital at lower rates, and the buyers like them because it provides the possibility of a considerable profit if the company’s share value increases. 

Violin Memory Inc., a data-storage firm in Santa Clara, Calif., for instance, sold $105 million in convertible notes last month. Chief Financial Officer Cory Sindelar said the company opted to sell the bonds instead of stock because it wanted to minimize the impact on existing shareholders, who would’ve seen their shares immediately diluted. 

Meanwhile, a group of 12 banks is aiming to streamline the process of buying corporate bonds by creating a one-stop-shop for the debt instruments, the WSJ’s Katy Burne reports. The initiative, called “Neptune,” won’t be for executing trades, but rather will link up banks and investors in the market, just as a mall would bring together several shops under one roof

"An Update on the FASB’s and IASB’s Joint Project on Financial Instruments With Characteristics of Equity,"  by Magnus Orrell and Ana Zelic, Deloitte & Touche LLP Heads Up, April 15, 2010 --- http://www.iasplus.com/usa/headsup/headsup1004liabequity.pdf

Entities have long struggled with the question of whether instruments they issue to raise capital should be reported as liabilities or equity when those instruments possess characteristics of both debt and equity. The demand for a set of accounting principles that clearly distinguishes between equity and nonequity instruments is greater than ever in this era of increasing sophistication and rapid change in financial markets. The current accounting requirements governing the classification of financial instruments as liabilities or equity under both IFRSs and U.S. GAAP have been criticized for lacking a clear and consistently applied set of principles and for not distinguishing between equity and nonequity in a manner that best reflects the economics of the transactions involving those instruments. 

Responding to these concerns, in February 2006, as part of their Memorandum of Understanding, the IASB and FASB agreed to undertake a joint project on financial instruments with characteristics of equity to improve and simplify the financial reporting for financial instruments considered to have one or more characteristics of equity.1 In this project, the two boards have developed a new classification approach (see the Decisions Reached to Date section below) that we expect will be exposed for public comment in June 2010. The boards have agreed that the exposure draft will have a 120-day comment period and hope to publish a final standard in the first half of 2011; the effective date is yet to be determined. 

The classification approach contemplated by the two boards would, if finalized, significantly affect the manner in which entities determine whether to classify many financial instruments as liabilities or equity and account for exercises of options and conversions of debt into equity instruments. Entities are well-advised to begin assessing the implications of, and planning for, these changes and their effect on debt and equity, interest coverage, and other financial ratios; earnings; and compliance with debt covenants.

Continued in article

2019:  FASB makes 2nd effort to improve balance sheet debt classification ---
https://www.journalofaccountancy.com/news/2019/sep/fasb-balance-sheet-debt-classification-201922019.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=13Sep2019

2019 Tax Software Survey ---
https://www.journalofaccountancy.com/issues/2019/sep/2019-tax-software-survey.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=12Sep2019

2019 Trends in in the supply of accounting graduates and the demand for public accounting recruits ---
https://www.aicpa.org/content/dam/aicpa/interestareas/accountingeducation/newsandpublications/downloadabledocuments/2019-trends-report.pdf?utm_source=mnl:cpald&utm_medium=email&utm_campaign=06Sep2019
Keep in mind that there are many accountants who are not "public accountants" (think of accounting careers in government, business firms, schools, etc.). Having said this, many (certainly not most) of those "non-public accountants" commenced their post-graduate careers for a time as public accountants before going non-public. And not all public accountants are Certified Public Accountants (or chartered accountants) such as all those accountants and accounting firms who offer tax return preparation services but are not licensed to conduct audits ---
https://en.wikipedia.org/wiki/Certified_Public_Accountant

Key insights

Accounting Enrollments Total projected accounting enrollments are down 4% from the highs of 2016, but are still among the highest on record. Master’s enrollments are down 6% from 2016. Racial/ethnic diversity has increased in the 2017-18 academic year. Universities have reported increases in Hispanic or Latino enrollees of 3 and 8 percentage points at the bachelor’s and master’s levels, respectively. Seventy-two percent of bachelor’s of accounting programs and 65% of master’s of accounting programs expect to have the same or higher enrollment in 2019.

Accounting Graduates Projected accounting graduates trended downward in the 2017-18 academic year, with decreases of 4% at both the bachelor’s and master’s levels and overall. In 2018, female accounting graduates outnumbered male graduates at the master’s level. Racial/ethnic diversity has increased in accounting graduates, with a 7 percentage point increase in Hispanic or Latino accounting graduates.

Hiring In 2018, new hires assigned to audit-related services increased by 4 percentage points, while new graduates assigned to taxation declined by 4 percentage points. Hiring of new accounting graduates slowed 11%. Across the last two Trends reports, we have experienced an approximate 30% decline in hiring of new accounting graduates. Non-accounting hires as a percentage of all new graduate hires are up 11 percentage points to 31%. See footnote for more information.

Hiring Expectations Of firms that hired one or more accounting graduates in 2018, 58% expect to hire the same number or more in 2019. Ninety percent of all U.S. CPA fi rms expect to have the same number or more CPAs on staff in 2019.

CPA Examination The number of CPA Exam takers increased in 2015 and 2016 in preparation of the new CPA Exam that launched in April 2017. CPA Examination candidates decreased 7% between 2017 and 2018. The number of CPA Exam candidates who passed their 4th section of the exam decreased 6% between 2017 and 2018.

How Are Public Accounting Salaries Stacking Up for 2020?
https://goingconcern.com/public-accounting-salaries-2020/
One problem in reporting salaries is that so many public accountants own their own practices or are in small partnerships. Many have no salaries and instead rely on profits. I have a CPA friend who did not finish his Ph.D. and was denied tenure. However, he was a great CPA who started up his own firm, specialized in accounting and tax services for wealthy physicians and Texas ranchers, and made a fortune. However, before he retired he had no "salary" to report in surveys like the one above. Similar problems arise when reporting the "salaries" of physicians and lawyers who own their own practices or share partnership profits.

Jensen Comment
Accounting major numbers often decrease in times of economic prosperity with the best example arising in the roaring 1990s when so many college students became finance majors (intending  make millions on Wall Street before the Enron bubble burst in 1999) and computer science majors (at a time when new technology firms were sometimes offering million-dollar signing bonuses in stock options that later turned worthless when the technology bubble burst). In recessions many students find their way to accountancy because of the relative stability of accountancy job offerings.

Becoming a CPA became somewhat more difficult and expensive as states across the USA commenced to require 150 credits to sit for the CPA examination with most aspiring CPAs today now getting masters degrees because of the 150-credit requirement. Of course accounting graduates not aspiring to be CPAs can still graduate in four years and enter the job market as non-CPAs. 

The problem with non-public accounting entry level jobs (think FBI agents and corporate accountants)  is that experience is often required, whereas large CPA firms have a tradition of hiring top graduates who do not yet have experience beyond very brief internships while they are still in college. There's a huge attraction for undergraduates in accounting to go on to get masters degrees and start out in public accounting firms. Their intent is to gain experience needed in public accounting to land those non-public accounting job offers. Many public accountants do in fact end up jumping ship to work for audit and tax clients of CPA firms. CPA firms even consider them as their "alumni."

One exception is the IRS that, unlike the FBI and other government agencies, will hire inexperienced accounting majors and train them for their jobs. The IRS, however, in recent years has been hobbled by declining budgets.

Because of the short supply (slightly over 200 per year)  of new accounting Ph.D.s hoping to get tenure-track jobs, new Ph.D.s in accountancy are often the highest-paid new assistant professors on campus. However, one of the factors holding down the supply of new accounting Ph.D.s is the requirement by accounting doctoral programs that applicants have professional accounting experience. Whereas STEM majors in science can enter doctoral programs immediately after earning BS degrees, this is not usually the case for new accounting doctoral students ---
http://www.jrhasselback.com/AtgDoctInfo.html

\

Bob Jensen's threads on careers are at
http://faculty.trinity.edu/rjensen/Bookbob1.htm#careers

KPMG's Fall From Grace (many times) ---
http://faculty.trinity.edu/rjensen/fraud001.htm

The Current State of Sales Tax on Digital Products
https://www.bakerinstitute.org/media/files/files/ff22e639/bi-report-080719-cpf-salestaxdigital.pdf

Apple is mounting a legal challenge against the European Commission over a 2016  order to pay $14.4 billion in back taxes ---
https://www.businessinsider.com/apple-takes-fight-against-13-billion-euro-eu-tax-order-to-court-2019-9

Hedges of Recognized Foreign Currency–Denominated Assets and Liabilities ---
https://www.cpajournal.com/2019/09/04/hedges-of-recognized-foreign-currency-denominated-assets-and-liabilities/

XBRL US 2nd (2019) release of CAFR taxonomy for municipal reporting in public exposure review ---
https://www.truthinaccounting.org/news/detail/xbrl-us-2nd-release-of-cafr-taxonomy-for-municipal-reporting-in-public-exposure-review

Science Alert, Some of The World's Most-Cited Scientists Have a Secret That's Just Been Exposed:---
https://www.sciencealert.com/some-of-the-world-s-most-cited-scientists-have-a-secret-that-s-just-been-exposed

Jensen Comment
Surely our accountics scientists are too honorable to play that game. But if accounting practitioners and business employees aren't reading those highly-cited academic accounting articles how why are their citations soaring?

Charitable Donation Deductions Plummet After Tax Reform ---
https://www.forbes.com/sites/kellyphillipserb/2019/08/28/charitable-donation-deductions-plummet-after-tax-reform/#7e5f878b5ac5

Jensen Comment
It needs to be stressed that in tens of millions if instances loss of the tax deduction does not mean entire loss of charitable giving. Those who donated to to their churches or to their other favorite charities often continued giving without getting a tax break for such gifts.

It's also true that in the first year of tax reform many taxpayers weren't certain whether they would be itemizing their deductions --- at least not until they actually filed their tax returns for 2018 in the first few months of 2019. The telling year with be the full 2019 for those that discovered in early 2019 that they did not get a charitable-giving  tax break on their 2018 returns after tax reform. Many who now do not anticipate a tax break for charitable giving may reduce their charitable giving for 2019 and beyond. This is the big worry for organizations dependent upon charitable giving. Alumni checks to universities, for example, may not be reduced to zero, but they might be reduced somewhat due to loss of a tax break on those donations. We should not beat down on fund managers for losses that were out of their control.

Probably the biggest damage tax reform will do to charities is make taxpayers reluctant to increase their annual donations that they no longer anticipate will give them a tax break.

Keep in mind that 45% the taxpayers who file tax returns pay little or no income taxes due mostly to the extremely progressive nature of USA income taxes that provides almost total relief for income taxation to lower income tax payers. Those folks who pay nearly zero in income taxes are pretty much not impacted by tax reform and will continue to give their little bits to their churches and other charities. The problem lies more with higher income taxpayers who now no longer get a tax break for their usual gifts to charities.
https://www.marketwatch.com/story/45-of-americans-pay-no-federal-income-tax-2016-02-24
Those who pay little or no income taxes pay other taxes (payroll deductions, sales taxes, property taxes, etc.), but those taxes were not impacted by loss of charitable-giving  tax breaks in income tax reforms.

Actually the number of Americans who do not pay any income taxes is much higher than 45% due to the enormous underground cash economy where incomes are not reported on any tax returns. There are no reliable estimates on how much income goes unreported in the underground economy, but I once saw a guestimate in USA Today of $2 trillion dollars in unreported income of the underground economy. Incidentally, authorities often look the other way when it comes to the underground economy. Millions of children would lose their family income support if law enforcement shut off the only jobs available to their poor parents. In the case of higher income participants in the underground economy (think robbers and drug dealers and fraudulent professionals) it's very hard to detect those black market cash dealings. When these criminals are caught the money to pay back taxes is usually gone. One of the best ways to hinder the underground economy is to move to a cashless economy. Crooked legislators will never allow that in the USA.

Case Studies in Gaming the Income Tax Laws
http://www.cs.trinity.edu/~rjensen/temp/TaxNoTax.htm

Do you have a self-actualised personality? Maslow revisited ---
https://aeon.co/ideas/do-you-have-a-self-actualised-personality-maslow-revisited?utm_source=Aeon+Newsletter&utm_campaign=06b3a991f3-EMAIL_CAMPAIGN_2019_08_29_03_16&utm_medium=email&utm_term=0_411a82e59d-06b3a991f3-68951505

SEC on Twitter --- https://twitter.com/SEC_DERA

Jensen Comment
There's a ton of information for students, researchers, and practitioners at this SEC DERA site.

WSJ: Companies Say They Can Ignore Cost Of U.S. Tax Rules For Financial Reporting Purposes ---
https://taxprof.typepad.com/taxprof_blog/2019/09/wsj-companies-say-they-can-ignore-cost-of-us-tax-rules-for-financial-reporting-purposes.html

Jensen Comment
What should their auditors be doing?
Will investors and the government also sue the auditors?

Marginal Tax Rates For Pass-through Businesses Vary By State: 32.7% In TX, FL; 46.1% In CA ---
https://taxprof.typepad.com/taxprof_blog/2019/09/marginal-tax-rates-for-pass-through-businesses-vary-by-state-327-in-tx-fl-461-in-ca.html

Sorry Bernie, workers’ wages have lately been rising faster than their bosses’ wages ---
https://taxprof.typepad.com/taxprof_blog/2019/09/wsj-collapse-of-the-income-and-wealth-inequality-argument-.html

The Atlantic:  Tomorrow’s wars will be faster, more high-tech, and less human than ever before. Welcome to a new era of machine-driven warfare ---
https://www.theatlantic.com/technology/archive/2019/09/killer-robots-and-new-era-machine-driven-warfare/597130/

Chicago reaps revenue bonanza with cloud computing tax ---
https://www.statedatalab.org/news/detail/chicago-reaps-revenue-bonanza-with-cloud-computing-tax

City Combined Taxpayer Burden Report 2019 ---
https://www.truthinaccounting.org/news/detail/city-combined-taxpayer-burden-report-2019

City Combined Taxpayer Burden Report 2019

May 14, 2019

Truth in Accounting has released a new report on the 10 largest U.S. cities. The City Combined Taxpayer Burden report analyzes the finances of each city, its county, state, and underlying government units.

This report was necessary because most cities do not include several underlying government units, such as school districts, transit agencies, housing authorities, etc., in their annual financial reports. New York City’s accounting practice is an exception. 

The City Combined Taxpayer Burden report takes into account these underlying government entities and provides residents and taxpayers in these cities with a more accurate and holistic view of their respective city’s finances. When the unfunded debt of these local government units is combined with both the municipal and state debt, city taxpayers are the hook for much more than they think.

The report also breaks down each government's debt to a per-Taxpayer Burden, which is each taxpayer's share of the government's bills after assets have been tapped. Here are the ten largest cities ranked from worst to best based on their Taxpayer Burden: 

·         Chicago’s combined Taxpayer Burden: -$119,110

·         New York City’s combined Taxpayer Burden: -$85,600

·         Los Angeles’ combined Taxpayer Burden: -$56,390

·         Philadelphia’s combined Taxpayer Burden: -$50,120

·         San Jose’s combined Taxpayer Burden: -$43,120

·         San Diego’s combined Taxpayer Burden: -$35,410

·         Dallas’ combined Taxpayer Burden: -$33,490

·         Houston’s combined Taxpayer Burden: -$22,940

·         San Antonio’s combined Taxpayer Burden: -$16,660

·         Phoenix’s combined Taxpayer Burden: -$13,290

Click on the city name to see its two-page report or view the full report here. This report was based on the latest available information for all of the government entities (FY 2017). 

The US is burying young people and the unborn under a mountain of government debt ---
https://www.truthinaccounting.org/news/detail/the-us-is-burying-young-people-and-the-unborn-under-a-mountain-of-government-debt

Bob Jensen's threads on debt and entitlements ---
http://faculty.trinity.edu/rjensen/Entitlements.htm

Do the Rich Get Richer in the Stock Market? Evidence from India ---
https://scholar.harvard.edu/files/campbell/files/dotherichgetricher_31july2018_01.pdf

We have studied wealth held in equity accounts in India, a large developing country that is important for the evolution of global wealth inequality. We have shown that heterogeneous risky log investment returns have important e⁄ects on the cross-sectional distribution of account size: large accounts result not only from large contributions, but also from high log returns. The e⁄ect of log return heterogeneity accounts for 84% of the increase in the cross-sectional variance of log account size during our sample period from March 2002 to May 2011. Return heterogeneity increases the inequality of account size through two main channels, both of which are related to the prevalence of undiversied accounts that own relatively few stocks. The rst is that some undiversied portfolios randomly do well, while others do poorly. The second is that larger accounts tend to earn higher average log returns. They do so not by earning higher average simple returns, but by limiting uncompensated idiosyncratic risk which lowers the average log return for any given average simple return.

Our paper partially supports Pikettys (2014) concern that the rich get richer by earning high investment returnssubject to the distinction, central in nance theory, between simple and log returns. Our results also highlight the importance for developing countries of investment vehicles, such as mutual funds and exchange traded funds, that are already common in developed countries and that give small investors an a⁄ordable way to diversify r

Jensen Comment
I might speculate that India has less effective regulation for enforcing stock market efficiencies ---
https://en.wikipedia.org/wiki/Efficient-market_hypothesis

Rhode Island Is Still Holding a Grudge Against Deloitte ---
https://goingconcern.com/rhode-island-is-still-holding-a-grudge-against-deloitte/

A group of ophthalmology researchers in China got caught trying to pull the wool over the eyes of readers by falsely claiming to have used a therapy that doesn’t exist. ---
https://retractionwatch.com/2019/09/16/the-problem-is-that-there-is-no-il-26-gene-in-the-mouse-an-exasperated-letter-leads-to-a-retraction/

FBI is investigating after computer hackers stole $4.2 million in funds from the Oklahoma State Highway Patrol Pension Fund ---
https://techxplore.com/news/2019-09-oklahoma-pension-fund-million-cyber.html 

Amtrak accounting tricks cover up losses ---
https://www.truthinaccounting.org/news/detail/amtrak-accounting-tricks-cover-up-losses

Accountants Behaving Badly: FUBARed Over FBARs, Fake Returns, Landscaping Larceny ---
https://goingconcern.com/accountants-behaving-badly-fubared-over-fbars-fake-returns-landscaping-larceny/

EY Executive Assistant Sukhbir Mawkin and her husband, Anil Mawkin, were sentenced on Sept. 11 for carrying out a £76,000 over four years, using credit card and personal details stolen from a large number of EY employees.---
https://goingconcern.com/accountants-behaving-badly-ey-gal-pleads-guilty-to-fraud-pwcer-fired-for-upskirt-pics-grand-theft-guilt/

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

Targeted Taxes: Localities Take Aim at Large Employers to Solve Homelessness and Transportation Challenges ---
https://poseidon01.ssrn.com/delivery.php?ID=269126002097094115101106070100094068122032049015054052117086126094066078121117116101033022034012040098112080066106124118115124111029057079021093028065068071120082127095033045004070020070021093027112070029104089116090007126077020120114107124119110017005&EXT=pdf

Many localities are facing unprecedented challenges—such as a dramatic rise in homelessness and insufficient transportation infrastructure—that have reached crisis levels.  These localities are in a precarious position.  If they do not solve these problems quickly, or if they impose overbearing and poorly designed taxes, there will be dire economic and social repercussions.  

 In response to these challenges, several localities recently enacted or proposed taxes targeted directly at large businesses, with revenues allocated explicitly for a designated purpose.  Localities are gravitating toward targeted taxes for several reasons.  Some assert that the success of large employers within the locality contributed to, or even directly created, these challenges.  Perhaps most importantly, targeted tax laws serve a clear expressive function.  Depending on the locality’s primary objective, targeted taxes may be problematic and counterproductive.  

 This Article begins by examining the recent local targeted tax provisions, which have crucial distinctions in motivations and mechanics.  The Article then undertakes a tax policy and constitutional analysis of these targeted taxes, and considers whether they are properly characterized as a tax or a fee.  The Article concludes with several proposed alternatives that will generate the requisite revenue—and may serve an expressive function—more effectively than targeted taxes.  

 INTRODUCTION ...

I. TARGETED TAX LANDSCAPE .

A. Seattle Homelessness Tax ..

B. San Francisco Business Taxes

C. Mountain View Transportation Infrastructure Tax .

D. Cupertino Transportation Infrastructure Tax ...

E. New York City Transit Taxes ..

F. “Millionaire” Taxes ...

G. Portland Clean Energy & Excessive CEO Compensation Taxes 21

II. THE TROUBLE WITH TARGETED TAXES

A. Negative Economic Impact ...

B. Complicating Tax Regimes and the Business Environment ..

C. Constitutional Considerations ...

D. Additional Policy Considerations – Crises and Revenue Raising Constraints .................................................................................. 33 E. Blurring the Tax Versus Fee Distinction .................................... 35

III. SUPERIOR ALTERNATIVES ..

A. Partnering to Foster Voluntary Contributions ..

B. One Comprehensive Local Business Tax ..

C. Improving Target Accuracy ..

IV. CONCLUSION .

 Jensen Comment
The most important thing to note is that taxable business firms do not pay taxes. Taxes imposed on those firms are ultimately paid by customers.

The first thing to ask is what customers?
For example, consider a gross receipts tax imposed upon all revenues of a company headquartered in a city such as a gross receipts tax imposed by Seattle or Washington State on all worldwide revenues received by Amazon headquartered in Seattle. Or similarly suppose the tax is on all net profit of Amazon. What's wrong with this is hugely wrong taxation without representation When Bob Jensen buys a shirt from Amazon online from New Hampshire he in effect is being taxed by Seattle or the State of Washington. He has no vote regarding the amount of tax included in the price of the shirt. Similarly, if this is for Seattle or Washington Schools most worldwide customers of Amazon end up paying for Seattle or Washington schools while in the same year they are also supporting school taxes in their own countries, states, and cities of residence. Of course Bob Jensen can protest and  elect to no longer by anything from Amazon, which in turn could wipe out Amazon if virtually all customers of Amazon worldwide protest a headquarters tax imposed in this manner.

A gross receipts tax is not the same as a local sales tax. A local sales tax can and is imposed on sales transactions within a city or state, but local sales taxes in Seattle cannot be imposed on sales transactions taking place in Sugar Hill, New Hampshire. Recent legislation forces Seattle residents who buy online from certain out-of-state vendors (think online buying from Walmart headquartered in Arkansas) to pay a Seattle sales tax but not residents outside Seattle. Seattle voters can vote regarding if and how much they pay in such local sales taxes.

Another thing that's wrong with a gross receipts tax is that non-taxable entities can end up paying a gross receipts tax. For example, if New Hampshire tax-exempt public schools pay for cloud computing space rented by Amazon New Hampshire schools end up paying a Seattle gross receipts tax.

You can find out other things that are wrong with gross receipts taxes in the above article.

Cities and states are becoming more and more innovative about how to tax big companies, taxes that are not seemingly so overtly unconstitutional as a gross receipts tax. The above article discusses some of those innovations. But at the same time those cities run the risk of driving part or all of those businesses elsewhere and creating more unemployment and property value losses. Cities that impose targeted taxes end up triggering loaded guns that can backfire.

The attribution of homelessness and welfare dependency to being laid off by a local big business is overstated.
Firstly layoffs occur in firms of all sizes and locales. It's common for people laid off or divorced in small rural towns to migrate as homeless people to the big city, e.g., they were laid off by a local contractor in a small town rather than Amazon in Seattle. Secondly, a homeless person more often than is unemployed due to being mentally ill or alcoholic or a heroine addict or all three. Yeah a percentage of Seattle's homeless addicts may be traced back to illegal acts of doctors, pharmacies, and Big Pharma, but Amazon did not cause the pain medication addiction of some of Seattle's homeless people.

Macbeth in Bloom ---
https://www.insidehighered.com/views/2019/09/06/review-harold-bloom-macbeth-dagger-mind?utm_source=Inside+Higher+Ed&utm_campaign=64813187b5-WNU_COPY_01&utm_medium=email&utm_term=0_1fcbc04421-64813187b5-197565045&mc_cid=64813187b5&mc_eid=1e78f7c952

Harold Bloom -- whose latest book is Macbeth: A Dagger of the Mind (Simon & Schuster) -- is the preeminent votary of what has been called "an insane worship of Shakespeare which has no rational foundation." It is a cult that ignores Shakespeare's role in perpetuating a culture of violence, domination and nakedly elitist attitudes. "The fundamental inner cause of Shakespeare's fame," one critic has suggested, "was and is this: that his dramas … corresponded to the [oppressive] frame of mind of the upper classes of his time."

Typical tenured-radical political correctness! More of the endless trashing of the canon of literary masterpieces, right? Actually I'm quoting Leo Tolstoy, whose spot in the pantheon of dead white European male authors seems reasonably secure. But in his mid-seventies, after some five decades of accumulated bewilderment at Shakespeare's reputation and influence, the novelist finally exploded into print with his considered opinion.

"Several times," he wrote, "I read the dramas and the comedies and historical plays" -- in the original language, mind you as well as German and Russian translations -- "and I invariably underwent the same feelings: repulsion, weariness and bewilderment." The plots and characters were all ridiculous or disgusting, or both, with everything on stage presented in an overblown manner: "[T]he actions are exaggerated, so are their consequences, the speeches of the characters are exaggerated, and therefore at every step the possibility of artistic impression is interfered with … Shakespeare might have been whatever you like, but he was not an artist."

By this late stage in life Tolstoy himself was more sage than artist, and it is the privilege of a sage to forego tact yet still count on a respectful hearing. He proclaimed Shakespeare's vast renown to be one of the great outbreaks of mass delusion in human history, just like belief "in witches [and] in the utility of torture for the discovery of the truth, the search for the elixir of life, the philosopher's stone or the passion for tulips valued at several thousand guldens a bulb which took hold of Holland." Alas, the Shakespearean fever was more persistent than most crazes and involved something far worse than an aberration of taste. Readers and writers "discover in him non-existent merits," Tolstoy said, "thereby distorting their esthetic and ethical understanding."

Bardolatry led people to believe that "for the purpose of the drama the representation of human passions and characters was quite sufficient," and that art "should represent events quite independently of any judgment of good and evil." Shakespeare's work was a source of spiritual pollution, and not to see it was a matter either of succumbing to mass delirium or wallowing in the innate depravity of sinful mankind. I get the sense that Tolstoy had no expectation of changing many people's minds, but nonetheless felt morally obliged to go on the record.

Tolstoy refers to Macbeth a few times but directs most of his critical complaints at Hamlet and (especially) King Lear. They are reckoned as the Shakespearean masterpieces par excellence. But "the Scottish play" embodies most of what offends Tolstoy. In it we find prophecy-spouting witches, one or two rather preposterous "reveals" (the woods have moved!), and a string of jokes about drinking, urination and impotence; they come as a jolt, following as they do a vividly described murder. The eloquence of Macbeth and his Lady is turned solely to justifying their psychopathy or expressing their descents into madness. True art, as Tolstoy sees it, generates a kind of moral clarity through "the exhibition of a definite view of life corresponding to the highest religious understanding of a given time." But the plot of Macbeth is so driven by the imperatives of destiny that it is difficult to think of the characters as, in any sense, morally accountable, even for cold-blooded murder.

I have seen Macbeth performed a couple of times and (unrepentant sinner that I am) enjoyed it. But in revisiting the play via Bloom's recent book, I found myself occasionally granting Tolstoy's points. The witches prophesy that "none of woman born/Shall harm Macbeth," who is eventually killed by a character delivered through a post-mortem C-section? That's more of a B-movie plot twist than evidence of literary genius.

Bloom has been reading and teaching Shakespeare for so long that he could probably dictate a book on Macbeth in his sleep. Given the publisher's characterization of Bloom as "the greatest Shakespeare scholar of our time" and other such hype, it is tempting to say that we now have the transcript. Bloom's method here is to quote passages of various lengths by way of a synopsis of the play while providing the occasional clarification or recalling something he remembers seeing on stage or discussing with someone. When Lady Macbeth tries to overcome her husband's hesitancy about career advancement through assassination by asking if he is going to

live a coward in thine own esteem,
Letting 'I dare not' wait upon 'I would,'
Like the poor cat i'th' adage?

Bloom explains, that the proverbial feline "want[ed] to devour fish, but dar[ed] not get his feet wet," and notes that "'assassination' may have been a Shakespearean coinage." He remarks on the dramatic significance of certain turning points: "Macbeth, accusing himself of poor malice or inadequate slaughter, rouses himself to an apocalyptic ambition to tear apart the universe itself, destroying this world and the world to come." We learn that Bloom "lunched several times with the late critic Owen Barfield in London," though not how many times. Much of this is interesting, and some of it is useful. But Macbeth: A Dagger of the Mind is hardly "an extraordinarily moving argument for literature as a path to and a measure of our humanity," the Simon and Schuster publicity department notwithstanding. It is a profoundly okay book -- of some value to people who have not yet read or seen the play, while anyone who has will find the relevant chapter of Marjorie Garber's Shakespeare After All far more cogent.

"Long ago," Bloom writes, "I remember characterizing the Macbeths as the happiest marriage in Shakespeare. That can seem a grim jest, yet it is veracious. Their passion for each other is absolute in every way, as much metaphysical as erotic. The lust for power fuses with mutual desire and enhances the turbulence of their ecstasy."

Continued in article

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

Many companies should consider blockchains because they coordinate information, processes, and payments without a central intermediary, says EY ---
https://www.cfo.com/it-value/2019/09/5-tests-for-deciding-whether-to-use-blockchain/

Learning From Silicon Valley About Blockchain Adoption ---
https://readwrite.com/2019/09/06/learning-from-silicon-valley-about-blockchain-adoption/

Why the tax community should get more knowledgeable about Islamic finance ---
https://www.internationaltaxreview.com/article/b1h355hc8ttqqr/tax-impact-ignorance-of-sharia-finance-transactions-troubling

ACCOUNTS PAYABLE AUTOMATION: The multitrillion-dollar accounts payable market is finally digitizing ---
https://www.businessinsider.com/the-accounts-payable-automation-report-2019-8

Repurchase Agreement --- https://en.wikipedia.org/wiki/Repurchase_agreement

The   Confusing Repo Market ---
https://mobile.twitter.com/NathanTankus/status/1174992669040422912

Earned Income Tax Credit --- https://en.wikipedia.org/wiki/Earned_income_tax_credit

. . .

The direct cost of the EITC to the U.S. federal government was about $56 billion in 2012. The IRS has estimated that between 21% and 25% of this cost ($11.6 to $13.6 billion) is due to EITC payments that were issued improperly to recipients who did not qualify for the EITC benefit that they received.[38] For the 2013 tax year the IRS paid an estimated $13.6 billion in bogus claims. In total the IRS has overpaid as much as $132.6 billion in EITC over the last ten years.[39] 
The direct fiscal cost of the EITC may be partially offset by two factors: any new taxes (such as payroll taxes paid by employers) generated by new workers drawn by the EITC into the labor force; and taxes generated on additional spending done by families receiving earned income tax credit. 
Some economists have noted that the EITC might conceivably cause reductions in entitlement spending that result from individuals being lifted out of poverty by their EITC benefit check. However, because the pre-tax income determines eligibility for most state and federal benefits, the EITC rarely changes a taxpayer's eligibility for state or federal aid benefits. 
In his book The Rise of Big Government: How Egalitarianism Conquered America, political economist Sven R Larson notes that when the EITC is combined with other welfare programs it can have substantial marginal-tax effects. By 2016 tax rates, for a family of four making $30,000, a $5,000 rise in income would result in a rise in the federal income tax and a reduction in EITC and other benefits equal to the marginal tax rate on an income of $467,000. 

The EITC and the Extensive Margin: A Reappraisal
by Henrik Kleven.  Princeton University and NBER---
https://www.henrikkleven.com/uploads/3/7/3/1/37310663/kleven_eitc_sep2019.pdf

This paper reconsiders the impact of the Earned Income Tax Credit (EITC) on labor supply at the extensive margin. I investigate every EITC reform at the state and federal level since the inception of the policy in 1975. Based on event studies comparing single women with and without children, or comparing single mothers with different numbers of children, I show that the only EITC reform associated with clear employment increases is the expansion enacted in 1993.

The employment increases in the mid-late nineties are verylarge, but they are influenced by the confounding effects of welfare reform and a booming macroeconomy. Based on different approaches that exploit variation in these confounders across household type, space and time, I show that the employment effects align closely with exposure to welfare reform and the business cycle. Single mothers who were unaffected by welfare reform (but eligible for the EITC) did not respond.

Overall and contrary to consensus, the case for sizable extensive margin effects of the EITC is fragile. I highlight the presence of informational frictions, widely documented in the literature, as a natural explanation for the absence of extensive margin responses.

Jensen Comment
Possibly some of the reduced benefit of the EITC over the years is due to the simultaneous explosion of fraud in the program that like Medicare became a piñata for criminals.

Accounting for Skewed or One-Sided Measurement Error in the Dependent Variable

IZA Discussion Paper No. 12576
SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3449571

58 Pages Posted: 9 Sep 2019

Daniel Millimet

Southern Methodist University (SMU) - Department of Economics

Christopher Parmeter

University of Miami - School of Business Administration - Department of Economics

Abstract

While classical measurement error in the dependent variable in a linear regression framework results only in a loss of precision, non-classical measurement error can lead to estimates which are biased and inference which lacks power. Here, we consider a particular type of non-classical measurement error: skewed errors. Unfortunately, skewed measurement error is likely to be a relatively common feature of many outcomes of interest in political science research. This study highlights the bias that can result even from relatively "small" amounts of skewed measurement error, particularly if the measurement error is heteroskedastic. We also assess potential solutions to this problem, focusing on the stochastic frontier model and nonlinear least squares. Simulations and three replications highlight the importance of thinking carefully about skewed measurement error, as well as appropriate solutions.

Keywords: nonlinear least squares, stochastic frontier, measurement error

JEL Classification: C18, C51

One Anomaly to Explain Them All

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3444342
62 Pages Posted: 7 Sep 2019

Jack Y Favilukis

University of British Columbia (UBC) - Division of Finance

Terry Zhang

Australian National University (ANU)

Date Written: August 28, 2019

Abstract

We argue that conditional on the existence of momentum, many other asset pricing anomalies are not particularly anomalous. First, empirically, we show that portfolios within which conditional momentum strategies (ie buying winners and selling losers) are unprofitable, tend to have significantly higher unconditional average returns than portfolios within which momentum strategies are profitable. Second, we rationalize this in a standard model to which we add momentum; the intuition is that assets with more conditional trading opportunities are bid up by speculators and tend to have higher prices and lower unconditional returns. Third, we show that for many asset pricing anomalies, a momentum strategy tends to be unprofitable within the long leg, but profitable within the short leg. Thus, according to our model, the long leg should earn higher unconditional average returns, which explains the anomaly. Once accounting for this effect, the average Fama French 3 factor alpha across 36 prominent anomalies falls by up to 47%. Finally, we show that although the CAPM beta is negatively related to the average unconditional return of a large set of portfolios, it is strongly positively related to the average conditional return of the same set of portfolios, which helps explain the apparent empirical failure of the CAPM.

The Impact of Auditors’ Use of Industry Norms on Management Evaluations of Audit Quality

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3428596
39 Pages Posted: 7 Sep 2019

Erik S. Boyle

University of Cincinnati

Date Written: July 29, 2019

Abstract

Interactions between auditors and client management affect audit quality on an engagement because those interactions influence and incentivize auditor behavior and decision-making. I investigate whether an auditor’s use of professional judgment or industry norms to justify proposed adjustments increases client management’s evaluation of the quality of audit work. I find evidence that, although management views industry norms to be a more credible justification method, management disregards the justification method and evaluates audit quality based on underlying accounting attributes when their client reports under an accounting standard that is more precise (i.e., more rules-based). However, when an accounting standard is less precise (i.e., more principles-based), an auditor’s use of industry norms positively influences management perceptions of audit quality. Thus, when standards are less precise, auditors may be incentivized to engage in herding behavior by defaulting to the use of industry norms when determining appropriate accounting treatment for client transactions. This study makes important contributions toward a more complete understanding of the incentives and motivations faced by auditors relative to their interactions with client management and provides insights to regulators about the impact of the level of precision in accounting standards.

Keywords: Management perceptions of audit quality, Industry norms, Auditor incentives, Principles-based vs. rules-based accounting frameworks

JEL Classification: M40, M42

Accountant as Digital Innovator: Roles and Competencies in the Age of Automation

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3449720
34 Pages Posted: 7 Sep 2019

Julia Kokina

Babson College

Ruth Gilleran

Babson College

Shay Blanchette

Babson College

Donna Stoddard

Babson College

Date Written: September 7, 2019

Abstract

In this paper we explore how Robotic Process Automation (RPA) is changing the work of accountants, identify the roles that accountants will play in their organizations’ digital transformations, and categorize the skills and competencies that accountants will need to develop in order to successfully work alongside their digital colleagues. We employ a multiple case study methodology and collect interview data from eight organizations undergoing RPA implementation for their accounting and finance tasks. Our analysis reveals that accountants play important roles as identifiers, explainers, trainers, sustainers, and analyzers of their organizations’ automation initiatives. To prepare to undertake these five roles, accountants will need to acquire new technical skills. Therefore, the paper concludes with a mapping of the skills needed for each role that the accountant is expected to play in RPA implementations.

Keywords: robotic process automation; software robots, digital workforce; accounting automation; accounting innovation; accounting digitalization; robotics; digital competencies

Machine Valuation

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3447683
56 Pages Posted: 7 Sep 2019

Paul Geertsema

University of Auckland - Department of Accounting and Finance

Helen Lu

University of Auckland - Department of Accounting and Finance

Date Written: September 4, 2019

Abstract

We present a machine learning approach to firm valuation that requires only historical accounting data as input. The machine learning model generates a median absolute percentage error of 17.2% in out-of-sample firm value predictions. The model out-performs a sample of final-year finance students (41.3%) and individual analyst forecasts of one-year-ahead firm value (22.4%). We show that subsequent market valuations move towards the model valuation, generating return predictability over horizons of up to five years.

Keywords: valuation; asset pricing; return predictability; machine learning; gradient boosted trees

JEL Classification: G12; G14; C38

Supply and Demand of Information for Firm Valuation

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3445446
29 Pages Posted: 6 Sep 2019

Zane L. Swanson

University of Central Oklahoma

Date Written: August 2019

Abstract

The concept that accounting represents the information economics of the firm is a premise for the allocation of scarce resources. The analysis starts with a clean surplus model as a basis for the conceptual framework. Then theoretical firm information economic supply-and-demand features are incorporated within a path diagram. This framework is investigated empirically with simultaneous regression equations and a structural equation model (SEM). Equations have explanatory power. And, a latent variable measure of internally generated intangible assets positively and significantly affects net income. Thus, the study expands the research frontier for SEM financial accounting research.

Keywords: Information Economics, SEM, Intangible Assets

Perceptions of Robotic Process Automation in Public Accounting

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3445005
34 Pages Posted: 5 Sep 2019

Lauren Cooper

West Virginia University

Kip Holderness

West Virginia University

Trevor Sorensen

West Virginia University - Department of Accounting and Management Information Systems

David A. Wood

Brigham Young University - School of Accountancy

Date Written: August 29, 2019

Abstract

We examine how the adoption and use of Robotic Process Automation (RPA) is affecting the work experience of employees in the public accounting industry. Specifically, we compare how top and bottom-level employees perceive RPA. To do so, we interview 14 RPA leaders and survey 139 lower-level employees from Big 4 accounting firms. Unlike other situations where an expectation gap exists between executives and lower-level employees, we find that the two groups generally agree that RPA is having a positive influence on the profession. Specifically, both groups believe that RPA is positively changing the work employees perform and improves employee career prospects. However, while firm leaders believe RPA will improve work satisfaction, lower-level employees report no such improvements. These insights will assist the profession as it increases the use of RPA and provide direction for future research studies examining related issues.

Audit Retendering and Mandatory Auditor Rotation

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3444676
62 Pages Posted: 5 Sep 2019

Mingcherng Deng

City University of New York (CUNY) - Baruch College

Jing Li

The University of Hong Kong - Faculty of Business and Economics

Dan A. Simunic

University of British Columbia (UBC) - Sauder School of Business

Nan Zhou

University of Cincinnati - Lindner College of Business

Date Written: August 29, 2019

Abstract

Building on an auction model, we examine the economic consequences of audit retendering, under which the incumbent auditor in auction possesses both an information advantage and knowledge advantage over outside auditors. Audit retendering allows the firm to retain the incumbent auditor with positive probability, but expect to pay information rent to the incumbent auditor due to his information advantage over outside auditors. In equilibrium, auditor switching (or no switching) under audit retendering conveys additional information to investors, and therefore the informativeness of the audit report under audit retendering is always greater than that under mandatory auditor rotation. We identify conditions under which client firms may benefit from audit retendering. Our findings shed light on the recent European Union Audit Reform, which adopts audit retendering as an alternative to auditor rotation, and have implications to the Public Company Accounting Oversight Board, which are evaluating the proposed mandatory auditor rotation.

Keywords: Audit Retendering; Auditor Rotation; Audit Fee; Audit Quality; EU Audit Reform

Trust and Disclosure Transparency in Financial Reporting of Government Agencies

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3444477
60 Pages Posted: 5 Sep 2019

Kristian D. Allee

University of Arkansas - Department of Accounting

Bok Baik

Seoul National University

Seung-Youb Han

Seoul National University

Bong Hwan Kim

Seoul National University - Graduate School of Public Administration

Date Written: August 28, 2019

Abstract

This study examines the impact of trust on disclosure transparency in financial reporting of government agencies. Using unique data from Korean central government agencies for the period of 2011-2015, we provide evidence that trust enhances government agencies’ financial disclosure transparency. Specifically, we document that high-trust agencies are more likely to classify their accounting errors as material and recognize these errors (as a separate line item) in financial statements. This contrasts with the practice of low-trust agencies that classify similar-magnitude accounting errors as immaterial, obfuscating the information from potential scrutiny. We further find that high-trust (low-trust) agencies tend to provide more disaggregated (aggregated) service cost information. In cross-sectional analyses, we find that the impact of trust on both disclosure of accounting errors and disaggregation of service cost information is amplified when agencies have an outsider head, are more decentralized, and face higher parliamentary inspection pressures, the situations in which more information coordination is required. Taken together, our findings suggest that trust contributes to higher disclosure transparency of government financial reporting by facilitating active information production and dissemination within an organization.

Keywords: Government Accounting, Trust, Culture, Transparency, Accounting errors, Disaggregation

EVA Approach versus BCG Approach: Evidence from Tehran Stock Exchange (TSE)

Archives Des Sciences Vol 65, No. 9; Sep 2012

Nahid Maleki Nia

Department of accounting and management, Bilesavar branch, Islamic Azad University, Bilesavar, Iran

Hosein Asgari Alouj

Islamic Azad University (IAU) - Bilesavar branch

Ayyoub Sarafraz Pireivatlou

Islamic Azad University (IAU) - Bilesavar branch

Date Written: September 1, 2012

Abstract

Financial performance measurement of companies in decision-making process is one of the most important subjects in financial and economic scope regarding development and importance of market role. Economic value added (EVA), refined economic value added (REVA), market value added (MVA) as EVA-based measures, also Cash Value Added(CVA) and Cash Flow Return on Investments(CFROI) as BCG-based measures and traditional performance measures(ROI,ROE and EPS) are among the most important criteria of financial performance measurement. The most important purpose of the present research is to make clear the theoretical indices of financial performance measurement, test the relationship between these indices with intrinsic value of firm and offer necessary evidences using simple and multivariate regression and compared by rank order of adjusted R2 in order to get appropriate performance measurement and to help the Iranian capital market participants to make rational decision in investment process. Finding shows although the contributions of measures are statistically significant separately, all are not economically significant when combined into the various measures, also explains traditional accounting measures are not able outperform VBM indicators and the EVA-based measures are able to outperform the BCG -based measures.

Keywords: Cost of Capital, EVA-based measures, BCG-based measures, market value of the firm, traditional accounting performance measures

The Information Content of Real Operating Performance Measures

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3443979
50 Pages Posted: 4 Sep 2019

Paul Borochin

University of Miami

Date Written: August 28, 2019

Abstract

I use daily flight delay data for all publicly held domestic airlines to measure the effect of high frequency operating performance updates on price and accounting outcomes. Airline performance is priced in the cross-section of cumulative market- and industry-adjusted returns, with significant drift. Quarterly aggregates of performance predict post-earnings announcement drift. The sensitivity of individual airline operations to those of the entire industry, measured using a beta approach, carries a negative premium consistent with systemic operating risk being a liability rather than a positively priced risk factor with implications for the accounting beta literature. Return on sales reflects the quarter's real operating performance better than other common ROA measures, contributing to the measure selection literature.

Keywords: Market efficiency, operating performance measures, return predictability

JEL Classification: G12, G14, M41

The Traditional Rationale of the Arm's Length Approach to Transfer Pricing – Should the Separate Accounting Model Be Maintained for Modern Multinational Entities?

(2004) 7(2) Journal of Australian Taxation 196-250

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3442030
55 Pages Posted: 4 Sep 2019

Kerrie Sadiq

Queensland University of Technology - School of Accountancy

Date Written: September 1, 2004

Abstract

This article examines the current transfer pricing regime to consider whether it is a sound model to be applied to modern multinational entities. The arm’s length price methodology is examined to enable a discussion of the arguments in favour of such a regime. The article then refutes these arguments concluding that, contrary to the very reason multinational entities exist, applying arm’s length rules involves a legal fiction of imagining transactions between unrelated parties. Multinational entities exist to operate in a way that independent entities would not, which the arm’s length rules fail to take into account. As such, there is clearly an air of artificiality in applying the arm’s length standard. To demonstrate this artificiality with respect to modern multinational entities, multinational banks are used as an example. The article concludes that the separate entity paradigm adopted by the traditional transfer pricing regime is incongruous with the economic theory of modern multinational enterprises.

A Content Based Assessment of the Relative Quality of Leading Accounting Journals

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3438405
34 Pages Posted: 3 Sep 2019

Date Written: August 14, 2019

Keywords: Representational Faithfulness, Accounting Quality

Do Financially Distressed Firms Engage in Earnings Management? The Role of IFRS Mandatory Adoption in Emerging Markets

38 Pages Posted: 29 Aug 2019 Last revised: 1 Sep 2019

Dante Viana Junior

ISCTE-IUL University Institute of Lisbon

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3442782
Date Written: August 26, 2019

Abstract

This study analyzes the role of IFRS mandatory adoption in emerging markets on the association between financially distressed firms and earnings management. Based on an international sample of firms from 15 emerging markets, I predict and find that financially distressed firms engage more in earnings management than non-financially distressed firms, and that IFRS mandatory adoption moderate this association in order to reduce earnings management by financially distressed firms in post-IFRS period. The findings are robust to several earnings management and financial distress measures. Overall, this paper contributes to previous literature shedding light to a controversial subject (firm’s financial distress and earnings management), in a particular setting (emerging markets) regarding one of the most important issues to international accounting research (IFRS adoption) for both practitioners and academics.

Keywords: Financial distress, Earnings management, IFRS, Emerging markets

JEL Classification: M41, G33, G15, K42

The Differential Impact of IFRS Adoption on Aspects of Seasoned Equity Offerings in the UK and France

Accounting in Europe, Vol. 16, No. 1, 2019.

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3442238
Posted: 24 Aug 2019 Last revised: 26 Aug 2019

Mostafa Harakeh

Lebanese American University

Edward Lee

University of Manchester - Alliance Manchester Business School

Martin Walker

University of Manchester - Manchester Business School

Date Written: October 31, 2018

Abstract

We examine the potential for IFRS to influence the market for SEOs in the UK and France. The divergence between the UK domestic accounting standards and IFRS is minor (low-divergence firms) whereas domestic accounting standards in France differ materially from IFRS (high-divergence firms); however, both countries have similar legal enforcement and institutional settings that might confound the effect of IFRS adoption. We argue that IFRS adoption serves to mitigate information asymmetry and improve accounting quality. Accordingly, we find that, following IFRS adoption, earnings management activities decrease among high-divergence firms prior to issuing SEOs. As a result of the lower levels of earnings management and information asymmetry, we predict and find that the market reaction to issuing SEOs improves significantly for high-divergence firms following IFRS. Given that equity financing becomes less costly, we find that the propensity to issue new SEOs increases among high-divergence firms after IFRS adoption. We find no similar changes among low-divergence firms. The results persist after running a matched-sample analysis and controlling for potential self-selection bias.

Keywords: IFRS, Information Asymmetry, Earnings Management, Seasoned Equity Offerings, Equity Financing

JEL Classification: G30, M40

The Effect of U.S. Audit Partner Identification on Real Earnings Management

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3448800
28 Pages Posted: 14 Sep 2019

Lawrence Abbott

University of Wisconsin - Milwaukee - Sheldon B. Lubar School of Business

William L. Buslepp

Louisiana State University, Baton Rouge - Department of Accounting

Katherine Gunny

University of Colorado at Denver

Aaron Mandell

University of Wisconsin - Milwaukee - Sheldon B. Lubar School of Business

Date Written: September 5, 2019

Abstract

After a lengthy and protracted debate, the Public Company Accounting Oversight Board (PCAOB) adopted Rule 3211 (commonly referred to as “Form AP”) and related amendments to its auditing standards regarding the identification of audit engagement partner and other accounting firms who take part in a public company audit (PCAOB 2015). The rules require disclosure of the engagement partner’s name and information about other accounting firms on the new PCAOB Form AP, Auditor Reporting of Certain Audit Participants. The PCAOB argued that disclosing audit partner identity would create greater accountability among audit partners, thereby increasing audit quality. Public accounting firms, most notably Big Four audit firms, voiced their dissent to the regulation, expressing doubt about incremental accountability and citing concerns about incremental, partner-specific legal liability. Extant, outcome-based, archival research using accruals as a proxy for audit quality to examine the effect of Rule 3211 on audit quality has produced decidedly mixed evidence. Our paper examines this issue from a different perspective. We examine whether Rule 3211 engendered differential audit partner accruals-based audit behavior, which would, in turn, impact client real earnings management. We find that real earnings management increased in the post-3211 regulatory environment. Our evidence speaks to the effects and unintended consequences of Rule 3211.

Keywords: audit partner identification, auditor reporting, real earnings management

JEL Classification: M41, M42, M48

How Will Blockchain Technology Impact Auditing and Accounting? Permissionless Vs. Permissioned Blockchain

Liu, M., Wu, K., & Xu, J. (2019). How Will Blockchain Technology Impact Auditing and Accounting: Permissionless Vs. Permissioned Blockchain. Current Issues in Auditing.

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3448058
18 Pages Posted: 12 Sep 2019

Manlu Liu

Rochester Institute of Technology (RIT) - Saunders College of Business

Kean Wu

Rochester Institute of Technology

Jennifer Xu

Bentley University

Date Written: July 8, 2019

Abstract

Blockchain offers a drastically new way to record, process, and store financial transactions and information, and has the potential to fundamentally change the landscape of the accounting profession and reshape the business ecosystem. In this article, we introduce two types (i.e. permissionless and permissioned) of blockchain and layout their technological features. We further discuss implication of blockchain to auditing and elaborate opportunities and challenges of two types of blockchain to auditors. We conclude by making specific recommendations for auditors to adapt, adjust, and elevate themselves to the role of strategic partners in blockchain implementation.

Keywords: permissionless blockchain, permissioned blockchain, internal control, auditing, accounting

JEL Classification: M15, M41, M42, O14, O33, O55

ThinkTWENTY20 (Summer 2019 Issue) from Gerald Trites (think Zorba) --- http://www.thinktwenty20.com/
This new magazine has a subscription fee (think about ordering for your campus library and assigning some of the articles in courses
I like Jerry's intent here of helping to close the gap between academe and practice in a time of great changes taking place
(think about submitting an article to Jerry)

TABLE OF CONTENTS

Editorial..........................................................................................................................Pg 1
Think yltnereffiD

Making Auditing Standards Fit-for-Purpose in a High-Tech World

By Gregory Shields, CPA.............................................................................................Pg 2

Auditing standards urgently need to change, both to reflect that the vast

majority of entities being audited already make significant use of technology

in preparing their financial statements and to strongly promote the use of

automated audit procedures, including data analytics.

Jensen Comment
This article makes a case for changing how accounting standards are set

 

Enhancing Relevance: Shaping the Future of Corporate Reporting

By Alan Willis, FCPA, FCA...........................................................................................Pg 11

While financial statements are an important component of corporate reporting,

they cannot alone provide the wider spectrum of relevant information necessary

either for investor or other stakeholder assessment of enterprise performance in

today’s business environment.

Jensen Comment
This article discusses various supplementary reporting alternatives when financial statements alone are not enough.

 

Data Privacy and Confidentiality

An Ethical Primer for Professional Accountants in Business and Private Practice

By Eric E. Cohen, CPA..................................................................................................Pg 24

What impact might emerging accounting and audit technologies have on a

practitioner’s ethical responsibilities for data confidentiality and privacy?

Quote
There’s a joke going around: “My wife asked me why I was speaking so softly at home. I told her I was afraid Mark Zuckerberg1 was listening. She laughed. I laughed. Alexa laughed. Siri laughed.”

 

How to Succeed in Business in a Disruptive World

By Gundi Jeffrey, Managing Editor, ThinkTWENTY20..........................................Pg 32

There are ten major political, social, environmental and technological

transformations that will have profound implications for Canada’s

business community and those who serve it. Although challenging,

they also offer new opportunities for those willing to seize the day.

Quote
According to Canada 2030: The Defining Forces Disrupting Business, there are 10 major forces that will shape our collective future, presenting both challenges and opportunities.

 

Advanced Technologies in Financial Accounting

By Gerald Trites, FCA, FCPA, CISA............................................................................Pg 40

The use of the Internet of Things in business is not new. What has changed is the

scope, sophistication and sheer volume of data produced by these applications

and the huge extent to which the IoT has been adopted by business.

Jensen Comment
A nice summary of new technologies that will shape the future of accounting in general

 

 

Book Review of Meltdown - Why Our Systems Fail and What We Can Do

About It, by Chris Clearfield and Andras Tilcsik (Penguin Books, 2019).

By Jonathan Andrews, CPA........................................................................................Pg 46

Meltdown is both entertaining and instructive, particularly for those with an

interest in risk and risk mitigation.

 

 

Think yltnereffiD

Gerald Trites, Editor in Chief

Keeping up with change is something we all have to do. The times, after all, are changing. This is

not new. Fifty or sixty years ago, the profession talked about change being the new constant –

and how we needed to adapt to it.

In recent years, the pace of change has sped up, largely because of technology, but also

because of changing social customs and mores. Virtually all aspects of our professional and

private lives have been affected, and keeping up with the changes is a challenge.

We focus on the impact of change in this magazine. But we recognize that the pace of change

calls for new solutions to the way we work and live. The old ways of finding solutions no longer

work.

 

All of the authors in this issue illustrate how to think differently.

Gregory Shields points out that audit standards are falling short of the ever-changing needs of

society. Although important work is being done by groups like the Audit Data AnalytIcs group,

to understand the growing volumes of data available to auditors and how they can go about

using it to enhance their work, there seems to be a reluctance within the profession to update

the standards to keep up. They say the old analytics will work. But they need to think differently

about data analytics.

 

Similarly, Allan Willis points to the need for corporate reporting to extend beyond financial

reporting, in particular the need for more effective reporting to recognize the growing impact

of environmental concerns on corporate well-being. Companies have been providing

environmental information for years, but they need to think differently.

 

And Eric Cohen shows how rules around data privacy and confidentiality need to be updated to

reflect the new challenges of the age of technology. Privacy and confidentiality have been

concerns for centuries, but now we need to think differently about them.

 

Audit standards, reporting standards, data privacy and confidentiality – all are fundamental to

the accounting profession. All are areas in which a failure to keep pace with the changing

demands of society could be fatal. Different ways of thinking are needed.

EY:  A Closer Look at Asset Acquisitions ---
https://www.ey.com/Publication/vwLUAssetsAL/TechnicalLine_07403-191US_AssetAcquisitions_26September2019/$FILE/TechnicalLine_07403-191US_AssetAcquisitions_26September2019.pdf

EY:  2019 Financial Reporting Briefs ---
https://www.ey.com/Publication/vwLUAssetsAL/FinancialReportingBriefs_06873-191US_12September2019/$FILE/FinancialReportingBriefs_06873-191US_12September2019.pdf

EY:  How the new revenue recognition standard affects automotive entities ---
https://www.ey.com/Publication/vwLUAssetsAL/TechnicalLine_04050-171US_RevRec_Auto_5September2019/$FILE/TechnicalLine_04050-171US_RevRec_Auto_5September2019.pdf

From the CFO Journal's Morning Ledger on September 26 2019

The U.S. Federal Trade Commission has sued online-dating service Match Group for allegedly using fake love-interest advertisements to trick hundreds of thousands of users into buying subscriptions on Match.com.

Jensen Comment
This reminds me a bit about the exuberant product reviews on Amazon. I sometimes read them for reasons given, but I also consider most of them written by friends and family if they give the product a lot of stars. On the other hand, those reviews giving only one or two stars can be revealing, but beware that these might be written by competitors. I buy a lot of things on Amazon, and my anecdotal experience is that the product reviews are usually right on except for book reviews.

I wonder if any of those Match Group love-interest advertisements admit such things as "I'm bipolar and chronically depressed," "I'm mainly interested in a sugar daddy who's about to croak," or "I want to sell our pictures to porn companies."

I've never had any experience with online dating, but several friends told me it's a lot like looking online for used cars without any warranty contracts. I did attend a wedding some years back where the son (in the Navy) of a close friend met his bride on Craigslist, and what a wonderful marriage that became.

From the CFO Journal's Morning Ledger on September 25 2019

Google and Starbucks scored legal victories against European Union regulators Tuesday, in court rulings that restrict the reach of the bloc’s privacy orders and deal a blow to its competition czar as she prepares to expand her regulatory powers.

The European Court of Justice ruled that Google doesn’t generally have to apply the EU’s “right to be forgotten” to versions of its search engine accessed outside the bloc’s borders, though judges left the door open for European regulators to order it to do so in specific cases. 

Starbucks won an appeal against an order handed down in 2015 by EU Competition Commissioner Margrethe Vestager that had required the coffee giant to pay Dutch authorities €25.7 million ($28.27 million) in allegedly unpaid taxes.

From the CFO Journal's Morning Ledger on September 25 2019

Comscore Inc. and its former chief executive settled charges with the U.S. Securities and Exchange Commission that claim they inflated the analytics company’s revenue  by about $50 million over a two-year period.

The SEC said that Comscore overstated revenue through entering into nonmonetary deals and that Comscore and Serge Matta, its former CEO, “made false and misleading public disclosures.” The activity took place from February 2014 through February 2016.

Comscore, the internet’s traffic judge, settles fraud charges for $5 million ---
https://www.theverge.com/2019/9/24/20882240/comscore-sec-serge-matta-financial-fraud-charges-settlement

Comscore, the influential analytics firm that measures web traffic, has been formally accused of falsely reporting its own revenue and customer numbers. The US Securities and Exchange Commission (SEC) charged Comscore and its former CEO Serge Matta with fraud today. Matta and Comscore agreed to settle the case for a total of $5.7 million without admitting wrongdoing.

The SEC writes that between 2014 and 2016, Comscore padded its public revenue filings with an extra $50 million by misreporting the value of data-swapping contracts with other companies. It also allegedly misreported its customer numbers and growth percentages, giving the impression that new signups and revenue growth were increasing when the opposite was actually true.

As part of the settlement, Comscore and Matta will respectively pay penalties of $5 million and $700,000. Matta will also repay $2.1 million to Comscore and be banned from serving as an officer or director of a public company for 10 years.

This is a major step in a long-running controversy. The Wall Street Journal first reported on Comscore’s sketchy accounting (The majority of comScore’s second-quarter revenue growth came from “nonmonetary” transactions with no cash attached) in late 2015, noting that its bartering system “warrants scrutiny.” Comscore began an audit in 2016 — leading to years of instability as it corrected the false numbers, including a temporary delisting from Nasdaq. A March 2018 filing revealed that it was cooperating with the SEC on an investigation. Earlier this year, the company’s CEO Bryan Wiener and president Sarah Hofstetter both resigned due to “irreconcilable differences.” Matta left the company in 2016.

Despite these problems, Comscore is one of the core companies responsible for measuring success online — similar to Nielsen ratings for television.

 

PwC Fined $7.9 Million By the SEC for Making Pretty Dumb and Obvious Independence Violations ---
https://goingconcern.com/pwc-fined-7-9-million-by-the-sec-for-making-pretty-dumb-and-obvious-independence-violations/

From the CFO Journal's Morning Ledger on September 24 2019

Good morning. Nissan and its former chairman, Carlos Ghosn, have settled civil charges with the U.S. Securities and Exchange Commission stemming from an investigation into pay disclosures. Nissan agreed to pay a $15 million civil penalty to settle charges that it and Mr. Ghosn filed false financial disclosures that omitted more than $140 million slated to be paid to Mr. Ghosn in retirement, the SEC said. 

Mr. Ghosn agreed to a $1 million civil penalty and a 10-year prohibition from serving as an officer or director for a company that files financial statements with the SEC. “Simply put, Nissan’s disclosures about Ghosn’s compensation were false,” said Steven Peikin, co-director of the SEC’s division of enforcement, in a statement. “Through these disclosures, Nissan advanced Ghosn and Kelly’s deceptions and misled investors, including U.S. investors.”

In a separate settlement, PricewaterhouseCoopers is preparing to pay about $8 million to settle claims of improper professional conduct and violating auditor independence rules, the SEC said Monday. 

The regulator said it also charged Brandon Sprankle, a partner at the Big Four audit firm, for causing the firm to violate independence rules. The allegations of improper conduct were in connection to a total of 19 engagements with 15 unidentified companies over a three-year period ending in 2016, CFO Journal's Mark Maurer reports.

The activity violated a rule issued by the Public Company Accounting Oversight Board—which regulates U.S. audit firms and is overseen by the SEC—which required the firm obtain preapproval from an audit client’s audit committee to perform nonaudit services related to internal controls over financial reporting.

From the CFO Journal's Morning Ledger on September 23 2019

Mortgage-finance companies Fannie Mae and Freddie Mac are expected to start keeping their earnings as early as this week, pausing a yearslong arrangement in which they handed nearly all of their profits to the Treasury Department.

From the CFO Journal's Morning Ledger on September 23 2019

A new Congressional bill proposes to offer cash bounties to people who voluntarily provide original information on potential audit-related violations to the U.S. regulator of audit firms. The bill, called “PCAOB Whistleblower Protection Act of 2019,” proposes to establish a whistleblower program at the Public Company Accounting Oversight Board that will be similar to the whistleblower program at the U.S. Securities and Exchange Commission.

The proposed PCAOB whistleblower program would have a similar structure to the one at the SEC. A tipster, or joint tipsters, who have original information on potential violations of rules related to how public companies prepare and issue audit reports and the responsibilities of the auditors could receive a monetary reward for their information. 

Under the proposed rules, a tipster is entitled to between 10% and 30% of the monetary penalties when their tips result in a disciplinary proceeding by PCAOB and when the monetary penalties are more than $250,000, according to the bill.

From the CFO Journal's Morning Ledger on September 20 2019

Good morning. The Securities and Exchange Commission doesn’t mind when companies go public using a cheaper “direct listing” on exchanges instead of a traditional offering, where investment banks underwrite the deal, the agency’s chairman said.

“If a direct listing is providing the same kind of fair information and fair access to the market as your more traditional underwritten IPO, who are we to judge if one is better than the other?” Chairman Jay Clayton said at a CNBC conference.

The SEC was initially concerned in 2017 that direct listings could open the door for riskier and less-seasoned companies to access public investors, without giving them as much information or providing some safeguards. In an IPO, investment banks perform a gatekeeping function in which they are responsible for due diligence on the company selling shares. Banks also help stabilize prices on the first day of trading by intervening to buy shares.

Companies such as Slack Technologies Inc. and Spotify Technology SA have listed existing shares directly on U.S. stock exchanges. The direct pathway saves tens of millions of dollars in investment-banking fees, while still giving employees and early investors a chance to cash out.

Direct listings are one consequence of the growth of private capital markets, in which younger companies get most of the money they need from venture capitalists and institutional investors. Many of these companies have deferred public offerings until they need a way to sell stock to the broader public and enable insiders and early investors to cash out.

From the CFO Journal's Morning Ledger on September 19, 2019

Audit Partner ID Rule Doesn’t Improve Audits, Researchers Say

A rule requiring public companies to identify an individual audit partner in financial reporting has had little impact on audit quality, CFO Journal reports, citing new research.  The Public Company Accounting Oversight Board in 2017 began requiring U.S. public companies to disclose the names of individuals overseeing independent audits—so-called audit engagement partners—in an effort to promote accountability and transparency. Companies have since named the lead audit engagement partner on a form that must be filed within 35 days of the annual report. The rule was divisive when it was proposed. Public accounting firms argued it would likely increase individual partners’ legal exposure and audit costs without improving the quality of an audit.

From the CFO Journal's Morning Ledger on September 18, 2019

SEC Charges Former CEO for Alleged Misstatements About Existence of CFO

The Securities and Exchange Commission charged the former chief executive of oil-and-gas production company Viking Energy Group Inc. with fraud for allegedly falsifying the existence of its previous finance chief.  Tom Simeo was charged with violating the antifraud provisions of securities laws, the regulator said Tuesday.

For at least an 18-month period ending in May 2016, the company made materially misleading disclosures in public filings indicating Guangfang “Cecile” Yang served as its CFO and had signed off on its internal controls and financial statements, the SEC alleged. Mr. Simeo repeatedly attached Ms. Yang’s purported signature to the company’s periodic reports, according to the SEC. The agency said it found no evidence Ms. Yang performed any activities as CFO until her purported resignation in July 2016. The company’s auditors had never communicated with her, the SEC said.

The SEC said it is seeking civil fines and a bar from Mr. Simeo serving as a public-company officer or director. A message seeking a comment from Mr. Simeo wasn’t immediately returned. A representative for Viking didn’t immediately respond to a request for comment.

From the CFO Journal's Morning Ledger on September 18, 2019

Good day. Companies preparing for a new auditing rule are unearthing knotty internal issues, and these revelations are prompting executives to strengthen internal controls, CFO Journal’s Mark Maurer reports.

The Public Company Accounting Oversight Board rule, which began taking effect in phases this summer, requires independent auditors to disclose what they found to be the most challenging in reviewing companies’ financial statements.

The auditor’s letter in a company’s annual report has long followed a pass/fail model and has been known to rely on boilerplate language. The pass/fail model remains, but the now-expanded auditor’s report is more tailored, giving investors a window into issues that may not have been previously apparent. The PCAOB, which regulates U.S. audit firms, uses the term “critical audit matters,” or CAMs, to classify issues highlighted through the application of the new standard.

Forty-three percent of employees at large companies said audit committees identified additional types of controls requiring implementation during a practice run, while 19% of employees said their companies are still considering controls, according to a survey from compliance data company Intelligize Inc., which polled about 170 employees at U.S. public companies.

From the CFO Journal's Morning Ledger on September 16, 2019

Good morning. General Motors Co. stands to lose as much as $100 million a day if the nationwide strike of auto workers continues. Auto-industry analysts estimate the walkout—which began Monday and involves roughly 46,000 full-time workers in more than 30 factories across 10 states—could dent GM’s profit by between $50 million and $100 million daily. Stalled production could slash more than a tenth of GM’s expected third-quarter operating profit of about $3.5 billion by the weekend, although GM could make up some lost production once the workers return, analysts say.

The strike presents a challenge for the company’s leadership team under Chief Executive Mary Barra and Chief Financial Officer Dhivya Suryadevara as they face calls from investors to cut costs amid declining sales in the U.S. and important overseas markets such as China, says Stephen Brown, a senior director at Fitch Ratings leading the firm’s coverage of the North American auto industry. GM’s last U.S. strike took place in 2007, meaning that today’s leaders only have limited experience managing such a situation, Mr. Brown tells CFO Journal’s Nina Trentmann. “This doesn’t happen very frequently, and each time it creates unique challenges for management.”

A prolonged walkout can take a toll on car companies because they book revenue only when a vehicle is shipped to a dealership. An assembly-plant shutdown can cost an auto maker an estimated $1.3 million every hour, according to the Center for Automotive Research in Ann Arbor, Mich. GM’s management is expected to try to offset some of the financial fallout by operating additional and longer shifts, Mr. Brown said. “There are ways to regain lost volume,” he said.

The U.S. business is GM’s most profitable, but the strike comes at a delicate time for both the nation’s largest auto maker and the United Auto Workers union. Executives at other U.S. car makers, including at Fiat Chrysler Automobiles NV and Ford Motor Co. will be paying close attention to how GM manages the situation, as they also are negotiating new contracts with the UAW, Fitch’s Mr. Brown said. “Each contract is unique, but there will be the same broad terms across all three automakers,” he said.

Jensen Comment
I question the $100 million a day figure. GM dealers are clearing out inventories and will be placing larger orders when the strike is over. Of course there are going to be huge losses, but accounting numbers should always be viewed skeptically. The union has a lot at stake here, because any concessions gained from GM will likely be gained from other auto manufacturers with having to strike. There will most certainly be spillover benefits to workers outside the UAW.  Consumers ultimately pay the price all up and down the line.

In any case the price of cars is probably going up at a time when the price of fuel is dramatically rising due to recent escalation of the war between Iran and Saudi Arabia. The GM losses due the recent UAW strike are difficult to separate out from losses (possibly longer-term losses) due to fuel price increases. Fewer miles put on a vehicle each year often translates for keeping the vehicle longer before replacing it. This makes GM sad.

The timing of the bombings in Saudi Arabia could not have been worse for auto companies, auto workers, labor unions, and suppliers of the materials purchased by auto manufacturers. Higher fuel prices mean lower GM profits for the UAW to tap into for higher wages. Life is very complicated.

From the CFO Journal's Morning Ledger on September 16, 2019

Purdue Pharma LP filed for bankruptcy protection Sunday night with a partial deal aimed at resolving thousands of lawsuits filed by states and local municipalities accusing it of fueling the opioid crisis.

The filing, made in federal bankruptcy court in White Plains, N.Y., marks a remarkable downfall for the closely held company started more than five decades ago in New York by three physician brothers. After it launched the prescription opioid OxyContin in the 1990s, Purdue became one of the most recognizable names in treating pain, a characteristic that later helped make it a target for blame for the opioid crisis.

Purdue faces lawsuits from virtually every state, as well as some 2,600 cities, counties, Native American tribes, hospitals and others seeking to recoup costs incurred from opioid addiction. The U.S. Justice Department also has civil and criminal probes into the company.

From the CFO Journal's Morning Ledger on September 16, 2019

Good morning. Companies relying on oil and other natural resources are set to closely monitor developments in Saudi Arabia, where a missile attack knocked out about half of the country’s oil production, sending oil prices sharply higher.

In the near term, many analysts expect the biggest effects to be felt in Asia, estimating that China, Japan, India, Korea and Taiwan account for about four million barrels a day of consumption of crude from Saudi Arabia. “The oil price could move up $5 to $10 a barrel if it turns out the damage is extensive,” said Andy Lipow, president of Houston-based consulting firm Lipow Oil Associates.

While the attack may not lead to long-term outages—Saudi Arabia is working on restoring its production—it could rekindle market angst about the power of geopolitical risks and the potential fallout of future attacks if tensions between Saudi Arabia and its regional rivals continue to escalate. A loss of 5% of global capacity for several months could cause crude prices to double without emergency steps such the release of stockpiled crude in the U.S., said Ed Hirs, a natural-resources fellow for accounting and advisory firm BDO USA LLP.

The Saudi oil-field attack adds a new factor to consider for U.S. Federal Reserve officials, who have been weighing how a variety of geopolitical risks will influence the economic outlook, including the U.S.-China trade war, unrest in Hong Kong and Britain’s impending departure from the European Union. The risks of a chill over business investment and the global growth slowdown are big reasons officials cut their benchmark rate in July and are on track to do so again this week.

Charlie's Been a Bad Boy
From the CFO Journal's Morning Ledger on September 12, 2019

StarKist Co. has been ordered to pay a $100 million criminal penalty for its role in conspiring to fix prices for canned tuna sold in the U.S.

From the CFO Journal's Morning Ledger on September 12, 2019

Deloitte’s Global Revenue Grows, but Segments Slow, in 2019

Deloitte Touche Tohmatsu reported global revenue of $46.2 billion for fiscal 2019, up 6.9% from the previous fiscal year. Revenue during the year ended May 31 rose 9.4% in local-currency terms, which is how major accounting firms prefer to measure their growth.

Despite the boost in total revenue, the company’s five core businesses saw slowing or no growth year over year. The audit division’s revenue stayed flat at $10.2 billion, following an 8.5% increase in 2018. Consulting, financial advisory, risk advisory, and tax and legal departments gained revenue but at a slower pace than the previous year. Tax and legal, for example, rose 5.1% to $8.3 billion; the increase was 8.2% the previous year.

The Big Four—which also include PricewaterhouseCoopers, Ernst & Young and KPMG—are international networks of private partnerships. They disclose revenue but not profit. Because companies rely heavily on them for audit and consulting services, finance chiefs tend to pay close attention to their financial health.

Deloitte’s results follow Ernst & Young’s global revenue announcement last week, in which revenue climbed 4.7% to $36.4 billion.

PricewaterhouseCoopers is expected to release revenue in the next few weeks.

KPMG typically reports its numbers later in the year.

 

From the CFO Journal's Morning Ledger on September 10, 2019

The Securities and Exchange Commission is stepping up pressure on exchanges to finish a huge, long-delayed database designed to help detect market manipulation and investigate episodes of anomalous trading. The exchanges would face financial penalties if they miss further deadlines for building the database project, called the Consolidated Audit Trail, or CAT, according to a proposal released Monday by the SEC.

From the CFO Journal's Morning Ledger on September 10, 2019

Good morning. Starbucks Corp. has agreed to provide additional disclosures on how it recognizes revenue after the U.S. Securities and Exchange Commission questioned some of its accounting practices, CFO Journal reports.

The Seattle-based coffee chain is one of many U.S. companies adjusting to new accounting guidelines that came into effect at the start of last year for most public companies. The new rules aim to standardize how companies from different industries account for revenue from sales and services.

At least 208 companies received letters from the SEC about their revenue-recognition practices in 2018, according to regulatory filings and data compiled by consulting firm Audit Analytics Inc. That’s up about 56% over the annual average during the previous two years. As of the end of June, 50 companies had received letters on the subject, down slightly from 53 during that period a year earlier.

The SEC, in letters sent between May and August as a part of a routine review, questioned Starbucks management’s approach to recognizing revenue in its quarterly earnings filing ended March 31. The regulator sought clarification on Starbucks’ revenue-recognition policy.

One question from the SEC was why the company believed it was appropriate to recognize pre-opening services, such as reviewing architectural plans and training employees, upon completion of the services. The regulator also asked Starbucks to explain the way it recognized Nestlé SA’s $7 billion upfront payment in 2018 for the rights to sell Starbucks products.

From the CFO Journal's Morning Ledger on September 9, 2019

San Francisco offered $2.5 billion to acquire PG&E Corp.’s electrical lines serving the city, a first step toward separating from the troubled utility that is facing billions of dollars in liabilities for starting a series of deadly wildfires ---
https://www.wsj.com/articles/san-francisco-offers-to-buy-pg-e-wires-in-city-11567960938?mod=djemCFO

Jensen Comment
Questions include how to raise the expensive annual money needed to maintain those lines and poles, including the cost of replacing them after a disaster such as another San Francisco earthquake.

Other questions include how to get enough electricity to feed into those lines day-to-day. Ironically, San Francisco may have to by power on the grid that is supplied at higher prices by PG&E.

From the CFO Journal's Morning Ledger on September 6, 2019

Alexandria Chairman Capitalizes on ‘Best Debt Environment’ in Years

Alexandria Real Estate Equities Inc. tapped the bond market for a second time this year, joining other U.S. companies that are exploiting falling benchmark interest rates and strong investor demand.

Alexandria on Tuesday sold $400 million of debt maturing in 2029 and $200 million that will become due in 2050. The company’s average interest rate for the two tranches was 3.0%, Chairman Joel Marcus said. “This is the best debt environment that I have seen in the past 25 years,” he said. “You’d be a fool not to raise capital."

Alexandria was able to extend the average maturity of its debt portfolio to more than 10 years, while also bringing down the cost of capital, Mr. Marcus said. “It was a unique moment in history to tap the investment-grade bond market,” he said. The company doesn’t have additional capital requirements this year, Mr. Marcus said. Taken together with a bond sale earlier this year, the company has raised nearly $2 billion in 2019.

Uncertainty about the economy and the reaction by markets played a role, he said. “In capital planning, one always looks at the worst-case scenario,” Mr. Marcus said, pointing to a potential recession in the U.S. “For issuers and bondholders, if there is a recession in 2021, people will look back and see this year as a great time for bond issuances.”

From the CFO Journal's Morning Ledger on September 5, 2019

Ernst & Young Plans New Technology Strategy Amid Revenue Boost

As technology is increasingly integrated into corporate accounting processes, companies’ expectations of accounting firms have changed. That is causing Ernst & Young to rethink its strategy, CFO Journal’s Mark Maurer reports

The Big Four accounting firm, which is about halfway through a two-year plan to invest $1 billion in technology across its four main businesses, is planning to unveil a new strategy focused on heightened technological investment, said Carmine Di Sibio, EY’s global chairman and chief executive. “A lot of the raw work in corporate tax work is around data and technology, so that warrants an investment in that type of technology,” Mr. Di Sibio said in an interview. “Corporates are saying, ‘That’s not really what I do. It is what the Big Four firms do, so let them invest in the technology, and then it’ll be more efficient for us.’ So that’s what we’ve been doing.”

From the CFO Journal's Morning Ledger on September 3, 2019

CFOs Say They Underestimated New Lease-Accounting Standard

Many U.S. public companies underestimated the difficulties of complying with a new lease-accounting standard, finance chiefs say. Their stumbles could inform private companies that are now preparing for the transition.

The Financial Accounting Standards Board in the past year began requiring public companies to report operating leases on their balance sheets in an effort to increase transparency for investors and lenders, CFO Journal's Mark Maurer reports. About two-thirds of companies in the later stages of implementing the standard—those evaluating and deploying software and migrating data—have experienced difficulties, according to a study from LeaseQuery, an Atlanta accounting software company.

Jensen Comment
I question the $100 million a day figure. GM dealers are clearing out inventories and will be placing larger orders when the strike is over. Of course there are going to be huge losses, but accounting numbers should always be viewed skeptically. The union has a lot at stake here, because any concessions gained from GM will likely be gained from other auto manufacturers with having to strike. There will most certainly be spillover benefits to workers outside the UAW.  Consumers ultimately pay the price all up and down the line.

In any case the price of cars is probably going up at a time when the price of fuel is dramatically rising due to recent escalation of the war between Iran and Saudi Arabia. The GM losses due the recent UAW strike are difficult to separate out from losses (possibly longer-term losses) due to fuel price increases. Fewer miles put on a vehicle each year often translates for keeping the vehicle longer before replacing it. This makes GM sad.

The timing of the bombings in Saudi Arabia could not have been worse for auto companies, auto workers, labor unions, and suppliers of the materials purchased by auto manufacturers. Higher fuel prices mean lower GM profits for the UAW to tap into for higher wages. Life is very complicated.

The funniest coach in college football ---
https://twitter.com/NickPetraccione/status/1170204223197388802

My Latest Web Document
Over 400 Examples of Critical Thinking and Illustrations of How to Mislead With Statistics ---
http://faculty.trinity.edu/rjensen/MisleadWithStatistics.htm

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

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

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

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

Find a corporate home page quite easily by going to
https://en.wikipedia.org/wiki/List_of_companies_of_the_United_States

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

Yield Curve --- https://en.wikipedia.org/wiki/Yield_curve

The Entire German Yield Curve is Trading Below Zero (Go Figure)---
https://marginalrevolution.com/marginalrevolution/2019/08/the-entire-german-yield-curve-is-trading-below-zero.html

The German government could today borrow billions of Euro and in a decade they could give back to investors less than they borrowed and the investors would be happy.

A Danish bank is offering mortgages at a 0.5% negative interest rate — meaning it is basically paying people to borrow money
https://www.businessinsider.com/danish-bank-offers-mortgages-at-negative-interest-rates-2019-8

Jensen Comment
As a challenge to students you might have them try to imagine reasons for this. Accounting students should imagine the journal entries and use of Excel to derive amortization tables.

Attorneys and physicians are disciplined at a rate at least seven times that of CPAs ---.
https://link.springer.com/article/10.1007/s10551-017-3738-5

Jensen Comment
CPAs can buy green eyeshades with halos attached.

Sarah Li Cain:  My mom was an accountant, and I still use the 4 best money lessons she taught me today ---
https://www.businessinsider.com/best-money-lessons-from-my-mother-the-accountant-2019-8

Jensen Comment
Sarah's mother was a bookkeeper, and there's sometimes a difference between a bookkeeper and an accountant. Firstly, accountants working as auditors of big firms must make materiality decisions. Sometimes it's too costly to pursue "small numbers."
Secondly, there are times when you should not pay for a skilled professional. I'm not a big fan of financial advisers who charge substantial fees. Firstly, you can get a lot of free financial advising from large investment firms like Vanguard, Fidelity, and TIAA. Secondly, if you pay a little more for tax return filing you can sometimes get some valuable "free" investing advice thrown in. For example, hire a reputable CPA or law firm to do your taxes rather than go cheap with H&R Block. And lastly becoming financially literate is not rocket science ---
http://faculty.trinity.edu/rjensen/Bookbob1.htm#InvestmentHelpers

Cybertext --- https://www.cybertext.com/

I used cybertext online textbooks when I was teaching accounting information systems. Now Cybertext is also offering some free tutorials ---
https://www.cybertext.com/DataAnalytics.aspx

FASB tackles difficult liabilities and equity topic---
https://www.journalofaccountancy.com/news/2019/jul/fasb-difficult-liabilities-equity-201921725.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=01Aug2019

The proposal seeks to improve FASB’s guidance on both convertible instruments and the derivatives scope exception for contracts in a company’s own equity. The proposal would:

• Reduce the number of accounting models for convertible debt instruments and convertible preferred stock.
• Revise the derivatives scope exception guidance to reduce form-over-substance-based accounting conclusions driven by remote contingent events.
• Change the related disclosure and earnings-per-share guidance.

Comments on the proposal will be accepted through Oct. 14 at FASB’s website

Jensen Comment
There has to be information loss with such simplifications. For example, reducing the "number of accounting models for convertible debt instruments and convertible preferred stock" may increase rather than decrease the number of finance models used in practice. The analogy here is when the FASB had two models for leases --- operating leases and financing leases. Over time the FASB then learned that the two models as applied in practice for leases was being abused --- thereby leading the FASB to issue a much more complicated leasing standard that firms are now trying to implement. The challenge whenever simplifying reporting standards is that companies will take advantage to a point where the FASB must go back to more complicated updates to standards. There's a complicated game in taxation and financial reporting where new rules are issued that trigger devious lawyers and accountants to circumvent the new rules with innovative contract clauses. This behavior makes rule simplification very difficult in the interactive "game" of standard setting.

Debt to equity conversion contracts are especially complicated by dependence upon contingency formulas that depend upon happenings that are very difficult to predict such as dependency on future price movements of common stock. Simplifying conversion accounting does not simplify the economics of conversion formulas themselves. The simple debt versus equity dichotomy for levels of financing now becomes more and more complicated by those uncertain mezzanine levels.

Brickbat: Big Money --- https://reason.com/2019/08/12/brickbat-big-money/

Jensen Comment
Auditors would say:  Where were the internal controls?

Where Were the Auditors and Attorneys during the Sustainability Charade of Volkswagen on Diesel Emissions? ---
https://www.cpajournal.com/2019/07/22/9187/

The COSO Internal Control Framework and Sustainability Reporting ---
https://www.cpajournal.com/2019/07/29/the-coso-internal-control-framework-and-sustainability-reporting/

Sallie Mae expects significant impact from loan loss accounting rules ---
https://news.bloombergtax.com/financial-accounting/sallie-mae-warns-it-may-triple-loan-loss-reserves-in-2020
Sallie holds lots of student loans that have lots of losses

What cost Verizon $1.1 billion and sold three six later for $10 million?
https://www.newsweek.com/verizon-sells-tumblr-wordpresscom-owner-fraction-sites-previous-price-1453946
Note the criticisms at
https://en.wikipedia.org/wiki/Tumblr

Transactions Cost Analysis --- https://en.wikipedia.org/wiki/Transaction_cost_analysis

Why Transaction Cost Analysis is Attractive, and Very Flawed ---
https://mises.org/wire/why-transaction-cost-analysis-attractive-and-very-flawed?utm_source=Mises+Institute+Subscriptions&utm_campaign=b67b7d7ee0-EMAIL_CAMPAIGN_9_21_2018_9_59_COPY_01&utm_medium=email&utm_term=0_8b52b2e1c0-b67b7d7ee0-228708937

Excel:  Spreadsheet modellers can use the MOD function to obtain residuals and handle calculations at regular time intervals.---
https://www.fm-magazine.com/news/2019/aug/microsoft-excel-mod-function-forecast-models-201921634.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=27Aug2019

Excel:  A guide to key features in Excel for Office 365 ---
https://www.computerworld.com/article/3428640/excel-for-office-365-cheat-sheet.html

Excel:  How to Work with Trendlines in Microsoft Excel Charts ---
https://www.howtogeek.com/429126/how-to-work-with-trendlines-in-microsoft-excel-charts/

How banks are striking back against Quicken Loans and other digital-first lenders in the $9 trillion US mortgage market ---
https://www.businessinsider.com/the-online-mortgage-lending-report-2019-7

Here’s Your Scorecard For KPMG U.K. Fines So Far In 2019 ---
https://goingconcern.com/heres-your-scorecard-for-kpmg-u-k-fines-so-far-in-2019/

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

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

Chinese Government Cryptocurrency ---
https://www.forbes.com/sites/michaeldelcastillo/2019/08/27/alibaba-tencent-five-others-to-recieve-first-chinese-government-cryptocurrency/#453196f21a51

The biggest cryptocurrency scams and arrests of 2019 so far ---
https://www.businessinsider.com/the-biggest-cryptocurrency-scams-and-arrests-of-2019-so-far-2019-8

Crypto to make your head spin ---
https://marginalrevolution.com/marginalrevolution/2019/08/crypto-to-make-your-head-spin.html

New York Times:  Terrorists Turn to Bitcoin for Funding, and They’re Learning Fast ---
https://www.nytimes.com/2019/08/18/technology/terrorists-bitcoin.html?utm_campaign=the_download.unpaid.engagement&utm_source=hs_email&utm_medium=email&utm_content=75816110&_hsenc=p2ANqtz-_7BbInKEbtP-dckYRGIEvAs6TscEp_NHjBHcojSJoTDrBZK3ByMPPbFkerQW2JR1870cy6uzYyxtCznjp4z7WuQo5NGw&_hsmi=75816110

MIT: North Korea is funding its weapons program with stolen cryptocurrency State-sponsored hackers have mostly been hitting up South Korean targets ---
https://www.technologyreview.com/f/614149/north-korea-is-funding-its-weapons-program-with-stolen-cryptocurrency/?utm_campaign=the_download.unpaid.engagement&utm_source=hs_email&utm_medium=email&utm_content=75676743&_hsenc=p2ANqtz--nsDAqPfn4ArkAt0Aot77uubUdgxiGxMkiI6T-rPdluvUmZP6TryabK4u4hog0Qp92dD0oc2KA070Nr0efF6I_iUCjvg&_hsmi=75676743 

Companies Revolutionizing the Crypto Space with New Innovations ---
https://readwrite.com/2019/08/08/5-companies-revolutionizing-the-crypto-space-with-new-innovations/

MIT:  “Crypto rogue” nations want to use blockchains to undermine the US dollar ---
https://www.technologyreview.com/s/614054/crypto-rogue-nations-want-to-use-blockchains-to-undermine-the-us-dollar/?utm_campaign=the_download.unpaid.engagement&utm_source=hs_email&utm_medium=email&utm_content=75295087&_hsenc=p2ANqtz-_EeRPg0LnJg9wTtd1lR96gKSxT71-kL3ZhUS6CvcsOZkl8tsrcJgSiz5z3Z4FT6eTCNDF4wO_lTGFt3RW0jxVfttq1Eg&_hsmi=75295087
 

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

Building a Blockchain Business ---
https://www.journalofaccountancy.com/issues/2019/aug/blockchain-services-jagruti-solanki-cpa.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=02Aug2019

Boeing's $5 Billion Charge For Grounding 737 Max Planes Will Generate Max NOL Due To 2017 Tax Law Change ---
https://taxprof.typepad.com/taxprof_blog/2019/08/boeings-5-billion-charge-for-grounding-737-max-planes-will-generate-max-nol-due-to-2017-tax-law-chan.html

Prop. 106 is the wrong answer to Phoenix’s pension debt ---
https://www.statedatalab.org/news/detail/prop-106-is-the-wrong-answer-to-phoenixs-pension-debt

Illusion of a Balanced Budget:  Gov. Cuomo’s fiscal games could hurt him ---
https://www.statedatalab.org/news/detail/from-the-right-gov-cuomos-fiscal-games-could-hurt-him

Stanford:  What Happens to Local Jobs When State Taxes Go Up?
https://www.gsb.stanford.edu/insights/what-happens-local-jobs-when-state-taxes-go?utm_source=Stanford+Business&utm_medium=email&utm_campaign=Stanford-Business-Issue-168-8-11-2019&utm_content=alumni

Stanford:  Good News and Bad News on Tax Evasion ---
https://www.gsb.stanford.edu/insights/good-news-bad-news-tax-evasion?utm_source=Stanford+Business&utm_medium=email&utm_campaign=Stanford-Business-Issue-168-8-11-2019&utm_content=alumni

Lowe’s Lays Off Thousands of Store Workers ---
https://www.wsj.com/articles/lowes-lays-off-thousands-of-store-workers-11564680676
Jensen Comment
Many of those laid off assemble products like BBQ grills and lawn equipment. Now there's little reason to buy it in a box a Lowe's at a higher price (maybe) and pay a delivery charge for a boxed product when Amazon will deliver the same boxed item for free. Getting things assembled in why I often shop at Lowe's and Home Depot.

August 4, 2019 reply from Dennis Beresford

Bob,
As I understand what Lowes is doing, they are laying off full-time employees but will engage contractors to do the same assembly work. You and I can still buy an assembled product from them, presumably at the same price as before. But Lowes expects its costs will go down as the contractors are less expensive than regular employees.
Denny

Certain cognitive biases pose threats to audit work, but it’s possible to recognize and overcome them ---
https://www.journalofaccountancy.com/issues/2019/aug/biases-jeopardize-audit-quality.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=05Aug2019

Helpful References from David Giles:  Including More History in Your Econometrics Teaching ---
https://davegiles.blogspot.com/2019/08/including-more-history-in-your-teaching.html

From David Giles on Econometrics ---
https://davegiles.blogspot.com/2019/08/book-series-on-statistical-reasoning-in.html

Book Series on "Statistical Reasoning in Science & Society"

Back in early 2016, the American Statistical Association (ASA) made an announcement in its newsletter, Amstat News, about the introduction of an important new series of books. In part, that announcement said:

"The American Statistical Association recently partnered with Chapman & Hall/CRC Press to launch a book series called the ASA-CRC Series on Statistical Reasoning in Science and Society. 

'The ASA is very enthusiastic about this new series,' said 2015 ASA President David Morganstein, under whose leadership the arrangement was made. 'Our strategic plan includes increasing the visibility of our profession. One way to do that is with books that are readable, exciting, and serve a broad audience having a minimal background in mathematics or statistics.' 

The Chapman & Hall/CRC press release states the book series will do the following:

·                     Highlight the important role of statistical and probabilistic reasoning in many areas

·                     Require minimal background in mathematics and statistics

·                     Serve a broad audience, including professionals across many fields, the general public, and students in high schools and colleges

·                     Cover statistics in wide-ranging aspects of professional and everyday life, including the media, science, health, society, politics, law, education, sports, finance, climate, and national security

·                     Feature short, inexpensive books of 100–150 pages that can be written and read in a reasonable amount of time."

Seven titles have now been published in this series -

 

Measuring Society, by Chaitra H. Nagaraja (2019)
Measuring Crime: Behind the Statistics, by Sharon L. Lohr (2019)
Statistics and Health Care Fraud: How to Save Billions, by Tahir Ekin (2019)
Improving Your NCAA® Bracket with Statistics, by Tom Adams (2018)
Data Visualization: Charts, Maps, and Interactive Graphics, by Robert Grant (2018)
Visualizing Baseball, by Jim Albert (2017)
Errors, Blunders, and Lies: How to Tell the Difference, by David S. Salsburg (2017)

Readers of this blog should be especially interested in Chaitra Nagaraja's recently published additionto this series. Chaitra devotes chapters in her book to the topics of  Jobs, Inequality, Housing, Prices, Poverty, and Deprivation. I particularly like the historical perspective that Chaitra provides in this very readable contribution, and I recommend her book to you (and your non-economist friends). 

Fraud:  The Collapse Of A Hospital Empire — And Towns Left In The Wreckage ---
https://khn.org/news/rural-hospital-empire-collapse-missouri-town-fallout-jorge-a-perez-empowerhms/

Journal Entries in the Equity Method of Accounting for Investments ---
https://smallbusiness.chron.com/journal-entries-equity-method-accounting-investments-76227.html

Also see
https://www.brainscape.com/flashcards/cost-and-equity-method-5807635/packs/8830144

Also see
https://www.ey.com/Publication/vwLUAssets/FinancialReportingDevelopments_BB2634_EquityMethodInvestments_16December2015/$FILE/FinancialReportingDevelopments_BB2634_EquityMethodInvestments_16December2015.pdf

EY:  Lease accounting - Accounting Standards Codification 842, Leases ---
https://www.ey.com/ul/en/accountinglink/frd-00195-171us-lease-accounting

EY:  Equity Method Investments
https://www.ey.com/Publication/vwLUAssets/FinancialReportingDevelopments_BB2634_EquityMethodInvestments_16December2015/$FILE/FinancialReportingDevelopments_BB2634_EquityMethodInvestments_16December2015.pdf

EY:  Comment letter on ASB proposed revision to definition of materiality ---
https://www.ey.com/Publication/vwLUAssetsAL/CommentLetter_06672-191US_MaterialityED_2August2019/$FILE/CommentLetter_06672-191US_MaterialityED_2August2019.pdf

EY:  Comment letter on the SEC’s proposal on disclosures about acquisitions and disposals of businesses ---
https://www.ey.com/Publication/vwLUAssetsAL/CommentLetter_06636-191US_AcquisitionsDispositions_29July2019/$FILE/CommentLetter_06636-191US_AcquisitionsDispositions_29July2019.pdf

EY:  Updated FRD on derivatives and hedging ---
https://www.ey.com/ul/en/accountinglink/frd-05712-191us-derivatives-and-hedging

EY:  Updated FRD on Consolidation ---
https://www.ey.com/ul/en/accountinglink/frd-02856-161us-consolidation

How Aflac fraudulently goosed its sales
From the CFO Journal's Morning Ledger on August 23, 2019

Insurer Aflac Inc. shares slid on news reports that a scandal at Japan Post Holdings Co. included improper sales of Aflac products

 

From the CFO Journal's Morning Ledger on August 26, 2019

AICPA Proposes Clarifying Auditors’ Role in Private-Company Financial Statements

The auditing standards board of the American Institute of Certified Public Accountants on Wednesday proposed a further clarification of the responsibilities auditors face for private company financial statements. The organization, which sets the standards for the audits of private companies in the U.S., wants to make changes to three types of financial statements—special purpose, single and summary—that aren’t based on generally accepted accounting principles. The proposal is intended to align certain existing standards with a new standard, SAS No. 134, which the board enacted in May to provide insight into auditors’ opinions in their reports on private company financial statements, the AICPA said. “Stakeholders felt there was not enough clarity around whether it was management or the auditor’s responsibility to prepare certain financial statements,” Robert Dohrer, AICPA’s chief auditor, told CFO Journal. “We wanted to make sure we included the level of assurance in an audit opinion and the responsibility for errors and fraud.” For example, the proposal would clarify that, in all audits of special-purpose financial statements, the auditor is required to conclude whether substantial doubt exists about a company’s ability to operate. If substantial doubt exists, the auditor is required to evaluate the adequacy of disclosures. The proposal, which would affect AU-C sections 800, 805 and 810 of SAS No. 122, is open to a 60-day public comment period. The AICPA expects the rule to be effective for reporting periods on or after Dec. 15, 2020.

From the CFO Journal's Morning Ledger on August 26, 2019

The wild grand opening of Costco Wholesale Corp.’s first store in China on Tuesday demonstrated solid consumer demand for U.S. products, if the price is right.

From the CFO Journal's Morning Ledger on August 26, 2019

Deutsche Bank AG has agreed to pay $16 million to settle charges by the Securities and Exchange Commission that it violated U.S. foreign bribery law by hiring relatives of foreign government officials.

Why is it so hard to replace China with other nations (think Viet Nam) willing to take on more manufacturing?

From the CFO Journal's Morning Ledger on August 23, 2019

Good morning. With the U.S. and China tangled in a nasty trade fight, this should be Vietnam’s time to shine. Instead, it is becoming increasingly clear that it will be years, if ever, before this Southeast Asian nation and other aspiring manufacturing destinations are ready to replace China as the world’s factory floor.

The specialized supply chains that made China a production powerhouse for smartphones and aluminum ladders and vacuum cleaners and dining tables are nowhere near as developed in Vietnam. Factories with U.S.-focused safety certifications and capital-intensive machinery aren’t as easy to find. And Vietnam, with less than one-tenth China’s population, is already running into labor shortages as global manufacturers rush to set up shop there to avoid U.S. tariffs.

A new global manufacturing landscape is starting to take shape, executives say. Production leaving China is getting divvied up among developing countries, with a small portion going to the U.S. on the back of automation. The reordering of supply chains is likely to leave China with a diminished but still significant share of the pie.

The creation of new industrial clusters won’t happen overnight. Vietnam offers cheap labor, but its 100-million population is small compared with China’s 1.3 billion, and its roads and ports are already clogged. India has the manpower, but skill levels fall short and government rules are relatively restrictive.

From the CFO Journal's Morning Ledger on August 20, 2019

Tesla Inc., better known for making electric cars, is once again offering to rent solar panels to homeowners.

Home owners will probably like the idea of renting under the new Tesla deal that makes getting out of the rental obligation quite simple and cheap when new technology comes along. However, Tesla itself may be stuck with having to take back millions of obsolete panels before Tesla even recovered the cost of building them

The bottom line is that Tesla rather than customers is taking on nearly all the risk of highly probable obsolescence of rented solar panels. By then Elon Musk may be living on Mars.

From the CFO Journal's Morning Ledger on August 20, 2019

Home-sharing company Airbnb Inc.’s most-recent financial data shows its strong cash position and a first-quarter growth rate above 30%, both key metrics that will draw investors as the startup positions itself to go public next year.

From the CFO Journal's Morning Ledger on August 19, 2019

Good morning. Airbus SE is using artificial intelligence to squeeze cost out of its finance function, an experiment launched in the aircraft maker’s Americas division that could save the corporation millions of dollars annually if rolled out in other regions, CFO Journal's Mark Maurer reports.

It’s one of the latest examples of how companies across sectors are digitizing operations to increase efficiency, reduce human error and free up employees for tasks that require more human judgment, such as strategic planning, analysis and audits.

Less than two years ago, four Airbus Americas Inc. employees would review about 25,000 travel-and-expense reports filed annually by employees in Texas, Virginia, Florida and Mexico, according to Richard Masci, the head of financial system services and compliance at Airbus Americas.

Today, a human only needs to review details the AI-based system deems noncompliant, typically one or two lines in a 30-line report. If the report passes muster, it is automatically validated and payment can be initiated. The average time between submission to approval has gone from a couple weeks to a few days, and the workload for human reviewers has been cut by more than half, Mr. Masci said.

Jensen Comment
I wonder if our accounting courses (think managerial accounting) are keeping up to date with the implementations of technology like AI in the real world. For example, do we teach how to review a cost analysis AI system for noncompliance? Or are we still teaching about horses and buggies in the jet age?

Accounting professors can start learning more about AI by searching for "artificial intelligence" at the free Khan Academy ---
https://www.khanacademy.org/

Managerial accounting professors should develop documentaries and cases by contacting companies like Airbus SE in an effort to find out how AI has changed accounting systems. It's so much easier to do regression analysis of purchased databases, but these databases won't have the latest information about AI in cost accounting. Professors need to get off their butts and develop their own databases.

From the CFO Journal's Morning Ledger on August 18, 2019

Good morning. General Electric Co.’s share price dropped following a report by an accounting expert who alleged the struggling conglomerate has masked the depths of its problems, resulting in inaccurate and fraudulent financial filings with regulators.

Harry Markopolos, who raised red flags about Bernie Madoff’s Ponzi scheme, said his group found GE’s insurance unit will need to bolster its reserves by $18.5 billion in cash, and he faulted the way the company is accounting for its oil-and-gas business. All told, he said, the accounting problems amount to $38 billion, or 40% of the conglomerate’s market value.

“This is market manipulation—pure and simple,” GE Chief Executive Officer Larry Culp said in a statement. GE stood by its financial reporting and said the Markopolos report was produced to help short sellers by creating volatility in GE shares.

GE, which is currently searching for a new finance chief, is already under investigation by the U.S. Securities and Exchange Commission and the Justice Department for potential accounting issues that have come to light in the past two years related to its insurance holdings and problems in its power division.

CNBC:  GE plunges after whistleblower calls it a bigger fraud than Enron ---
https://www.msn.com/en-us/money/companies/ge-plunges-after-whistleblower-calls-it-a-bigger-fraud-than-enron/ar-AAFQjYf?ocid=se

Another possible  KPMG embarrassment in the making!

GE Claims It's No Enron
From the CFO Journal's Morning Ledger on August 20, 2019

Good morning. General Electric Co.’s finance and investor relations team pushed back further on Monday against claims by accounting expert Harry Markopoulos who accused the industrial conglomerate of masking its financial problems and filing inaccurate or fraudulent information with regulators, The Wall Street Journal reports.

In a new investor update, the company said it believes the current reserves for its long-term-care insurance business are well supported by its portfolio of investments. GE also defended the accounting for its oil-and-gas business.

The company said it has “been up front and transparent about the long-term liabilities,” and there are “a lot of viewpoints in the market regarding the risks and financial obligations across the entire [long-term-care] industry.” It said that as a reinsurer, it isn’t responsible for 100% of every risk in that business. GE also said the “adverse differences” between its policies and those from other companies are significantly overstated.

Mr. Markopolos’s group estimated, in its report, that GE will need to increase its insurance reserves by $18.5 billion in cash and take a $10.5 billion charge because of an accounting change in 2021. GE said Monday it wouldn’t need to make a cash contribution of $29 billion to the long-term-care insurance business.

From the CFO Journal's Morning Ledger on August 15, 2019

Sealed Air, Under Federal Investigation, Switches Audit Firms

Sealed Air Corp. has dismissed audit firm Ernst & Young LLP and hired PricewaterhouseCoopers LLP, CFO Journal reports, citing dissatisfaction over the audit-firm selection process and a possibility it could be forced by the government to change auditors, the company disclosed.

The replacement took effect Aug. 7 but was disclosed this week in a securities filing. It is the latest development related to federal investigations into the company’s financial practices and audit-firm selection process.

From the CFO Journal's Morning Ledger on August 15, 2019

Good morning. Warning signs pointing to a deepening global economic slowdown—and the risk of recession—are flashing more brightly. Many of the biggest troubles are showing up overseas. But markets are signaling that the threat of a downturn is spreading to the U.S., the world’s largest economy, now in its longest expansion on record.

Economic output in Germany, the world’s fourth-largest economy, contracted in the second quarter, according to a report Wednesday, while a report on factory output in China, the world’s second-largest economy, was lower than expected. Earlier this week, Argentina’s currency and stock market tumbled, stoking fears over one of South America’s largest economies.

The Dow Jones Industrial Average fell about 800 points, or some 3.1%, in its biggest loss of the year. Another wave of buying in the U.S. government-bond market pushed the yield on the 30-year Treasury note to a record low.

Meanwhile, the cost to borrow cash overnight using Treasurys as collateral is fueling concern among investors that bond dealers could become inundated with U.S. debt as the government funds widening budget deficits.

From the CFO Journal's Morning Ledger on August 13, 2019

Accounting Firms Increasingly Hire Non-Accounting Graduates

For many public accounting firms, a prospective new hire’s technology skills have become more relevant than their accounting knowledge, according to a report from the American Institute of Certified Public Accountants.

Non-accounting graduates comprised 31% of all new-graduate hires in public accounting in 2018, up 11 percentage points from when it was last tracked in 2016, according to the organization.

 The proportion of non-accounting graduates hired was larger than that of new hires with a master’s degree in accounting (25%), but smaller than that of hires with a bachelor’s degree in accounting (43%) in the 2017-18 school year, the study said.

The report, released every two years, found that total projected enrollment for accounting programs—either bachelor’s, master’s or doctoral degrees—fell 4% to 241,873 since the 2015-16 school year.

The 2014-15 and 2015-16 school years saw the highest enrollment—both about 253,000—since the organization began tracking it in 1993.

See
https://www.journalofaccountancy.com/news/2019/aug/accounting-firm-hiring-trends-201921801.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=14Aug2019

Jensen Comment
I suspect there's considerable variation with respect to size of the accounting firm. Many of the smallest accounting firms specialize in tax and bookkeeping services where the owners and employees are experienced accountants who picked up computing skills along the way. The hiring of non-accounting graduates most likely increases with the size of the firms, especially firms that offer non-accounting services or accounting services liked to technology.

From the CFO Journal's Morning Ledger on August 13, 2019

A new arrival to Wall Street and former student-body president at New York University’s Stern School of Business was charged with insider trading tied to a $1.7 billion buyout. Bill Tsai, a 23-year-old analyst at RBC Capital Markets, was arrested and charged with criminal securities fraud, according to federal prosecutors in New York.

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

From the CFO Journal's Morning Ledger on August 13, 2019

PineBridge CFO on Adjusting to Revenue Recognition and Tax Laws

Tracie Ahern, finance chief of New York-based asset manager PineBridge Investments, spoke with CFO Journal about tax challenges and the new accounting standard on revenue recognition.

Q: What kind of impact has the new revenue-recognition standard had on PineBridge?

A: It’s been a big change, given that we have a reasonably sized private-equity and private-credit book. Looking at performance fees, we have some clients even in our long-only book that have complex performance arrangements. Being able to now schedule our revenue is quite a bit different on a GAAP basis. In certain cases, we won't be able to recognize revenue.

Q: How has a global business like yours adjusted to new corporate tax laws?

A: There have been a lot of changes in regulation around the globe, particularly how some jurisdictions are now requiring economic substance. Anyone running a global businesses is now looking at areas in which they’ll gain the biggest tax benefits over time. It’s been a pretty big shift in the last several years, especially for organizations that may have older tax structures, or certain combinations of U.S. and non-U.S. assets. It’s been a pretty big undertaking for us.

From the CFO Journal's Morning Ledger on August 13, 2019

Good morning. There is a paradox in auditing, new research indicates: Audit firms that do a thorough job examining clients’ financial statements could be doing so at their own peril.

Audit firms, on average, suffer a drop in future client and revenue growth after detecting a material weakness in a company’s financial reporting, according to a study of more than 350 U.S. audit firms over 13 years.

Companies appear to avoid hiring auditors that have a history of critical audits at other companies, though firings made because an auditor found a material weakness aren’t as apparent, according to the study led by University of Arkansas accounting professor Stephen Rowe and accounting Ph.D. candidate Elizabeth Cowle.

The study tracked the issuance of “internal control material weaknesses,” or ICMWs, which are critical of management, from 2004 to 2016. If a regional office of an audit firm issues a single ICMW, for example, it leads to a 2.5% lower growth in the number of clients and an 8% decline in year-over-year revenue for that office, the study found.

Mr. Rowe, the co-author, tells CFO Journal that he hopes the study will effect change among audit committees. “When audit committees are working with management to choose an auditor, it would be nice if they were more aware of the company’s bias and evaluated all factors when making the decision,” he said.

From the CFO Journal's Morning Ledger on August 9, 2019

Good morning. Stock-price-related impairment charges, such as the one booked by Kraft Heinz Co., are expected to increase amid ongoing market turbulence and an uncertain economic outlook.

Kraft Heinz said it booked a charge of $1.22 billion for the first six months of its fiscal year. The bulk of the charge was related to the declining values of brands and businesses, but $474 million of it reflected the company’s lower stock price. Kraft Heinz’s stock has fallen 38% since the beginning of the year. It was down 8.6% Thursday at the market close. 

Companies have to take an impairment charge if their stock price falls and remains low after a transaction. H.J. Heinz Co. merged with Kraft Foods Group Inc. in 2015.

U.S. stock prices have been high for years, and market turbulence or a sustained correction because of weakening economic sentiment could force more companies to book charges in response to a decline in their share prices, impairment analysts said.

“The expectation is that if the general economic trend continues and market valuations decline, impairment charges connected to stock price falls increase,” said Greg Franceschi, a managing director at advisory firm Duff & Phelps LLC and global leader of its financial reporting valuation advisory practice.

Bob Jensen's threads on impairment charges ---
http://faculty.trinity.edu/rjensen/theory02.htm#Impairment

From the CFO Journal's Morning Ledger on August 8, 2019

Growth Rate for U.S. Salaries to Remain Stable, Report Says

Most U.S. employers plan to give raises next year, but don’t expect significant base-salary bumps next year—despite a tight labor market and historically low unemployment, according to a survey due out today by advisory firm Willis Towers Watson PLC.

 Pay at U.S. companies is set to rise by 3% in 2020, in line with the growth rate in 2019, which was also 3%, and that of previous years, according to the survey of 858 firms. The last year employers provided larger increases was in 2008, when salaries rose by an average of 3.8%.

Instead of boosting base pay, employers are looking to spend more on bonuses, especially for top-performing workers.

Uncertainty about the economic outlook, which makes companies want to hold their fixed costs down, is part of the reason, said Catherine Hartmann, talent and rewards director for North America at Willis Towers Watson. “Companies are getting more specific about different elements of their pay,” she said, adding that bonuses and equity are becoming more central in companies’ pay structure.

From the CFO Journal's Morning Ledger on August 8, 2019

Good morning. Inflated bond ratings were one cause of the financial crisis. A decade later, there is evidence they persist. In the hottest parts of the booming bond market, S&P and its competitors are giving increasingly optimistic ratings as they fight for market share.

All six main ratings firms have since 2012 changed some criteria for judging the riskiness of bonds in ways that were followed by jumps in market share, at least temporarily, a Wall Street Journal examination found. These firms compete with one another to rate the debt of borrowers, who pay for the ratings and have an incentive to pick rosier ones. There are signs some investors are skeptical. 

Some bonds in markets where ratings criteria have been eased don’t trade at the high bond prices their ratings suggest they should. Investors have also shown skepticism about ratings on some corporate and government bonds.

The problem is particularly acute in the fast-growing market for “structured” debt—securities using pools of loans such as commercial and residential mortgages, student loans and other borrowings. The deals are carved into different slices, or “tranches,” each with varying risks and returns, which means rating firms are crucial to their creation.

From the CFO Journal's Morning Ledger on August 5, 2019

An accounting scandal has disrupted dozens of initial public offerings and other fundraising plans in China, intensifying investor concerns about the amount of trust they can place in audited financial results in the country

From the CFO Journal's Morning Ledger on August 5, 2019

Bubble Wrap Maker’s Auditor Selection Process Under Scrutiny.

Sealed Air Corp., under investigation by federal regulators for its financial practices and audit-firm selection process, is now facing a related U.S. Justice Department probe, Maria Armental and Dylan Tokar report.

The Charlotte, N.C.-based maker of packaging products such as bubble wrap said in a regulatory filing Friday it received a grand jury subpoena seeking information related to the firing of its finance chief and the selection process of its independent audit firm beginning in fiscal year 2015.

Sealed Air in June said it fired Chief Financial Officer Bill Stiehl for cause after receiving subpoenas in 2018 and 2019 from the Securities and Exchange Commission.

From the CFO Journal's Morning Ledger on August 1, 2019

 The U.K.’s Financial Reporting Council levied a total of £5.05 million ($6.1 million) in fines against KPMG LLP and one of its partners for failings related to regulatory reports the firm created and submitted on behalf of Bank of New York Mellon Corp. entities, the latest action by the regulator against the Big Four accounting firm.

The regulation at the center of the KPMG case, the client assets sourcebook, or CASS, involved BNY Mellon’s role as a custodian of client assets valued at their peak at more than £1 trillion. KPMG’s work didn’t meet certain regulatory standards, the FRC said.

“The misconduct consisted of a failure to understand and to apply fundamental rules of CASS,” an FRC tribunal said in a statement. KPMG didn’t ensure appropriate training, support and supervision of the 2011 audits of the bank’s client assets sourcebook, according to the regulator.

Here’s Your Scorecard For KPMG U.K. Fines So Far In 2019 ---
https://goingconcern.com/heres-your-scorecard-for-kpmg-u-k-fines-so-far-in-2019/

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

From the CFO Journal's Morning Ledger on August 1, 2019

MetLife Inc. nearly doubled its second-quarter profit, helped by improved investment results and derivative gains on a financial hedging program. At rival Prudential Financial Inc., net income rose to $708 million from $197 million a year ago. 

Bob Jensen's tutorials on hedge accounting ---
http://faculty.trinity.edu/rjensen/caseans/000index.htm

From the CFO Journal's Morning Ledger on July 31, 2019

FASB Proposes Change to Accounting for Investments and Securities

The Financial Accounting Standards Board wants to clarify the relationship between accounting standards on equity securities, investments under the equity method and forward contracts to buy securities. The board issued a proposal that would serve as an update to FASB guidance that allowed companies to recognize certain equity securities—usually investments in private companies—unless there was also an apparent transaction for an identical or similar security. A FASB task force conceived the proposal after the standard-setter received questions about the application of a 2016 standard, “Accounting Standards Update No. 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” The proposal would affect companies that elect to apply the measurement alternative, which is cost minus impairment, or enter into a forward contract or purchase option to buy securities that would be accounted for under the equity method, an accounting technique for evaluating profit from investments in other companies.  The board is allowing public feedback on the proposal until Aug. 29. To read the exposure draft, click here.

From the CFO Journal's Morning Ledger on July 31, 2019

The U.K.’s regulator for accounting and audit imposed higher fines and opened more new enforcement cases during the year that ended March 31, a finding that comes ahead of a potential overhaul of the sector. The Financial Reporting Council issued £42.9 million ($52.2 million) in fines to audit and accounting firms, up from £15.5 million during the same period a year earlier, according to the regulator’s annual enforcement review.

The FRC in the past year stepped up enforcement amid concerns about audit quality in the U.K. A series of high-profile corporate failures has resulted in calls from U.K. lawmakers and other watchdogs to make significant changes to how the industry operates. Regulators and lawmakers are focusing on potential conflicts of interest within audit firms as well as the level of scrutiny with which auditors test clients’ financial statements.