New Bookmarks
Year 2020 Quarter 3:  July 1 - September 30 Additions to Bob Jensen's Bookmarks
Bob Jensen at Trinity University

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

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

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

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

Choose a Date Below for Additions to the Bookmarks File

 

 

2020

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September 2020

 

Bob Jensen's Additions to New Bookmarks

September 2020

Bob Jensen at Trinity University 


 

My Latest Web Document
Over 600 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

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

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

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

 

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

 

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

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

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

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

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

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

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

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

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

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

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




Can remote work lead to double taxation?
https://www.foxbusiness.com/personal-finance/remote-work-double-taxation


A case study in bribery violations:  Ericsson's mistakes can serve as warnings for others ---
https://www.fm-magazine.com/issues/2020/aug/prevent-and-detect-bribery-schemes.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=31Aug2020
 


How lenders should account for forgivable PPP loans ---
https://www.journalofaccountancy.com/news/2020/aug/how-lenders-account-for-forgivable-ppp-loans.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=31Aug2020
 


Guidance Issued on Payroll Tax Deferral ---
https://www.journalofaccountancy.com/news/2020/aug/irs-payroll-tax-deferral-guidance.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=31Aug2020
 


Blockchain --- https://en.wikipedia.org/wiki/Blockchain
https://www.journalofaccountancy.com/search.html?_charset_=UTF-8&q=Blockchain&language=en

Blockchain not seen transforming accounting anytime soon ---
https://www.journalofaccountancy.com/news/2020/aug/cpa-technology-roundtable-blockchain-accounting-processes.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=01Sep2020

Jensen Comment
Many firms will encounter blockchain if they deal in cryptocurriences that re exploding in popularity.

 


Bloomberg:  The real reason more Americans are renouncing U.S. citizenship ---
https://www.bloomberg.com/opinion/articles/2020-08-31/why-thousands-of-u-s-expats-are-renouncing-their-citizenship?cmpid=BBD090120_BIZ&utm_medium=email&utm_source=newsletter&utm_term=200901&utm_campaign=bloombergdaily

The swearing in of new citizens often makes news in the U.S., especially if it happens in unusual circumstances such as one party’s national convention. Much less reported are the many citizenship renunciations by Americans, and the travails leading up to these life decisions. Almost all those giving up their U.S. nationality are expats. And for each renouncer going through the ordeal, there are countless others thinking about it. Why?

One recent press release in particular has caused quite a stir. It suggested that, after “a steep decline” in recent years, renunciations in the first half of this year soared to 5,816, more than twice as many as gave up their passport in all of 2019. The implication, as reported breathlessly in the American media, was that expats, already fed up with President Donald Trump, finally despaired over his mishandling of Covid-19 and quit. Other factors were cited as merely secondary.

But these renunciation numbers are notoriously flawed. They’re based on a list of names of renouncers published every quarter by the Internal Revenue Service — experts call this a form of “doxxing.” That list lags in time and jumbles data. In reality, most embassies and consulates stopped making renunciation appointments this spring, owing to the pandemic. And the dip in prior years, according to experts, was due to backlogs and underreporting.

By the best estimates (see chart), renunciations have been rising since 2010, when the Obama administration passed the notorious Foreign Account Tax Compliance Act (FATCA), inflicting misery on U.S. expats everywhere. In 2014, the government raised the renunciation fee from $450 to $2,350. Undeterred, expats kept at it. The American bureaucracy then indirectly slowed the pace with red tape in the first three Trump years. But we’re back on trend in 2020.

Now, it may be true that most expats aren’t crazy about Trump. Americans abroad tend to be cosmopolitan professionals, often married to foreigners or following international career paths. Watching their home country in their host nation’s news, or talking about it at local dinner parties, has stopped being fun. The images occasionally evoke a banana republic succumbing to pestilence while arming for civil 

But that’s clearly not the reason why so many expats have been trying to drop their nationality for the past decade. Instead, as I described last year, it’s the nightmare of American tax and financial reporting, in which any accounts or assets deemed in Washington, D.C. to be “foreign” are automatically suspect, requiring extra disclosures that can be ruinous in time, expense and peace of mind.

The U.S. is almost unique in the world in taxing based on citizenship rather than residency. It’s also uniquely parochial in being unable or unwilling to distinguish between, say, a rich American living stateside and stashing money offshore and, for example, a middle-class American married to a German and teaching elementary school in Berlin. The hell starts with that conflation.

Before 2010 America’s citizen-based taxation didn’t necessarily disrupt the lives of expats like this school teacher. That’s because few expats even knew about the horrendously complex reporting rules or bothered with them. But FATCA required them to make new and redundant disclosures or face the prospect of tens of thousands of dollars in fines or even prison. It also required their foreign banks, brokers and insurers to report on them to the IRS, or face draconian sanctions.

Unsurprisingly, many foreign banks and brokers therefore stopped taking “U.S. persons” or green-card holders as customers. So American expats have increasingly been locked out of retail finance in their host countries.

Worse, the European Union then started passing laws with bureaucratically sublime names such as MiFID II and PRIIPs that imposed new rules on everything from mutual funds to life insurance. This scared the U.S. banks and brokers of American expats living in Europe, so they also started kicking out their customers with foreign addresses. Many Americans overseas are financially marooned.

Continued in article


It Seems Andersen Employees Are Getting Back the Money That Was Taken Away From Them (UPDATE) ---
https://goingconcern.com/it-seems-andersen-employees-are-getting-back-the-money-that-was-taken-away-from-them/
 


Tax, Class, Women, and Elder Care ---
https://digitalcommons.law.seattleu.edu/cgi/viewcontent.cgi?article=2634&context=sulr

Elder care is a large and growing sector in the comprehensive health care system in the United States. It is an issue of particular importance to women because women live longer than men, have higher incidences of degenerative ailments, and are more likely to be institutionalized. Women also face greater financial challenges in funding their health care maintenance. Whereas wealthy individuals enjoy a multitude of elder care choices and can even self-insure to avoid the steep expense and risk of long-term care insurance, most women do not possess the resources to exercise such a wide degree of choice. Middle-income women increasingly feel the squeeze of concurrent rises in medical and housing costs and must often engage in contingency Medicaid planning. Low-income women, particularly those who are single, living in rural areas, or members of an ethnic minority, have few viable health care options and are the most likely to be herded into institutional care facilities. Nursing homes carry high costs and often do not offer high-level or personalized care. Current tax policy, however, is structured to favor institutional care. Conspicuously lacking are adequate subsidies to facilitate home-based options and meaningful support for caregiving labors, both key factors that contribute to the dearth of care options for our poorest citizens. The tax system is in dire need of modification to address this exploding elder care crisis, requiring explicit acknowledgment of the need to generate revenues dedicated to fulfilling our public commitment to the basic welfare of this rapidly growing cohort of the American population.

 


 

U.S. Expats Can’t Renounce Their Citizenship Fast Enough
https://www.bloomberg.com/opinion/articles/2020-08-31/why-thousands-of-u-s-expats-are-renouncing-their-citizenship?cmpid=BBD090120_BIZ&utm_medium=email&utm_source=newsletter&utm_term=200901&utm_campaign=bloombergdaily

The swearing in of new citizens often makes news in the U.S., especially if it happens in unusual circumstances such as one party’s national convention. Much less reported are the many citizenship renunciations by Americans, and the travails leading up to these life decisions. Almost all those giving up their U.S. nationality are expats. And for each renouncer going through the ordeal, there are countless others thinking about it. Why?

One recent press release in particular has caused quite a stir. It suggested that, after “a steep decline” in recent years, renunciations in the first half of this year soared to 5,816, more than twice as many as gave up their passport in all of 2019. The implication, as reported breathlessly in the American media, was that expats, already fed up with President Donald Trump, finally despaired over his mishandling of Covid-19 and quit. Other factors were cited as merely secondary.

But these renunciation numbers are notoriously flawed. They’re based on a list of names of renouncers published every quarter by the Internal Revenue Service — experts call this a form of “doxxing.” That list lags in time and jumbles data. In reality, most embassies and consulates stopped making renunciation appointments this spring, owing to the pandemic. And the dip in prior years, according to experts, was due to backlogs and underreporting.

By the best estimates (see chart), renunciations have been rising since 2010, when the Obama administration passed the notorious Foreign Account Tax Compliance Act (FATCA), inflicting misery on U.S. expats everywhere. In 2014, the government raised the renunciation fee from $450 to $2,350. Undeterred, expats kept at it. The American bureaucracy then indirectly slowed the pace with red tape in the first three Trump years. But we’re back on trend in 2020.

Now, it may be true that most expats aren’t crazy about Trump. Americans abroad tend to be cosmopolitan professionals, often married to foreigners or following international career paths. Watching their home country in their host nation’s news, or talking about it at local dinner parties, has stopped being fun. The images occasionally evoke a banana republic succumbing to pestilence while arming for civil 

But that’s clearly not the reason why so many expats have been trying to drop their nationality for the past decade. Instead, as I described last year, it’s the nightmare of American tax and financial reporting, in which any accounts or assets deemed in Washington, D.C. to be “foreign” are automatically suspect, requiring extra disclosures that can be ruinous in time, expense and peace of mind.

The U.S. is almost unique in the world in taxing based on citizenship rather than residency. It’s also uniquely parochial in being unable or unwilling to distinguish between, say, a rich American living stateside and stashing money offshore and, for example, a middle-class American married to a German and teaching elementary school in Berlin. The hell starts with that conflation.

Before 2010 America’s citizen-based taxation didn’t necessarily disrupt the lives of expats like this school teacher. That’s because few expats even knew about the horrendously complex reporting rules or bothered with them. But FATCA required them to make new and redundant disclosures or face the prospect of tens of thousands of dollars in fines or even prison. It also required their foreign banks, brokers and insurers to report on them to the IRS, or face draconian sanctions.

Unsurprisingly, many foreign banks and brokers therefore stopped taking “U.S. persons” or green-card holders as customers. So American expats have increasingly been locked out of retail finance in their host countries.

Worse, the European Union then started passing laws with bureaucratically sublime names such as MiFID II and PRIIPs that imposed new rules on everything from mutual funds to life insurance. This scared the U.S. banks and brokers of American expats living in Europe, so they also started kicking out their customers with foreign addresses. Many Americans overseas are financially marooned.

Continued in article

 


After 40 years of capitalism, China’s income is divided almost as unequally as America’s ---
https://qz.com/1591961/thomas-pikettys-new-research-shows-rising-inequality-in-china/

Now, the Chinese government wants Piketty’s publisher to remove parts where the author draws on extensive research to show growth in economic inequality to a level comparable to that of the US. Piketty has so far refused to remove the offending passages, which means Capitalism and Ideology most likely won’t be sold in China.

While a move is underway to destroy the American Dream of rags to riches (by taxing away the riches) the Chinese dream is on the rise.
The Chinese Dream
How a Chinese billionaire went from making $16 a month in a factory to being one of the world's richest self-made women with an $8.3 billion real-estate empire ---

https://www.businessinsider.com/worlds-richest-self-made-woman-wu-yajun-net-worth-2019-2

Top 50 Billionaires in China ---
https://en.wikipedia.org/wiki/List_of_Chinese_by_net_worth

Jensen Comment
The question for students to debate is why a supposed communist country allows so many billionaires to rise up from poverty.
That's supposed to happen in the USA where a child growing up in deep poverty (think Oprah Winfrey or Howard Shultz) became a multi-billionaires.
But is it also supposed to happen under communism? If so, why?


Goodbye to Lord & Taylor, and the Way We Used to Shop ---
https://www.nytimes.com/2020/09/03/opinion/lord-taylor-closed.html

It’s finally the end for Lord & Taylor. After limping along since its Fifth Avenue flagship closed in 2019, the nearly 200-year-old department store chain announced last week that it will close all its locations.


Questions Raised About Purdue Global's Tax-Exempt Status ---
https://www.insidehighered.com/quicktakes/2020/09/04/questions-raised-about-purdue-globals-tax-exempt-status
 


FASB alters not-for-profit accounting rules for gifts-in-kind ---
https://www.journalofaccountancy.com/news/2020/sep/fasb-alters-not-for-profit-accounting-rules-for-gifts-in-kind.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=18Sep2020
 


POWER AND STATUS (AND LACK THEREOF) IN ACADEME: ACADEMIC FREEDOM AND ACADEMIC LIBRARIAN ---
http://inthelibrarywiththeleadpipe.org/2020/power-and-status-and-lack-thereof-in-academe/

Academic librarians do not experience full academic freedom protections, despite the fact that they are expected to exercise independent judgment, be civically engaged, and practice applied scholarship. Academic freedom for academic librarians is not widely studied or well understood. To learn more, we conducted a survey which received over 600 responses from academic librarians on a variety of academic freedom measures. In this article, we focus specifically on faculty status for librarians and the ways this intersects with academic freedom perceptions and experiences. Even though all librarians who answered our survey share similar experiences when it comes to infringements on their freedom, faculty librarians are more likely to feel they are protected in their free expression. We find it useful to situate librarians within a growing cohort of “third space” academic professionals who perform similar duties to traditional faculty but lack tenure and its associated academic freedom protections. We argue that more attention needs to be paid in the library profession to academic freedom for librarians, and that solidarity with other non-traditional faculty on campus is a potential avenue for allyship and advocacy.


Distracted Minds: Why Your Students Can’t Focus ---
https://community.chronicle.com/news/2409-distracted-minds-why-your-students-can-t-focus?cid=VTEVPMSED1

In 1906 the British satirical magazine Punch published a series of cartoons entitled “Forecasts for 1907.” One of them featured two nattily dressed Edwardians sitting beneath a tree in London’s Hyde Park, with telegraph machines on each of their laps. They face away from one another, their attention wholly absorbed by the devices. “These two figures are not communicating with one another,” the caption reads. “The lady is receiving an amatory message, and the gentleman some racing results.”

It’s impossible to see that cartoon without calling to mind contemporary photos of people glued to their cellphones as they walk across the campus or sit around the dinner table. Usually those photos are accompanied by ironic commentary on how people today “are not communicating with one another” because they are so absorbed by their glowing screens.

The deeper concern that animates such images — whether from 1906 or 2020 — is that our personal devices are eroding our ability to pay attention: to one another, to our work and study, and to the world around us. We seem to believe that at one time in human history, we lived in a state of prelapsarian attentional grace, in which we could spend long hours engaged in deep conversation or focused on a single task. Then new technologies came along and turned us into shallow creatures who grasp continuously for novelty and stimulation.

But the most cursory review of the history of distraction shows there never was such an attentional Garden of Eden. Complaints about our distractible minds began at least as far back as antiquity, and have been piling up ever since.

“People who are passionately devoted to the flute,” wrote Aristotle more than 2,300 years ago in Ethics, “are unable to pay attention to arguments if they hear someone playing a flute, since they enjoy the flute-playing more than the activity that presently occupies them.” Aristotle notes here how easily we can be diverted from a challenging task into one we find more pleasurable.

Two millennia later, the English poet and clergyman John Donne went a step further to point out that even things with no connection to pleasure — such as random noises or intrusive thoughts — can distract our attention from our intended area of focus:

 

I throw myself downe in my Chamber, and call in, and invite God and his Angels thither; and when they are there, I neglect God and his Angels for the noise of a Flie, for the rattling of a Coach, for the whining of a doore … A memory of yesterday’s pleasures, a feare of tomorrows dangers, a straw under my knee, a noise in mine eare, a light in mine eye, an anything, a nothing, a fancy, a Chimera in my braine, troubles me in my prayer.

 

But my favorite distracted mind comes from a few centuries later, in the title character of E.M. Delafield’s 1930 novel The Provincial Lady in London, who offers this description of her efforts to pay attention to the proceedings of a literary conference:

 

Literary Conference takes place in the morning. … Am sorry to find attention wandering on several occasions to entirely unrelated topics, such as Companionate Marriage, absence of radiators in Church at home, and difficulty in procuring ice. Make notes on back of visiting-card, in order to try and feel presence at Conference in any way justified. Find these again later, and discover that they refer to purchase of picture-postcards for Robin and Vicky, memorandum that blue evening dress requires a stitch before it can be worn again, and necessity for finding out whereabouts of Messrs. Thos. Cook & Son, in case I run short of money.

 

The human mind has always been troubled by the problem of distraction. It seems to besiege us from all sides. It can come in the form of pleasant diversions such as flute-playing (or checking Twitter), in the form of external intrusions like rattling coaches (or buzzing iPhones), or in the form of a mind worried about household responsibilities (or obsessed with a coming election).

What I find most striking in the descriptions of distractible minds — past and present — is the fact that they are laments: Not only have we always been distracted; we have always been unhappy about it. We want to listen to arguments, participate in conferences, and focus our thoughts in study or prayer, but our attention seems ever-inclined to diversion.

Continued in article



European planemaker Airbus unveiled three designs it’s studying to build hydrogen-powered aircraft, as it races to bring a zero-carbon passenger plane into service by 2035 ---
https://www.bloomberg.com/news/articles/2020-09-21/airbus-unveils-hydrogen-powered-designs-for-zero-emission-flight?cmpid=BBD092120_BIZ&utm_medium=email&utm_source=newsletter&utm_term=200921&utm_campaign=bloombergdaily


How the States Can Tax Shifted Corporate Profits: An Application of Strategic Conformity

Southern California Law Review, Forthcoming

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3679356
38 Pages
 Posted: 27 Aug 2020

Darien Shanske

University of California, Davis - School of Law

Date Written: August 23, 2020

Abstract

The combination of pandemic, recession and federal dysfunction has put severe fiscal strain on the states. Given the scale of the crisis and the essential nature of the services now being cut, it would be reasonable for states to contemplate inefficient – and even regressive – revenue-raising measures. Yet surely they should not start with such measures. They should start with making the efficient and progressive improvements to their revenue systems that they should have made anyway.

Improving the taxation of the profits of multinational corporations - the topic of this Article - represents a reform that would be efficient, progressive and relatively straightforward to administer. Not only would such a reform thus represent good tax policy, but it would raise significant revenue. And, if substantial revenue, efficiency, progressivity and administrability are not sufficiently motivating, then I will also add that it would be particularly appropriate to make these changes during the pandemic so as to raise revenue from those best able to pay during the current crisis.

To be sure, the argument that states can and should tax multinational corporations more has the whiff of paradox. After all, there is general consensus that no nation-state is currently taxing multinational corporations very effectively and, further, that subnational governments are in an even worse position to do so. This is because MNCs can exploit the mobility of capital even more easily between parts of the same country. Nevertheless, I will argue that the American states find themselves in a particularly strong position to do better at taxing MNCs and this is in part precisely because of the missteps made at the federal level.

The Tax Cuts and Jobs Act (“TCJA”), passed in December 2017, contained several provisions, including rules concerning Global Intangible Low-Taxed Income (or “GILTI”), that were meant to combat income stripping. The GILTI provision identifies foreign income likely to have been shifted out of the US and subjects it to US tax.

In this Article, I argue that the states should and can tax GILTI income. The basic policy argument is simple: states should not miss a chance to protect their corporate tax bases. The amount of revenue at stake is not trivial; it could be as high as $15 billion/year for the states as a whole or the equivalent of a 30% boost in corporate tax collections.

The basic legal argument is also simple: it cannot be the case – and it is not the case - that states need to take corporations at their word as to where their income is earned. If the states can make a reasonable argument that nominally foreign income has in fact been shifted out of the US, then their choices as to their tax system should be respected.

This Article makes several other core arguments. First, the Article argues that returning to mandatory worldwide combination as a complete alternative to GILTI conformity would be preferable to GILTI conformity alone. Second, the Article argues that offering taxpayers a choice between GILTI conformity and worldwide combination is also preferable to GILTI conformity alone.

Finally, this Article places all these issues in a larger framework of strategic conformity. As with GILTI, the states should look for other opportunities where they can take advantage of federal miscues while also advancing sound tax policy.

Keywords: GILTI, Worldwide Combination, State Corporate Tax Policy, Income Shifting

 


How Auditors Legitimize Commercialism: A Micro-Discursive Analysis

Critical Perspectives on Accouting, Forthcoming

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3657264
58 Pages
 Posted: 28 Aug 2020

Simon Dermarkar

HEC Montreal

Mouna Hazgui

HEC Montreal - Department of Accounting Studies

Date Written: July 2020

Abstract

This study draws on Berger and Luckmann’s (1966) social constructivism and on Van Leeuwen’s (2007) work on the discursive forms of legitimization to examine how individual auditors explain and justify the prevalence of commercialism in their audit firms and profession. The literature on commercialism in auditing addresses the question of how it has been institutionalized and legitimized at the macro-level of the accounting field (e.g., Cooper & Robson, 2006; Guo, 2016; Malsch & Gendron, 2013; Suddaby et al., 2007). However, this literature does not explore the micro-level processes through which auditors justify their own commercialism. Thus, it overlooks the central role that individual subjectivity and interpretation play in the maintenance and transmission of institutional logics (Bévort & Suddaby, 2016; Thornton & Ocasio, 2008). In our view, this has prevented accounting scholars from developing a more meaningful conceptualization of the relationship between auditors’ commercialism and their professionalism, one that goes beyond the apparently clashing imperatives of these two logics. The findings of our study suggest that the positive values auditors attribute to the logic of commercialism blur the distinction between their commercial and their professional commitments, so that the notion of a fundamental conflict between their commercialism and their public interest mission comes to be seen as almost absurd. Overall, our analysis of the ways that professionalism and commercialism intertwine with each other in auditors’ daily lives suggests that the relationship between these two logics is much more complex than previously assumed.

 

 

Keywords: Commercialism; Accounting Profession; Discursive Legitimization; Social Constructivism

 


Disclosure Descriptors: Helping Investors Process Complex Accounting Estimates by Using Short Identical Descriptors

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3650580
41 Pages
 Posted: 29 Aug 2020

Ling L. Harris

University of Nebraska-Lincoln

Marlys Gascho Lipe

University of South Carolina - Department of Accounting

Elaine Wang

University of Massachusetts Amherst

Date Written: June 1, 2020

Abstract

Companies can use either identical or different descriptors to refer to the same item throughout their disclosures, and such descriptors can vary in length. We conduct three experiments in the setting of complex accounting estimate disclosures to examine how descriptor length and descriptor identicalness affect investors’ information processing and their investment judgments. We manipulate descriptor length (short versus long) in Experiment 1 and descriptor identicalness (identical versus non-identical) in Experiments 2 and 3. We also manipulate, in all experiments, whether managers’ estimate choices are consistent or inconsistent with their incentives to boost reported earnings. Consistent with our predictions, we find descriptor length affects information acquisition and descriptor identicalness affects information integration. Consequently, only when managers use short and identical descriptors, do investors assess lower credibility and indicate lower investment willingness for estimate choices that are incentive consistent versus inconsistent. Our study provides important insights to accounting researchers, practitioners, and regulators.

Keywords: Identical Descriptors; Descriptor Length; Complex Accounting Estimates; Narrative Disclosures; Fair Value Accounting

 


Analyzing Vertical Mergers: Accounting for the Unilateral Effects Tradeoff and Thinking Holistically About Efficiencies

27 George Mason Law Review 761 2020 Forthcoming

SSRN

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3645537

62 Pages Posted: 29 Aug 2020 Last revised: 2 Sep 2020

Roger D. Blair

University of Florida - Warrington College of Business Administration - Department of Economics

Christine Wilson

Government of the United States of America - Federal Trade Commission

D. Daniel Sokol

University of Florida Levin College of Law; Department of Information Systems and Operations Management

Keith Klovers

Wilson Sonsini Goodrich & Rosati

Jeremy Sandford

Government of the United States of America - Federal Trade Commission

Date Written: July 7, 2020

Abstract

With the adoption of the 2020 Vertical Merger Guidelines, the U.S. antitrust agencies have updated their guidance on vertical mergers for the Twenty-First Century. Although economists have long recognized the procompetitive benefits most vertical mergers generate, the law has not always followed suit, and has sometimes condemned vertical mergers for making the merged firm more efficient. In this article, we attempt to catalogue the extensive list of efficiencies that vertical mergers can generate, trace the often halting efforts to incorporate these insights into the law, and propose a framework that courts and agencies can use to assess the likely competitive effects of vertical transactions. We draw heavily upon leading cases, particularly Baker Hughes and AT&T, with two refinements. First, consistent with the final Guidelines (but not the earlier draft) and the economic literature noting a symmetry between unilateral anticompetitive effects (raising rivals’ costs) and procompetitive effects (the elimination of double marginalization), which we call the “unilateral effects tradeoff,” we argue a plaintiff alleging a raising rivals cost (RRC) theory of harm must also address EDM as part of its prima facie case. Second, if the plaintiff carries its prima facie burden, then the defendant should be able to argue, and courts and Agencies should seriously consider, the full range of procompetitive efficiencies, which we call a “holistic efficiency analysis.”

Keywords: antitrust, vertical mergers, raising rivals costs, efficiencies, elimination of double marginalization

 


Teaching Case
Executive Incentive Pay Disclosures at Etsy, Inc.

Darden Case No. UVA-C-2430

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3682573
22 Pages
 Posted: 31 Aug 2020

Mark E. Haskins

University of Virginia - Darden School of Business

Luann J. Lynch

University of Virginia - Darden School of Business

Abstract

The financially savvy (fictional) protagonist in this case is an independent artist, intrigued with the possibility of becoming a seller on the Etsy, Inc., marketplace. As such, she is seeking to learn about the company—that is, its culture, recent history, and incentive compensation philosophy and practices for top executives. The case provides pertinent, publicly sourced information for exploring and discussing such issues.This case is suitable for an undergraduate, graduate, or non-degree executive education course where the focal topic is, in general, performance management, and more specifically, the use and design of executive incentive compensation plans. A valuable secondary objective is to introduce students to some of the company information disclosed in a publicly available corporate proxy statement. That document, filed with the SEC as Form DEF 14A, is filed in preparation for a public company's annual shareholder meeting.

Excerpt

UVA-C-2430

Dec. 6, 2019

Executive Incentive Pay Disclosures at Etsy, Inc.

Betsy Jordaniske had been an artist for as long as she could recall. In fact, in fourth grade, she had won the first art contest she had ever entered. What was unique and unusual about her winning piece, and what was still true 20 years later, was that her paintings were three-dimensional, incorporating real materials from nature such as dried grasses, pebbles, twigs, grains, and even a little dirt once in a while. Such materials interplayed with the acrylics, the chalk, and the colored pencils she used in a truly captivating way. Her paintings were unique to say the least, and they often prompted observers to move closer, look longer, and reflexively smile just a little bit.

For years, Jordaniske had been frustrated by not having enough time to devote to her art—she lived for that endeavor, and she worked as a bookkeeper to live. On the surface, her occupation and vocation seemed quite incongruous, but it was the symmetry of bookkeeping that had a certain appeal to her, just as the unlimited possibilities of a blank canvass never failed to kick-start the flow of artistic ideas in her head and heart.

Formal schooling in accounting or art had not been a path Jordaniske had been able to take. Out of family necessity, she had gone to work right out of high school in her uncle's retail shop, doing the books in the back office, working the cash register out front, and helping customers when the shop got busy. It was in the evenings and on weekends, when the weather was nice, that she set up her portable, bare-bones studio in various natural, out-of-the-way settings around her Texas hometown. She let her surroundings speak to her—waiting to sense the urge to paint a certain scene, in a certain way. Inevitably, ideas easily and readily flowed. If she did not have all the material she needed while on site, she would simply add it later, with no loss of artistic wholeness, as the image she wanted was already finished in her mind's eye. It was this duality of her essence—the practical, yet artistic, enjoyment of a finite/prescribed bookkeeping system, as well as the unfettered possibilities/expressions of an artist's imagination—behind her decision to look into the Etsy, Inc., marketplace possibility.

 


How Pervasive is Earnings Management? Evidence from a Structural Model

Management Science, Forthcoming
SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3680697

37 Pages Posted: 31 Aug 2020 Last revised: 2 Sep 2020

Jeremy Bertomeu

Washington University in St. Louis - John M. Olin Business School

Edwige Cheynel

Washington University in St. Louis - John M. Olin Business School

Edward Xuejun Li

City University of New York (CUNY) - Stan Ross Department of Accountancy

Ying Liang

Georgia State University - J. Mack Robinson College of Business

Multiple version iconThere are 2 versions of this paper

Date Written: August 25, 2020

Abstract

Although researchers often view earnings management as being widespread, measuring the cost and level of earnings management is a non-trivial task. We derive a measure of earnings management cost and the associated equilibrium level of earnings management from the cross-sectional properties of earnings and prices. This approach enables us to separate economic shocks from reporting discretion by modeling the economic trade-off faced by management. The trade-off can be easily estimated from a closed-form likelihood function. Consistent with prior studies, the measure suggests more earnings management during seasoned equity offerings, for smaller and growing firms, as well as in industries with more irregularities.

Keywords: earnings management, structural estimation, financial accounting, reporting, signaling

 


The Diffusion of Management Accounting Innovations in Dependent (Subsidiary) Organizations and MNCs

The International Journal of Accounting, Vol. 54, No. 1 (2019)

The University of Auckland Business School Research Paper

 

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3683549
42 Pages Posted: 2 Sep 2020

Hassan Yazdifar

University of Salford - Salford Business School

Davood Askarany

University of Auckland - Department of Accounting and Finance

Danture Wickramasinghe

Glasgow University

Ahmad Nasseri

University of Sistan and Baluchestan; Accounting Department

Ashraful Alam

University of Salford - Salford Business School

Date Written: April 16, 2019

Abstract

A range of management accounting innovations (MAIs) have emerged in responding to the increasing changes in technology through the proliferation of globalization. Researchers have offered alternative views concerning these MAIs. These views range from rational-economic perspectives to the social-organizational process perspectives that explore how MAIs are adopted and implemented in different organizational settings. This paper contributes to the implementation impact by discussing the network view and subsidiaries’ capabilities, both absorptive and combinative, in the diffusion of MAIs in group organizations. The paper identifies four possible sources of diffusion of MAIs that have not been discussed in the literature.

Keywords: Dependent organizations, inter-subsidiary relations, management accounting innovations, activity-based costing, activity-based management, balanced scorecard, benchmarking, target costing, absorptive and combinative capabilities, CIMA members


Corporate Tax Avoidance: A Literature Review and Research Agenda

Journal of Economic Surveys, Vol. 34, Issue 4, pp. 793-811, 2020

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3684606
19 Pages Posted: 3 Sep 2020

Fangjun Wang

Xi'an Jiaotong University (XJTU)

Shuolei Xu

affiliation not provided to SSRN

Junqin Sun

Xi'an Jiaotong University (XJTU)

Charles P. Cullinan

Bryant University

Date Written: September 1, 2020

Abstract

Tax avoidance can range from reduction of the corporate tax burden by legitimate use of tax rules to violation of tax laws. In this paper, we endeavor to synthesize the major findings of tax avoidance research from the accounting and finance literatures over the past ten years. We consider theoretical developments and the related empirical findings about the interconnected issues of measuring tax avoidance, and the possible causes and outcomes of corporate tax avoidance. We present some ideas for further research to examine underexplored topics regarding tax avoidance.

Keywords: Agency theory, Corporate governance, Corporate tax avoidance, Firm value

 


EY:  Financial Reporting Briefs - Third quarter 2020
https://www.ey.com/en_us/assurance/accountinglink/financial-reporting-briefs---third-quarter-2020

EY:  Updated Financial Reporting Development on business combinations ---
https://www.ey.com/en_us/assurance/accountinglink/financial-reporting-developments---business-combinations

EY:  SEC Reporting Update: Highlights of trends in 2020 SEC comment letters ---
https://www.ey.com/en_us/assurance/accountinglink/sec-reporting-update---highlights-of-trends-in-2020-sec-comment-

EY:  A closer look at the accounting for asset acquisitions ---
https://www.ey.com/en_us/assurance/accountinglink/technical-line---a-closer-look-at-the-accounting-for-asset-acqui

EY:  Derivatives and hedging (after the adoption of ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities) ---
https://www.ey.com/en_us/assurance/accountinglink/financial-reporting-developments---derivatives-and-hedging--afte

EY: Financial Reporting Developments - Transfers and servicing of financial assets ---
https://www.ey.com/en_us/assurance/accountinglink/financial-reporting-developments---transfers-and-servicing-of-fi
 


Excel: Quickly bring blank cells to your attention ---
https://www.journalofaccountancy.com/issues/2020/sep/bring-blank-excel-cells-to-your-attention.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=15Sep2020

Excel:  Record macros to quickly perform routine tasks ---
https://www.journalofaccountancy.com/issues/2020/sep/how-to-record-macros-in-excel.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=10Sep2020

Excel:  How to use Excel Power Query's best feature ---
https://www.fm-magazine.com/news/2020/sep/excel-power-query-column-from-examples.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=07Sep2020

 




From the CFO Journal's Morning Ledger on September 29, 2020

Rising insurance premiums are costing businesses millions of dollars they can ill afford as they navigate the pandemic. Many companies are responding by trying to manage risks on their own.
Some mainstream insurers have largely refused to pay out business-interruption claims made by companies hurt by shutdowns.


From the CFO Journal's Morning Ledger on September 25, 2020

Good morning. Blank-check companies that have raised tens of billions of dollars to acquire hot startups are under the microscope at the Securities and Exchange Commission.

Such companies, also called special-purpose acquisition companies, or SPACs, are shell-like entities that go public in order to raise cash for acquisitions. Startups can then combine with a SPAC to go public, in an alternative to a traditional initial public offering.

SEC Chairman Jay Clayton said Thursday that the regulator is examining how sponsors of blank-check companies disclose their ownership and how any compensation is tied to an acquisition. Investors buy shares in SPACs before the entities have entered a deal, and they have the option to exit before a transaction is finalized.

“One of the areas in the SPAC space I’m particularly focused on, and my colleagues are particularly focused on, is the incentives and compensation to the SPAC sponsors,” Mr. Clayton said in an interview on CNBC. “How much of the equity do they have now? How much of the equity do they have at the time of the IPO-like transaction? What are their incentives?”


From the CFO Journal's Morning Ledger on September 24, 2020

Big Four Accounting Firms Back ESG Disclosure Framework

Companies should use a common set of metrics to disclose their effect on the environment, how they treat employees and other non-financial factors, leaders of the biggest accounting firms and other executives said this week.

The four accounting firms—Ernst & Young, PricewaterhouseCoopers, KPMG and Deloitte—backed a framework launched Tuesday by the World Economic Forum to standardize companies’ environmental, social and governance disclosures.

The framework includes recommendations on releasing information on diversity efforts, greenhouse gas emissions and criteria for measuring. ethical behavior.

Other groups, including the nonprofit Sustainability Accounting
Standards Board, have released similar recommendations. The WEF said it intends to work with standard-setters, including SASB, to establish. a comprehensive system for corporate ESG reporting globally.


From the CFO Journal's Morning Ledger on September 24, 2020

Good morning. Finance chiefs and investors are trying to figure out how to account for coronavirus-related expenses as the pandemic transforms how companies operate in ways that may become a permanent cost of doing business.

Businesses have spent billions of dollars on personal protective equipment, such as masks and gloves, to keep their operations running since March. Many have retrofitted office spaces and factories to protect workers. Stores and restaurants have added plexiglass dividers, reduced capacity to allow for social distancing and paid employees special bonuses to continue working on site for jobs where remote work isn’t possible.

More than six months into the pandemic, company executives say they expect to be dealing with the effects of Covid-19 for much longer than they initially anticipated.

Still, some companies continue to treat virus-related costs as special, one-time items, which can give the impression that a business’s costs are lower than they actually are. This in turn can boost its non-GAAP financial results. Companies often highlight these metrics when also reporting earnings figures that comply with generally accepted accounting principles as required.


From the CFO Journal's Morning Ledger on September 22, 2020

A resurgent stock market and fiscal stimulus propelled the net worth of U.S. households to the highest level ever in the second quarter, despite a record drop in the previous three months caused by an economic shock from the coronavirus pandemic.

Americans Want Homes, but There Have Rarely Been Fewer for Sale ---
https://www.wsj.com/articles/americans-want-homes-but-there-have-rarely-been-fewer-for-sale-11600680612?mod=djm_dailydiscvrtst

Buyers are rushing to get more living space as the pandemic continues. But many potential sellers are keeping their homes off the market, resulting in the worst drought on record of previously owned homes for sale.


From the CFO Journal's Morning Ledger on September 22, 2020

At least five organizations say they won’t help companies audit their supply chains in China’s Xinjiang region, where human-rights activists say a police-state atmosphere and government controls make it too difficult to determine whether factories and farms are relying on forced labor.

Brands including Gap and Kraft Heinz have come under increasing pressure to stop sourcing from Xinjiang, a major producer of cotton and tomatoes.


From the CFO Journal's Morning Ledger on September 18, 2020

Ford Motor is expanding its largest and oldest factory to make electric pickup trucks, a high-profile manufacturing investment in a key battleground state where jobs remain a focus on the campaign trail.


From the CFO Journal's Morning Ledger on September 16, 2020

The U.S. Securities and Exchange Commission is beefing up protections against fraud and manipulation in the lightly regulated market for over-the-counter stocks

Jensen Comment
This includes the derivatives markets for forward contracts and swaps. Many swaps are portfolios of forward contracts.


From the CFO Journal's Morning Ledger on September 16, 2020

Good morning. A debate over whether business-interruption insurance policies held by millions of companies cover a pandemic is increasingly being tested in global courts, drawing in regulators, insurers, industry groups and company owners.

For businesses around the world, the courts’ rulings could be the difference between survival and bankruptcy. Restaurants, beauty parlors and other companies saw their policies as a safety net that would insulate them against unforeseen shocks. Instead, the shocks came when insurers turned down their claims for policy proceeds, citing various terms and conditions.

Insurers say the policies are intended to help policyholders recover from events such as fires, which lead to repairs and rebuilding, and were never intended to cover pandemic-related claims.

Following the SARS outbreak in the 2000s, insurers have sought to exclude pandemics from their policies partly because they say it isn’t economically viable to provide cover for events where all policies pay out at once, and because they didn’t collect premiums for virus-related claims.


From the CFO Journal's Morning Ledger on September 15, 2020

Federal regulators are preparing to reprimand Citigroup for failing to improve its risk-management systems—an expansive set of technology and procedures designed to detect problematic transactions, risky trades and anything else that could harm the bank.


From the CFO Journal's Morning Ledger on September 15, 2020

Ernst & Young, under fire for missing a suspected fraud that blew up German fintech company Wirecard, says auditors should play a bigger role in detecting such wrongdoing, challenging the accounting industry’s longstanding assertion that its job isn’t to seek out malpractice.


From the CFO Journal's Morning Ledger on September 15, 2020

Good morning. The U.K. government named a chairman for a new international accounting standards board, which is expected to be operational once the country’s transition period with the European Union is over.

Pauline Wallace, a former partner at PricewaterhouseCoopers who also served in several regulatory roles, will head the newly created U.K. Accounting Standards Endorsement Board, according to the Department for Business, Energy and Industrial Strategy.

The U.K., which officially left the EU at the end of January, is currently in a transition phase during which European laws continue to apply. This period is set to end on Dec. 31, after which the country will have its own procedures on how to adopt International Financial Reporting Standards, or IFRS.

For companies, the shift to the new U.K. board is mainly technical, at least for the time being, as both sets of standards—those endorsed by the U.K. and those endorsed by the EU—will be the same on Jan. 1. But, there could be differences at a later time if the U.K. adopts or amends a standard and the EU doesn’t, according to the BEIS.


From the CFO Journal's Morning Ledger on September 14, 2020

Through all the turmoil in the global economy, one pre-pandemic feature remains: Many of the world’s largest developed economies rely on low-income immigrant workers. Those willing to work at around minimum wage in jobs such as elderly care and agriculture are in high demand, recession or not.


From the CFO Journal's Morning Ledger on September 14, 2020

Joe Biden won the Democratic presidential nomination running as a moderate, rejecting the big-government plans of progressive rivals as unaffordable. In the general election campaign, he has rolled out his own multi-trillion-dollar platform that a new study finds would push long-term Washington spending to its highest level in decades.


From the CFO Journal's Morning Ledger on September 14, 2020

A government crackdown on traders accused of price manipulation faces one of its biggest tests this week, as a pair of former Deutsche Bank traders face trial on charges related to rigging precious-metals prices using a strategy known as spoofing.


What caught my attention is the amount of money involved
From the CFO Journal's Morning Ledger on September 14, 2020

Gilead Sciences will pay $21 billion to buy biotech Immunomedics Inc. and its prized breast-cancer drug, the company said.


From the CFO Journal's Morning Ledger on September 11, 2020

Russian government hackers have targeted at least 200 organizations tied to the 2020 U.S. election in recent weeks, including national and state political parties and political consultants working for both Republicans and Democrats, according to Microsoft.

The breadth of the attacks underscore widespread concerns among U.S. security officials and within Silicon Valley about the threat of foreign interference in the presidential election less than two months away.


From the CFO Journal's Morning Ledger on September 8, 2020

Production problems at a Boeing Dreamliner factory have prompted air-safety regulators to review quality-control lapses potentially stretching back almost a decade, according to an internal government memo and people familiar with the matter.

The plane maker has told U.S. aviation regulators that it produced certain parts at its South Carolina facilities that failed to meet its own design and manufacturing standards, according to an Aug. 31 internal Federal Aviation Administration memo reviewed by The Wall Street Journal.

Jensen Comment
Boeing sadly became Exhibit A for a case illustration how quality failures can explode into the most costly mistakes a company can make.

Costs of quality or quality costs ---
https://www.accountingformanagement.org/costs-of-quality-or-quality-costs/

Bibliography of Quality Control Accounting ---
https://maaw.info/Searchmaaw.htm
Type in a search term such as "Quality"


From the CFO Journal's Morning Ledger on September 8, 2020

The euro's sharp rally:  Eurozone companies in general derive more of their income from abroad than large U.S. businesses

Good morning. The euro’s sharp rally this year is seen as a vote of confidence by investors on the prospects for Europe’s economic recovery. But companies and their shareholders are bracing for pain.

When the euro is strong, it makes exports such as machinery, cars and chemicals from the eurozone more expensive for foreign buyers. It also erodes the value of overseas sales for companies in the 19 member states, and can chip away at profit just as they emerge from the Covid-19 economic crunch. The euro has climbed 5.6% against the U.S. dollar this year, its biggest advance since 2017.

The real impact from the currency’s strengthening will start showing up on companies’ bottom line, analysts said. Companies with more than $250 million in earnings typically deal in 40 currencies with more than 200 cross currencies, said Wolfgang Koester, senior strategist at Kyriba, a financial software company.

Eurozone companies in general derive more of their income from abroad than large U.S. businesses, which rely more on the American consumer, said Lars Kreckel, global equity strategist at Legal & General Investment Management. For every 10% that the euro strengthens against the dollar, eurozone corporates stand to lose about 3% in profits, he estimated.


From the CFO Journal's Morning Ledger on September 3, 2020

Investors piled into shares of some Black-owned businesses in June amid widespread racial-justice protests and newfound interest in the Juneteenth holiday marking the emancipation of the last slaves in the U.S. The gains in some cases proved fleeting, showing the difficulty of using the stock market to express social views.

Some of the biggest advances were in shares of two Black banks: Broadway Financial Corp. and Carver Bancorp Inc. In the week of June 15, prices of the two banks soared 151% and 513%, respectively. Trading became so volatile shares in the two banks were halted briefly by Nasdaq on Juneteenth, which is celebrated June 19.


From the CFO Journal's Morning Ledger on September 3, 2020

Accounting firm Ernst & Young halost two prominent clients in Germany over its longstanding role auditing the financials of Wirecard AG, the financial technology company embroiled in one of Europe’s biggest corporate accounting scandals in recent years.


From the CFO Journal's Morning Ledger on September 1, 2020

J.C. Penney Co. is proposing to sell its assets out of bankruptcy to top lenders after hitting a stalemate with other bidders including landlords Simon Property Group Inc. and Brookfield Property Partners LP.


From the CFO Journal's Morning Ledger on September 1, 2020

Good morning. Verifying companies’ financial statements remotely is putting further strain on external auditors already under pressure for failing to conduct basic checks and spot accounting issues.

Typically auditors meet with personnel of public and private companies in their offices, visit factories and warehouses, and rely on personal interactions and observations to make assessments. During the coronavirus pandemic, they are left with phone and video calls. “It’s been a pretty hard five months,” said Bill Eisig, assurance managing partner at BDO USA LLP.

Certain elements of an audit have become more difficult during the pandemic. Auditors say counting inventory or company goods is tough when they can’t visit clients’ sites to assess inventory firsthand for months. Auditors and companies have to figure out how to perform physical inventory checks before the last day of their fiscal year, which is often Dec. 31.

Other companies have allowed auditors back into their warehouses, factories and offices as some parts of the country have reopened. Urban Outfitters Inc. recently permitted an on-site inventory check of its Anthropologie stores, once most of the locations had reopened following earlier lockdown orders. Yet it is unclear whether auditors will be able to conduct more business in-person, as the number of coronavirus infections could rise again, potentially resulting in new restrictions.


From the CFO Journal's Morning Ledger on August 31, 2020

Volkswagen Cuts Costs With Zero-Based Budgeting

German car maker Volkswagen is relying on zero-based budgeting to rein in spending, its Chief Financial Officer Frank Witter said. Volkswagen introduced the budgeting technique, which forces managers to start from a budget of zero, earlier this year to offset some of the losses caused by the pandemic, Mr. Witter said.

“When your inflows are lower, this is an option to reduce outflows,” Mr. Witter said, adding that Volkswagen focused on its sales organization and its research and development costs first. The company booked an operating loss of about €2.4 billion ($2.86 billion) in the second quarter compared with a profit of €5.1 billion in the same period of 2019.

Still, the savings from the zero-based budgeting were somewhat limited amid the shutdown of factories in certain countries and entire regions, Mr. Witter said, pointing to the temporary pausing of Volkswagen’s production in China in February and in Europe in April. “These are significant amounts,” he said, referring to the savings, “but it’s not compensating for a sales organization that is standing still,” he said.

The company is now extending its zero-based budgeting strategy to other parts of the business, Mr. Witter said. 




From the CFO Journal's Morning Ledger on August 26, 2020

The Dow Jones Industrial Average’s coming farewell to Exxon Mobil is the latest sign of the waning influence of America’s struggling energy sector.

When trading begins next week, the blue-chip benchmark will include only one energy stock: Chevron, which will represent just 2.1% of the price-weighted index, according to an S&P Dow Jones Indices analysis.


From the CFO Journal's Morning Ledger on August 26, 2020

The U.S. business of Teva Pharmaceutical Industries has been indicted on charges the drugmaker fixed prices on generic drugs, according to a person familiar with the matter. The Justice Department is expected to announce the charges imminently, the person said.

The Justice Department’s antitrust division brought the case in a Pennsylvania federal court, alleging Teva Pharmaceuticals USA engaged in anticompetitive conduct that resulted in at least $350 million in overcharges to consumers.

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

 




Teaching Case From The Wall Street Journal Weekly Accounting Review on September 4, 2020

SEC Asks Boeing, Coca-Cola to Disclose More About Popular Financing Tool

By Julie Steinberg | August 27, 2020

Topics: Supply Chain , Factoring , Accounts Payable

Summary: The article discusses accounting issues related to "reverse factoring.” This financing arrangement involves companies deferring payment to suppliers by using a financial institution. Many companies include the amounts owed in one balance sheet caption with other trade payables. The Securities and Exchange Commission (SEC) sent its letter to Coca-Cola, highlighted in the article title, in June 2020. It asked Coca-Cola to provide the SEC with more details about the supply-chain finance deals and uncertainties related to the extension of payment terms. The agency also asked the company to consider publishing changes in its account payable days outstanding…. In Boeing’s case, the SEC’s letter was prompted by the company’s greater disclosure of its supply-chain financing in March [2020]….”

Classroom Application: The article may be used in a financial reporting class when discussing factoring—typically in association with accounts receivable financing, so this reverse factoring is a counterpoint—or accounts payable and current liabilities. It also may be used when discussing financial statement ratios given the SEC’s request to Coca-Cola highlighted in the summary above.

Questions:

·        What is factoring? Cite your source for this definition whether it is from your textbook or elsewhere.

·        What is “reverse factoring”? Use the graphic related to the article showing “a typical supply-chain finance transaction” to help you answer the question.

·        What are the benefits and risks of reverse factoring as described in the article?

·        Why do you think financial statement users should know information about companies’ use of reverse factoring?

·        What are “trade payables”? Do you think it is appropriate to include amounts owed to financial institutions as a result of reverse factoring in the same category as other trade payables? Support your answer, specifically highlighting a possible different financial statement presentation mentioned in the article.

READ THE ARTICLE

Reviewed By: Judy Beckman, Ph.D., CPA, University Of Rhode Island

 

"SEC Asks Boeing, Coca-Cola to Disclose More About Popular Financing Tool, by Julie Steinberg, The Wall Street Journal, August 27, 2020
https://www.wsj.com/articles/sec-asks-boeing-coca-cola-to-disclose-more-about-popular-financing-tool-11598526651

Agency has increased scrutiny of supply-chain finance, which flatters financial statements but may hide risks

The U.S. Securities and Exchange Commission is asking blue-chip companies about a popular financing arrangement that frees up cash but potentially hides risks from investors.

The agency sent letters in June to Coca-Cola Co. and Boeing Co. requesting more information about how they use supply-chain finance, essentially a form of short-term borrowing to pay for goods and services, according to securities filings.

The funding, often provided by banks, pays a company’s suppliers earlier than they would normally be paid, at a slight discount. It then collects the balance from the company down the road, generally later than the company would have paid their supplier directly.

While similar to loans, supply-chain financing is often not clearly called out on a company’s financial statements. Companies typically record the transactions as accounts payable, leading some to say they portray overly optimistic financial health, especially if banks pulled the financing suddenly.

An SEC spokesperson declined to comment. The agency has increased scrutiny of the practice over the past year and a half. In June, the agency gave guidance on supply-chain and other types of short-term financing in light of coronavirus disruptions. It said companies should “provide robust and transparent disclosures.”

“There is almost no information about it” in financial statements, said Ben Lourie, an assistant professor at University of California, Irvine’s Paul Merage School of Business. He worries that people don’t have the right information when building valuation and risk models about companies.

In March, the SEC sent a letter to Atlanta-based paper-container maker Graphic Packaging Holding Co. Last year, it sent similar letters to Keurig Dr Pepper Inc., Procter & Gamble Co. and home-improvement company Masco Corp. The companies’ spokespeople declined to comment.

The SEC sent its June letter to Coca-Cola after the agency noticed the drinks maker’s accounts payable increased around $1.1 billion in 2019. A bump in accounts payable can indicate increased use of supply-chain financing to extend payment terms. The agency had learned that Coca-Cola was a user of a supply-chain finance program.

It asked Coca-Cola to provide the SEC with more details about the supply-chain finance deals and uncertainties related to the extension of payment terms. The agency also asked the company to consider publishing changes in its account payable days outstanding, a metric of how long it takes to pay its suppliers.

The company said it hadn’t previously disclosed the supply-chain finance program, begun in 2014, because it hadn’t materially affected liquidity and wasn’t likely to in the future. Coca-Cola in a later response to the SEC said it would make disclosures about the program in future filings. A Coca-Cola spokesperson declined to comment further.

In Boeing’s case, the SEC’s letter was prompted by the company’s greater disclosure of its supply-chain financing in March. The aerospace giant, which was later laid low by the coronavirus shutdown of the travel sector, said trade payables included $4.5 billion payable to suppliers that were part of its supply-chain financing programs, down from $5.2 billion at Dec. 31, 2019. It said access to such financing could be curtailed if the company’s credit ratings were further downgraded.

The SEC letter to Boeing asked it to provide the impact of supply-chain financing on its cash flows, how accounts payable balances had changed owing to the programs, benefits and risks of the arrangements and plans to extend terms to suppliers, among other things.

Boeing responded that it didn’t consider supply-chain financing to be material to its overall liquidity, and that the decline was due to fewer purchases from suppliers and not due to changes in the availability of financing. It pledged to disclose in future filings the amounts included in accounts payable as a result of the supply-chain-finance programs and the impact on operating cash flows each period.

In its latest quarter ending in June, Boeing said trade payables were little changed from March

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on September 4, 2020

Auditors Struggle to Access Data, Count Inventory During Remote Work

By Mark Maurer | September 1, 2020

Topics: Auditing , Inventory , Coronavirus

Summary: The article describes some unusual steps being taken by auditors to cope with the impact of the Covid-19 pandemic on their ability to conduct audits in general and specifically to count inventories of raw materials, merchandise, and supplies. One unusual approach taken by one firm was to observe a live feed of inventory counting supplemented by location-sharing application software. On the other end of the spectrum, as locations opened, Deloitte auditors conducted traditional inventory counts and observations at Anthropolgie stores in support of its audit engagement with Urban Outfitters Inc. Other issues that may arise because of lack of in-person contact, such as detecting red flags in personal behaviors, also are discussed.

Classroom Application: The article may be used in an auditing class discussing required inventory counts or audit evidence in general.

Questions:

·        Is taking a physical inventory of raw materials and finished goods at a manufacturer, merchandise at a retailer, or supplies at any type of entity a required step for issuing audited financial statements? Support your answer.

·        How are auditors overcoming challenges against auditing inventory balances during the Covid-19 pandemic? Name all approaches you find in the article.

·        “Companies also are having a tougher time complying with accounting rules that require financial projections….” Name one area of accounting with this requirement.

·        Explain your understanding of the challenges imposed by the economic impacts of the Coronavirus pandemic on the area of accounting you identify in the question above.

·        How do you think auditors’ responsibilities are also challenged by the Covid-19 pandemic in relation to your chosen area of accounting?

READ THE ARTICLE

Reviewed By: Judy Beckman, Ph.D., CPA, University Of Rhode Island

 

"Auditors Struggle to Access Data, Count Inventory During Remote Work," by Mark Maurer, The Wall Street Journal, September 1, 2020
https://www.wsj.com/articles/auditors-struggle-to-access-data-count-inventory-during-remote-work-11598952600

Verifying companies’ financial statements remotely is putting further strain on external auditors already under pressure for failing to conduct basic checks and spot accounting issues.

Typically auditors meet with personnel of public and private companies in their offices, visit factories and warehouses, and rely on personal interactions and observations to make assessments. During the coronavirus pandemic, they are left with phone and video calls.

“It’s been a pretty hard five months,” said Bill Eisig, assurance managing partner at BDO USA LLP. He expected his hours on the job would go down because he wasn’t traveling as much. Instead, he spent hours poring over the evidence. Mr. Eisig and other auditors realized they needed a better understanding of risk assessment and cash flows due to the high level of uncertainty. “It’s a complex, hard job that is now requiring more effort,” he said.

Certain elements of an audit have become more difficult during the pandemic. Auditors say counting inventory or company goods is tough when they can’t visit clients’ sites to assess inventory firsthand for months. Auditors and companies have to figure out how to perform physical inventory checks before the last day of their fiscal year, which is often Dec. 31.

Such reviews of inventory and accounting estimates are necessary for auditors to give financial statements a clean bill of health, which public companies need to file their annual reports.

One of the jobs of an auditor is to locate information and evidence of a company’s financial well-being. However, auditing standards don’t spell out how the job gets done. In a remote-work setting, auditors have come up with various alternatives.

Some have looked at goods and materials through a live video feed on a cellphone to inspect items, said Julie Bell Lindsay, executive director of the Center for Audit Quality, which represents public-company auditors. Auditors verify the inventory’s whereabouts using location-sharing mobile applications. The practice is more common for companies with large inventories such as manufacturers and retailers, she said.

Others are using earlier inventory or supply counts to determine the year-end balance. They also refer to transaction data, for example recent purchases and sales. Such accounting workarounds are temporary. Some auditors have deferred taking stock until later. There is no prescribed time limit for this, but every day of deferral makes the process more difficult.

Urban Outfitters Inc. recently permitted an on-site inventory check. Deloitte & Touche LLP, the company’s auditors, visited some of its Anthropologie stores and distribution centers in July, when most of the stores had reopened following earlier lockdown orders, Chief Financial Officer Frank Conforti said.

Other companies have allowed auditors back into their warehouses, factories and offices as some parts of the country have reopened. Yet it is unclear whether auditors will be able to conduct more business in-person, as the number of coronavirus infections could rise again, potentially resulting in new restrictions.

In situations where auditors are unable to access paper records, they sometimes have to ask a bank or a company to have their documents scanned and sent electronically, said Robert Dohrer, chief auditor at the American Institute of Certified Public Accountants.

Auditors may have more discussions than usual with company employees, but often have trouble digging into complex, technical accounting issues or potential red flags, said Stan Sterna, a vice president at professional-services firm Aon PLC. Informal, in-person conversations while an auditor is visiting a company usually allow for better cooperation and understanding than virtual meetings.

Personal interaction is also needed for an effective audit process, said Bob Moritz, global chairman of PricewaterhouseCoopers LLP. “You still need to have the core basic elements of humanity connecting with one another,” he said.

Companies also are having a tougher time complying with accounting rules that require financial projections, such as performing valuations and estimating potential asset impairments, due in part to economic uncertainty. That presents a challenge to auditors, who have to assess whether such projections are viable or not.

Internal auditors, who review the effectiveness of corporate governance and risk management, face some of the same challenges.

Failure to examine external audit evidence by the last day of the fiscal year can result in a delay or inability to provide an opinion on financial statements. The absence of a clean auditor’s report can prevent public companies from filing their annual report to the Securities and Exchange Commission, which can revoke a company’s registration or suspend its stock from trading.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on September 4, 2020

SEC to Allow Businesses More Flexibility in Disclosing Risk, Legal Information

By Mark Maurer | August 26, 2020

Topics: Securities and Exchange Commission , Disclosure , Risk Factors

Summary: By a 3 to 2 vote, “the U.S. Securities and Exchange Commission on Wednesday [August 26, 2020] voted to give companies more flexibility in disclosing risk factors and legal proceedings in their financial statements” including proceedings related to environmental concerns. “The move is part of a wider regulatory shift from strict guidance toward principles-based disclosure that aims to simplify information for companies and investors.” The two commissioners opposed the measure in the face of investor demands for greater information about climate risk factors and the economic value of workers’ skills.

Classroom Application: The article may be used in a financial reporting course to discuss risk disclosures and the procedures for implementing disclosure requirements, or reducing them, for publicly traded companies. As an example of the disclosures being discussed in the article, the first question asks students to access Coca-Cola’s 2019 annual report on Form 10-K.

Questions:

·        Access the 10-K filing of the annual report for Coca-Cola Consolidated Inc. for the fiscal year ended December 29, 2019 available at https://www.sec.gov/Archives/edgar/data/0000317540/000156459020006432/coke-10k_20191229.htm Scroll down to find the disclosures about Risk Factors included in the report. How many pages of disclosure are made? What is contained in the disclosures?

·        What change to these disclosures has the Securities and Exchange Commission (SEC) required?

·        According to the article, what are the benefits of making this change?

·        According to the article, who voted against the change? What are their concerns?

·        Based on the Coca-Cola financial statement you examined or other factors, do you agree with the change made by the SEC? Support your answer.

READ THE ARTICLE

Reviewed By: Judy Beckman, Ph.D., CPA, University Of Rhode Island

 

"SEC to Allow Businesses More Flexibility in Disclosing Risk, Legal Information," by Mark Maurer, The Wall Street Journal, August 26, 2020
https://www.wsj.com/articles/auditors-struggle-to-access-data-count-inventory-during-remote-work-11598952600

In a 3-2 vote, the regulator approved key changes to Regulation S-K, the first significant modifications in over 30 years

The U.S. Securities and Exchange Commission on Wednesday voted to give companies more flexibility in disclosing risk factors and legal proceedings in their financial statements.

The SEC approved an amendment to Regulation S-K, which serves as the basis of disclosure requirements for U.S. public companies. Regulation S-K hasn’t undergone significant changes in more than 30 years, the SEC said. The regulator had proposed the revisions a year ago.

The move is part of a wider regulatory shift from strict guidance toward principles-based disclosure that aims to simplify information for companies and investors.

Under the new rule, companies must provide a summary of no more than two pages if their risk factor section exceeds 15 pages. Including many general risks to that section tends to add to the complexity of statements without providing investors much additional insight, the regulator said.

Wednesday’s changes also alter disclosure requirements on environmental legal proceedings. Companies currently have to disclose information on those proceedings involving the U.S. government if monetary sanctions in the case exceed $100,000. The new rule raises that threshold to $300,000.

Companies can also use a different threshold to determine materiality—the concept used to assess what is important enough to be included in a financial statement—as long as the sanctions don’t exceed $1 million or 1% of their current assets, whichever is lower.

As part of the amendment, companies no longer have to provide a description of the general development of their business over the past five years. They will only need to provide an update focusing on material developments since the last time they fully discussed it in financial statements.

Two commissioners opposed the changes, which were approved with a 3-2 vote. Commissioner Caroline Crenshaw said the rule fails to adequately address climate risk or the economic value of workers’ skills, which both affect financial performance. Commissioner Allison Herren Lee said the rule ignored feedback from investors seeking more disclosure on climate risk and workforce development.

The rule change will take effect 30 days after publication in the Federal Register.

The SEC plans to vote on another set of proposed changes to S-K later this year, focusing on disclosures of off-balance sheet arrangements and key performance indicators. The regulator proposed those changes in January.

Continued in article

 


Teaching Case From The Wall Street Journal Weekly Accounting Review on September 11, 2020

Companies Issue New Bonds to Pay Down Short-Term Debt Amid Pandemic

 

By Nina Trentmann | September 2, 2020

Topics: Debt , Debt Covenants , Coronavirus

Summary: “Companies raised over $900 billion in capital through U.S. bond sales between April 1 and Aug. 31, more than double the volume from a year earlier…” The debt has been used by many companies to pay down short-term loans under revolving lines of credit accessed during the early period of the pandemic.

Classroom Application: The article may be used when discussing liabilities in a financial reporting class: debt issuances, re-financing, and debt covenants are all discussed.

Questions:

·        What is a line of credit? According to the article, what is another name for this financing tool?

·        Why did companies access funds through lines of credit during the early days of the Covid-19 pandemic?

·        What steps are companies now taking to manage the debt they have taken on?

·        What are debt covenants? Cite your source for this definition, whether from your textbook or elsewhere.

READ THE ARTICLE

Reviewed By: Judy Beckman, Ph.D., CPA, University Of Rhode Islan

 

"Companies Issue New Bonds to Pay Down Short-Term Debt Amid Pandemic," by Nina Trentmann, The Wall Street Journal, September 2, 2020
https://www.wsj.com/articles/companies-issue-new-bonds-to-pay-down-short-term-debt-amid-pandemic-11599039003

Many businesses drew down their revolvers in the early days of the pandemic to shore up liquidity

Many businesses drew down their lines of credit in the early days of the pandemic to shore up liquidity and prepare for a potential market collapse.

Now, a few months later, they are paying back the billions in such emergency funds they borrowed, as sweeping interventions by the Federal Reserve opened up cheap access to capital markets and offered companies a chance to bolster their financial flexibility.

Companies raised over $900 billion in capital through U.S. bond sales between April 1 and Aug. 31, more than double the volume from a year earlier, according to data provider Dealogic. Dozens of them have used some or all of the proceeds of their bond sales to pay down their revolving credit facilities, ratings company Moody’s Investors Service found.

Revolving credit facilities or lines of credit allow companies to borrow up to a certain amount at a set interest rate to cover short-term funding needs. They are part of a broader funding tool kit, which also includes bonds, loans, commercial paper and asset-backed securities, that finance chiefs use.

“The amount of drawdown activity this year has been astonishing,” said Enam Hoque, a senior covenant officer at Moody’s. Since the early days of the pandemic in the U.S. in March, companies borrowed more than $310 billion through revolving credit facilities as of Aug. 1, Mr. Hoque said. Most of that came in March and April.

Howard Hughes Corp., a Dallas-based real-estate developer, on March 10 borrowed $161 million under its existing lines of credit, said Chief Financial Officer David O’Reilly. “When the pandemic hit, we drew down the facilities immediately to have that cash on the balance sheet,” Mr. O’Reilly said. “The importance of cash was at an all-time high.”

Howard Hughes raised $750 million in early August to pay down outstanding financial obligations, including its revolving credit facility, allowing the company to tap it again if needed. “Having access to these facilities gives you the ability to navigate a financial storm,” Mr. O’Reilly said.

Businesses have to meet certain financial criteria once they draw down their revolver, a procedure called covenant or maintenance testing, which can occur as frequently as once a quarter.

“Companies don’t want to be subject to the testing of maintenance covenants,” said Evan Friedman, head of covenant research at Moody’s. Going to the bond market can give companies more freedom, as they don’t have to demonstrate their financial fitness again until the debt matures.

But bond markets can close during phases of financial stress, which is why many companies relied on their revolvers in March and April.

Howard Hughes had two quarterly tests of its compliance with lending agreements, both 45 days after quarters closed in March and June, according to Mr. O’Reilly. “Covenants are always a consideration,” he said, adding that the company remains in compliance.

Continued in article

 


Teaching Case From The Wall Street Journal Weekly Accounting Review on September 11, 2020

Tesla to Sell Up to $5 Billion in Stock

By Nina Trentmann | September 2, 2020

Topics: Stockholders' Equity

Summary: “Tesla Inc. said it planned to raise up to $5 billion through stock offerings from time to time as the electric-vehicle maker, which has enjoyed a surging share price, makes another investment push….Elon Musk…has had a complicated relationship with fundraising. With a showman’s flair, he has been successful in drumming up investor enthusiasm in Tesla, while also expressing a reluctance to issue stock over concerns it would dilute value for existing shareholders.” The article lists the firms who have entered into equity distribution agreements for these new-issue shares; they will receive commissions of up to .5% per share.

Classroom Application: The article may be used when discussing stock issuances, including stock issuance costs. Questions specifically ask for the summary entries that will be recorded form this transaction. Aslo, as stated in the subtitle to the article, Tesla’s return to capital markets follows 5-for-1 stock split on Monday. An article announcing the split from August 11 is available at https://www.wsj.com/articles/tesla-to-enact-5-for-1-stock-split-11597181734 Another article covered in this week’s review is available at https://www.wsj.com/articles/what-is-a-stock-split-and-how-does-it-affect-your-portfolio-11598616477

Questions:

·        For what reason(s) will Tesla issue new shares of its stock?

·        How is Tesla planning to issue these new shares? Have they yet been issued?

·        State the basic journal entry Tesla will make to record issuance of these shares. Though they will not be issued all at once, use the $5 billion total given in the article for your entry and assume the commissions to banks will be exactly .5% but there will be no other expenses associated with the offering.

·        How does issuing equity “bolster [Tesla’s] balance sheet”? In your answer, refer back to the entry given in response to question 3 above.

READ THE ARTICLE

Reviewed By: Judy Beckman, Ph.D., CPA, University Of Rhode Island

 

"Tesla to Sell Up to $5 Billion in Stock, by Dave Sebastian, The Wall Street Journal, September 1, 2020
https://www.wsj.com/articles/tesla-to-sell-up-to-5-billion-in-stock-11598964848

Electric-vehicle company’s return to capital markets follows 5-for-1 stock split on Monday

Tesla Inc. TSLA 1.38% said it planned to raise up to $5 billion through stock offerings from time to time as the electric-vehicle maker, which has enjoyed a surging share price, makes another investment push.

The return to capital markets comes after the stock split 5-for-1 on Monday, sending it up sharply. The planned fundraising represents roughly 1.1% of Tesla’s $464 billion market capitalization, according to FactSet.

Tesla has enjoyed a strong run despite the pandemic that temporarily shut its lone U.S. car plant in Fremont, Calif., as local authorities battled the spread of the Covid-19 disease. In July, the company posted a fourth-consecutive profitable quarter for the first time in its 17-year history, defying Wall Street analysts who expected a loss. But reaching that point hasn’t been easy. In its quest to become the first mass producer of electric cars, Tesla burned cash to raise production and overcome logistical hurdles.

The Silicon Valley car maker, which had about $8.5 billion in debt at the end of the latest quarter, has at times struggled with a lack of liquidity, particularly during expansion periods when it introduced new models and added production capacity.

The company in July said it was planning to open a second U.S. car factory to be located in Austin, Texas, with production slated to start next year. It already is working on its first European car plant, outside Berlin, and has signed a loan agreement with Chinese banks to expand its car plant in Shanghai.

Tesla, which this year began delivering its Model Y sport-utility vehicle, also is working on several new vehicle types, including its Cybertruck pickup and Semi truck.

David Whiston, an analyst for Morningstar Research, said there will likely be many more factories requiring heavy capital spending, and with the run-up in its stock Tesla can tap what almost amounts to free money.

The shares have risen nearly sixfold this year, including a roughly 80% rise since the company’s stock-split announcement on Aug. 11.

Raising capital over time is a good way to involve retail investors, Craig Irwin, senior research analyst at Roth Capital Partners LLC, said. “They’re going to sell $5 billion of their stock into the open market from time to time for a much smaller fee than they would if they sold straight equity in a secondary [offering].”

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on September 11, 2020

What Is a Stock Split and How Does It Affect Your Portfolio

Topics: Stock Splits

Summary: Both Apple and Tesla, Inc. recently announced stock splits. Reaction to Tesla, Inc.’s split and subsequent sale of originally issued shares is also covered in an article in this week’s Review. The main questions discussed in the article (as subject headings) are: 1. What is a stock split? 2. What happens to the company’s dividend? 3. What happens to options bets? 4. What happens to fractional shares of companies that split? 5. What does a stock split mean for the company? 6. How popular are stock splits now? 7. What does this mean for the stock market? 8. Why were stock splits more popular in the past? 9. What options do investors have for high-priced stocks that don’t split?

Classroom Application: The article is an excellent one to use when introducing stock splits and dividends.

Questions:

·        Define the terms declaration date, date of record, and effective date in relation to dividends, stock dividends, and stock splits.

·        When were the Apple and Tesla stock splits announced? Do you think those dates were the declaration dates for these companies’ splits? Explain your answer.

·        Summarize how a stock split “works” in terms of accounting as well as the financial impact on the company’s share price. Cite your source for the accounting information, whether from your textbook or elsewhere.

·        As identified in the article, what are the benefits of a stock split?

·        Why have stock splits declined in use from the 1990s until 2020?

READ THE ARTICLE

Reviewed By: Judy Beckman, Ph.D., CPA, University Of Rhode Island

 

"What Is a Stock Split and How Does It Affect Your Portfolio? by Michael Wursthorn,  The Wall Street Journal,  August 28, 2020,
https://www.wsj.com/articles/what-is-a-stock-split-and-how-does-it-affect-your-portfolio-11598616477

The stock splits of Apple Inc. AAPL -3.26% and Tesla Inc. TSLA 1.38% take effect Monday. These change the stock price and not much else, but they can be confusing anyway.

Stock splits rarely happen these days. Once nearly a given when shares topped $100 or so, stock splits have all but disappeared from the corporate playbook. Stock splits by companies in the S&P 500 faded from prominence after the dot-com bust in 2000, while those by companies in the Dow Jones Industrial Average are even less frequent.

Here, The Wall Street Journal tackles the ins and outs of stock splits, from how they work to why they happen less often.

What is a stock split?

Each company shareholder at the close of business on the day the stock split goes into effect will receive additional shares for every share they hold. If a company announces a 4-for-1 stock split, the shareholder will get three additional shares. The price of the original share will be divided by four, so that a share trading at $400 would trade at $100 after the split.

Stock splits help entice investors who might be put off by a high share price. But that might be less relevant now than in the past. Brokerages such as Charles Schwab Corp. give clients the option of buying a fraction of a share for as little as $5, opening up a range of pricey stocks to mom-and-pop investors.

What happens to the company’s dividend?

It depends on what the board decides. If the company holds its dividend steady, its next payout would split along the same lines as the stock—a dividend of $1 after a 4-for-1 stock split would be 25 cents.

What happens to options bets?

What happens to options bets?

Options contracts owned at the time of the split are recalculated through a process known as “being made whole.” The Options Clearing Corp. has rules and procedures in place to modify contracts so that the holder isn’t affected by the split. The contract is adjusted to reflect the new price and number of shares, but its value remains the same.

In a 4-for-1 split, a call options contract that covered 100 shares with a strike price of $100 each would cover 400 shares with a strike price of $25.

What happens to fractional shares of companies that split?

What happens to fractional shares of companies that split?

Again using the example of a 4-for-1 split, investors who hold less than one share ahead of the split will receive three additional fractional share equivalents. An investor holding half a share before the split will end up holding two shares after the split. An investor holding a quarter of a presplit share will end up with one share afterward. Anyone with less than a quarter share will hold a fractional share following the split.

What does a stock split mean for the company?

What does a stock split mean for the company?

Other than a lower stock price and more shares outstanding, mostly nothing. Splits don’t affect a company’s value, although they have a history of generating a short-term pop in a company’s stock price.

Stocks in the S&P 500 tend to rise 5% in the year following share splits, including 2.5% immediately following the announcement, according to research from Nasdaq Inc. on splits between 2012 and 2018.

Recent gains have been bigger in some cases. Shares of Apple have risen 30% since July 30, when the company announced its split, while Tesla’s stock has added 61% since the Aug. 11 unveiling of its plans. Many investors say the outsize reactions to those splits reflect factors including novice traders’ embrace of technology favorites during a year of pandemic-related disruption and the perception that a stock split ratifies a firm’s perceived competitive strength.

 

What does this mean for the stock market?

In most cases, stock splits have no impact on the broader stock market. The S&P 500, the index most closely followed by many investors and portfolio managers, is weighted by firms’ market value, so a split has no impact. The Dow Jones Industrial Average is a different story. A stock split won’t shave any points from the blue-chip index, but it will make a splitting stock less influential in it.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on September 18, 2020

The Tax Moves Day Traders Need to Make Now

By Laura Saunders Mischa Frankl-Duval | September 11, 2020

Topics: Individual Taxation , Capital Gains Tax , Net Investment Income Tax

Summary: The article describes tax issues typically faced by younger investors, particularly day traders. “Trading by individuals has surged in 2020, fueled by no-commission trades, a rising market from March through August and free time provided by pandemic lockdowns…Easy-to-use mobile apps [such as Robinhood] have contributed to the surge by attracting new, inexperienced traders….[and they] likely aren’t aware they are trading in taxable accounts, where each sale has tax effects.” Topics mentioned include tax planning overall, capital gains versus gains taxed at higher rates, and wash sales.

Classroom Application: The article may be used in an individual income tax course to discuss capital gains and tax planning overall.

Questions:

·        Summarize the story behind then-college student Manessa Lormejuste. How has tax planning helped her?

·        Define the term capital gains and describe their tax treatment.

·        How are investment income tax rules “very different from those for earned income such as wages”?

·        How does the tax difference for investment income lead to the need for tax planning?

READ THE ARTICLE

Reviewed By: Judy Beckman, Ph.D., CPA, University Of Rhode Island

 

"The Tax Moves Day Traders Need to Make Now." by Laura Saunders and Mischa Frankl-Duval, The Wall Street Journal, September 11, 2020, 
https://www.wsj.com/articles/the-tax-moves-day-traders-need-to-make-now-11599816642

New, inexperienced investors are rushing into the market thanks to no-commission trades and the popular Robinhood trading app. What many don’t know is that they could owe Uncle Sam taxes on those trades.

If you’re one of the millions of day traders who have jumped in and out of markets this year, check your taxes now. Being a taxpayer may not be top of mind, but not paying attention could dent your bottom line next April.

Trading by individuals has surged in 2020, fueled by no-commission trades, a rising market from March through August and free time provided by pandemic lockdowns. At Charles Schwab Corp., SCHW +0.14% the average of 1.6 million daily trades for the second quarter was more than twice the year-earlier average of 716,000.

Easy-to-use mobile apps have contributed to the surge by attracting new, inexperienced traders. According to Robinhood Markets Inc., which offers the popular Robinhood trading app, first-time investors accounted for 1.5 million of its 3 million funded accounts opened in the first four months of 2020

 

Many new traders likely aren’t aware they are trading in taxable accounts, where each sale has tax effects. (Robinhood customers can’t trade within retirement accounts such as traditional or Roth IRAs, where sales aren’t taxable.) Next year, many will be surprised to receive long tax forms for 2020.

In 2017, college student Manessa Lormejuste was a little shocked to receive her first tax form from Robinhood, which ran to a dozen pages. She had no idea she could owe capital-gains tax on her trades.

Now 25, the cosmetic chemist from Linden, N.J., has since revised her strategies, monitoring gains and losses weekly, and she often holds positions for longer than a year to avoid the higher rates on short-term gains. “I try my best to minimize my taxes,” she says.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on September 18, 2020

Companies Brace for Profit Hit From Euro Rally

By Caitlin Ostroff | September 7, 2020

Topics: Foreign Currency Exchange Rates

Summary: “The euro has climbed 5.6% against the dollar this year, its biggest advance since 2017. On Sept. 1, it surpassed $1.20 for the first time since May 2018. The currency is near an all-time high on what is known as a trade-weighted basis. That means the euro has also strengthened against the currencies of other major trading partners….” European companies may therefore face profit declines because, “when the euro is strong, it makes exports such as machinery, cars and chemicals from the eurozone more expensive for foreign buyers. It also erodes the value of overseas sales for companies [when they are denominated in that relatively diminished-value foreign currency]…”

Classroom Application: The article may be used to discuss the impact of foreign currency value change with a perspective from outside the U.S.

Questions:

·        What factor(s) has(have) led to an increase in the value of the euro?

·        How can those factors then pose a “pain threshold” for European companies?

·        Consider the examples of French tire manufacturer Michelin and Italian sports car manufacturer Ferrari. Which of their financial statement line item(s) will show the impact of the increasing euro value? Explain your answer.

READ THE ARTICLE

Reviewed By: Judy Beckman, Ph.D., CPA, University Of Rhode Island

 

"Companies Brace for Profit Hit From Euro Rally," by Caitlin Ostroff, The Wall Street Journal, September 7, 2020
https://www.wsj.com/articles/companies-brace-for-profit-hit-from-euro-rally-11599473390

The eurozone’s recent currency strength spells profit trouble for companies emerging from the Covid-19 crisis, including automakers such as Fiat Chrysler and Ferrari

The euro’s sharp rally this year is seen as a vote of confidence by investors on the prospects for Europe’s economic recovery. But companies and their shareholders are bracing for pain.

The euro has climbed 5.6% against the dollar this year, its biggest advance since 2017. On Sept. 1, it surpassed $1.20 for the first time since May 2018. The currency is near an all-time high on what is known as a trade-weighted basis. That means the euro has also strengthened against the currencies of other major trading partners, including China and the U.K.

When the euro is strong, it makes exports such as machinery, cars and chemicals from the eurozone more expensive for foreign buyers. It also erodes the value of overseas sales for companies in the 19 member states, and can chip away at profit just as they emerge from the Covid-19 economic crunch.

“We’re at the start of the pain threshold when I look at the trade-weighted index,” said Viraj Patel, a foreign-exchange and global-rates strategist at research firm Arkera. “If it stays here, it’s a small problem. If it goes higher, it’s a big problem.”

The gains in the euro mirror a weakening in the U.S. dollar. Investors have eased out of the greenback in recent months, after the Federal Reserve signaled it would keep interest rates low and allow inflation to climb. That has erased 3.7% from the dollar’s value this year.

The strengthening euro hasn’t weighed much on European stocks yet, though it is one of the reasons why equity benchmarks in the region have lagged behind the U.S. gauges, analysts said. The Euro Stoxx index, a benchmark tracking a broad swath of stocks in the euro area, is down about 10.6% this year, compared with the S&P 500’s 6% advance.

 

The real impact from the currency’s strengthening will start showing up on companies’ bottom line, analysts said.

But it is hard to quantify how much it will eat into corporate earnings. Companies with more than $250 million in earnings typically deal in 40 currencies with more than 200 cross currencies, said Wolfgang Koester, senior strategist at Kyriba, a financial software company.

“There is a tendency to really balance this off what’s happening between the U.S. versus Europe, but in reality it’s much more complex than that,” Mr. Koester said.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on September 18, 2020

Ernst & Young Loses Two German Clients Amid Wirecard Scandal

By Patricia Kowsmann | September 2, 2020

Topics: Auditing

Summary: “Ernst & Young has defended its work [on Wirecard AG,] saying it identified the alleged fraud while completing the 2019 audit of the company’s financial statements.” Nonetheless, two large German clients—DWS Group and Commerzbank—have disengaged EY as their auditors. Commerzbank is a member of a group of 15 which lent Wirecard €1.75 billion ($2.07 billion) and had to write off €1.75 million in relation to Wirecard. “Both would face conflicts of interest if they decided, for instance, to sue EY for any role it played in auditing Wirecard, while also being audited by” the firm.

Classroom Application: The article may be used in and auditing class to discuss audit risk, business risk, and/or fraud detection.

Questions:

·        What is the Wirecard AG scandal? You may obtain this answer through links in the article to other articles or to the related video.

·        What is the process that Commerzbank will undertake in order to select a new auditor? How long will that process take?

·        What happened to EY’s appointment as auditor for DWS Group?

·        Define the terms audit risk and business risk as associated with providing audit services. Do you think the reaction of Commerzbank and DWS Group stems from one of these risks facing EY as an audit firm? Explain your answer.

·        Do you think that Commerzbank and DWS Group are concerned that EY has provided them with substandard audit services? Explain your answer.

READ THE ARTICLE

Reviewed By: Judy Beckman, Ph.D., CPA, University Of Rhode Island 

 

"Ernst & Young Loses Two German Clients Amid Wirecard Scandal," by Patricia Kowsmann, The Wall Street Journal, September 2, 2020
 https://www.wsj.com/articles/ernst-young-loses-two-german-clients-amid-wirecard-scandal-11599072589

Commerzbank, DWS cite potential conflicts of interest in decisions to drop accounting firm

Accounting firm Ernst & Young has lost two prominent clients in Germany over its longstanding role auditing the financials of Wirecard AG WDI -3.91% , the fintech company embroiled in one of Europe’s biggest corporate accounting scandals in recent years.

Commerzbank AG CRZBY -2.78% , Germany’s second-largest lender, and DWS Group, Deutsche Bank AG ’s asset-management arm, both decided not to use EY’s affiliate in Germany, Ernst & Young GmbH, to audit their accounts, they said. The decisions were made because of Commerzbank’s exposure to Wirecard as a creditor and DWS’s as an investor through its funds. Both would face conflicts of interest if they decided, for instance, to sue EY for any role it played in auditing Wirecard, while also being audited by it.

Commerzbank, whose auditor is currently EY, decided at a meeting on Wednesday to propose a new auditor for 2022 at the bank’s next general meeting in 2021, a bank spokeswoman said, citing a possible conflict of interest.

“Naturally, we are disappointed by this decision,” an EY spokeswoman said. “We remain fully focused on continuing to provide high quality audit services to Commerzbank for the 2020 and 2021 financial years.”

At DWS, EY was appointed to succeed KPMG Aktiengesellschaft as auditor this year. DWS will instead renew with KPMG.

“This decision was made in an abundance of caution and under due consideration to avoid any possible future conflicts arising potentially from the role of EY as statutory auditor of Wirecard,” DWS said in a document laying out the agenda for its November annual general meeting, where shareholders must approve changes.

A DWS spokesman said the company is evaluating potential action against Wirecard, its management and other involved parties.

“We had, of course, hoped for another outcome,” an EY spokeswoman said. She added: “We would like to emphasize, however, that we are continuing our good and constructive dialogue with DWS.”

Commerzbank, which along with 14 others lent Wirecard €1.75 billion ($2.07 billion) under a revolving credit facility, had to write off €175 million in the second quarter over its exposure.

EY has defended its work, saying it identified the alleged fraud while completing its 2019 audit, and that “even the most robust and extended audit procedures may not uncover a collusive fraud.”

Wirecard filed for insolvency in June after revealing that €1.9 billion in cash that was missing from its balance sheet probably didn’t exist. German prosecutors are investigating former Wirecard executives for accounting fraud and money laundering. They are also looking at EY’s work as part of the investigation. EY is also being investigated by the country’s auditor regulator.

Investors meanwhile are questioning how EY, which has audited Wirecard’s accounts since 2009, missed the alleged fraud.

The firm is the subject of a criminal complaint in Munich by a German shareholder association. A Berlin-based law firm has also filed a class-action lawsuit against EY on behalf of investors.

While Ernst & Young Global Ltd. is the umbrella organization that oversees global standards and a code of conduct for its employees, actual operations are run independently by each country. That means EY Germany must alone absorb any losses arising from lost business or legal action. Under German law, auditors are liable for as much as €4 million for negligence.

According to EY Germany’s most recent annual results, released in October, it made more than €2 billion in revenue for the year, of which over €600 million came from its audit services. Commerzbank paid €15 million in fees to EY in 2019, according to the bank’s annual report.

Continued in article

 


Teaching Case From The Wall Street Journal Weekly Accounting Review on September 25, 2020

Companies Brace for Higher Taxes After U.S. Election

By Kristin Broughton Mark Maurer | September 17, 2020

Topics: Effective Tax Rates

Summary: The article describes results of a PwC survey of corporate finance executives at major U.S. corporations about expected effective tax rates following the November presidential election in the U.S. “Seventy percent of executives anticipate higher tax rates…” regardless of who wins the elections. The 2017 tax law change cut the statutory tax rate from 35% to 21%; “Democratic candidate Joe Biden has proposed raising the rate back up to 28%” but President Trump has not released a specific proposal. “Finance and tax executives are modeling how these and other tax-policy changes could affect cash flow and investment decisions for their businesses.”

Classroom Application: This article may be used in a corporate or entity tax class. It also may be used in a financial reporting class discussing anticipated versus enacted tax rates in association with deferred tax accounting. The article also offers a strong managerial accounting focus on the connection between tax planning and corporate decision-making.

Questions:

·        What survey is the basis for this Wall Street Journal article? Who conducted the survey?

·        What is an effective tax rate?

·        Financial reporting question: how are effective tax rates used in accounting for deferred taxes? Will this accounting be affected now, based on these corporate estimates of changes in effective tax rates? Explain your answer.

·        What decision making do you think will be affected by changes in effective tax rates? In your answer, include an example from the article, but also try to add an example that you can think of.

·        According to the article, how are corporate finance departments analyzing expected changes in effective tax rates?

READ THE ARTICLE

Reviewed By: Judy Beckman, Ph.D., CPA, University Of Rhode Island

 

"Companies Brace for Higher Taxes After U.S. Election," by Kristin Broughton Mark Maurer, The Wall Street Journal, September 17, 2020
https://www.wsj.com/articles/companies-brace-for-higher-taxes-after-u-s-election-11600366918

With the bill for federal coronavirus aid in mind, finance chiefs are modelling how higher corporate taxes would affect cash flows and investment decisions

Finance executives at major U.S. companies expect corporate tax rates to rise following the presidential election in November—no matter who wins.

Seventy percent of executives anticipate higher tax rates after the poll, reflecting expectations that the government will have to fund recent stimulus spending, tax deferrals and other federal coronavirus-related relief, according to a survey by PricewaterhouseCoopers released Tuesday.

Democratic candidate Joe Biden has proposed to raise the U.S. corporate tax rate to 28%, up from the current level of 21%. President Trump hasn’t suggested any major changes. The 2017 tax overhaul signed by Mr. Trump cut the rate to 21% from 35%.

Executives are more likely to ramp up planning for tax-policy changes if Mr. Biden wins the election, the survey among 580 professionals such as finance, operating and human-resources chiefs found. If President Trump is re-elected, executives are likely to spend more on their companies’ supply chains to protect against fallout from U.S.-China trade tensions, PwC said.

Mr. Biden’s proposal, which would undo several changes in the 2017 tax law, includes a new surtax for companies that make products overseas and sell them back into the U.S. Mr. Biden said he would also raise the minimum taxes on U.S. companies’ foreign income and offer a 10% tax credit for certain investments in domestic production.

Finance and tax executives are modeling how these and other tax-policy changes could affect cash flows and investment decisions for their businesses.

Altria Group Inc., the Richmond, Va.-based Marlboro cigarette maker, has been running scenarios to assess how, for example, higher state-excise taxes—levies imposed on companies for selling certain goods—could affect revenue growth, Chief Financial Officer Sal Mancuso said.

The uncertainty caused by the pandemic has added complexity to the tax planning exercise Altria usually conducts before a presidential election. “It’s challenging and we will run multiple scenarios looking at different outcomes going forward,” Mr. Mancuso said

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on September 25, 2020

Unisys CFO Considers Debt Sale to Lower Pension Deficit

By Mark Maurer | September 23, 2020

Topics: Corporate Debt , Pension Accounting , Pension Deficits

Summary: According to Unisys Chief Financial Officer Mike Thomson, the company’s investors are increasingly pushing for resolution of a burdensome unfunded pension obligation. “‘We probably spend 70% of our dialogue with analysts and investors answering questions about the pension and 30% talking about the business,’ he said.” The article describes factors leading to the level of the unfunded liability (the low-interest rate environment), steps the company has taken to reduce the obligation, and consideration of debt issuance to pay down the unfunded liability.

Classroom Application: The article may be used in a financial reporting class when discussing long-term liabilities, pension obligations, and bond issuances.

Questions:

·        What is a defined benefit pension plan? Contrast this definition with a defined contribution plans.

·        Describe the timeline given in the article with Unisys’s management of its defined benefit pension plan. For example, when did Unisys stop accepting new entrants to the pension plan?

·        Define the term unfunded pension obligation. To which type of plan, defined benefit or defined contribution, does this relate?

·        What steps has Unisys taken to reduce its unfunded pension obligation?

·        Review the graph entitled “Indebted.” What has happened to the unfunded pension obligation despite these steps taken by Unisys?

·        What step is Unisys now considering? What are the business implications of this option?

READ THE ARTICLE

Reviewed By: Judy Beckman, Ph.D., CPA, University Of Rhode Island

 

"Unisys CFO Considers Debt Sale to Lower Pension Deficit," by Mark Maurer, The Wall Street Journal, September 23, 2020
https://www.wsj.com/articles/unisys-cfo-considers-debt-sale-to-lower-pension-deficit-11600877863

The technology-services company, with a market capitalization of $740 million, had unfunded pension obligations of $1.75 billion at the end of 2019.

Unisys Corp.’s finance chief is weighing a bond sale in the coming months to reduce the company’s substantial pension deficit.

The technology-services company’s unfunded pension obligations stood at 236%—or $1.75 billion—of its market capitalization of $740 million at the end of 2019. That’s the highest ratio among the 100 largest defined-benefit pension plans owned by U.S. companies, according to actuarial consulting firm Milliman Inc.

Under defined-benefit plans, companies promise to pay out fixed sums to retirees, sometimes over decades. Low interest rates have made it difficult for some companies in recent years to achieve the investment returns needed to match their obligations to retirees.

Unisys’s investors are increasingly pushing the company to resolve its pensions deficit, Chief Financial Officer Mike Thomson said. “We’ve been getting more external pressure,” Mr. Thomson said. “We probably spend 70% of our dialogue with analysts and investors answering questions about the pension and 30% talking about the business,” he said.

Having a sizable pension deficit has several downsides for finance chiefs, including limiting a company’s ability to borrow money or invest. It can also deflate the company’s market value.. The average deficit for the 100 largest defined-benefit plans in the U.S. was $2.32 billion in 2019, and most of them were held by companies much larger than Unisys, Milliman said.

Tapping the market for high-yield bonds, which have a higher default risk than investment-grade bonds, could help ease a burden that has plagued Unisys for the past decade. During that time, the company’s workforce shrank and its revenue declined, while pension obligations grew. Unisys had 21,000 employees at the end of 2019, according to a filing with regulators.

The company, which provides information-technology services, last issued debt in 2017, when it raised about $440 million, saying the money would be used for general corporate purposes. Its total debt stood at $733.2 million at the end of 2019, up from $652.8 million in 2018, according to S&P Global Market Intelligence. Unisys declined to comment on whether the potential bond sale would be the company’s first aimed at funding its pensions. It also declined to comment on how much it would look to raise through the bond.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on September 25, 2020

Companies Adjust Earnings for Covid-19 Costs, but Are They Still a One-Time Expense?

By Nina Trentmann | September 24, 2020

Topics: Non-GAAP Reporting , Coronavirus

Summary: “Finance chiefs and investors are trying to figure out how to account for coronavirus-related expenses as the pandemic transforms how companies operate in ways that may become a permanent cost of doing business.” Executives acknowledge that costs incurred to reconfigure workplaces, maintain cleaning procedures, and even pay bonuses to workers who cannot function remotely may continue longer than first anticipated and some may become a permanent part of doing business. Yet “some companies continue to treat virus-related costs as special, one-time items” and make adjustments for these items in non-GAAP metrics.

Classroom Application: The article may be used in a financial reporting or financial statement analysis class when discussing non-GAAP reporting.

Questions:

·        The practice of non-GAAP reporting is pervasive: “in the second quarter [of 2020], 94% of companies in the S&P 500 used at least one non-GAAP measure…” What is non-GAAP reporting? What are some non-GAAP metrics? Cite your source for this information.

·        What is the Center for Audit Quality? Cite your source for this information.

·        What types of non-GAAP adjustments are being found by the Center for Audit Quality based on a review of second-quarter 2020 earnings reports?

·        Consider the description in the article of DuPont de Nemours Inc. What type of income adjustment is being described, but not named, in the article?

·        Approximately how much in net charges did DuPont de Nemours Inc. record that was backed out when the company reported earnings on a non-GAAP basis?

·        What recommendation about Covid-related costs and non-GAAP treatment is recommended by some accounting professionals? Is the Securities and Exchange Commission in the group that is making this recommendation? Explain your answer.

·        What is EBITDA?

·        Based on the discussion in the article, how do you think EBITDA is used in loan covenants? How are banks reacting to non-GAAP adjustments made in calculating EBITDA?

READ THE ARTICLE

Reviewed By: Judy Beckman, Ph.D., CPA, University Of Rhode Island

 

"Companies Adjust Earnings for Covid-19 Costs, but Are They Still a One-Time Expense? by Nina Trentmann, The Wall Street Journal,
https://www.wsj.com/articles/companies-adjust-earnings-for-covid-19-costs-but-are-they-still-a-one-time-expense-11600939813

CFOs navigate accounting rules as some coronavirus-related expenses may be here to stay

Finance chiefs and investors are trying to figure out how to account for coronavirus-related expenses as the pandemic transforms how companies operate in ways that may become a permanent cost of doing business.

Businesses have spent billions of dollars on personal protective equipment, such as masks and gloves, to keep their operations running since March. Many have retrofitted office spaces and factories to protect workers. Stores and restaurants have added plexiglass dividers, reduced capacity to allow for social distancing and paid employees special bonuses to continue doing their jobs on site when remote work isn’t possible.

More than six months into the pandemic, company executives say they expect to be dealing with the effects of Covid-19 for much longer than they initially anticipated.

Still, some companies continue to treat virus-related costs as special, one-time items, which can give the impression that a business’s costs are lower than they actually are. This in turn can boost its non-GAAP financial results. Companies often highlight these metrics when also reporting earnings figures that comply with generally accepted accounting principles as required.

Some investors and accounting professionals suggest that after two quarters of reporting Covid-19-related costs, companies should consider treating these items as regular costs of doing business as they close the books for the third quarter and not adjust their non-GAAP earnings.

Such thinking is based on the Federal Reserve’s projection that the U.S. economy won’t recover fully until there is a widely available vaccine, at which point, PPE, social distancing and other Covid-19 precautions may become unnecessary. Such a vaccine, however, might be months, if not years away. And companies are likely to keep incurring coronavirus-related expenses until then.

“The pandemic isn’t something that could be characterized as a discrete event,” said David Knutson, vice chair of the Credit Roundtable representing institutional investors and head of credit research for the Americas at Schroders PLC, the asset-management company. “Presenting a one-off adjustment in what is a secular change is misleading,” he said, adding that in some industries, there won’t be a return to pre-Covid-19 times.

Boston-based Iron Mountain Inc., an information management-and-storage company, in the second quarter booked $9.8 million in Covid-19-related expenses for personal protective equipment, plexiglass shields and cleaning. Iron Mountain added those costs back to its adjusted earnings before interest, taxes, depreciation and amortization, a metric it uses to demonstrate its ability to generate cash flows.

“We were very conservative and prudent in terms of what we added back in,” Chief Financial Officer Barry Hytinen said. In the footnotes of its financial statements, Iron Mountain says Covid-19 costs are “not expected to recur once the pandemic ends.”

Continued in article




Humor for September 2020

Forwarded by Paula

I reflect on all the beer I drink, I feel ashamed.  Then I look into the glass and think about the workers in the brewery and all of their hopes and dreams. If I did not drink this beer, they might be out of work and their dreams would be shattered. I think, it is better to drink this beer &   let dreams come true, than be selfish &   worry about my liver.”      
Babe Ruth   

"When I read about the evils of drinking, I gave up reading.”
Paul Horning

"24 hours in a day and 24 beers in a case. Coincidence? I think not!”
H. L. Mencken

"When we drink, we get drunk When we get drunk, we fall asleep. When we fall asleep, we commit no sin. When we commit no sin, we go to heaven. So, let's all get drunk and go to heaven.”
George Bernard Shaw

"Beer is proof that God loves us and wants us to be happy.”
Benjamin Franklin

"Without question, the greatest invention in the history of mankind is beer. Oh, I grant you that the wheel was also a fine invention, But the wheel does not go nearly as well with pizza.”
Dave Barry

“Beer: Helping ugly people have sex since 3000 B.C.”
W. C. Fields

“Remember ‘I’ before ‘E,’ except in Budweiser.”
Professor Irwin Corey

“To some it is a six-pack. To me, it is a Support Group. Salvation in a can.”
Leo Durocher

One night at Cheers , a TV Sitcom, Cliff Clavin said to his buddy, Norm Peterson: "Well, ya see, Normy, it's like this .. A herd of buffalo can only move as fast as the slowest buffalo. And when the herd is hunted, it is the slowest and weakest ones at the back that are killed first. This natural selection is good for the herd as a whole, because the general speed and health of the whole group keeps improving by the regular killing of the weakest members.

In much the same way, the human brain can only operate as fast as the slowest brain cells. Excessive intake of alcohol, as we know, kills brain cells. But, naturally, it attacks the slowest and weakest brain cells first. In this way, regular consumption of beer eliminates the weaker brain cells, making the brain a faster and more efficient machine. That's why you always feel smarter after a few beers!”


Forwarded by Auntie Bev

Some people write lockdown because they can't spell kwarinteen

Does the jelly in a donut count as a serving of fruit
Asking for a friend

If your underwear and jeans can't stop a fart, how is a mask going to stop a virus?

The importance of punctuation
"I'm giving up drinking until it's over."
"I'm giving up; drinking until it's over."


Church Signs Forwarded by Tina

Cremation is your last chance for a smokin' hot body

Baptist Church:  If you stole our AC units keep one ---  It's very hot where you're headed

Forbidden fruit causes many jams

Anglican Church:  Adam and Eve were the first to not read the apple's terms, conditions, and side effects

If you're praying for snow, please stop

The fact that there's a "highway to hell" and only a "stairway to heaven" says a lot about traffic flow

Be the kind of person your pet thinks you are

Tweet others like you would like to be tweeted

Honk if you love Jesus; Text while driving if you want to meet him


Forwarded by Auntie Bev

Did you ever wake up, kiss the person next to you, and exclaim how glad you are to be alive. I did, and now I'm banned from that airline.

To get a really sparkling smile run your teeth through a dishwasher.

Single women come home, see what's in the fridge, and then go to bed
Married women come home, see what's in bed, and then go to the fridge.

I don't go the extra mile, because if I do I will miss my exit.

People don't think I'm as old as I am until they listen to me standup.

I want to be 14 again and ruin my life differently with some new ideas.

I don't mind getting older, but my body is taking it differently.

My mind is like an Internet browser in that I have no idea where the music is coming from.


Forwarded by Auntie Bev

Mind-Blowing Facts That Sound Completely Fake But Are Claimed to be True:

* You cannot breathe and swallow at the same time. It's also impossible to hum while holding your nose.
* Coconuts kill more people than sharks every year. Vending machines are twice as likely to kill you than a shark.
* The lint that collects in the bottom of your pockets has a name — gnurr.
* There is enough iron in your body to make a 3-inch nail.

* Every two minutes, we take more pictures than all of humanity did in the 19th century.
* A "butt load" is an actual unit of measurement, equivalent to 126 gallons.
* Every odd number has something in common: They share the letter “e”.
* The dot over an "i" is called a "tittle."
* The word "swims" has a secret: swims upside-down is still swims!
* A strawberry isn't a berry but a banana is. So are avocados and watermelon.
* Peanuts are not nuts. They grow in the ground, so they are legumes.

* New York City is further south than Rome, Italy. Scotland is farther north than Alaska.
* France was still executing people with a guillotine when the first Star Wars film came out.
* And there's enough water in Lake Superior to cover all of North and South America in one foot of water.
* There are more fake flamingos in the world than real flamingos.
* Studies show that goats, like us, have accents.
* Armadillos nearly always give birth to identical quadruplets.
* Hippo milk is pink.
* Turtles can breathe out of their butts.
* The unicorn is the national animal of Scotland.

* Pluto never made a full orbit around the sun from the time it was discovered to when it was declassified as a planet. Russia has a larger surface area than Pluto. It rains diamonds on Saturn and Jupiter.
* There are more stars in space than there are grains of sand on every beach on Earth.
* If you dug a hole to the center of the Earth and dropped a book down, it would take 42 minutes to reach the bottom.
* A TI-83 calculator has six times more processing power than the computer that landed Apollo 11 on the moon.

* Anne Frank, Martin Luther King Jr., and Barbara Walters were born in the same year, 1929. Charles Darwin and Abraham Lincoln have the same exact birthday — down to the year. Beethoven and George Washington were alive at the same time — in fact, George Washington was in his forties when Beethoven was born.
* Shakespeare and Pocahontas both lived during the same time.
* Betty White is actually older than sliced bread.
* John Tyler, the 10th president of the United States, has a grandson who's alive today.
* The toy Barbie's full name is Barbara Millicent Roberts.
* The name Jessica was created by Shakespeare in the play Merchant of Venice.
* Not once in the Humpty Dumpty nursery rhyme does it mention that he's an egg.

* Cleopatra lived closer to the invention of the iPhone than she did to the building of the Great Pyramid. Mammoths went extinct 1,000 years after the Egyptians finished building the Great Pyramid.
* The probability of you drinking a glass of water that contains a molecule of water that also passed through a DINOSAUR is almost 100%. There are 10 times more bacteria in your body than actual body cells. And 90% of the cells that make us up of aren't human but mostly fungi and bacteria.
* At the time the current oldest person on Earth was born, there was a completely different set of human beings on the planet. And at the time you were born, you were briefly the youngest person in the entire world.
* A thousand seconds is about 16 minutes. A million seconds is about 11 days. A billion seconds is about 32 years. (A billion is a lot!)

 




Humor September 2020 --- http://faculty.trinity.edu/rjensen/book20q3.htm#Humor0920.htm 

Humor August 2020 --- http://faculty.trinity.edu/rjensen/book20q3.htm#Humor0820.htm 

Humor July 2020 --- http://faculty.trinity.edu/rjensen/book20q3.htm#Humor0720.htm 

Humor June 2020 --- http://faculty.trinity.edu/rjensen/book20q2.htm#Humor0620.htm

Humor May 2020 --- http://faculty.trinity.edu/rjensen/book20q2.htm#Humor0520.htm

Humor April 2020 --- http://faculty.trinity.edu/rjensen/book20q1.htm#Humor0420.htm 

 Humor March 2020 --- http://faculty.trinity.edu/rjensen/book20q1.htm#Humor0320.htm  

Humor February 2020 --- http://faculty.trinity.edu/rjensen/book20q1.htm#Humor0220.htm 

Humor January 2020 --- http://faculty.trinity.edu/rjensen/book20q1.htm#Humor0120.htm

Humor December 2019--- http://faculty.trinity.edu/rjensen/book19q4.htm#Humor1219.ht

Humor November 2019--- http://faculty.trinity.edu/rjensen/book19q4.htm#Humor1119.htm

Humor October 2019--- http://faculty.trinity.edu/rjensen/book19q4.htm#Humor1019.htm  

Humor September 2019--- http://faculty.trinity.edu/rjensen/book19q3.htm#Humor0919.htm 

Humor August 2019--- http://faculty.trinity.edu/rjensen/book19q3.htm#Humor0819.htm 

Humor July 2019--- http://faculty.trinity.edu/rjensen/book19q3.htm#Humor0819.htm 

Humor July 2019--- http://faculty.trinity.edu/rjensen/book19q3.htm#Humor0719.htm 

Humor June 2019--- http://faculty.trinity.edu/rjensen/book19q2.htm#Humor0619.htm

Humor May 2019--- http://faculty.trinity.edu/rjensen/book19q2.htm#Humor0519.htm

Humor April 2019--- http://faculty.trinity.edu/rjensen/book19q2.htm#Humor0419.htm    

Humor March 2019--- http://faculty.trinity.edu/rjensen/book19q1.htm#Humor0319.htm  

Humor February 2019--- http://faculty.trinity.edu/rjensen/book19q1.htm#Humor0219.htm 

Humor January 2019-- http://faculty.trinity.edu/rjensen/book19q1.htm#Humor0118.htm   

 


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




And that's the way it was on September 30, 2020 with a little help from my friends.

 

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

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

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

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

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

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

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

 

 


 

August 2020

 

Bob Jensen's Additions to New Bookmarks

August 2020

Bob Jensen at Trinity University 


 

My Latest Web Document
Over 600 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

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

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

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

 

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

 

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

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

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

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

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

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

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

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

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

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

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




RIP University of Connecticut Tax Professor John D. Phillips, Jr.
https://www.carmonfuneralhome.com/obituary/John-Doyle-Phillips-Jr./Coventry-Connecticut/1873805
Also see video at
https://vimeo.com/436280816

John was married to UCONN tax professor and frequent AECM contributor Amy Dunbar ---
https://www.business.uconn.edu/2019/10/17/professor-dunbar-earns-national-award-pays-it-forward/
By the way Amy --- many congratulations for the above national award

I'm certain this will be a very tough time for Amy and the rest of the family, and I'm absolutely certain that the entire AECM listserv sends its deepest sympathy.


Machine Learning --- https://en.wikipedia.org/wiki/Machine_learning

How to Win With Machine Learning ---
https://paper.li/businessschools#/

Jensen Comment
I'm especially optimistic about chatbots ---
http://faculty.trinity.edu/rjensen/000aaa/thetools.htm#Chatbots

 


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

Stanford University:  How the CEO and cofounder of MasterClass reinvented online learning ---
https://www.gsb.stanford.edu/experience/news-history/david-rogier-mba-11-everyone-should-have-access-genius?utm_source=Stanford+Business&utm_medium=email&utm_campaign=Stanford-Business-Issue-194-8-16-2020&utm_content=alumni

Jensen Comment
I view MasterClass as a resource for learning rather than necessarily the ideal for a course. I think the best way sometimes for students to learn and remember what they learn is asynchronous and/or Socratic where much of what they learn is what they discover on their own. Master case-method teachers in the Harvard Business School often pride themselves in making their students discover solutions on their own. More often than not master case-method teachers don't reveal optimal solutions, and often the issues that are being discussed in cases have no agreed upon optimal solutions.

I was often frustrated by case-method courses when I was a student, because I usually wanted an answer key to compare my solutions against that answer key. But the most complicated problems in life do not have answer keys. There are, of course, some courses where there are answer keys that need to be mastered by scholars building foundations of scholarship .

In education there's no one-size-fits-all for courses. Teachers with the highest teaching evaluations tend to spoon feed answers more than may be best when preparing students for real life. What do you think about a comment on a teaching evaluation that reads:  "Everything I learned in this course I had to learn by myself"?

Case-Method Research and Writing ---
http://faculty.trinity.edu/rjensen/000aaa/thetools.htm#Cases

Metacognitive Issues in Learning ---
http://faculty.trinity.edu/rjensen/265wp.htm
 


Apps for Students With Learning Disabilities: Organization and Study ---
https://writix.co.uk/blog/apps-for-students-with-ld

Bob Jensen's threads on technology aids for students with learning disabilities ---
http://faculty.trinity.edu/rjensen/000aaa/thetools.htm#Handicapped


If there are some new accounting professor blogs in the world, I'd like to hear about them

While nearly all the early accounting professor blogs disappeared, blogging among economics professors thrives ---
The Top 100 Economics Blogs (with great diversity along the left-right spectrum) ---
https://www.intelligenteconomist.com/economics-blogs-2016/

Accounting professors never had the zeal for blogging that is found in the sciences and humanities. You can read about the dismally few accounting professor blogs that died out at
http://faculty.trinity.edu/rjensen/ListServRoles.htm

It appears that the AAA's grand attempt to host a Commons is soon going to fade into the sunset ---
http://commons.aaahq.org/search?find=Lease

If there are some new accounting professor blogs in the world, I'd like to hear about them


COVID-19's influence on evolution of accounting ---
https://future.aicpa.org/resources/download/human-signals-new-patterns-of-behavior-and-the-accounting-profession
 


Amazon's record profits last quarter would've been impossible without an accounting change and a huge spending cut ---
https://www.businessinsider.com/amazon-record-profits-driven-change-in-marketing-and-server-costs-2020-8

 

·        Amazon saved nearly $2.6 billion in net profits last quarter by cutting its marketing spend and through a previously announced estimate change for its server costs.


 

·        The change is noteworthy given how Amazon's net profit doubled to a record $2.6 billion last quarter, and shows how the company boosted its profitability in the face of a pandemic.


 

·        Analysts say the growth in Amazon's high-margin businesses also helped offset the increased costs during the quarter, such as the $4 billion COVID-related expenses.

 

Amazon surprised many investors last week when it doubled its second-quarter profits to a record $5.2 billion — nearly seven times more than Street expectations.

But Amazon's quarterly filings show a large portion of its profit gains were led by a change in accounting estimates and a marketing cutback, showing how the company was able to boost its bottom line in the face of a pandemic. Growth in its higher-margin businesses, such as its cloud and advertising units, helped too, as its retail profitability dropped during the quarter.

According to Amazon's quarterly filings, it added $534 million in net income last quarter due to a previously announced change in the way it accounts for its servers' lifetime value. The extended "useful life" of its servers, a legitimate change that speaks to Amazon's infrastructure efficiency, helped spread out the depreciation cost by another year, resulting in a bump in profits.

The bigger impact, however, came from a reduction in marketing expenses. Amazon's CFO Brian Olsavsky said in a call with analysts that the company cut its marketing spend by "about a third" in the quarter to reduce the heavy customer demand pressuring its supply chain during COVID-19. That means Amazon spent roughly $2.1 billion less on marketing than it normally would have during the quarter. Its marketing expense grew just 1% to $4.3 billion in the three months ending in June, a sharp decrease from the 37% growth seen all of last year.

Combining those two figures ($534 million and $2.1 billion) results in roughly $2.6 billion in savings — almost exactly the same amount Amazon reported in its year-over-year profit gains for the quarter.

Daniel Aobdia, an accounting professor at Northwestern University and a former fellow at the Public Company Accounting Oversight Board, told Business Insider that those two factors were key to Amazon's record profits. Given Amazon spent more than $4 billion on COVID-related initiatives, those changes helped offset the loss. The bigger question, he said, is how to make future profit estimates, since Amazon will most likely have to ramp up its marketing spend once COVID-driven demand cools down, possibly making last quarter's profit gains an outlier.

"One might wonder how much the increase in earnings will be sustained over the long run if marketing expenditures need to revert back to traditional levels," he said.

Continued in article


'Big 4' salaries, revealed: How much Deloitte, KPMG, EY, and PwC accountants and consultants make, from entry level to executive roles ---
https://www.businessinsider.com/salary-of-consultants-accountants-big-4-deloitte-kpmg-ey-pwc-2020-7?utm_source=Sailthru&utm_medium=email&utm_content=BIPrime_select&utm_campaign=BI Prime 2020-08-04&utm_term=BI Prime Select

 

·        Last year, the so called "Big Four" accounting firms — PricewaterhouseCoopers (PwC), KPMG, Ernst & Young (EY), and Deloitte — employed well over a million people

·        These firms are known for paying employees six-figure salaries right out of business school. 

·        To figure out how much accountants and consultants make at these firms, Business Insider analyzed the US Office of Foreign Labor Certification's 2019 disclosure data for permanent and temporary foreign workers.

·        For example, some analysts and auditors made more than $120,000 at Ernst & Young (EY), principals were given up to $950,000 in compensation at KPMG, and managers at PwC made $123,019 or more. 

 

The so called "Big Four" accounting firms — PricewaterhouseCoopers (PwC), KPMG, Ernst & Young (EY), and Deloitte — are known for paying their staff high salaries. 

In 2019, the four firms combined employewell over a million people worldwide. New hires typically earn six-figure salaries from the get-go. An entry-level consultant who just graduated from business school can makmore than $200,000 a year at the four firms when you include base salary, bonuses, and relocation expenses. 

Business Insider analyzed the US Office of Foreign Labor Certification's 2019 disclosure data for permanent and temporary foreign workers to find out what PwC, KPMG, EY, and Deloitte paid employees for jobs ranging from entry-level to executive roles. The salary data analyzed were based across the US. 

We looked through entries specifically for roles related to management consulting and accounting. Performance bonuses, signing bonuses, and compensation other than base salaries are not reflected in this data.

Here's how much PwC, KPMG, EY, and Deloitte paid their hires last year. 

Continued in article (with considerable detail, but only for consulting divisions)

Also see
https://www.businessinsider.com/bain-bcg-and-mckinsey-base-salaries-how-much-consultants-make-2020-7?utm_source=Sailthru&utm_medium=email&utm_content=BIPrime_select&utm_campaign=BI Prime 2020-08-06&utm_term=BI Prime Select

Jensen Comment
The accounting/auditing divisions of the firms pay considerably less up to and sometimes including promotions to be partners sharing in profits.

A majority of graduates of accounting programs await whatever the starting salaries due to job availability, excellent training, location choices, and client exposures.

Corporations and some government agencies (think FBI) require experience years in addition to accounting degrees. This leaves CPA firms and the IRS relatively alone in the hiring of new graduates that have minimal experience other than perhaps very short internships while in college.

Many new employees of large CPA firms do not intend to make lifetime careers in those firms. These new employees want the excellent training and experience to eventually move elsewhere, including sometimes opening up their own CPA firms and tax practices. Many want to move to rural communities where there are small accounting/tax firms and businesses wanting accountants (where there are no larger CPA firms in the region). Many accountants just do not want lifetime careers in mega offices in mega cities.

My point here is that graduates contemplating job offers from all divisions of large accounting firms should concern themselves with many factors more important than starting salaries. For example, training and certain types of experience provide more career opportunities relative to those starting salaries.

There's an added consideration when choosing between auditing versus consulting. The enormous problem with consulting engagements is that they are often for specific engagements with limited life. Consultants are constantly having to seek out and win over new clients. The auditing engagements, on the other hand, are often repeat engagements year after year after year. It took GE nearly 100 years to seek out an auditor other than KPMG.

Personally I would not want to spend much of my working life seeking out new clients, writing proposals, and glad handing my way into new contracts. I was more inclined to want a steady day job and fill in with high paying gigs now and then. I would not like being a gig worker full time.

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


MBA grads of Harvard, Stanford, Columbia, and more share the unique career paths they took after business school — that didn't end in finance or consulting ---
https://www.businessinsider.com/mba-graduates-harvard-stanford-columbia-share-unique-career-paths-after-business-school?utm_source=Sailthru&utm_medium=email&utm_content=BIPrime_select&utm_campaign=BI Prime 2020-08-06&utm_term=BI Prime Select

 

·        According to statistics from Harvard Business School, financial services and consulting are the most popular paths for its graduates.

·        That said, there are plenty of other career paths you can take after getting an MBA.

·        Business Insider spoke with graduates of Harvard, Stanford, Columbia, and more to learn about the steps they took after getting a degree.

·        These graduates ended up in unique fields such as nonprofit, medicine, sports marketing, and retail.

·       

People tend to get their MBA for the same reasons: career advancement, leadership training, and a strong network. But once MBA students graduate from school, there are many ways they can use their degrees.

According to statistics from Harvard Business School, financial services and consulting are the most popular paths for its graduates. Liz Chilla, the senior director of Emory University's Goizueta Business School Career Management Center, told Business Insider that she's "seen an increase in [students interested in] consulting" over the seven and a half years she's worked in business education, in both admissions and counseling positions. 

However, while consulting and finance jobs may be more popular than other options, they are by no means the only tracks business school students can take. 

Business Insider spoke to five MBA graduates who used their degrees in unique ways, and have gone on to find great success in their respective sectors. 

I became the cofounder and director of a nonprofit

While Chesca Colloredo-Mansfeld's first job out of business school was rather typical for an MBA, consulting was never her end goal. 

Growing up the daughter of a diplomat, the inequality that existed between Colloredo-Mansfeld's family and those she drove past in Somalia and Malaysia was always apparent to her. Early on, she assumed one day she would work in international development. 

After working in investment banking for two years after college, she got a job with the International Rescue Committee (IRC) in Pakistan.

"I had never planned on going to business school. I thought I'll do that year [with the IRC] and apply to public policy school," she said.

But as she spoke to leaders with successful international development careers, she was told to go to business school if she wanted to make a real impact, and ended up attending Stanford University's Graduate School of Business, which has a public management program.

Read more: Here's exactly what it takes to get accepted into Stanford Graduate School of Business, according to 6 grads and the assistant dean of admissions

After graduating, getting married, and realizing it would be too hard to move abroad, Colloredo-Mansfeld started working at the Boston Consulting Group, and then at tech companies like Citysearch and eToys at the dawn of the dotcom bubble.

"I got the entrepreneurial bug at that point," she recalled.  

When Colloredo-Mansfeld's husband got a professorship at the University of Iowa, she started working at Iowa's business school. It was there that she heard about Dr. Ignacio Ponseti and his nonsurgical treatment for clubfoot.

She watched a video of a boy in Uganda with untreated clubfoot, and it brought tears to her eyes. That night she told her husband, "I've figured out what I need to do with my life."

Unsatisfied with another business school job and hoping to fulfill Dr. Ponseti's wish to treat clubfoot in children worldwide, Colloredo-Mansfeld started MiracleFeet. With the help of two cofounders, the nonprofit has been helping to bring the nonsurgical treatment for clubfoot to children globally for nine years now.

She approached it like any business problem, explained to investors the return on philanthropic investment, and spoke the language of business executives, said Colloredo-Mansfeld about starting the organization. 

Uniquely positioned with a business background, "We've done things a typical NGO might shy away from," she added. For example, MiracleFeet has partnered with companies like Clarks and Suncast to innovate its technology.

Colloredo-Mansfeld is thankful for her degree and the network she built along the way. "For people leaning toward nonprofit and entrepreneurship," she said, "I think an MBA gives you a really good foundation."

I propelled myself into a director role in the medical profession 

After 10 years of practicing as an ER doctor, Benjamin Lee started to notice a disconnect between the decisions hospital leaders were making and what was happening at the patient bedside. Lee questioned why clinicians weren't more involved in decision-making, and then looked at what degrees hospital leaders had. He decided that holding an MBA or MPH seemed like "an unspoken rule."

"You had to have some kind of management skills," Lee said.

Ultimately, Lee enrolled at Duke University's Fuqua School of Business in their executive MBA program. He was initially attracted to Fuqua's health sector management program, but never ended up taking classes in it. Nonetheless, he feels that his degree and the network he made have been invaluable.

"Business school opens up doors that otherwise might be difficult to open," Lee said.

At Fuqua, Lee met classmates who helped him start a company to facilitate patient transfer via cloud-based software. During his customer discovery phase, Lee spoke with a healthcare services company called Adeptus Health, to see if it might be interested in his product.

Continued in article


Will Morris: PwC's Deputy Global Tax Policy Leader And Part-Time Priest --- 
https://taxprof.typepad.com/taxprof_blog/2020/08/will-morris-pwcs-deputy-global-tax-policy-leader-and-part-time-priest.html 

Free blogs now on the ThinkTWENTY20 Website ---
http://thinktwenty20.com/
Thank you Jerry

 

 Bob Jensen's threads on Education/Learning Applications of ListServs, Blogs, Wikis, Social Networking, and Twitter in education are at
http://faculty.trinity.edu/rjensen/ListservRoles.htm

Most accounting professor blogs dropped out of sight


SEC to Allow Businesses More Flexibility in Disclosing Risk, Legal Information ---
https://www.wsj.com/articles/sec-to-allow-businesses-more-flexibility-in-disclosing-risk-legal-information-11598468579?mod=djemCFO


Managing the Going Concern Risk in an Uncertain Environment ---
https://www.cpajournal.com/2020/08/04/icymi-managing-the-going-concern-risk-in-an-uncertain-environment/


IRS issues business interest expense limitation guidance ---
https://www.journalofaccountancy.com/news/2020/jul/irs-business-interest-expense-guidance.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=30Jul2020


Factor Fiction:  The implementation of ASU 2016-15, Statement of Cash Flow Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15) ---
https://www.cpajournal.com/2020/08/24/factor-fiction-under-asu-2016-15/


Working From Another State Could Complicate Taxes (especially if you worked in New York State) ---
https://www.nytimes.com/2020/08/25/business/coronavirus-nonresident-state-taxes.html


New FAQs address PPP loan forgiveness issues ---
https://www.journalofaccountancy.com/news/2020/aug/ppp-loan-forgiveness-faqs.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=05Aug2020


The Volkswagen Diesel Emissions Scandal and Accountability ---
https://www.cpajournal.com/2020/08/20/icymi-the-volkswagen-diesel-emissions-scandal-and-accountability/


Monetising the access to new and existing research results is profoundly at odds with the ethos of science ---
http://journalfieldrobotics.org/JFR/DearColleague_Letter.html


China's Xpeng Motors raises $1.5 billion in bumper New York IPO ---
https://www.cnn.com/2020/08/27/investing/xpeng-ipo-price-hnk-intl/index.html


Small-Business Disaster Relief Program Target of Fraud, Watchdog Says ---
https://www.wsj.com/articles/small-business-disaster-relief-program-target-of-fraud-watchdog-says-11595983660

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


FASB addresses valuation of private company share-based awards ---
https://www.journalofaccountancy.com/news/2020/aug/fasb-valuation-of-private-company-share-based-awards.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=18Aug2020


WEALTH Tax hike on California millionaires would create 54% tax rate (from 13.3% now) ---
https://www.cnbc.com/2020/07/30/tax-hike-on-california-millionaires-would-create-54percent-tax-rate.html

 

Jensen Comment
The bite of this tax depends heavily on whether the millionaires can continue to shelter their incomes from the tax rate.

One popular shelter is a pension investment that delays taxation until the funds are disbursed in retirement.
A second popular California shelter is investment in tax-exempt California bonds issued by schools, towns, counties, and development districts.
Probably the most popular shelter is capital gains that are not taxed until realized such as ownership of real estate that changes in value daily but is not taxed until death of the owner or sale of the property.

Subjecting sheltered income to taxation often has huge drawbacks. For example, eliminating the tax-exempt bond financing of schools and municipalities greatly increases cost of capital of these jurisdictions.

Forcing investors to pay annual taxes in cash on capital gains value accruals can raise havoc in the the markets (think farms, vineyards, homes, etc.). If investors don't have the cash to pay taxes on annual value increments investors may be forced to liquidate their investments. Think of a kindergarten teacher who invested $50,000 in a Palo Alto home 40 years ago. Proposition 13 delays property taxes on the value increments of that home. But if the tax officials suddenly want 54% of the value increment in that home in 2020 that teacher most likely will be unable to keep the home because of a lack of cash to pay a cash tax on the annual value accrual.

Of course the high salaried tech workers in Silicon Valley will face an enormous increase in their state income taxes. If they have great labor mobility (which most of them have) many of them will leave the state such as Apple workers who opt to transfer to Apple's $1 billion new plant in Austin, Texas ---
https://www.nbcnews.com/tech/apple/apple-breaks-ground-1-billion-texas-campus-trump-tours-manufacturing-n1087606
Those Apple employees remaining in California will demand higher wages to pay the increase in taxes. In the end, customers of Apple around the world will pay the taxes due to higher prices on Apple products and services.

Here's a question for students?
Why might most high salaried NBA players prefer to continue to play all their games in Florida even after the lockdown is lifted?
Here's something to think about. When an Orlando Magic player plays in Los Angeles that player will have to pay a 54% income tax for that LA game to the State of California even though the player lives on Florida where there are no state income taxes. If that game is played in Florida (as is the case under the current pandemic) the Orlando Magic player saves all that California tax since that game and all other games are now played in tax-free Florida. I suspect LeBron James and the other hapless California residents still have to pay the 54% even if they play all their games in Florida. This is why California athletes demand higher salaries than players living in lower tax states.


California lawmakers want a wealth tax to soak the rich for living there. Also, for leaving ---
https://reason.com/2020/08/18/california-lawmakers-want-a-wealth-tax-to-soak-the-rich-for-living-there-also-for-leaving/

. . .

The proposed wealth tax would add a .4 percent tax on a taxpayer's net worth for net worths that exceed $30 million, which Bonta estimates will affect fewer than 31,000 Californians. From this proposed wealth tax, he estimates the state will raise $7.5 billion per year. The state currently faces a $54 billion budget deficit due in part to economic downturns from the coronavirus pandemic.

And to be clear, this tax goes beyond wealth and assets held in the state of California. "All worldwide property" of these wealthy Californians would be subject to this tax. If you park your money in real estate, farm assets, artwork, offshore funds, or a whole host of categories, they want a piece of it. (It even lists pension funds as taxable to those who meet the threshold!)

For rich Californians thinking of leaving rather than paying the state for the privilege of owning things, lawmakers are also attempting to tax the wealthy who vote with their feet. The bill contains a special formula to apply to anybody who has lived in the state within the last 10 years, though the tax burden will slowly drop over time for each year they don't live in California. It's pretty much a certainty that former Californians subjected to this wealth tax would challenge the legality of this plan.

Despite Bonta's attempt to present the state's wealthiest as needing to contribute their "fair share," the reality is that California is exceedingly—perhaps even overly—dependent on its wealthiest for tax revenue. According to the state's Legislative Analyst's Office, people earning more than $1 million a year were responsible for almost 40 percent of the state's personal income tax revenue in 2015, though those same people account for only 19 percent of adjusted gross income in the state (see page 10 here for a graph).

Over at the Los Angeles Times, Deputy Editorial Page Editor Jon Healey notes that this proposed wealth tax could have effects on capital gains taxes, especially if it encourages people to sell their assets at a loss to lower their tax burdens—and California extracts a significant amount of capital gains taxes from its wealthiest citizens. The result here could be a drop in capital gains revenue in the state, meaning (ironically) less tax revenue overall.

Continued in article

Jensen Comment
If this tax survives the legal challenges, it could become law in all 50 states and beyond.

Why stop at 10 years?
Why have a $30 million cutoff? Why not $3 million or less?

Maybe it's possible to clawback wealth distributed by estates over past decades.

If the dead can vote why can't the dead pay more taxes imposed by new laws?


New CPA licensure model embraces core, deeper knowledge ---
https://www.journalofaccountancy.com/news/2020/jul/new-cpa-licensure-model-embraces-core-specialization.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=03Aug2020


Russia’s biggest tech company (Yandex)  is almost a Silicon Valley all unto itself. But that comes at a price ---
https://www.technologyreview.com/2020/08/19/1006438/yandex-putin-arkady-volozh-kremlin/


 

Jensen Comment About Tom Selling's Forthcoming Book on Valuation of a Corporation
If and when I review your forthcoming book, here are some things I will probably address.

1. The operational definition of Hicksian income and value. Replacement cost adjustments have roots in historical costs (such as the need for depreciation calculations at are arbitrary and the difficulty of dealing with technological change when measuring replacement costs). Exit value accounting usually values assets in their worst possible usage (liquidation in yard sales). Exit values are generally far different from "value in use" and nobody, to my knowledge, has a reliable way to measure value in use.

2. Hicks never dealt with the spikes and valleys of transient market value changes seemingly independent of the items being valued --- when the entire market moves up and down to short-term  transient happenings. This is related to the problem of having periodic (annual) income measures that are almost certain not to be realized in short runs --- such as the value of the land under the new $1 billion Apple Corporation complex in Austin, TX. Annual changes in the value of the land are not likely to be realized since the land will not likely be bought and sold apart from the entire plant that is built on the land, and that plant is itself not likely to be liquidated for many years by Apple since it's intended for operations and not financial investment.

Hicks never contemplated the complicated items that in the 21st Century greatly complicate the practical measurement of the value of a firm. The first thing that comes to mind are all the contingency items that generally are either not disclosed or disclosed only in footnotes to financial statements because of the tremendous uncertainties in those contingencies. The second thing that comes to mind is the related issue of all the complicated items in contracts of a firm, especially debt conversion items. The third thing that comes to mind are the intangibles that accountants have never really figured out how to value such as the values of Apple Corporation's work force, reputation, etc.

4. Hicksian valuation probably does will not pass a cost benefit text in practice since reliable valuations for some items are extremely expensive to obtain and usually end up being highly subjective in terms of differences of opinions of alternate appraisers. Historical cost avoids this dilemma by not pretending to be a total "valuation" of the firm, a point repeatedly hammered by AC Littleton. Economists are often valued by the predictive value of historical cost accounting that financial analysts seem to like and defend (Exhibit A is the short life of FAS 33). Time and time again empirical studies by accountic scientists find predictive value in traditional accounting statements of the FASB and IASB. Your book should provide some empirical evidence of the predictive value of Hicksian financial statements.

 

Hicks on Accounting ---
http://www.accountingin.com/accounting-historians-journal/volume-9-number-1/hicks-on-accounting/

Hicks himself warned that income and related concepts are “bad tools, which break in your hands.”4 However, with few exceptions, most theorists have not only ignored this admonition, but they also have overlooked other work by Hicks which is more directly related to accounting practice.

Sprouse's what-you-may-call-its: fundamental insight or monumental mistake?
https://www.thefreelibrary.com/Sprouse%27s+what-you-may-call-its%3A+fundamental+insight+or+monumental...-a0230061133

Hicksian income is defined only for a world of complete and perfect markets and is less useful for a firm operating in costly incomplete markets. Hicks [1939, pp. 193-196] describes a firm's decision as ...

Earnings Quality---
https://www.questia.com/library/journal/1G1-105368177/earnings-quality

Have Academic Accountants and Financial Accounting Standard SettersTraded Place ---
https://www.scribd.com/document/290584113/Accounting-Economics-and-Law-A-Convivium

Book Review
IAN DENNIS, The Nature of Accounting Regulation (New York, NY: Routledge, 2014, ISBN 978-0-415-89195-0, pp. 135) ---
https://aaapubs.org/doi/full/10.2308/accr-10404
Especially note the references cited in this book review:

REFERENCES
  Bromwich, M., R. Macve, and S. Sunder. 2010Hicksian income in the conceptual frameworkAbacus 46 (3): 348376.10.1111/j.1467-6281.2010.00322.x [Crossref] [Google Scholar]
  Georgiou, O., and L. Jack. 2011In pursuit of legitimacy: A history behind fair value accountingThe British Accounting Review 43 (4): 311323.10.1016/j.bar.2011.08.001 [Crossref] [Google Scholar]
  Gill, M. 2009Accountants' Truth: Knowledge and Ethics in the Financial WorldNew York, NYOxford University Press[Google Scholar]
  Latour, B. 2005Reassembling the Social: An Introduction to Actor-Network TheoryNew York, NYOxford University Press[Google Scholar]
  Macintosh, N. B. 2005Accounting, Accountants and Accountability: Poststructuralist PositionsLondon, U.K.: Routledge[Google Scholar]
  Macve, R. 1997A Conceptual Framework for Financial Accounting and Reporting: Vision, Tool Or Threat? New York, NYGarland[Google Scholar]
  Mouck, T. 2004Institutional reality, financial reporting and the rules of the gameAccounting, Organizations and Society 29 (5-6): 525541.10.1016/S0361-3682(03)00035-7 [Crossref] [Google Scholar]
  Power, M. 1997The Audit Society: Rituals of VerificationOxford, U.K.: Oxford University Press[Google Scholar]
  Power, M. 2010Fair value accounting, financial economics and the transformation of reliabilityAccounting and Business Research 40 (3): 197210.10.1080/00014788.2010.9663394 [Crossref] [Google Scholar]
  Young, J. J. 2014Separating the political and technical: Accounting standard setting and purificationContemporary Accounting Research (forthcoming). [Google Scholar]
  Zeff, S. A. 2013The objectives of financial reporting: A historical survey and analysisAccounting and Business Research 43 (4): 262327.10.1080/00014788.2013.782237 [Crossref] [Google Scholar]
 
YVES LEVANT and OLIVIER DE LA VILLARMOIS (editors), French Accounting History: New Contributions (Abingdon, Oxon, U.K.: Routledge, 2012, ISBN 13:978-0-415-84783-4, pp. viii, 178).

 

Accounting Theory Bibliography ---
https://maaw.info/AccountingTheoryArticles.htm

The Hicksian Method and The Slutskian Method ---
https://owlcation.com/social-sciences/The-Hicksian-Method-and-The-Slutskian-Method

 


EY:  SEC amends "accredited investor" definition

The SEC adopted final rules that expand the definition of an “accredited investor” to give more individuals and entities that have sufficient knowledge and expertise access to the private capital markets, where there are fewer protections for investors. The amendments add the following new categories of qualifying individuals and entities to the definition:

 

·        Individuals with certain professional certifications and designations that the SEC will maintain and modify as necessary

 

·        A “knowledgeable employee” of a private fund for the purpose of investing in that fund

 

·        Limited liability companies with at least $5 million in assets, registered investment advisers, exempt reporting advisers and rural business investment companies

 

·        Any entity owning investments in excess of $5 million that was not formed for the purpose of investing in the securities offered

 

·        Family offices with at least $5 million in assets under management and their family clients

 

The amendments allow investors to pool their finances with “spousal equivalents” to meet the income or net worth requirements to qualify as accredited investors.

 

The amendments did not change the current net worth or income thresholds in the definition.

 

The amendments also expand the definition of qualified institutional buyer in Rule 144A to add newly identified institutional accredited investors.

 

The amendments are effective 60 days after their publication in the Federal Register.

 

 


EY:  SEC streamlines some Regulation S-K disclosures and requires human capital disclosures ---
https://www.ey.com/en_us/assurance/accountinglink/to-the-point---sec-streamlines-some-regulation-s-k-disclosures-a

EY:  FASB proposes nonpublic entity practical expedient for the fair value of equity-classified share options ---
https://americas.ey-vx.com/e/r80qjodhh4u14sa/5575df21-af95-44fe-b70c-ba7190946234

EY:  Financial Reporting Developments - Lease accounting - Accounting Standards Codification 840, Leases ---
https://www.ey.com/en_us/assurance/accountinglink/financial-reporting-developments---lease-accounting---accounting0

EY:  Cybersecurity risk and oversight disclosures in 2020 ---
https://www.ey.com/en_us/board-matters/what-companies-are-disclosing-about-cybersecurity-risk-and-oversight 

 


Excel:  Obtain a Distinct Count (with pivot tables) ---
https://www.journalofaccountancy.com/issues/2020/aug/excel-pivottable-for-distinct-count.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=20Aug2020

Excel:  Adding bullet points to an Excel spreadsheet ---
https://www.journalofaccountancy.com/issues/2020/aug/how-to-add-bullets-to-excel-spreadsheet.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=14Aug2020

Excel:  Forget smartphones, use smart Excel ---
https://www.journalofaccountancy.com/issues/2020/aug/smart-excel-functions-for-productivity.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=10Aug2020

Excel:  Automate bank reconciliations with Excel Power Query ---
https://www.fm-magazine.com/news/2020/jul/automate-bank-reconciliations-with-excel-power-query.htm?utm_source=mnl:cpald&utm_medium=email&utm_campaign=04Aug2020

Excel:  How to Add Alternative Text to an Object in Microsoft Excel ---
https://www.howtogeek.com/681076/how-to-add-alternative-text-to-an-object-in-microsoft-excel/


Excel and Simulation for Accountants

Journal of Corporate Accounting and Finance 29 (2), 133-138, 2018

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3638890
13 Pages
 Posted: 23 Jul 2020

Clarence Goh

Singapore Management University - School of Accountancy

Date Written: July 15, 2018

Abstract

Simulation is an extremely useful decision making tool for accountants. While many companies have invested heavily in developing sophisticated software to help them run simulations, simulations can also be run on tools such as Excel. In this article, I will use a simple example to demonstrate how an accountant could use Excel to run simulations.

Keywords: Simulation, Excel, Accrual Accounting




The Effects of Financial Reporting and Disclosure on Corporate Investment: A Review

Journal of Accounting & Economics (JAE), Forthcoming
SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3429337

82 Pages Posted: 7 Aug 2020

Sugata Roychowdhury

Boston College

Nemit Shroff

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Rodrigo S. Verdi

Massachusetts Institute of Technology (MIT)

Date Written: July 30, 2019

Abstract

A fundamental question in accounting is whether and to what extent financial reporting facilitates the allocation of capital to the right investment projects. Over the last two decades, a large and growing body of literature has contributed to our understanding of whether and why financial reporting affects investment decision-making. We review the empirical literature on this topic, provide a framework to organize this literature, and highlight opportunities for future research.

Keywords: financial accounting, disclosure, real effects, investment, M&A, capital budgeting, agency frictions

JEL Classification: D82, M4, M41, G31

 


The Impact of Hedging and Trading Derivatives on Value, Performance and Risk of European Banks

Titova, Yulia & Penikas, Henry & Gomayun, Nikita. (2020). The Impact of Hedging and Trading Derivatives on Value, Performance and Risk of European Banks. Empirical Economics. 58. 10.1007/s00181-018-1545-1.

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3647512

Posted: 6 Aug 2020

Yulia Titova

Catholic University of Lille - IESEG School of Management

Henry Penikas

National Research University Higher School of Economics

Nikita Gomayun

National Research University Higher School of Economics

Date Written: July 9, 2020

Abstract

The objective of this paper is to examine the relationship between bank characteristics,in particular value, performance and volatility of bank stock returns, and its exposure to financial derivative contracts. The study is based on 109 publicly traded European banks over the period from 2005 to 2010. The database contains both accounting data from Bankscope and manually collected information from the notes to financial statements. After controlling for bank-specific characteristics, time effects and cross-country differences, we find that banks efficiently using hedging derivatives have a lower risk and a higher value. However, this relationship becomes less pronounced or is inverse in the post-crisis period and concerns both trading and hedging derivatives.For systemically important banks heavily involved in derivatives, market volatility of stock returns is higher and valuations are lower. We notice, however, that derivatives play second fiddle to bank risk and performance. Our findings corroborate the importance of distinction of derivatives by the purpose of use, which becomes less obvious for investors in the post-crisis period. Our results have important policy implications, especially in the light of the recent debate over the necessity of separation of risky banking activities from commercial bank branches (for instance, as proposed in Liikanen report) in an attempt to reduce systemic risk. We emphasise the need for a higher transparency of disclosures regarding hedge accounting and harmonisation of reporting formats across EU.

Keywords: Derivatives, Bank, Value, Hedging, Trading, Panel data

JEL Classification: C20, C21, G20, G21


The Value Relevance of Non-GAAP Earnings: The Case of EPRA Earnings for European Real Estate Investment Trusts (REITS)

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3647366
59 Pages
 Posted: 6 Aug 2020

Rémi JANIN

Faculty of Economics, Univ. Grenoble Alpes, Grenoble INP, CERAG

Charlotte DISLE

University Grenoble Alpes

Date Written: July 9, 2020

Abstract

The vast majority of European Real Estate Investment Trusts (REIT) choose, under IAS 40, to report fair value of investment properties on the balance sheet and therefore recognize changes in fair value in a gain or loss in the income statement. Under European Public Real Estate Association (EPRA) guidelines, most REITs report a non-Generally Accepted Accounting Principles (GAAP) measure of recurring performance — EPRA earnings — in addition to International Financial Reporting Standards (IFRS) financial statements. EPRA proposed these adjustments to IFRS earnings to neutralize transitory items such as changes in fair value, calculate core operating results more accurately, and indicate the extent to which earnings can support dividend payments. Based on studies suggesting that earnings without the transitory items are more useful for investors, we assume that EPRA earnings are more value relevant than IFRS earnings. Using a sample of 680 company-years over the period 2011–2017, we find that market value capitalizes EPRA earnings more than twice as much as IFRS earnings. We also find that changes in fair value of investment properties provide additional information for the valuation of REITs, supporting the idea that the dis-aggregation of the net income into recurring earnings and transitory items can be useful to investors. Finally, our results show that EPRA earnings are not always more value relevant than other non-GAAP indicators sometimes used by REITs to measure their recurring performance, such as Funds from Operations. Moreover, a complementary analysis suggests that the choice of EPRA earnings to communicate recurring performance is independent of the economic characteristics of REITs and is mainly made by EPRA member companies.

Keywords: EPRA Earnings, Fair Value, Non-GAAP Reporting, REITs, Value Relevance

JEL Classification: M41


The PCAOB Revolving Door and Audit Quality

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3648214
58 Pages
 Posted: 30 Jul 2020

Jagan Krishnan

Temple University - Department of Accounting

Jayanthi Krishnan

Temple University - Department of Accounting

Steven Maex

Temple University - Department of Accounting

Date Written: July 8, 2020

Abstract

The so-called “revolving door” for employees moving from the Public Company Accounting Oversight Board (PCAOB) to the accounting firms it regulates has received heightened scrutiny recently. Hendricks, Landsman, and Peña-Romera (HLP) (2019) document that large audit firms exhibit improved inspections performance after hiring PCAOB personnel, consistent with an “inspections expertise” hypothesis that these hires help in managing inspection risk. We extend HLP (2019) by examining whether these individuals also bring “technical expertise” that enhances hiring firms’ audit quality. Using a sample of large auditors’ engagements from 2010 to 2016, we document positive associations between audit firms’ employment of former PCAOB employees and multiple audit quality proxies. These associations are stronger for higher misstatement risk clients. The precision of internal control audit opinions also improves in the presence of these individuals. These results suggest that former PCAOB employees are beneficial to firms’ audit quality particularly in areas emphasized by the regulator.

Keywords: Audit Fee, Restatements, Audit Effort, Discretionary Accruals, Regulatory Capture, Social Ties, Internal Controls, Material Weaknesses

JEL Classification: M42, M48


The Accounting Measurement of MetaCapitalism

Journal of New Business Ideas & Trends, Vol. 17 Iss.3, December 2019, pp. 57-66

10 Pages Posted: 29 Jul 2020

George Mickhail

Bryant University - Beijing Institute of Technology, Zhuhai; IAE d'Orléans, Ecole Universitaire de Management d'Orléans, Université d'Orléans (France); IESEG School of Management; MetaCapitalism Research Centre

Date Written: December 3, 2019

Abstract

Purpose – The purpose of this paper is to provide the analytical and accounting measurement method of MetaCapitalism.

Design/methodology/approach – The approach employed in this paper seeks to correlate the fundamentals analysis of the MetaCapitalism indicators to the technical analysis of the market response to the changes in those indicators over time using the Australian airline Qantas Airways as an example.

Keywords: MetaCapitalism, accounting measurement

JEL Classification: M41, M42, M48


The Interdisciplinary Nature of Sustainability Accounting – A Systematic Literature Review and a Network Citation Study

 

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3641722
54 Pages
 Posted: 28 Jul 2020

Ute Laun

University of Zurich - Department of Business Administration

Katrin Hummel

University of Zurich

Peter Gordon Roetzel

University of Stuttgart; University of Applied Sciences Aschaffenburg

Date Written: July 2, 2020

Abstract

Sustainability accounting as a distinct discipline has evolved over the last decades and is still expanding. This paper provides a comprehensive and systematic review of the literature on sustainability accounting. As a multidimensional concept, sustainability accounting relates to various other disciplines. Thus, the examination of research on sustainability accounting provides a suitable setting to examine the extent of “interdisciplinarity” in accounting research. Based on a systematic search strategy we determine a sample of 5,245 articles in the fields of finance and accounting, management, economics, organization and behavioral research, and international business. Using citation network analysis, we identify existing research communities, influential research contributions that guide research within communities, and interactions between these research communities. Our findings show that equally large proportions of the sample articles are published in accounting, management, and organization journals, which confirms the interdisciplinary character of sustainability accounting research. Further insights reveal that there are three (out of six) major research communities that relate to traditional accounting topics, namely (i) determinants and consequences of sustainability disclosure, (ii) the relationship between sustainability disclosure and financial as well as non-financial performance and (iii) the role of assurance of sustainability disclosure. Further, we find evidence that influential articles that either provide an overarching view of a specific research segment or combine typically unrelated research themes act as “bridges” between research communities.

 

 

Keywords: Accounting, sustainability, corporate social responsibility (CSR), systematic literature review, citation network analysis, interdisciplinarity


When Can Quarterly Reports Resolve Uncertainty About Earnings? Evidence From ASC 606

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3639777
50 Pages
 Posted: 27 Jul 2020

Jesse Glaze

University of Colorado at Boulder - Leeds School of Business

A. Nicole Skinner

University of Georgia - J.M. Tull School of Accounting

Andrew Stephan

University of Colorado at Boulder Leeds School of Business

Date Written: June 30, 2020

Abstract

We examine whether quarterly reports resolve uncertainty about how accruals map to cash flows and, correspondingly, how to price earnings. Although existing studies suggest quarterly reports released concurrently with earnings depress trading due to information overload, we predict that quarterly reports help investors price earnings news when they face uncertainty about how earnings map to future cash flows. We rely on the implementation of ASC 606 as a quasi-exogenous increase in uncertainty about how to price earnings. Specifically, we find that when uncertainty is high in the first quarter of ASC 606 implementation, 10-Qs released concurrently with earnings increase trading in response to earnings news. We find the relation is stronger when firms face greater uncertainty, and our results are supported by other accounting standard changes and broad, firm-quarter proxies for uncertainty. Our results suggest that quarterly reports are informative to investors when uncertainty about accounting information is especially high.

Keywords: Voluntary disclosure, mandatory disclosure, information uncertainty, accounting change, ASC 606, earnings announcements

JEL Classification: G14, M41


Examining Fifteen Years of Ethics Research in the Journal of Accountancy: 2002 to 2016

Asian Journal of Accounting and Governance, April 2018, Vol. 9: 41-48

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3638909
9 Pages
 Posted: 23 Jul 2020

Clarence Goh

Singapore Management University - School of Accountancy

Date Written: April 2018

Abstract

In the past fifteen years, ethics has come under the spotlight in the accounting profession. In this study, I examine ethics research in accounting by looking at publications in the Journal of Accountancy, a leading professional journal in accounting, over the period from 2002 to 2016. I found that 32 out of 4,851 (0.66%) articles published in the journal were ethics-focused. Further, I observed spikes in the percentage of ethics-focused articles in the years 2003 and 2009/2010, following key events such as the passing of SOX and the global financial crisis. I also perform content analysis of the ethics-focused articles by categorizing them to one of four research areas: (1) code of conduct, (2) corporate culture, (3) ethical decision making, and (4) reputation management. Given that the majority of ethics-focused articles published relate to encouraging ethical behaviour among accounting professionals, my results suggest that such articles present a good source of information that accounting professionals can turn to when making decisions which have ethical implications. My study makes important contributions by providing insights into the overall proportion of ethics-focused articles that is published in the journal, and assesses the progress/evolution of ethics research over the time period. From a broader perspective, the findings in my study also add to the overall literature on business ethics by highlighting significant themes that accounting researchers have focused on. In addition, it provides insights into how ethics research has been incorporated into the area of accounting, particularly from a practice perspective. It also highlights four key areas of ethics research in accounting, and helps identify areas of future research.


Excel and Simulation for Accountants

Journal of Corporate Accounting and Finance 29 (2), 133-138, 2018

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3638890
13 Pages
 Posted: 23 Jul 2020

Clarence Goh

Singapore Management University - School of Accountancy

Date Written: July 15, 2018

Abstract

Simulation is an extremely useful decision making tool for accountants. While many companies have invested heavily in developing sophisticated software to help them run simulations, simulations can also be run on tools such as Excel. In this article, I will use a simple example to demonstrate how an accountant could use Excel to run simulations.

Keywords: Simulation, Excel, Accrual Accounting


Financial Reporting Standards for Firms That Can Gather and Disclose Private Information

SSRN
59 Pages
 Posted: 22 Jul 2020

Henry L. Friedman

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

John S. Hughes

University of California at Los Angeles

Beatrice Michaeli

University of California, Los Angeles (UCLA)

Date Written: June 2020

Abstract

The aim of general purpose financial reporting is to provide information that is useful to investors, lenders, and other creditors. With this goal, regulators have tended to mandate increased disclosure. We show that increased mandatory disclosure can weaken a firm's incentive to acquire and voluntarily disclose private information that is not amenable to inclusion in mandated reports. Specifically, we provide conditions under which a regulator, seeking to maximize the total amount of information provided to investors via both mandatory and voluntary disclosures, would mandate less informative financial reports even in the absence of any direct costs of increasing informativeness. We show that this result is robust to allowing the firm to make reports more informative and to imposing a nondisclosure cost or penalty on the firm. These results and comparative statics analysis contribute to our understanding of potential interactions between mandatory reporting and voluntary disclosure, and demonstrate a novel benefit to setting accounting standards that mandate imperfectly informative reports.

Keywords: information gathering, financial reporting, disclosure

JEL Classification: D82, G38, M41, M48


Methods of Calculation of Expected Credit Losses Under Requirements of IFRS 9

Journal of Corporate Finance Research, Vol. 13, No. 4, pp. 74-86 (2019)

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3638946
13 Pages
 Posted: 22 Jul 2020

Alfiya Vasilyeva

National Research University Higher School of Economics,

Elvina A. Frolova

Paris School of Economics (PSE); National Research University Higher School of Economics

Date Written: 2019

Abstract

The most important area of work for financial market regulators, including the International Accounting Standards Board, is the clarification of the metrics of credit assessment. At the time of the financial crisis of 2008, credit losses on financial instruments were taken into account by the "loss model", and therefore, assets were recognized as financially impaired where credit quality deterioration and significant time lags were factors. However, since 1st January 2018, a new international financial reporting standard IFRS9 has been instituted.

IFRS 9 is based on a different approach — the principle of "expected credit losses" (ECL). This new business model radically changes the approach to the formation of reserves, including by taking into account the impact of macroeconomic indicators on their value. According to various estimates, the scale of increase in reserves ranges from 30% to 50%.

The purpose of this article is to systematize the methodological principles and approaches that underlie the requirements of IFRS 9, as well as to perform a comparison of the main methods for assessing the probability of default and expected credit losses. Additionally, a comparative assessment of the Weilbull distribution, Migration matrices, and Generator matrix models of the default probability assessment methods were performed in order to analyse the interrelations between analytical methodologies, and to further inform the evaluation.

In the framework of this article, we articulate and examine the criteria for the transfer of assets between the stages of credit risk. We also present finalized formulations of the principles for calculating expected credit risks for different assessment stages, illustrating how macroeconomic factors may be taken into account. Finally, we introduced relevant criteria for defining transfers of assets from stage to stage, and evaluated probability of default on the basis of extrapolation by the exponential curve method.

The novelty of this research is the value of our straightforward description of methodological principles of the IFRS 9. We offer practical solutions that promise to enhance banking practices. We not only present analyses of the fundamental methodologies inherent in the IFRS 9, but highlight the modes by which they intend to strengthen the banking system by increasing reserves and shoring up institutional reliability. The methodologies outlined herein can also be used to improve credit risk management models, and students of finance and theoretical economics will find useful breakdowns of the most salient information necessary to understanding this change in approach to credit assessment.

Keywords: IFRS 9, Expected Credit Losses, Credit Risk Assessment Stages

JEL Classification: B40, G21, F65


Promoting Proactive Auditing Behaviors

 

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3636498
55 Pages
 Posted: 21 Jul 2020

Mark E. Peecher

University of Illinois at Urbana-Champaign; University of Illinois College of Law

Michael Ricci

University of Florida - Fisher School of Accounting

Yuepin (Daniel) Zhou

University of Illinois at Urbana-Champaign - Department of Accountancy

Date Written: June 26, 2020

Abstract

We introduce the construct of auditor proactivity to the accounting literature. Since auditors work in complex, dynamic environments where complete directives are often unavailable, auditors need to be proactive to achieve quality audit outcomes. However, proactivity is often lacking in practice. Thus, we position auditor proactivity as a valuable but scarce determinant of audit quality. Drawing on literature on employee proactivity, tacit knowledge, and regulatory focus theory, we identify three synergistic antecedents to a range of distinct proactive auditing behaviors. Using an experiment, we find that auditors with greater autonomy engage in more proactive behaviors, but only if they have both higher tacit knowledge and a focus on achieving positive job outcomes (rather than avoiding negative job outcomes). Our theory and findings inform academics, regulators, and practitioners about how work environments and policies could be modified to promote proactive auditing behaviors.

 

 

Keywords: proactive behaviors, autonomy, tacit knowledge, regulatory focus, audit quality


Neoliberalism and MetaCapitalism

Journal of New Business Ideas & Trends, Vol. 17 Iss.3, December 2019, pp. 18-26
SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3642179

9 Pages Posted: 29 Jul 2020

George Mickhail

Bryant University - Beijing Institute of Technology, Zhuhai; IAE d'Orléans, Ecole Universitaire de Management d'Orléans, Université d'Orléans (France); IESEG School of Management; MetaCapitalism Research Centre

Date Written: December 3, 2019

Abstract

Purpose – The purpose of this paper is to highlight the increased uncertainties in our world due to the interconnectedness of the global economy.

Design/methodology/approach – The approach employed in this paper is a theoretical assessment.

Originality/value – The paper makes the link between the uncertainties and the neoliberal salvation of a phenomenon promoted, as MetaCapitalism by the top accounting firm in the world; PwC Global. The paper concludes with a few observations about the choice of the model by PwC Global.

Keywords: MetaCapitalism; Neoliberalism

JEL Classification: M41, M42, M48

 


The Accounting Measurement of MetaCapitalism

Journal of New Business Ideas & Trends, Vol. 17 Iss.3, December 2019, pp. 57-66
SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3642281

10 Pages Posted: 29 Jul 2020

George Mickhail

Bryant University - Beijing Institute of Technology, Zhuhai; IAE d'Orléans, Ecole Universitaire de Management d'Orléans, Université d'Orléans (France); IESEG School of Management; MetaCapitalism Research Centre

Date Written: December 3, 2019

Abstract

Purpose – The purpose of this paper is to provide the analytical and accounting measurement method of MetaCapitalism.

Design/methodology/approach – The approach employed in this paper seeks to correlate the fundamentals analysis of the MetaCapitalism indicators to the technical analysis of the market response to the changes in those indicators over time using the Australian airline Qantas Airways as an example.

Keywords: MetaCapitalism, accounting measurement

JEL Classification: M41, M42, M48


 

Growing Needs of Forensic Audit in Corporate and Banking Frauds in India

 

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3624001
10 Pages Posted: 23 Jul 2020

Dr.Dinesh Kumar Gupta

Guru Jambheshwar University of Science and Technology - Department of Business Management

Date Written: July 22, 2020

Abstract

With the gradual rise in money laundering and wilful default cases, RBI has made forensic audit mandatory for large advances and restructuring of accounts. In the present administrative system post Modi regime, no domain is spared from immoral misconduct, fraudulence and injustice. According to a joint study conducted by ASSOCHAM and Grant Thornton, corruption, money laundering, tax evasion, window dressing, financial reporting fraud and bribery are the most common corporate frauds occurring in India Inc. The study revealed that nearly half of corporate frauds have taken place in real estate and infrastructure in the last two years followed by financial services sectors recording 34% frauds.

Scandals in accounting have grown in the last two decades and have put a question mark in corporate governance, role of company secretaries and auditors. The scandals occurred in this 21st century are also putting question on monitoring role of regulators also in some cases. Restoring stake holders’ confidence back in the financial reporting process and corporate governance is also a challenge in view of these developments. Further, the lengthy legal processes also help the criminal companies and borrowers to play with public money as long as they like. Consortium loan process should not be so conducive to give rise to get huge money without security and an easy game to play with public money. Forensic accounting helps the government, regulators and all stakeholders of the companies to have a confidence in dealing with such corporate.

 

Keywords: Corporate Governance, Auditing, Financial Statement, accountingaccounting frauds, forensic


Optimizing Accounting Decision Making using Goal Programming

Journal of Corporate Accounting & Finance, April 2019, Vol. 30 (1): 161-168

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3638921
19 Pages
 Posted: 22 Jul 2020

Clarence Goh

Singapore Management University - School of Accountancy

Date Written: January 30, 2019

Abstract

Goal programming is a decision making technique that seeks to help decision makers make decisions that satisfy competing goals to the best extent possible. This article provides a description of goal programming, demonstrates how it can be implemented on a spreadsheet, and illustrates its use through an example from management accounting.

Keywords: Optimization, Goal Programming, Excel

Jensen Warning:
Using any kind of model always check for robustness in terms of departures from underlying assumptions of the model. Goal programming has some pretty stringent assumptions.

 




EY:  Financial Reporting Developments - Lease accounting - Accounting Standards Codification 842, Lease ---
https://www.ey.com/en_us/assurance/accountinglink/financial-reporting-developments---lease-accounting---accounting  

EY:  Financial Reporting Developments - Statement of Cash Flows
https://www.ey.com/en_us/assurance/accountinglink/financial-reporting-developments---statement-of-cash-flows

EY:  SEC Updates

SEC proposes rule to modernize fund shareholder reports and disclosures

 

The SEC proposed rule and form amendments that would modernize the disclosure framework for mutual funds and exchange-traded funds registered on Form N-1A (collectively, funds) to better serve the needs of retail investors.

 

The proposal would require a fund to transmit to its investors its annual and semiannual shareholder reports that highlight important information, such as fund expenses, performance and portfolio holdings, within 60 days of period end. Annual reports would also be required to disclose a summary of material fund changes during the year (such as changes to a fund’s principal investment strategy or fees).

 

The proposal would require shareholder reports to be delivered by mail unless an investor elects electronic delivery. While the proposal would no longer require shareholder reports to include a fund’s financial statements, it would still require the fund’s unaudited semiannual financial statements and audited annual financial statements to be filed on Form N-CSR within 70 days of period end, posted on the fund’s website and delivered to investors upon request.

 

Under the proposal, funds would continue to provide new investors with a fund prospectus upon initial investment, but in lieu of providing ongoing investors with an updated annual prospectus, funds would be required to timely notify investors about material fund changes, in addition to providing shareholder reports semiannually. A current prospectus would remain available online and would be delivered to investors upon request.

 

The proposal would modify prospectus disclosures related to fees and expenses by (1) replacing the existing fee table in the summary section of the statutory prospectus with a simplified fee summary, (2) moving the existing fee table to the statutory prospectus, (3) using clearer terms in the fee table, and (4) permitting acquired fund fees and expenses to be included in a footnote to the fee table and fee summary rather than as a separate fee table and fee summary line item if a fund invests 10% or less of its assets in acquired funds.

 

The proposal also would modify prospectus disclosures related to risks by promoting the disclosure of a fund’s principal risks, rather than additional disclosures about non-principal risks, and tailoring principal risk disclosures by specifying how principal risks can be assessed.

 

In addition, the proposal would amend advertising rules for registered investment companies and business development companies to promote more transparent and balanced statements about investment costs.

 

Comments are due 60 days after publication in the Federal Register.

 

McCord named chief accountant of the Division of Corporation Finance

 

Lindsay McCord was named chief accountant of the SEC’s Division of Corporation Finance. Ms. McCord, who had been serving as acting chief accountant of the division since March 2020, succeeds Kyle Moffatt. She previously served as a deputy chief accountant in the Division, leading a team that provides technical guidance and interpretations of financial statement and disclosure requirements. Before joining the SEC, she was an audit manager at Grant Thornton LLP.

 

SEC Enforcement Co-Director Peikin to depart agency

 

Steven Peikin, Co-Director of the SEC’s Division of Enforcement, plans to leave the SEC on 14 August 2020 after serving in his role for more than three years. During his tenure, Mr. Peikin worked to better position the Division to address emerging threats and increased the Division’s efficiency and effectiveness in investigating and prosecuting violations of the federal securities laws.

 

Co-Director Stephanie Avakian will remain Director of the Division of Enforcement following Mr. Peikin’s departure.




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

From the CFO Journal's Morning Ledger on August 31, 2020

Volkswagen Cuts Costs With Zero-Based Budgeting

German car maker Volkswagen is relying on zero-based budgeting to rein in spending, its Chief Financial Officer Frank Witter said. Volkswagen introduced the budgeting technique, which forces managers to start from a budget of zero, earlier this year to offset some of the losses caused by the pandemic, Mr. Witter said.

“When your inflows are lower, this is an option to reduce outflows,” Mr. Witter said, adding that Volkswagen focused on its sales organization and its research and development costs first. The company booked an operating loss of about €2.4 billion ($2.86 billion) in the second quarter compared with a profit of €5.1 billion in the same period of 2019.

Still, the savings from the zero-based budgeting were somewhat limited amid the shutdown of factories in certain countries and entire regions, Mr. Witter said, pointing to the temporary pausing of Volkswagen’s production in China in February and in Europe in April. “These are significant amounts,” he said, referring to the savings, “but it’s not compensating for a sales organization that is standing still,” he said.

The company is now extending its zero-based budgeting strategy to other parts of the business, Mr. Witter said. 


From the CFO Journal's Morning Ledger on August 26, 2020

The U.S. business of Teva Pharmaceutical Industries has been indicted on charges the drugmaker fixed prices on generic drugs, according to a person familiar with the matter. The Justice Department is expected to announce the charges imminently, the person said.

The Justice Department’s antitrust division brought the case in a Pennsylvania federal court, alleging Teva Pharmaceuticals USA engaged in anticompetitive conduct that resulted in at least $350 million in overcharges to consumers.


From the CFO Journal's Morning Ledger on August 26, 2020

Salesforce posted record quarterly sales and raised its full-year revenue guidance, showcasing the sustained appetite for cloud-computing services during the coronavirus pandemic.

Jensen Added Link
In spite these record profits Salesforce is laying off over 1,000 employees ---
https://www.businessinsider.com/salesforce-layoffs-workers-severance-earnings-2020-8 


From the CFO Journal's Morning Ledger on August 26, 2020

American Airlines said it woulshed 19,000 workers Oct. 1, the first big wave of the tens of thousands of pilots, flight attendants, mechanics and other airline employees in jeopardy of losing their jobs when protections tied to federal aid to U.S. carriers expire this fall.

American’s cuts are short of the 25,000 potential job losses it warned were possible last month. But together with retirements and temporary leaves of absence, the reductions will make the carrier about 30% smaller than it was in March and are the clearest sign yet of the devastation coming for the airline industry as the summer travel season winds down and government funds run out.


From the CFO Journal's Morning Ledger on August 26, 2020

PwC’s Global Revenue Growth Slows to Lowest Level in Years

Professional services firm PricewaterhouseCoopers reported its slowest revenue growth in at least a decade as clients reined in their spending plans.

Revenue for the firm’s assurances, consulting and tax businesses rose to $43.03 billion during the fiscal year ended June 30, up 1.4% from the previous year, PwC said Tuesday. From 2010 to 2019, revenue growth had averaged about 5%, according to an analysis of annual reports.

PwC’s audit and assurance division saw revenue rise 1.3% to $17.6 billion in the most recent fiscal year, the division’s slowest growth rate since 2016. The consulting division booked $14.68 billion in revenue, up 2.2% from the prior fiscal year. The tax division’s revenue totaled $10.75 billion, up 0.5%.

PwC experienced strong growth for most of the year until the coronavirus pandemic hit in March, the firm said. Some clients then stopped seeking help on mergers and acquisitions because they were no longer striking deals. But those same businesses may have sought help on debt restructuring instead, said Bob Moritz, PwC’s global chair. “We saw a downside in some areas and upside in others,” he said.

The firm is currently conducting an analysis of businesses it would consider selling off, Mr. Moritz said. He declined to comment further on the matter.

Although audit has lost ground to other business lines in recent years, Mr. Moritz said he still considers it a growth business. “Assurance and trust and trusted information are going to be needed going forward and that's going to expand beyond the financial statements,” he said.

PwC is the first of the Big Four firms—which include Deloitte Touche Tohmatsu, KPMG and Ernst & Young—to release revenue figures for the 2020 fiscal year. The Big Four disclose revenue but not profit due to their status as international networks of private partnerships.


From the CFO Journal's Morning Ledger on August 24, 2020

Many investment firms are waiving their charges on money funds to keep the yields that investors earn from dropping below zero. BlackRock is waiving costs typically borne by customers for certain money-market funds to prop up investor yields, said people familiar with the matter. Fidelity InvestmentsFederated Hermes and J.P. Morgan Asset Management are also ceding some fees to stave off negative yields


From the CFO Journal's Morning Ledger on August 24, 2020

Good morning. Companies are finding virtual shareholder meetings to be cheaper and less time-consuming, but shareholders complain they don’t get as much time to ask their questions.

Remote investor events held by companies in the S&P 500 this year averaged 32 minutes, seven minutes shorter than in-person shareholder meetings in 2019, according to a recent study of more than 90 annual meetings by the Hebrew University of Jerusalem. Further, company executives allocated less time for business updates and for answering shareholders’ questions compared with in-person meetings in 2019, the study said.

Companies, including eBaySalesforce.com and Alexion Pharmaceuticals, failed to acknowledge some or all questions from investors, according to the study by Miriam Schwartz-Ziv, a senior lecturer at the School of Business Administration.


From the CFO Journal's Morning Ledger on August 20, 2020

Apple became the first U.S. public company to eclipse $2 trillion in market value


From the CFO Journal's Morning Ledger on August 20, 2020

Good morning. U.S. companies are writing down more of their assets during the coronavirus pandemic than they have in years.

Finance chiefs are reducing the value of company assets such as airplanes, cruise ships and movie theaters in response to changes in consumer behavior that threaten the viability of their business models. The 2,000 largest U.S. businesses by market capitalization have been recording higher pre-tax impairments as existing assets and investments produce poor returns amid the widespread economic downturn.

Oil giant Chevron impaired all of its $2.6 billion investment in Venezuela for the quarter ended June 30, citing the deteriorating operating environment in the South American country. “Our future capital decisions need to be more robust and more disciplined so that we don’t have impairments in the future,” Chevron’s Chief Financial Officer, Pierre Breber, said.

Meanwhile, some assets such as intellectual-property rights have gained value. The sale of intellectual property out of bankruptcy has become an important source of cash for distressed companies looking to unlock value that could be used to pay off creditors.


From the CFO Journal's Morning Ledger on August 19, 2020

Good morning. Making sense of the economic environment continues to be a challenge for executives and shareholders, as important indicators are pointing in different directions.

The S&P 500 on Tuesday closed at its highest level ever, while many companies listed in the index are on course to report their largest quarterly revenue drop in about a decade.

The U.S. stock index rose 0.2% to close at 3389.78, surpassing its prior record of 3386.15 from Feb. 19 and erasing a historic plunge during February and March. The S&P 500 is now up 4.9% this year, driven by government stimulus and hopes about the world’s ability to manage the coronavirus pandemic.

Meanwhile, revenue for companies in the S&P 500 index is on track to fall 9.2% year over year for the most recent quarter, based on actual results and estimates for those companies yet to report, according to FactSet. That compares with the five-year average revenue growth rate of 3.7%, and would be the largest year-over-year revenue decline since the third quarter of 2009, FactSet said.

Walmart’s quarterly sales surged as the retail behemoth continued to use its scale, e-commerce supply chain and grocery business to attract shoppers buying food and household goods during the coronavirus pandemic.

The company’s e-commerce business nearly doubled, with revenue climbing 97% from a year ago, boosted by people ordering groceries online to pick up in store parking lots.

 

·        Target posted the strongest quarterly growth in its history, including a near-tripling of digital sales, as coronavirus concerns fueled demand for services that let shoppers pick up goods in parking lots or skip trips to the store.
 

·        Home Depot on Tuesday posted its strongest quarterly sales growth in nearly 20 years as the country’s biggest home-improvement retailer benefited from surging interest in household projects during the Covid-19 pandemic.

 


From the CFO Journal's Morning Ledger on August 18, 2020

Fewer CFOs Have a Background in Accounting

The number of finance chiefs at S&P 500 and Fortune 500 companies with an accounting background is trending lower, according to recruitment firm Crist|Kolder Associates. This year, nearly 38% of CFOs previously worked at a public accounting firm, down from 39% in 2019, Crist|Kolder said.

CFOs have traditionally come from an accounting background, but the
 role has changed in recent years to include experience in areas such as human resources, risk management and information technology.

Nearly 31% of a total of 674 sitting CFOs have worked at one of the five major accounting firms, including PricewaterhouseCoopersErnst & YoungKPMG, Arthur Andersen
—which collapsed in 2002—and Deloitte Touche Tohmatsu, Crist|Kolder said.


From the CFO Journal's Morning Ledger on August 17, 2020

The surge in junk-rated corporate-bond issuance is a sign that the Federal Reserve’s bond-buying spree has helped resuscitate credit markets in the wake of the pandemic, reopening the spigot for some of the riskiest corporate borrowers.


From the CFO Journal's Morning Ledger on August 10, 2020

Companies can now use losses incurred before and during the pandemic to offset up to five years of past profits. What makes this moment particularly attractive: Congress is letting companies get refunds of taxes they paid at the 35% corporate rate that existed before 2018 rather than at today’s 21% rate.


From the CFO Journal's Morning Ledger on August 10, 2020

Financial Institutions Seek Feedback on Carbon Accounting Standard

A group of financial institutions is asking for feedback on a draft standard it has developed to guide banks’ and investors’ accounting for greenhouse gas emissions.

The Partnership for Carbon Accounting Financials—consisting of 70 banks, asset managers and insurance companies around the world—last week released a draft for a set of methodologies for calculating and disclosing emissions resulting from activities that banks and investors finance through loans and investments.

The standard covers calculations related to listed equities and bonds, business loans, commercial real estate, mortgages, motor vehicle loans and project finance, the PCAF said.

The group said it aims to help financial institutions transition their portfolios so that net emissions generated by the activities they finance come down to zero by 2050. Financial institutions have in the past used different ways of measuring emissions from their loans and investments, leading to difficulties in evaluating the industry’s effect on the climate, the group said.

Calculating those emissions can also help financial institutions understand the exposure of their portfolios to risks associated with climate-related policies, such as carbon prices and anti-fossil fuel regulations, the PCAF said.

The PCAF is seeking feedback until Sept. 30. The final version of the standard is set to be  published in November, the group said.


From the CFO Journal's Morning Ledger on August 7, 2020

Good morning. Chinese companies with shares traded on U.S. stock exchanges would be forced to give up their listings unless they comply with American accounting requirements under a plan recommended Thursday by the Trump administration.

The proposal addresses a long-simmering dispute over U.S. regulators’ inability to inspect the auditing standards of Chinese companies that sell shares here.

Under the plan, Chinese firms that are already listed on the New York Stock Exchange and Nasdaq Stock Market would have to comply by 2022—or give up their listings on those exchanges.

To comply, Chinese auditors would have to share their work papers with U.S. audit regulators. Chinese firms that are not yet public—but plan an initial public offering here—would have to comply before they can go public on NYSE or Nasdaq, according to senior Treasury Department and Securities and Exchange Commission officials. It would require rule making by the SEC, which ultimately oversees the auditing standards of companies whose shares are traded in the U.S.


From the CFO Journal's Morning Ledger on August 5, 2020

The U.S. Securities and Exchange Commission is investigating the circumstances around Eastman Kodak’s announcement of a $765 million government loan to make drugs at its U.S. factories, according to people familiar with the matter.

News of the loan last week caused Kodak’s shares to rise as high as $60, before falling to about $15 on Monday due to a dilution in the shares. Amid the heightened volatility, trading volume has surged. The price spike briefly produced a potential windfall for company executives who owned stock-option grants, some of which were granted on July 27, the day before the loan was officially announced.


From the CFO Journal's Morning Ledger on August 4, 2020

Good morning. Steering a company through bankruptcy can be an unexpected bright spot on a chief financial officer’s résumé.

As more businesses seek court protection as a result of coronavirus lockdowns, finance chiefs of distressed companies are getting a crash course in crisis management, recruiters and advisers said. Among their marketable new skills: the ability to produce high-stakes liquidity forecasts, negotiate with lenders and even revamp a company’s whole business model, all while navigating legal proceedings and managing everyday responsibilities such as closing the books.

But executives looking for their next gig after a bankruptcy also face uncomfortable questions about whether they were culpable in the failure. Prospective employers want to know if the insolvency resulted purely from broad macroeconomic events—like a pandemic—or if the finance chief’s decisions tipped the scales, recruiters said.

Corporate bankruptcies have increased as companies have struggled to operate during virus-related lockdowns. There were 4,246 chapter 11 bankruptcy filings as of July 31, an increase of 30% compared with the same period in 2019, according to legal services firm Epiq Systems Inc.

·        Offshore Driller Fieldwood Energy Preps for Imminent Bankruptcy Filing




Teaching Case From The Wall Street Journal Weekly Accounting Review on July 31, 2020

U.K. Audit Regulator Asks Companies for More Details on Covid-19 Impact

By Nina Trentmann | July 21, 2020

Topics: Regulation , Disclosure , Coronavirus

Summary: The United Kingdom’s Financial Reporting Council (FRC) said it conducted 216 reviews of company reports filed as of March 31. A more recent “limited review of 17 financial statements showed U.K. companies are releasing enough information on the impact of the pandemic on their businesses, the Financial Reporting Council said….'Overall, the best disclosures were those that were specific to the company and which provided additional information that clearly explained how Covid-19 had impacted the company’s reported position and performance and how it may affect future prospects,' the FRC said in its review….”

Classroom Application: Questions ask students to discuss the process taken by the FRC in comparison to the regulatory process in the U.S. and to think about the importance of disclosures during the Coronavirus pandemic. The article may be used in a financial reporting course to discuss regulation of disclosure or the accounting areas most impacted by the Coronavirus pandemic such as impairment testing or any areas involving estimates.

Questions:

·        What is the United Kingdom’s Financial Reporting Council (FRC)?

·        What is the FRC’s parallel organization in the U.S.?

·        How did the FRC assess the reporting that U.K. publicly traded companies are providing during the Coronavirus pandemic outbreak?

·        How does this review compare with the process undertaken by the U.S. financial reporting regulator? Hint: read about the review process at https://www.sec.gov/divisions/corpfin/cffilingreview.htm

·        What type of information is the U.K. financial reporting regulator asking public traded companies to disclose about the impact of the Coronavirus pandemic?

·        Why is this disclosure particularly important during this pandemic?

·        What are impairment charges? Why are impairment charges more likely during the Coronavirus pandemic outbreak than at other times?

·        Why do you think it is important not to divide impairment charges across income statement (profit and loss statement) line items?

READ THE ARTICLE

Reviewed By: Judy Beckman, Ph.D., CPA, University Of Rhode Island

 

"U.K. Audit Regulator Asks Companies for More Details on Covid-19 Impact," by Nina Trentmann, The Wall Street Journal, July 21, 2020
https://www.wsj.com/articles/u-k-audit-regulator-asks-companies-for-more-details-on-covid-19-impact-11595354170

The Financial Reporting Council says firms should go beyond just fulfilling mandatory reporting requirements when talking about the pandemic

The U.K. regulator for audit and accounting is urging companies to provide extensive disclosures on the impact of the coronavirus pandemic on their finances.

The Financial Reporting Council said Tuesday that British companies overall released sufficient information related to the effects of Covid-19 on their operations, following a limited review of 17 interim and annual financial statements for the period ended March 31.

The FRC wants companies to go beyond fulfilling mandatory reporting requirements so that investors and regulators can understand how the economic downturn will shape current and future earnings. The regulator’s suggestions include adding explanations on judgments and estimates made in financial reports, especially if there are worries about a company’s financial health and its ability to remain a going concern.

The regulator said companies should apply existing accounting rules for exceptional items related to the pandemic, and do so in a consistent manner. And, it asks companies to avoid splitting impairment charges and allocating them to different parts of the financial

“Overall, the best disclosures were those that were specific to the company and which provided additional information that clearly explained how Covid-19 had impacted the company’s reported position and performance and how it may affect future prospects,” the FRC said in its review.

The U.K. regulator is echoing the position of the U.S. Securities and Exchange Commission. SEC Chairman Jay Clayton back in April asked companies to provide as much information as possible on how the coronavirus crisis is affecting their operations and future outlook. Mr. Clayton said looking into the future is likely much more important to investors, even though it has become more challenging for companies.

Ernst & Young said it is working closely with the FRC to make sure the companies it audits provide appropriate information.

“Clear disclosures about all key judgments and estimates are vital to ensure there is a full view of a company’s financial health provided during these uncertain times,” said Stephen Griggs, managing partner for audit and assurance at Deloitte U.K.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on July 31, 2020

New Chief of Accounting Standards Board Aims to Focus on Rule Impacts

By Mark Maurer | July 22, 2020

Topics: Financial Accounting Standards Board

Summary: The article introduces Richard Jones who is becoming the new chairman of the Financial Accounting Standards Board (FASB) succeeding Russell Golden as of July 1, 2020. He began working at the FASB in March, so is new to the Board as he assumes this role, after retiring from EY’s chief accountant position. “Mr. Jones worked at EY since graduating college, rising from an entry-level accountant to partner and chief accountant…The role [as FASB chair] will push him to weigh the coronavirus-centric needs of businesses and investors, and make tough decisions about prioritizing accounting rule changes.”

Classroom Application: The article may be used to discuss the process for accounting standards setting including the composition of the FASB and the process for setting agenda projects.

Questions:

·        Summarize the background of the new chair of the Financial Accounting Standards Board (FASB), emphasizing his career path to this position.

·        What challenges does the FASB chair face in deciding upon agenda projects?

·        Why must this agenda choice be made? Shouldn’t the FASB work on all accounting issues currently seen as problematic?

·        What are the specific areas of accounting needing to be addressed during the Coronavirus pandemic? Name all you find listed in the article and explain your understanding of the issue. Give proper citations to outside sources used to determine your answer.

READ THE ARTICLE

Reviewed By: Judy Beckman, Ph.D., CPA, University Of Rhode Island

 

"New Chief of Accounting Standards Board Aims to Focus on Rule Impacts," by Mark Maurer, The Wall Street Journal, July 22, 2020
https://www.wsj.com/articles/rich-jones-after-years-as-accountant-turns-to-rule-making-at-fasb-11595422800

Richard Jones spent more than 30 years applying accounting rules as a Big Four accountant. Now he gets to make the rules as the new chairman of the Financial Accounting Standards Board, which sets standards for companies and nonprofit entities in the U.S.

The 54-year-old, who began working at FASB in March to ease the transition, took the helm this month amid mounting challenges for companies involving liquidity, expenses and their workforce, due in part to the coronavirus pandemic.

 

The role will push him to weigh the coronavirus-centric needs of businesses and investors, and make tough decisions about prioritizing accounting rule changes.

“A lot of my experience is in applying the rules in judgmental situations,” said Mr. Jones. “Here [at FASB], it’ll actually be a chance to shape the rules and provide guidance to people so that they can apply them in those same situations.”

Mr. Jones began his seven-year term with FASB after retiring as the chief accountant of Ernst & Young LLP. He succeeds Russell Golden, whose term at FASB ended last month.

Mr. Jones worked at EY since graduating college, rising from an entry-level accountant to partner and chief accountant. He advised companies and EY audit teams on grasping generally accepted accounting principles. He got a taste of standard-setting from stints as a volunteer on FASB’s primary advisory board, and from serving for five years on the American Institute of Certified Public Accountants’ committee on financial reporting.

At FASB, Mr. Jones said he doesn’t expect the pandemic to be at the forefront of the standard-setting agenda because the board already has taken several actions to help companies and other stakeholders. But he said FASB will continue following new developments.

FASB’s agenda in recent months has centered on proposals to delay the implementation of some standards because of the pandemic. But another issue is how to account for the government assistance that companies and nonprofits have received in recent months. For instance, the Small Business Administration has approved 4.96 million loans worth $518.4 billion under the Paycheck Protection Program as of Tuesday.

Companies and nonprofits will also be able to receive loans through the $600 billion Main Street Lending Program.

The FASB is on the fence about taking action on standardizing disclosures on such loans while the pandemic is under way. Mr. Golden said he wished he had completed a long-running project on government grants before the pandemic.

Mr. Jones said he has no plans to hurry a standard out the door. First, the accounting board needs to find out if users of financial statements would be better off with a standardized accounting model for government grants, he said.

“We’re monitoring what is being given out by types of entities as well as the accounting disclosures to see if there’s deficiencies in the accounting for that,” Mr. Jones said.

John Jureller, chief financial officer at New York-based flexible-office company Knotel Inc., said it is important for FASB to complete its project on government grants because investors and creditors are eager to know the standards by which companies should prepare their financial statements.

“For public or private companies, there’s a substantial benefit in having specific guidance,” he said. Knotel received between $5 million and $10 million in PPP funds, records show.

Like his predecessors, Mr. Jones will need to juggle the often-conflicting expectations of businesses and investors on the standards on which FASB should focus. Mr. Jones hasn’t worked closely with investors until now. He plans to stick to the traditional method of improving standards based on analyzing the costs and benefits to all parties involved.

In the coming years, investors, many of whom have sought a greater voice in the standard-setting process, want FASB to strengthen accounting for intangibles, better integrate cash-flow and income statements, and provide more disclosure on taxes. Company executives want less costly and burdensome accounting for processes such as measuring goodwill impairments.

Companies and investors disagree on issues such as whether firms should move to a fair-value approach on measuring asset value from a historical cost approach. Executives generally say frequent asset appraisals under a fair-value model would be expensive and trigger earnings volatility, while some investors say that approach is more useful than the alternative.

“It continues to need wrestling to the ground,” said Robert Herz, an executive in residence at the Columbia Business School and a former FASB chairman. “That’s something that, under Rich Jones, I think they’ll continue looking at.”

Mr. Jones had a strong record of listening to different perspectives and validating their concerns, said Tony Dowd, who chairs the appointments committee of the Financial Accounting Foundation’s Board of Trustees, which appoints board members.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on July 31, 2020

Under Armour Receives Wells Notices From SEC

By Khadeeja Safdar | July 27, 2020

Topics: Securities and Exchange Commission , Enforcement

Summary: “Securities regulators have warned Under Armour Inc. founder Kevin Plank and its chief financial officer that they could face civil-enforcement action related to the sportswear maker’s past accounting practices.” The article discusses practices used by the company to increase reported sales revenue in 2015 and 2016 and continue a long-running growth streak.

Classroom Application: The article may be used in a financial reporting, ethics, or auditing class. Questions ask students to understand the regulatory steps reported in the article—serving of Wells notices about impending SEC Enforcement Actions—as well as the roles of the reporting entity, its auditor, and the executives personally under these circumstances.

Questions:

·        What is a Wells notice?

·        Who sent the Wells notices discussed in this article?

·        To whom were the Wells notices sent?

·        What accounting issue(s) at Under Armour is(are) of concern that generated an investigation and these Wells notices? Include in your answer not only the area of accounting but also your understanding of the accounting concern.

·        Why does the article note that UnderArmour’s auditor, PricewaterhouseCoopers, has not received such a Wells notice?

READ THE ARTICLE

Reviewed By: Judy Beckman, Ph.D., CPA, University Of Rhode Island

 

"Under Armour Receives Wells Notices From SEC." by Khadeeja Safdar, The Wall Street Journal, July 27, 2020
https://www.wsj.com/articles/under-armour-says-it-gets-wells-notices-from-sec-11595855250

Founder Kevin Plank and finance chief David Bergman are warned of possible civil charges over ‘pull forward’ sales

 

Securities regulators have warned Under Armour Inc., UA -6.78% founder Kevin Plank and its chief financial officer that they could face civil-enforcement action related to the sportswear maker’s past accounting practices.

Under Armour said the Securities and Exchange Commission last Wednesday sent Wells notices to the company, Mr. Plank and finance chief David Bergman. The notices relate to the company’s disclosures around its accounting in 2015 and 2016 and “pull forward” sales during those periods.

A Wells notice is a letter saying the SEC plans to bring an enforcement action against a company or individual and gives the recipients a chance to argue why the action shouldn’t be taken.

The Wall Street Journal reported in November that the SEC and Justice Department were investigating Under Armour’s accounting practices to determine whether the company shifted sales from quarter to quarter to appear healthier, according to people familiar with the matter.

 

In response to the Journal article, Under Armour disclosed the probe and said it had been cooperating with the Justice Department and SEC since July 2017. “The company firmly believes that its accounting practices and disclosures were appropriate,” Under Armour said in November.

Shares of Under Armour finished the session up 2.7% at $11.20.

Former Under Armour executives told the Journal in November that they scrambled to meet aggressive sales targets, borrowing business from future quarters to mask slowing demand for the company’s athletic apparel in 2016.

The Baltimore-based company frequently leaned on retailers to take products early and redirected goods intended for its factory stores to off-price chains to book sales in the final days of a quarter, according to former executives in sales, logistics, merchandising and finance.

 

Continued in article

Wells Notice --- https://en.wikipedia.org/wiki/Wells_notice

From the CFO Journal's Morning Ledger on July 28, 2020

Good morning. Securities regulators have warned Under Armour founder Kevin Plank and its chief financial officer that they could face civil-enforcement action related to the sportswear maker’s past accounting practices.

Under Armour said the U.S. Securities and Exchange Commission on Wednesday sent Wells notices to the company, Mr. Plank and finance chief David Bergman. The notices relate to the company’s disclosures around its accounting in 2015 and 2016 and “pull forward” sales during those periods.

“Once you’ve received a Wells notice, that’s effectively the declaration of war,” said Jim Peterson, a corporate-securities attorney and a former partner at accounting firm Arthur Andersen LLP. “Enforcement is locked and loaded, ready to go.”

Auditors sometimes also receive a Wells notice, which could signal the focus of the investigation. The company’s auditor, PricewaterhouseCoopers, hasn’t received a Wells notice, a person familiar with the matter said. PwC may not have received the notice for a number of reasons, including if the SEC staff believes the company lied to the auditors, or the SEC is ready to settle, securities lawyers said

Jensen Comment
Interesting student assignment. Have students compare channel stuffing ploys with ploys to book forward sales.

Pulling Forward Sales ---
https://www.wsj.com/articles/under-armour-says-it-gets-wells-notices-from-sec-11595855250

Teaching Case on Channel Stuffing
From The Wall Street Journal Accounting Weekly Review on July 31, 2015

SEC Investigating Smirnoff Maker Diageo
by: Tripp Mickle and Saabira Chaudhuri
Jul 24, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Revenue Recognition

SUMMARY: The Securities and Exchange Commission is investigating whether Diageo PLC has been shipping excess inventory to distributors in an effort to boost the liquor company's results. By sending more cases to distributors than wanted, the British-based owner of Smirnoff and Johnnie Walker would be able to report increased sales and shipments. That allows Diageo to report shipments as sales, leaving distributors with a bitter taste as sales of the company's brands have waned. The company has already changed the way it accounts for those shipments, and that will almost certainly lead to lower inventory levels even as Diageo responds to securities investigators. In the U.S., liquor producers follow a three-tier system to market. Producers like Diageo ship to wholesalers, who then ship to retailers. Liquor companies can record shipments as sales when they ship them to the wholesaler.

CLASSROOM APPLICATION: This is a great article for a discussion regarding when to recognize sales. The Securities and Exchange Commission probe raises important questions over not only who owns inventory as it moves through distribution channels but who makes decisions about supply.

QUESTIONS: 
1. (Introductory) What is the SEC? What is its area of authority?

2. (Advanced) Why is the SEC investigating Diageo PLC? How does this investigation relate to the SEC's responsibilities?

3. (Advanced) What are the accounting rules regarding revenue recognition? What are possible times sales can be recognized in the business transaction described in the article? When should the sales be recognized?

4. (Advanced) What is cash basis accounting? What is accrual basis accounting? How does revenue recognition differ when a company is cash basis vs. accrual basis?
 

Reviewed By: Linda Christiansen, Indiana University Southeast

Bob Jensen's threads on channel stuffing scandals ---
http://faculty.trinity.edu/rjensen/ecommerce/eitf01.htm#ChannelStuffing


Teaching Case From The Wall Street Journal Weekly Accounting Review on August 7, 2020

SEC Probing Kodak Loan Disclosure, Stock Surge

By Dave Michaels Theo Francis | August 4, 2020

Topics: Disclosure , Insider Trading , Financial Regulation

Summary: The Securities and Exchange Commission is investigating “…how Kodak controlled disclosure of [a] loan [from the U.S. government], word of which began to emerge on July 27, causing Kodak’s stock price to rise 25% that day.” The stock price change is a potential windfall for the chief executive officer and Board Chairman, Jim Continenza, who holds stock options, some of which were granted on July 27. The company explains that the options were granted to prevent dilution of Mr. Continenza’s interest due to outstanding convertible debt and that he has never sold, nor does he plan to sell, Kodak shares. Other executive stock purchases in the past few months, while this loan was being negotiated, are questioned by Senator Elizabeth Warren (D, Mass.) and described in the article.

Classroom Application: The article may be used when discussing executive stock options and disclosure in a financial reporting class. Also mentioned is the concept of dilution as the company’s reasoning for the timing of stock options issued to the CEO. Questions ask students to obtain an understanding of Kodak’s business history and proposed change; related articles discussing the business change at Kodak and the proposed U.S. loan are linked in the article and available at https://www.wsj.com/articles/kodak-lands-765-million-u-s-loan-in-start-of-medical-supply-chain-fix-11595930400 https://www.wsj.com/articles/tweets-and-articles-sent-kodak-shares-surging-before-official-announcement-11596056729

Questions:

·        What is the background of Eastman Kodak Company? Cite your source for this information.

·        What production change is Kodak planning? Why is the company undertaking this change? What financing source is helping to bring about that production change? Again, cite your source(s).

·        How many stock options were issued to Kodak Executive Chairman Jim Continenza on July 27, 2020? What is the value of those options, according to the article? Based on discussion in the article, describe how you think that value is determined: as the fair value of the option or the options' intrinsic value. Include in your answer a definition of each of these values for a stock option.

·        Why is the Securities and Exchange Commission investigating disclosures made and the details of the options granted around the July 27 time frame?

·        What is the company’s response for the reason behind the issuance of the stock options? Include in your answer an explanation of the term “dilution.”

 

READ THE ARTICLE

 

Reviewed By: Judy Beckman, Ph.D., CPA, University Of Rhode Island (Uri)

 

"SEC Probing Kodak Loan Disclosure, Stock Surge." by Dave Michaels and Theo Francis, The Wall Street Journal, August 4, 2020
https://www.wsj.com/articles/kodak-loan-disclosure-and-stock-surge-under-sec-investigation-11596559126

Probe focuses on reporting of $765 million government loan to company and granting of stock options

The Securities and Exchange Commission is investigating the circumstances around Eastman Kodak Co. ’s announcement of a $765 million government loan to make drugs at its U.S. factories, according to people familiar with the matter.

News of the loan last week caused Kodak’s shares to rise as high as $60, before falling to about $15 on Monday due to a dilution in the shares. Amid the heightened volatility, trading volume has surged. The price spike briefly produced a potential windfall for company executives who owned stock-option grants, some of which were granted on July 27, the day before the loan was officially announced.

 

The SEC’s investigation is at an early stage and might not produce allegations of wrongdoing by the company or any individuals, the people familiar with the matter said. Among the areas being probed by regulators: how Kodak controlled disclosure of the loan, word of which began to emerge on July 27, causing Kodak’s stock price to rise 25% that day.

The Wall Street Journal reported last week that Kodak had shared information about an agreement between the company and the Trump administration with media outlets before the public announcement. Some media companies then published that information before deleting it following a request from the company.

A Kodak spokeswoman on Tuesday said the company isn’t aware of the investigation and would cooperate with any inquiries. An SEC spokesperson declined to comment.

At a White House briefing Tuesday night, President Trump distanced himself from the Kodak deal, saying he wasn’t involved.

“The concept of the deal was good, but I’ll let you know. We’ll do a little study on that ... If there is any problem, we’ll let you know about it very quickly. But I wasn’t involved in it. It’s a big deal. It’s a way of bringing back a great area, too, in addition to pharmaceuticals. Kodak has been a great name but obviously pretty much in a different business. So we’ll see what that’s all about.”

SEC rules require public companies to have policies and systems in place to ensure accurate and timely disclosure of material events. Kodak has said the loan details aren’t finalized and that there is no guarantee one will be made.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on August 7, 2020

Disney Posts a Nearly $5 Billion Loss

By R.T. Watson | August 4, 2020

 

Topics: Segment Reporting

Summary: Walt Disney Co. has not reported a quarterly loss since 2001, until now. Understanding the $4.72 billion loss depends on segment reporting which shows the impact of the shut-down of all domestic parks, resorts, cruise lines, and Disneyland Paris for the entire fiscal quarter ending June 27, 2020. Revenues fell 42% from the year-earlier period. Costs also are expected to remain high throughout the pandemic for Disney to operate its businesses; the company forecasts that “adhering to new guidelines and implementing enhanced safety measures to protect against the spread of Covid-19 will cost the company an additional $1 billion between now and the end of the company’s next fiscal year.” A bright spot is that the “…Disney + streaming service secure[d] more than 60 million users in nearly nine months, a mark that Netflix took about eight years to achieve.” Disney owns ESPN and the resumption of some professional sports may lead to increased advertising revenues.

Classroom Application: The article may be used when discussing segment reporting requirements in a financial reporting class.

Questions:

·        Refer to the related graphic entitled Disney Revenue by Segment. Summarize in words the information presented, including identification of Disney’s operating segments.

·        Access the Walt Disney Company annual report either through the company’s web site or as filed on Form 10-K with the U.S. Securities and Exchange Commission (SEC) and available at https://www.sec.gov/cgi-bin/viewer?action=view&cik=1744489&accession_number=0001744489-19-000225&xbrl_type=v# Locate the descriptions of all operating segments and summarize each of their operations.

·        What financial reporting requires disclosure of this segment information? Cite professional accounting literature in providing your answer.

·        Summarize the disclosure requirements for segments according to the professional literature you cite in answer to the question above.

·        Is other segment information besides that used in this article required to be reported? Explain your answer.

·        The objective of segment reporting is to provide information that is useful in analyzing a consolidated entity taken as a whole. Explain how the discussion in this article emphasizes that point.

 

READ THE ARTICLE

 

Reviewed By: Judy Beckman, Ph.D., CPA, University Of Rhode Island (Uri)

 

"Disney Posts a Nearly $5 Billion Loss," by R.T. Watson, The Wall Street Journal, August 4, 2020
https://www.wsj.com/articles/disney-loses-nearly-5-billion-as-pandemic-slams-theme-parks-11596573570

Pandemic triggers 42% drop in quarterly revenue; ‘Mulan’ to debut on Disney+ in September

Walt Disney Co. DIS +0.21% posted its first quarterly loss since 2001, nearly $5 billion, as the majority of its business segments reeled from government efforts to corral the coronavirus by shutting down public spaces around the world.

The Covid-19 pandemic has closed Disney’s DIS 0.30% theme parks, virtually eliminated movie distribution and curtailed live sports, a key programming source for Disney DIS 0.30% TV networks. However, the world’s shut-in nature has helped the company’s Disney DIS 0.30% + streaming service secure more than 60 million users in nearly nine months, a mark that Netflix took about eight years to achieve.

Disney DIS 0.30% said Tuesday it lost $4.72 billion in the three months ended June 27, compared with a profit of $1.43 billion in the year-earlier period. Total revenue fell 42% to $11.8 billion.

The company’s prior quarterly loss, amounting to $567 million, came in early 2001, according to FactSet data.

Investors appeared to be more interested in the strong results from Disney+, which reported strong subscriber growth and next month will premiere the long-postponed live-action remake of “Mulan.” Disney shares rose about 5% in after-hours trading following the earnings release.

The shares have rallied more than 36% from their pandemic low in late March, according to FactSet, but are still off about 19% this year.

As expected, Disney’s theme-parks business was hit the hardest in the just-ended fiscal third quarter. The company estimated the pandemic had a $3.5 billion negative impact on the segment. The result was a $1.96 billion loss for the business, compared with $1.72 billion in operating income a year earlier. The company’s domestic parks, resorts, cruise lines and Disneyland Paris were closed during the entire period. Shanghai Disney Resort and Hong Kong Disneyland were able to operate for a portion of the quarter.

“We continue to work with national and local health and government officials in this very fluid situation and are making adjustments as necessary,” said Disney Chief Executive Bob Chapek.

Last month’s reopening of Walt Disney World theme park in Orlando, Fla., has so far been disappointing, finance chief Christine M. McCarthy said Tuesday.

“The upside we are seeing from reopening is less than we originally expected given the recent surge in Covid-19 cases in Florida,” she said on an earnings conference call. Less than a month ago, Walt Disney World reopened at reduced capacity and with heightened safety measures.

Disney postponed plans to open Disneyland in Anaheim, Calif., after the state canceled its plan to allow the park to reopen at limited capacity, amid fears that reopening other public spaces too soon had caused a resurgence in Covid-19 cases.

Last month in China, the company had to close Hong Kong Disneyland less than a month after the park reopened as government officials renewed restrictions on public gatherings amid a fresh outbreak of cases.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on August 7, 2020

CFOs Gain Valuable Skills in Bankruptcy’s School of Hard Knocks

By Kristin Broughton | August 3, 2020

 

Topics: Bankruptcy , Chief Financial Officer (CFO)

Summary: The article discusses the career implications for chief financial officers who have steered companies through bankruptcy proceedings. Topics discussed extend beyond these career implications to the process that must be undertaken during bankruptcy. For example, the need to restate a company’s balance sheet during the bankruptcy process is mentioned.

Classroom Application: Questions ask students to understand there are positive sides to a career steps that involve corporate bankruptcy. Two questions also focus on the definition of the going concern assumption and why that concept leads to a need to restate balance sheets during a bankruptcy proceeding. The article may be used in a financial reporting class covering the concept of going concern, bankruptcy, or career paths during these challenging times.

Questions:

·        What happens in a bankruptcy proceeding? Cite your source for this information whether it be your text book or other sources.

·        Why is it useful for chief financial officers to have skills in steering a company through bankruptcy proceedings?

·        What are the potential concerns that chief financial officers will face when applying for new jobs if they have steered their current employers through bankruptcy?

·        What are the steps in bankruptcy in which a chief financial officer (CFo) might play a key role?

·        Define the concept of “going concern” and explain its impact on a company’s financial statements.

·        Bankruptcy proceedings “present CFOs with unpredictable and complex challenges [for example, CFOs] are often asked to restate a company’s assets…´ Why must a company’s assets on its balance sheet be restated during bankruptcy? Relate your answer to the definition of the “going concern assumption” that you gave in response to the question above.

 

READ THE ARTICLE

 

Reviewed By: Judy Beckman, Ph.D., CPA, University Of Rhode Island (Uri)

 

"CFOs Gain Valuable Skills in Bankruptcy’s School of Hard Knocks," by Kristin Broughton, The Wall Street Journal, August 3, 2020
https://www.wsj.com/articles/cfos-gain-valuable-skills-in-bankruptcys-school-of-hard-knocks-11596475325

Finance chiefs that steer companies through the restructuring process get a crash course on how to manage liquidity—and stress—when times get tough

But executives looking for their next gig after a bankruptcy also face uncomfortable questions about whether they were culpable in the failure. Prospective employers want to know if the insolvency resulted purely from broad macroeconomic events—like a pandemic—or if the finance chief’s decisions tipped the scales, recruiters said.

Corporate bankruptcies have increased as companies have struggled to operate during virus-related lockdowns. There were 4,246 Chapter 11 bankruptcy filings as of July 31, an increase of 30% compared with the same period in 2019, according to legal services firm Epiq Systems Inc.

“It’s going to be the number one question asked” in a job interview, said Barry Toren, head of the North American financial officers practice at the recruiting firm Korn Ferry. He said recruiters will want to know why the company went under and whether the CFO could have taken steps to avoid it.

“If it’s due to Covid, then obviously it’s understandable,” Mr. Toren said.

When Greg Tribou this year decided to leave his job as CFO of Brookstone, the retailer once known for selling electronics and massage chairs in U.S. shopping malls before filing for chapter 11 protection in 2018, he knew he wanted to leave the retail sector. But he was nervous how prospective employers might view his history of working at bankrupt companies.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on August 14, 2020

Coronavirus-Hit State Budgets Create a Drag on U.S. Recovery

By David Harrison Kate Davidson | August 12, 2020

Topics: Governmental Accounting

Summary: “State and local governments reduced spending at a 5.6% annual rate in the second quarter of 2020 as they laid off workers and pulled back on services to offset plunging tax revenues… Moody’s Analytics estimates that without additional federal aid, state and local budget shortfalls will total roughly $500 billion over the next two fiscal years.” States’ spending cuts are expected to harm the U.S. economic recovery and thus are being considered as Congress debates “how much federal aid to provide.” Exacerbating the need for these cuts is the fact that many state and local governments are required by law to balance their budgets.

Classroom Application: The article may be used in a governmental accounting course discussing both state and federal government budgets.

Questions:

·        What has happened to state and local governmental revenues during the Coronavirus pandemic?

·        What steps have state and local governments taken to cope with the impacts of the pandemic?

·        How do state laws force these governmental entities to take these steps to cope with the pandemic?

·        What is the federal government doing to help state and local governments? Why is the federal government taking this step?

·        What is the evidence that many state and local governments “were well-prepared for an economic downturn”?

·        If many state and local governments “were well-prepared for an economic downturn," why do they need help from the federal government?

READ THE ARTICLE

Reviewed By: Judy Beckman, Ph.D., CPA, University Of Rhode Island

 

"Coronavirus-Hit State Budgets Create a Drag on U.S. Recovery," by David Harrison.and  Kate Davidson, The Wall Street Journal, August 12, 2020
https://www.wsj.com/articles/coronavirus-hit-state-budgets-create-a-drag-on-u-s-recovery-11597224600

WASHINGTON—Spending cuts by state and local governments grappling with the coronavirus pandemic pose a headwind to the U.S. economic recovery as lawmakers consider how much federal aid to provide.

State and local governments reduced spending at a 5.6% annual rate in the second quarter as they laid off workers and pulled back on services to offset plunging tax revenues. More cuts are on the way.

Moody’s Analytics estimates that without additional federal aid, state and local budget shortfalls will total roughly $500 billion over the next two fiscal years. That would shave more than 3 percentage points off U.S. gross domestic product and cost more than 4 million jobs, said Dan White, head of fiscal policy research at Moody’s.

Talks in Congress on another economic relief package have stalled, with assistance for state and local governments among the sticking points. Democrats are pushing for $950 billion.

Republican leaders, who didn’t include aid for cities and states in their initial plan, have offered $150 billion. They cite concerns about growing U.S. deficits and debt, and they say some state budget woes predate the pandemic.

President Trump, in a tweet on Monday, suggested Democrats “only wanted BAILOUT MONEY for Democrat run states and cities that are failing badly.”

Estimates of state revenue shortfalls show that the effects of the pandemic will reverberate in red and blue states alike, although its severity and the extent of lockdowns varies by state, and there are Republicans among the lawmakers calling for aid.

“I understand concerns about spending, but the cost of doing nothing is worse,” said Sen. Bill Cassidy (R., La.). His home state of Louisiana has been hit hard by the virus and, under a worst-case scenario, could face a 46% revenue decline over fiscal year 2020 and 2021, Moody’s estimated. Mr. Cassidy has introduced a measure with Sen. Bob Menendez (D., N.J.) that would provide $500 billion for state and local governments.

“The United States cannot fully recover economically if local communities cannot provide basic services, allowing commerce to flow,” Mr. Cassidy said on the Senate floor last month.

State and local governments spent or invested $2.33 trillion in 2019, equivalent to 10.9% of gross domestic product. They employ 13% of U.S. workers, whose spending fuels economic growth and who help deliver essential services and safety-net programs, such as unemployment insurance and nutrition assistance.

“Not supporting state and local governments is kind of shooting yourself in the foot,” said Louise Sheiner, policy director at the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution.

State and local governments received $150 billion in the last major economic relief package, which was limited to coronavirus-related expenses. About 75% of the funds have already been allocated, said Wesley Tharpe, deputy director for state policy at the Center on Budget and Policy Priorities. Lawmakers from both parties have called for loosening restrictions on how the remaining money can be spent.

Analyses of state finances show many were well-prepared for an economic downturn—just not the biggest one since the Great Depression. As of 2019, the median state had 7.8% of its general fund set aside in reserve, according to the National Association of State Budget Officers, up from 4.8% on the eve of the 2007-09 recession.

The U.S. economy shrank 9.5% in the second quarter from the previous three months, the steepest decline on record. Economists say the $3 trillion in economic relief already provided by Congress, including money for small businesses, direct payments to households and expanded unemployment insurance, prevented a much deeper slump.

Michael Strain, director of economic policy studies at the conservative American Enterprise Institute, said Congress should take similar steps to fill the budget hole for state and local governments, which have seen revenues decline by 15% to 20% in some cases.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on August 14, 2020

White House Seeks Crackdown on U.S.-Listed Chinese Firms

By Dave Michaels | August 6, 2020

Topics: Auditing , Financial Regulation

Summary: A recommendation by the President’s Working Group on Financial Markets aims to increase the ability of the Securities and Exchange Commission (SEC) and the Public Company Accounting Oversight Board (PCAOB) to regulate auditors of foreign private issuers, particularly from China. “The proposal addresses a long-simmering dispute over U.S. regulators’ inability to inspect the financial audits of Chinese companies that sell shares in U.S. markets. It follows bipartisan legislation that passed the Senate in May, which would give Chinese companies that don’t comply three years to delist in the U.S. and find a new exchange.” It comes amid the Trump Administration’s “stepped up actions against China” though “Rep. Brad Sherman (D., Calif.) [for example, says] ‘This is not an anti-China provision. This is an investor protection provision.’”

Classroom Application: The article may be used in an auditing course to discuss regulation of the profession, international auditing operations, and/or audit quality and fraud detection. The fraud connection is that Trump Administration actions follow “…significant accounting frauds involving Chinese companies [that] have exposed the gap in U.S. audit oversight.” The most recent of these frauds is Luckin Coffee Inc. which has been covered in this review.

Questions:

·        What entity oversees and regulates the financial statement audits of companies publicly traded in the U.S.? When and how was its authority established?

·        What steps are involved in financial statement audit regulation? State all that you know and cite your source for this information, whether from your textbook or elsewhere.

·        What limitations are faced by U.S. regulators in applying this audit oversight for financial statements of foreign entities that are traded in the U.S.?

·        What steps have been take recently to overcome these limitations faced by U.S. regulators?

·        Does it appear to you that political forces are impacting the regulation of auditors? Support your answer.

READ THE ARTICLE

Reviewed By: Judy Beckman, Ph.D., CPA, University Of Rhode Island

 

"White House Seeks Crackdown on U.S.-Listed Chinese Firmsm" by Dave Michaels, The Wall Street Journal, August 6, 2020,
https://www.wsj.com/articles/trump-administration-seeks-crackdown-on-chinese-companies-with-shares-traded-in-u-s-11596748284

Proposal would have companies lose their listings if they don’t comply with U.S. auditing requirement

WASHINGTON—Chinese companies with shares traded on U.S. stock exchanges would be forced to give up their listings unless they comply with U.S. audit requirements under a plan recommended Thursday by the Trump administration.

The proposal addresses a long-simmering dispute over U.S. regulators’ inability to inspect the financial audits of Chinese companies that sell shares in U.S. markets. It follows bipartisan legislation that passed the Senate in May, which would give Chinese companies that don’t comply three years to delist in the U.S. and find a new exchange.

Under the plan, Chinese firms that are already listed on the New York Stock Exchange and Nasdaq Stock Market would have to comply by 2022—or give up their listings on those exchanges.

To comply, Chinese auditors would have to share their work papers with the Public Company Accounting Oversight Board, a specialized audit regulator overseen by the U.S. government.

Chinese firms that aren’t yet public—but which plan to do an initial public offering in the U.S.—would have to comply before they can go public on NYSE or Nasdaq, and wouldn’t get until 2022 to follow the rules, according to senior Treasury Department and Securities and Exchange Commission officials.

The move came as part of a recommendation by the President’s Working Group on Financial Markets intended to protect American investors from what the administration has described as risks posed by Chinese companies.

“The recommendations outlined in the report will increase investor protection and level the playing field for all companies listed on U.S. exchanges,” Treasury Secretary Steven Mnuchin, who heads the group, said.

A spokesperson for the Chinese embassy in Washington didn’t respond to a request seeking comment.

It is the latest step in the administration’s policy of getting tough with China, which started with the imposition of tariffs early in President Trump’s term. In a separate action Thursday, the administration reimposed tariffs on some imports of Canadian aluminum.

The administration has stepped up actions against China recently, seeing them as popular with voters as the 2020 election approaches. The measures include sanctions over Beijing’s new national security law in Hong Kong and its treatment of Uighurs in Xinjiang province, as well as regular criticism by Mr. Trump and his top aides of China’s handling of the coronavirus pandemic.

The stock proposal follows a number of steps by the administration to put pressure on Beijing. Last week, regulators told the Chinese owner of TikTok, a popular video app, that its ownership poses a national-security threat, exacerbating the tense relationship between the world’s two largest economies.

U.S. officials said they are concerned that TikTok, owned by Beijing-based ByteDance Ltd., could pass to China’s authoritarian government any data it collects from U.S. citizens’ streaming videos. TikTok has said it would never do so. TikTok is in talks to sell its U.S. operations to Microsoft Corp. Executives are trying to complete negotiations by Sept. 15.

The U.S. ordered China last month to shut its consulate in Houston, with officials accusing it and other Chinese diplomatic missions of economic espionage and visa fraud. China retaliated by ordering the closure of the U.S. consulate in Chengdu.

The plan announced Thursday is similar to legislation that passed the Senate in May and was sponsored by Sens. John Kennedy (R., La.) and Chris Van Hollen (D., Md.). Similar legislation has passed the House as an amendment to a defense-spending bill, said Rep. Brad Sherman (D., Calif.), who added in an interview on Thursday: “This is not an anti-China provision. This is an investor-protection provision.”

The administration’s plan would require rule-making by the SEC, which ultimately oversees the audits of companies whose shares are traded in the U.S.

The Senate bill, which was passed unanimously, addresses investor-protection concerns that have lingered for years but which gained political traction as tension between the U.S. and China grew. Chinese companies such as Alibaba Group Holding Ltd. and Baidu Inc. have together raised tens of billions of dollars by tapping into U.S. capital markets.

Some significant accounting frauds involving Chinese companies have exposed the gap in U.S. audit oversight. Luckin Coffee Inc., an upstart rival to Starbucks Corp. in China, is the latest example. Luckin said employees fabricated more than $300 million in sales, only 11 months after its initial public offering on Nasdaq. The firm has since been delisted. It later fired its chief executive officer and chief operating officer, and Chinese regulators are preparing to take punitive action against the once-hot startup.

It isn’t clear how the Chinese companies and auditors would be able to comply with the U.S. demand.

China has implemented a law that prevents its citizens and companies from complying with overseas securities regulators without the permission of its own market supervisor and various components of the Chinese government.

One way around that hurdle, under the Trump administration’s plan, would effectively involve a Chinese company getting a second audit from an accounting firm whose records can be inspected by the accounting oversight board.

Under such an approach, a U.S. accounting firm could conduct a “co-audit” of a Chinese company’s financial statements alongside the audit performed by its Chinese affiliate. The board would theoretically have access to the work papers of the U.S. accounting firm, which would assume liability for any shoddy or inadequate work, officials said.

Co-audits have been performed in other countries, senior SEC officials said.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on August 14, 2020

Blue-State Tax Break Becomes a Flashpoint in Coronavirus-Relief Bill

By Richard Rubin | August 5, 2020

Topics: Individual Income Tax , Deductions , State and Local Taxes

Summary: Representative Tom Suozzi (D., N.Y.) is proposing to repeal the $10,000 cap on state and local tax deductions as part of a Coronavirus relief package. “For Mr. Suozzi, restoring the tax break is urgent, central to New York’s ability to keep high-income residents from fleeing and to finance a progressive state government that can respond effectively to the pandemic. ‘We’re losing taxpayers when we need them most,’ he said. ‘ The people who can’t afford to move [out of New York because of the pandemic or because of the incentive created by the 2017 tax law change] or just don’t want to move are the ones left behind holding the bag.”

Classroom Application: The article may be used in an individual income tax class covering the topic of deductions. Political influence on establishing tax law, and the economic incentives created, are the focus of the questions. It also may be used as a complement to the article on state and local government budgets covered in this week's review. The article is available at https://www.wsj.com/articles/coronavirus-hit-state-budgets-create-a-drag-on-u-s-recovery-11597224600

Questions:

·        What is the state and local tax deduction?

·        What happened to this tax deduction in the 2017 tax law change?

·        How is Covid-19 impacting high tax states, particularly New York?

·        What tax law proposal is being made in Congress?

·        What are the political viewpoints influencing this potential tax law change?

READ THE ARTICLE

Reviewed By: Judy Beckman, Ph.D., CPA, University Of Rhode Island

 

"Blue-State Tax Break Becomes a Flashpoint in Coronavirus-Relief Bill," by Richard Rubin, The Wall Street Journal, August 5, 2020
https://www.wsj.com/articles/blue-state-tax-break-becomes-a-flashpoint-in-coronavirus-relief-bill-11596619801

Democrats say $10,000 limit on state and local deductions hurts states’ ability to fund services; Republicans mock effort to repeal the cap

WASHINGTON—Rep. Tom Suozzi (D., N.Y.) knows his bid to repeal the $10,000 cap on state and local tax deductions is a long shot for inclusion in any final coronavirus-relief bill. He has seen the mockery from Republicans, who criticize Democrats for proposing a tax cut for the rich.

But for Mr. Suozzi, restoring the tax break is urgent, central to New York’s ability to keep high-income residents from fleeing and to finance a progressive state government that can respond effectively to the pandemic.

“We’re losing taxpayers when we need them most,” he said. “The people who can’t afford to move or just don’t want to move are the ones left behind holding the bag.”

The $137 billion proposal would temporarily eliminate the $10,000 cap on the state and local tax deduction for 2020 and 2021. House Democrats included it in the virus-relief bill they passed in May, and it represents about 4% of the total price tag. That is separate from nearly $1 trillion proposed in direct aid to state and local governments.

The tax-deduction proposal is now wrapped up in broader negotiations between the Trump administration and congressional Democrats, and it has become one of the prime points of attack that Republican leader Mitch McConnell of Kentucky has been using against his Democratic counterpart, Minority Leader Chuck Schumer of New York.

“The Democratic leader is still refusing to let struggling Americans get another dime unless he gets a massive tax cut for wealthy people in blue states that has nothing to do with the coronavirus,” Mr. McConnell said Monday.

Mr. Schumer said Tuesday that he favors keeping the provision in any relief bill because it is important to states and affects middle-class households throughout New York and the country. He hasn’t said that he would refuse to support a bill if it didn’t include the tax provision.

Democrats’ insistence on raising the issue—over objections from progressive tax experts who say too much of the benefit goes to the rich—shows just how important the deduction is to a party that counts upper-middle-class residents of urban areas as a core part of its base. The current advocacy signals that Democrats will press to repeal the cap if they have full control of the government after the election.

They might face objections in their own ranks. In December, 16 Democrats voted against a stand-alone bill to temporarily repeal the deduction cap and raise the top marginal income-tax rate. That group was a mix of progressives and representatives from low-tax states where the deduction helps less.

Before the 2017 tax law, individuals who itemized their deductions could subtract their state and local taxes from their income on federal tax returns, with few limits. (Those facing the parallel alternative minimum tax already lost their deductions in that system.)

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on August 21, 2020

Creditors Poised to Take Control of Cirque du Soleil

By Alexander Gladstone Vipal Monga | August 17, 2020

Topics: Bankruptcy , Creditors , Stockholders' Equity

Summary: “A creditor group led by Catalyst Capital Group and including Sound Point Capital Management and CBAM Partners are close to winning ownership of the company, according to people familiar with the process.” The article describes the bankruptcy process in which Cirque due Soleil’s stockholder TPG, a private-equity firm, and members of the consortium it leads had expected to retain majority ownership. However, “that offer fell short when creditors refused to sign on….”

Classroom Application: The article may be used to discuss bankruptcy and emphasize the relative rights of creditors and stockholders.

Questions:

·        What is bankruptcy? State the different types of bankruptcy in your definition and cite your source for information.

·        Define the terms “investor,” “creditor,” and “stockholder.” Again cite your source for these definitions.

·        Based on the information presented in the article, how are Cirque due Soleil’s creditors becoming stockholders? State the steps in this process as you understand them.

·        What will happen to the current stockholders if the Cirque due Soleil creditors become stockholders in the entity?

READ THE ARTICLE

Reviewed By: Judy Beckman, Ph.D., CPA, University Of Rhode Island

 

"Creditors Poised to Take Control of Cirque du Soleil," by Alexander Gladstone Vipal Monga, The Wall Street Journal, August 17, 2020
https://www.wsj.com/articles/creditors-poised-to-take-control-of-cirque-du-soleil-11597685385

Group led by Catalyst Capital close to winning control of the troubled performance group

TORONTO—A consortium of creditors is poised to win control of troubled performance group Cirque du Soleil Entertainment Group and take it over from private-equity firm TPG and other shareholders, according to sources familiar with the deal.

Montreal-based Cirque du Soleil filed for bankruptcy protection in June and began seeking new investments to salvage a global business that was closed temporarily over the coronavirus pandemic.

A creditor group led by Catalyst Capital Group and including Sound Point Capital Management and CBAM Partners are close to winning ownership of the company, according to people familiar with the process. They have agreed to forgive more than $900 million in debt claims while supplying as much as $375 million in exit financing to the company.

The lenders’ offer has emerged as the leading bid for Cirque ahead of a Tuesday deadline for competing offers, the people said.

If finalized, the creditor deal would push aside investment firm TPG, Fosun International Ltd. and Caisse de dépôt et placement du Québec, which teamed up to buy Cirque in 2015.

 

Cirque entered bankruptcy-protection proceedings in Canada, proposing to keep TPG’s consortium as majority owners under a restructuring deal that included a loan by the Canadian province of Quebec and a 45% stake for creditors.

But that offer fell short when creditors refused to sign on and mounted their own takeover effort. Cirque in July named the creditors as the leading bidders, subject to better offers. Their bid requires court approval to take effect.

The private-equity owners are poised to lose the entirety of their investment in Cirque, valued at $1.5 billion.

For TPG, the loss adds to a series of investments that have fared badly in the wake of the pandemic. The private-equity firm has been struggling with investments in clothing retailer J.Crew Group, which filed for bankruptcy in May, as well as those in mortgage finance, and in the fitness and entertainment industries.

Representatives for Cirque, TPG and Caisse declined to comment. Fosun didn’t respond to requests for comment.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on August 21, 2020

Retail Spending in July Topped Pre-Pandemic Levels

By Josh Mitchell Suzanne Kapner | August 14, 2020

Topics: Financial Statement Analysis , Revenues

Summary: Total retail sales in stores, at restaurants, and online “…rose 1.2% in July, the Commerce Department said Friday [August 14, 2020]. That marked the third consecutive monthly gain…[and a]fter accounting for seasonal factors, [indicates that] sales were 1.7% higher compared to February, the month before the pandemic shut down much of the economy.” Categories showing increases in July include “electronics and appliances, health products and restaurant meals.”

Classroom Application: The article may be used in a financial reporting class discussing sales. It also may be used in an auditing or financial statement analysis class to discuss trends analysis and the need to understand economy-wide as well as sector impacts of the Covid-19 pandemic to conduct this analysis procedure.

Questions:

  • Do you think that the information in this article comes from financial statements? Explain and support your answer.
  • What factors are influencing changes in reported sales by industry sector throughout the time of this Covid-19 pandemic? State all that you find listed in the article.
  • One of the steps that may be conducted by auditors or by financial analysts is a trend analysis or fluctuation analysis. What is a trend analysis? Cite your source for this definition whether from your textbook or elsewhere.
  • Choose either the role of an auditor or a financial analyst. Consider the graph entitled “Change in sales, from January.” How does understanding this information help you to conduct a trend analysis? Choose a particular industry or client you have worked on (say, in an internship). In your answer, state your choice of profession and your reasoning for that choice as well as your answer.

Reviewed By: Judy Beckman, Ph.D., CPA, University Of Rhode Island 

 

"Retail Spending in July Topped Pre-Pandemic Levels," by Josh Mitchell Suzanne Kapner, The Wall Street Journal, August 14, 2020
https://www.wsj.com/articles/us-economy-july-retail-sales-coronavirus-recovery-11597360020

Signs of slower spending in August, reduced government aid and continued struggle to contain coronavirus pose obstacles for U.S. economy

Americans’ shopping surpassed pre-pandemic levels last month, but the U.S. economy still faces threats as it digs out of a severe recession.

Retail sales—reflecting what households spent at service stations, stores, restaurants and online—rose 1.2% in July, the Commerce Department said Friday. That marked the third consecutive monthly gain as the U.S. strived to reopen its economy as much as possible despite the challenges posed by the coronavirus pandemic.

After accounting for seasonal factors, sales were 1.7% higher compared to February, the month before the pandemic shut down much of the economy. Consumers last month boosted spending on electronics and appliances, health products and restaurant meals.

More recent evidence suggests households moderated spending in certain areas. One factor: the July 31 expiration of an enhanced unemployment benefit. That benefit, authorized in the Cares Act passed by Congress in March, had boosted jobless workers’ weekly income by $600 a week, and many households spent it.

Facing a congressional deadlock over a new stimulus plan, President Trump has acted to replace the payments with a $300-a-week benefit, but it isn’t expected to reach workers for weeks.

“There’s a lot of talk about the recovery as if they’ve declared the recession dead already,” said Amy Crews Cutts, head of the consultancy AC Cutts & Associates. “I think we are not clear from a recession, and the stops and starts that are happening in the economic opening at the state level are showing a fragility in the economy.”

Many economists expect the economy to rebound this quarter after gross domestic product fell 9.5%, or 32.9% at an annual rate, in the second quarter. Economists expect output to grow at an 18.3% annual rate in the third quarter, according to a Wall Street Journal survey.

Other data suggest the economy is growing. Industrial production, a measure of output at factories, mines and utilities, rose 3% in July from June, the Federal Reserve said Friday, after a 5.7% rise in June.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on August 21, 2020

U.S. Audit Watchdog Overhauls Inspection Plan to Assess Virus Impact

By Mark Maurer | August 12, 2020

Topics: Audit Quality , Coronavirus

Summary: The Public Company Accounting Oversight Board (PCAOB) “plans to review a sample of U.S. audits of public companies whose fiscal year ended June 30, in addition to a batch of businesses with March 31 year-ends, PCAOB board member Duane DesParte said this week. This year’s inspection window will cover five quarters instead of four, the PCAOB said.” In addition to the year-end audits, inspectors will review some auditors’ work associated with quarterly financial statements. This plan follows a period of relief from audit inspections for 45 days as one accommodation for the Covid-19 pandemic. The relief mimicked the Securities and Exchange Commission’s 45-day extension of time for financial statement filings.

Classroom Application: The article may be used in an auditing class to discuss delivery of quality audits under Covid-19. Regulatory relief does not reduce the need for auditors to perform quality audits, which the PCAOB inspections are designed to ensure. Discussion of the original 45 day relief is available in a Wall Street Journal article from April 1, 2020, available at https://www.wsj.com/articles/remote-work-coronavirus-disruption-pose-hurdles-for-auditors-11585755110

Questions:

·        What is the notion of audit quality? Cite your source for this definition, whether from your textbook or elsewhere.

·        How does the work of the Public Company Accounting Oversight Board (PCAOB) help[ to ensure audit quality in relation to publicly traded companies?

·        What is the PCAOB inspection report? You may rely on your textbook or obtain information directly from the PCAOB at https://pcaobus.org/inspections/Pages/default.aspx Cite your source.

·        Who thinks the PCAOB inspection report may be delayed due to the extensions of time granted during the Covid-19 pandemic? Is there a concern with this delay? Explain your answer.


READ THE ARTICLE

Reviewed By: Judy Beckman, Ph.D., CPA, University Of Rhode Island

 

"U.S. Audit Watchdog Overhauls Inspection Plan to Assess Virus Impact" by Mark Maurer, The Wall Street Journal, August 12, 2020
https://www.wsj.com/articles/u-s-audit-watchdog-overhauls-inspection-plan-to-assess-virus-impact-11597259445

The Public Company Accounting Oversight Board is extending its window for audit reviews to ensure it covers more of the coronavirus period

The Public Company Accounting Oversight Board is extending its window for inspections to assess the impact of the coronavirus pandemic on audit quality.

The accounting watchdog plans to review a sample of U.S. audits of public companies whose fiscal year ended June 30, in addition to a batch of businesses with March 31 year-ends, PCAOB board member Duane DesParte said this week.

This year’s inspection window will cover five quarters instead of four, the PCAOB said. In addition to the year-end audits, inspectors will review some audits of quarterly financial statements. The watchdog expects its reviews to continue into the fall and to report on its findings in the first half of 2021, according to a spokeswoman.

The PCAOB said the number of inspections would be comparable to prior years. The regulator usually conducts about 200 inspections of audit firms a year.

2020’s inspections will focus on how auditors are planning for and responding to Covid-19-related risks, PCAOB Chairman William Duhnke said. Those risks could evolve around judgments that auditors have to make, a process that might be complicated by limited access to financial information.

Inspectors will review auditors’ workpapers and conduct inquiries to assess audit firms’ ability to ensure the quality of their work during the pandemic

The regulator previously offered optional, temporary exemptions from inspections to audit firms. Reviews resumed May 11 after the PCAOB in March provided up to 45 days of relief.

Some practitioners said a 2021 publication of the findings would be late. Having some results by the end of this year would be more valuable because they could provide guidance for 2020 year-end audits, said Helen Munter, chief executive of consulting firm Adigeo LLC and the PCAOB’s former director of inspections.

“They really need to get the information out before the vast majority of year-end audits get completed,” Ms. Munter said, “and that will be a challenge.”

Continued in article

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Teaching Case From The Wall Street Journal Weekly Accounting Review on August 28, 2020

Just-In-Time Inventory:  Why Are There Still Not Enough Paper Towels?

By Annie Gasparro Sharon Terlep | August 21, 2020

Topics: Just-In-Time Inventory Management , Coronavirus

Summary: The article discusses the original idea of just-in-time inventory management and lean manufacturing with a focus on events in the Coronavirus pandemic. “The paper industry is still scrambling to catchup after demand for paper towels skyrocketed over 150% in mid-March when inventories were at historic lows,” says a caption to a graph of paper towel sales growth. This product in particular is one that retailers focused on supplying in a lean manner “because they take up so much space and are costlier to store.” Consequently, manufacturers still are not planning to increase production capacity in response to the level of demand during the Covid-19 pandemic.

Classroom Application: The article may be used in managerial accounting courses to introduce just-in-time inventory management, including a key point missing from many implementations. According to the article, widespread adoption of lean manufacturing and just-in-time inventory management omitted a critical tenet of the system as devised by Taiichi Ohno, an engineer at Toyota Motor Co. “Originally, it called for having extensive backup plans in case of an event that interrupted plant operations or caused a sudden demand surge.”

Questions:

·        What is just-in-time inventory management?

·        Who uses just-in-time inventory management?

·        Under what circumstances does just-in-time inventory management work well? Not so well?

·        What is manufacturing capacity? What impact is manufacturing capacity having on availability of paper products during the Coronavirus pandemic?

·        Why is it unlikely that manufacturers will change production plans for paper products despite the increased consumer demand during the Covid-19 pandemic?

READ THE ARTICLE

Reviewed By: Judy Beckman, Ph.D., CPA, University Of Rhode Islan

 

"Why Are There Still Not Enough Paper Towels? by Annie Gasparro Sharon Terlep, The Wall Street Journal, August 21, 2020
https://www.wsj.com/articles/why-arent-there-enough-paper-towels-11598020793

Blame lean manufacturing. A decadeslong effort to eke out more profit by keeping inventory low left many manufacturers unprepared when Covid-19 struck. And production is unlikely to ramp up significantly any time soon.

The United States of America, heralded as the land of plenty, still doesn’t have enough paper towels.

Long after the coronavirus sparked a run on them, retailers can’t keep their shelves full. Target.com had no Bounty paper towels for delivery this week, though it had some at certain stores. At Amazon.com, a seller was charging $44.95 for a pack that normally goes for $15.

An average of 21% of household paper products were out of stock at U.S. stores as of Aug. 9, according to research firm IRI.

The situation isn’t likely to abate soon, because producers have no plans to build new manufacturing capacity. The central piece of the machinery needed to make paper towels takes years to assemble.

Americans have faced many stresses in the pandemic, of which paper-towel scarcity is hardly among the worst. Yet the forces behind the shortage nearly six months into the crisis help explain the broad lack of U.S. preparedness that has made the pandemic worse than it might have been.

The scarcity is rooted in a decadeslong quest by businesses at all levels, handling many different products, to eke out more profit by operating with almost no slack. Make only what you can sell quickly. Order only enough materials to keep production lines going. Have only enough railcars for a day’s worth of output. Stock only enough items on a shelf to last till the next batch arrives.

The concept, known as lean manufacturing or just-in-time inventory, was born in the hyperefficient Japanese automotive industry in the 1970s and became a religion for many American CEOs. It spread first to Detroit, then to other U.S. manufacturers and finally to other industries, from distribution to retailing.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on August 28, 2020

Big-Box Stores, Worried About Amazon, Were Ready for Coronavirus

By Jennifer Maloney Sarah Nassauer | August 24, 2020

Topics: Profitability , Managerial Accounting , Coronavirus

Summary: The article discusses operating results by Target, Walmart, and others during the Coronavirus. They have fared well largely because of their previous investment in online delivery and in-store pickup infrastructure. The investment was made to compete with Amazon but became fortuitous at the onset of the Coronavirus pandemic. Je’Varis Richardson, a Target district manager who oversees 13 stores in North Carolina, explains that “We had a lot of the infrastructure in place, and we just had to ramp up.” The article contrasts with the efforts made by a local hardware store in New York who was just beginning to make online offerings through a service provider which shut down just as the pandemic began. Her efforts to cope with the situtation are described.

Classroom Application: The article may be used in a managerial accounting course to discuss strategies, costs of operating businesses facing surging demand, and resulting profitability during the Coronavirus pandemic.

Questions:

·        What factors have led to success at department stores such as Target and WalMart during the Coronavirus pandemic? Name all that you can glean from the article.

·        How is success being defined in the article? State your answer in terms of financial performance.

·        How does investment such as WalMart and Target spending "heavily to build e-commerce warehouses, mobile apps and delivery networks" affect profitability?

·        Refer to the profitability impact in answer to the question above. Do you think the impact occurred before the pandemic or during the pandemic--or both? Explain your answer.

READ THE ARTICLE

Reviewed By: Judy Beckman, Ph.D., CPA, University Of Rhode Island

 

"Big-Box Stores, Worried About Amazon, Were Ready for Coronavirus, by Jennifer Maloney and Sarah Nassauer, The Wall Street Journal, August 24, 2020
https://www.wsj.com/articles/why-arent-there-enough-paper-towels-11598020793

Walmart, Target and others had been adding curbside and delivery services, and cashed in when coronavirus pushed sales online

Nearly six months into the coronavirus pandemic in the U.S., big-box retailers are emerging as business winners while competitors—including some apparel sellers and small businesses—struggle.

The big sellers’ strength wasn’t always a sure thing. Early in the Covid-19 pandemic, while they had rising sales, they also had rising costs and complications as they tried to keep workers and customers safe and product moving.

But now, Walmart Inc., WMT 2.69% Home Depot Inc. HD -0.81% and a handful of other big retailers are delivering not only strong sales but also strong profits. Last week, Target Corp. TGT 0.36% posted an 80% jump in earnings from a year ago, while profit leapt 75% at Lowe’s Cos LOW -0.48% Amazon. AMZN 0.05% com Inc.’s profit doubled to a record $5.2 billion in its June quarter.

 

Several factors tie their success together. These big companies had already invested to build their online businesses and had cash on hand to adjust to the pandemic. They were selling what people were buying and had large supply networks they could tap to eventually restock. In addition, most were deemed essential retailers early in the pandemic and thus have largely remained open.

When the coronavirus surfaced in the Raleigh-Durham area this spring, Target stores were ready for the sharp increase in online orders. Most had already allowed shoppers to pick up items in parking lots. All had staffers in back rooms packing up orders.

“We had a lot of the infrastructure in place, and we just had to ramp up,” said Je’Varis Richardson, a Target district manager who oversees 13 stores in North Carolina.

Since February, Mr. Richardson’s stores more than doubled the number of staff focused on packing online orders. Red and white signs were added to 50 more parking spots, designated as pickup areas. That preparedness helped Target report a record jump in quarterly sales and a 195% growth in digital sales.

Summer Shift

Shoppers have been visiting home- improvement chains and food retailers but staying away from clothing chains and department stores.

Walmart, Amazon, Target, Home Depot, Lowe’s and Costco Wholesale Corp. COST 0.58% accounted for 29.1% of all U.S. retail sales in the second quarter, according to Craig Johnson, president of consulting firm Customer Growth Partners, up from 25.6% in the same period a year ago.

Investors will get another check of big-box retail’s power when electronics giant Best Buy Co. BBY 0.01% reports its latest results on Tuesday.

Sales at smaller retailers fell 7% between March and mid-August compared with the same period last year, according to Womply, a data firm which tracks revenue at more than 70,000 small U.S. retailers. Many smaller chains had to clamber to start taking online orders or offer local delivery.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on August 28, 2020

Company Write-Downs Surge as Business Slows During Covid-19

By Mark Maurer | August 19, 2020

Topics: Impairment , Coronavirus

Summary: “U.S. companies are writing down more of their assets during the coronavirus pandemic than they have in years” because assets are generating no revenues for companies in certain sectors of the economy The article also addresses impairments taken by international oil and gas companies BP PLC and Royal Dutch Shell PLC. Impairments during the first half of 2020 are higher than the full year 2019 but not the full year of 2008 or 2015.

Classroom Application: The article may be used in a financial reporting course covering long-lived tangible and intangible assets.

Questions:

·        What is an impairment test? Explain the purpose of the test and the steps in the process for making the test. Specifically address how the test is impacted by assets and investments producing “poor returns amid the widespread economic downturn” driven by the Coronavirus pandemic.

·        What types of assets are subject to impairment testing? Name categories and give specific examples.

·        How does the accounting for an impairment ‘reduce the value of assets” reported by companies taking these charges? In your answer, also state the definitions of write-downs and write-offs.

READ THE ARTICLE

Reviewed By: Judy Beckman, Ph.D., CPA, University Of Rhode Island

 

"Company Write-Downs Surge as Business Slows During Covid-19, by Mark Maurer | , The Wall Street Journal, August 19, 2020
https://www.wsj.com/articles/company-write-downs-surge-as-business-slows-during-covid-19-11597873913

U.S. companies booked roughly $261 billion in impairment charges in the first half, more than the total in all of 2019

Finance chiefs are reducing the value of company assets such as airplanes, cruise ships and movie theaters in response to changes in consumer behavior that threaten the viability of their business models.

“You have assets at least for a period of time generating zero—or close to zero—revenue,” said Steve Hills, who heads up the technical accounting consulting unit at Stout Risius Ross LLC, an advisory firm.

The 2,000 largest U.S. businesses by market capitalization—from oil companies to airlines and restaurant chains—have been recording higher pre-tax impairments as existing assets and investments produce poor returns amid the widespread economic downturn.

“If businesses can’t sell their products or services, the assets they’re holding are most likely worthless,” said Philip Keejae Hong, an accounting professor at Central Michigan University.

Impairment charges totaled $261.7 billion for the first six months of the year, up 187.6% from the $91 billion booked during the same period in 2019. The first-half figure is also 29% larger than the $203.1 billion recorded in all of 2019, according to financial-technology firm New Constructs LLC.

The total figure for write-downs in the first half of the year is among the highest for the past 20 years, but lower than such charges in all of 2008, when impairments hit $486.77 billion, and 2015, when they totaled $383.3 billion.

Under U.S. accounting rules, companies have to take impairment charges, or write-downs, when the sum of estimated future cash flows from an asset is less than its book value.

This applies to tangible assets—such as factories—and intangible assets such as brands or goodwill, which is created when one company buys another for a price higher than the fair market value of its assets.

Write-downs usually mean that an asset has lost some of its value, while write-offs indicate a total loss of value.

Oil giant Chevron Corp. impaired all of its $2.6 billion investment in Venezuela for the quarter ended June 30, citing the deteriorating operating environment in the South American country.

“Our future capital decisio