New Bookmarks
Year 2021 Quarter 1:  January 1 - February 28 Additions to Bob Jensen's Bookmarks
Bob Jensen at Trinity University

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

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

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

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

 

 

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2021 

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Bob Jensen's Additions to New Bookmarks

March 2021

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

Eric Cohen's Blog (technology and accounting information systems) ---
http://thinktwenty20.com/index.php/blog

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

 

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

 




Sustainability Accounting Standards Board (since 2011 internationally) ---
https://en.wikipedia.org/wiki/Sustainability_Accounting_Standards_Board  

FASB Education Paper:  Intersection of Environmental, Social, and Governance Matters with Financial Accounting Standards ---
https://fasb.org/cs/ContentServer?c=Document_C&cid=1176176379917&d=&pagename=FASB%2FDocument_C%2FDocumentPage
Thank you Denny Beresford for the heads up.

March 25, 2021 reply from Glen Gray

So let's say in the near future Apple includes the following simple ESG statement in their 10K:

The Apple Siri server farm in Iceland used XXX kilowatts of power last year. The Iceland Power Company (IPC) power station that provides power to the server farm uses only geothermal energy. As such, our carbon footprint is YYY tons. That carbon footprint is completely offset by 10 acres of trees we  planted and maintain in the Amazon jungle. Hence, our Iceland server farm as a zero net carbon footprint.

Let's audit the simple statement.

EY (Apples auditors) contacts the Reykjavík Iceland office and asks them to send a confirmation letter to IPC to confirm the number of kilowatts used by Apple and to confirm that 100% of the generating power is provided by geothermal energy.

In the meantime,  the EY auditors in San Jose would conduct the appropriate research (maybe contact experts) to determine what is the carbon footprint for a geothermal electric generating plant per kilowatt hour of output.

EY contacts there Lima Peru office and asked them to make a visual confirmation of the 10 acres of trees and to check appropriate municipal records to verify that Apple actually owns those 10 acres.

In the meantime, the EY auditors would contact some expert at  nearby Berkeley and ask: how much carbon could 10 acres of trees absorb? The expert might say: Well, the short answer is only God knows.  The expert would go on to say, there are so many factors that it would require an extensive and complex study to determine how much carbon a specific 10 acres of trees would absorb over a specific year. We would need to know: the types of trees, the maturity of the trees, the hours of sunlight that specific year, the inches of rain that year, the percentage of nitrogen and other nutrients in the soil, and how dense is the forest. You can't just count the number of trees and multiply that number by the amount of carbon one tree could absorb. If the forest is dense, then only the canopy gets full sun and everything below the canopy is  gets filtered sun to varying degrees. So, instead of doing their own independent test, the EY auditors might obtain detailed information from Apple as to how they calculated carbon absorption for their 10 acres and forward that information to the EY expert and asked the expert to determine the reasonableness of Apple's own calculations.

In the meantime, EY got the confirmation back from IPC who confirmed that the Apple server farm did use XXX kilowatts last year. However, the power plant did not use geothermal energy 100% of the time. There is five days of scheduled maintenance every quarter and there are a few days each year of unscheduled downtime. During those days, IPC uses diesel generators (with ugly carbon footprints) to provide electricity to Apple. Material or not material?

In the meantime, EY, San Jose, hears back from EY, Lima, that Apple doesn't actually own the land it's renting from my land owner, there's a small farmhouse and garage on the 10 acres, and the land is irrigated by water pumps during part of the year and the water pumps are powered by diesel generators (with ugly carbon footprints). Material or not material?

Closing comment: over the last few years, I have listened to accounting professors talk about how they are teaching data analytics and using tools such as Microsoft power BIA, Tableau, etc. If you asked the presenter how many other accounting professors at your university are incorporating data analytics into their classes? Sadly, the most common answer is zero. So, what do you think the results are going to be when accounting professors are encouraged to include ESG material in their classes?

As long as I can remember (since 1981), accounting professors have been telling accounting firm to use more technology (AI, big data, data analytics, etc.) in auditing, however, the more technology they use, the more non-accounting types the firms hire. That’s partly because accounting professors do an inadequate job of teaching the technology we recommend to the firms. The EGS trend may end up being very similar.

Glen L. Gray, PhD, CPA
Professor Emeritus
Dept. of Accounting & Information Systems
David Nazarian College of Business & Economics
California State University, Northridge
18111 Nordhoff ST
Northridge, CA 91330-8372
818.677.2461 (Dept. Office)
http://www.csun.edu/~vcact00f


Ensuring Integrity: Regulators and Standards Setters Update ---
https://www.cpajournal.com/2021/03/23/ensuring-integrity-regulators-and-standards-setters-update/

Also see
https://www.cpajournal.com/2021/03/23/ensuring-integrity-introduction/


Socioeconomic roots of academic faculty ---
https://osf.io/preprints/socarxiv/6wjxc

Tenure-track faculty play a special role in society: they train future researchers, and they produce much of the scholarship that drives scientific, technological, and social innovation. However, the professoriate has never been demographically representative of the general population it serves. For example in the United States, Black and Hispanic scholars are underrepresented across the tenure-track, and while women's representation has increased over time, they remain a minority in many academic fields. Here we investigate the representativeness of faculty childhood socioeconomic status and whether it may implicitly limit e orts to diversify the professoriate in terms of race, gender, and geography. Using a survey of 7218 professors in PhD-granting departments in the United States across eight disciplines in STEM, social sciences, and the humanities, we find that the estimated median childhood household income among faculty is 23.7% higher than the general public, and aculty are 25 times more likely to have a parent with a PhD. Moreover, the proportion of faculty with PhD parents nearly doubles at more prestigious universities and is stable across the past 50years. Our results suggest that the professoriate is, and has remained, accessible mainly to the socioeconomically privileged. This lack of socioeconomic diversity is likely to deeply shape the type of scholarship and scholars that faculty produce and train

Jensen Comment
One barrier in some ways is in some ways good news in my field (accounting). There's a huge shortage of minorities in accounting firms. As a result top minorities in these firms are often given relatively high salaries and other incentives to stay in the firms or change firms relative to white counterparts who are sometimes tempted to sidetrack into Ph.D. studies and faculty careers.

In other words, the competition is very keen to tempt a top minority candidate (think African Americans or native Americans) into accountancy Ph.D. programs. In my opinion this is probably happening in other disciplines like computer science and engineering. There are quite a few Asians in our accounting Ph.D. programs, but these are often quants imported from other nations.


How to "find" your lost weed in Maine ---
Just login to this site, and select the cannabis or cannabis products you lost, and give us your address. We will find YOUR weed and get it back to you ASAP. Fees vary based on the time it takes us to find your weed, the quantity of weed we have to locate, and the distance in which we have to travel to get YOUR LOST weed back to you.
https://marginalrevolution.com/marginalrevolution/2021/03/maine-markets-in-everything-those-new-service-sector-jobs.html  

Jensen Comment
For financial auditors valuation matters greatly if items being valued are fungible or not. Non-fungible items (like site value of land) are hard to value because of thin markets relative to valuation of replaceable inventory having deep markets.

Non-fungible Tokens Must Be Giving Auditors Fits --- https://en.wikipedia.org/wiki/Non-fungible_token

NFTs Are Shaking Up the Art World—But They Could Change So Much More ---
https://time.com/5947720/nft-art/?utm_medium=email&utm_source=sfmc&utm_campaign=newsletter+brief+default+ac&utm_content=+++20210323+++body&et_rid=31883121


Music:   A Unique Way to Teach the Basics of Accounting ---
https://jborden.com/2021/03/22/music-monday-a-unique-way-to-teach-the-basics-of-accounting/

Jensen Comment
There are a lot of tools and tricks of the trade. I think I'd pass on using music to teach basic accounting. It's better to put students on laptops and use narrated Camtasia illustrations of how accounting rules and traditions work.

Bob Jensen's threads on Tools and Tricks of the Trade ---
http://faculty.trinity.edu/rjensen/000aaa/thetools.htm


How to Mislead With Statistics

Those hidden factors affecting research outcomes
https://marginalrevolution.com/marginalrevolution/2021/03/testing-todd.html


R
esearchers make hundreds of decisions about data collection, preparation, and analysis in their research. We use a many‐analysts approach to measure the extent and impact of these decisions. Two published causal empirical results are replicated by seven replicators each. We find large differences in data preparation and analysis decisions, many of which would not likely be reported in a publication. No two replicators reported the same sample size. Statistical significance varied across replications, and for one of the studies the effect's sign varied as well. The standard deviation of estimates across replications was 3–4 times the mean reported standard error.

Jensen Comment
Accounting researchers rarely discover such problems because those researchers rarely replicate the works of one another.

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


Mary T. Washington Wylie in 1943 became the nation’s first Black woman to earn the CPA license, a notable achievement in a remarkable life filled with many accomplishments ---
https://www.journalofaccountancy.com/news/2021/mar/mary-washington-wylie-first-black-woman-cpa.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=17Mar2021

March 17, 2021 reply from Barbara Scofield

I just read A White Collar Profession: African American certified public accountants since 1921 by Theresa A. Hammond (University of North Carolina Press, 2002)  
It includes a list of the first 100 African-American CPAs.  Mary T. Washington was  #13.  
I recommend it to all accounting academics.  
Barbara W. Scofield, PhD, CPA
Professor of Accountancy
Washburn University -- HC 311L
Topeka, KS   66621
785-670-1804 (office)
785-217-8877 (cell)
barbara.scofield@washburn.edu
BarbaraWScofield@gmail.com

 

AICPA:  2017 CPA Firm Gender Survey ---
https://www.aicpa.org/content/dam/aicpa/career/womenintheprofession/downloadabledocuments/wiec-2017-cpa-firm-gender-survey-brochure.pdf

Partnership on average remains overwhelmingly male, with women representing only 22% of partners in CPA firms.

Smaller firms continue to have higher percentages of women partners than average.

A growing percentage of women are serving as directors or non-equity partners.

Only 47% of all firms have a formal succession planning process, and only 2% include a formal gender component in their plans.

A total of 89% of the firms surveyed had one or more types of modified work arrangement . and a large majority of firms believe they are worthwhile.

Flexible work hours are the most popular program, followed by reduced hours and telecommuting.

Substantially more women use modified work arrangements at the non-equity partner level. Mentoring is the most popular advancement program among firms, used by 45% of firms, while sponsorship is substantially behind, used by only 12%.

Firms that used advancement programs strongly believed that they achieved their goals.

 The vast majority of firms that have implemented diversity initiatives found them to be successful . Gender initiatives were the most common, followed by combined diversity and inclusion efforts and then minority initiatives.

Jensen Comment
The article is not clear about how much there's a mixing of international versus national statistics for the large Big Four firms that are now all headquartered outside the USA except for Deloitte -
--
https://en.wikipedia.org/wiki/Big_Four_accounting_firms

One would not expect that women do much better outside the USA in large accounting firms. Even in the most progressive nations such as those in Scandinavia the proportion of women in business executive suites is abysmal --- not what one would expect in progressive nations.

I'm no expert on reasons for the lag in gender equality in the executive suites. It would appear that the initiatives to hire women in multinational CPA firms has been far more successful than initiatives for gender equality in equity partnerships. More than half the entry-level hires are now women whereas less than 25% equity partners are women.

I'm not sure what happened or is still happening with the huge gender discrimination suit by KMPG women.

Revealed: the number of female equity partners at PwC, KPMG, EY and Deloitte ---
http://www.afr.com/business/accounting/revealed-the-number-of-female-equity-partners-at-pwc-kpmg-ey-and-deloitte-20161118-gsspq9

PwC is lagging its big four accounting and advisory rivals when it comes to the proportion of female equity partners at the firm in spite of a range of strategies designed to get more women to the top.

The percentage of female equity partners at PwC has not improved during the past three years while it has increased year-on-year at rival big four accounting and advisory firms Deloitte, KPMG and EY, according to data from the Workplace Gender Equality Agency (WGEA).

Overall, the percentage of equity female partners is highest at Deloitte, at 24 per cent, around 20 per cent at KPMG and EY, and at 17 per cent at PwC, based on data supplied by the firms to WGEA as of March 31.

PwC says it has increased the level of women being promoted to partner and made other moves to address the gender imbalance and said there is a time lag for these to kick into effect.

Continued in article

December 2, 2017 reply from Dennis Beresford

Bob,

 

I've been reading EY's excellent 2017 quality report. It contains a large number of metrics, including several relating to the diversity of the US audit practice. (I haven't looked at reports for the other Big 4 firms yet but I suspect they have similar information.)

 

EY reports that 24% of its audit partners are female in fiscal 2017, the same as the year before but up one percentage point from fiscal 2015. But the numbers get more interesting at other levels. 52% of EY's "Executive Directors," 43% of senior managers and managers, and 47% of seniors and staff are female. 

 

Overall, 44% of the firm's US audit professionals are female and 43% of new partners this past year were female or minorities. And 44% of campus hires were female in the latest year - nearly 30% were minorities.

 

Clearly, the pipeline is being filled and the major firms like EY are doing a pretty good job of developing outstanding talent whatever its gender or ethnicity.

 

Denny

Bob Jensen's threads on the history of women in accountancy ---
http://faculty.trinity.edu/rjensen/Bookbob2.htm#Women


Reducing a Barrier to Entry: The 120/150 College Credit CPA Licensing Rule ---
https://link.springer.com/article/10.1007/s12122-020-09313-4
Thank you Tom Amlie for the heads up

. . .

 

1.   For more on the possible use of licensing as a way for incumbent providers to generate monopoly rents, see Friedman (1962) and Meehan and Benson (2015).

2.   Consider a simple example. Suppose initially there are ten candidates for the CPA exam, six of whom pass, two who do not pass but come close, and two who do not pass and do not come close to passing. The pass rate is 60%. Now suppose the additional educational requirement is added and the two people who think they are unlikely to pass the exam decide not to obtain the additional 30 h of education. In this case, the pass rate would increase to 75% even if the eight people who still take the exam are no better prepared for it after obtaining the additional 30 h of schooling.

3.   These data were collected from state-level statute and administrative codes, Jacob and Murray (2006), as well as from National Association of State Boards of Accountancy (NASBA) (2008) and Wisconsin Institute of Certified Public Accountants (WICPA) (2017).

4.   The dependent variable is specified in natural log form in order to obtain estimated coefficients that can be interpreted as percentage changes.

5.   States the reduced their requirement from 150/150 to 120/150 before 2006 are: Georgia, Hawaii, Iowa, Idaho, Montana, North Carolina, New Jersey, Pennsylvania, Rohde Island, and South Carolina. See Jacob and Murray (2006) for additional details.

6.   States that have a 150/150 requirement throughout the data period are: Alabama, Arkansas, Illinois, Indiana, Kansas, Louisiana, Missouri, Mississippi, North Dakota, Nebraska, Nevada, Ohio, Oklahoma, Oregon, South Dakota, Tennessee, Texas, Utah, Washington, and Wyoming. See Tables 11 and 12 in Appendix 1 for full list of states included in estimating Tables 4 and 5 results.

7.   Another issue with using the number of accounting degrees granted in year t as a control for the number of candidates sitting in year t is that many candidates do not sit for the CPA exam in their year of college graduation. Soileau et al. (2017) report the mean age of candidates for their dataset was 29.45.

8.   Although the theoretical basis for including Xit in (3) or (4) is weak, we estimated the models with Xit included. The results were nearly identical to those reported below and are available upon request.

9.   These pass rate synthetic control results for every treated state are omitted here for brevity, but are available by request from the authors.

10. The estimation using multiple treated units was done using the synth_runner package (Galiani and Quistorff 2017), which advances on the single treated until setup to estimate effects for multiple treated units within the same estimation procedure.

11. The estimation was performed for New York and California, but optimization procedures did not produce synthetic results for these states.

12.The same is true of Virginia; those results appear in the appendix.

13. Abadie et al. (2010) suggest using placebo units with pre-treatment RMSPE’s anywhere from 2 to 10 times the treated unit. We elect to use pre-treatment RMSPE’s at or below Florida and New Hampshire’s. When we use even the 2x threshold, the sample of placebos does not change for New Hampshire. These limited RMSPE placebo results are available upon request for treatments contained in the appendix.

14. The authors searched the NASBA website that contained the New Hampshire pre-policy-change announcement but could not find a similar document for Delaware.

15. These results are available on request from the authors.

March 3, 2021 reply from Tom Selling

Thanks for sending this around.  I have now read the portion that is publicly available.  Without challenging the findings in any way, I want to call attention to a subtlety that the authors of the study may have overlooked: the level of competence of CPA exam takers actually affects the level of difficulty of the exam questions over time.  If competency levels decrease, the questions on the CPA exam will, by design, become easier.  Therefore, it may not be possible to determine the effect of a reduction in required hours on CPA competency.

I’m not sure if this phenomenon is well-known.  I only learned it from serving on the financial accounting subcommittee of the AICPA’s exam team.  Two of the things we did was to screen questions before they are tested; and based on the results of testing, to decide whether to add the question to the inventory. 

When someone takes the CPA exam, the candidate is presented with two sets of MCQs:  test questions, and actual questions.  Of course, the candidate has no idea which is which.  Part of the criteria for a test question to go live is the distribution of responses.  But, the critical metric of a question’s acceptability is the correlation of responses for that question to the scores of the candidates on the other questions.  Basically, a question with a high positive correlation is a good question.  For example, a question about derivative financial instruments could be very difficult, and very relevant, but if there is not a very high positive correlation, the question is rejected.  This will automatically occur, no matter how important as an indicator of professional competency, or indicator of overall intelligence, or well-constructed the question might be.  During my time, it was difficult, if not impossible to add questions about derivative financial instruments to the CPA exam that were anything more than extremely rudimentary.

There is some merit to this approach, but it could also work to dumb down the exam.  Specifically, if 120 hours becomes ubiquitous, and that actually reduces candidate competency, you might not be able to detect that from exam scores – because of built-in mechanisms to dumb down the exam.

 Tom


Video:  Scenarios of Higher Education for Year 2020 (and beyond)---
http://www.youtube.com/watch?v=5gU3FjxY2uQ
The above great video, among other things, discusses how "badges" of academic education and training accomplishment may become more important in the job market than tradition transcript credits awarded by colleges. Universities may teach the courses (such as free MOOCs) whereas private sector companies may award the "badges" or "credits" or "certificates." The new term for such awards is a "microcredential."

Credential (Certificate, Badge, License, and Apprenticeship) Count Approaches 1 Million ---
Click Here
For example, credentials for computer programming skills are becoming more popular. Some certificates supplement college diplomas, whereas others are earned by students who did not enroll in college.


AICPA:  Staying vigilant against fraud during the pandemic Internal controls need to be front and center, as the COVID-19 crisis has increased the incentive and opportunity for fraud ---
https://www.journalofaccountancy.com/issues/2021/mar/stay-vigilant-against-fraud-during-coronavirus-pandemic.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=15Mar2021


Tax report: Families dig up new tax breaks ---
https://www.foxbusiness.com/money/tax-report-families-dig-up-new-tax-breaks
Also see
https://www.cpajournal.com/2021/03/24/tax-changes-for-individuals-in-the-consolidated-appropriations-act-of-2021/


Forbes:  It’s Time For Auditors To Come Clean On Climate Change ---
https://www.forbes.com/sites/bobeccles/2021/03/10/a-critical-audit-matter-its-time-for-auditors-to-come-clean-on-climate-change/?sh=4d51b5791d84


AICPA's Academic Resource Hub ---
https://thiswaytocpa.com/segmented-landing/academic-resource-hub/?utm_source=mnl:cpald&utm_medium=email&utm_campaign=03Feb2021

The Academic Resource Hub is a database of hand-curated content from the AICPA, accounting firms, academics and winning submissions from the AICPA's teaching awards designed to help accounting educators prepare students for the rapidly-evolving demands of the profession.

Signing up for the ARH will give you access to resources related to topics like data analytics, cybersecurity and much more. Our resources cover a wide range of class levels and will help you easily incorporate new ideas into your syllabus.

This resource is *intended for accounting educators and professionals for use in academic instruction, research or guidance and requires registration as an accounting educator or professional on ThisWaytoCPA.com to access.

Continued in article

Bob Jensen's Threads on Tools and Tricks of the Trade ---
http://faculty.trinity.edu/rjensen/000aaa/thetools.htm

Bob Jensen's Threads on Education Technology ---
http://faculty.trinity.edu/rjensen/000aaa/0000start.htm


The British Accounting Review:  Exploring Accounting History and Accounting in History ---
https://www.researchgate.net/publication/348667491_Exploring_Accounting_History_and_Accounting_in_History

Accounting history, as the history of accounting and the consideration of accounting in history, provides insight into an understanding of accounting in the past, for the present, and into the future. Whist often viewed as a routine, rule driven practice, the accounting history discipline recognises accounting as having a much wider pervasiveness as social practice and even moral practice. As social practice accounting affects individual, organisational and societal behaviour. This collection of articles demonstrates the importance of looking at history to provide context and illustrates that understandings of the past lead to comprehension of the present and foresight for the future. The articles in this special issue, international in essence, epitomise the diversity of the accounting history field in exploring accounting in diverse organisations, in investigating accounting in its wider context and in employing different theoretical approaches. In considering the accounting phenomenon that occurred, there is additionally the insight of that which did not occur, the relevance of past events and non-events as an ingredient to better understanding the present and to potentially reshaping the future.


The two major differences in the accounting treatment of a direct-financing lease and a sales-type lease are 
the gain or loss on the sale of the asset – there is no manufacturer’s or dealer’s gross profit or loss in a 
direct-financing lease – and initial direct costs at lease inception.
https://pecunica.com/knowledge-point/how-do-lessors-account-for-direct-financing-and-sales-type-leases/ 
Also see
https://pocketsense.com/differences-between-sales-type-leases-direct-financing-leases-journal-entries-1521.html 
Direct Financing Lease Accounting Definition --- 
https://www.accountingtools.com/articles/2017/5/6/direct-financing-lease 
Examples of Accounting for a Lease With Residual Values --- 
http://accounting-financial-tax.com/2011/09/how-residual-value-affects-accounting-for-lease/ 
Journal Entries --- 
https://accountinguide.com/finance-lease-journal-entry/ 
Deferred Gross Profit Calculation --- 
https://www.accountingtools.com/articles/deferred-gross-profit-definition-and-usage.html 

General Summary of Lease Accounting Rules ---
https://www.cpajournal.com/2017/08/23/accounting-leases-new-standard-part-1/

BDO FASB TOPIC 842: PRESENTATION AND DISCLOSURE ---
https://www.bdo.com/insights/assurance/fasb/fasb-topic-842-presentation-and-disclosure
Note the illustration

Lease Accounting Tools ---
https://www.accountingtools.com/articles/lease-accounting.html

Disclosure Illustrations ---
https://www.bkd.com/sites/default/files/2018-07/Lease-Presentation-and-Disclosure-Requirements-Lessee.pdf

Covid-19's Impact on Lease Accounting ---
https://www2.deloitte.com/us/en/pages/audit/articles/a-roadmap-to-applying-the-new-leasing-standard.html

Wikipedia Summary (note the references) ---
https://en.wikipedia.org/wiki/Accounting_for_leases_in_the_United_States


Innovative Ways to Teach Accounting Ethics ---
https://www.cgma.org/resources/reports/innovative-ways-to-teach-accounting-ethics.html?utm_source=mnl:academicadviser&utm_medium=email&utm_campaign=16Mar2021&SubscriberID=119191126&SendID=350833


International sustainability reporting standards board comes into focus ---
https://www.fm-magazine.com/news/2021/mar/international-sustainability-reporting-standards-board.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=09Mar2021


Developments in individual taxation ---
https://www.thetaxadviser.com/issues/2021/mar/developments-individual-taxation.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=04Mar2021
Also see
https://www.cpajournal.com/2021/03/24/tax-changes-for-individuals-in-the-consolidated-appropriations-act-of-2021/


How Blockchain and AI Can Change Higher Education ---
https://www.ie.edu/insights/articles/when-education-meets-blockchain-and-ai/


Mount Holyoke College pulls rug out from under faculty parents in announcing closure of its campus childcare center ---
Click Here
Usually the argument against a campus childcare center focuses on liability risk/cost. The reasons in the above article focus on things other than liability. I find the "place to park offspring" argument distasteful. However, the liability issue has always been worrisome for colleges. Often daycare operators operate at the extremes of pocket size. Some (like family homes) have small pockets that frustrate attorneys seeking to sue; Some have deep pockets such as when the State of Vermont provides day care centers for all eligible children, thereby passing the liability risk on to taxpayers. However, the K-12 schools in all states have liability risks such that taxpayers cannot avoid such risks for older children.

Update:  Under pressure, Mount Holyoke delayed closure of the campus childcare center for one year.


Developments in individual taxation ---
https://www.thetaxadviser.com/issues/2021/mar/developments-individual-taxation.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=04Mar2021
Also see
https://www.cpajournal.com/2021/03/24/tax-changes-for-individuals-in-the-consolidated-appropriations-act-of-2021/


Assessing Goodwill Impairment Amid Covid-19 ---
https://www.journalofaccountancy.com/news/2021/mar/assessing-goodwill-impairment-amid-coronavirus-pandemic.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=03Mar2021


Why NFTs are suddenly selling for millions of dollars ---
https://thehustle.co/why-nfts-are-suddenly-selling-for-millions-of-dollars/
NFTs must be frustrating auditors


The Effect of Sexual Harassment on Internal Audit Risk Assessments ---
https://www.cpajournal.com/2021/03/04/icymi-the-effect-of-sexual-harassment-on-internal-audit-risk-assessments/


Gary Gensler, Biden's SEC nominee, discusses his key agenda items ---
https://www.reuters.com/article/us-usa-congress-financial-regulators/bidens-sec-nominee-vows-review-of-gamestop-trading-issues-climate-disclosures-idUSKBN2AU136


Philip Falcone’s Second Act in Long-Term-Care Insurance Turns Ugly ---
https://www.wsj.com/articles/philip-falcones-second-act-in-long-term-care-insurance-turns-ugly-11614686403?mod=djm_dailydiscvrtst

Long-term care has been a troubled insurance product for well over a decade, causing financial pain to many insurers and their customers. Now, one executive’s plan to make money where others have failed has backfired.

Serious pricing mistakes loomed from the start. For policyholders, this has meant double- and even triple-digit premium-rate increases over the years. Insurers have collectively taken tens of billions of dollars of charges against earnings as they bolstered their reserves.

The difficult situation in long-term care provided an opening five years ago for Philip Falcone, a former hedge-fund manager looking for redemption. Mr. Falcone had admitted wrongdoing in 2013 for borrowing $113 million from his hedge fund to pay his taxes, even as investors weren’t allowed to withdraw their money. He agreed to an $18 million civil settlement with the Securities and Exchange Commission that included a five-year ban from the securities industry.

In 2015, Mr. Falcone started his long-term-care plan.

Over the next couple of years, the diversified conglomerate he was running obtained regulatory approvals to acquire two small insurance carriers that were no longer selling the insurance but had policies being wound down. Tied to the acquisitions, insurance departments in at least three states—Florida, Ohio and South Carolina—restricted Mr. Falcone from involvement in day-to-day operations.

Today, Mr. Falcone has left the conglomerate. A former regulator he hired to run the conglomerate’s insurance operation was fired and has filed a federal whistleblower complaint against the company. And the conglomerate is in talks to sell the insurance operation, known as Continental Insurance Group Ltd.

Mr. Falcone declined to comment for this article.

State regulators, meanwhile, are still trying to figure out how to stabilize the struggling long-term-care insurance industry.

Mr. Falcone, then chairman and chief executive of HC2 Holdings Inc., was well known when he entered the long-term-care insurance industry. A Harvard University ice-hockey standout from Minnesota, he had shot from relative obscurity running Harbinger Capital Partners to riches and stardom after successful bets in 2007 against the U.S. housing market.

In turning to insurance in the wake of the SEC settlement, he aimed to turn the newly acquired carriers into a cost-efficient platform for acquiring additional closed blocks of long-term-care policies to run off. Along the way, HC2 would earn investment-management fees for the conglomerate, he told HC2 shareholders.

Mr. Falcone hired James Corcoran, New York state’s top insurance regulator in the 1980s, to run Continental.

Continued in article

Jensen Comment
The biggest problem is inflation in long-term health care costs, especially the costs of liability and malpractice insurance added to tougher regulations on quality of care. One thing I've never seen mentioned in the major media (think the NYT, Washington Post, CBS, NBC, and ABC) is what raising the minimum wage to $15 per hour will do the the cost of long-term care, especially the cost for cleaners and kitchen helpers in nursing homes. Raising the minimum wage so dramatically will especially hit states covering Medicaid costs.

Medicare insurance does not cover long-term care needs. Medicaid does cover those needs but is restricted to poor people eligible for Medicaid. Meanwhile the biggest headache of all 50 states annual budgeting has become the rise in the cost of Medicaid coverage, particularly coverage of long-term care needs. There's a great deal of fraud where heirs manage to drain off the assets of an aging parent to make that parent eligible for Medicaid. There are unfortunate legal means for draining off those assets with careful planning. I don't know of a single nation that provides free long-term nursing care without trying to get something out of patients' assets before long-term care turns free.

Some nations are better than others at minimizing the cost of long-term nursing care. Some do it with lower quality for the poor in nursing homes, which is what happens often for patients on Medicaid in the USA. Canada tries to get relatives of older people to provide much of the care with the so-called mobile "granny cottages" that are sometimes financed by Canada's health care insurance. This, however, is not usually a solution when the patients must remain in bed or otherwise looked after 24/7.

Some nations transport nursing care patients across borders. For example, Germany notoriously ships many nursing home patients to Poland, and Poland accepts them as long as the German government pays the fees. In other cases, the nursing care in Germany is staffed by lower-cost foreign labor ---
https://brownpoliticalreview.org/2018/11/nursing-german-economy/

The largely foreign-staffed (Germany) nursing industry has recently become the target of Kindergeld-related anger. Many Eastern European nurses come to Germany alone, leaving families and children behind. Even though these children may not reside within the German state, their German-employed parents still receive Kindergeld on their behalf. Critics argue that when these payments are shipped to Poland, Romania, or Croatia, where the cost of living is lower, they take on a disproportionately high value compared to their value in wealthy Germany. This is an issue of equity, critics say—these payments privilege the children of foreign Pflegekräfte at the cost of domestic German youth.


The $1.9 trillion relief bill passed by the House contains many tax provisions ---
https://www.journalofaccountancy.com/news/2021/feb/tax-provisions-american-rescue-plan-act.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=01Mar2021
Also see
https://www.cpajournal.com/2021/03/24/tax-changes-for-individuals-in-the-consolidated-appropriations-act-of-2021/


Senate's COVID-19 relief bill: Here's what's changed ---
https://www.foxbusiness.com/politics/senates-covid-19-relief-bill-heres-whats-changed


Should Businesses Only Focus on Shareholder Value (while operating within the law)?
A Soho Forum Debate ---

https://reason.com/podcast/2021/03/05/should-businesses-only-focus-on-shareholder-value-a-soho-forum-debate/


IRS issues employee retention credit guidance ---
https://www.thetaxadviser.com/news/2021/mar/employee-retention-credit-irs-guidance.html


Dysfunctional Couple Deloitte and the State of Florida Share a Victory In Court ---
https://www.goingconcern.com/dysfunctional-couple-deloitte-and-the-state-of-florida-share-a-victory-in-court/


Deloitte ‘diversity and inclusion’ chief Dimple Agarwal resigns over bullying allegations ---
https://www.telegraph.co.uk/business/2021/03/05/deloitte-diversity-inclusion-chief-dimple-agarwal-resigns-bullying/


What Spouses Need to Know About Inheriting an IRA ---
https://www.thestreet.com/retirement-daily/saving-investing-for-retirement/inheriting-your-spouses-ira-a-cautionary-tale


Excel:  A test drive of Excel's new LAMBDA function ---
https://www.fm-magazine.com/news/2021/mar/excel-lambda-function-recursion-problem.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=24Mar2021

Excel:  New Excel function (Lamda) redefines formula building ---
https://www.fm-magazine.com/news/2021/feb/new-excel-function-lambda-formula-building.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=02Mar2021


EY:  How do you value your social and human capital? (Download PDF)
https://www.ey.com/en_us/assurance/accountinglink/how-do-you-value-your-social-and-human-capital-

EY: SEC adopts interim final rules for foreign companies in jurisdictions that don’t allow PCAOB inspections

The SEC adopted interim rule amendments to implement submission and disclosure requirements for companies whose financial statements are audited by registered public accounting firms in foreign jurisdictions that don’t allow inspections by the PCAOB, as mandated by the Holding Foreign Companies Accountable Act (HFCA Act).

The SEC is also seeking public comment on how it should identify registrants that will be subject to the requirements and other aspects of the rule amendments.

The amendments require registrants identified by the SEC to submit documentation establishing that they are not owned or controlled by a governmental entity in the foreign jurisdiction, among other things.

The interim rule amendments will become effective, and public comments are due, 30 days after publication in the Federal Register.

EY:  March 2021 Financial reporting briefs issued ---
https://www.ey.com/en_us/assurance/accountinglink/financial-reporting-briefs---first-quarter-2021

EY:  This publication lists Accounting Standards Updates (ASUs) and their effective dates as of 1 March 2021 and provides links to related EY content ---
https://www.ey.com/en_us/assurance/accountinglink/effective-date-matrix-as-of-1-march-2021

EY:  Reminders about calculating the expected volatility used to value share-based payment awards

Stock price volatility related to the COVID-19 pandemic has raised questions about how periods of extraordinary share-price volatility affect assumptions entities use in measuring share-based payment awards.

Expected volatility is a key assumption used to calculate the fair value of stock options issued as compensation under ASC 718, Compensation – Stock Compensation. To estimate expected volatility, entities consider the historical realized volatility for their shares over time or the implied volatility of their traded options, or both.

Historical realized volatility, which is often the starting point in estimating expected volatility, is typically calculated based on historical share prices over the expected or contractual term of an option issued as an award. ASC 718 says an entity may disregard a period of extraordinary volatility if (1) the volatility resulted from an event or transaction that was specific to the entity (e.g., a large merger or spin-off) and (2) the event or transaction is not reasonably expected to occur again during the estimated or contractual term of the option. Volatility of the overall stock market (e.g., during the COVID-19 pandemic) is not entity-specific and should not be excluded from the calculation of historical realized volatility.

Implied volatility can be useful in estimating expected volatility because it is a forward-looking measure that reflects market participants’ expectations over the term of the traded options. Therefore, entities that can observe reliable trading of options on their shares often consider both the implied and historical realized volatilities when developing an estimate of expected volatility. Determining the appropriate weighting and the length of the lookback period for historical volatility involves judgment. While ASC 718 does not preclude an entity from changing assumptions if circumstances change or if a refinement of the methodology used to develop the assumptions is warranted, changes should only be made if they provide a better estimate of fair value. In other words, an entity should not change how it calculates expected volatility or the assumptions it uses to lessen the effects of short-term market fluctuations unless doing so will result in a better estimate of expected volatility.

For more information, refer to Chapter 7 of our Financial reporting developments publications, 
Share-based payment (after the adoption of ASU 2018-07) or Share-based payment (before the adoption of ASU 2018-07).

 




From the CFO Journal's Morning Ledger on March 31, 2021

Grant Thornton:  CFOs Plan to Cut Spending on Travel, Real Estate

Some finance chiefs plan to cut spending on travel and real estate in 2021 and beyond, according to a survey released Tuesday by Grant Thornton LLP, a professional services firm.

Thirty-one percent of respondents said they expect to reduce budgets for real estate and other facilities over the next year, while 32% plan to make permanent changes to their company’s real-estate holdings. Forty-five percent of finance executives said they would look to reduce travel expenses over the next year, and 41% said they want to permanently lower travel costs, Grant Thornton said.

The company in February surveyed 250 finance chiefs and other executives at companies with more than $100 million in annual revenue.


From the CFO Journal's Morning Ledger on March 24, 2021

Blockchain.com, a London-based firm that provides a variety of cryptocurrency services to retail and institutional clients, raised $300 million in a deal that highlights venture capital’s growing willingness to jump back into the bitcoin frenzy.


From the CFO Journal's Morning Ledger on March 23, 2021

The Financial Accounting Standards Board is expected to discuss disclosure related to supply-chain financing at a board meeting in the coming months, a spokeswoman said. The accounting standard-setter launched a project to explore the topic but hasn't issued a proposal yet.


From the CFO Journal's Morning Ledger on March 23, 2021

Good morning. Finance chiefs will get more time to cover their companies' pension deficits and more flexibility with the cash they have put into retirement plans as part of the new Covid-19 aid package.

Market disruptions caused by the pandemic and near-zero interest rates have made it harder for companies to manage their pension obligations, especially plans sponsored by a single employer. Low interest rates contribute to higher liabilities, increasing the amount of funding that companies need to set aside for pension obligations.

Single-employer plans often promise to pay out fixed sums to retirees, sometimes over several decades, similar to other defined-benefit plans. More than 20,000 U.S. companies offer these single-employer plans, according to consulting firm Mercer LLC.

The $1.9 trillion aid package that President Biden signed into law earlier this month helps sponsors of single-employer plans hold on to cash and delay paying off any deficit in their plan over a 15-year period versus the current seven-year period. It also set aside about $86 billion for struggling multiemployer pensions, which are jointly run by unions and companies.


From the CFO Journal's Morning Ledger on March 19, 2021

Good morning. Investors are piling into a long-neglected sector: old-school car makers that are reinventing themselves as electric-vehicle producers.

After years lamenting that their shares were undervalued, Ford Motor Co., General Motors Co., Volkswagen AG and other blue-chip car manufacturers are experiencing sharp share-price gains this year as they embrace the new technology.

Ford is up 42% so far this year, while GM’s shares have also surged 42%. VW’s stock is up 46% and even briefly rose 29% in intraday trading one day this week when the company held a “Power Day” event, saying it would build six EV battery factories in Europe alone over the next 10 years. VW has this week also pushed ahead of SAP SE to become the most valuable stock on the German DAX index. By comparison, the S&P 500 index is up just 4.2% so far this year.

The new infatuation with established auto makers, many of which have been in business for more than a century, follows an earlier rush into electric-vehicle stocks that has driven shares of Tesla Inc. and other electric-vehicle and battery manufacturers into territory that some analysts say is reminiscent of the dot-com bubble of the 1990s.


From the CFO Journal's Morning Ledger on March 18, 2021

The U.S.’s economic prospects look brighter than those of many other countries—and that has driven an unexpected dollar rally this year. Investors thought the greenback would weaken during a coordinated global rebound from Covid-19 lockdowns. Instead, the U.S. stands apart from the rest. The flip side of this exceptionalism is a growing fear of higher inflation that could eventually reverse the dollar’s fortunes, according to some investors.

Jensen Comment
It is not that the USA economy is so outstanding as much as it is that the competition is so messed up.


What are some of the ways to avoid this tax while still giving executives outrageous compensation?
From the CFO Journal's Morning Ledger on March 18, 2021

Sen. Bernie Sanders introduced legislation that would seek to apply an additional tax on corporations where the chief executive officer is paid more than 50 times the median worker.

Jesen Comment
There are two ways to equalize income of all workers in the economy. One is to raise the bottom; The other is to lower the top. So often Bernie contemplates taxes that are punishments to companies and individuals rather than serious taxes to raise government revenue. Cuba discovered that equalizing incomes of all workers was dysfunctional and recently abandoned the great Cuban experiment ---

Here's a somber and serious Guardian article on why the Cuban model of income equality for all is a disaster ---
Fidel Castro says his economic system is failing ---
https://www.theguardian.com/world/2010/sep/09/fidel-castro-cuba-economic-model

Cuba lifts ban on most private business to deal with worst economic crisis since the fall of the Soviet Union ---
https://worldnewsera.com/news/finance/cuba-lifts-ban-on-most-private-business/
Socialism Doesn't Work ---
https://reason.com/2021/02/10/socialism-doesnt-work/

 


From the CFO Journal's Morning Ledger on March 18, 2021

 

Starbucks Corp. shareholders rejected the coffee company’s executive compensation proposal, a rare rebuke to a major U.S. company.


From the CFO Journal's Morning Ledger on March 17, 2021

Good morning. U.S. retailers and manufacturers slumped in February due to winter storms and supply-chain disruptions, but a broader economic rebound appears poised to accelerate this spring because of the easing pandemic and another round of government stimulus.

Retail sales fell by 3% in February compared with the prior month, the Commerce Department said Tuesday. The decline followed robust January sales that were propelled by stimulus payments to households from the December pandemic-relief package. January sales advanced a revised 7.6%, up from the earlier estimate of a 5.3% increase.

Severe winter weather wreaked havoc across a large swath of the U.S., affecting retail shopping and manufacturing output last month. The Federal Reserve separately said industrial production fell a seasonally adjusted 2.2% in February compared with January.

February is typically a quiet month for retail sales, as stores gear up for the spring selling season, including Easter. Economists expect spending to accelerate as additional government stimulus is distributed and Covid-19 vaccinations lead to a corresponding decline in cases.


From the CFO Journal's Morning Ledger on March 16, 2021

Good morning. Investors are scooping up low-rated corporate loans, fueling a rally that is lowering borrowing costs for highly indebted companies.

Investors poured more than $8 billion into funds of so-called leveraged loans in January and February, according to Lipper data from Refinitiv—the most in more than two years and a notable reversal from more than $26 billion in net outflows last year. That has helped boost loan prices to around their highest levels since November 2018, beating returns on corporate bonds and Treasurys.

 

Companies issuing new loans, including web-hosting firm GoDaddy Inc. and racetrack operator Churchill Downs Inc., are taking advantage of the demand, raising a record of $110 billion during the first two months of the year. Other borrowers, such as consulting firm AlixPartners LLP and software company Kofax Inc., have pursued more opportunistic loan deals intended to pay a dividend to shareholders.

Loans generally don’t prohibit borrowers from paying back debt more quickly than expected, allowing them to take advantage of investor demand to refinance debt—a move that can limit investors’ returns. Around 60% of the $110 billion of loans sold during January and February have been used to refinance or reprice existing debt.


From the CFO Journal's Morning Ledger on March 12, 2021

Tesla Inc.’s grip on critical markets is showing early signs of slipping as established auto makers push rival models in their race to catch up to Elon Musk’s vision for an electric-car future.

In the U.S., Ford Motor Co.’s electric sport-utility vehicle, the Mustang Mach-E, has begun eating into Tesla’s market share, according to new market data, while in Europe, the world’s largest electric-car market, Volkswagen AG beat Tesla to become the top-selling all-electric vehicle maker there last year.

Jensen Comment
Established automakers have an advantage of thousands of dealerships around the world, Telsa still has a better grip on battery manufacturing. All battery-operated car manufacturers are subject to risk that battery alternatives will give way to greener technology, particularly hydrogen cars, trucks, and trains. Germany already has at least one hydrogen train. Most nations also suffer from dependence upon a few countries (think China, Chile, and Zimbabwe) for lithium and other rare-earth minerals needed for vehicle batteries.


From the CFO Journal's Morning Ledger on March 9, 2021

PwC Chairman Signs Open Letter Supporting EU Corporate Governance Proposals

A European legislative push to strengthen corporate governance gained the support of PricewaterhouseCoopers LLP’s global chairman and a handful of corporate executives.

PwC Global Chairman Bob Moritz and Paul Polman, the former chief executive of Unilever PLC, along with more than 90 academics signed an open letter that expresses support for a proposal by the European Commission to draft legislation requiring board oversight of corporate sustainability goals and initiatives.

“Sustainable corporate governance can become integral to post-Covid economic recovery, not just in Europe but around the world,” the letter said.

The EU in late 2019 pledged to eliminate net greenhouse-gas emissions by 2050, and also established a legal framework for determining what qualifies as a green investment. Requiring board-level due diligence of sustainability programs is critical to achieving the EU’s environmental targets, the letter said.


From the CFO Journal's Morning Ledger on March 6, 2021

Good morning. U.S. public companies last year wrote down the largest amount of goodwill in more than a decade as the value of certain assets declined during the Covid-19 pandemic.

Economic recessions historically lead to an increase in goodwill impairments. Most recently, business across many industries slowed during the pandemic. When a public company records an impairment charge on its balance sheets, it tells investors that a transaction didn’t go as well as expected.

Total impairments for 2020 will likely fall short of 2008, in part due to Federal Reserve and U.S. government efforts to boost the economy, said Carla Nunes, a managing director at valuation firm Duff & Phelps LLP. Impairment levels in 2021 will depend on the speed of the economic recovery and other factors, such as vaccination rates, she said.

Rules governing companies’ goodwill reporting could change as the U.S. accounting standards-setter considers requiring companies to write down a set portion of goodwill each year, as they did before 2001. So-called amortization could lead companies to impair goodwill less frequently and in much smaller amounts, said Feng Gu, professor of accounting and law at the State University of New York at Buffalo. The charges could largely vanish, depriving investors of a useful metric, he said.


From the CFO Journal's Morning Ledger on March 3, 2021

Microsoft Corp. said a Chinese hacking group thought to have government backing is targeting previously unknown security flaws in an email product used by businesses.


From the CFO Journal's Morning Ledger on March 1, 2021

Good morning. Companies are anticipating another largely remote work year, and new questions about compensation and benefits are weighing on managers.

Discussions about the future of work, such as whether to reduce the salaries of employees who have left high-cost cities, are priority items in board meetings and senior executive sessions across industries, according to chief executives, board members and corporate advisers. Companies say there is much at stake, from the happiness and productivity of employees to regulatory consequences, if they get these decisions wrong.

Companies such as payments firm Stripe Inc. have offered employees leaving San Francisco, New York or Seattle the chance to relocate for a one-time bonus of $20,000 if they agree to a salary cut of up to 10%. Others, such as Microsoft Corp., have indicated that benefits and pay may change based on the company’s compensation scale by location. A number of Fortune 500 companies across industries are considering potential pay changes if an employee relocates from a city like San Francisco to Texas, says Jimmy Etheredge, chief executive of North America at the consulting firm Accenture PLC.

The prolonged remote spell is putting pressure on companies to give parents more help with child care—while being careful not to rankle workers without dependents. Some companies have offered Covid-related stipends that workers can use for anything from child care to workout equipment.

 


Street vs. GAAP: Which Effective Tax Rate Is More Informative?

Contemporary Accounting Research, Forthcoming

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3748522
Posted: 8 Feb 2021

Erik Beardsley

University of Notre Dame - Mendoza College of Business

Michael Mayberry

University of Florida - Fisher School of Accounting

Sean T. McGuire

Texas A&M University - Department of Accounting

Multiple version iconThere are 2 versions of this paper

Date Written: September 16, 2020

Abstract

This study investigates how sophisticated market participants use tax-based information by examining whether analysts’ street effective tax rates (ETRs) are informative. When assessing firm performance, analysts exclude items they believe do not reflect current performance, resulting in “street” metrics such as street ETR. However, evidence on the properties of the components of street earnings is limited. Examining the informativeness of street ETRs is important because taxes are a significant component of earnings, and the extent to which analysts understand and incorporate taxes into their analyses is not clear. Using a hand-collected sample of analyst reports, we find that while approximately 35 percent of street ETRs have at least one tax-specific exclusion, over 90 percent reflect the tax effects of pre-tax exclusions. Further, both tax-specific exclusions and the tax effects of pre-tax exclusions significantly contribute to differences between GAAP and street ETRs. Consistent with analysts understanding the implications of tax and non-tax exclusions, our results suggest that street tax metrics exhibit greater predictive ability about future tax outcomes and provide more information to investors than GAAP tax metrics. We also find that ETR exclusions are of higher quality when the magnitude of the potentially excluded item is greater and when managers disclose pro forma earnings. Collectively, our findings suggest that analysts understand taxes, but selectively exert effort to incorporate tax-based information into their assessment of firm performance. Our study should be informative to regulators and users of financial information because it provides evidence regarding the usefulness of street earnings metrics.

Keywords: non-GAAP reporting, street earnings, accounting for income taxes, effective tax rates, analysts, taxes

Suggested Citation:

Beardsley, Erik and Mayberry, Michael and McGuire, Sean T., Street vs. GAAP: Which Effective Tax Rate Is More Informative? (September 16, 2020). Contemporary Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3748522


The Local Spillover Effect of Corporate Accounting Misconduct: Evidence from City Crime Rates

Contemporary Accounting Research, Forthcoming

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3763692
Posted: 8 Feb 2021

Eric Holzman

The Ohio State University - Department of Accounting & Management Information Systems

Brian P. Miller

Indiana University - Kelley School of Business - Department of Accounting

Brian Williams

Indiana University - Kelley School of Business - Department of Accounting

Multiple version iconThere are 3 versions of this paper

Date Written: October 23, 2020

Abstract

This study documents a spillover effect of accounting fraud by showing that after the revelation of accounting misconduct, there is an increase in financially motivated neighborhood crime (robberies, thefts, etc.) in the cities where these misconduct firms are located. We find that more visible accounting frauds (e.g., greater media attention and larger stock price declines) are more strongly associated with a future increase in financially motivated neighborhood crime. We also find that the association between fraud revelation and increased future financially motivated crime is strongest when local job markets are shallower and where local income inequality is high, consistent with adverse shocks from fraud putting pressure on local communities. Combined, our study provides evidence that the societal ramifications of corporate accounting misconduct extend beyond adversely impacting a firm’s capital providers and industry peers to negatively influence the daily life of the residents in the firm’s local community.

Keywords: accounting misconduct, real effects, crime rate, corporate spillover, income inequality, accounting fraud

Suggested Citation:

Holzman, Eric and Miller, Brian P. and Williams, Brian, The Local Spillover Effect of Corporate Accounting Misconduct: Evidence from City Crime Rates (October 23, 2020). Contemporary Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3763692


Motivating Managers to Invest in Accounting Quality: The Role of Conservative Accounting

Contemporary Accounting Research, Forthcoming

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3764459
Posted: 8 Feb 2021

Ralf Ewert

University of Graz - Institute of Accounting and Auditing

Alfred Wagenhofer

University of Graz

Date Written: December 1, 2020

Abstract

While internal control over financial reporting has gained increasing regulatory attention, its enforcement is far from perfect; thus firm-specific incentives to management become important to increase the quality of financial reports. We study how owners can motivate managers to invest in accounting quality even though it is costly to the managers. Using an agency model, we establish that a sufficiently conservative accounting system (which understates performance) is necessary to induce a manager to invest in accounting quality, and more conservatism increases this investment. The reason is that higher accounting quality mitigates the expected reduction of the manager’s compensation from conservatively measured performance. Higher accounting quality makes the performance measure more precise, and the owner optimally lowers incentives, even though that entails some loss of productivity. In total, more conservatism increases both firm value and accounting quality. Our findings suggest that striving for neutral accounting can counteract incentives to improve accounting quality, and they provide support to using conservatism as a metric of financial reporting quality in empirical studies.

Keywords: accounting quality, management incentives, conservatism, internal controls

Suggested Citation:

Ewert, Ralf and Wagenhofer, Alfred, Motivating Managers to Invest in Accounting Quality: The Role of Conservative Accounting (December 1, 2020). Contemporary Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3764459


Gender Discrimination? Evidence from the Belgian Public Accounting Profession

Contemporary Accounting Research, Forthcoming

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3766075
Posted: 8 Feb 2021

Kris Hardies

University of Antwerp

Clive S. Lennox

University of Southern California

Bing Li

City University of Hong Kong (CityUHK)

Date Written: December 15, 2020

Abstract

Prior research finds that women receive lower salaries than men. Similarly, we show that female audit partners in Belgium receive significantly lower compensation than male partners. However, there are alternative explanations for the pay gap other than gender discrimination. For example, the gap in compensation could reflect that men are paid more because they have higher levels of productivity. We provide new predictions and tests of gender discrimination by comparing the fees generated by audit partners (a measure of partner productivity) and the types of clients assigned to partners. Consistent with our prediction of female partners having to meet higher performance thresholds than male partners, we show that female partners generate larger fee premiums, but they are less likely to be assigned to prestigious clients. To test whether these patterns are attributable to gender discrimination, we examine whether the results are stronger in male-dominated offices because this is where we would expect to find the most discrimination against women. We find the fee premiums generated by female partners are larger in male-dominated offices, while the negative association between prestigious clients and female partners is stronger in male-dominated offices. Collectively, our combined predictions and tests are consistent with female partners facing gender discrimination in audit offices that are dominated by male partners.

Keywords: gender discrimination, public accounting firms, female partners

JEL Classification: D22, J71, M41, M42, M51

Suggested Citation:

Hardies, Kris and Lennox, Clive and Li, Bing, Gender Discrimination? Evidence from the Belgian Public Accounting Profession (December 15, 2020). Contemporary Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3766075


How to Mislead With Statistics

Modeling Skewness Determinants in Accounting Research

 

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3740197
60 Pages
 Posted: 6 Feb 2021

Sudipta Basu

Temple University - Department of Accounting

Dmitri Byzalov

Temple University - Fox School of Business and Management - Department of Accounting

Date Written: November 30, 2020

Abstract

Skewness-based proxies are widely used in accounting and finance research. To study how the skewness of a dependent variable Y varies with conditioning variables X, researchers typically compute firm-specific skewness measures over a short rolling window and regress them on X. However, we show that this standard approach can cause severe biases and produce false findings of both conditional skewness on average and systematic variation in conditional skewness. These biases generalize beyond rolling-window skewness. We develop alternative methods that address these biases by directly modeling the conditional skewness of Y for each observation as a function of X. Simulations confirm that our methods have good type-I errors and test power even in scenarios in which the standard method is severely biased. Our methods are transparent, robust, and can be implemented in a few lines of code. Use of our methods changes a major prior finding.

 

 

Keywords: Pearson’s moment coefficient of skewness, quantile-based skewness, rolling window, conditional distribution, generalized method of moments (GMM)

JEL Classification: M41, C20, C25

Basu, Sudipta and Byzalov, Dmitri, Modeling Skewness Determinants in Accounting Research (November 30, 2020). Available at SSRN: https://ssrn.com/abstract=3740197 or http://dx.doi.org/10.2139/ssrn.3740197

Corporate Social Responsibility (CSR) and Environmental Social Governance (ESG) – Disclosure of European Banks

European Banking Institute Working Paper Series 2021 - no. 83

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3778674
247 Pages Posted: 3 Feb 2021

Edgar Loew

Frankfurt School of Finance & Management gemeinnützige GmbH - Accounting Department

Giulia Erichsen

Frankfurt School of Finance & Management gemeinnützige GmbH

Benjamin Liang

affiliation not provided to SSRN

Margret Louise Postulka

Frankfurt School of Finance & Management gemeinnützige GmbH

Date Written: February 3, 2021

Abstract

In the European Union the goal of transition towards a carbon-neutral economy by 2050 is identified as a major aim of the European Commission. The integral role of the financial services sector in funding such investments and enhancing the (re-) direction and allocation of capital flows towards sustainable projects and investments is increasingly acknowledged. Besides the integration of ESG and CSR into the banks’ operations, it can serve and be utilized as risk management tools.

This paper investigates the effectiveness of the EU Non-Financial Reporting Directive (2014/95/EU) with respect to the CSR disclosure quality in European banks from 2017-2019. After an overview of the EU’s path towards a sustainable financial sector from 2013 till present, the most important regulations will be assessed in detail, namely the Non-Financial Reporting Directive (2014/95/EU) and the Taxonomy Regulation on Sustainable Economic Activity (2020/852/EU). By constructing a multi-category CSR disclosure index to “translate” and quantify disclosed CSR information in the banks’ annual filings, a positive comparative development over the years is identified – indicating the general effectiveness of the directive. The construction of the disclosure index and the content analysis of the banks’ CSR disclosures is based on textual analysis.

In order to not only analyse and evaluate the level of CSR disclosure in European banks from 2017-2019, but also to identify potential factors influencing its quality, the collection of multiple data inputs is necessary. The paper examines the association between three factors of the balance sheet and the P&L on their significance on the disclosure score. These factors are asset size in million euro (proxy for size), common equity tier 1 ratio (proxy for market discipline) as defined in the Basel III regulatory framework (proxy for market discipline) and pre-tax return on assets (proxy for profitability). Furthermore, the association of other non-balance sheet factors and their correlation on the disclosure score is examined which are listing status (listed or non-listed), country of the head-quarter, (external) auditor and bank´s CSR report type. Therefore, this adds detail to research, as existing majorly focus on how CSR-related information is disclosed and not to what extent and quality.

This paper targets accountants, financial institutions, regulatory authorities, shareholders, investors and stakeholders in general who are affected by and interested in the overall CSR disclosure quality of European banks.

Keywords: Bank Accounting, Banks, Corporate Social Responsibility, Sustainable Finance, Disclosure, Accounting, Auditing

JEL Classification: G15, G18, G21, G28, K22, K23, M41, M42, M48

Suggested Citation:

Loew, Edgar and Erichsen, Giulia and Liang, Benjamin and Postulka, Margret Louise, Corporate Social Responsibility (CSR) and Environmental Social Governance (ESG) – Disclosure of European Banks (February 3, 2021). European Banking Institute Working Paper Series 2021 - no. 83, Available at SSRN: https://ssrn.com/abstract=3778674


Cognitive Determinants of Aggressive Financial Reporting – The Combined Effects of Ego Depletion, Moral Identity, and an Ethical Intervention

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3762591
46 Pages Posted: 3 Feb 2021

John Lauck

Louisiana Tech University - School of Accounting & Information Systems

Eric Michael Negangard

University of Virginia; University of Virginia

Joseph Rakestraw

Florida Atlantic University - School of Accounting

Date Written: January 8, 2021

Abstract

We experimentally investigate the combined effects of ego depletion, moral identity, and ethical interventions on managers’ financial reporting aggressiveness in the development of an accounting estimate. We find that decision makers with high moral identity become more aggressive later in the day (once they become ego depleted), but those with low moral identity do not. We also find that an ethical intervention has a significant influence on the reporting judgments of depleted decision makers with low moral identity, but not on the judgments of depleted decision makers with high moral identity. However, the opposite effect occurs when decision makers are not depleted. That is, an ethical intervention has a significant influence on the financial reporting judgments of undepleted decision makers with high moral identity, but not on the judgments of undepleted decision makers with low moral identity. Supplemental analyses reveal different patterns of decision makers’ cognitive dissonance across experimental conditions.

Keywords: Aggressive Financial Reporting, Ego Depletion, Moral Identity, Ethics

JEL Classification: M1, M14, M4, M41

Suggested Citation:

Lauck, John and Negangard, Eric Michael and Rakestraw, Joseph, Cognitive Determinants of Aggressive Financial Reporting – The Combined Effects of Ego Depletion, Moral Identity, and an Ethical Intervention (January 8, 2021). Available at SSRN: https://ssrn.com/abstract=3762591


Fundamental Analysis of XBRL Data: A Machine Learning Approach

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3741015
62 Pages Posted: 3 Feb 2021

Xi Chen

New York University (NYU) - Leonard N. Stern School of Business

Yang Ha Cho

New York University (NYU) - Department of Accounting

Yiwei Dou

New York University (NYU) - Department of Accounting

Baruch Lev

New York University - Stern School of Business

Date Written: December 2, 2020

Abstract

Since 2012, all U.S. public companies must tag quantitative amounts in financial statements and footnotes of their 10-K reports using the eXtensible Business Reporting Language (XBRL). We conduct a fundamental analysis of this large set of detailed financial information to predict earnings. Using machine learning methods, we combine the XBRL data into a summary measure for the direction of one-year-ahead earnings changes. Hedge portfolios are formed based on this measure during the period 2015-2018. The annual size-adjusted returns to the hedge portfolios range from 5.02 to 9.7 percent. These returns persist after accounting for transaction costs and risk. Our strategies outperform those of Ou and Penman (1989), who extract the summary measure from 65 accounting variables using logistic regressions. Additional analyses suggest that the outperformance stems from both nonlinear predictor interactions missed by regressions and more detailed financial data in XBRL documents.

Keywords: Fundamental Analysis, XBRL, Machine Learning

JEL Classification: M41, G12

Suggested Citation:

Chen, Xi and Cho, Yang Ha and Dou, Yiwei and Lev, Baruch Itamar, Fundamental Analysis of XBRL Data: A Machine Learning Approach (December 2, 2020). Available at SSRN: https://ssrn.com/abstract=3741015


On (r, g) and the Identity ROE = EP*MTB

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3741088
42 Pages Posted: 3 Feb 2021

James A. Ohlson

Hong Kong Polytechnic University - School of Accounting and Finance

Sophia Weihuan Zhai

Hong Kong Polytechnic University - School of Accounting and Finance

Date Written: December 2, 2020

Abstract

The paper concerns concepts of equity valuation. Three primary financial ratios -- (forward) return on equity (ROE), (forward) earnings to price ratio (EP), and the (current) market-to-book ratio (MTB) – are connected to the standard valuation parameters, r = cost of equity (discount factor), and g = growth. The framework relies on a Gordon-Williams type of PVD model and combines it with an add-on steady-state growth requirement: Subject to clean surplus accounting, (the expected) earnings, dividends, and book values all grow at the same rate. This condition is adapted from “The Second Fundamental Law of Capitalism”, articulated by Piketty (2014). Applying these ideas result in a benchmark model: (i) a weighted average representation, EP = BTM*r + (1- BTM) *Div.Yield , and (ii) the inequalities 0 < BTM < 1 and Div.Yield < EP < r < ROE. Additional analysis relaxes the steady-state growth condition: the g-parameter is now replaced by forecasts of near future earnings growth which get updated as time passes. An empirical part of the paper evaluates whether the steady-state growth concept holds as an average for S&P 500 firms. Results are generally supportive.

JEL Classification: G12, M41

Suggested Citation:

Ohlson, James A. and Zhai, Sophia Weihuan, On (r, g) and the Identity ROE = EP*MTB (December 2, 2020). Available at SSRN: https://ssrn.com/abstract=3741088


A Needle Found: Machine Learning Does Not Significantly Improve Corporate Fraud Detection Beyond a Simple Screen on Sales Growth

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3739480
44 Pages Posted: 3 Feb 2021

Stephen Walker

University of California, Berkeley - Accounting Group

Date Written: November 29, 2020

Abstract

Recent papers have been highly promotional of the benefits of machine learning in the detection of corporate fraud. For example, Bao, Ke, Li, Yu, and Zhang (2020) recently published in the Journal of Accounting Research report that their machine learning model increases performance by +75% above the current parsimonious standard in the accounting literature, the financial ratio-based F-Score (Dechow, et al. 2011), when measured at the highest risk levels. They also show that raw variables alone, rather than financial ratios, can achieve this task. However, a quick peak under the hood reveals an issue that, if corrected for, reduces the results to no better than the F-Score.

In this paper, I create a machine learning model applying the latest in machine learning known as XGBoost to over 100 financial ratios sourced from prior literature. I compare this model to an XGBoost model applying the 28 raw variables suggested by Bao, et al. Additional models are benchmarked include the F-Score, the M-Score (Beneish 1999), the FSD Score based on Benford’s Law (Amiram, et al. 2015), and a simple screen on 4-year sales growth.

A Wilcoxon rank sum test will show that differences between the models at the top 1% of risk are not significantly different. In fact, at this level, the models fail often in any given year. At the top 10% of risk where models produce consistent annual results, advanced methods match the performance of the F-Score, or even a simple univariate screen on sales growth I measure performance using positive predictive values (PPV) also known as precision which measures the likelihood of a fraud case within the top 1% or top 10% list. My XGBoost model outperforms the models at the 1% level, but positive predictive values remain quite low to be of any practical use with PPVs in the 3% range. A discussion will follow to explain what would be required to move positive predicted values beyond the single digits for this research question.

Keywords: Corporate Fraud, AAER, Machine Learning, XGBoost

Suggested Citation:

Walker, Stephen, A Needle Found: Machine Learning Does Not Significantly Improve Corporate Fraud Detection Beyond a Simple Screen on Sales Growth (November 29, 2020). Available at SSRN: https://ssrn.com/abstract=3739480


Measuring Employment Impact: Applications and Cases

Harvard Business School Accounting & Management Unit Working Paper No. 21-082

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3775838
11 Pages Posted: 2 Feb 2021

Katie Panella

Harvard University - Harvard Business School

George Serafeim

Harvard Business School

Date Written: January 20, 2021

Abstract

Applying the Impact-Weighted Accounts Initiative’s employment impact methodology, on eight leading companies, we document wide variability in employment impacts as a percentage of salaries paid, ranging between 59 and 80 percent. We identify opportunities for improvement and discuss transition plans for companies to create more positive employment impact. We conclude with a call for disclosure of Equal Employment Opportunity Commission EEO-1 reports, paid leave, childcare and healthcare benefits, which would greatly facilitate the comparable and reliable measurement of employment impact in the future.

Keywords: impact measurement, accounting, employees, well-being, diversity, opportunity, wages

Suggested Citation:

Panella, Katie and Serafeim, George, Measuring Employment Impact: Applications and Cases (January 20, 2021). Harvard Business School Accounting & Management Unit Working Paper No. 21-082, Available at SSRN: https://ssrn.com/abstract=3775838




 

Teaching Case From The Wall Street Journal Weekly Accounting Review on February 19, 2021

Borrowing Binge Reaches Riskiest Companies

By Matt Wirz Sam Goldfarb | February 15, 2021

Topics: Corporate Debt, Interest Rates

Summary: There is a lending boom “offering lifelines for struggling companies even as the coronavirus pandemic still drags on the economy… More than $13 billion of that debt [issued between January 1 and February 10, 2021] had ratings triple-C or lower—the riskiest tier save for outright default….[These] riskier companies can now borrow at interest rates once reserved for the safest type of debt.”

Classroom Application: The article may be used in a financial reporting class covering debt issuances, specifically addressing economy-wide and individual issuer factors leading to the level of interest rates.

Questions:

  • What is a bond yield?
  • As of Friday, February 12, 2021, what was the average yield of risky bonds as described in the article?
  • How does the yield on the riskiest bonds as of February 2021 compare to U.S. treasury security yields currently and in the recent past?
  • What factors are leading to the current state of bond yields as described in this article?

READ THE ARTICLE

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

 

"Borrowing Binge Reaches Riskiest Companies," by Matt Wirz Sam Goldfarb |, The Wall Street Journal, February 15, 2021 ---
https://www.wsj.com/articles/borrowing-binge-reaches-riskiest-companies-11613385001

Demand for corporate debt has offered lifelines to struggling firms that can borrow at interest rates once reserved for the safest type of bonds

Investors’ near-insatiable demand for even the riskiest corporate debt is fueling a Wall Street lending boom, offering lifelines for struggling companies even as the coronavirus pandemic still drags on the economy.

Companies such as hospital operator Community Health Systems Inc. and newspaper publisher Gannett Co. have issued a record $139 billion of bonds and loans with below- investment-grade ratings from the start of the year through Feb. 10, according to LCD, a unit of S&P Global Market Intelligence. More than $13 billion of that debt had ratings triple-C or lower—the riskiest tier save for outright default—about twice the previous record pace.

Despite the onslaught of new bonds, riskier companies can now borrow at interest rates once reserved for the safest type of debt.

As of Friday, the average yield for bonds in the ICE BofA U.S. High Yield Index—a group that includes embattled retailers and fracking companies—was just 3.97%. By comparison, the yield on the 10-year U.S. Treasury note, which carries essentially no default risk, was as high as 3.23% less than three years ago. The 10-year Treasury yielded around 1.2% Friday.

“At a high level, you have a meaningful imbalance between supply and demand,” said David Knutson, head of credit research for the Americas at Schroders, the U.K. asset-management firm. “The demand exceeds the supply for bonds.”

The most striking aspect of the current lending boom is its timing. Typically, it can take years after recessions for the market to reach its present level of exuberance, analysts said. In this case, it has taken less than 12 months and has arrived just as economic data have revealed a winter slowdown in the recovery.

Debt investors are hardly alone in their enthusiasm. Investors across a range of asset classes have poured money into risky wagers, even as the frenzy around videogame company GameStop Corp. and other popular stocks for individuals calms. Commodities such as oil and copper have surged, and more than $58 billion went into mutual and exchange-traded funds tracking global stocks during the week ended Wednesday, the largest such inflow on record, according to a Bank of America analysis of data from EPFR Global.

Investors’ optimism rests largely on the idea that current economic challenges aren’t normal and can be resolved quickly once coronavirus vaccines are more widely distributed. The combined efforts of the Federal Reserve and Congress have also helped by depressing benchmark interest rates and pumping trillions of dollars into the economy,

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on February 19, 2021

Some Elite Business Schools Skip Rankings This Year

By Patrick Thomas | February 15, 2021

Topics: MBAs

Summary: Accounting students may be applying to graduate business school for a number of reasons including completion of the 150 credit hour requirement for CPA licensure. Some may use the business school rankings published in the business press in their application decision-making. This article describes some of the process for the rankings, benefits to the schools that participate, and factors leading some to decide not to participate in the 2020 rankings under Covid-19 circumstances.

Classroom Application: The article may be used in any course discussing students’ consideration of graduate business education.

Questions:

  • Are you considering entering business graduate school? If so, describe your reasons. If not, why not?
  • How do business schools participate in the ranking process?
  • What benefits do business schools say come from their participation in the ranking process?
  • What difficulties make it so that some schools are dropping out of the rankings process, at least for 2020 rankings?
  • Do you think the impact of Covid-19 in 2020 on the schools’ decisions to participate in the rankings process would influence a students’ use of these rankings? Explain your answer.

READ THE ARTICLE

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

 

"Some Elite Business Schools Skip Rankings This Year," by Patrick Thomas, The Wall Street Journal, February 15, 2021 ---
https://www.wsj.com/articles/whats-the-best-business-school-for-this-years-m-b-a-rankings-its-not-who-you-think-11613394000

As Harvard, Stanford, other elite schools skip some rankings this year, European universities top lists, lesser-known programs get a boost

Several top U.S. business schools are skipping popular M.B.A. rankings this year, upending an annual rite for programs and prospective students.

Harvard Business School, the University of Pennsylvania’s Wharton School, Columbia Business School and the Stanford Graduate School of Business, among others, opted to skip the most recent rankings by the Economist and the Financial Times. Several schools said Covid-19 made it difficult to gather the data they must submit to be ranked.

More than bragging rights hang in the balance—though there are plenty of those, too. Schools say a good showing in rankings can draw interest from prospective students, stoking application volumes, as well as plaudits or pans from alumni who continue to track their alma mater long after leaving campus.

Overall, 62% of programs plan to participate in some rankings, while 10% don’t plan to cooperate for any lists this year, according to a survey of business-school admissions officials by Kaplan, the education subsidiary of the Graham Holdings Co.

Bloomberg Businessweek suspended its 2020 ranking, the only major list to do so. Dozens of notable schools were missing from the Economist’s list published last month. Nine schools that normally take part in the FT’s list chose not to participate, a spokeswoman said.

With some major programs missing, other schools moved up the lists. Insead in France topped the FT’s list of best M.B.A. programs, published earlier this month, up from fourth place; some of last year’s top schools, including Harvard and Stanford, sat it out.

HBS spokesman Brian Kenny said the school isn’t opposed to rankings, but some data gathering—which can take months—was an added burden as schools pivoted to remote learning earlier in the pandemic. Harvard, which often tops lists, can afford to take a year off, he added.

“It doesn’t have the same impact on us as it would on another school who is maybe struggling to get into top 50,” Mr. Kenny said. The school is participating in the U.S. News & World Report rankings, due in March.

A Stanford spokeswoman said the school didn’t want to overburden students and alumni groups with surveys required for some rankings during a stressful year.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on February 19, 2021

Judge Lets Revlon Lenders Keep Citi’s Botched $500 Million Payment

By Alexander Gladstone Andrew Scurria Becky Yerak | February 16, 2021

Topics: Banking, Internal Controls

Summary: Citigroup Inc. mistakenly paid off debt principal in addition to interest payments to investment firms that made loans to Revlon Inc. A federal judge has ruled that “Brigade Capital Management LP and other Revlon lenders can keep the money they collected from Citi…While some lenders that were mistakenly paid returned roughly $385 million to Citi, others refused the bank’s request for repayment, touching off a legal dispute that strained relationships with big investors like Brigade, a longtime Citi client, and raised questions with analysts about the bank’s internal controls.”

Classroom Application: The article may be used when discussing internal controls in an accounting systems course, a course on banking, or in a financial reporting course. It also may be used when discussing accounting for corporate debt to address the process of handling interest payments and related internal controls.

Questions:

  • Describe the process for corporate debt issuance and repayment, including all cash receipts and disbursements (payments) that occur.
  • Based on the description in the article, what service did Citigroup provide to Revlon, Inc.?
  • How did Citi make erroneous extra payments to Revlon’s lenders? What did Citi executives do in the aftermath?
  • What are internal controls? Cite your source for your definition if from your textbook or elsewhere.
  • What internal control function should be used to prevent such an error as Citi has made, or should have been functioning properly at Citi? Give one example that you can think of.

READ THE ARTICLE

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

 

"Judge Lets Revlon Lenders Keep Citi’s Botched $500 Million Payment," by Alexander Gladstone, Andrew Scurria, and Becky Yerak, The Wall Street Journal, February 16, 2021  ---
https://www.wsj.com/articles/judge-lets-revlon-lenders-keep-citis-botched-500-million-payment-11613490508

Brigade Capital Management and other investors win court ruling allowing them to keep the Revlon loan payment they received from their agent Citi

A federal judge denied Citigroup Inc.’s request to claw back roughly $500 million it mistakenly paid out of its own pocket to investment firms that made loans to cosmetics giant Revlon Inc.

Brigade Capital Management LP and other Revlon lenders can keep the money they collected from Citi when the bank wired them the full amount they were owed instead of the small interest payment that was due, according to a written ruling Tuesday by Judge Jesse Furman of U.S. District Court in New York.

The August blunder by Citi, Revlon’s loan agent, satisfied a nearly $900 million debt that Revlon wasn’t due to pay until 2023 and delivered an unexpected windfall to lenders on what had become an increasingly risky investment.

While some lenders that were mistakenly paid returned roughly $385 million to Citi, others refused the bank’s request for repayment, touching off a legal dispute that strained relationships with big investors like Brigade, a longtime Citi client, and raised questions with analysts about the bank’s internal controls.

Judge Furman issued the decision after holding a trial in December that focused on the pivotal question of what Brigade and other recipients knew or suspected soon after they were paid.

Citi, which has blamed the snafu on human error, argued that recipients knew right away they had been paid in error. They said they didn’t think the transactions were erroneous until Citi claimed as much and demanded repayment.

Judge Furman agreed with the lenders that they “believed, and were justified in believing, that the payments were intentional.” Citi’s mistake was “one of the biggest blunders in banking history,” the judge said.

“We strongly disagree with this decision and intend to appeal. We believe we are entitled to the funds and will continue to pursue a complete recovery of them,” a Citi spokesperson said.

Robert Loigman, a lawyer representing the lenders, said “we are extremely pleased with Judge Furman’s detailed and thorough decision.”

As soon as Citi realized its mistake, executives began trying to claw the money back. Some lenders granted the bank’s request. Citi sued 10 investment firms that declined, including Brigade, Symphony Asset Management LP and HPS Investment Partners LLC.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on February 26, 2021

Jay-Z and LVMH Pop the Cork in Champagne Tie-Up

By Matthew Dalton | February 22, 2021

Topics: Joint Ventures, Equity Method Investments

Summary: “LVMH, the world’s biggest producer of Champagne, has taken a 50% stake in Armand de Brignac, the high-end Champagne brand…known for its metallic bottles that cost hundreds of dollars each.” Armand de Brignac is owned by Jay-Z, the rapper and mogul who made his investment after a perceived snub in the luxury industry. “Rappers have long peppered their lyrics with references to Dior, Louis Vuitton, Dom Pérignon and other brands. But until recently, the luxury industry kept its fans in hip-hop at a distance….In Armand de Brignac, LVMH saw a label that was quickly drawing new Champagne drinkers to the high-end segment of the market…Armand de Brignac has been produced by a small team inside the Cattier Champagne house, a family-run brand. Mr. Schaus said LVMH’s resources in Champagne…would likely be tapped to boost the brand’s volumes in the years to come.”

Classroom Application: The article may be used in a financial reporting class discussing equity method investments, joint ventures, and business combination transactions.

Questions:

  • Is the LVMH investment transaction described in this article a business combination? Explain your answer.
  • Based on the information given in the article, how do think that LVMH will account for its investment in Armand de Brignac?
  • Regardless of your answers above, the article describes the strategic benefits associated with this investment transaction. What are those benefits for LVMH?
  • Regardless of your answers above, the article describes the strategic benefits associated with this investment transaction. What are those benefits for Armand de Brignac?

READ THE ARTICLE

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

 

"Jay-Z and LVMH Pop the Cork in Champagne Tie-Up," by Matthew Dalton, The Wall Street Journal,  February 22, 2021 ---
https://www.wsj.com/articles/jay-z-and-lvmh-pop-the-cork-in-champagne-tie-up-11613994900

Luxury-goods giant LVMH acquires 50% of Armand de Brignac as pandemic takes fizz out of Champagne sales

Jay-Z and LVMH LVMUY -0.23% Moët Hennessy Louis Vuitton SE are joining forces in the Champagne business, further cementing the alliance between the world of hip-hop and luxury as the Covid-19 pandemic saps sales of the festive wine world-wide.

LVMH, the world’s biggest producer of Champagne, has taken a 50% stake in Armand de Brignac, the high-end Champagne brand owned by Jay-Z, the rapper and mogul. The brand, one of the youngest in the famed sparkling-wine region, is known for its metallic bottles that cost hundreds of dollars each.

The investment, LVMH and Jay-Z said, is aimed at growing Armand de Brignac through LVMH’s global distribution networks while drawing upon the conglomerate’s resources within Champagne wine country. It comes at a difficult moment for Champagne: The pandemic caused the cancellation of weddings, soirees and other occasions to pop corks, cutting sales of the wine by about 20% last year. The two sides didn’t disclose the value of the transaction.

“We were working really hard to maintain a brand that was growing faster than the staff we had and bigger than some of the expertise we had,” Jay-Z, born Shawn Carter, said in an interview. “We’d been in this 15 years, not a hundred.”

The partnership shows how European luxury brands are now embracing Black recording artists and hip-hop culture to appeal to a younger, more diverse clientele. Rihanna and LVMH launched a cosmetics line, Fenty Beauty. The rapper Gucci Mane and the Italian fashion house Gucci have collaborated on a collection. Dior, an LVMH brand, has used the rapper A$AP Rocky as a featured model in several menswear collections. Streetwear has become a staple of luxury fashion.

“I think that people have come to accept that these two worlds are a natural fit,” Jay-Z said. “In the beginning, it wasn’t a natural fit.”

Rappers have long peppered their lyrics with references to Dior, Louis Vuitton, Dom Pérignon and other brands. But until recently, the luxury industry kept its fans in hip-hop at a distance. One such perceived snub pushed Jay-Z to invest in Armand de Brignac.

Since emerging as a star in the 1990s, the Brooklyn-born rapper had been a devotee of Cristal, repeatedly name-checking the high-end Champagne brand in his rhymes. That changed when, in 2006, an executive at Cristal’s parent company was asked in The Economist whether the brand would be harmed by its association with rap. “That’s a good question, but what can we do?” he replied.

Jay-Z soon organized a boycott of Cristal. Later in 2006, in the video for the single “Show Me What You Got,” he touted a new brand: Armand de Brignac, which called itself “Ace of Spades” and was launched earlier that year in the Champagne town of Chigny-les-Roses. The brand quickly put out a news release highlighting the mention.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on February 26, 2021

Goodyear to Buy Rival Cooper Tire for $2.8 Billion

By Micah Maidenberg | February 22, 2021

Topics: Business Combinations

Summary: “Goodyear said Monday it would pay about $2.8 billion in cash and stock for its smaller rival, including $41.75 a share in cash for Cooper’s shares” in a “deal that seeks to combine the two biggest tire manufacturers based in the U.S.”

Classroom Application: The article may be used when introducing strategic reasons for business combinations as well as an example of a cash and stock transaction. DELETE BEFORE DISTRIBUTING TO STUDENTS: ANSWER TO QUESTION 1 ASC 805 -10-25-1 An entity shall determine whether a transaction or other event is a business combination by applying the definition in this Subtopic, which requires that the assets acquired and liabilities assumed constitute a business. If the assets acquired are not a business, the reporting entity shall account for the transaction or other event as an asset acquisition. An entity shall account for each business combination by applying the acquisition method. The definition of a business combination can be found in the glossary.

Questions:

  • Is there any question that this transaction is a business combination? Support your answer with reference to the definition of a business combination in authoritative accounting literature.
  • As described in the article, what is(are) the main benefit(s) accruing to Goodyear Tire & Rubber from this transaction with Cooper Tire & Rubber?
  • According to sources outside of this article, Goodyear plans to pay $41.75 in cash and .907 Goodyear shares for every Cooper Tire& Rubber share. Cooper Tire & Rubber has about 50.37 M shares of common stock outstanding. The price of Goodyear Stock on February 22 prior to the announcement of the business combination was $13.93. Goodyear’s stock has no par value. Using this information, show how the $2.8 billion acquisition valuation of Cooper was determined.
  • Again use the information given above. Prepare the Goodyear entry to record its investment in Cooper Tire & Rubber assuming that all outstanding Cooper shares are obtained by Goodyear but that Cooper is not immediately dissolved by Goodyear. Round your answer to balance the entry.

READ THE ARTICLE

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

 

"Goodyear to Buy Rival Cooper Tire for $2.8 Billion," by Micah Maidenberg, The Wall Street Journal, February 22, 2021 ---
https://www.wsj.com/articles/goodyear-to-buy-rival-cooper-tire-for-2-8-billion-11614005701

Cash-and-stock deal would create a company with more than 50 factories

Goodyear Tire & Rubber Co. GT +5.39% agreed to buy Cooper Tire & Rubber Co. CTB +1.33% , a deal that seeks to combine the two biggest tire manufacturers based in the U.S.

Goodyear said Monday it would pay about $2.8 billion in cash and stock for its smaller rival, including $41.75 a share in cash for Cooper’s shares, which rose about 30% to $56.89 in afternoon trading. Goodyear’s shares increased 20% to $16.72.

The acquisition would add scale for Goodyear, giving it annual revenue of roughly $17.5 billion, more than 50 factories and around 72,000 employees, according to an investor presentation. Cooper’s tire brands include its namesake line and Mastercraft.

Meanwhile, the companies said they are eyeing $165 million of cost cuts annually within two years after the deal is complete.

Goodyear was the third-largest tire company globally by tire sales for 2019, according to industry publication Tire Business’s latest ranking. It trailed France’s Michelin, and Japan’s Bridgestone Corp. , according to the ranking. Cooper was the 13th-biggest tire maker over that time frame, but the second largest in the U.S. after Goodyear. Both companies are based in Ohio.

Goodyear Chief Executive Richard Kramer said on a call with investors the proposed acquisition would lift the combined company’s sales volumes of replacement tires in the U.S. to about 64 million. In China, the deal would help Goodyear sell more new and replacement tires, with the latter market expected to grow quickly in the coming years, he added.

Many of the advantages of the deal “will accrue to our businesses in the U.S. and China, the two largest tire markets in the world,” he said.

Executives said they aren’t initially looking for cost savings within their plants. Instead, the combined company would focus on duplicative selling and administrative expenses and finding savings tied to research and development, procurement and logistics.

Goodyear and Cooper have both said the Covid-19 pandemic weighed on financial results last year as each temporarily shut down plants. Sales last year at Goodyear fell 16% to $12.3 billion and were off 8% at $2.5 billion for Cooper.

The combined company will better be able to invest in “new mobility and fleet solutions,” offering tires and related services to traditional and emerging manufacturers, companies focused on autonomous driving and fleet operators, Goodyear and Cooper said.

After the transaction is completed, expected in the second half of the year, the company will be based in Akron, Ohio, Goodyear’s home office right now, and maintain a presence in Findlay, Ohio, where Cooper is currently based.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on February 26, 2021

What Biden’s Minimum-Wage Plan Means for Restaurant Workers

By Eric Morath Heather Haddon | February 25, 2021

Topics: Direct Labor

Summary: While this article focuses on the implications for workers in the title, it also includes business owner viewpoints on the impact of the minimum wage proposal that is currently being considered by Congress. The proposal as initiated by the Biden Administration would replace a hodgepodge of state laws regarding minimum wages with, essentially, one U.S minimum wage of $15/hour after a phase-in period through 2025. In particular, many states, but not all 50, now allow a minimum wage lower than the current federal minimum of $7.25 per hour for tipped workers, called a sub-minimum wage. “Nearly all full-service restaurants surveyed by the National Restaurant Association said they would raise menu prices if tipped wages are eliminated and the minimum wage goes up…. Two-thirds said they would rely more on technology to reduce labor, and 88% said they would cut hours.”

Classroom Application: REMOVE BEFORE DISTRIBUTING TO STUDENTS FOR BEST DISCUSSION. The article includes the term “direct labor,” typically associated with labor cost of production. While a restaurant involves a production process, tipped wages likely would be associated with selling expense for server labor costs unless tips are shared among all staff, servers and kitchen staff. Questions ask students to think about a restaurant as a production process and to identify which income statement line items would be impacted by the change in minimum wage.

Questions:

  • Why can restaurant businesses pay workers less than other businesses such as retailers?
  • How do you think restaurant businesses could demonstrate that their wages comply with current state minimum wage laws?
  • What proposal to change minimum wages is currently being considered by the U.S. Congress?
  • What are the three components of product cost for a manufacturing operation?
  • Do you think that a restaurant is a manufacturing operation? Explain your answer.
  • Refer again to your answer to question 2 above. Would a change in the minimum wage affect a restaurant’s production cost or a part of its selling expenses? Explain your answer.

READ THE ARTICLE

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

 

"What Biden’s Minimum-Wage Plan Means for Restaurant Workers," by Eric Morath and Heather Haddon, The Wall Street Journal, February 25, 2021 ---
https://www.wsj.com/articles/what-president-bidens-minimum-wage-plan-means-for-restaurant-workers-11614254401

Employers say eliminating $2.13-an-hour subminimum wage for workers receiving tips could cost jobs and raise prices; plan’s advocates say it would provide consistent income

How restaurants pay workers would be upended by President Biden’s proposal to raise the minimum wage.

The plan, under consideration in Congress, would lift the federal minimum wage to $15 an hour from the current level of $7.25 an hour for all workers that has been in place since 2009. The proposal also would eliminate a subminimum wage of as little as $2.13 an hour for millions of workers such as servers or bartenders who receive tips. Both changes would be phased in over several years and largely eliminate a patchwork of state wage laws.

In most states, businesses can pay tipped workers less than others, so long as those employees earn at least the minimum wage after tips are added. Under the proposal, restaurants in 32 states could have increased direct labor costs of between $10 and $13 an hour, with businesses in several more states facing increases of $5 to $10 an hour. Seven states, including California, don’t have a subminimum wage for tipped workers.

 

Worker advocates say eliminating the tipped wage would mean servers and others would have more consistent income and wouldn’t potentially need to ask for more pay when tips fall short. The restaurant industry says the existing tip structure means many jobs already pay well above the minimum wage, and that the Biden plan would put jobs at risk while restaurants are still hurting from the pandemic.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on March 5, 2021

Coke, Whirlpool Keep Tax Court Losses Off the Books

By Richard Rubin Theo Francis | February 24, 2021

Topics: Tax Accounting, Contingency

Summary: Coca-Cola Co. , Whirlpool Corp. WHR 1.04% and Eaton Corp. ETN 0.02% have all lost to the Internal Revenue Service in the U.S. Tax Court over the past two years. But none of the companies has yet recognized the bulk of those tax expenses and liabilities in their publicly reported results. Coca-Cola has disclosed that total potential liability from its tax dispute with the Internal Revenue Service could reach $12 billion. The company lost its tax court case in November 202 but has so far recorded only $438 million as an accrued liability.

Classroom Application: The article may be used in a financial reporting class discussing contingent liabilities or income tax accounting. The article discusses the "more likely than not" requirement to accrue a liability in layman's terms and questions ask the students to identify professional financial reporting requirements behind those statements.

Questions:

  • Summarize the general concerns described in this article with respect to corporate financial statement disclosures.
  • According to the article, “…companies must conclude that their eventual victory is ‘more likely than not’ in order to avoid reporting an accrued liability and income tax expense in its financial statements. What area of accounting requirements establishes this threshold?
  • In cases in which a range of reported estimated liabilities is possible, how much must companies record as a liability under U.S. GAAP requirements? Do you think this requirement may impact the issues discussed in this article? Explain your answer.
  • Coca-Cola’s tax court loss stems from the worldwide locations in which it reports profits, much of it in foreign subsidiaries with low corporate tax rates. The tax case relates to the years 2007 to 2009. How could it be that the tax liability that might result relates to years after 2009?

READ THE ARTICLE

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

 

"Coke, Whirlpool Keep Tax Court Losses Off the Books By Richard Rubin Theo Francis | February 24, 2021," , The Wall Street Journal,  ---
https://www.wsj.com/articles/coke-whirlpool-keep-tax-court-losses-off-the-books-11614168007

After losing to the IRS, some companies delay recording the costs, confident they will eventually prevail

When court rulings and tax regulations go against them, companies have an effective way to minimize or defer the bottom-line costs. They don’t count them, and announce that they will beat the government in the future.

Coca-Cola Co. KO 1.70% Whirlpool Corp. WHR 4.57% and Eaton Corp. ETN 2.19% have all lost to the Internal Revenue Service in the U.S. Tax Court over the past two years. But none of the companies subtracted the bulk of those costs from their publicly reported results.

Instead, they analyzed the law and declared they are confident those losses will eventually be overturned. Coca-Cola, in particular, is gearing up for a contentious constitutional fight against the government, with $12 billion on the line.

Others—including Newell Brands Inc. NWL 2.84% and Maxim Integrated Products Inc. MXIM 2.47% —stand to lose millions under Treasury Department regulations issued in 2019, but say they remain confident the rules will eventually be thrown out and aren’t recording the costs.

“For them to say the tax authority has got it all wrong, that’s a pretty bold statement,” said Jack Ciesielski, an accounting expert and owner of R.G. Associates Inc., an investment research firm. The more conservative approach is to recognize the cost, note the legal dispute and reverse the cost later if the company prevails, he said.

In securities filings, the companies generally argue they have strong cases and sometimes that federal authorities followed improper procedure in adopting regulations. They also say they and their accountants are careful to avoid market and legal repercussions if they ultimately lose.

“There’s sufficient incentives there that exist that would prevent both the auditors and the corporation from being extremely aggressive,” said Erin Emily Henry, an accounting professor at the University of Arkansas. “Nobody wants the egg on their face or a potential lawsuit.”

The IRS, which doesn’t comment on pending litigation, doesn’t govern what companies tell their investors about those lawsuits. The Securities and Exchange Commission, which enforces corporate disclosure rules, declined to comment, as did the Financial Accounting Standards Board, which sets U.S. generally accepted accounting principles.

Determining whether the outcome of a tax dispute must be booked now, or can be postponed or ignored, is technical and subjective. If the company eventually loses beyond the point where it can appeal, it must absorb the costs.

Under U.S. accounting rules, companies must conclude that their eventual victory is “more likely than not.” That requires executives, lawyers, accountants and auditors to assess the strength of their legal case after a court loss.

“One man’s ‘more likely than not’ is another man’s ‘less than more likely than not,’” said Don Williamson, executive director of American University’s Kogod Tax Center.

Among the largest examples is Coca-Cola, which lost its Tax Court case in November. The company has enlisted former federal judge J. Michael Luttig, a leading conservative lawyer, and just added Harvard professor and liberal scholar Laurence Tribe.

The tax court determined that Coca-Cola packed too much profit into low-taxed foreign subsidiaries and too little in its higher-taxed U.S. parent.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on March 5, 2021

Target CFO Boosts Store Investments as Pandemic Lifts Sales

By Nina Trentmann | March 2, 2021

Topics: Managerial Accounting, Budgeting

Summary: Target Corp.’s chief financial officer is Michael Fiddelke. He took the CFO role in November 2019 after 17 years in a variety of Target departments. “Mr. Fiddelke said he gained deep insights working in different parts of the organization…At one point, during his time as a financial analyst for the company, he wanted to allocate less money toward store payrolls. Years later, when he worked in store operations and would meet with financial analysts, he saw the other side….’Thanks to that store payroll experience, I will never think of store payroll as just an expense,’ he said.”

Classroom Application: The article may be used in a managerial accounting course to discuss capital and operational budgeting from both financial and other perspectives.

Questions:

  • How has Target’s financial performance fared during the pandemic? Be specific about the financial assessment you make.
  • How does Target’s use of its store locations impact its performance? In your answer, consider the statement that “more than 95% of Target’s sales…in fiscal 2020 went through the stores.”
  • What does Target CFO Michael Fiddelke mean when he says that Target was wrong not to invest in digital sales methods until about a decade ago “because the margins didn’t look good”? In your answer, define the term “margins.”
  • What capital budget plan does Target now have for its store locations?

READ THE ARTICLE

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

 

"Target CFO Boosts Store Investments as Pandemic Lifts Sales," by Nina Trentmann, The Wall Street Journal, March 2, 2021 ---
https://www.wsj.com/articles/target-cfo-boosts-store-investments-as-pandemic-lifts-sales-11614725408

Michael Fiddelke, a 17-year veteran of the retailer, has been CFO since late 2019

Michael Fiddelke, the Target Corp. veteran who has been running the retailer’s finances since late 2019, is planning further investments in its stores to hold on to sales gains made during the pandemic.

The company will continue to invest in its stores, supply chain and fulfillment operations, Mr. Fiddelke said Tuesday, adding that Target plans to spend $4 billion annually over the next few years. That is up from $2.59 billion in fiscal 2020. Target wants to open 30 to 40 new stores a year and launch new distribution facilities in Delaware and Chicago, according to Mr. Fiddelke. It opened 30 new stores in 2020.

Minneapolis-based Target in 2017 chose to make its stores the core of its strategy, which means it ships its products to nearly 1,900 locations, where customers pick them up inside the bricks-and-mortar part of the business. The stores also serve as places for curbside pickup and as distribution centers for deliveries to peoples’ homes. “The store powers all of that,” Mr. Fiddelke said. More than 95% of Target’s sales totaling over $92 billion in fiscal 2020 went through the stores.

 

The coronavirus pandemic has accelerated the company’s plans, with same-day services growing by 235% to over $7 billion in sales during fiscal 2020. “We were fast-forwarding years in a matter of months,” Mr. Fiddelke said. Shipping from stores also took some pressure off Mr. Fiddelke and the company’s supply chain management team, as they were struggling to forecast customer demand. “The product that sits on the shelf can be picked up in the cart, put into a box or put into a trunk,” Mr. Fiddelke said.

The company is now restarting some refurbishments that were put on hold earlier in the pandemic. Target said it would remodel about 150 locations in 2021 after refurbishing 130 stores in 2020. The company plans to remodel more than 200 locations in 2022 and beyond.

Mr. Fiddelke has worked at Target for 17 years in a variety of departments outside of finance, including store operations, human resources and merchandising. “A lot of what I brought to this role was framed by these roles,” Mr. Fiddelke said about his current position as chief financial officer, which he took on in November 2019.

Mr. Fiddelke said he gained deep insights working in different parts of the organization, including how it feels to sit on the other side of the table, opposite the finance department. At one point, during his time as a financial analyst for the company, he wanted to allocate less money toward store payrolls. Years later, when he worked in store operations and would meet with financial analysts, he saw the other side.

“Thanks to that store payroll experience, I will never think of store payroll as just an expense,” he said. Target has been paying its store workers at least $15 an hour since the summer.

Mr. Fiddelke succeeded Cathy Smith, who served as Target CFO for over four years, and inherited a strong balance sheet, analysts said. The company on Tuesday reported net earnings of $4.37 billion for fiscal 2020, up 33.1% compared with the prior year period. Target held $8.51 billion in cash on the balance sheet as of Jan. 30, up from $2.58 billion on Feb. 1, 2020.

The company has learned a lot when it comes to e-commerce and online shopping, Mr. Fiddelke said. “If you go back a decade, we thought about digital wrong,” he said. “We didn’t invest enough because the margins didn’t look good,” he said.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on March 5, 2021

German Regulator Steps Down, EY Changes Leadership Following Wirecard Scandal

By Nina Trentmann | February 25, 2021

Topics: Auditing, Accounting Fraud

Summary: “Payment processing company Wirecard was the darling of Germany’s fintech industry until auditors uncovered a $2 billion hole in its accounting.” The article describing this company’s downfall to insolvency was covered in this review in June 2020 and is available at https://www.wsj.com/articles/wirecard-files-for-insolvency-after-revealing-accounting-hole-11593075223 The scandal has left a trail of changes in its wake among German financial reporting executives at EY and in regulatory roles including the partner in charge of EY’s German firm and the president of Germany’s Financial Reporting Enforcement Panel.

Classroom Application: The article may be used in an international auditing or auditing class discussing the impact of fraud on auditors and regulators in a setting outside the U.S.

Questions:

  • Summarize the Wirecard AG scandal. You may refer to the related article linked in this article, available directly at https://www.wsj.com/articles/wirecard-files-for-insolvency-after-revealing-accounting-hole-11593075223
  • What accounting and auditing executives have lost their jobs because of the Wirecard AG scandal?
  • What are the features of a new law proposed in Germany to strengthen financial markets?
  • Do you think that awareness of these international auditing and fraudulent accounting concerns are important to know about even if you only plan to practice accounting in the United States? Explain your answer.

READ THE ARTICLE

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

 

"German Regulator Steps Down, EY Changes Leadership Following Wirecard Scandal," by Nina Trentmann, The Wall Street Journal, February 25, 2021 ---
https://www.wsj.com/articles/german-regulator-steps-down-ey-changes-leadership-following-wirecard-scandal-11614293542

The once-high flying electronic payments company disclosed a $2 billion accounting hole

The Wirecard AG scandal is leading to more exits, with the head of Germany’s accounting regulator stepping down and auditor Ernst & Young naming a new leadership team in the country.

Edgar Ernst, president since 2011 of Germany’s Financial Reporting Enforcement Panel, said he would step down from his role at the end of the year. The change at the top of the organization, which is a private-sector body that does routine checks of companies’ financial filings, will help it move forward from a public debate around Mr. Ernst’s supervisory board mandates, said Rolf Pohlig, chairman of the board.

Those mandates, at companies including wholesaler Metro AG and travel giant TUI AG , have come under increased scrutiny as the FREP and other regulatory bodies are facing questions about their oversight of Wirecard.

The once-high flying electronic payments company in June disclosed a $2 billion accounting hole, stating that the money missing from its balance sheet probably doesn’t exist. This confirmed earlier reports by banks that said they never held the funds, and triggered various investigations into the company and several German watchdogs. Senior executives including Chief Executive Markus Braun left the business.

 

Meanwhile, Wirecard’s longtime auditor EY on Thursday said it appointed two new executives to head up its German business. Hubert Barth, who led the professional services firm in Germany since 2016, will transition to a European role, EY said, but didn’t specify further. The company named Henrik Ahlers, until now the managing partner for tax for Germany, Switzerland and Austria, as well as Jean-Yves Jégourel, global assurance vice chair, to take over from Mr. Barth.

EY also said it launched a new quality improvement program and established an independent expert commission led by former German finance minister Theo Waigel to help revamp its work. “EY is aware of the loss of trust caused by the Wirecard case,” the company said in a statement.

It couldn’t be learned who might succeed Mr. Ernst at the helm of the FREP, as it didn’t immediately respond to a request for comment. The organization is facing significant changes after the country’s justice ministry last year canceled its contract with the FREP, effective Dec. 31, 2021.

There is a continuing debate about whether the ministry will appoint another body to take over FREP’s responsibilities or not. The Berlin-based organization was set up in 2004 in response to various accounting scandals and fraud cases, including at now-defunct Enron Corp., but has suffered from staffing shortages and other constraints.

The German government in December proposed a new law aimed at strengthening financial markets. The legislation suggests giving companies’ supervisory boards enhanced rights, strengthening auditor independence and overhauling BaFin, the country’s market watchdog, whose president was dismissed in January. BaFin employees would be barred from trading financial instruments, the draft said.

Under the proposal, companies also would be obliged to rotate auditors every 10 years. Professional-services firms would have to separate their auditing and consulting businesses, mirroring a similar proposal by U.K. regulators. Auditors would bear extended liability and face harsher penalties in case of misconduct, according to the draft legislation.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on March 12, 2021

Finance Chiefs Look to Price Increases to Offset Higher Commodities Costs

By Kristin Broughton | March 8, 2021

Topics: Managerial Accounting, Product Costs

Summary: “Consumers could expect to see prices on goods from mattresses to storage containers increase as finance chiefs try to offset higher costs for raw materials.” The article discusses factors leading to cost increases for polypropylene, a type of plastic; the implications facing those who sells products made from polypropylene; and other cost concerns such as shipping. Companies, and their chief financial officers, discussed in the article include the Container Store group Inc. and other entities selling products made from this plastic.

Classroom Application: The article may be used in a managerial accounting course to discuss product cost components and the challenges facing companies to make decisions during cost increases. The article also could be used therefore when discussing standard costing.

Questions:

  • What are the three components of a product’s cost?
  • Which product cost component is discussed in this article as increasing?
  • What factors have led to this product cost increase? Name all that you find discussed in the article.
  • What are “margins”? How would the cost increases discussed in the article negatively affect margins?
  • What are the challenges facing managements in deciding whether to increase selling prices in response to cost increases?

READ THE ARTICLE

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

 

"Finance Chiefs Look to Price Increases to Offset Higher Commodities Costs," by Kristin Broughton, The Wall Street Journal, March 8, 2021 ---
https://www.wsj.com/articles/finance-chiefs-look-to-price-increases-to-offset-higher-commodities-costs-11615199401

Consumers could pay more for goods as chemical and raw-material prices put pressure on companies’ bottom lines

Consumers could expect to see prices on goods from mattresses to storage containers increase as finance chiefs try to offset higher costs for raw materials.

Companies across a range of industries are grappling with higher prices for commodities such as lumber and steel, which are rising in response to greater demand from consumers who are spending more money for appliances, cars or to remodel their homes. Freight and shipping costs also have increased due to surging online orders and shortages in shipping containers.

Costs for some petrochemicals, which are used for consumer goods such as medical equipment and mattress foam, began to increase in late 2020 and went higher after producers temporarily shut down operations during the recent winter freeze in Texas. Prices for polypropylene, a type of plastic, have surged 22% over the past month in the spot market, to $2,398 per metric ton as of March 5, according to S&P Global Platts, an energy market data firm.

Jeff Miller, the chief financial officer of Container Store Group Inc. which sells plastic storage boxes and other home-organization tools, said the rising cost of polypropylene could put pressure on the retailer’s gross margin. That figure on a consolidated basis fell 90 basis points to 57.9% in the third quarter ended Dec. 26 compared with a year earlier, due in part to higher shipping costs. Sales rose 20% during the third quarter to $275.5 million, driven by the home-improvement boom spurred by the pandemic.

Container Store is weighing whether to raise prices on some of its products, Mr. Miller said. “It’s always on the table,” Mr. Miller said. The company said it could also negotiate with its vendors or adjust its sourcing to compensate for the higher commodity costs.

Sleep Number Corp. , the Minneapolis-based mattress seller, has already decided to increase prices this year to offset the higher cost of certain chemicals, finance chief David Callen said. “We have not put them in place just yet, but we will definitely be doing that,” Mr. Callen said.

The company has contracts in place that delay the timing of when its foam suppliers can pass on higher input prices. But the company nonetheless expects to feel an impact, Mr. Callen said. Sleep Number declined to disclose additional details about its plans to raise prices.

The company said it raised prices in the past, often by low single-digit percentage points. Sleep Number’s beds start at about $1,000 and can cost several thousand dollars. The company’s net sales during the fourth quarter ended Jan. 2 rose to $567.9 million, up 29% from the year earlier period.

La-Z-Boy Inc., the Monroe, Mich.-based furniture company, began raising prices by low- to mid-single digit percentages on new furniture orders in October, said CFO Melinda Whittington. Ms. Whittington, who will take over as chief executive in April, said the increases affected all products and were made in response to higher prices on chemicals, wood and steel.

The furniture maker is currently working through a backlog of orders, with lead times ranging from five to nine months, up from several weeks before the pandemic. That means La-Z-Boy is delivering orders that were placed when sale prices were lower, she said. The company, which expects to benefit from higher prices in the current quarter, generated $470.2 million in sales in the third quarter ended Jan. 23, down 1% from a year earlier.

Some raw material costs could remain elevated this year. The price of polypropylene for example is expected to drop from its recent peaks as more producers reopen their plants, said Jennifer Van Dinter, head of integrated analytics at S&P Global Platts.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on March 12, 2021

Companies Wrote Down Goodwill in Spades Last Year as Pandemic Took a Toll

By Mark Maurer | March 3, 2021

Topics: Goodwill Impairment Charge, Coronavirus

Summary: “Economic recessions historically lead to an increase in goodwill impairments. Most recently, business across many industries slowed during the pandemic. U.S. gross domestic product declined by 2.3% in 2020.” As a result, record amounts of goodwill were written off in 2020. The energy producers wrote down more than any other industry But AT&T was among the companies recording the largest write-offs because of its investment in direct TV—consumers have been getting out of pay-TV and accelerated that trend during the pandemic.

Classroom Application: The article may be used in a class covering business combinations; it describes the accounting process for taking goodwill impairments very well in general business terms.

Questions:

  • How significant are goodwill impairments that were recorded in 2020? Describe how you assess this significance.
  • As described in the article, what are the steps for generating and testing goodwill for impairment?
  • What is an impairment charge?
  • Do companies record impairment charges on their balance sheets? Explain your answer.
  • What accounting standard change to goodwill accounting is currently being proposed by the FASB?

READ THE ARTICLE

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

 

"Companies Wrote Down Goodwill in Spades Last Year as Pandemic Took a Toll," by Mark Maurer, The Wall Street Journal,  March 3, 2021 ---
https://www.wsj.com/articles/companies-wrote-down-goodwill-in-spades-last-year-as-the-pandemic-took-a-toll-11614780000

In data available thus far, U.S. public firms took $143 billion in impairments in 2020, the most in at least a decade, according to Duff & Phelps

U.S. public companies last year wrote down the largest amount of goodwill in more than a decade as the value of certain assets declined during the Covid-19 pandemic.

Companies report goodwill on their balance sheets when they buy a business for more than the value of its net assets. The acquiring business must measure the fair value of its reporting units annually. If that figure is less than the amount recorded on the books, the company reduces the value of the goodwill.

Goodwill impairments for listed U.S. firms surpassed $143 billion in 2020 according to data received by Feb. 28 of this year, said Duff & Phelps LLC, a valuation firm. That preliminary figure, which could change as companies continue to report last year’s results, is more than double that of 2019, when impairments totaled $71 billion. It is also about 3.3 times higher than the annual average of the past 10 years, according to an analysis of the Duff & Phelps data. The company tracked more than 8,800 businesses for its study.

Economic recessions historically lead to an increase in goodwill impairments. Most recently, business across many industries slowed during the pandemic. U.S. gross domestic product declined by 2.3% in 2020.

When a public company records an impairment charge on its balance sheets, it tells investors that a transaction didn’t go as well as expected. “All of a sudden, the economy enters into recession and a company has a very hard time justifying the value of its goodwill,” said Feng Gu, professor of accounting and law at the State University of New York at Buffalo.

Energy companies wrote down more goodwill than businesses in many other industries due to the sharp drop in oil prices caused by the pandemic. So far, the largest impairment in 2020 was Baker Hughes Co. ’s $14.77 billion write-down, which the oil-field-services company reported last April. The goodwill is associated with an oil-field services and equipment business, most of which Baker Hughes acquired in its merger with General Electric Co. ’s oil and gas division in 2017. A spokesman declined to comment further.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on March 12, 2021

Roblox Isn’t Priced for Playing Around

By Dan Gallagher | March 10, 2021

Topics: Initial Public Offering (IPO), Common Stock

Summary: Roblox has undertaken its direct listing on the New York Stock Exchange (NYSE) on Wednesday, March 10, 2021, having delayed from its original plan for December 2020. The stock was “up nearly 8% over its opening price…Roblox[‘s] challenge will be living up to what is now the most-expensive valuation by far for a videogame publisher.” The company’s customers are young—2/3 of its user base are under 14 years of age. One factor investors consider in its valuation is the probability that the company can develop a product popular with older age groups.

Classroom Application: The article may be used when discussing common stock issuances and valuation.

Questions:

  • What is an initial public offering of stock (IPO)?
  • What is a “direct listing” and how does it compare to a more traditional approach for an IPO?
  • Why is a valuation necessary to conduct an initial public offering or for an investor to decide to acquire shares of Roblox?
  • What factors are used to assess the valuation of Roblox in this article? Name all that you can identify in the article.
  • What are “bookings” as opposed to revenue? Why does using bookings in assessing stock price make the Roblox stock price seem more reasonable/

READ THE ARTICLE

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

 

"Roblox Isn’t Priced for Playing Around," by Dan Gallagher, The Wall Street Journal, March 10, 2021 ---
https://www.wsj.com/articles/roblox-isnt-priced-for-playing-around-11615414946

Strong debut lands a rich multiple for videogame platform

Having delayed its direct listing from December, Roblox still roared out of the gates Wednesday. By the close of trading, the stock had jumped 54% above the somewhat arbitrary reference price set by the New York Stock Exchange. It was also up nearly 8% over its opening price. The last four major companies to try a direct listing— Slack, Spotify, Palantir and Asana —actually averaged a 2% decline on their first trading days, relative to opening price.

The last three have managed significant gains since. Slack is being acquired by Salesforce. For Roblox, the challenge will be living up to what is now the most-expensive valuation by far for a videogame publisher. Its closing price values the company at around 25 times the midpoint of its projected revenue for the current year. Activision Blizzard, ATVI -1.22% Electronic Arts, Take-Two Interactive, TTWO -1.14% Zynga and the newly public Playtika currently average multiples of a little under 6 times forward sales, according to FactSet.

 

That said, Roblox’s unique business model should justify a premium. The company provides a platform for its users to design and run their own games, generating revenue through the sale of so-called Robux for players to use as in-game currency. That frees Roblox from the hit-and-miss cyclicality common in the videogame industry. And investors have taken a shine lately to alternative ways to play in the videogame space. Unity Software, which provides tools and services primarily to videogame developers, has jumped 46% since its first trading day last year and is now valued around 27 times forward sales.

Roblox has been generating positive free cash flow consistently—even before the pandemic boosted its business last year. And the valuation looks a bit more reasonable if measured against the company’s bookings, which are projected to exceed $2 billion this year—about 40% ahead of projected revenue.

Roblox’s main challenge might be showing that it can expand beyond its core audience; about two-thirds of its user base is under the age of 14. Respondents to a recent investor survey by Bernstein Research put a 43% probability on Roblox’s being able to achieve a similar level of market penetration with older age groups. At its current valuation, Roblox can’t afford to be stuck at the kids’ table.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on March 19, 2021

Companies Still Working on Libor Changeover

By Anna Hirtenstein Julia-Ambra Verlaine Mark Maurer | March 12, 2021

Topics: Interest Rates, Bond

Summary: The London interbank offered rate (LIBOR) is integral to many business financing transactions as a benchmark to determine the interest rate paid by borrowers. The rate will no longer be published for many currencies by December and “remaining dollar rates will end after June 30, 2023.” The rate met its demise due to scandals involving rate setting. “Jason Winkler, Motorola’s finance chief, said the communications-equipment provider plans to use the replacement preferred by the Federal Reserve—the Secured Overnight Financing Rate, or SOFR.” The company hasn’t yet made any changes because no finance contracts currently need to be negotiated.

Classroom Application: The article may be used when covering bonds and other long term debt in a financial reporting class.

Questions:

  • What is the London-Interbank offered rate (LIBOR)?
  • In what way(s) is the LIBOR used in finance?
  • What will happen to LIBOR by December 31, 2021?
  • What challenges do CFOs face in the process of changing away from using LIBOR?

READ THE ARTICLE

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

 

"Companies Still Working on Libor Changeover," by Anna Hirtenstein, Julia-Ambra Verlaine, and Mark Maurer, The Wall Street Journal, March 12, 2021 ---
https://www.wsj.com/articles/companies-still-working-on-libor-changeover-11615545001

Regulators press firms to drop borrowing benchmark, while many weigh its replacement or discuss timing, financial implications

Regulators are pressuring Wall Street to do away with the London interbank offered rate by year-end. Companies are still making the switch.

Chief financial officers at major U.S. companies such as Motorola Solutions Inc. and Ralph Lauren Corp. said they are working on issues including choosing between alternatives to the troubled borrowing benchmark, used for decades to help set rates on corporate debt, and discussing the timing and financial implications.

Jason Winkler, Motorola’s finance chief, said the communications-equipment provider plans to use the replacement preferred by the Federal Reserve—the Secured Overnight Financing Rate, or SOFR. But without any immediate financial arrangements in need of adjustment, the company was still gauging when to transition to the new rate.

“We’re working through it like many other companies and evaluating our choices,” Mr. Winkler said.

Libor is a key reference rate for corporate borrowing, underpinning trillions of dollars in financial contracts ranging from loans to interest-rate swaps. But financial firms and regulators world-wide are scheduled to abandon the rate at the end of this year after it fell into disrepute a decade ago following a manipulation scandal.

The Fed warned banks Tuesday that they could face regulatory consequences if robust plans aren’t in place to move away from the benchmark before Dec. 31. That is when it expires for some shorter-dated dollar rates.

The U.K. regulator in charge of overseeing Libor, the Financial Conduct Authority, said March 5 that Libor would cease for sterling, the euro, Swiss franc and yen at the end of the year, building on its mandate that market participants transition to other benchmark rates. The remaining dollar rates will end after June 30, 2023.

The use of Libor is still strong in the futures and options markets, data from CME Group showed. Daily trading volume reached the highest level for Eurodollar futures, which use Libor as a benchmark, since 2014 on Feb. 25 at 10.7 million contracts and averaged three million daily for the month. By comparison, average daily volume for SOFR futures in February was 122,872 contracts.

“Examiners should consider issuing supervisory findings and other supervisory actions if a firm is not ready to stop issuing Libor-based contracts by Dec. 31, 2021,” said Michael Gibson, a director in the division of supervision and regulation at the Fed.

CFOs said they have been examining contracts linked to Libor and are discussing replacement options with lenders who bankroll them to fund operations or other expenses. Many corporations’ credit lines and loans have interest rates based off Libor. If they don’t change over, or otherwise prepare, legal fallbacks in their contracts could raise their debt payments.

Banks have put resources and cash into programs to transition to SOFR, which is based on the cost of transactions in the market where financial companies borrow cash overnight using U.S. government debt as collateral. That was developed by a committee of major banks, insurers and asset managers that has joined the Fed in rallying users of Libor to adopt SOFR.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on March 19, 2021

IRS Delays Tax-Filing Deadline Until Mid-May

By Richard Rubin | March 17, 2021

Topics: Individual Income Tax

Summary: “The Internal Revenue Service delayed the main April 15 tax-filing and payment deadlines for individuals until May 17…. The move comes after lawmakers and accountants urged the government to allow more time to complete 2020 tax returns and adjust to tax-law changes implemented during the pandemic.” As reported in a related article (available at https://www.wsj.com/articles/heres-how-you-can-still-save-on-2020-taxes-with-ira-contributions-11614909575), IRS Commissioner Charles Rettig had wanted to keep the typical April 15 deadline.

Classroom Application: The article may be used in an individual income tax class.

Questions:

  • As described in the article, what was the most recent change in tax law affecting amounts reported on 2020 individual income tax returns?
  • What steps must tax preparers undertake to cope with the challenges of both the coronavirus pandemic itself and the tax law changes that have been implemented for 2020 tax returns? List all that you find in the article. You may include some that you think of yourself as well.
  • Some argue that the one month extension of the deadline for federal individual income tax filings is not sufficient. Why?

READ THE ARTICLE

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

 

"IRS Delays Tax-Filing Deadline Until Mid-May," by Richard Rubin, The Wall Street Journal, March 17, 2021 ---
https://www.wsj.com/articles/irs-said-to-delay-tax-filing-deadline-until-mid-may-11616005038

Extension will give taxpayers more time to grapple with late law changes, pandemic

WASHINGTON—The Internal Revenue Service delayed the main April 15 tax-filing and payment deadlines for individuals until May 17, giving taxpayers and preparers a bit of breathing room in an unusually complicated tax season.

The move comes after lawmakers and accountants urged the government to allow more time to complete 2020 tax returns and adjust to tax-law changes implemented during the pandemic.

The tax-filing season started later than usual and has been challenging for taxpayers dealing with the effects of last year’s economic disruptions and late changes to the tax law. Typical in-person assistance, which can be particularly valuable for low-income filers, has been more complicated this year as well.

The automatic extension applies to individual returns and payments for 2020 that are due on April 15; they will be extended to May 17 without penalties and interest. It doesn’t apply to 2021 estimated-tax payments due on April 15, the IRS said late Wednesday. Many questions remain unanswered, including whether states will follow suit and extend their income-tax deadlines.

The IRS, seeking a return to something resembling its normal schedule after 2020, had been reluctant to change the deadline. It delayed the start of the filing season to Feb. 12 from the typical late January date so it had time to implement tax-law changes that Congress wrote in December. Calls for another delay came this month as Congress changed 2020 tax law again.

Notably, the coronavirus relief package that President Biden signed into law last week retroactively changed the tax rules for unemployment benefits received in 2020, making the first $10,200 exempt from taxation for tax filers making less than $150,000.

 

“We are gratified that the IRS has recognized the need and heeded our calls for additional time, and while we are pleased with this 30-day extension, we will continue to monitor developments during this hectic filing season,” Reps. Richard Neal (D., Mass.) and Bill Pascrell (D., N.J.) said in a statement.

Bloomberg News first reported the delay. The IRS will release further details in the coming days.

“This continues to be a tough time for many people, and the IRS wants to continue to do everything possible to help taxpayers navigate the unusual circumstances related to the pandemic, while also working on important tax administration responsibilities,” IRS Commissioner Charles Rettig said in a statement.

Last week’s late change in the tax law compounded difficulties facing tax preparers, taxpayers and the IRS, which is still working through a backlog of 2019 tax returns. The government has received 18% fewer tax returns through early March this year compared with 2020.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on March 19, 2021

Minority-Owned Investment Banks Are Underwriting More Corporate Bond Offerings

By Kristin Broughton | March 15, 2021

Topics: Bonds, ESG Reporting

Summary: The year 2020 produced records for total bond offerings. Another record reached was an all-time high for the percent of investment-grade debt issuances involving investment banks that are owned or controlled by minority individuals, women, or veterans. The percentage rose to 29% from 22% 10 years ago. The article focuses on factors considered by chief financial officers (CFOs) in deciding on which investment firms to use in conducting a bond issuance. It also discusses the investor base and other business benefits that minority-, women-, and veteran-owned investment banks can provide.

Classroom Application: The article may be used when discussing bond offerings in a financial reporting class or environmental, social, and governance reporting in a managerial or financial accounting class.

Questions:

  • Describe the process for a corporation to issue bonds to the public.
  • Why have corporations used investment banks owned by minority individuals, women, or veterans more frequently in recent years than in the past?
  • What factor or factors do chief financial officers (CFOs) consider in deciding which investment banks to hire in conducting a bond offering to the public?

READ THE ARTICLE

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

 

"Minority-Owned Investment Banks Are Underwriting More Corporate Bond Offerings,' by Kristin Broughton, The Wall Street Journal, March 15, 2021 ---
https://www.wsj.com/articles/minority-owned-investment-banks-are-underwriting-more-corporate-bond-offerings-11615800601

Participation in debt offerings by firms with diverse ownership was at an all-time high last year, according to Refinitiv

Finance chiefs are hiring minority-owned investment banks as underwriters on their corporate bond offerings more frequently, aiming to attract new investors and demonstrate their commitment to diversity.

The 10 largest investment banks by deal volume that are owned by minorities, women or veterans took part in 29% of debt sales by U.S. investment-grade companies last year, according to data provider Refinitiv, raising $814.2 billion during a record year for bond offerings overall.

That participation level for firms with diverse ownership was an all-time high and up from 22% of debt sales with proceeds of $211.5 billion a decade ago, according to Refinitiv.

So far in 2021, the top 10 firms with diverse owners have taken part in bond offerings that raised $136.2 billion, accounting for 43% of proceeds in the U.S. investment-grade market, according to Refinitiv. In the same period in 2020, such firms took part in debt sales that raised $95.1 billion, accounting for 33% of the market, Refinitiv said.

The bond sales come as finance departments play a more prominent role in their companies’ diversity efforts following protests over racial injustice and the killing of George Floyd in 2020. Some businesses, such as Netflix Inc. and PayPal Holdings Inc. pledged to move a portion of their corporate deposits to Black-owned banks.

Allstate Corp. , a Northbrook, Ill.-based insurance company, in November hired investment banks owned by minorities, women or veterans as underwriters on a $1.2 billion bond sale to finance a portion of its acquisition of rival National General Holdings Corp., with Loop Capital Markets LLC, Siebert Williams Shank & Co. LLC, Samuel A. Ramirez & Co. and Academy Securities Inc. named lead underwriters. Some of the firms picked as leads previously worked on Allstate’s debt and equity deals, but had never been offered a leading role, said Mario Rizzo, the company’s chief financial officer. “What changed was, I think, really the direct result of events of last summer,” he said, referring to the protests over racial injustice.

Allstate previously hadn’t hired minority-owned firms to lead its bond offerings because it viewed them as higher risk since they didn’t have the same level of experience on large deals as the big banks, according to Mr. Rizzo. It also simply hadn’t spent time during previous deals questioning the matter, he said.

But the protests, along with a companywide diversity push, prompted Allstate to use its latest bond offering to showcase such firms’ capabilities, Mr. Rizzo said. It also reviewed previous deals at other companies where minority-owned firms generally played a leading role. “They were always kind of chaperoned by another larger institution, and we said we wanted to do something different,” he said.

Finance chiefs and corporate treasurers usually consider several factors in deciding which firms to hire as underwriters on bond sales. Among them: whether the company has an existing relationship with an investment bank, or wants to give a bank an opportunity to earn underwriting fees after providing less prominent services, such as lending or handling share repurchases. Big banks like JPMorgan Chase & Co. and Bank of America Corp. dominate the debt capital markets.

The firms that led the Allstate transaction said they have seen an uptick in interest from potential new corporate clients in the months since the deal closed. The transaction helped confront companies’ perceptions that smaller firms lack the capabilities to execute large transactions on their own, they said. Some view their competitive edge as complementing the services of big banks.

“Where our value comes in is finding smaller, midtier investors that we can reach out to and build relationships with,” said Jonathan Levin, head of corporate finance at Siebert Williams Shank. He said his firm works with institutional investors of all sizes, including many small and minority-owned investment managers with under $10 billion in assets under management.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on March 26, 2021

U.K. Mulls Capping Number of Audits Big Four Firms Can Do

By Nina Trentmann | March 18, 2021

Topics: Auditing Services, International

Summary: “The U.K. government is seeking feedback on a range of proposals to overhaul the country’s audit sector following a series of corporate scandals as well as similar regulatory efforts in Germany.” Proposals will be open for comment for 16 weeks and include elements to increase competition for audits of the largest U.K. companies by smaller audit firms.

Classroom Application: The article may be used in an auditing class or an international accounting or auditing class.

Questions:

  • Why is the U.K. government considering “overhauling the country’s audit sector”?
  • What audit practice changes are being considered by the U.K. government?
  • How do you think these proposed changes will impact the strength of U.K. audit firm practices?
  • Suppose you were going to work for one of the public accounting firms in the U.K., either the Big Four or smaller. State your choice and then discuss whether you think the developments in this article could impact your career.

READ THE ARTICLE

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

 

"U.K. Mulls Capping Number of Audits Big Four Firms Can Do," by Nina Trentmann, The Wall Street Journal, March 18, 2021 ---
https://www.wsj.com/articles/u-k-mulls-capping-number-of-audits-big-four-firms-can-do-11616059801

Government is inviting comment from business and the public on revamping audit regulation in Britain

The U.K. government is seeking feedback on a range of proposals to overhaul the country’s audit sector following a series of corporate scandals as well as similar regulatory efforts in Germany.

The government said on Thursday it plans to reduce a general overreliance on Big Four firms Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers by forcing companies to employ a smaller audit firm to conduct part of their annual audit.

The Big Four also could face a cap on the number of companies in the FTSE 350 Index they can audit if competition doesn’t pick up, the release by the Department for Business, Energy and Industrial Strategy said.

Other structural changes, for example, an operational split between the audit and nonaudit business of professional-services firms—first suggested by a U.K. regulator in 2019—will fall into the remit of a new oversight body called the Audit, Reporting and Governance Authority. The ARGA, which would have responsibility for large listed as well as privately owned businesses, would have stronger powers to enforce audit standards, including the ability to order companies to redo their financial accounts.

Thursday’s proposals come after several reviews and studies about the functioning of the U.K. audit sector, triggered by a series of corporate failures.

“It is clear from large-scale collapses like Thomas Cook, Carillion and BHS [British Home Stores] that Britain’s audit regime needs to be modernized with a package of sensible, proportionate reforms,” Business Secretary Kwasi Kwarteng said, according to the release.

In Germany, lawmakers are currently discussing whether to give companies’ supervisory boards enhanced rights, strengthen auditor independence and overhaul BaFin, the country’s market watchdog, after last year’s Wirecard AG scandal.

Under the proposals, German companies would be forced to rotate auditors every 10 years. Professional-services firms would have to separate their auditing and consulting businesses, mirroring the U.K. proposal. Auditors would bear extended liability and face harsher penalties in cases of misconduct, according to the German draft legislation.

The U.K. government, which hasn’t introduced a legislative proposal yet, also is readying new reporting requirements for auditors and company directors around detecting and preventing fraud. Companies would have to add clauses to executive contracts that would require bonuses be returned in the event of failures up to two years after any award was made. Large companies would be required to hold off on paying dividends and bonuses when at risk of insolvency, the paper said.

Directors would publish resilience statements describing how their company is navigating short- and long-term risks, including the fallout of climate change, the government said. Going forward, auditors would be able to measure companies’ nonfinancial performance in areas such as climate-protection targets, the release said.

Deloitte, E&Y, KPMG and PwC said they welcomed the government consultation, which will last 16 weeks. The comment period allows businesses and the public to provide their views on issues such as whether shareholders should vote on companies’ audit policies or whether to introduce a new set of enforceable audit principles.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on March 26, 2021

Covid-19 Relief Law Gives Companies More Time to Fund Pensions

By Mark Maurer | March 23, 2021

Topics: Pension Funds, Coronavirus

Summary: The new Covid-19 relief package just signed into law will help companies with defined-benefit pension plans. The plan extends the time from seven years to 15 years over which current plan deficits must be funded. The law assists “struggling multiemployer pensions, which are jointly run by unions and companies. The law creates a more predictable and favorable basis for measuring the liabilities that ultimately determine the funding obligation….” The stock market boom has left many companies’ pension plans in a healthier position. “The funding level of single-employer plans sponsored by S&P 500 companies rose roughly 4.7 percentage points to 91.5% at the end of 2020, compared with the previous year….The funded status has since climbed to 95.3% as of Feb. 28.” Some companies are winding down pensions so won’t use the new flexibility available under the relief plan. Contributing less now simply extends the gap between assets available and funding required to terminate them.

Classroom Application: The article may be used when discussing pension plans accounting an advanced financial reporting class. The article focuses on federal pension funding requirements and one question ensures that students understand the difference between funding and financial reporting requirements.

Questions:

  • What laws establish funding requirements for U.S. pension plans? Cite your source for this answer whether from your textbook or elsewhere.
  • Do the pension funding requirements establish the financial reporting requirements for these plans by plan sponsors? Explain your answer and cite authoritative accounting literature.
  • In which industries will companies be most likely to adjust their pension funding requirements under this new law?
  • Why do some companies’ chief financial officers think they may not take advantage of this change in funding requirements?

READ THE ARTICLE

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

 

"Covid-19 Relief Law Gives Companies More Time to Fund Pensions," by Mark Maurer, The Wall Street Journal,  March 23, 2021 ---
https://www.wsj.com/articles/covid-19-relief-law-gives-companies-more-time-to-fund-pensions-11616491801

Single-employer plan sponsors will have 15 years—up from seven now—to cover pension deficits, and flexibility in how money earmarked for 2019 and 2020 pension contributions can be used

Finance chiefs will get more time to cover their companies’ pension deficits and more flexibility with the cash they have put into retirement plans as part of the new Covid-19 aid package.

Market disruptions caused by the pandemic and near-zero interest rates have made it harder for companies to manage their pension obligations, especially plans sponsored by a single employer. Low interest rates contribute to higher liabilities, increasing the amount of funding that companies need to set aside for pension obligations.

Single-employer plans often promise to pay out fixed sums to retirees, sometimes over several decades, similar to other defined-benefit plans. More than 20,000 U.S. companies offer these single-employer plans, according to consulting firm Mercer LLC.

Many of these plans, which are largely underfunded, have fared well with the rise in the stock market over the past few months. The funding level of single-employer plans sponsored by S&P 500 companies rose roughly 4.7 percentage points to 91.5% at the end of 2020, compared with the previous year, professional-services firm Aon PLC said. The funded status has since climbed to 95.3% as of Feb. 28. The estimated aggregate deficit of single-employer pensions sponsored by S&P 500 companies was $102.1 billion as of Feb. 28, tumbling 72.8% from the prior year, Aon said.

 

But as interest rates are expected to remain low for a while, companies need long-term support to continue making contributions to their plans and to cover any potential future market volatility or cash crunch, advisers say.

The $1.9 trillion aid package that President Biden signed into law earlier this month helps sponsors of single-employer plans hold on to cash and delay paying off any deficit in their plan over a 15-year period vs. the current seven-year period. It also set aside about $86 billion for struggling multiemployer pensions, which are jointly run by unions and companies.

The law creates a more predictable and favorable basis for measuring the liabilities that ultimately determine the funding obligation, said Jonathan Price, a senior vice president at the Segal Group Inc., an employee-benefits consulting firm.

Companies can use as a minimum, a corporate bond yield of roughly 5%, to determine the value of their pension liabilities. Before the law, there was no such minimum. The floor rate, which is higher than the current market rate, is expected to reduce short-term contributions that companies need to make for their plan.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on March 26, 2021

Why Finance Executives Rely on Supply-Chain Finance: A Guide to the Financing Tool

By Mark Maurer and Kristin Broughton | March 22, 2021

Topics: Disclosure, Supply Chains, Accounts Payable

Summary: In supply-chain finance, a bank pays its customer’s vendor, but the customer (debtor) pays the bank at a later due date. The early payment is made at a discounted amount, such as happens when companies offer discounts to encourage early payments. Banks keep the discount difference when they are repaid the full amount owed by the debtor. The system allows debtors to extend repayment terms without requesting an extension of terms directly from the vendor. As described in the article “large manufacturers, such as airplane manufacturer Boeing Co., and other global companies, including soft drinks producer Keurig Dr Pepper Inc., are avid users of supply-chain financing to extend payment terms. But there tends to be a barrier to entry for some businesses, especially those with weaker credit ratings.”

Classroom Application: The article may be used in a managerial accounting class or in a financial reporting class discussing disclosure requirements. There has been limited disclosure by companies about their use of this tool, but the recent Greensill Capital insolvency filing, linked in the article and in questions, has led to concerns about the lack of disclosure.

Questions:

  • What types of entities provide supply chain financing?
  • Summarize your understanding of how supply chain financing operates.
  • What is Greensill Capital? What problem developed at Greensill Capital? You may refer to the related article linked in the second paragraph or available directly at https://www.wsj.com/articles/greensill-capital-tumbles-into-insolvency-spreading-financial-pain-11615216346
  • How does the Greensill Capital problem lead to questions about disclosure by companies using this tool?
  • What advantages do chief financial officers (CFOs) cite as reasons for using supply chain finance?
  • Refer to the question above. Which of these are operational advantages and which are financial reporting advantages?

READ THE ARTICLE

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

 

"Why Finance Executives Rely on Supply-Chain Finance: A Guide to the Financing Tool," by Mark Maurer and Kristin Broughton, The Wall Street Journal, March 22, 2021 ---
https://www.wsj.com/articles/why-finance-executives-rely-on-supply-chain-finance-a-guide-to-the-financing-tool-11614820691

Companies are setting up programs to improve working capital and cut costs while disclosing few details

The struggles of Greensill Capital have shone a light on the increasing use of supply-chain financing, a tool that gives companies the ability to extend their payment terms to vendor

Regulators and standard-setters are closely watching if and how companies disclose their use of the financing tool, which has come into focus amid the recent problems seen at Greensill, a major provider of supply-chain finance. The firm filed for insolvency earlier this month and is facing regulatory scrutiny.

How Does Supply-Chain Finance Work?

As part of a supply-chain finance agreement, banks provide funding to pay a company’s supplier of goods and services. The supplier is then paid earlier—but less—than it would be paid without the agreement.

For small suppliers, the financing can provide money for their operations without having big companies extend their payment terms, potentially by months.

The company pays the money it owes the supplier to the bank, often later than it would have paid its supplier. The bank keeps the amount it doesn’t pay to the supplier in exchange for its services.

Supply-chain finance has been around for decades. Companies started using it more frequently after the 2008 financial crisis, when many businesses wanted to preserve cash on-hand by extending payment terms with vendors.

Since then, the market for this short-term borrowing tool has expanded, with banks and other providers offering digital tools to help companies manage related processes, such as procurement, according to professional services firms KPMG LLP, PricewaterhouseCoopers LLP and the Hackett Group Inc.

Which Companies Can Use Supply-Chain Finance?

Large manufacturers, such as airplane manufacturer Boeing Co., and other global companies, including soft drinks producer Keurig Dr Pepper Inc., are avid users of supply-chain financing to extend payment terms.

But there tends to be a barrier to entry for some businesses, especially those with weaker credit ratings. These ratings help determine the discount rate applied to the payment the supplier receives. The better the credit rating of a company, the cheaper it is for the supplier to participate in the program.

“Smaller companies have to just deal with the fact that their discount rates are fairly high,” said Rudi Leuschner, associate professor of supply chain management at Rutgers University.

It is unclear how many companies have supply-chain finance programs. Twenty-seven companies in the S&P 500 disclosed in their 2020 annual reports they are using the tool, up from 13 the previous year, according to data provider MyLogIQ. Between 2015 and 2019, an average of about eight companies in the S&P 500 said they used supply-chain finance.

Who Are the Providers?

Large financial institutions, including JPMorgan Chase & Co. and Citigroup Inc., are the most frequent providers of supply-chain financing. Banks provide capital and run the programs for companies.

Financial technology and logistics firms in recent years also have started to provide such funding, sometimes through a partnership with a bank, along with other invoicing and procurement services, advisers at KPMG, PwC and Hackett said.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on March 26, 2021

 

"," , The Wall Street Journal,  ---
 

 

Continued in article




Humor for March 2021

John Cleese;s Favorite Comedy Sketches ---
https://www.openculture.com/2021/03/john-cleeses-very-favorite-comedy-sketches.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+OpenCulture+%28Open+Culture%29

Saturday Night Live’s Very First Sketch: Watch John Belushi Launch SNL in October, 1975) ---
https://www.openculture.com/2021/03/saturday-night-lives-very-first-sketch.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+OpenCulture+%28Open+Culture%29

Jane Curtain Flashes on SNL ---
https://www.youtube.com/watch?v=r29-JkdKDec

Not So Humorous from Auntie Bev

Barely the day started and... it's already six in the evening.

Barely arrived on Monday and it's already Friday.

... and the month is already over.

... and the year is almost over.

... and already 40, 50 or 60 years of our lives have passed.

... and we realize that we lost our parents, friends.

... and we realize it's too late to go back...

So... Let's try, despite everything, to enjoy the remaining time...

Let's keep looking for activities that we like...

Let's put some color in our grey...

Let's smile at the little things in life that put balm in our hearts.

And despite everything, we must continue to enjoy with serenity this time we have left. Let's try to eliminate the afters...

I'm doing it after...

I'll say after...

I'll think about it after...

We leave everything for later like ′′ after ′′ is ours.

Because what we don't understand is that:

Afterwards, the coffee gets cold...

Afterwards, priorities change...

Afterwards, the charm is broken...

Afterwards, health passes...

Afterwards, the kids grow up...

Afterwards parents get old...

Afterwards, promises are forgotten...

Afterwards, the day becomes the night...

Afterwards life ends...

And then it's often too late....

So... Let's leave nothing for later..

Because still waiting see you later, we can lose the best moments,

the best experiences,

best friends,

the best family...

The day is today... The moment is now...

We are no longer at the age where we can afford to postpone what needs to be done right away.

So let's see if you have time to read this message.

Or maybe you'll leave it for... ′′ later "...

 




Humor March 2021 --- http://faculty.trinity.edu/rjensen/book21q1.htm#Humor0321.htm 

Humor February 2021 --- http://faculty.trinity.edu/rjensen/book21q1.htm#Humor0221.htm

Humor January 2021 --- http://faculty.trinity.edu/rjensen/book21q1.htm#Humor0121.htm  

Humor December 2020 --- http://faculty.trinity.edu/rjensen/book20q4.htm#Humor1220.htm 

Humor November 2020 --- http://faculty.trinity.edu/rjensen/book20q4.htm#Humor1120.htm   

Humor October 2020 --- http://faculty.trinity.edu/rjensen/book20q4.htm#Humor1020.htm  

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

 


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




And that's the way it was on March 31, 2021 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

 

 

 

February 2020

 

Bob Jensen's Additions to New Bookmarks

February 2021

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

Eric Cohen's Blog (technology and accounting information systems) ---
http://thinktwenty20.com/index.php/blog

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

 

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

 




Video:  Scenarios of Higher Education for Year 2020 (and beyond)---
http://www.youtube.com/watch?v=5gU3FjxY2uQ
The above great video, among other things, discusses how "badges" of academic education and training accomplishment may become more important in the job market than tradition transcript credits awarded by colleges. Universities may teach the courses (such as free MOOCs) whereas private sector companies may award the "badges" or "credits" or "certificates." The new term for such awards is a "microcredential."

Credential (Certificate, Badge, License, and Apprenticeship) Count Approaches 1 Million ---
Click Here
For example, credentials for computer programming skills are becoming more popular. Some certificates supplement college diplomas, whereas others are earned by students who did not enroll in college.


AICPA's Academic Resource Hub ---
https://thiswaytocpa.com/segmented-landing/academic-resource-hub/?utm_source=mnl:cpald&utm_medium=email&utm_campaign=03Feb2021

The Academic Resource Hub is a database of hand-curated content from the AICPA, accounting firms, academics and winning submissions from the AICPA's teaching awards designed to help accounting educators prepare students for the rapidly-evolving demands of the profession.

Signing up for the ARH will give you access to resources related to topics like data analytics, cybersecurity and much more. Our resources cover a wide range of class levels and will help you easily incorporate new ideas into your syllabus.

This resource is *intended for accounting educators and professionals for use in academic instruction, research or guidance and requires registration as an accounting educator or professional on ThisWaytoCPA.com to access.

Continued in article

Bob Jensen's Threads on Tools and Tricks of the Trade ---
http://faculty.trinity.edu/rjensen/000aaa/thetools.htm

Bob Jensen's Threads on Education Technology ---
http://faculty.trinity.edu/rjensen/000aaa/0000start.htm


Automation to drive big shifts in corporate reporting ---
https://www.journalofaccountancy.com/news/2021/feb/automation-driving-shifts-in-corporate-reporting.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=26Feb2021


Eric Cohen's Blog:  Robotic Process Automation with StudioX: Lessons Learned 1 ---
http://thinktwenty20.com/index.php/blog/574-robotic-process-automation-with-studiox-lessons-learned-1  


What are the most important statistical ideas of the past 50 years? ---
https://marginalrevolution.com/marginalrevolution/2021/02/what-are-the-most-important-statistical-ideas-of-the-past-50-years.html


Black CPA Centennial celebrates first Black CPA ---
https://www.journalofaccountancy.com/news/2021/feb/first-black-cpa-john-cromwell-jr.html

Women Accountants at Haskins & Sells During the 1920s The Pioneering Career of Jennie May Palen ---
https://www.cpajournal.com/2021/02/15/women-accountants-at-haskins-sells-during-the-1920s/

Bob Jensen's threads on the history of women in accountancy ---
http://faculty.trinity.edu/rjensen/Bookbob2.htm#Women


New York’s $300 billion of other post-employment benefit (OPEB) debt from state and local governments exceeds $16,000 per resident, dwarfing all other states on a per-capita basis ---
https://www.data-z.org/news/detail/new-yorks-opeb-problem
No sweat. Congress will print enough money to bail out all the blue states' debt. Washington DC's money tree commenced to bare fruit in 2121.


Weak accounting standards enable Illinois budget deficit ---
https://www.data-z.org/news/detail/weak-accounting-standards-enable-illinois-budget-deficits


France:  PwC Hit With Fines
https://www.bloombergquint.com/onweb/accounting-woes-spread-to-france-as-mazars-pwc-hit-by-fines

Bob Jensen's threads on the history of accounting firm frauds and negligence ---
http://faculty.trinity.edu/rjensen/fraud001.htm


Why PwC is Making Its Diversity Data Public ---
https://fortune.com/2021/02/17/why-pwc-is-making-its-diversity-data-public-ceo-daily/


KPMG Auditors Suspended in College of New Rochelle ---
https://www.insidehighered.com/quicktakes/2021/02/25/auditors-suspended-college-new-rochelle-fallout?utm_source=Inside+Higher+Ed&utm_campaign=a20c3b7007-DNU_2021_COPY_02&utm_medium=email&utm_term=0_1fcbc04421-a20c3b7007-197565045&mc_cid=a20c3b7007&mc_eid=1e78f7c952

Two former KPMG auditors agreed to be suspended from practicing before the U.S. Securities and Exchange Commission after the financial regulator charged them with improper professional conduct during an audit of the since-closed College of New Rochelle in New York.

Christopher Stanley, a former KPMG partner, has the right to apply for reinstatement after three years. Jennifer Stewart, a former senior manager at the auditing firm, can apply for reinstatement after one year. They agreed to be suspended without admitting to or denying the SEC’s findings.

 

The two were involved in the approval of an unmodified audit opinion for the College of New Rochelle’s 2015 fiscal year financial statements, even though important audit steps had not been completed, according to an SEC news release. KPMG encountered difficulty finishing the audit after the College of New Rochelle’s controller provided inaccurate, incomplete and contradictory information -- but the auditors nonetheless decided to issue a report after the college’s president and controller told them on Nov. 30, 2015, that a report was needed by the end of the day, according to the SEC.

 

Resulting financial statements overstated the College of New Rochelle’s net assets by $33.8 million, according to the SEC. The statements were published online as a disclosure to bond investors.

 

“Auditors of municipal issuers are key gatekeepers in upholding the reliability and integrity of financial information provided to investors in municipal bonds,” Matthew S. Jacques, chief accountant of the SEC’s enforcement division, said in a statement. “It is critical that they exercise professional care and skepticism.”

 

The College of New Rochelle collapsed after its financial problems became clear, announcing its closure in 2019. The SEC charged its by-then-former controller with fraud that year. He was convicted of securities fraud and failure to pay payroll taxes and sentenced to three years in federal prison, according to the Westchester & Fairfield County Business Journals. Currently he is at a Brooklyn halfway house, the business journals reported.

Bob Jensen's threads on negligence and fraud in large auditing firms are at
http://faculty.trinity.edu/rjensen/fraud001.htm


Taxes in Retirement: How All 50 States Tax Retirees ---
https://www.kiplinger.com/retirement/602202/taxes-in-retirement-how-all-50-states-tax-retirees
For example what are the 33 states not having estate or inheritance taxes?
What states do not tax retirement income and capital gains?
What states do not have sales taxes?
What states have real estate transfer taxes?


ThinkTwenty20:  New Accounting Standard: Accounting for Not-for-Profit Combinations ---
http://thinktwenty20.com/index.php/567- new-accounting-standard-accounting-for-not-for-profit-combinations


Taxes in Retirement: How All 50 States Tax Retirees ---
https://www.kiplinger.com/retirement/602202/taxes-in-retirement-how-all-50-states-tax-retirees
For example what are the 33 states not having estate or inheritance taxes?
What states do not tax retirement income and capital gains?
What states do not have sales taxes?
What states have real estate transfer taxes?


Home prices near Miami have risen over 25% in the last year as Silicon Valley and Wall Street high income families flock to Florida ---
Click Here

Silicon Valley elites and hedge fund millionaires are flocking to Miami, and it's already resulting in a major spike in home prices. 

A new report from The New York Times' Nellie Bowles examines the influx of business leaders to South Florida amid the pandemic. What may have begun as a temporary stay has become a permanent transfer, and it's sending home prices skyrocketing. 

By the end of 2020, the median home sale price in Palm Beach shot up to $4.9 million, an increase of 29% from the year earlier, real estate firm Douglas Elliman told The Times. By comparison, Manhattan's prices rose only about 5% during the same period. 

Continued in article


Rudy Giuliani associate jailed for a year over fraud at fraud-busting business ---
https://www.theguardian.com/us-news/2021/feb/08/david-correia-sentenced-rudy-giuliani-lev-parnas


IRS offers guidance to taxpayers on identity theft involving unemployment benefits ---
https://www.irs.gov/newsroom/irs-offers-guidance-to-taxpayers-on-identity-theft-involving-unemployment-benefits?utm_source=mnl:cpald&utm_medium=email&utm_campaign=02Feb2021


The CPA Exam Evolution ---
https://www.cpajournal.com/2021/01/29/the-cpa-exam-evolution/


Local and State Government:  Budget gimmicks continue, says founder of Truth in Accounting ---
https://www.data-z.org/news/detail/budget-gimmicks-continue-says-founder-of-truth-in-accounting
If you teach budgeting be sure to teach about the gimmicks as well.


What is a blockchain?
https://www.howtogeek.com/335814/what-is-a-blockchain/


In listserv correspondence Jagdish Gangolly wrote:

If my reading of the Dennis article is right, he is arguing for the entity theory of accounting. That will require an entirely new thinking on corporate governance, somewhat on the lines of the German model where corporations have Board of directors and Board of supervisors, the latter consisting of all stakeholders. I personally think that would be a good idea and considerably improve corporate governance in the US.

Jensen Comment About a Shortage of German Shareholders Willing to Take Financial Risks in Equity Markets

German tendency toward government regulation and financial tradition for bank financing resulted in the smallness of stock markets and equity financing in Germany relative to the USA and even some other nations in Europe and China. Germany depends mostly upon banks for business financing. As a result there is no Silicon Valley for venture equity capital in Germany.

ECONOMIC CONSEQUENCES OF PRIVATE EQUITY INVESTMENTS ON THE GERMAN STOCK MARKET ---
https://www.econstor.eu/bitstream/10419/48426/1/577332147.pdf

The German capital market has different characteristics to those of the US and the UK. The key differences involve the development of public equity markets, patterns of ownership structure, and minority shareholder protection. In contrast to other major economies, such as the US, the UK, and Japan, the number of exchange listed German companies is comparatively low. As a consequence, banks and other financial institutions act as the primary suppliers of external capital for (German) corporations. In addition, the typical market listed German firm is characterized by a small number of large shareholders. Franks and Mayer (2001) observe that “85% of the largest quoted companies have a single shareholder owning more 3 than 25% of the voting shares”1 (based on 171 companies in 1990). This percentage seems to be stable over time (at least for non-financial companies). In a study based on all nonfinancial companies listed on the „official‟ trading segment of the Frankfurt stock exchange between 1997 and 2004 (264 companies), Andres (2007) states that the percentage observed by Franks and Mayer (2001) is strikingly consistent with ownership patterns 15 years later, “with 84.5% of the firms featuring a shareholder with a stake of more than 25%.”

German inventors and developers seek outside investors such as USA's Tesla that is now building a mega electric vhicle factory in Germany. A German biotechnology developer, BioNTech, partnered with the USA's Pfizer to conduct clinical trials, finance, and produce its covid vaccine ---
https://en.wikipedia.org/wiki/Pfizer%E2%80%93BioNTech_COVID-19_vaccine

BioNTech is the initial developer of the vaccine, and partnered with Pfizer for development, clinical research, overseeing the clinical trials, logistics, finances and for worldwide manufacturing,[32] with the exception of China, where the license to distribute and manufacture was purchased by Fosun, alongside its investment in BioNTech.[33][34] Distribution in Germany and Turkey is by BioNTech itself.[35] Pfizer indicated in November 2020, that 50 million doses could be available globally by the end of 2020, with about 1.3 billion doses in 2021.[

Jensen Comment
Until the radical left destroys equity capital markets, the USA is probably the best nation for risky financing with corporate common stock. No other nation welcomes Initial Public Offerings like the USA. IPOs are generally marketed by investment banks in the USA because there is such a large throng of USA investors willing to make risky financial investments in their quests for the American Dream. Before the 2020 election there were, as Jagdish points out, tax advantages of equity investing in the USA.  After the 2020 election tax advantages of shareholder equity investing will largely disappear coupled with new wealth taxes and new taxes on businesses that, combined with newer German-like regulations of corporations, may dry up much of that risk capital in the USA.

The USA, along with the rest of the world, will be moving toward having governments finance risky ventures. This will help financial winners and losers doing social good to become funded with taxpayer dollars, but it also adds layers of inefficient politics, bureaucracy, fraud, and red tape. Exhibit A is the massive fraud that arose with Medicare and Medicaid financing of health care.

What's worse is that the paths of becoming billionaires with inventions and developments will probably destroy much of the innovation that comes along with the former American Dream.

Interestingly, while the American Dream declines the Chinese Dream is roaring.

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/
China has more billionaires than any other country in the world (and generating more at a higher rate than any other nation) ---
https://qz.com/1919974/china-created-a-record-number-of-billionaires-despite-covid-19/

The China Dream:  Rise of the Billionaire Tiger Women from Poverty
"Tigress Tycoons," by Amy Chua, Newsweek Magazine Cover Story, March 12, 2012, pp. 30-39 ---
http://www.thedailybeast.com/newsweek/2012/03/04/amy-chua-profiles-four-female-tycoons-in-china.html

Like a relentless overachiever, China is eagerly collecting superlatives. It’s the world’s fastest-growing major economy. It boasts the world’s biggest hydropower plant, shopping mall, and crocodile farm (home to 100,000 snapping beasts). It’s building the world’s largest airport (the size of Bermuda). And it now has more self-made female billionaires than any other country in the world.

This is not only because China has more females than any other nation. Many of these extraordinary women rose from nothing, despite living in a traditionally patriarchal society. They are a beguiling advertisement for the New China—bold, entrepreneurial, and tradition-breaking.

Four standouts among China’s intriguing new superwomen are Zhang Xin, the factory worker turned glamorous real-estate billionaire, with 3 million followers on Weibo (China’s Twitter); talk-show mogul Yang Lan, a blend of Audrey Hepburn and Oprah Winfrey; restaurant tycoon Zhang Lan, who as a girl slept between a pigsty and a chicken coop; and Peggy Yu Yu, cofounder and CEO of one of China’s biggest online retailers. None of these women inherited her money, and unlike many of the richest Chinese who are reluctant to draw public scrutiny to their path to wealth, they are proud to tell their stories.

How did these women make it to the top in the wild, wild East? Did they pay a price, either in their family or their professional lives? What was it that distinguished them from their famously hardworking compatriots? As I set out to explore these questions, my interest was partly personal. All four of my subjects lived for extended periods in the West. As a Chinese-American, and now the infamous Tiger Mom, I was curious: how “Chinese” were these new Chinese tigresses?

It turns out that each of these women, in her own way, is a dynamic combination of East and West. Perhaps this is one secret to their breathtaking success.

Zhang Xin is a rags-to-riches tale right out of Dickens. She was born in Beijing in 1965. The next year Mao launched the Cultural Revolution, and millions, including intellectuals and party dissidents, were purged or forcibly relocated to primitive rural areas. Children were encouraged to turn in their parents and teachers as counterrevolutionaries. Returning to Beijing in 1972, Zhang remembers sleeping on office desks, using books for pillows. At 14 she left for Hong Kong with her mother, and for five years she worked in a factory by day, attending school at night.

“I was a miserable kid,” she told me. With her chic cropped leather jacket and infectious laughter, the cofounder of the $4.6 billion Soho China real-estate empire is today an odd combination of measured calculation and warm spontaneity. “My mother drove me in school so hard. That generation didn’t know how to express love.

“But it wasn’t just me. It was all of China. I don’t think anybody was happy. If you look at photos from those days, no one is smiling.” She mentioned the contemporary artist Zhang Xiaogang, who paints “cold, emotionless” faces. “That’s exactly how we all grew up.”

. . .

But the four women I interviewed are a new breed. Progressive, worldly, and open to the media, they are in many ways not representative of China, past or present. Perhaps they are merely the lucky winners of the 1990s free-for-all in China, a window that may already be closing. Or perhaps they are the forerunners of a China still to come, in which paths to success are far more open. Each has found a way to dynamically fuse East and West, to staggering commercial success. It may still be a long way off, but if China can achieve a similar alchemy—melding its tremendous economic potential and traditional values with Western innovation, the rule of law, and individual liberties—it would be a land of opportunity tough to beat.

 


CPA Journal:  The State of the Profession
https://www.cpajournal.com/2021/01/19/the-state-of-the-profession-6/

In Brief
The sixth annual 2020 NYSSCPA–Rosenberg Survey identifies trends from the national 22nd Annual Practice Management Survey and provides profitability and growth data of participating New York CPA firms. This year was unlike any that our profession has faced in the 22 years of the survey. The survey data reflects trends and performance from 2019, before the coronavirus (COVID-19) pandemic struck. A second part of the survey presents analysis and conclusions from leading experts and practice management consultants on how accounting firms have adapted to the challenge of COVID-19. As Charles Hylan, managing partner of Rosenberg & Associates and author of the survey remarked: “The landscape for accounting firms changed quickly when the pandemic hit. It was as if a switch was flipped. Managing partners were forced to deal with massive changes in workflow and practice.” This year’s Rosenberg Survey provides valuable analysis, guidance, expert insight, and practical recommendations for CPAs on how to adapt and succeed during this crisis and what comes after.

Jensen Comment
Sadly, the above report has nothing to say about the state of accounting education. Maybe this is because accountics scientists accomplished so little on issues of greatest concern in the profession ---
http://faculty.trinity.edu/rjensen/theory01.htm#WhatWentWrong

Can you point to one accountics science finding that practicing CPA's applaud?

Creating Relevance of Accounting Research (ROAR) Scores to Evaluate the Relevance of Accounting Research to Practice

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3501871
49 Pages
 Posted: 17 Dec 2019

F. Greg Burton

Brigham Young University - School of Accountancy

Scott L. Summers

Brigham Young University - School of Accountancy

T. Jeffrey Wilks

Brigham Young University

David A. Wood

Brigham Young University - School of Accountancy

Date Written: December 10, 2019

Keywords: Research Relevance, Accounting Rankings, Practice-Oriented Research, Journal Rankings

JEL Classification: M40, M41, M49, M00

Abstract

The relevance of accounting academic research to practice has been frequently discussed in the accounting academy; yet, very little data has been put forth in these discussions. We create relevance of accounting research (ROAR) scores by having practitioners read and evaluate the abstract of every article published in 12 leading accounting journals for the past three years. The ROAR scores allow for a more evidence-based evaluation and discussion of how academic accounting research is relevant to practitioners. Through these scores, we identify the articles, authors, journals, and accounting topic areas and methodologies that are producing practice-relevant scholarship. By continuing to produce these scores in perpetuity, we expect this data to help academics and practitioners better identify and utilize practice-relevant scholarship.

V. CONCLUSIONS

This research provides empirical data about the contribution accounting academics are making to practice. Specifically, we had nearly 1,000 professionals read the abstract of academic accounting articles and rate how relevant the articles are to practice. We then present the data to rank journals, universities, and individual scholars. Overall, we interpret the results to suggest that some of the research that is currently produced and published in 12 accounting journals is relevant to practice, but at the same time, there is room to improve. Our hope is that by producing these rankings, it will encourage journals, institutions, and authors to produce and publish more relevant research, thus helping to fulfill the Pathways charge “to build a learned profession.”

We now take the liberty to provide some normative comments about our research findings in relation to the goal of producing a learned profession. One of the key findings in this study is that the traditional top 3 and top 6 journals are not producing the most or the greatest average amount of practice relevant research, especially for the distinct accounting topic areas. Prior research shows that the collection of a small group of 3/6 journals is not representative of the breadth of accounting scholarship (Merchant 2010; Summers and Wood 2017; Barrick, et al. 2019). Given the empirical research on this topic, we question why institutions and individual scholars continue to have a myopic focus on a small set of journals. The idea that these 3/6 journals publish “the best” research is not empirically substantiated. While many scholars argue that the focus is necessary for promotion and tenure decisions, this seems like a poor excuse (see Kaplan 2019). Benchmarking production in a larger set of journals would not be hard, and indeed has been done (Glover, Prawitt, and Wood 2006; Glover, Prawitt, Summers, and Wood 2019). Furthermore, as trained scholars, we could read and opine on article quality without outsourcing that decision to simple counts of publications in “accepted” journals. We call on the 18 We recognize that only looking at 12 journals also limits the scope unnecessarily. The primary reason for the limitation in this paper is the challenge of collecting data for a greater number of journals. Thus, we view 12 journals as a start, but not the ideal. academy to be much more open to considering research in all venues and to push evaluation committees to do the same.

A second important finding is that contribution should be a much larger construct than is previously considered in the academy. In our experience, reviewers, editors, and authors narrowly define the contribution an article makes and are too often unwilling to consider a broad view of contribution. The current practice of contribution too often requires authors to “look like everyone else” and rarely, if ever, allows for a contribution that is focused exclusively on a practice audience. We encourage the AACSB, AAA, and other stakeholders to make a more concerted effort to increase the focus on practice-relevant research. This may entail journals rewriting mission statements, editors taking a more pro-active approach, and training of reviewers to allow articles to be published that focus exclusively on “practical contributions.” This paper has important limitations. First, we only examine 12 journals. Ideally, we would like to examine a much more expansive set of journals but access to professionals makes this challenging at this time. Second, measuring relevance is difficult. We do not believe this paper “solves” all of the issues and we agree that we have not perfectly measured relevance. However, we believe this represents a reasonable first attempt in this regard and moves the literature forward. Third, the ROAR scores are only as good as the professionals’ opinions. Again, we limited the scores to 5 professionals hoping to get robust opinions, but realize that some articles (and thus authors and universities) are not likely rated “correctly.” Furthermore, articles may make a contribution to practice in time and those contributions may not be readily apparent by professionals at the time of publication. Future research can improve upon what we have done in this regard.

We are hopeful that shining a light on the journals, institutions, and authors that are excelling at producing research relevant to practice will encourage increased emphasis in this area.

Jensen Question
Is accounting research stuck in a rut of repetitiveness and irrelevancy?

"Accounting Craftspeople versus Accounting Seers: Exploring the Relevance and Innovation Gaps in Academic Accounting Research," by William E. McCarthy, Accounting Horizons, December 2012, Vol. 26, No. 4, pp. 833-843 --- 
http://aaajournals.org/doi/full/10.2308/acch-10313 

Is accounting research stuck in a rut of repetitiveness and irrelevancy? 
I 
(Professor McCarthy) would answer yes, and I would even predict that both its gap in relevancy and its gap in innovation are going to continue to get worse if the people and the attitudes that govern inquiry in the American academy remain the same. From my perspective in accounting information systems, mainstream accounting research topics have changed very little in 30 years, except for the fact that their scope now seems much more narrow and crowded. More and more people seem to be studying the same topics in financial reporting and managerial control in the same ways, over and over and over. My suggestions to get out of this rut are simple. First, the profession should allow itself to think a little bit normatively, so we can actually target practice improvement as a real goal. And second, we need to allow new scholars a wider berth in research topics and methods, so we can actually give the kind of creativity and innovation that occurs naturally with young people a chance to blossom.

 

Since the 2008 financial crisis, colleges and universities have faced increased pressure to identify essential disciplines, and cut the rest. In 2009, Washington State University announced it would eliminate the department of theatre and dance, the department of community and rural sociology, and the German major – the same year that the University of Louisiana at Lafayette ended its philosophy major. In 2012, Emory University in Atlanta did away with the visual arts department and its journalism programme. The cutbacks aren’t restricted to the humanities: in 2011, the state of Texas announced it would eliminate nearly half of its public undergraduate physics programmes. Even when there’s no downsizing, faculty salaries have been frozen and departmental budgets have shrunk.

But despite the funding crunch, it’s a bull market for academic economists. According to a 2015 sociological study in the Journal of Economic Perspectives, the median salary of economics teachers in 2012 increased to $103,000 – nearly $30,000 more than sociologists. For the top 10 per cent of economists, that figure jumps to $160,000, higher than the next most lucrative academic discipline – engineering. These figures, stress the study’s authors, do not include other sources of income such as consulting fees for banks and hedge funds, which, as many learned from the documentary Inside Job (2010), are often substantial. (Ben Bernanke, a former academic economist and ex-chairman of the Federal Reserve, earns $200,000-$400,000 for a single appearance.)

Unlike engineers and chemists, economists cannot point to concrete objects – cell phones, plastic – to justify the high valuation of their discipline. Nor, in the case of financial economics and macroeconomics, can they point to the predictive power of their theories. Hedge funds employ cutting-edge economists who command princely fees, but routinely underperform index funds. Eight years ago, Warren Buffet made a 10-year, $1 million bet that a portfolio of hedge funds would lose to the S&P 500, and it looks like he’s going to collect. In 1998, a fund that boasted two Nobel Laureates as advisors collapsed, nearly causing a global financial crisis.

The failure of the field to predict the 2008 crisis has also been well-documented. In 2003, for example, only five years before the Great Recession, the Nobel Laureate Robert E Lucas Jr told the American Economic Association that ‘macroeconomics […] has succeeded: its central problem of depression prevention has been solved’. Short-term predictions fair little better – in April 2014, for instance, a survey of 67 economists yielded 100 per cent consensus: interest rates would rise over the next six months. Instead, they fell. A lot.

Nonetheless, surveys indicate that economists see their discipline as ‘the most scientific of the social sciences’. What is the basis of this collective faith, shared by universities, presidents and billionaires? Shouldn’t successful and powerful people be the first to spot the exaggerated worth of a discipline, and the least likely to pay for it?

In the hypothetical worlds of rational markets, where much of economic theory is set, perhaps. But real-world history tells a different story, of mathematical models masquerading as science and a public eager to buy them, mistaking elegant equations for empirical accuracy.

Real Science versus Pseudo Science --- 
http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm#Pseudo-Science

Jensen Comment
Academic accounting (accountics) scientists took economic astrology a step further when their leading journals stopped encouraging and publishing commentaries and replications of published articles --- 
How Accountics Scientists Should Change:  
"Frankly, Scarlett, after I get a hit for my resume in The Accounting Review I just don't give a damn"
http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm

Times are changing in social science research (including economics) where misleading p-values are no longer the Holy Grail. Change among accountics scientist will lag behind change in social science research but some day leading academic accounting research journals may publish articles without equations and/or articles of interest to some accounting practitioner somewhere in the world --- 
 See below

 

Time to say goodbye to “statistically significant” and embrace uncertainty, say statisticians ---
https://retractionwatch.com/2019/03/21/time-to-say-goodbye-to-statistically-significant-and-embrace-uncertainty-say-statisticians/

Three years ago, the American Statistical Association (ASA) expressed hope that the world would move to a “post-p-value era.” The statement in which they made that recommendation has been cited more than 1,700 times, and apparently, the organization has decided that era’s time has come. (At least one journal had already banned p values by 2016.) In an editorial in a special issue of The American Statistician out today, “Statistical Inference in the 21st Century: A World Beyond P<0.05,” the executive director of the ASA, Ron Wasserstein, along with two co-authors, recommends that when it comes to the term “statistically significant,” “don’t say it and don’t use it.” (More than 800 researchers signed onto a piece published in Nature yesterday calling for the same thing.) We asked Wasserstein’s co-author, Nicole Lazar of the University of Georgia, to answer a few questions about the move.

So the ASA wants to say goodbye to “statistically significant.” Why, and why now?

In the past few years there has been a growing recognition in the scientific and statistical communities that the standard ways of performing inference are not serving us well.  This manifests itself in, for instance, the perceived crisis in science (of reproducibility, of credibility); increased publicity surrounding bad practices such as p-hacking (manipulating the data until statistical significance can be achieved); and perverse incentives especially in the academy that encourage “sexy” headline-grabbing results that may not have much substance in the long run.  None of this is necessarily new, and indeed there are conversations in the statistics (and other) literature going back decades calling to abandon the  language of statistical significance.  The tone now is different, perhaps because of the more pervasive sense that what we’ve always done isn’t working, and so the time seemed opportune to renew the call.

Much of the editorial is an impassioned plea to embrace uncertainty. Can you explain?

The world is inherently an uncertain place.   Our models of how it works — whether formal or informal, explicit or implicit — are often only crude approximations of reality. Likewise, our data about the world are subject to both random and systematic errors, even when collected with great care. So, our estimates are often highly uncertain; indeed, the p-value itself is uncertain. The bright-line thinking that is emblematic of declaring some results “statistically significant” (p<0.05) and others “not statistically significant” (p>0.05) obscures that uncertainty, and leads us to believe that our findings are on more solid ground than they actually are. We think that the time has come to fully acknowledge these facts and to adjust our statistical thinking accordingly.

Continued in article

 


Evolution of Other Comprehensive Income
by Robert Bloom
Accounting Historians Journal (2020) 47 (2): 1–10.
https://meridian.allenpress.com/ahj/article/47/2/1/431346/Evolution-of-Other-Comprehensive-Income

This paper traces the historical development of other comprehensive income (OCI) and comprehensive income (CI), analyzing how their evolution has unfolded. Emphasis is on authoritative pronouncements issued by the AICPA, FASB, and IASB. This paper discusses OCI applications from specific standards issued by the FASB and IASB. This paper also examines assertions from selected contemporary accounting books on this subject.

. . .

 

Jensen Comment

The above article is a very good summary of the evolution of OCI/AOCI.  However  would like to elaborate on the following paragraph.

IFRS report essentially the same OCI items as does the FASB, with the exceptions of vested past service cost on defined benefit plans, which are expensed immediately (IAS 19(R)) in addition to fair valuation adjustments, called “revaluation surplus” from such optional valuation of property, plant, equipment, and intangibles (IAS 16, IASB 2003a; IAS 38, IASB 2004). In fact, only two OCI items have been recycled to income in practice under IFRS—(1) foreign currency translation adjustments (IAS 21, IASB 2003b), and (2) the effective portion of cash flow hedging derivatives (IAS 30, IASB 2007). Non-recycling might be based on the notion, yet to be demonstrated empirically, that over the long run the unrealized gains and losses from most OCI items will balance out. Another possible reason, as cited by Rees and Shane (2012), is that recycling is “redundant, providing no additional benefit.” Additionally, different board members may have different perspectives on which OCI items may be more volatile than others. To the limited extent recycling occurs under IFRS, any reclassification adjustments and related tax effects are required to be disclosed separately from the other OCI items.

The term recycling refers to the reclassification of OCI items in equity to current income (and hence reclassification from OCI in equity to retained earnings in equity).  For example, the FASB did not want to account for hedging derivatives the same as speculation derivatives, because economists and financial analysts pointed out that the hedgers were really not taking on speculation risks to the extent that their derivative financial instruments in fact ended up as effective hedges. To include unrealized gains and losses on hedging derivatives in current income adds misleading volatility that punishes hedgers relative to speculators who are not hedging.

One of the fundamental problems is that hedged items often are not booked whereas hedging contracts are now required to be booked when they go into effect. Think of Southwest Airlines that commonly books future jet fuel prices. Forecasted future jet fuel purchases a year into the future are not booked. Southwest can speculate on the future price of jet fuel by not hedging. However, Southwest can hedge in various ways, one way of which is to purchase an option for a million gallons of jet fuel that expire one year from now. That effectively locks in an option's strike price and takes all the risk and opportunity of any price excess  between future purchase price and the the contracted option strike price. If Southwest Airlines closes its books in three months the hedge item (forecasted purchase of a million gallons of jet fuel) is not allowed to be booked whereas the purchase options are required to be booked. To report a gains on the options as income is entirely misleading when the the intent is really to lock in a future net purchase price.

Gains and losses of hedging derivatives are booked in OCI until those options either are exercised or expire.  The ultimate gain or loss  in OCI is then reclassified in current income when the jet fuel is actually purchased. If Southwest speculated in any derivative contracts that were not hedges, unrealized gains and losses would not be held in suspense in OCI. Both the FASB and FASB reasoned that hedge accounting in this manner did not punish Southwest Airlines with unrealized earnings volatility when in fact it was hedging rather than speculating.

Sometimes hedges are not perfectly effective. For example, if Southwest hedged a forecasted purchase of a million gallons of jet fuel in Miami with Chicago option market prices, the ineffective portion of the hedge cannot be booked in OCI and must be booked in current earnings when the value of the option changes before Southwest actually purchases the jet fuel in Miami.

What encomiasts and financial analysts were worried about is that accounting for hedging derivatives like they are the same as speculation derivatives adds misleading income volatility to the financial statements of hedgers.

OCI arose in general over issues of unrealized income versus unrealizable income or losses. Taken to extremes some gains and losses just cannot be realized without fundamental and unlikely changes in the business model. For example, Stanford University has over 10,000 acres of land that cannot be legally sold as long as Stanford is a university. If Stanford was a for-profit university it would be highly misleading to combine changes in the value of its land each quarter to its current operating revenues for the quarter. Sure the items can be shown separately on an income statement, but the problem is that media and investors tend to have a "functional fixation" for the bottom line fluctuations in net income.

The above article is quite good in describing the evolution of OCI to address the problem of unrealized versus unrealizable income. I wanted to point out that one of the sub-goals of OCI was not to punish hedgers and treat them like speculators.

Not all equity items are reclassified as current income in this manner. For a discussion of such complexities see
Concepts of profit or loss and other comprehensive income | ACCA Global


The Olds vs. PwC: Federal Judge Seems Fine with Age Discrimination Lawsuit Settlement (UPDATE) ----
https://www.goingconcern.com/the-olds-vs-pwc-federal-judge-seems-fine-with-age-discrimination-lawsuit-settlement/

Jensen Comment
If you're a retired CPA that's tired of being locked down in your nursing home, this might be a good time to apply for a job at PwC.


Wood-pulp prices are soaring thanks to speculators in China, with help from paper takeout containers, a weaker dollar and people using restrooms at home instead of at the office ---
https://www.wsj.com/articles/wood-pulp-prices-surge-as-speculators-pounce-in-china-11612270802?mod=djemCFO

. . .

China buys more than one-third of the world’s pulp and churns out paper products and packaging. Shanghai pulp futures, which began trading in 2018, serve as a price guide for an array of varieties and grades, similar to the way that West Texas Intermediate and Brent crude futures are reference points for oil prices.

Demand for virgin pulp, from trees as opposed to recycled cardboard and paper, has been on the rise in China, which has limited scrap imports that it once bought by the boatful to feed its factories. Pulp producers in Europe and North America have been diverting shipments from local spot markets to China to capture the surging prices, analysts say.

Though pulp was a poor performer for most of 2020, the Covid-19 pandemic shook up the market for paper products and set the stage for a rebound in demand.

The big change occurred in bathrooms and toilet tissue, napkins and paper towels made with virgin pulp—and a lot less for the scratchy stuff made from recycled material and found in offices, restaurants and other public places. kitchens. More time at home during the pandemic meant greater demand for premium toilet tissue, napkins and paper towels made with virgin pulp—and a lot less for the scratchy stuff made from recycled material and found in offices, restaurants and other public places.

A big question lingering over the market is how much of the demand is from Chinese companies needing pulp to make products and how much is being bought by speculators who have bid up futures and need bales in case they get stuck having to deliver pulp to trade counterparties. In the latter scenario, futures prices are effectively pulling up physical, or spot, prices and there is risk of a sharp reversal of prices,

Continued in article


February 7, 20221:  CPAJ News Briefs: FASB, GASB, AICPA ---
https://www.cpajournal.com/2021/02/03/cpaj-news-briefs-fasb-gasb-aicpa-3/


Some Things You Maybe Did Not Know About Negative Interest Rates ---
https://intheaggregate.substack.com/p/deep-into-the-negative?r=d78bg&utm_campaign=post&utm_medium=web&utm_source=twitter


How to Mislead With Statistics

What Do Happiness Data Mean? Theory and Survey Evidence—Dan Benjamin, Jakina Debnam Guzman, Marc Fleurbaey, Ori Heffetz and Miles Kimball ---
https://blog.supplysideliberal.com/post/2021/2/11/what-do-happiness-data-mean-theory-and-survey-evidencedan-benjamin-jakina-debnam-guzman-ori-heffetz-marc-fleurbaey-and-miles-kimb


KPMG's Chair in the U.K. resigns after telling staff to 'stop moaning' ---
https://www.theguardian.com/business/2021/feb/12/kpmg-bill-michael-resigns-after-telling-staff-to-stop-moaning


Comparing Marginal Costs

Previously I wrote about the first time my father ever took a trip away from the family farm in Seneca, Iowa. The year was 1925 when he and four relatives drove on grass roads in a Model T Ford to Viking, Alberta to visit Norwegian relatives ---
http://faculty.trinity.edu/rjensen/vernon.htm
I mention this now to note that on the Viking farm some of the gas lamps were never turned off, the reason being that the cost of one match used to light a lamp daily was more than the cost a day's supply of gas for the lamp. So close to the gas wells, lamp gas was very nearly a free good. In those days, Norwegian immigrants counted every penny.

This cost example relates to the following quotation from a former minister of our church who is now nearly 100 years old and blind. He's in the process of dictating his memoirs. One recent paragraph reads as follows:

Quoin, Illinois, is on the mail line of the Illinois Central Rail Road that ran from Chicago to New Orleans. Every time I would see a giant steam locomotive I would say, “That’s what I want!”. Alas, I failed the eye test to be a train engineer. When I was in college at Southern Illinois University at Carbondale, only twenty miles south, I came home every week-end. The train fare was cheaper that buying seven meals and laundry. Then when I was in the University of Illinois, 150 miles north on the ICRR, I rode the “City of New Orleans” This was a diesel-electric trains. When I was in the army, I rode the Pennsylvania from Newark [NJ] to Illinois. I also went to Boston and back to New York on the on the New York, New Haven, and Hartford. Oh, yes, my wife Emily, our baby Nancy, and I road 600 miles across the Island of Newfoundland on the narrow-gage Canadian Pacific. Emily and I road the Wabash from St. Louis to Chicago [and back, of course]. I still love the steam locomotives; I still dream of life as an engineer and wonder what that life would've been like. I might not have lived in nine states and in a foreign country. I traveled as far west as Hawaii and as far east as Israel; as are south as Florida and as far north as Canada. Never having much money, I was seventy-seven before I flew for the first time.

 


The State of Washington launches investigation into 200,000 missing cows at center of Easterday bankruptcy, legal fight ---
https://www.tri-cityherald.com/news/business/agriculture/article248970215.html
Jensen Coment
This is one of the reasons auditors are still supposed to test check inventories in the high tech era
When I was a novice auditor we had to physically test check inventories at Montfort Feedlot in Greeley, Colorado. The senior auditors on our team got to count the cows. While wearing my dark auditor suit, black bowler hat, and a white shirt I got to inventory the piles and piles of other valuable inventory on in the enormous feedlot. There was so much of that inventory we ended up paying for aerial photographs and used mathematics to estimate the amount of it on hand.


Ninth Circuit Confirms Role of Efficient-Market Theory in Loss Causation ---
Click Here

Thank you Wm. Dennis Huber for the heads up


When companies, like military generals, simply fade away
What Happened To Conexant.com?
https://www.mokotechnology.com/what-happened-to-conexant/


Failure to report cryptocurrency (think bitcoin) on your tax return can lead to trouble with the IRS even if you owe no 2020 tax on your investment ---
https://www.cnbc.com/2021/02/24/failure-to-report-crypto-on-tax-returns-can-lead-to-trouble-with-irs.html


MIT:  What is an “algorithm”? It depends whom you ask ---
https://www.technologyreview.com/2021/02/26/1020007/what-is-an-algorithm/




Excel:  Discover More About Your Data With Excel Ideas ---
https://www.journalofaccountancy.com/issues/2021/feb/excel-ideas-tool.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=16Feb2021

Excel:  How to Transpose Excel Data from Rows to Columns (or Vice Versa) ---
https://www.howtogeek.com/702803/how-to-transpose-excel-data-from-rows-to-columns-or-vice-versa/


 

 


PwC: For Once, KPMG Doesn’t Have the Worst Audit Failure Rate Among the Big 4 ---
https://www.goingconcern.com/kpmg-2019-pcaob-inspection-report/


EY:  2019 PCAOB Encouraging Inspection Report of EY
https://pcaob-assets.azureedge.net/pcaob-dev/docs/default-source/inspections/reports/documents/104-2021-006-ey.pdf?sfvrsn=e79dd5c8_2




From the CFO Journal's Morning Ledger on February 25, 2021

Good morning. GameStop Corp.’s finance chief was forced out of his role as activist investor Ryan Cohen pushes for a digital transformation of the ailing videogame retailer, people familiar with the matter said.

The Grapevine, Texas-based company announced Tuesday that Chief Financial Officer Jim Bell will depart the business March 26, but didn’t give a reason. His exit isn’t related to the Reddit-fueled frenzy for the stock, these people said. Mr. Bell didn’t immediately respond to a request for comment.

Tuesday’s CFO exit is one element of the broader cleanup effort at GameStop, the people familiar with the matter said. Mr. Cohen, the co-founder of online pet-food retailer Chewy Inc., last November disclosed a nearly 10% stake in GameStop through his investment firm RC Ventures LLC. At that time, Mr. Cohen sent a letter to GameStop’s board urging it to conduct a strategic review of the business and reduce its reliance on physical retail, focusing on e-commerce instead.

Although the company’s market value temporarily ballooned this year, and its stock made substantial gains on Wednesday, the bricks-and-mortar retailer’s business hasn’t changed as dramatically. Revenue has been shrinking at the roughly 5,000-store chain for several years. It faces the same fundamental challenge as booksellers and music retailers before it: a shift from physical copies to digital downloads.


From the CFO Journal's Morning Ledger on February 24, 2021

Good morning. When court rulings and tax regulations go against them, companies have an effective way to minimize or defer the bottom-line costs. They don’t count them, and announce that they will beat the government in the future.

Coca-Cola Co., Whirlpool Corp. and Eaton Corp. have all lost to the Internal Revenue Service in the U.S. Tax Court over the past two years. But none of the companies subtracted the bulk of those costs from their publicly reported results.

Instead, they analyzed the law and declared they are confident those losses will eventually be overturned. Coca-Cola, in particular, is gearing up for a contentious constitutional fight against the government, with $12 billion on the line.

Others—including Newell Brands Inc. and Maxim Integrated Products Inc.—stand to lose millions under Treasury Department regulations issued in 2019, but say they remain confident the rules will eventually be thrown out and aren’t recording the costs.

“For them to say the tax authority has got it all wrong, that’s a pretty bold statement,” said Jack Ciesielski, an accounting expert and owner of R.G. Associates Inc., an investment research firm. The more conservative approach is to recognize the cost, note the legal dispute and reverse the cost later if the company prevails, he said.


From the CFO Journal's Morning Ledger on February 23, 2021

Good morning. Regulators are ramping up their scrutiny of potentially misleading coronavirus disclosures by companies about a year into the pandemic.

About one in three companies put a dollar amount related to the impact of the coronavirus in their earnings for the quarter that ended in December, according to a review of 199 filings from S&P 500 companies by data provider Calcbench. The financial pain inflicted includes everything from reduced revenues to increased bad debts, impaired assets and restructuring costs. On the plus side, several companies reported savings on travel and trade-show expenses, the review found.

While metrics that don’t follow generally accepted accounting principles, or GAAP, have been criticized, they can be used to help investors disentangle the financial effect of what companies consider a one-time event from the performance of the underlying business.

The Securities and Exchange Commission doesn’t dictate how companies report coronavirus costs and income. But the agency says companies must ensure comments on the effects of the pandemic are accurate and not misleading. One area of Covid-19 accounting that the SEC said it will scrutinize closely is any changes to revenue to compensate for losses because of the health crisis.


From the CFO Journal's Morning Ledger on February 17, 2021

U.K.’s FRC Plans for Higher Costs, More Staff

The Financial Reporting Council on Friday released its proposed budget for the year ahead as it prepares to become part of a new regulatory body.

The U.K. audit and accounting watchdog expects costs to rise to £52.2 million, equivalent to $72.3 million, for the budget year ending March 31, 2022, up 15% from the current year. The increased funds in part are set to go toward the U.K. Endorsement Board, which endorses and adopts international accounting rules after the U.K.’s exit from the European Union, it said.

The regulator plans to grow the number of employees to 417, up 16% from the prior year. Some of the additional staff will help the U.K. Department for Business, Energy and Industrial Strategy develop audit-related legislation, the FRC said.

The legislation is needed to be able to fold the FRC into a new
regulatory body called the Audit, Reporting and Governance Authority, which the British government announced in 2019. The transition is expected to be completed in 2023, the FRC said.

The FRC is asking for feedback on its budget plan by March 12.


From the CFO Journal's Morning Ledger on February 12, 2021

Good morning. Chief financial officers are watching closely after Tesla Inc. this week disclosed a $1.5 billion investment in bitcoin and Twitter Inc.’s Ned Segal mused publicly about potentially paying employees or vendors using the cryptocurrency.

Many CFOs remain hesitant to follow suit. Some point to the volatile price of bitcoin, which could have negative effects on their balance sheets, and question whether the practical uses of bitcoin are worth the risk. Companies’ investing policies in some cases prohibit them from holding digital assets.

The value of Bitcoin more than quadrupled in 2020 and rose further this week following Tesla’s disclosure. It was trading $48,163 on Thursday, up over 6% from Wednesday, according to Coinbase, a digital currency exchange.

CFOs said the swings in the price of bitcoin, which has seen drastic rises and falls in recent years, make it difficult to navigate, similar to holdings of foreign currencies experiencing strong volatility. “One of the risks is that it introduces something similar to currency volatility to the balance sheet and the day-to-day operations of the business,” said Matthew Ellis, finance chief of Verizon Communications Inc.

Meanwhile cryptocurrency may be banned in India

Jensen Comment
In recent years, the SEC has ruled that the two most valuable cryptocurrencies—Bitcoin and Ethereum—are not securities, partly on the grounds they are decentralized with no person or company in control of them

You can get this and other useful information by entering the search terms [FASB, "Accounting for Bitcoin"] without brackets at the link ---
https://www.google.com/advanced_search


From the CFO Journal's Morning Ledger on February 11, 2021

Good morning. The Financial Accounting Standards Board approved a tweak to goodwill accounting rules for private businesses and nonprofits to help them reduce costs and complexity as they continue to weather the coronavirus pandemic.

The move by the U.S. standard-setter allows these companies and organizations to assess at a later point in time a situation that might trigger a goodwill impairment. Under current accounting rules, companies must monitor and evaluate so-called triggering events for impairment of the goodwill throughout the year.

For private companies, there might be a long lag time between the date they evaluate a triggering event and their next financial filing, given that many of them only produce these statements once a year. That can be a problem when they have to come up with a carrying value to test for goodwill impairment but they haven’t reported financial statements yet.

By the end of the annual reporting period, a company’s financial situation may have changed, potentially resulting in outdated information for investors and other users of financial statements. The new standard, which FASB expects to publish in late March, enables private companies and nonprofits to evaluate a triggering event when they report their financial results, either at the end of a quarterly or annual period. 


From the CFO Journal's Morning Ledger on February 10, 2021

Salesforce.com Inc. plans for most of its employees to work remotely part or full time after the pandemic and to reduce its real-estate footprint as a result, a top executive said, showing Covid-19’s lasting impact on how companies manage their workforces.

The business-software provider, which has 54,000 global employees, is among the largest companies to spell out how it plans staff to work after Covid-19 recedes.

From the CFO Journal's Morning Ledger on February 5, 2021

A globasemiconductor shortage is expected to slash Ford’s vehicle output by up to 20% in the first quarter of this year, illustrating how deeply the fallout from the computer-chip crunch has hit the car business.

Losses of vehicle production globally in the first and second quarters could trim $1 billion to $2.5 billion from its pretax bottom line this year.


From the CFO Journal's Morning Ledger on February 2, 2021

The eurozone’s economy is diverging sharply from the U.S. and China, as stubbornly high coronavirus infections, extensive Covid-19 restrictions and a painfully slow vaccine rollout delay Europe’s recovery from last year’s historic economic downturn.

Fresh data Tuesday highlighted an economic gap between the eurozone and the U.S. and China that is likely to widen this year, given that the U.S. is proceeding more quickly than the European Union in rolling out vaccines and China remains largely free of the virus.

Continued in article


From the CFO Journal's Morning Ledger on February 2, 2021

Ford Motor plans to use Google’s Android operating system to power its vehicle display screens starting in 2023, the latest auto maker to tap Silicon Valley amid the accelerating digitization of the car business.

Silicon Valley firms are pushing further into the auto business, eager to capitalize on the growth prospects of the car’s evolution as a rolling personal device.


Environmental, Social, and Government (ESG) Governance --- https://en.wikipedia.org/wiki/Environmental,_social_and_corporate_governance

From the CFO Journal's Morning Ledger on February 2, 2021

SEC Names First-Ever Policy Adviser for ESG Issues

The Securities and Exchange Commission on Monday said it hired Satyam Khanna as its first-ever senior policy adviser for environmental, social and governance issues.

In his new role, Mr. Khanna will oversee and coordinate the U.S. securities regulator’s efforts related to climate risk and other sustainability issues. He will report to acting chair Allison Herren Lee.

Mr. Khanna is not new to the SEC. He served as a counsel to then-SEC Commissioner Robert Jackson from 2018 to 2019 and served on the regulator’s investor advisory committee last year.

Mr. Khanna most recently was a resident fellow at the New York University School of Law’s Institute for Corporate Governance & Finance. He also served on a transition team for the Biden administration that covered the Federal Reserve, banking and securities regulators. 

The SEC, under new leadership, is expected to ask companies to disclose additional details on issues such as climate-change risk and workforce diversity. At the moment, only some U.S. companies provide ESG information.

Harvard:  The EU’s Unsustainable Approach to Stakeholder Capitalism ---
https://hbr.org/2021/01/the-eus-unsustainable-approach-to-stakeholder-capitalism?utm_medium=email&utm_source=newsletter_daily&utm_campaign=dailyalert_notactsubs&deliveryName=DM117021

. . .

 

Not only does the report fail to show that EU businesses are misgoverned, it also makes proposals that would actually put these businesses at risk. Most importantly, the report recommends an EU-wide reformulation of directors’ duties to include a broad and ill-defined range of considerations, including representing the interests of the “global environment” and “society at large.” These duties would be enforced by non-investor stakeholders bringing suits in court.

The effect of implementing such proposals would be corporate paralysis. Almost any board decision could be legally challenged by some stakeholder claiming a violation of directors’ almost boundary-less duties. Concerned about personal liability, or even just the embarrassment of being named defendant in a lawsuit, directors will refrain from major decisions without getting buy-in from every stakeholder that might sue them. How will these firms compete with nimble U.S. and Chinese firms? Conducting business through an EU-listed firm will simply no longer be sustainable. Firms will go private, or seek to avoid these rules by domiciling and listing elsewhere.

In fact, the sustainability of Europe’s entire business eco-system would be put at risk. Directors of large listed EU firms would feel pressured to cut back on dividends and repurchases and invest more internally, even if such investments make little sense from investors’ perspective. Capital would be trapped in cash-rich firms and mis-spent. The flow of capital from larger public firms to smaller public and private firms would dry up. Firms looking to raise cash would find it more difficult. After all, why would investors hand funds over to directors whose EU-mandated fiduciary duties now require them to deploy the funds to benefit the global environment and society at large? The question answers itself.

If the European Commission really wishes to increase business sustainability, it should take steps to make it easier, not harder, for European firms to raise, deploy, and return equity capital. It should turn its back on the report’s proposals, which are as poorly-grounded as the findings of short-termism trotted out to justify them.

 


Accounting Information Technology and Village Finance Management in Indonesia

Gamayuni, R. R. (2020). Accounting information technology and village finance management in Indonesia. Journal of Administrative and Business Studies, 6(1), 1-8. https://doi.org/10.20474/jabs-6.1.1

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3743241
8 Pages Posted: 12 Feb 2021

Rindu Rika Gamayuni

University of Lampung

Date Written: February 12, 2020

Abstract

The purpose of this paper is to examine (1) The effect of accounting information technology on management accounting Information Quality (IQ), and (2) The effect of management accounting IQ on village finance management, and (3) The effect of Act of Republik Indonesia (RI) Number 6/2014 on village finance management. This study population uses the villages in Indonesia. The questionnaire as primary data is statistically processed and tested using Structural Equation Model Partial Least Square (SEM-PLS). The result of this study provides empirical evidence that the implementation of accounting information technology has a positive and significant effect on management accounting IQ. The v accounting information technology has a positive and significant effect on village finance management. The more quality of the information generated by information technology application, the better the village finance management (transparent, accountable, participative). The implementation of Act Number 6/2014 about The Village has a positive and significant effect on village finance management. The implementation of Act Number 6/2014 is reflected by being implemented the strategy, organization, movement, leadership, and reasonable control so that it will create transparent, accountable, and participative village finance management. This result implies that villages must implement a high-quality management accounting information system to produce quality information to improve village finance management. The novelty of this research is to give empirical proof about information technology and quality of management accounting in the village as the public sector, which is essential to create transparent, accountable, and participative village finance management.

Suggested Citation:

Gamayuni, Rindu Rika, Accounting Information Technology and Village Finance Management in Indonesia (February 12, 2020). Gamayuni, R. R. (2020). Accounting information technology and village finance management in Indonesia. Journal of Administrative and Business Studies, 6(1), 1-8. https://doi.org/10.20474/jabs-6.1.1, Available at SSRN: https://ssrn.com/abstract=3743241


Taxation of Live Stock in Australia: A Critical Review of Tax Law and Policy

49(3) Australian Tax Review 209-233 (2020)

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3730528
Posted:12 Feb 2021

Christina Allen

Edith Cowan University

Date Written: October 1, 2020

Abstract

One of the fundamental aims of any income tax system is to measure the net income earned by taxpayers during a given financial year. This can be difficult for primary production businesses involving live animals because animals are inherently different from other kinds of assets. Whereas previously Australia's tax system allowed primary producers to use either a market valuation or cost-based valuation to assess the value of their animals, the Income Tax Assessment Act 1997 (Cth) introduced changes that brought live animals under the rules for ordinary trading stock. This article offers a critique of the policies embodied in the Act and its approach to taxing animals in primary production. In particular, it highlights the outdated prescribed values given to live stock acquired through natural increase (ie offspring) and biased tax concessions that apply to certain types of animals. These tax rules have not been reviewed in decades and urgently need to be reassessed.

Keywords: live stock, trading stock, Australian tax, offspring, livestock, accounting

Suggested Citation:

Allen, Christina, Taxation of Live Stock in Australia: A Critical Review of Tax Law and Policy (October 1, 2020). 49(3) Australian Tax Review 209-233 (2020), Available at SSRN: https://ssrn.com/abstract=3730528


Financial Reporting Comparability in US Firms Issuing Debt in the US Primary Market

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3713075
50 Pages Posted: 12 Feb 2021

Paula Hill

University of Bristol

Gerald J. Lobo

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

Shuo Wang

University of Groningen; University of Bristol - School of Economics, Finance and Management

Date Written: October 16, 2020

Abstract

We propose a novel method of measuring the comparability of reported accounting numbers from the perspective of creditors. We demonstrate the validity of the measure and show that new bond issues of firms with superior comparability have better credit ratings and reduced bond yields, ceteris paribus. This is commensurate with comparability reducing the information uncertainty surrounding credit risk assessments derived from a firm’s financial information. Comparison of the impact of comparability on public and private bond issues suggests that the impact of comparability is greater in the public market, which we suggest is due to the presence of uninformed investors and higher reputation costs for the rating agencies.

Keywords: Comparability, creditors, credit ratings, bond yields, bond markets

JEL Classification: G32, M41

Suggested Citation:

Hill, Paula and Lobo, Gerald J. and Wang, Shuo, Financial Reporting Comparability in US Firms Issuing Debt in the US Primary Market (October 16, 2020). Available at SSRN: https://ssrn.com/abstract=3713075 or http://dx.doi.org/10.2139/ssrn.3713075


 Accounting Information, Disclosure and Expected Utility: Do Investors Really Abhor Uncertainty?

Journal of Business Finance and Accounting, 2020

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3755171
46 Pages  
Posted: 11 Feb 2021

David Johnstone

University of Sydney Business School; Financial Research Network (FIRN)

Date Written: December 25, 2020

Abstract

Investors are said to "abhor uncertainty", but if there were no uncertainty they could earn only the risk-free rate. A fundamental result in the analytical accounting literature shows that investors buying into a CARA-normal CAPM market pay lower asset prices, earn higher expected returns, and obtain higher expected utility, when the market payoff has higher variance. New investors obtain similar welfare gains from risk under a log/power utility CAPM. These results do not imply that investors "abhor information". To realize investors' ex ante expectations, the subjective probability distributions representing market expectations must be accurate. Greater payoff risk can add to investors' expected utility, but higher ex post (realized) utility comes from better information and more accurate ex ante expectations. An important implication for accounting is that greater disclosure can have the simultaneous effects of (i) exposing more accurately firms' payoff uncertainty and thereby increasing new investors' expected utility, and (ii) improving market estimates of firms' payoff parameters (means, variances, covariances), thereby giving investors a better chance of realizing their expectations. Paradoxically, better information can be valuable to new investors by exposing more accurately the uncertainty in firms' business operations and results. New investors maximizing expected utility typically want both more uncertainty and better information.

Keywords: risk, information, cost of capital, Bayesian, predictive distribution, parameter risk

JEL Classification: G11

Suggested Citation:

Johnstone, David, Accounting Information, Disclosure and Expected Utility: Do Investors Really Abhor Uncertainty? (December 25, 2020). Journal of Business Finance and Accounting, 2020 , Available at SSRN: https://ssrn.com/abstract=3755171 or http://dx.doi.org/10.2139/ssrn.3755171


The Impact of the Supreme Court’s Omnicare Decision on Audited Financial Statement Disclosure

Journal of Accounting, Ethics and Public Policy 22(1): 1-26 (2021)

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3767165
26 Pages Posted: 9 Feb 2021

Michael Bitter

affiliation not provided to SSRN

Valrie Chambers

Stetson University

Brian Elzweig

affiliation not provided to SSRN

Waleed Ikram

affiliation not provided to SSRN

Date Written: January 15, 2021

Abstract

Since the enactment of the Securities Act of 1933 and 1934, both the legal system and the accounting profession have struggled with the question, “to what extent accountants should rely on the statements of other accounting and non-accounting experts and when should they include parts of expert’s written statements in financial statement disclosures.” The Supreme Court considered this issue in Omnicare v. Laborers District Council Construction Industry Pension Fund (2015) (hereafter, Omnicare). The Omnicare decision refined the expectations of preparers and external auditors working on prospectuses for U.S. registrants. Omnicare considered disclosures in Omnicare’s registration statement regarding their opinions of their perceived compliance with federal regulations and laws. After Omnicare was charged with violations, the Court considered when opinions in registration statements could be treated as misstatements of material fact that could lead to accountant liability.

The clarification to accounting disclosures is important for limiting liability for future registrants as well as for auditors who express an audit opinion on financial statements contained in registration statements. Omnicare created a new rational basis test which is precedential to future cases deciding whether an opinion statement included in a registration statement becomes a misstatement of fact or the lack of an opinion statement constitutes a material omission. Therefore, the rational basis test should be considered by accountants in preparing and auditing registration and post-registration statements, and this article contributes to the accounting and auditing literature by providing new suggested language for incorporation into SEC guidelines and/or PCAOB standards going forward.

Keywords: Financial statement disclosures, registration statement disclosures, Omnicare, AS 4101

JEL Classification: M4, K2

Suggested Citation:

Bitter, Michael and Chambers, Valrie and Elzweig, Brian and Ikram, Waleed, The Impact of the Supreme Court’s Omnicare Decision on Audited Financial Statement Disclosure (January 15, 2021). Journal of Accounting, Ethics and Public Policy 22(1): 1-26 (2021), Available at SSRN: https://ssrn.com/abstract=3767165


For Better or Worse? Financial Reporting Harmonization and Transnational Information Transfers

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3761063
45 Pages Posted: 8 Feb 2021 Last revised: 10 Feb 2021

Manuel Herkenhoff

University of Münster

Martin Nienhaus

Goethe University Frankfurt

Date Written: January 6, 2021

Abstract

We find that global financial reporting harmonization is associated with investors overreacting to peer firms’ earnings announcements. Using a sample of 35,116 firm-pair-years from 51 countries between 2000 and 2010, we show that heightened information transfers due to financial reporting harmonization are followed by predictable price reversals when investors observe own-firm earnings. However, overreactions are not present for international firm-pairs that follow different accounting standards. Further, the same-standards overreactions are significantly stronger for firms with lower reporting incentives and weaker information environments. A difference-in-differences analysis of mandatory adoptions confirms our main results. Collectively, the findings reflect unintended consequences of harmonization.

Keywords: financial reporting harmonization, transnational information transfers, investor overreactions, predictable return patterns

JEL Classification: G15, G41, M40

Suggested Citation:

Herkenhoff, Manuel and Nienhaus, Martin, For Better or Worse? Financial Reporting Harmonization and Transnational Information Transfers (January 6, 2021). Available at SSRN: https://ssrn.com/abstract=3761063 or http://dx.doi.org/10.2139/ssrn.3761063


Street vs. GAAP: Which Effective Tax Rate Is More Informative?

Contemporary Accounting Research, Forthcoming

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3748522
Posted: 8 Feb 2021

Erik Beardsley

University of Notre Dame - Mendoza College of Business

Michael Mayberry

University of Florida - Fisher School of Accounting

Sean T. McGuire

Texas A&M University - Department of Accounting

Multiple version iconThere are 2 versions of this paper

Date Written: September 16, 2020

Abstract

This study investigates how sophisticated market participants use tax-based information by examining whether analysts’ street effective tax rates (ETRs) are informative. When assessing firm performance, analysts exclude items they believe do not reflect current performance, resulting in “street” metrics such as street ETR. However, evidence on the properties of the components of street earnings is limited. Examining the informativeness of street ETRs is important because taxes are a significant component of earnings, and the extent to which analysts understand and incorporate taxes into their analyses is not clear. Using a hand-collected sample of analyst reports, we find that while approximately 35 percent of street ETRs have at least one tax-specific exclusion, over 90 percent reflect the tax effects of pre-tax exclusions. Further, both tax-specific exclusions and the tax effects of pre-tax exclusions significantly contribute to differences between GAAP and street ETRs. Consistent with analysts understanding the implications of tax and non-tax exclusions, our results suggest that street tax metrics exhibit greater predictive ability about future tax outcomes and provide more information to investors than GAAP tax metrics. We also find that ETR exclusions are of higher quality when the magnitude of the potentially excluded item is greater and when managers disclose pro forma earnings. Collectively, our findings suggest that analysts understand taxes, but selectively exert effort to incorporate tax-based information into their assessment of firm performance. Our study should be informative to regulators and users of financial information because it provides evidence regarding the usefulness of street earnings metrics.

Keywords: non-GAAP reporting, street earnings, accounting for income taxes, effective tax rates, analysts, taxes

Suggested Citation:

Beardsley, Erik and Mayberry, Michael and McGuire, Sean T., Street vs. GAAP: Which Effective Tax Rate Is More Informative? (September 16, 2020). Contemporary Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3748522


The Local Spillover Effect of Corporate Accounting Misconduct: Evidence from City Crime Rates

Contemporary Accounting Research, Forthcoming

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3763692
Posted: 8 Feb 2021

Eric Holzman

The Ohio State University - Department of Accounting & Management Information Systems

Brian P. Miller

Indiana University - Kelley School of Business - Department of Accounting

Brian Williams

Indiana University - Kelley School of Business - Department of Accounting

Multiple version iconThere are 3 versions of this paper

Date Written: October 23, 2020

Abstract

This study documents a spillover effect of accounting fraud by showing that after the revelation of accounting misconduct, there is an increase in financially motivated neighborhood crime (robberies, thefts, etc.) in the cities where these misconduct firms are located. We find that more visible accounting frauds (e.g., greater media attention and larger stock price declines) are more strongly associated with a future increase in financially motivated neighborhood crime. We also find that the association between fraud revelation and increased future financially motivated crime is strongest when local job markets are shallower and where local income inequality is high, consistent with adverse shocks from fraud putting pressure on local communities. Combined, our study provides evidence that the societal ramifications of corporate accounting misconduct extend beyond adversely impacting a firm’s capital providers and industry peers to negatively influence the daily life of the residents in the firm’s local community.

Keywords: accounting misconduct, real effects, crime rate, corporate spillover, income inequality, accounting fraud

Suggested Citation:

Holzman, Eric and Miller, Brian P. and Williams, Brian, The Local Spillover Effect of Corporate Accounting Misconduct: Evidence from City Crime Rates (October 23, 2020). Contemporary Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3763692


Motivating Managers to Invest in Accounting Quality: The Role of Conservative Accounting

Contemporary Accounting Research, Forthcoming

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3764459
Posted: 8 Feb 2021

Ralf Ewert

University of Graz - Institute of Accounting and Auditing

Alfred Wagenhofer

University of Graz

Date Written: December 1, 2020

Abstract

While internal control over financial reporting has gained increasing regulatory attention, its enforcement is far from perfect; thus firm-specific incentives to management become important to increase the quality of financial reports. We study how owners can motivate managers to invest in accounting quality even though it is costly to the managers. Using an agency model, we establish that a sufficiently conservative accounting system (which understates performance) is necessary to induce a manager to invest in accounting quality, and more conservatism increases this investment. The reason is that higher accounting quality mitigates the expected reduction of the manager’s compensation from conservatively measured performance. Higher accounting quality makes the performance measure more precise, and the owner optimally lowers incentives, even though that entails some loss of productivity. In total, more conservatism increases both firm value and accounting quality. Our findings suggest that striving for neutral accounting can counteract incentives to improve accounting quality, and they provide support to using conservatism as a metric of financial reporting quality in empirical studies.

Keywords: accounting quality, management incentives, conservatism, internal controls

Suggested Citation:

Ewert, Ralf and Wagenhofer, Alfred, Motivating Managers to Invest in Accounting Quality: The Role of Conservative Accounting (December 1, 2020). Contemporary Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3764459


Gender Discrimination? Evidence from the Belgian Public Accounting Profession

Contemporary Accounting Research, Forthcoming

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3766075
Posted: 8 Feb 2021

Kris Hardies

University of Antwerp

Clive S. Lennox

University of Southern California

Bing Li

City University of Hong Kong (CityUHK)

Date Written: December 15, 2020

Abstract

Prior research finds that women receive lower salaries than men. Similarly, we show that female audit partners in Belgium receive significantly lower compensation than male partners. However, there are alternative explanations for the pay gap other than gender discrimination. For example, the gap in compensation could reflect that men are paid more because they have higher levels of productivity. We provide new predictions and tests of gender discrimination by comparing the fees generated by audit partners (a measure of partner productivity) and the types of clients assigned to partners. Consistent with our prediction of female partners having to meet higher performance thresholds than male partners, we show that female partners generate larger fee premiums, but they are less likely to be assigned to prestigious clients. To test whether these patterns are attributable to gender discrimination, we examine whether the results are stronger in male-dominated offices because this is where we would expect to find the most discrimination against women. We find the fee premiums generated by female partners are larger in male-dominated offices, while the negative association between prestigious clients and female partners is stronger in male-dominated offices. Collectively, our combined predictions and tests are consistent with female partners facing gender discrimination in audit offices that are dominated by male partners.

Keywords: gender discrimination, public accounting firms, female partners

JEL Classification: D22, J71, M41, M42, M51

Suggested Citation:

Hardies, Kris and Lennox, Clive and Li, Bing, Gender Discrimination? Evidence from the Belgian Public Accounting Profession (December 15, 2020). Contemporary Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3766075


Now to Mislead With Statistics

Modeling Skewness Determinants in Accounting Research

 

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3740197
60 Pages
 Posted: 6 Feb 2021

Sudipta Basu

Temple University - Department of Accounting

Dmitri Byzalov

Temple University - Fox School of Business and Management - Department of Accounting

Date Written: November 30, 2020

Abstract

Skewness-based proxies are widely used in accounting and finance research. To study how the skewness of a dependent variable Y varies with conditioning variables X, researchers typically compute firm-specific skewness measures over a short rolling window and regress them on X. However, we show that this standard approach can cause severe biases and produce false findings of both conditional skewness on average and systematic variation in conditional skewness. These biases generalize beyond rolling-window skewness. We develop alternative methods that address these biases by directly modeling the conditional skewness of Y for each observation as a function of X. Simulations confirm that our methods have good type-I errors and test power even in scenarios in which the standard method is severely biased. Our methods are transparent, robust, and can be implemented in a few lines of code. Use of our methods changes a major prior finding.

 

 

Keywords: Pearson’s moment coefficient of skewness, quantile-based skewness, rolling window, conditional distribution, generalized method of moments (GMM)

JEL Classification: M41, C20, C25

Basu, Sudipta and Byzalov, Dmitri, Modeling Skewness Determinants in Accounting Research (November 30, 2020). Available at SSRN: https://ssrn.com/abstract=3740197 or http://dx.doi.org/10.2139/ssrn.3740197

Corporate Social Responsibility (CSR) and Environmental Social Governance (ESG) – Disclosure of European Banks

European Banking Institute Working Paper Series 2021 - no. 83

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3778674
247 Pages Posted: 3 Feb 2021

Edgar Loew

Frankfurt School of Finance & Management gemeinnützige GmbH - Accounting Department

Giulia Erichsen

Frankfurt School of Finance & Management gemeinnützige GmbH

Benjamin Liang

affiliation not provided to SSRN

Margret Louise Postulka

Frankfurt School of Finance & Management gemeinnützige GmbH

Date Written: February 3, 2021

Abstract

In the European Union the goal of transition towards a carbon-neutral economy by 2050 is identified as a major aim of the European Commission. The integral role of the financial services sector in funding such investments and enhancing the (re-) direction and allocation of capital flows towards sustainable projects and investments is increasingly acknowledged. Besides the integration of ESG and CSR into the banks’ operations, it can serve and be utilized as risk management tools.

This paper investigates the effectiveness of the EU Non-Financial Reporting Directive (2014/95/EU) with respect to the CSR disclosure quality in European banks from 2017-2019. After an overview of the EU’s path towards a sustainable financial sector from 2013 till present, the most important regulations will be assessed in detail, namely the Non-Financial Reporting Directive (2014/95/EU) and the Taxonomy Regulation on Sustainable Economic Activity (2020/852/EU). By constructing a multi-category CSR disclosure index to “translate” and quantify disclosed CSR information in the banks’ annual filings, a positive comparative development over the years is identified – indicating the general effectiveness of the directive. The construction of the disclosure index and the content analysis of the banks’ CSR disclosures is based on textual analysis.

In order to not only analyse and evaluate the level of CSR disclosure in European banks from 2017-2019, but also to identify potential factors influencing its quality, the collection of multiple data inputs is necessary. The paper examines the association between three factors of the balance sheet and the P&L on their significance on the disclosure score. These factors are asset size in million euro (proxy for size), common equity tier 1 ratio (proxy for market discipline) as defined in the Basel III regulatory framework (proxy for market discipline) and pre-tax return on assets (proxy for profitability). Furthermore, the association of other non-balance sheet factors and their correlation on the disclosure score is examined which are listing status (listed or non-listed), country of the head-quarter, (external) auditor and bank´s CSR report type. Therefore, this adds detail to research, as existing majorly focus on how CSR-related information is disclosed and not to what extent and quality.

This paper targets accountants, financial institutions, regulatory authorities, shareholders, investors and stakeholders in general who are affected by and interested in the overall CSR disclosure quality of European banks.

Keywords: Bank Accounting, Banks, Corporate Social Responsibility, Sustainable Finance, Disclosure, Accounting, Auditing

JEL Classification: G15, G18, G21, G28, K22, K23, M41, M42, M48

Suggested Citation:

Loew, Edgar and Erichsen, Giulia and Liang, Benjamin and Postulka, Margret Louise, Corporate Social Responsibility (CSR) and Environmental Social Governance (ESG) – Disclosure of European Banks (February 3, 2021). European Banking Institute Working Paper Series 2021 - no. 83, Available at SSRN: https://ssrn.com/abstract=3778674


Cognitive Determinants of Aggressive Financial Reporting – The Combined Effects of Ego Depletion, Moral Identity, and an Ethical Intervention

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3762591
46 Pages Posted: 3 Feb 2021

John Lauck

Louisiana Tech University - School of Accounting & Information Systems

Eric Michael Negangard

University of Virginia; University of Virginia

Joseph Rakestraw

Florida Atlantic University - School of Accounting

Date Written: January 8, 2021

Abstract

We experimentally investigate the combined effects of ego depletion, moral identity, and ethical interventions on managers’ financial reporting aggressiveness in the development of an accounting estimate. We find that decision makers with high moral identity become more aggressive later in the day (once they become ego depleted), but those with low moral identity do not. We also find that an ethical intervention has a significant influence on the reporting judgments of depleted decision makers with low moral identity, but not on the judgments of depleted decision makers with high moral identity. However, the opposite effect occurs when decision makers are not depleted. That is, an ethical intervention has a significant influence on the financial reporting judgments of undepleted decision makers with high moral identity, but not on the judgments of undepleted decision makers with low moral identity. Supplemental analyses reveal different patterns of decision makers’ cognitive dissonance across experimental conditions.

Keywords: Aggressive Financial Reporting, Ego Depletion, Moral Identity, Ethics

JEL Classification: M1, M14, M4, M41

Suggested Citation:

Lauck, John and Negangard, Eric Michael and Rakestraw, Joseph, Cognitive Determinants of Aggressive Financial Reporting – The Combined Effects of Ego Depletion, Moral Identity, and an Ethical Intervention (January 8, 2021). Available at SSRN: https://ssrn.com/abstract=3762591


Fundamental Analysis of XBRL Data: A Machine Learning Approach

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3741015
62 Pages Posted: 3 Feb 2021

Xi Chen

New York University (NYU) - Leonard N. Stern School of Business

Yang Ha Cho

New York University (NYU) - Department of Accounting

Yiwei Dou

New York University (NYU) - Department of Accounting

Baruch Lev

New York University - Stern School of Business

Date Written: December 2, 2020

Abstract

Since 2012, all U.S. public companies must tag quantitative amounts in financial statements and footnotes of their 10-K reports using the eXtensible Business Reporting Language (XBRL). We conduct a fundamental analysis of this large set of detailed financial information to predict earnings. Using machine learning methods, we combine the XBRL data into a summary measure for the direction of one-year-ahead earnings changes. Hedge portfolios are formed based on this measure during the period 2015-2018. The annual size-adjusted returns to the hedge portfolios range from 5.02 to 9.7 percent. These returns persist after accounting for transaction costs and risk. Our strategies outperform those of Ou and Penman (1989), who extract the summary measure from 65 accounting variables using logistic regressions. Additional analyses suggest that the outperformance stems from both nonlinear predictor interactions missed by regressions and more detailed financial data in XBRL documents.

Keywords: Fundamental Analysis, XBRL, Machine Learning

JEL Classification: M41, G12

Suggested Citation:

Chen, Xi and Cho, Yang Ha and Dou, Yiwei and Lev, Baruch Itamar, Fundamental Analysis of XBRL Data: A Machine Learning Approach (December 2, 2020). Available at SSRN: https://ssrn.com/abstract=3741015


On (r, g) and the Identity ROE = EP*MTB

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3741088
42 Pages Posted: 3 Feb 2021

James A. Ohlson

Hong Kong Polytechnic University - School of Accounting and Finance

Sophia Weihuan Zhai

Hong Kong Polytechnic University - School of Accounting and Finance

Date Written: December 2, 2020

Abstract

The paper concerns concepts of equity valuation. Three primary financial ratios -- (forward) return on equity (ROE), (forward) earnings to price ratio (EP), and the (current) market-to-book ratio (MTB) – are connected to the standard valuation parameters, r = cost of equity (discount factor), and g = growth. The framework relies on a Gordon-Williams type of PVD model and combines it with an add-on steady-state growth requirement: Subject to clean surplus accounting, (the expected) earnings, dividends, and book values all grow at the same rate. This condition is adapted from “The Second Fundamental Law of Capitalism”, articulated by Piketty (2014). Applying these ideas result in a benchmark model: (i) a weighted average representation, EP = BTM*r + (1- BTM) *Div.Yield , and (ii) the inequalities 0 < BTM < 1 and Div.Yield < EP < r < ROE. Additional analysis relaxes the steady-state growth condition: the g-parameter is now replaced by forecasts of near future earnings growth which get updated as time passes. An empirical part of the paper evaluates whether the steady-state growth concept holds as an average for S&P 500 firms. Results are generally supportive.

JEL Classification: G12, M41

Suggested Citation:

Ohlson, James A. and Zhai, Sophia Weihuan, On (r, g) and the Identity ROE = EP*MTB (December 2, 2020). Available at SSRN: https://ssrn.com/abstract=3741088


A Needle Found: Machine Learning Does Not Significantly Improve Corporate Fraud Detection Beyond a Simple Screen on Sales Growth

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3739480
44 Pages Posted: 3 Feb 2021

Stephen Walker

University of California, Berkeley - Accounting Group

Date Written: November 29, 2020

Abstract

Recent papers have been highly promotional of the benefits of machine learning in the detection of corporate fraud. For example, Bao, Ke, Li, Yu, and Zhang (2020) recently published in the Journal of Accounting Research report that their machine learning model increases performance by +75% above the current parsimonious standard in the accounting literature, the financial ratio-based F-Score (Dechow, et al. 2011), when measured at the highest risk levels. They also show that raw variables alone, rather than financial ratios, can achieve this task. However, a quick peak under the hood reveals an issue that, if corrected for, reduces the results to no better than the F-Score.

In this paper, I create a machine learning model applying the latest in machine learning known as XGBoost to over 100 financial ratios sourced from prior literature. I compare this model to an XGBoost model applying the 28 raw variables suggested by Bao, et al. Additional models are benchmarked include the F-Score, the M-Score (Beneish 1999), the FSD Score based on Benford’s Law (Amiram, et al. 2015), and a simple screen on 4-year sales growth.

A Wilcoxon rank sum test will show that differences between the models at the top 1% of risk are not significantly different. In fact, at this level, the models fail often in any given year. At the top 10% of risk where models produce consistent annual results, advanced methods match the performance of the F-Score, or even a simple univariate screen on sales growth I measure performance using positive predictive values (PPV) also known as precision which measures the likelihood of a fraud case within the top 1% or top 10% list. My XGBoost model outperforms the models at the 1% level, but positive predictive values remain quite low to be of any practical use with PPVs in the 3% range. A discussion will follow to explain what would be required to move positive predicted values beyond the single digits for this research question.

Keywords: Corporate Fraud, AAER, Machine Learning, XGBoost

Suggested Citation:

Walker, Stephen, A Needle Found: Machine Learning Does Not Significantly Improve Corporate Fraud Detection Beyond a Simple Screen on Sales Growth (November 29, 2020). Available at SSRN: https://ssrn.com/abstract=3739480


Measuring Employment Impact: Applications and Cases

Harvard Business School Accounting & Management Unit Working Paper No. 21-082

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3775838
11 Pages Posted: 2 Feb 2021

Katie Panella

Harvard University - Harvard Business School

George Serafeim

Harvard Business School

Date Written: January 20, 2021

Abstract

Applying the Impact-Weighted Accounts Initiative’s employment impact methodology, on eight leading companies, we document wide variability in employment impacts as a percentage of salaries paid, ranging between 59 and 80 percent. We identify opportunities for improvement and discuss transition plans for companies to create more positive employment impact. We conclude with a call for disclosure of Equal Employment Opportunity Commission EEO-1 reports, paid leave, childcare and healthcare benefits, which would greatly facilitate the comparable and reliable measurement of employment impact in the future.

Keywords: impact measurement, accounting, employees, well-being, diversity, opportunity, wages

Suggested Citation:

Panella, Katie and Serafeim, George, Measuring Employment Impact: Applications and Cases (January 20, 2021). Harvard Business School Accounting & Management Unit Working Paper No. 21-082, Available at SSRN: https://ssrn.com/abstract=3775838




Teaching Case From The Wall Street Journal Weekly Accounting Review on January 22, 2021

CFOs at U.S. Midmarket Companies Predict Revenues Will Rebound

By Mark Maurer | January 12, 2021

Topics: Revenue Forecast , Chief Financial Officer (CFO)

Summary: The article discusses a survey by BDO USA LLP of both publicly trade and privately held midsize companies’ CFOs, and other data sources, assessing expectations for 2021. “Fifty-six percent of chief financial officers at publicly traded and privately held midsize companies predict revenue will increase over the next 12 months…. The percentage is down from last January, when 81% of CFOs forecast higher revenues before the onset of the pandemic in the U.S.” Evaluating results achieved by mid-market companies, both public and private, shows that revenues grew 2.9% in October and November of 2020 but earnings in that period “…rose to 14.9% from 10% a year before….”

Classroom Application: The article may be used in any level of financial reporting class to discuss the importance of the revenue line item and its forecast as well as the difference between revenue growth and profitability.

Questions:

  • What did chief financial officers (CFOs) of middle-market companies forecast for 2020 before the onset of the pandemic?
  • What do these CFOs of middle-market companies forecast for 2021?
  • Revenue growth at middle-market companies fell during the two months of October and November of 2020 in comparison to the same months in 2019. What happened to profitability?
  • How did middle-market companies achieve this operating performance?

READ THE ARTICLE

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

 

 

"CFOs at U.S. Midmarket Companies Predict Revenues Will Rebound," by Mark Maurer, The Wall Street Journal,January 12, 2021  ---
https://www.wsj.com/articles/cfos-at-u-s-midmarket-companies-predict-revenues-will-rebound-11610486949

The improved outlook comes after a year during which midsize firms sought to preserve cash amid the pandemic

U.S. middle-market companies expect their businesses to rebound in the year ahead after revenue growth slowed in 2020 due to the coronavirus pandemic.

Fifty-six percent of chief financial officers at publicly traded and privately held midsize companies predict revenue will increase over the next 12 months, according to a recent survey by BDO USA LLP, a professional-services firm.

The percentage is down from last January, when 81% of CFOs forecast higher revenues before the onset of the pandemic in the U.S. The BDO survey found that the outlook varies by sector, with 44% of retail CFOs anticipating falling revenues in 2021, while 37% expect a rise. The survey was conducted in September.

Middle-market companies usually generate between $100 million and $3 billion in annual revenue and grow at a faster pace than their larger counterparts. The improved outlook comes after a year during which middle-market firms sought to preserve cash, dial back investments and pause hiring plans amid economic uncertainty caused by the pandemic.

Companies such as Park Place Technologies LLC, a Cleveland-based provider of data-center services, saw revenue growth weaken last year. The privately-owned company, which generated roughly $600 million in revenue in 2020, hired new staff and spent money on acquisitions that could help propel sales this year, finance chief Andrew Gehrlein said.

“We continue to invest in the groundwork that we’ve laid, to really lead us to a higher performance level and higher growth in 2021,” Mr. Gehrlein said.

Midmarket companies reported median revenue growth of 2.9% in October and November, down from 8.3% in the prior-year period, according to a report by Golub Capital, a lender to more than 150 of these companies.

Despite lower revenue growth, midsize companies reported higher profits, as finance chiefs executed emergency cost cuts in addition to planned long-term reductions. Earnings growth in the first two months of the fourth quarter rose to 14.9% from 10% a year before, Golub Capital said.

Sustaining that pace could become a challenge for CFOs in 2021, said Lawrence Golub, chief executive of Golub Capital. “CFOs are going to be under pressure to maintain margins,” he said.

Still, midmarket CFOs are more likely than in 2020 to hire new workers and pursue mergers and acquisitions as the economy recovers and vaccines against Covid-19 become more widely available, said Robert Brown, chief executive for North America at Lincoln International LLC, an investment bank.

 

But some companies might stick to the cost cuts they introduced during the pandemic, Mr. Brown said. “Companies may say…we don’t need to turn all of these costs back on, even though we may be through the crisis,” he said.

Certain midmarket companies could face more challenges in 2021—despite the improved outlook—including cash shortages or issues around meeting financial targets set by their lenders, said Wayne Berson, chief executive of BDO USA.

“Nothing about 2021 is going to be normal,” Mr. Berson said.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on February 5, 2021

AT&T Books $15.5 Billion Charge on DirecTV Unit

By Drew FitzGerald | January 27, 2021

Topics: Segment Reporting , Asset Impairment

Summary: “AT&T booked a $15.5 billion charge on its pay-television business….The write-down created a fourth-quarter loss as the media-and-telecommunications giant weighs the potential sale of its pay-TV assets and executives focus their investments on newer technologies….AT&T held deal discussions…that valued the video business at more than $15 billion including debt. The…write-down reflects how the business has changed since AT&T bought DirecTV in 2015 for…$66 billion including debt.” Overall, revenues have fallen in the fourth quarter of 2020 as compared to 2019 and “AT&T shares fell about 20% last year.” The earnings release on which the article is based can be found at https://www.sec.gov/Archives/edgar/data/732717/000073271721000009/t-4q2020exhibit991.htm

Classroom Application: The article may be used in a financial reporting course. It primarily covers the topic of impairment write-down but also focuses on detailed AT&T financial statement items--revenues, segment revenues, and cash flows--to assess the company’s financial performance. It also refers to AT&T’s “postpaid phone subscribers, a metric watched closely by Wall Street” and describes stock price performance in the past year.

Questions:

  • What was AT&T’s overall performance during 2020?
  • Does this performance surprise you? Support your answer.
  • Refer to the graphic entitled Segment operating revenue. How do the components of this graph further explain the overall company results?
  • For what did AT&T take an impairment charge in the fourth quarter of 2020? In your answer, define the term impairment charge and identify all of the points discussed in the article that you think are related to this charge.

READ THE ARTICLE

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

 

"AT&T Books $15.5 Billion Charge on DirecTV Unit, by Drew FitzGerald, The Wall Street Journal, January 27, 2021 ---
https://www.wsj.com/articles/at-t-books-15-5-billion-charge-on-directv-unit-11611749205

Legacy television unit weighs on conglomerate even as it adds HBO Max and phone subscribers

AT&T Inc. 1.33% booked a $15.5 billion charge on its pay-television business, reflecting the damage cord-cutting has taken on its DirecTV satellite unit even as the company’s HBO Max streaming service’s growth ramped up.

The write-down created a fourth-quarter loss as the media-and-telecommunications giant weighs the potential sale of its pay-TV assets and executives focus their investments on newer technologies. The company reported quarterly revenue declines in its legacy-video and WarnerMedia units, offsetting gains in its core wireless-phone division.

Executives called the noncash accounting charge a sign of the pay-TV unit’s aging status as the Dallas company promotes an internet-streaming model that gives its content-production business a direct line to viewers.

“Our biggest and single-most important bet is HBO Max,” Chief Executive John Stankey said on a conference call Wednesday. Executives plan to expand the service’s footprint in other countries this year and launch an advertising-supported version in the second quarter.

Overall, AT&T reported a fourth-quarter loss of $13.89 billion, or $1.95 a share, compared with a profit of $2.39 billion, or 33 cents a share, a year earlier. Revenue fell 2.4% to $45.7 billion.

The coronavirus pandemic has strained the company, pressuring revenue from cable networks such as CNN and TBS throughout the year and closing many of the theaters that show its Warner Bros. films. Those pullbacks obscured recent gains in the company’s wireless service, which still generates more than half of the company’s profit

 

The last three months of the year gave AT&T a net gain of 800,000 postpaid phone subscribers, a metric watched closely by Wall Street. Rivals Verizon Communications Inc. and T-Mobile US Inc. reported net gains of 279,000 and 824,000 such connections, respectively.

Revenue from AT&T’s WarnerMedia division fell 9.5% to $8.5 billion as the show-business side continued to wrestle with low box-office revenue and weak advertising revenue. The HBO business grew and ended the year approaching 42 million U.S. subscribers, a figure that includes older cable plans as well as the new online service.

AT&T’s media division stunned Hollywood last year with a plan to release all of Warner Bros.’ 2021 movies on HBO Max the same day they hit theaters. Executives said the move would help the business cope with audiences reluctant to visit theaters during a pandemic, while giving the studio’s sister streaming service an extra boost.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on February 5, 2021

Microsoft Sales Surge to Record, With Help From Cloud and Videogames

By Aaron Tilley | January 26, 2021

Topics: Profitability , Segment Reporting , Revenues

Summary: Microsoft’s fiscal year end is June 30. The company has just released fiscal second quarter results for the period ending December 31, 2020; the filing is available on the Securities and Exchange Commission (SEC) EDGAR database at https://www.sec.gov/cgi-bin/viewer?action=view&cik=789019&accession_number=0001564590-21-002316&xbrl_type=v As is the case for most high tech companies, “the remote-work era has been a boon for Microsoft.” CEO Satya Nardella has described 2020 as “the dawn of a second wave of digital transformation sweeping every company and every industry.”

Classroom Application: The article may be used in any level of financial reporting class covering revenues, profitability, and segment reporting.

Questions:

  • What does Microsoft CEO Nadella mean by saying we have witnessed the “dawn of the second wave of digital transformation”?
  • How has that burgeoning need for digital products benefitted Microsoft’s business overall? Specifically highlight the overall results achieved by Microsoft and its forecast for future performance.
  • How many segments of Microsoft’s business that have seen growth during the pandemic are mentioned in the article? In your answer, also define the term “business segment” and identify how the segments are described in the article.
  • The 10-Q report on which this article is based is available through the Securities and Exchange Commission (SEC) EDGAR system at https://www.sec.gov/cgi-bin/viewer?action=view&cik=789019&accession_number=0001564590-21-002316&xbrl_type=v#f Click on Notes to Financial Statements, then Segment Information and Geographic Data. List the segments and briefly describe each, then link them to the answers you gave to question 3 above.
  • How does the discussion in this article show the importance of segment information for understanding the overall operating results?

READ THE ARTICLE

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

 

"Microsoft Sales Surge to Record, With Help From Cloud and Videogames," by Aaron Tilley, The Wall Street Journal, January 26, 2021 ---
https://www.wsj.com/articles/microsoft-msft-2q-earnings-report-2021-11611622268

Quarterly sales advance 17% to record $43.1 billion

Microsoft Corp. MSFT -0.41% posted record quarterly sales underpinned by pandemic-fueled demand for videogames and accelerated adoption of its cloud-computing services during the health crisis.

The remote-work era has been a boon for Microsoft. In addition to its videogame and cloud-computing products, the company has notched strong sales of its Surface laptops as people bought devices to facilitate working from home and distance learning. The use of Microsoft’s Teams workplace-collaboration software, which has been a priority for Chief Executive Satya Nadella, has jumped during the pandemic with its offering of such services as text chat and videoconferencing.

“What we have witnessed over the past year is the dawn of a second wave of digital transformation sweeping every company and every industry,” Mr. Nadella said Tuesday.

The software giant said its fiscal second-quarter net income rose more than 30% to $15.5 billion. Sales advanced 17% to $43.1 billion. Those figures beat Wall Street’s expectation of net income of $12.6 billion and sales of $40.2 billion, according to FactSet.

Microsoft shares were ahead 4% in after-hours trading. The stock gained more than 40% over the past year.

Tech companies broadly have been among the biggest corporate winners during the pandemic and have drawn investor enthusiasm. Apple Inc., which reports earnings Wednesday, has seen its stock rise about 80% over the past year as people sheltering at home bought Mac computers and iPads. Online retailer Amazon.com Inc. has piled up revenue, including in its cloud-computing business that competes with Microsoft’s offering.

Microsoft finance chief Amy Hood told analysts Tuesday that further growth is expected in the current quarter. Sales are projected to come in at $40.35 billion to $41.25 billion, the company said. Videogames are expected to post roughly 40% growth from a year earlier, with Surface laptop sales also enjoying double-digit increases, Ms. Hood said.

Mr. Nadella’s bet on cloud computing has been pivotal to Microsoft’s multiyear run of year-over-year sales increases. Sales for the company’s Azure cloud-services have expanded rapidly; however, before the pandemic hit the pace of growth was slowing as the business gained scale. Remote working arrested that decline. Azure sales increased 50% in the most recent quarter ended Dec. 31, compared with a 48% rise for the prior three-month period.

Azure became a bigger source of revenue for Microsoft than its Windows operating system licenses in the September quarter, said Brent Bracelin, an analyst at Piper Sandler. Microsoft doesn’t break out Azure revenue, but the company is the world’s second-largest cloud-computing vendor after Amazon.com Inc.

The role of videogames in Microsoft’s fortunes also has increased under Mr. Nadella, in part fueled by acquisitions. The company last year bought ZeniMax Media Inc., the parent company of the popular Doom videogame franchise, for $7.5 billion. Xbox content and services revenue increased 40% in the latest quarter, aided by the November release of two new gaming consoles, Xbox Series X and S, to battle Sony Corp.’s PlayStation 5.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on February 5, 2021

UPS to Sell Freight Trucking Business for $800 Million

By Jennifer Smith Paul Ziobro | January 25, 2021

Topics: Segment Reporting , Asset Sales , Asset Impairment

Summary: “UPS and rival FedEx have faced huge increases in shipping volume during the coronavirus pandemic, as consumers have ordered everything from their essential goods like toothpaste and toilet paper to bulky items to outfit home offices and outdoor play sets.” To focus on business to customer delivery, and avoid investments that will be needed to maintain competitiveness, UPS will sell its freight unit which offers “less-than-truckload services” to TFI International in a deal that will close in the second quarter of 2021. This business move “is one of the biggest strategic shifts by new Chief Executive Carol Tomé.” It has led to a $500 million impairment charge.

Classroom Application: The article may be used in a managerial accounting class discussing business strategy and/or supply chain logistics. The article also may be used in a financial reporting class to discuss business segments and the related impairment charge of approximately $500 million as disclosed in the article ($545 million after taxes in the actual filing). The Release of fourth quarter 2020 earnings is available at https://www.sec.gov/Archives/edgar/data/1090727/000109072721000010/exhibit991-q42020earningsp.htm In the third paragraph, the release discusses GAAP results that “include…an after-tax impairment charge of $545 million associated with the Company’s decision to sell UPS Freight.” Tables show an operating loss in the company’s Supply Chain and Freight Segment of $228 million. Finally, the company presents non-GAAP information showing an adjusted operating margin of $260 million in the segment.

Questions:

  • UPS is a trucking and delivery company. Doesn’t selling its freight business mean the end of its operations? Explain your answer.
  • What is the meaning of “less than truckload services”?
  • How competitive is UPS Freight? In your answer, explain how you measure this comparison.
  • UPS bought Overnite Corp. for $1.25 billion in 2005 to move into the trucking market. Based on your reading of the article, describe how the asset sale is related to that earlier business acquisition.
  • Do you think that the impairment charge “of roughly $500 million” reported in this article relates to the reported sale and the earlier acquisition of Overnite Corp.? Explain your answer.

READ THE ARTICLE

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

 

"UPS to Sell Freight Trucking Business for $800 Million," by Jennifer Smith and Paul Ziobro, The Wall Street Journal, January 25, 2021 ---
https://www.wsj.com/articles/ups-to-sell-freight-trucking-business-to-tfi-for-800-million-11611592797  

In exiting truck cargo, UPS to focus on parcel-delivery network

United Parcel Service Inc. agreed to sell its freight business to rival TFI International Inc. for $800 million, saying it is pulling out of the domestic trucking market to focus on the soaring small-package-delivery business.

The sale is one of the biggest strategic shifts by new Chief Executive Carol Tomé since she took the position last June. She has adopted a mantra of “better, not bigger” in assessing UPS’s operations, and jettisoning the freight business eliminates future capital investments needed to keep the division competitive.

The agreement announced Monday would allow the business to continue using UPS’s domestic package network for five years to fulfill shipments. TFI, which is based in Canada, provides similar freight trucking services, as well as logistics services and parcel shipping in Canada.

UPS Freight offers less-than-truckload services, in which cargo from multiple shippers is combined in a single trailer, in all 50 states, Canada and Mexico. The business has about 14,500 employees, 80% of whom are full-time, UPS said.

The unit is the sixth-largest carrier by revenue in the U.S. LTL market, behind carriers including FedEx Corp.’s FedEx Freight unit and Old Dominion Freight Line Inc., according to SJ Consulting. UPS Freight generated an estimated $3.15 billion in 2020 revenue, down slightly from 2019, according to UPS. TFI, which has truckload, less-than-truckload and logistics operations, reported revenue of about $4.1 billion in 2019.

UPS on Monday said it expects to book a noncash impairment charge of roughly $500 million before taxes for 2020. The deal is expected to close in the second quarter.

UPS moved into the trucking market with its acquisition in 2005 of Overnite Corp. for $1.25 billion, then its largest-ever acquisition. It said it decided to sell the business after assessing its portfolio, enabling it to pay down long-term debt. The delivery giant said it would retain historical pension assets and liabilities, while pension benefits earned after closing will be TFI’s responsibility.

UPS and rival FedEx have faced huge increases in shipping volume during the coronavirus pandemic, as consumers have ordered everything from their essential goods like toothpaste and toilet paper to bulky items to outfit home offices and outdoor play sets. The carriers have raised shipping rates and added new surcharges to offset the higher costs, but it has had little effect in slowing demand for online buying.

“As more and more parcel goes B2C [business-to-consumer], the bundling with freight and parcel is less relevant,” said Satish Jindel, president of research firm SJ Consulting Group Inc. UPS’s freight “is mostly industrial and manufacturing,” he added.

The acquisition leaves UPS rival FedEx, whose FedEx Freight unit has better operating margins than UPS Freight, as the biggest major parcel shipper with a less-than-truckload operation, Mr. Jindel said.

The Teamsters union represents some 11,000 UPS Freight workers who ratified a five-year contract with the company in late 2018.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on February 12, 2021

New York Financial Groups Urge State Leaders to Oppose Stock-Transfer Tax

By Jimmy Vielkind | February 3, 2021

Topics: State Taxation

Summary: “Democratic legislators in the State of New York have introduced bills for more than a decade to reimpose [a stock transfer] tax” which has not been collected since 1981 but was originally enacted in 1905. None of these bills have come to the floor of the legislature. Both Speaker Carl Heastie of the State Assembly and Senate Majority Leader Andrea Stewart-Cousins “said they were considering a financial transaction tax.” They and other supporters of a stock-transfer tax say it would raise additional revenue as the state confronts a budget deficit. Financial industry leaders have sent a joint letter to the legislature and claim they would leave the state if such a tax is imposed. President of the New York Stock Exchange, Stacey Cunningham, sent a letter to the WSJ which was printed in the Opinion page on February 9, 2021 and is available at https://www.wsj.com/articles/the-nyse-isnt-movingyet-11612893427.

Classroom Application: The article may be used in a tax class, a governmental accounting class, or in a financial reporting class.

Questions:

  • What type of tax is being proposed for consideration by the State of New York legislature?
  • What are the New York financial circumstances behind this proposal?
  • Are there any other arguments in support of instituting this tax besides New York’s financial circumstances?
  • What is a progressive tax? Cite your source for this definition.
  • What types of taxes may be progressive?
  • How does this New York tax proposal reflect progressivity?
  • A letter to New York Governor Andre Cuomo was signed by the NASDAQ, NYSE, and SIFMA (not Simfa as erroneously stated in the article). Who are these entities?
  • What do the NASDAQ, NYSE, and SIFMA say they or their members may do in response to any new taxes imposed by the state of New York?

READ THE ARTICLE

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

 

"New York Financial Groups Urge State Leaders to Oppose Stock-Transfer Tax," by Jimmy Vielkind, The Wall Street Journal, February 3, 2021 ---
https://www.wsj.com/articles/new-york-financial-groups-urge-state-leaders-to-oppose-stock-transfer-tax-proposal-11612379501

Proponents of the idea say it would raise additional revenue as the state confronts a budget deficit

ALBANY, N.Y.—Major financial exchanges and securities industry groups on Wednesday urged New York state lawmakers to not support a proposal being pushed by some Democrats and unions to impose taxes on stock sales.

In a letter to Gov. Andrew Cuomo and leaders of the state Assembly and Senate, the exchanges said any tax would prompt the relocation of securities industry firms and jobs out of New York and would also be passed along to investors and public pension funds. The letter’s 27 signatories include Nasdaq Inc., the New York Stock Exchange, groups representing downstate businesses and the Securities Industry and Financial Markets Association, or Simfa, which represents financial firms.

“Such a tax would damage New York’s position as a global financial capital, resulting in shrinkage of an industry that is the largest contributor to our economy and tax base,” the letter says.

Sifma President and CEO Kenneth Bentsen Jr. said in an interview that the groups sent the letter because a number of new legislators, including Democrats who support a transaction tax, have recently taken office.

Rebecca Bailin, director of the pro-tax Invest in Our New York campaign, said the letter showed Wall Street firms were on the defensive and said threats to move were empty. State Assemblyman Phil Steck, an Albany-area Democrat who supports a stock-transfer tax, said any impact on individual investors would be minuscule compared with the positive effects of additional state spending on infrastructure.

Mr. Steck estimated the tax could generate around $11 billion a year for the state.

“This is a progressive sales tax,” he said.

New York enacted a stock transfer tax in 1905 but stopped collecting it in 1981. Democratic legislators have introduced bills for more than a decade to reimpose the tax—which runs as high as 5 cents on a share priced at $20 or more—but none have come to the floor. Supporters of a stock-transfer tax say it would raise additional revenue as the state confronts a budget deficit.

Both state Assembly Speaker Carl Heastie, a Democrat from the Bronx, and Senate Majority Leader Andrea Stewart-Cousins, a Democrat from Yonkers, said they were considering a financial transaction tax to raise more revenue for education and other social service programs funded by the state. They are negotiating a budget agreement with Mr. Cuomo; the state’s current budget expires on March 31.

Mr. Cuomo, a Democrat, proposed increasing income-tax rates last month as he addressed an $8.2 billion deficit in a $193 billion budget. His budget director, Robert Mujica, said at the time that the governor didn’t support a financial transaction tax and that the pandemic showed that people could easily move business operations. A spokesman for the governor said he would review the letter.

No other states tax financial transactions, which members of the securities industry have lobbied against at the federal level. In September, NYSE threatened to move electronic trading systems out of New Jersey if the state implemented a tax on financial transactions, which had the support of the state’s Democratic governor, Phil Murphy.

An October report by state Comptroller Tom DiNapoli found 182,100 New Yorkers were employed in the securities industry in 2019, but the state’s share of industry jobs has fallen to 19% in 2019 from one-third in 1990. Mr. DiNapoli, a Democrat, estimated the industry was responsible for 17% of economic activity in New York City and accounted for 18% of state tax revenues.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on February 12, 2021

Environmental, Social, and Government (ESG) Governance --- https://en.wikipedia.org/wiki/Environmental,_social_and_corporate_governance

ESG Metrics Help CFOs Attract New Investors, Reduce Costs

By Maitane Sardon | February 8, 2021

Topics: ESG Reporting

Summary: The article discusses chief financial officers' (CFOs') focus on sustainability metrics and the forces driving that focus. According to two data providers, “twenty companies in the S&P 500 mentioned the acronym ESG or sustainability on earnings conference calls between Oct. 1 and Dec. 31, compared with only six companies three years before….[and, g]lobally, the term ESG was mentioned 205 times on investor calls during the fourth quarter of 2020.” More than 1,500 companies world-wide have pledged to reduce their carbon emissions to net-zero in the coming years…[and m]any have also made commitments to support diversity and inclusion.” Factors driving these commitments include investor demand: assets under professional management that include sustainability in the investment strategy have nearly doubled between 2016 and 2020 to $40.5 trillion.

Classroom Application: The article may be used in a management accounting or financial reporting course. Questions focus on students’ understanding of chief financial officer (CFO) responsibilities to manage and report on metrics associated with environmental, social and governance (ESG) matters. The WSJ ranking of the world’s 100 most sustainably managed companies is available at https://www.wsj.com/articles/explore-the-full-wsj-sustainable-management-ranking-11602506733

Questions:

  • What are the responsibilities of a chief financial officer (CFO)? Cite your source for this information.
  • Based on the discussion in the article, explain your understanding of the phrase “corporate environmental, social and governance matters” (ESG). If you refer to an outside source, provide a citation.
  • Are you surprised that this article shows that CFOs discuss sustainability issues and view their measurement as a priority? Explain your answer.

READ THE ARTICLE

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

 

"ESG Metrics Help CFOs Attract New Investors, Reduce Costs," by Maitane Sardon, The Wall Street Journal, February 8, 2021 ---
https://www.wsj.com/articles/esg-metrics-help-cfos-attract-new-investors-reduce-costs-11612780321

More finance chiefs talk about sustainability on earnings calls, provide disclosures

Chief financial officers are embracing sustainability measures as a way to attract new investors, lower their companies’ borrowing costs and cut operating expenses.

More than 1,500 companies world-wide have pledged to reduce their carbon emissions to net-zero in the coming years, according to research by the NewClimate Institute, a nonprofit. Many have also made commitments to support diversity and inclusion. These kinds of environmental, social and governance promises put pressure on finance chiefs across industries to square company finances with sustainability metrics.

“We need to take a broad and long-term view…and look at the intangibles that any investment can bring to the table, we need to look at the bigger picture,” said Sreedhar N., chief financial officer at Compagnie de Saint-Gobain SA, a French manufacturer of construction materials.

More CFOs have been talking about sustainability in recent months. Twenty companies in the S&P 500 mentioned the acronym ESG or sustainability on earnings conference calls between Oct. 1 and Dec. 31, compared with only six companies three years before, according to FactSet, a data provider. Globally, the term ESG was mentioned 205 times on investor calls during the fourth quarter of 2020, research platform Sentieo found.

Finance chiefs at South Korea’s LG Electronics Inc., Chinese utility provider CLP Holdings Ltd. and French electric equipment maker Schneider Electric SE all said that they consider sustainability metrics a priority.

 

Many CFOs said integrating sustainability into their decision-making can help reduce operating expenses like the cost of carbon, water or other raw materials. They said they are seeing the benefits of investing in initiatives that provide cost savings and can make their businesses more resilient against the effects of climate change, such as droughts and floods.

Saint-Gobain, for example, has invested €13.6 million, equivalent to $16.4 million, to reduce the environmental footprint of its flat-glass manufacturing plant in India and make it more water efficient. The company built two reservoirs to store up to 130 million liters of rainwater. Those investments help keep the plant running and save money, CFO Sreedhar N. said.

Strong performance in terms of environmental metrics landed Saint-Gobain a place among the top 20 companies in The Wall Street Journal’s latest ranking of the world’s 100 most sustainably managed companies. The rankings track company disclosures and media coverage of their actions across 26 ESG categories.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on February 12, 2021

Cash-in-Pockets Emerges as Democrats’ Approach in Stimulus Bill

By Richard Rubin | February 11, 2021

Topics: Individual Income Tax , Child Tax Credit , Coronavirus

Summary: This article by the WSJ’s U.S. tax policy reporter analyzes the components of the coronavirus relief package and their combined impact on U.S. households’ earnings. See a related article from January 14, 2021, when the legislation was introduced at https://www.wsj.com/articles/biden-to-propose-1-9-trillion-covid-19-package-11610661977?mod=article_inline The major “pieces of President Biden’s $1.9 trillion plan would be temporary—one-time payments, one year of tax credit expansions and unemployment benefits through Aug. 29. But Democrats are already talking about turning some of them into permanent…” status. The related short video (approximately 2 1/2 minutes) narrated by Gerald F. Seib provides a balanced comparison of amounts of aid under the Biden/Democratic plan and a Republican proposal.

Classroom Application: The article may be used in an individual income tax class to discuss the proposals to cope with the continuing effects of the coronavirus pandemic.

Questions:

  • What are the major components of the coronavirus relief legislation currently being considered by the U.S. Congress? You may refer to the video linked in the article to answer this question as well.
  • The proposed legislation is comprised of temporary legal provisions. What taxation items in the proposed legislation might Democrats plan to implement permanently?
  • Republicans respond with some concern about the proposed legislation providing the greatest assistance to households with the lowest income levels. What is the concern?

READ THE ARTICLE

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

 

"Cash-in-Pockets Emerges as Democrats’ Approach in Stimulus Bill, by Richard Rubin, The Wall Street Journal, February 11, 2021  ---
https://www.wsj.com/articles/cash-in-pockets-emerges-as-new-democratic-approach-to-federal-aid-in-coronavirus-bill-11613051415

After-tax incomes for bottom 20% of households would rise by 20% under plan moving through House committees

These pieces of President Biden’s $1.9 trillion plan would be temporary—one-time payments, one year of tax credit expansions and unemployment benefits through Aug. 29. But Democrats are already talking about turning some of them into permanent pieces of the federal financial support network to households.

The child tax credit expansion, in particular, has deep support as a no-strings-attached way to combat child poverty. Lawmakers are also pursuing a policy to automatically adjust unemployment insurance to economic conditions rather than setting end dates.

Democratic leaders haven’t, however, backed anything as expansive as a universal basic income or suggested repealing existing programs. And they have resisted extending the benefits to the upper middle class.

The one-year child tax credit expansion, costing nearly $110 billion, would approximately double the size of that program. The $8 billion in additional tax breaks for child care would more than double the cost of the existing program, and the $12 billion temporary expansion of the earned-income tax credit for childless workers would increase that break by more than 10%. The direct payments would be $422 billion, slightly less than the combined $458 billion approved last March and December.

Antipoverty programs globally tend to be more durable when they are more universal, because aid to the poor carries a stigma that undermines political support for the programs, said Monica Prasad, a sociologist at Northwestern University.

“If you try to target your policies to the poor, you end up not really helping the poor,” she said.

In the emerging Democratic view, the flexibility, simplicity and popularity of cash aid are overcoming concerns about narrowing programs’ scope to direct money to those in need.

“This is how you benefit Main Street business—you give Americans money to pay their bills, to shop and live,” said Rep. Earl Blumenauer (D., Ore.) during a meeting Wednesday of the House Ways and Means Committee, which writes tax legislation.

Continued in article

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Teaching Case From The Wall Street Journal Weekly Accounting Review on February 19, 2021

Borrowing Binge Reaches Riskiest Companies

By Matt Wirz Sam Goldfarb | February 15, 2021

Topics: Corporate Debt, Interest Rates

Summary: There is a lending boom “offering lifelines for struggling companies even as the coronavirus pandemic still drags on the economy… More than $13 billion of that debt [issued between January 1 and February 10, 2021] had ratings triple-C or lower—the riskiest tier save for outright default….[These] riskier companies can now borrow at interest rates once reserved for the safest type of debt.”

Classroom Application: The article may be used in a financial reporting class covering debt issuances, specifically addressing economy-wide and individual issuer factors leading to the level of interest rates.

Questions:

  • What is a bond yield?
  • As of Friday, February 12, 2021, what was the average yield of risky bonds as described in the article?
  • How does the yield on the riskiest bonds as of February 2021 compare to U.S. treasury security yields currently and in the recent past?
  • What factors are leading to the current state of bond yields as described in this article?

READ THE ARTICLE

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

 

"Borrowing Binge Reaches Riskiest Companies," by Matt Wirz Sam Goldfarb |, The Wall Street Journal, February 15, 2021 ---
https://www.wsj.com/articles/borrowing-binge-reaches-riskiest-companies-11613385001

Demand for corporate debt has offered lifelines to struggling firms that can borrow at interest rates once reserved for the safest type of bonds

Investors’ near-insatiable demand for even the riskiest corporate debt is fueling a Wall Street lending boom, offering lifelines for struggling companies even as the coronavirus pandemic still drags on the economy.

Companies such as hospital operator Community Health Systems Inc. and newspaper publisher Gannett Co. have issued a record $139 billion of bonds and loans with below- investment-grade ratings from the start of the year through Feb. 10, according to LCD, a unit of S&P Global Market Intelligence. More than $13 billion of that debt had ratings triple-C or lower—the riskiest tier save for outright default—about twice the previous record pace.

Despite the onslaught of new bonds, riskier companies can now borrow at interest rates once reserved for the safest type of debt.

As of Friday, the average yield for bonds in the ICE BofA U.S. High Yield Index—a group that includes embattled retailers and fracking companies—was just 3.97%. By comparison, the yield on the 10-year U.S. Treasury note, which carries essentially no default risk, was as high as 3.23% less than three years ago. The 10-year Treasury yielded around 1.2% Friday.

“At a high level, you have a meaningful imbalance between supply and demand,” said David Knutson, head of credit research for the Americas at Schroders, the U.K. asset-management firm. “The demand exceeds the supply for bonds.”

The most striking aspect of the current lending boom is its timing. Typically, it can take years after recessions for the market to reach its present level of exuberance, analysts said. In this case, it has taken less than 12 months and has arrived just as economic data have revealed a winter slowdown in the recovery.

Debt investors are hardly alone in their enthusiasm. Investors across a range of asset classes have poured money into risky wagers, even as the frenzy around videogame company GameStop Corp. and other popular stocks for individuals calms. Commodities such as oil and copper have surged, and more than $58 billion went into mutual and exchange-traded funds tracking global stocks during the week ended Wednesday, the largest such inflow on record, according to a Bank of America analysis of data from EPFR Global.

Investors’ optimism rests largely on the idea that current economic challenges aren’t normal and can be resolved quickly once coronavirus vaccines are more widely distributed. The combined efforts of the Federal Reserve and Congress have also helped by depressing benchmark interest rates and pumping trillions of dollars into the economy,

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on February 19, 2021

Some Elite Business Schools Skip Rankings This Year

By Patrick Thomas | February 15, 2021

Topics: MBAs

Summary: Accounting students may be applying to graduate business school for a number of reasons including completion of the 150 credit hour requirement for CPA licensure. Some may use the business school rankings published in the business press in their application decision-making. This article describes some of the process for the rankings, benefits to the schools that participate, and factors leading some to decide not to participate in the 2020 rankings under Covid-19 circumstances.

Classroom Application: The article may be used in any course discussing students’ consideration of graduate business education.

Questions:

  • Are you considering entering business graduate school? If so, describe your reasons. If not, why not?
  • How do business schools participate in the ranking process?
  • What benefits do business schools say come from their participation in the ranking process?
  • What difficulties make it so that some schools are dropping out of the rankings process, at least for 2020 rankings?
  • Do you think the impact of Covid-19 in 2020 on the schools’ decisions to participate in the rankings process would influence a students’ use of these rankings? Explain your answer.

READ THE ARTICLE

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

 

"Some Elite Business Schools Skip Rankings This Year," by Patrick Thomas, The Wall Street Journal, February 15, 2021 ---
https://www.wsj.com/articles/whats-the-best-business-school-for-this-years-m-b-a-rankings-its-not-who-you-think-11613394000

As Harvard, Stanford, other elite schools skip some rankings this year, European universities top lists, lesser-known programs get a boost

Several top U.S. business schools are skipping popular M.B.A. rankings this year, upending an annual rite for programs and prospective students.

Harvard Business School, the University of Pennsylvania’s Wharton School, Columbia Business School and the Stanford Graduate School of Business, among others, opted to skip the most recent rankings by the Economist and the Financial Times. Several schools said Covid-19 made it difficult to gather the data they must submit to be ranked.

More than bragging rights hang in the balance—though there are plenty of those, too. Schools say a good showing in rankings can draw interest from prospective students, stoking application volumes, as well as plaudits or pans from alumni who continue to track their alma mater long after leaving campus.

Overall, 62% of programs plan to participate in some rankings, while 10% don’t plan to cooperate for any lists this year, according to a survey of business-school admissions officials by Kaplan, the education subsidiary of the Graham Holdings Co.

Bloomberg Businessweek suspended its 2020 ranking, the only major list to do so. Dozens of notable schools were missing from the Economist’s list published last month. Nine schools that normally take part in the FT’s list chose not to participate, a spokeswoman said.

With some major programs missing, other schools moved up the lists. Insead in France topped the FT’s list of best M.B.A. programs, published earlier this month, up from fourth place; some of last year’s top schools, including Harvard and Stanford, sat it out.

HBS spokesman Brian Kenny said the school isn’t opposed to rankings, but some data gathering—which can take months—was an added burden as schools pivoted to remote learning earlier in the pandemic. Harvard, which often tops lists, can afford to take a year off, he added.

“It doesn’t have the same impact on us as it would on another school who is maybe struggling to get into top 50,” Mr. Kenny said. The school is participating in the U.S. News & World Report rankings, due in March.

A Stanford spokeswoman said the school didn’t want to overburden students and alumni groups with surveys required for some rankings during a stressful year.

Continued in article


Teaching Case From The Wall Street Journal Weekly Accounting Review on February 19, 2021

Judge Lets Revlon Lenders Keep Citi’s Botched $500 Million Payment

By Alexander Gladstone Andrew Scurria Becky Yerak | February 16, 2021

Topics: Banking, Internal Controls

Summary: Citigroup Inc. mistakenly paid off debt principal in addition to interest payments to investment firms that made loans to Revlon Inc. A federal judge has ruled that “Brigade Capital Management LP and other Revlon lenders can keep the money they collected from Citi…While some lenders that were mistakenly paid returned roughly $385 million to Citi, others refused the bank’s request for repayment, touching off a legal dispute that strained relationships with big investors like Brigade, a longtime Citi client, and raised questions with analysts about the bank’s internal controls.”

Classroom Application: The article may be used when discussing internal controls in an accounting systems course, a course on banking, or in a financial reporting course. It also may be used when discussing accounting for corporate debt to address the process of handling interest payments and related internal controls.

Questions:

  • Describe the process for corporate debt issuance and repayment, including all cash receipts and disbursements (payments) that occur.
  • Based on the description in the article, what service did Citigroup provide to Revlon, Inc.?
  • How did Citi make erroneous extra payments to Revlon’s lenders? What did Citi executives do in the aftermath?
  • What are internal controls? Cite your source for your definition if from your textbook or elsewhere.
  • What internal control function should be used to prevent such an error as Citi has made, or should have been functioning properly at Citi? Give one example that you can think of.

READ THE ARTICLE

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

 

"Judge Lets Revlon Lenders Keep Citi’s Botched $500 Million Payment," by Alexander Gladstone, Andrew Scurria, and Becky Yerak, The Wall Street Journal, February 16, 2021  ---
https://www.wsj.com/articles/judge-lets-revlon-lenders-keep-citis-botched-500-million-payment-11613490508

Brigade Capital Management and other investors win court ruling allowing them to keep the Revlon loan payment they received from their agent Citi

A federal judge denied Citigroup Inc.’s request to claw back roughly $500 million it mistakenly paid out of its own pocket to investment firms that made loans to cosmetics giant Revlon Inc.

Brigade Capital Management LP and other Revlon lenders can keep the money they collected from Citi when the bank wired them the full amount they were owed instead of the small interest payment that was due, according to a written ruling Tuesday by Judge Jesse Furman of U.S. District Court in New York.

The August blunder by Citi, Revlon’s loan agent, satisfied a nearly $900 million debt that Revlon wasn’t due to pay until 2023 and delivered an unexpected windfall to lenders on what had become an increasingly risky investment.

While some lenders that were mistakenly paid returned roughly $385 million to Citi, others refused the bank’s request for repayment, touching off a legal dispute that strained relationships with big investors like Brigade, a longtime Citi client, and raised questions with analysts about the bank’s internal controls.

Judge Furman issued the decision after holding a trial in December that focused on the pivotal question of what Brigade and other recipients knew or suspected soon after they were paid.

Citi, which has blamed the snafu on human error, argued that recipients knew right away they had been paid in error. They said they didn’t think the transactions were erroneous until Citi claimed as much and demanded repayment.

Judge Furman agreed with the lenders that they “believed, and were justified in believing, that the payments were intentional.” Citi’s mistake was “one of the biggest blunders in banking history,” the judge said.

“We strongly disagree with this decision and intend to appeal. We believe we are entitled to the funds and will continue to pursue a complete recovery of them,” a Citi spokesperson said.

Robert Loigman, a lawyer representing the lenders, said “we are extremely pleased with Judge Furman’s detailed and thorough decision.”

As soon as Citi realized its mistake, executives began trying to claw the money back. Some lenders granted the bank’s request. Citi sued 10 investment firms that declined, including Brigade, Symphony Asset Management LP and HPS Investment Partners LLC.

 

Continued in article




Humor for February 2021

Dogs in Snow --- https://www.youtube.com/watch?v=Tofa478HSgI

The Best Standup Comedy in 2020 ---
https://decider.com/2020/12/29/the-10-best-stand-up-comedy-specials-of-2020/

Generation Gap ---
https://duckduckgo.com/?q=generation+gap&iax=images&ia=images&iai=https%3A%2F%2Fspeakzeasy.files.wordpress.com%2F2015%2F10%2Fgeneration-gap.jpg&t=h_

The 10 Best Comedy Movies on Netflix ---
https://www.howtogeek.com/709539/the-10-best-comedy-movies-on-netflix/

Breakup Humor --- https://jborden.com/2021/02/13/a-little-break-up-humor/

SNL’s cold open spoofed the Super Bowl preshow — and the game’s awkward ads ---
https://www.vox.com/2021/2/7/22271013/snl-cold-open-super-bowl-commercial

Memories of the 1950s ---
https://1funny.com/fond-memories-of-the-1950s
Thank you Auntie Bev

Humor for February 2021

Forwarded by Jim Martin

A mother was listening to her little boy working on his homework in the kitchen. The little fellow said, “Two plus two, the son-of-a-bitch is four.” “Two plus three, the son-of-a-bitch is five.” His mother asked him where he had heard such a thing. He said, “My teacher told us that is how you do math.” The somewhat confused mother called the teacher and asked her if that is what she had said. The teacher laughed and said, “No Mam, I said two plus two, the sum of which is four."
https://maaw.info/GadgetsandGames/KidsJokes.htm

A Heart Warming Lawyer Story --- https://freerepublic.com/focus/f-chat/3936809/posts

One afternoon a lawyer was riding in his limousine when he saw two men along the roadside eating grass. Disturbed, he ordered his driver to stop and he got out to investigate.

He asked one man, "Why are you eating grass ?" "We don't have any money for food," the poor man replied. "We have to eat grass." "Well, you can come with me to my house and I'll feed you," the lawyer said.

"But sir, I have a wife and two children with me. They are over there eating grass under that tree." "Bring them along," the lawyer replied.

Turning to the second poor man he stated, "You may come with us, also." The other man, in a pitiful voice, then said, "But sir, I also have a wife and six children with me!" "Bring them all as well," the lawyer answered. They all entered the car, which was no easy task, even for a car as large as the limousine. Once under way, one of the poor fellows turned to the lawyer and said, "Sir, you are too kind. Thank you for taking all of us with you."

The lawyer replied, "Glad to do it. You'll really love my place. The grass is almost a foot high."

Come on . . . did you really think there was such a thing as a heart-warming lawyer story? Look at Congress -- over 300 Lawyers!!!

 

Forwarded by Auntie Bev

I'm glad I learned how to do parallelograms in high school instead of how to do my own income tax returns. This comes in so handy during parallelogram season.

"Psychotherapist" is one word, not three words.

Here in America older folks get phone calls from from caring people in India people wanting to make sure that Medicare buys us back braces, neck braces, skin care creams, etc. Up here in Sugar Hill they even wanted to send a back brace to a woman laid out in a funeral parlor. Now that's really caring a lot.

Masks are great for whispering swear words to irritating people without having them punch you in the nose.

They say we can have gatherings of eight people without issues. I don't know eight people without issues.

We should have people who deliver Amazon packages trained to give the Covid vaccine. The entire population of the USA would be immunized by Saturday (Thursday if you have Prime).

You're weight would be perfect if you were only eleven feet tall.

Pharmacist:  You may experience the side effect of pain in your arm or wrist, but that's just from trying to get the cap off.

Here's how to tell if you're young or old when you fall.
If people laugh you're young.
If people rush to your aid you're old.


Forwarded by Tina

Tim Conway & Harvey Korman or Carol Burnett

https://www.youtube.com/watch?v=9IUSM4EKcRI

https://www.youtube.com/watch?v=A_set7Do_gg

https://www.youtube.com/watch?v=TP6yDJEPDKA

https://www.youtube.com/watch?v=Z7B2Tu6-G5E

https://www.youtube.com/watch?v=YZimSrMj4v4

https://www.youtube.com/watch?v=IQMGgMw-gq0


Forwarded by Auntie Bev

On her first day at the senior complex, the new manager addressed all the seniors pointing out some of her rules:

"The female sleeping quarters will be out-of-bounds for all males, and the male dormitory to the females. Anybody caught breaking this rule will be fined $20 the first time."

She continued, "Anybody caught breaking this rule the second time will be fined $60. Being caught a third time will cost you a fine of $180. Are there any questions?"

At this point, an older gentleman stood up in the crowd inquired:

"How much for a season pass?


Forwarded by Auntie Bev

Popular Game in Retirement Homes:  Guessing what tattoos u8sed to be.

At my funeral take the bouquet off my coffin and throw it into the crowd to see who's next.

Retirement Finance Advisor Asks:  Which of you will wear the mask and who will drive the get-away car?

Common Mistake:  Chasing an eye floater with a fly swatter.

Setting up for a hot date with a recliner and a heating pad.

Tossing and turning at night should count as exercise.


Forwarded by Tina

I wish there was a way to donate fat like we donate blood.

Why is it that after I push 1 for English I still can't understand the person at the other end of the line.

I wish I had the wisdom of a 90-year old, the body of a 20-year old, and the energy of a 3-year old.

I've just been diagnosed with NCD --- No Can Do.

The secret of happiness is a good sense of humor and a bad memory.

My brain is like the Bermuda Triangle --- What goes in may never come out again.

I'm not Wonder Woman, but I can do things that make you wonder.

So much to do, and no motivation to do it.

OMG, I went into the bathroom without my phone

Not-So-Funny Yard Signs (Click on the Slideshow) ---
https://www.science-a2z.com/the-most-hilarious-and-original-yard-signs-youve-ever-seen-part2/?utm_medium=yahoo&utm_source=347&utm_campaign=402654456&utm_term=NEWS_US-c&site_id=news.yahoo.com&vmcid=p%24g%2co%244650d852-484a-11eb-b141-008cfa5b6918-7f2ca7d4a700%2ct%241609076940847

Forwarded by Auntie Bev

The local news station was interviewing an 80-year-old-lady because she had just gotten married for the fourth time. The interviewer asked her questions about her life, about what it felt like to be marrying again at 80, and then about her new husband’s occupation. “He is a funeral director” she answered. “Interesting,” the newsman thought.

He then asked her if she wouldn’t mind telling him a little about her first three husbands and what they did for a living. She paused for a few moments, needing time to reflect on all those years. After a short time, a smile came to her face and she answered proudly, explaining that she had first married a banker when she was in her 20’s, then a circus ringmaster when in her 40’s and a preacher when in her 60’s and now in her 80s a funeral director.

The interviewer looked at her, quite astonished, and asked why she had married four men with such diverse careers.

(Wait for it)
She smiled and explained, “ I married one for the money, two for the show, three to get ready, and four to go."

Forwarded by Auntie Bev

"You claim to be a chocolate lab," said the cat to the dog. "Lemme check."

Attack this day with the enthusiasm and confidence of of a four-year old wearing a Batman t-shirt.

I thought I would never be the kind of person to wake up early just to exercise. I was right all along.

Two ways to really improve your day:  Don't check the news, and stay off the scales.

The Circle of Life:  An old man on a walker meets a toddler trying to push a stroller.

Elsie Frey's One Liners Forwarded by Tina

For me drinking responsibly means don't spill it.

The older I get, the earlier it gets late.

I remember when I could get up without sound effects.

When I ask for directions, please don't use words like "east."

When I run I run like the winded.

I finally got eight hours of sleep; It only took three days, but whatever.

 

 




Humor February 2021 --- http://faculty.trinity.edu/rjensen/book21q1.htm#Humor0221.htm

Humor January 2021 --- http://faculty.trinity.edu/rjensen/book21q1.htm#Humor0121.htm  

Humor December 2020 --- http://faculty.trinity.edu/rjensen/book20q4.htm#Humor1220.htm 

Humor November 2020 --- http://faculty.trinity.edu/rjensen/book20q4.htm#Humor1120.htm   

Humor October 2020 --- http://faculty.trinity.edu/rjensen/book20q4.htm#Humor1020.htm  

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

 


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




And that's the way it was on February 28, 2021 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

 

 

 

January 2021

Bob Jensen's Additions to New Bookmarks

January 2021

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




CPA Journal:  The State of the Profession
https://www.cpajournal.com/2021/01/19/the-state-of-the-profession-6/

In Brief
The sixth annual 2020 NYSSCPA–Rosenberg Survey identifies trends from the national 22nd Annual Practice Management Survey and provides profitability and growth data of participating New York CPA firms. This year was unlike any that our profession has faced in the 22 years of the survey. The survey data reflects trends and performance from 2019, before the coronavirus (COVID-19) pandemic struck. A second part of the survey presents analysis and conclusions from leading experts and practice management consultants on how accounting firms have adapted to the challenge of COVID-19. As Charles Hylan, managing partner of Rosenberg & Associates and author of the survey remarked: “The landscape for accounting firms changed quickly when the pandemic hit. It was as if a switch was flipped. Managing partners were forced to deal with massive changes in workflow and practice.” This year’s Rosenberg Survey provides valuable analysis, guidance, expert insight, and practical recommendations for CPAs on how to adapt and succeed during this crisis and what comes after.

Jensen Comment
Sadly, the above report has nothing to say about the state of accounting education. Maybe this is because accountics scientists accomplished so little on issues of greatest concern in the profession ---
http://faculty.trinity.edu/rjensen/theory01.htm#WhatWentWrong

Can you point to one accountics science finding that practicing CPA's applaud?

Creating Relevance of Accounting Research (ROAR) Scores to Evaluate the Relevance of Accounting Research to Practice

SSRN
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3501871
49 Pages
 Posted: 17 Dec 2019

F. Greg Burton

Brigham Young University - School of Accountancy

Scott L. Summers

Brigham Young University - School of Accountancy

T. Jeffrey Wilks

Brigham Young University

David A. Wood

Brigham Young University - School of Accountancy

Date Written: December 10, 2019

Keywords: Research Relevance, Accounting Rankings, Practice-Oriented Research, Journal Rankings

JEL Classification: M40, M41, M49, M00

Abstract

The relevance of accounting academic research to practice has been frequently discussed in the accounting academy; yet, very little data has been put forth in these discussions. We create relevance of accounting research (ROAR) scores by having practitioners read and evaluate the abstract of every article published in 12 leading accounting journals for the past three years. The ROAR scores allow for a more evidence-based evaluation and discussion of how academic accounting research is relevant to practitioners. Through these scores, we identify the articles, authors, journals, and accounting topic areas and methodologies that are producing practice-relevant scholarship. By continuing to produce these scores in perpetuity, we expect this data to help academics and practitioners better identify and utilize practice-relevant scholarship.

V. CONCLUSIONS

This research provides empirical data about the contribution accounting academics are making to practice. Specifically, we had nearly 1,000 professionals read the abstract of academic accounting articles and rate how relevant the articles are to practice. We then present the data to rank journals, universities, and individual scholars. Overall, we interpret the results to suggest that some of the research that is currently produced and published in 12 accounting journals is relevant to practice, but at the same time, there is room to improve. Our hope is that by producing these rankings, it will encourage journals, institutions, and authors to produce and publish more relevant research, thus helping to fulfill the Pathways charge “to build a learned profession.”

We now take the liberty to provide some normative comments about our research findings in relation to the goal of producing a learned profession. One of the key findings in this study is that the traditional top 3 and top 6 journals are not producing the most or the greatest average amount of practice relevant research, especially for the distinct accounting topic areas. Prior research shows that the collection of a small group of 3/6 journals is not representative of the breadth of accounting scholarship (Merchant 2010; Summers and Wood 2017; Barrick, et al. 2019). Given the empirical research on this topic, we question why institutions and individual scholars continue to have a myopic focus on a small set of journals. The idea that these 3/6 journals publish “the best” research is not empirically substantiated. While many scholars argue that the focus is necessary for promotion and tenure decisions, this seems like a poor excuse (see Kaplan 2019). Benchmarking production in a larger set of journals would not be hard, and indeed has been done (Glover, Prawitt, and Wood 2006; Glover, Prawitt, Summers, and Wood 2019). Furthermore, as trained scholars, we could read and opine on article quality without outsourcing that decision to simple counts of publications in “accepted” journals. We call on the 18 We recognize that only looking at 12 journals also limits the scope unnecessarily. The primary reason for the limitation in this paper is the challenge of collecting data for a greater number of journals. Thus, we view 12 journals as a start, but not the ideal. academy to be much more open to considering research in all venues and to push evaluation committees to do the same.

A second important finding is that contribution should be a much larger construct than is previously considered in the academy. In our experience, reviewers, editors, and authors narrowly define the contribution an article makes and are too often unwilling to consider a broad view of contribution. The current practice of contribution too often requires authors to “look like everyone else” and rarely, if ever, allows for a contribution that is focused exclusively on a practice audience. We encourage the AACSB, AAA, and other stakeholders to make a more concerted effort to increase the focus on practice-relevant research. This may entail journals rewriting mission statements, editors taking a more pro-active approach, and training of reviewers to allow articles to be published that focus exclusively on “practical contributions.” This paper has important limitations. First, we only examine 12 journals. Ideally, we would like to examine a much more expansive set of journals but access to professionals makes this challenging at this time. Second, measuring relevance is difficult. We do not believe this paper “solves” all of the issues and we agree that we have not perfectly measured relevance. However, we believe this represents a reasonable first attempt in this regard and moves the literature forward. Third, the ROAR scores are only as good as the professionals’ opinions. Again, we limited the scores to 5 professionals hoping to get robust opinions, but realize that some articles (and thus authors and universities) are not likely rated “correctly.” Furthermore, articles may make a contribution to practice in time and those contributions may not be readily apparent by professionals at the time of publication. Future research can improve upon what we have done in this regard.

We are hopeful that shining a light on the journals, institutions, and authors that are excelling at producing research relevant to practice will encourage increased emphasis in this area.

Jensen Question
Is accounting research stuck in a rut of repetitiveness and irrelevancy?

"Accounting Craftspeople versus Accounting Seers: Exploring the Relevance and Innovation Gaps in Academic Accounting Research," by William E. McCarthy, Accounting Horizons, December 2012, Vol. 26, No. 4, pp. 833-843 --- 
http://aaajournals.org/doi/full/10.2308/acch-10313 

Is accounting research stuck in a rut of repetitiveness and irrelevancy? 
I 
(Professor McCarthy) would answer yes, and I would even predict that both its gap in relevancy and its gap in innovation are going to continue to get worse if the people and the attitudes that govern inquiry in the American academy remain the same. From my perspective in accounting information systems, mainstream accounting research topics have changed very little in 30 years, except for the fact that their scope now seems much more narrow and crowded. More and more people seem to be studying the same topics in financial reporting and managerial control in the same ways, over and over and over. My suggestions to get out of this rut are simple. First, the profession should allow itself to think a little bit normatively, so we can actually target practice improvement as a real goal. And second, we need to allow new scholars a wider berth in research topics and methods, so we can actually give the kind of creativity and innovation that occurs naturally with young people a chance to blossom.

 

Since the 2008 financial crisis, colleges and universities have faced increased pressure to identify essential disciplines, and cut the rest. In 2009, Washington State University announced it would eliminate the department of theatre and dance, the department of community and rural sociology, and the German major – the same year that the University of Louisiana at Lafayette ended its philosophy major. In 2012, Emory University in Atlanta did away with the visual arts department and its journalism programme. The cutbacks aren’t restricted to the humanities: in 2011, the state of Texas announced it would eliminate nearly half of its public undergraduate physics programmes. Even when there’s no downsizing, faculty salaries have been frozen and departmental budgets have shrunk.

But despite the funding crunch, it’s a bull market for academic economists. According to a 2015 sociological study in the Journal of Economic Perspectives, the median salary of economics teachers in 2012 increased to $103,000 – nearly $30,000 more than sociologists. For the top 10 per cent of economists, that figure jumps to $160,000, higher than the next most lucrative academic discipline – engineering. These figures, stress the study’s authors, do not include other sources of income such as consulting fees for banks and hedge funds, which, as many learned from the documentary Inside Job (2010), are often substantial. (Ben Bernanke, a former academic economist and ex-chairman of the Federal Reserve, earns $200,000-$400,000 for a single appearance.)

Unlike engineers and chemists, economists cannot point to concrete objects – cell phones, plastic – to justify the high valuation of their discipline. Nor, in the case of financial economics and macroeconomics, can they point to the predictive power of their theories. Hedge funds employ cutting-edge economists who command princely fees, but routinely underperform index funds. Eight years ago, Warren Buffet made a 10-year, $1 million bet that a portfolio of hedge funds would lose to the S&P 500, and it looks like he’s going to collect. In 1998, a fund that boasted two Nobel Laureates as advisors collapsed, nearly causing a global financial crisis.

The failure of the field to predict the 2008 crisis has also been well-documented. In 2003, for example, only five years before the Great Recession, the Nobel Laureate Robert E Lucas Jr told the American Economic Association that ‘macroeconomics […] has succeeded: its central problem of depression prevention has been solved’. Short-term predictions fair little better – in April 2014, for instance, a survey of 67 economists yielded 100 per cent consensus: interest rates would rise over the next six months. Instead, they fell. A lot.

Nonetheless, surveys indicate that economists see their discipline as ‘the most scientific of the social sciences’. What is the basis of this collective faith, shared by universities, presidents and billionaires? Shouldn’t successful and powerful people be the first to spot the exaggerated worth of a discipline, and the least likely to pay for it?

In the hypothetical worlds of rational markets, where much of economic theory is set, perhaps. But real-world history tells a different story, of mathematical models masquerading as science and a public eager to buy them, mistaking elegant equations for empirical accuracy.

Real Science versus Pseudo Science --- 
http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm#Pseudo-Science

Jensen Comment
Academic accounting (accountics) scientists took economic astrology a step further when their leading journals stopped encouraging and publishing commentaries and replications of published articles --- 
How Accountics Scientists Should Change:  
"Frankly, Scarlett, after I get a hit for my resume in The Accounting Review I just don't give a damn"
http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm

Times are changing in social science research (including economics) where misleading p-values are no longer the Holy Grail. Change among accountics scientist will lag behind change in social science research but some day leading academic accounting research journals may publish articles without equations and/or articles of interest to some accounting practitioner somewhere in the world --- 
 See below

 

Time to say goodbye to “statistically significant” and embrace uncertainty, say statisticians ---
https://retractionwatch.com/2019/03/21/time-to-say-goodbye-to-statistically-significant-and-embrace-uncertainty-say-statisticians/

Three years ago, the American Statistical Association (ASA) expressed hope that the world would move to a “post-p-value era.” The statement in which they made that recommendation has been cited more than 1,700 times, and apparently, the organization has decided that era’s time has come. (At least one journal had already banned p values by 2016.) In an editorial in a special issue of The American Statistician out today, “Statistical Inference in the 21st Century: A World Beyond P<0.05,” the executive director of the ASA, Ron Wasserstein, along with two co-authors, recommends that when it comes to the term “statistically significant,” “don’t say it and don’t use it.” (More than 800 researchers signed onto a piece published in Nature yesterday calling for the same thing.) We asked Wasserstein’s co-author, Nicole Lazar of the University of Georgia, to answer a few questions about the move.

So the ASA wants to say goodbye to “statistically significant.” Why, and why now?

In the past few years there has been a growing recognition in the scientific and statistical communities that the standard ways of performing inference are not serving us well.  This manifests itself in, for instance, the perceived crisis in science (of reproducibility, of credibility); increased publicity surrounding bad practices such as p-hacking (manipulating the data until statistical significance can be achieved); and perverse incentives especially in the academy that encourage “sexy” headline-grabbing results that may not have much substance in the long run.  None of this is necessarily new, and indeed there are conversations in the statistics (and other) literature going back decades calling to abandon the  language of statistical significance.  The tone now is different, perhaps because of the more pervasive sense that what we’ve always done isn’t working, and so the time seemed opportune to renew the call.

Much of the editorial is an impassioned plea to embrace uncertainty. Can you explain?

The world is inherently an uncertain place.   Our models of how it works — whether formal or informal, explicit or implicit — are often only crude approximations of reality. Likewise, our data about the world are subject to both random and systematic errors, even when collected with great care. So, our estimates are often highly uncertain; indeed, the p-value itself is uncertain. The bright-line thinking that is emblematic of declaring some results “statistically significant” (p<0.05) and others “not statistically significant” (p>0.05) obscures that uncertainty, and leads us to believe that our findings are on more solid ground than they actually are. We think that the time has come to fully acknowledge these facts and to adjust our statistical thinking accordingly.

Continued in article

 


Evolution of Other Comprehensive Income
by Robert Bloom
Accounting Historians Journal (2020) 47 (2): 1–10.
https://meridian.allenpress.com/ahj/article/47/2/1/431346/Evolution-of-Other-Comprehensive-Income

This paper traces the historical development of other comprehensive income (OCI) and comprehensive income (CI), analyzing how their evolution has unfolded. Emphasis is on authoritative pronouncements issued by the AICPA, FASB, and IASB. This paper discusses OCI applications from specific standards issued by the FASB and IASB. This paper also examines assertions from selected contemporary accounting books on this subject.

. . .

 

Jensen Comment

The above article is a very good summary of the evolution of OCI/AOCI.  However  would like to elaborate on the following paragraph.

IFRS report essentially the same OCI items as does the FASB, with the exceptions of vested past service cost on defined benefit plans, which are expensed immediately (IAS 19(R)) in addition to fair valuation adjustments, called “revaluation surplus” from such optional valuation of property, plant, equipment, and intangibles (IAS 16, IASB 2003a; IAS 38, IASB 2004). In fact, only two OCI items have been recycled to income in practice under IFRS—(1) foreign currency translation adjustments (IAS 21, IASB 2003b), and (2) the effective portion of cash flow hedging derivatives (IAS 30, IASB 2007). Non-recycling might be based on the notion, yet to be demonstrated empirically, that over the long run the unrealized gains and losses from most OCI items will balance out. Another possible reason, as cited by Rees and Shane (2012), is that recycling is “redundant, providing no additional benefit.” Additionally, different board members may have different perspectives on which OCI items may be more volatile than others. To the limited extent recycling occurs under IFRS, any reclassification adjustments and related tax effects are required to be disclosed separately from the other OCI items.

The term recycling refers to the reclassification of OCI items in equity to current income (and hence reclassification from OCI in equity to retained earnings in equity).  For example, the FASB did not want to account for hedging derivatives the same as speculation derivatives, because economists and financial analysts pointed out that the hedgers were really not taking on speculation risks to the extent that their derivative financial instruments in fact ended up as effective hedges. To include unrealized gains and losses on hedging derivatives in current income adds misleading volatility that punishes hedgers relative to speculators who are not hedging.

One of the fundamental problems is that hedged items often are not booked whereas hedging contracts are now required to be booked when they go into effect. Think of Southwest Airlines that commonly books future jet fuel prices. Forecasted future jet fuel purchases a year into the future are not booked. Southwest can speculate on the future price of jet fuel by not hedging. However, Southwest can hedge in various ways, one way of which is to purchase an option for a million gallons of jet fuel that expire one year from now. That effectively locks in an option's strike price and takes all the risk and opportunity of any price excess  between future purchase price and the the contracted option strike price. If Southwest Airlines closes its books in three months the hedge item (forecasted purchase of a million gallons of jet fuel) is not allowed to be booked whereas the purchase options are required to be booked. To report a gains on the options as income is entirely misleading when the the intent is really to lock in a future net purchase price.

Gains and losses of hedging derivatives are booked in OCI until those options either are exercised or expire.  The ultimate gain or loss  in OCI is then reclassified in current income when the jet fuel is actually purchased. If Southwest speculated in any derivative contracts that were not hedges, unrealized gains and losses would not be held in suspense in OCI. Both the FASB and FASB reasoned that hedge accounting in this manner did not punish Southwest Airlines with unrealized earnings volatility when in fact it was hedging rather than speculating.

Sometimes hedges are not perfectly effective. For example, if Southwest hedged a forecasted purchase of a million gallons of jet fuel in Miami with Chicago option market prices, the ineffective portion of the hedge cannot be booked in OCI and must be booked in current earnings when the value of the option changes before Southwest actually purchases the jet fuel in Miami.

What encomiasts and financial analysts were worried about is that accounting for hedging derivatives like they are the same as speculation derivatives adds misleading income volatility to the financial statements of hedgers.

OCI arose in general over issues of unrealized income versus unrealizable income or losses. Taken to extremes some gains and losses just cannot be realized without fundamental and unlikely changes in the business model. For example, Stanford University has over 10,000 acres of land that cannot be legally sold as long as Stanford is a university. If Stanford was a for-profit university it would be highly misleading to combine changes in the value of its land each quarter to its current operating revenues for the quarter. Sure the items can be shown separately on an income statement, but the problem is that media and investors tend to have a "functional fixation" for the bottom line fluctuations in net income.

The above article is quite good in describing the evolution of OCI to address the problem of unrealized versus unrealizable income. I wanted to point out that one of the sub-goals of OCI was not to punish hedgers and treat them like speculators.

Not all equity items are reclassified as current income in this manner. For a discussion of such complexities see
Concepts of profit or loss and other comprehensive income | ACCA Global


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

LBRY in NYTimes ---
https://marginalrevolution.com/marginalrevolution/2021/01/lbry-in-nytimes.html


A Century of Not-for-Profit Accounting ---
https://www.cpajournal.com/2020/12/09/a-century-of-not-for-profit-accounting/


Why New Hampshire Is Suing Massachusetts ---
https://townhall.com/columnists/jeffjacoby/2021/01/18/why-new-hampshire-is-suing-massachusetts-n2583281


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

Cryptocurrency 101: A Bookkeeper’s Cheat Sheet on Accounting for Cryptocurrency ---
https://www.firmofthefuture.com/content/cryptocurrency-101-a-bookkeepers-cheat-sheet-on-accounting-for-cryptocurrency/

How Cryptocurrencies are Classified in GAAP Financial Statements ---
https://www.forbes.com/sites/shehanchandrasekera/2020/05/21/how-are-cryptocurrencies-classified-in-gaap-financials/?sh=66b25dc865b2

How to Account for Cryptocurrencies in Line With IFRS ---
https://www.cpdbox.com/accounting-cryptocurrencies-ifrs/

How should we regulate crypto?
https://marginalrevolution.com/marginalrevolution/2021/01/how-should-we-regulate-crypto.html

Cryptocurrency salaries revealed: From $60,000 to $400,000, here's how much you could earn working in cryptocurrency ---
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Much like the currencies themselves, jobs in the crypto world are growing.

An analysis by job search engine Monster found that job postings with the terms "cryptocurrency," "blockchain," or "bitcoin" grew almost 200% from 2017 to 2018. In 2020, LinkedIn named blockchain as the most desired skill among companies when searching for new applicants. 

Cryptocurrency has been around since 2009, when bitcoin was introduced. Since then, the crypto world has exploded. Now, thousands of cryptocurrencies are available, and products supporting these cryptocurrencies — wallets, trading platforms, and so on — are readily accessible to anyone interested in the decentralized investment. 

Using data from the US Office of Foreign Labor Certification, Insider examined salaries to understand how much employees can make in the crypto universe. Our analysis included nearly 300 visa applications for both crypto-focused jobs at big companies like Facebook and Forbes to crypto-focused companies like Coinbase.

It's worth noting that the H-1(B) data only provides salary information, and does not include other types of compensation and benefits that employees may receive in their roles, like bonuses, performance awards, or benefits. 

Let's dig into the types of jobs in the cryptocurrency industry, how much they pay, and who is currently hiring. 

You typically have two options when looking to work with crypto: You can get a technical job working with cryptocurrency and blockchain, or you can get a more general role at a cryptocurrency company.

Professionals in fields like human resources, project management, or management can work at companies that all have business models built around cryptocurrency storage, investment, consulting, or purchase. 

The company with the highest number of H-1(B) visas was Coinbase, which hired mainly engineers, but also data scientists, recruiters, and operations employees using the foreign worker visas.

Here are a few of the positions Coinbase hired, and how much it paid:

You typically have two options when looking to work with crypto: You can get a technical job working with cryptocurrency and blockchain, or you can get a more general role at a cryptocurrency company.

Professionals in fields like human resources, project management, or management can work at companies that all have business models built around cryptocurrency storage, investment, consulting, or purchase. 

The company with the highest number of H-1(B) visas was Coinbase, which hired mainly engineers, but also data scientists, recruiters, and operations employees using the foreign worker visas.

Here are a few of the positions Coinbase hired, and how much it paid:

Backend Engineer: $160,000