Bob Jensen's New Additions to Bookmarks

April 2017

Bob Jensen at Trinity University 


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

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

To Whom Does the USA Federal Government Owe Money (the booked obligation of $19+ 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




Via the AAA:  COSO Academic Access Enrollment ($250 Special Offer) ---
https://aaahq.org/COSO/COSO-Enrollment
 

American Accounting Association 2016 Centennial Video (Short and Sweet) ---
http://commons.aaahq.org/pages/home
This video may only be available to AAA Commons subscribers (free I think)

Bob Jensen's threads on accounting history (in a nutshell) ---
http://faculty.trinity.edu/rjensen/theory01.htm#AccountingHistory

History of The Accounting Review published by the AAA ---
http://faculty.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm


Goodwill Impairment Testing Just Got Easier ---
http://www.accountingweb.com/aa/standards/goodwill-impairment-testing-just-got-easier?source=ei040517

Accounting Standards Update (ASU) No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, eliminates Step 2 from the quantitative goodwill impairment test. Before adopting this ASU, there are a few things that an entity should consider.

Continued in article

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


Is the SEC Captured? Evidence from Comment-Letter Reviews
SSRN, April 8, 2017
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2947752

Authors

Jonas Heese --- Harvard Business School

Mozaffar Khan --- University of Minnesota - Twin Cities - Carlson School of Management

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

Abstract

SEC oversight of publicly listed firms ranges from comment letter (CL) reviews of firms’ reporting compliance to pursuing enforcement actions against violators. Prior literature finds that firm political connections (PC) negatively predict enforcement actions, inferring SEC capture. We present new evidence that firm PC positively predict CL reviews and substantive characteristics of such reviews, including the number of issues evaluated and the seniority of SEC staff involved. These results, robust to identification concerns, are inconsistent with SEC capture and indicate a more nuanced relation between firm PC and SEC oversight than previously suggested.


The SEC's Enforcement Record against Auditors ---
SSRN, February 16, 2017
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2947469

Authors

Simi Kedia --- Rutgers Business School

Urooj Khan --- Columbia Business School, Accounting, Business Law & Taxation

Shivaram Rajgopal --- Columbia Business School

Abstract

We investigate the effectiveness of regulatory oversight exercised by the SEC against auditors over the years 1996-2009. The evidence suggests that the SEC is significantly less likely to name a Big N auditor as a defendant, after controlling for both the severity of the violation and for the characteristics of companies more likely to be audited by Big N auditors. Further, when the SEC does charge Big N auditors, the SEC (i) is less likely to impose harsher penalties on the Big N; and (ii) is less likely to name a Big N audit firm relative to individual Big N partners. Moreover, the SEC relies overwhelmingly on administrative proceedings, instead of the tougher civil proceedings, against auditors. One interpretation of these patterns is that the SEC’s enforcement against auditors is relatively mild. Other interpretations of these results are also discussed. Though private litigation against auditors is associated with a loss of market share for the auditor, there is no evidence of such product market penalty subsequent to SEC action

Bob Jensen's threads on large auditing firm fraud and negligence ---
http://faculty.trinity.edu/rjensen/fraud001.htm


Material Weakness in Internal Controls and Stock Price Crash Risk
SSRN, April 7, 2017
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2948698

Authors

Gerald J. Lobo --- University of Houston - C.T. Bauer College of Business

Chong Wang --- University of Kentucky

Xiaoou (Sean) Yu --- California State University, Long Beach

Yuping Zhao --- University of Houston

Abstract

We investigate the association between material weakness in internal controls (MW) disclosed under Section 302 of SOX and future stock price crash risk. We argue that relative to firms with effective internal controls, firms with MW have lower financial reporting precision. The lower reporting precision (1) increases divergence of investor opinion with regard to firm valuation, and (2) facilitates managers’ withholding of negative information, which increases the information asymmetry between managers and outside investors. We hypothesize that both these effects increase the probability of a future stock price crash. We find empirical evidence consistent with our prediction. In additional analyses, we document that the positive association between MW and crash risk is primarily driven by company-level rather than by account-specific weaknesses, increases in the number of material weaknesses, and intensifies during the financial crisis. Additionally, we find that both the existence and the disclosure of MW incrementally affect crash risk and that MW facilitates managers’ withholding of bad news. Finally, we fail to find consistent evidence of a significant relation between MW disclosed under Section 404 of SOX and crash risk.


Do Clients Get What They Pay For? Evidence from Auditor and Engagement Fee Premiums
SSRN. April 6, 2017
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2945730

Authors

James R. Moon Jr. --- Georgia State University - School of Accountancy

Jonathan E. Shipman --- University of Arkansas

Quinn Thomas Swanquist --- Georgia State University

Robert Lowell Whited University of Massachusetts - Amherst

Abstract

Basic economic theory suggests that the demand for a good or service, and consequently price, should increase with quality. Despite this intuitively appealing expectation, prior research finds mixed evidence on the relation between audit fees and audit quality. Under the assumption that product differentiation between auditors is based, in large part, on audit quality, we propose more refined measures of excess audit fees that distinguish auditor- and engagement-level fee premiums. Our findings indicate the existence of significant between firm variation in audit pricing (i.e., auditor premiums) that is negatively related to client restatements, indicating that high-priced auditors perform higher quality audits. We find no evidence that within audit firm variation in audit pricing (i.e., engagement premiums) is related to audit quality. In fact, some of our evidence suggests engagement premiums relate negatively to reporting quality, possibly explaining the conflicting findings in prior literature. Together, these findings suggest that expensive auditors provide superior audit quality but paying the same auditor more (less) is not associated with improved (diminished) quality. We also find evidence that clients generally avoid audit fee premiums during our sample period, particularly engagement premiums. In additional analyses, we show that variation in audit quality between auditors has diminished over time, though the variation in auditor premiums has not. Consistent with this, the relation between auditor premiums and quality has diminished in recent years and clients have become less willing to accept auditor premiums. Our findings are robust to alternative measures of audit quality and a variety of specifications for estimating fee premiums.

Jensen Comment

Limitations of this and related earlier studies include the dubious definition of "audit quality" in terms of financial report restatements. Most importantly, the absence of restatements does not necessarily imply audit quality. Audit firms doing sloppy auditing get lucky a lot. Secondly, financial report restatements can arise when there were high quality audits. What I'm saying is that restatements are a dubious surrogate for audit quality.

Thirdy, "what clients pay for" is not entirely audit quality. What they pay for in most instances is the deep pockets of the auditing firm. PwC, for example, just settled on some audits that court records suggest entailed poor auditing and consultations. But shareholders are more than happy that clients picked an auditor like PwC with very deep pockets. In the case of auditing, "what you pay for" is often what you get after a bad audit or consulting engagement.


The Influence of (PCAOB) Inspection Focus on Auditor Judgments in Audits of Complex Estimates
SSRN, March 24, 2017
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2941662

Author

Amy C Tegeler --- University of Wisconsin - Madison, Students

Abstract

The Public Company Accounting Oversight Board (PCAOB) seeks to influence auditor behavior and judgments through its inspections. I conduct an experiment that studies how an inspection’s focus on procedural implementation versus judgment quality influences an auditor’s mindset, which in turn affects auditor judgments. Drawing on mindset theory, I predict and find a procedural inspection focus leads to an implemental mindset, while a judgment quality focus leads to a deliberative mindset. An implemental mindset is characterized by a narrow focus and selective information processing, while a deliberative mindset is characterized by open-mindedness, objective information processing, and cautious decision-making. I predict a deliberative mindset improves an auditor’s ability to identify relevant information and objectively incorporate it into their judgments. However, I also predict a deliberative mindset undermines auditor confidence reaching a conclusion, potentially undermining audit quality. I study the effects of mindset on an auditor’s evaluation of a complex estimate when the estimate is aggressively biased versus unbiased to interpret whether the effects of mindset on auditor judgments differ by context. I find a conditional indirect effect of inspection focus on auditor judgment through mindset, such that judgment-focused deficiencies activate a deliberative mindset, which in turn leads auditors to assess a biased estimate as less reasonable than implemental auditors. I do not find evidence of deliberative auditors being overly cautious in their judgments of an unbiased estimate or in their decision-making. This study contributes to literature examining how regulators can influence auditor judgments through the inspection process and the effects of mindsets on auditor judgments and decisions.


Navigating through the Crowd: How Do Features of Social Media Platforms Influence Investor Judgments?
SSRN, April 3, 2017
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2945657

Authors

W. Brooke Elliott --- University of Illinois at Urbana-Champaign

Brian T. Gale --- University of Illinois at Urbana-Champaign

Stephanie M. Grant --- University of Washington

Abstract

Technological innovations have created a significant shift in how investment information is created, disseminated, and reviewed. Social media platforms are now an important source of fundamental investment analysis for investors. These platforms rely critically on their networks of users, both for the production and potential oversight of published analysis. We use an experiment to examine how two features of social media platforms, the extent of potential network oversight and information about contributor publication experience, interact to influence investors’ perceptions of contributor credibility and their resulting investment judgments. We find that when the contributor is inexperienced, more extensive network oversight increases investors’ perceptions of the contributor’s credibility, leading investors to be more willing to invest in the analyzed firm. In contrast, when the contributor is experienced, more extensive network oversight does not affect perceptions of the contributor’s credibility or investors’ willingness to invest. Our findings have important implications for investors, social media platforms, and regulators, providing evidence on how investors assess credibility for an important new source of investment analysis and when investors’ judgments are likely to be influenced.


Five Upcoming GAAP Changes Not-for-Profits Should Know ---
 http://blog.aicpa.org/2017/04/5-upcoming-gaap-changes-not-for-profits-should-know.html#sthash.1XsvAo45.dpuf


Interesting Tax Facts and Tips ---
http://reason.com/reasontv/2017/04/17/23-tip-and-facts-about-taxes


Five Emerging Services Set to Transform the Accounting Profession ---
http://blog.aicpa.org/2017/04/5-service-opportunities-set-to-transform-the-accounting-profession.html#sthash.5KLAi3Gs.dpuf


Revenue recognition working drafts issued for 4 industries ----
http://www.journalofaccountancy.com/news/2017/apr/revenue-recognition-drafts-for-4-industries-201716376.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=04Apr2017#sthash.CUvX4QMI.dpuf

The airlines, gaming, hospitality, and time-share industries are represented in the latest group of revenue recognition working drafts exposed by the AICPA Financial Reporting Executive Committee (FinREC). FinREC is seeking comment on issues that will be included in its industry-specific guide to implementing FASB’s new revenue recognition standard. The guide, which has been published online, will be updated as industry working groups complete their work on issues.

New Byzantine Airline Accountancy:  Extremely technical rules require voo doo and crystal ball estimation under the new revenue recognition standard

Airlines Make More Money Selling Miles Than Seats:  The golden goose isn’t your ticket or bag fee—it’s the credit card you use to collect frequent flier miles ---
https://www.bloomberg.com/news/articles/2017-03-31/airlines-make-more-money-selling-miles-than-seats?cmpid=BBD033117_BIZ&utm_medium=email&utm_source=newsletter&utm_term=170331&utm_campaign=bloombergdaily

 . . .

Investors have failed to appreciate how crucial these programs are to airline profitability amid the stability consolidation brought, said Joseph DeNardi, a senior airline analyst with Stifel Financial Corp. in Baltimore. Since August, he’s issued a steady stream of client notes arguing that the market has undervalued the five largest airlines.

DeNardi has repeatedly explained that investors have little insight into the billions of dollars large banks pay for these affiliations. At each airline investor call or conference, DeNardi has steadfastly prodded executives for greater reporting detail.

In many ways, the Big Three U.S. airlines have organized themselves into two distinct businesses. There’s the traditional activity—the one with jets—which involves pricing seats for as much as possible, collecting a bag fee, and selling some food and drinks while keeping a close eye on costs. The other business is the sale of miles—mostly to the big banks, but also to companies that range from car rental firms to hotels to magazine peddlers.

The latter has expanded so much that it accounts for more than half of all profits for some airlines, including American Airlines Group Inc., the world’s largest.

 Jensen Comment
Accounting for frequent flier awards and  "sales of miles" has always been problematic due to time differences between award dates and when customers book flights and uncertainties whether the awards will expire without being used by customers.
This entails something akin to technical voo doo and crystal ball estimation.

From The Wall Street Journal Accounting Educators' Reviews on June 20, 2002

TITLE: Frequent-Flier Programs Get an Overhaul
REPORTER:  Ron Lieber 
DATE: Jun 18, 2002 
PAGE: D1 LINK: http://online.wsj.com/article/0,,SB1024344325710894400.djm,00.html  
TOPICS: Frequent-flier programs, Accounting

SUMMARY: Many frequent-flier programs are offering alternative rewards in exchange for frequent-flier miles. Questions focus on accounting for frequent-flier programs and redemption of miles.

QUESTIONS: 
1.) What is a frequent-flier program? List three possible ways to account for frequent-flier miles awarded to customers in exchange for purchases. Discuss the advantages and disadvantages of each accounting method.

2.) Why are companies offering alternative rewards in exchange for frequent-flier miles? How is the redemption of miles reported in the financial statements? Discuss accounting issues that arise if the miles are redeemed for awards that are less costly than originally anticipated.

3.) The article states that the 'surge in unredeemed points is causing bookkeeping headaches.' Why would unredeemed points cause bookkeeping headaches? Would companies be better off if the points were never redeemed? If a company created a liability for awarded points, in what circumstances could the liability be removed from the balance sheet?

4.) Refer to the related article. Describe Jet Blue's frequent-flier program. How does stipulating a one-year expiration on frequent-flier points change accounting for a frequent-flier program?

Reviewed By: Judy Beckman, University of Rhode Island 
Reviewed By: Benson Wier, Virginia Commonwealth University 
Reviewed By: Kimberly Dunn, Florida Atlantic University

--- RELATED ARTICLES --- 
TITLE: JetBlue Joins the Fray But With Big Caveat: Miles Expire in a Year 
REPORTER: Ron Lieber 
PAGE: D1 
ISSUE: Jun 18, 2002 
LINK: http://online.wsj.com/article/0,,SB102434443936545600.djm,00.html

 

New Byzantine Airline Accountancy:  Extremely technical rules require voo doo and crystal ball estimation under the new revenue recognition standard
Book:  Foundations of Airline Finance

by Bijan Vasigh et al.
Routledge, Second Edition, 2015
Beginning on Page 154:  Note the illustrations
https://books.google.com/books?id=FVRWBQAAQBAJ&pg=PA167&lpg=PA167&dq=GAAP+%22Frequent+Flier+Miles%22&source=bl&ots=EzGeMCTu9n&sig=u90HFsYsQ0mLbmF_k0Xm4bVWlKs&hl=en&sa=X&ved=0ahUKEwil-M7f2IHTAhWW3oMKHeJGASc4ChDoAQgqMAM#v=onepage&q=GAAP%20%22Frequent%20Flier%20Miles%22&f=false

This is an excellent illustration how accounting is more than counting beans and how specialized airline accountants and auditors must become in extremely technical issues.


Use of driver’s license numbers (for electronic tax return filings) raises security concerns ---
http://www.journalofaccountancy.com/news/2017/mar/irs-use-of-drivers-license-numbers-201716290.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=31Mar2017#sthash.8kIaJtbo.dpuf

The IRS is now recommending that taxpayers use their driver’s license number to provide another layer of security when electronically filing a federal tax return. A few states, notably New York, Ohio, and Alabama, are requiring a driver’s license number, or an equivalent, for state returns. This sounds promising at first—another layer of verification to help prevent tax identity theft seems prudent. However, as with many other “good ideas,” the unintended consequences can cause problems. -

See more at:
http://www.journalofaccountancy.com/news/2017/mar/irs-use-of-drivers-license-numbers-201716290.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=31Mar2017#sthash.8kIaJtbo.dpuf


How to Avoid Making Inheritance Mistakes ---
http://www.journalofaccountancy.com/newsletters/2017/apr/avoid-inheritance-mistakes.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=06Apr2017


The Average Property Taxes in All 50 States & DC ---
http://www.msn.com/en-us/money/taxes/the-average-property-taxes-in-all-50-states-and-dc/ss-BBzxPSe?ocid=spartandhp
This is a slide show with 53 slides.

Hawaii, Alabama, Colorado, Tennessee, and Delaware have the lowest average effective tax rates ranging from 0.32% to 0.56%

Connecticut, Vermont, New Hampshire, Texas, Illinois, and New Jersey found out the top with average effective tax rates of 2.00% to 2.31%

Jensen Comment
The results are misleading in various ways. The most obvious deception is that total taxes are not compared. New Hampshire, Delaware and three other states have no sales taxes. New Hampshire, Tennessee, Texas and six other states have no personal income tax or only tax a small part of income such as cash dividends and interest ---
https://en.wikipedia.org/wiki/State_income_tax#States_with_no_individual_income_tax

Some of the states with high average effective property taxes also tax everything else imaginable such as the states of California, New Jersey, Connecticut, Vermont, Hawaii, and Illinois.

States vary greatly as to value increases exempt from property taxes. California's Proposition 13 enormously reduces property taxes by not taxing increases in value to home owners. People having houses worth millions may not pay more property tax than people with houses worth a few hundred thousand dollars depending on how much was paid originally for the property. Texas and some other states do not tax property value increases for school taxes (for property owners over 65 years of age). Personal exemptions for property taxes vary among states which especially lends relief to lower valued properties.

States vary greatly as to when value increases in property are captured for taxation purposes. When I lived in Texas it seemed that value increases were captured in real time whenever properties were bought and sold in a neighborhood. Here in New Hampshire property value increases are captured very slowly (years later).

States vary regarding negotiability of property taxes. I found Texas property taxes to be relatively negotiable as long as you hired a business specializing in property tax negotiations for homeowners. In New Hampshire property taxes are set in stone and the courts rarely side with homeowners.

And there are various statistical analysis caveats when dealing with averages computed as means rather than medians. Means are greatly impacted by outliers relative to medians. Means are more sensitive to kurtosis ---
https://en.wikipedia.org/wiki/Kurtosis


Defense Contractors to Face New Cost Accounting Oversight with Creation of Defense Cost Accounting Standards Board ---
http://www.natlawreview.com/article/defense-contractors-to-face-new-cost-accounting-oversight-creation-defense-cost

Jensen Comment
Since fraud is also monumental in Medicaid and Medicare spending, I would also like to see the formation of a M&M Accounting Standards Board that investigates, among other things, both fraudulent billings by providers and fraudulent benefits by patients such as when half the people on Medicaid in Illinois were not even eligible for Medicaid. I also think there's way too much fraud in the pilfering of estates by heirs so that that grandma or grandpa can get free nursing home care paid for by Medicaid


Sorry California and Texas:  The 25 Most Popular Places to Retire in America ---
http://time.com/4734442/retirement-popular-place-map/?xid=newsletter-brief

Jensen Comment
The headline is misleading because it includes only people who move to other states in retirement. The most popular places to retire are probably the most populated states in the USA since most people do not leave their home state when they retire.

In any case Arizona and Florida pretty well absorb those who want to change states. The popularity of Arkansas may surprise some folks, but not me. When growing up in Iowa it was common for people who wanted to economize with lower-priced housing, scenic hill country, and warmer (hot?) weather chose Arkansas. However, even Arkansas gets overwhelmed by the statistics of Arizona and Florida.

Texas and California enter into the equation for folks who retire in their home states like Iowa but choose to spend a couple of winter months in a double wide among orange groves down south or out west near the ocean.. For decades Texas and California also attracted northerners who wanted to venture into Mexico for the sights and shopping. Now there's more fear of crossing the border.


Test your Social Security knowledge in this five-question quiz ---
http://www.journalofaccountancy.com/news/2017/mar/social-security-quiz.html?utm_source=mnl:globalcpa&utm_medium=email&utm_campaign=29Mar2017

Jensen Comment
Check your full retirement age as calculated by the government ---
https://www.ssa.gov/planners/retire/1960.html
Circumstances can vary with respect to various things like wealth, health, and job satisfaction, but my advice for most people is to not start your SS income until you reach the full retirement age or later. This does not mean that you cannot "retire" or shift to part-time work before full retirement age. You should, however, read abouit details in the law regarding full retirement age. For more details first go to
https://www.ssa.gov/planners/index.html
Then discuss all your retirements options with an expert that is often provided free by your employer or other retirement plan employee. Outfits like TIAA and Fidelity usually have campus visits by retirement planners that provide free services to college employees.

In some course on campus try to make financial literacy part of the curriculum, including retirement and tax alternatives.


How to Mislead With Statistics

OECD:  Taxing Wages in 2017 --- http://www.oecd.org/tax/taxing-wages-20725124.htm

Sorry America Your Taxes Aren't High ---
http://www.oecd.org/tax/taxing-wages-20725124.htm

Jensen Comment
Time and time again I've lamented that some things are generally misleading when they are compared between nations or even between the various 50 states of the USA.. For example, poverty is relative. A family below the poverty line in the USA is really not comparable to a family below the poverty line in many other countries of the world such as in India, China, and the poor nations of Africa. One problem in comparing poverty is that the safety nets vary so much for where in the USA there's Medicaid, food stamps, subsidized housing, homeless shelters, aid to dependent children, earned income tax credits, disability income, etc.

Tax rates are also not comparable unless you also compare what those taxes buy in the way of goods and services. For example, to the population of the USA not below the poverty line and not on Medicare there is no "free" national health care services and medications relative to nations having taxpayer-funded national health care for everybody.

In the USA Medicare does not pay for nursing homes for afflicted patients not in hospitals whereas many national health care plans pay for nursing home care.

Some nations like Germany have taxpayer-funded higher education, although the funding is not available for education and training for over half the high school graduates. In Europe less than half of the Tier 2 (high school) graduates are even allowed to go to college or free trade schools --- 
OECD Study Published in 2014:  List of countries by 25- to 34-year-olds having a tertiary education degree --- 
https://en.wikipedia.org/wiki/List_of_countries_by_25-_to_34-year-olds_having_a_tertiary_education_degre

But employer-funded apprentice programs are much better in Europe than the USA.

Also there are many types of taxes that are difficult to compare. Many nations supplement income taxes with highly variable sales taxes and VAT taxes that are collected ultimately in prices rather than tax assessments.

Nations also vary in terms of public services such as transportation. Cars are luxury goods in nations like Denmark (due largely to high taxes) where people move about cheaply on bicycles and low-cost public transportation. In most parts of the USA cars are essential because of bad weather and lousy public transportation outside the largest metropolitan areas.

I could carry on with my rant about misleading world statistics, but to do so might take the rest of my life.


"Autoregressive Distributed Lag (ARDL) Estimation. Part 1 - Theory".---
http://davegiles.blogspot.com/2017/04/ardl-models-from-team-at-eviews.html

April 2017 Econometrics Readings Suggested by David Giles ---
http://davegiles.blogspot.com/2017/04/read-some-econometrics-this-month.html


Preventing the Next Madoff Norm:  Champ stepped into his role at the SEC invigorated by the spirit of reform. What he found was passivity and petty dysfunction ---
https://www.wsj.com/articles/preventing-the-next-madoff-1492366357?mod=djemMER

Norm Champ stepped into his role at the SEC invigorated by the spirit of reform. What he found was passivity and petty dysfunction.

. . .

Yet “nothing was what I expected,” he writes in “Going Public,” his firsthand look into the SEC and the challenges of working for the federal government. “I soon learned that the SEC wasn’t a typically dysfunctional bureaucracy that needed to fix what had been broken. Rather, there were parts of it that had never been built.”

The agency’s failure to cultivate examiner expertise and encourage follow-through, for instance, was blamed for allowing Madoff and Stanford to continue their schemes. Walls dividing the examination and enforcement groups, and turf wars among work teams, meant that there was no system to share detailed tips about suspected frauds. Some SEC supervisors had been there for decades and recruited employees without private-sector backgrounds, meaning that the agency was out of touch with the more recent financial products and practices they were being asked to regulate.

Mr. Champ discovered that “the combination of civil service protection and public employee union contracts . . . had wired the wrong incentives” into the agency, which risked privileging employee perks—job security, work-life balance, protection from termination—over the good of the financial markets. This created a culture, according to Mr. Champ, that rewarded passivity and fostered petty dysfunction.

He learned his first day on the job, for example, that office supplies were hoarded because they might run out. Underperforming government employees could not easily be fired, including one who apparently did not show up to work for years. Mr. Champ seems especially astonished that the SEC asked an investment firm to extend its daily opening hours—so that an examiner could preserve his 10-hour Monday-Thursday work schedule and keep his Fridays off.

From his first days at the SEC, Mr. Champ sought to leave the agency better than he found it—to develop clear information-sharing procedures and performance standards and to recognize examiners for initiative and good work. What he ran into, however, was a bunker mentality among some of the permanent staff that thwarted real change. They waited out reform-minded managers with the refrain “this too shall pass.” When Mr. Champ became head of the important Division of Investment Management—the group tasked with overseeing investment companies, mutual funds, hedge-fund advisers and exchange-traded funds—he discovered that the division was referred to inside the SEC as the “Wax Museum” because of its resistance to reform.

Continued in article

Jensen Comment
The SEC's failure to greatly limit the massive Madoff Ponzi Fraud was at best severely negligent and in reality probably insider fraud ---
http://faculty.trinity.edu/rjensen/FraudRottenPart2.htm#Ponzi


Next Target for States Seeking to Collect Sales Taxes: Sellers on Amazon ---
https://www.wsj.com/articles/next-target-for-states-seeking-to-collect-sales-taxes-sellers-on-amazon-1490866207

Third-party sellers have so far eluded the crackdown

After spending years fighting Amazon.com Inc. AMZN +0.23% to force it to collect sales taxes, U.S. states are turning their attention to the individuals and small companies that account for a growing share of the online marketplace’s sales.

Starting April 1, the Seattle-based giant will expand its sales-tax collection to all 45 states that tax sales. But most third-party sellers remain elusive, giving them a pricing advantage—about 10% in some cases—over local brick-and-mortar retailers and products sold directly by Amazon.

States such as New York and Wyoming are cracking down on a practice that leads them to miss out on billions of dollars in revenues. At least six other states are considering new measures this year that aim to force marketplaces such as Amazon and eBay Inc. to collect sales taxes on behalf of those selling merchandise on their sites or to force sellers to report sales, according to the National Association of State Budget Officers.

Continued in article

Jensen Comment
As far as I can tell there are advantages and disadvantages from dealing with third parties linked through Amazon. It appears to me that Amazon has varying assurances for third party sellers. When you buy a used book you pay Amazon and get your refunds from Amazon. If you need to return the book you send it to Amazon. Amazon pays for return shipping.

But for some companies that were only linked through Amazon the conditions may vary. I just returned some shirts to a third party seller. I had to pay the shipping to return the merchandise to the third party seller unlike any purchase from Amazon itself.  I'm not certain, but I think Amazon assures you will get the purchase price back from the third party seller. I've never had to complain about getting the purchase price returned. Amazon did notify me that I got credit for the price of the returned merchandise.

I'm not certain how New York, Wyoming, and maybe some other states are dealing with mail order and online vendors that deal directly with customers without involving Amazon. For example, how will states deal with LL Bean that thus far has been the most resistant to collecting sales tax since it won the Supreme Court test case. Note that if you live in one of the 45 states that imposes sales taxes you owe the sales tax even if a vendor like LL Bean does not collect it at the time of the sale. However, states are losing tons of sales taxes when vendors do not collect the tax at the time of the sale and forward it to the state.

LL Bean is not violating the law when it does not collect and forward sales taxes (except in the state of Maine where LL Bean is headquartered).
LL Bean Sales Tax Information ---
https://www.llbean.com/customerService/FAQs/StateTaxRequirements.html


NYT:  How to Con Black Law Students ---
http://taxprof.typepad.com/taxprof_blog/2017/03/ny-times-op-edhow-to-con-black-law-students.html

Jensen Comment
A 25% pass rate on the CPA examination may sound pretty good to a graduate school of accountancy, but a 50% pass rate on the bar exam is a kiss of death for a law school where a 75% passage rate is considered marginal.

I don't know that there's good research on why accounting school expectations are so low relative to law schools in this regard. I can think of possible reasons off the top of my head.

  1. Law schools entail an equivalent of three years of post-graduate full time study preparing for the bar examination. Students sometimes earn masters of accounting degrees with only two or three semesters of graduate study.

     

  2. CPA exams have fewer prerequisites for sitting for the exam. Law students must take a law school curriculum at a law school to sit for the bar exam. Students that take the limited number of prerequisites to sit for the CPA examination don't even have to earn a masters of accounting degree. They can get an MBA or nursing degree. They only have to have 150 hours of college credit, some of which have to be prerequisites required by a State Board of Accountancy. CPA exam takes don't even have to earn a masters degree or even take an entrance examination for a masters program such as the GMAT or GRE examinations.

     

  3. I like to think the CPA examination is a tougher examination, but lawyers may beg to differ. I'm told that the CFA exam is tougher than the CPA examination or bar examination. But "toughness" is a lot like beauty --- it's in the eyes of the beholder.

The bottom line is that certification examination success depends upon a great deal on the years of preparation required. Perhaps a 98% passage rate to become board certified in brain surgery sounds impressive (easy?), but after all the years of medical school blood, sweat, and tears most candidates to become brain surgeons could write the certification examinations.

There also is a difference in learning aptitudes.
 In the tower student housing apartments at Stanford University years ago my good friend from France got a PhD in physics in record time. However, he had a learning block for Russian when we were taking the same course together as part of the language requirement (I'm not sure why he had to take a language beyond French and English). I tutored him and discovered that he really had a learning block for Russian. He had to take the course twice. I like to think I was brilliant, but in fact I had over two years of Russian before going to graduate school. This was because in my first two years of college I aspired to become an Admiral on a full Navy scholarship during the Cold War. I was a midshipman on a battleship during the summers when we played ocean hide and seek an tag with Russian submarines.


Tesla us now bigger than GM ---
https://www.wsj.com/articles/tesla-overtakes-gm-to-become-most-valuable-u-s-auto-maker-1491832043

Tesla is now bigger than Ford ---
http://markets.businessinsider.com/news/stocks/tesla-stock-price-ford-stock-price-april-3-2017-4-1001891214

Jensen Comment
Keep in mind that market cap is only one of various ways to measure the "size" of a company. Have your students think of other ways to compare the size of Ford versus GM versus Tesla.


The statute of limitation for net operating losses
The tension between the three-year statute of limitation and the 20-year net operating loss carryforward period can cause problems for unwary taxpayers who fail to preserve evidence proving the amount of the loss. Here's what practitioners need to know to keep their clients from having NOL deductions disallowed.
http://www.thetaxadviser.com/issues/2017/apr/statute-limitation-net-operating-losses.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=11Apr2017


Unlocking Excel's Hidden Powers ---
https://www.intheblack.com/articles/2017/02/27/influencing-with-excel


The Medicaid and Pension Monsters That Divert Funding by States for Education, Roads, and Bridges

"Health Care vs. Higher Ed," by Rick Seltzer, Inside Higher Ed, April 12, 2017 ---
https://www.insidehighered.com/news/2017/04/12/medicaid-funding-changes-pressure-state-higher-ed-funding?utm_source=Inside+Higher+Ed&utm_campaign=5bea54615f-DNU20170412&utm_medium=email&utm_term=0_1fcbc04421-5bea54615f-197565045&mc_cid=5bea54615f&mc_eid=1e78f7c952

. . .

When states adopted their budgets for the 2017 fiscal year, their share of Medicaid spending was expected to grow by 4.4 percent on average, according to an April report from the Kaiser Family Foundation. The increase was expected in large part because of the decrease in federal funding for Medicaid expansion.

While 4.4 percent might not sound like an overwhelming increase, Medicaid spending is a massive portion of states’ budgets. Medicaid spending across all states totaled $509 billion in the 2015 fiscal year, according to the Kaiser Family Foundation. States paid 38 percent of the costs, with the federal government picking up the rest.

That means states spent about $193.4 billion on Medicaid in 2015. That dwarfs state higher education appropriations, which totaled about $83.6 billion across the country in 2016-17.

State legislators are essentially locked into spending on Medicaid. So when costs in that program rise, lawmakers have to either raise revenue through taxes and fees or find money in their discretionary budgets to reallocate. Higher education represents one of the few big-ticket discretionary items from which they can draw.

“They’re going to get the money somewhere,” Pernsteiner said. “Where they make the cuts is higher ed.”

Within individual states that expanded Medicaid, projections show costs mounting in coming years. Kentucky’s expenditures for Medicaid expansion are projected at $77.2 million for the 2016-17 fiscal year -- a year in which the federal match rate only falls below 100 percent for six months. The expenditures under current law are expected to rise to $180.1 million in 2018, $224 million in 2019 and $306.3 million in 2020, according to state projections.

Kentucky is dealing with other budget pressures as well. By some estimates, the state has the worst-funded pension system of any state in the country -- even worse than Illinois and New Jersey. Many believe dealing with that issue will be a major drain on state coffers.

The state’s Republican governor, Matt Bevin, has already shown a willingness to take funding that would have gone to higher education and put it toward pensions, said Robert L. King, president of the Kentucky Council on Postsecondary Education. Budget pressures add up, including from Medicaid, King said.

“Because it’s a mandated expenditure, it gets paid,” King said. “So our universities have been taking cuts consistently for the last decade. I can’t tell you that they are directly caused by Medicaid, but it certainly is a contributing factor.”

King has been watching trends between Medicaid funding and higher education funding since he was chancellor of the State University of New York System in the early 2000s.

“I remember reading studies at the time that showed that there was a pretty straight-line correlation between the growth in Medicaid costs and the reduction in state support for higher education,” he said.

A 2003 Brookings report found every new dollar in state Medicaid spending was related to a decline in higher education appropriations of about 6 cents to 7 cents.

In West Virginia, which also expanded Medicaid eligibility under the Affordable Care Act, health-care costs were wrapped up in a long budget standoff that left leaders worried about higher education funding. State revenue has been declining with energy markets, causing stress on the budget and a possible pinch on higher education funding, according to a spokesman for West Virginia University.

Continued in article

Jensen Comment
Actually two non-discretionary spending burdens are overwhelming state budgets. The first is Medicaid whether or not a state expanded coverage under the ACA. The second is unfunded pensions for public employees, baby boomers that are now retiring in droves.

California Road-Tax Hike Is Really A Pension Tax ---
http://reason.com/archives/2017/04/07/california-road-tax-hike-is-really-a-pen

Gov. Jerry Brown and Democratic legislators have caused a stir with their plan, which passed the legislature on Thursday, to increase taxes to pay for the state's unquestionably decrepit infrastructure of roads and bridges. Instead of thinking of this as a new transportation tax, however, Californians should see it as a pension tax, given the extra money plugs a hole caused by growing retirement payments to public employees.

Consider this sobering news from the CalMatters' Judy Lin in January: "New projections show the state's annual bill for retirement obligations is expected to reach $11 billion by the time Brown leaves office in January 2019—nearly double what it was eight years earlier." That's the state's "annual bill," i.e., the direct costs taken from the general-fund budget. That number doesn't even include those "unfunded" pension liabilities that according to some estimates top $1 trillion.

 Continued in article

Jensen Comment
What's sad is that many of those pension timings (retire at age 50) and amounts (think over $500,000 per year) are fraudulent ---
http://cfif.org/v/index.php/commentary/61-state-issues/1415-report-multi-million-dollar-california-pension-fraud


A senator found Medicare blowing hundreds of millions on a loser drug — and no one even got a slap on the wrist ---
http://www.businessinsider.com/tim-scott-letter-on-acthar-and-medicare-waste-2017-4


San Antonio lawyer and “case runner” are sentenced in scam ---
http://www.mysanantonio.com/news/local/article/San-Antonio-lawyer-and-case-runner-are-11052850.php

A San Antonio law firm’s “case runner” has been sentenced to four years in prison for swindling personal-injury clients out of of settlement money, trying to evade $1.6 million in taxes and hiding $429,000 in assets in his bankruptcy.

A lawyer, meanwhile, got five years of probation for enabling the fraud by case runner Elpidio “Pete” Gongora by letting him use his law license. Gongora is not an attorney.

Prosecutors argued the lawyer, Ronald Higgins, 54, was less culpable in the fraud, which involved a series of thefts taken from proceeds collected as lawsuit settlements or from what should have gone to doctors and therapists who treated the plaintiffs involved.

Besides handing down the sentences Tuesday, U.S. District Judge Fred Biery ordered Gongora to pay $3.49 million in restitution, and Higgins to pay $1.49 million.

Gongora, 47, pleaded guilty last year to conspiracy to commit mail fraud, tax evasion and bankruptcy fraud.

He admitted conspiring with Higgins and two others, bookkeeper Rosa Ramirez, 48, and one of her relatives, Juan Rodriguez, 47. Gongora’s co-defendants pleaded guilty to conspiracy to commit mail fraud, and Ramirez and Rodriguez are to be sentenced in June.

According to court documents, from 2009 through early 2015, Gongora operated the law offices of Higgins, who “exercised a complete and total lack of oversight” and, after learning about the fraud in its waning periods, told Gongora to pay the clients but did not report it to the feds. Two other lawyers who were part of the office were kept in the dark about the fraud, the documents say.

Gongora’s lawyer, Scott McCrum, has said Gongora had agreements with the lawyers to find clients for them since about 2003. Business was brisk, McCrum said, but things went downhill in the wake of Texas tort reforms, changes to the law that let insurance companies deny more claims.

The FBI and IRS criminal investigators said Gongora lived large while the scheme was peaking, moving from a $550,000 house on the far West Side to an $850,000 home in the exclusive Dominion subdivision. He also bought a $600,000 house in Aransas Pass, on the Texas coast.

Gongora also acquired a $118,000 Ferrari, a $185,000 Lamborghini, a $28,000 Mercedes-Benz and an $85,000 boat and trailer.

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


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


How to Lessen the Risk of Financial Reporting Fraud
Center for Audit Quality, 2017
http://www.accountingweb.com/aa/law-and-enforcement/how-to-lessen-the-risk-of-financial-reporting-fraud?source=ei041217


Benford's Law --- https://en.wikipedia.org/wiki/Benford%27s_law

Using Excel and Benford’s Law to detect fraud ---
http://www.journalofaccountancy.com/issues/2017/apr/excel-and-benfords-law-to-detect-fraud.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=07Apr2017

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


AICPA:  PROPOSED DESCRIPTION CRITERIA FOR MANAGEMENT’S DESCRIPTION OF AN ENTITY’S CYBERSECURITY RISK MANAGEMENT PROGRAM  ---
http://www.aicpa.org/InterestAreas/FRC/AssuranceAdvisoryServices/DownloadableDocuments/ExposureDrafts/ASEC_ED_Criteria_Cyber_Engagement.pdf
Also see
http://www.aicpa.org/InterestAreas/FRC/AssuranceAdvisoryServices/DownloadableDocuments/ExposureDrafts/ASEC_ED_Rev_Trust_Services.pdf


How to Mislead With Statistics
Does it Pay to Get a Double Major in College?
https://theconversation.com/does-it-pay-to-get-a-double-major-in-college-74420

Jensen Comment
The article is misleading in that the most important variables leading to advantages of double majoring are so dependent upon circumstances. For example. top medical schools, law schools, graduate business schools, etc. lean toward accepting applicants who double majored such as a major in computer science and engineering or a major in mathematics and computer science. My point is that a double major can help get you into a prestigious graduate school that, in turn, opens doors to career opportunities that are difficult to get if you did not get a graduate degree (say a law degree) from a prestigious university.

Secondly, even if you did not get into a prestigious graduate school the knowledge you gained in selected double majors can become important factors to performance success and opportunities later in life. Some of my accounting graduates who also double majored in Spanish or Chinese found that they could get opportunities in Mexico and China not available to some of their peers who did not know Spanish or Chinese. Spanish was especially important to my students who worked for the Big Four CPA firms in Texas where there are usually a high concentration of clients doing business south of the Rio Grande.

Less than 25% of the hires of large CPA firms eventually become partners in those firms for various reasons. A double major, however, might increase the odds in particular circumstances. I had an accounting student who I thought had very little chance of making partner in the Houston office of a Big Four accounting program. However, since he'd double majored in accounting and Russian he was given an opportunity to transfer to the Moscow office of his firm. Working in Russia, in my opinion, is one of the main reason he became a partner. If he'd stayed in the Houston Office I doubt that he'd have become a partner in the firm.

My point is that double majoring may not pay off across many combinations of majors, but it often pays off in selected combinations in particular circumstances where the payoffs are averaged out in large studies of many combinations of double majors.


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

Bitcoin Spikes After Japan Declares it a Legal Payment Method ---
http://www.businessinsider.com/bitcoin-price-spikes-as-japan-recognizes-it-as-a-legal-payment-method-2017-4


NY Times:  Student Loan Forgiveness Program Approval Letters May Be Invalid ---
http://taxprof.typepad.com/taxprof_blog/2017/04/ny-timesstudent-loan-forgiveness-program-approval-letters-may-be-invalid.html


IFRS 9 --- https://en.wikipedia.org/wiki/IFRS_9

McKinsey & Company:  IFRS 9: A silent revolution in banks’ business models ---
http://www.mckinsey.com/business-functions/risk/our-insights/ifrs-9-a-silent-revolution-in-banks-business-models


Fair Value Margin of Error
REPORT: Saudi Aramco might be worth just half of the $2 trillion suggested by Saudi officials ---
http://www.businessinsider.com/ft-saudi-aramco-ipo-value-one-trillion-2017-4


How much do you know about state corporate income taxes? Take this quiz ---
http://ww2.cfo.com/tax/2017/04/great-divide-quiz/

Jensen Comment
Turns out that I didn't know much about this topic.


Tax on some Australian families second highest in developed world  ---
http://www.smh.com.au/federal-politics/political-news/tax-on-some-australian-families-second-highest-in-developed-world-report-finds-20170411-gvih8f.html

Australia’s tax burden for two-child families earning a single income of AUD 82,000 a year now trails only Denmark, according to Organisation for Economic Co-operation and Development research.


Regulatory Compliance:  CFOs turning to risk analytics software to spot financial, operational threats --- 
http://searchfinancialapplications.techtarget.com/feature/CFOs-turning-to-risk-analytics-software-to-spot-financial-operational-threats?utm_medium=EM&asrc=EM_NLN_75173110&utm_campaign=20170404_How CFOs are spotting business threats | PLUS: Employee benefits software expanding HR tech, SAP CEO touts the intelligent enterprise, and more&utm_source=NLN&track=NL-1815&ad=913672&src=913672

Regulatory compliance, loan covenants and currency risk are common targets, as organizations sift through ERP and other data looking for patterns that might give early warning.

Continued in article


Harvard:  The Cost of Drugs for Rare Diseases Is Threatening the U.S. Health Care System ---
https://hbr.org/2017/04/the-cost-of-drugs-for-rare-diseases-is-threatening-the-u-s-health-care-system?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date&spMailingID=16971604&spUserID=MTkyODM0MDg0MAS2&spJobID=1000756883&spReportId=MTAwMDc1Njg4MwS2

. . .

In the United Kingdom, the National Institute for Health and Care Excellence (NICE) determines the cost effectiveness, or value, of newly approved drugs based on their impact on quality-adjusted life years. These determinations inform the National Health System’s (NHS) treatment-coverage decisions. In contrast, the FDA is prohibited from considering cost or value in its decision making, and there is no U.S. governmental equivalent of NICE.

The Institute for Clinical and Economic Review (ICER), a small Boston-based nonprofit, has taken a step towards value-based pricing by creating a NICE-like model. Development of a NICE or ICER-like post-approval value review, incorporating appropriate oversight and accountability, would help ensure coverage decisions remain fair and cost-effective, but it won’t be enough. The NHS is likely to impose care rationing because of escalating health and pharmaceutical costs. Any successful plan to manage rising drug costs must address multiple aspects of the problem, including value-based pricing, transparency, drug re-importation, and the reform of the Orphan Drug Act, to name a few.

The FDA and other federal payers, including Medicare, must be empowered to consider drug costs and outcomes, and this process should factor in federal investment in drug discovery. (Ionis and Cold Spring Harbor received federal grant funding to support the early development of nusinersen.)

Federal government payers should also be allowed to negotiate price discounts and re-import drugs (with provisions for adequate quality control). In a disappointing move, President Trump, who had promised to let Medicare negotiate bulk pricing discounts for prescription drugs, abandoned this pledge after meeting with pharmaceutical industry lobbyists and executives.

Pharmaceutical companies must be required to disclose and justify development costs, particularly those seeking the substantial benefits under the ODA. There are numerous examples of pharmaceutical companies taking advantage of ODA provisions to repurpose inexpensive medications for rare diseases, often at extraordinary, unjustified costs. Marathon proposed a price of $89,000 for deflazacort, which is already available in Europe and Canada for $1,000 to $2,000, a 6,000% price increase. (After several members of Congress complained, the launch of the drug was delayed.) Senator Chuck Grassley, chairman of the Senate Judiciary Committee, is rightly leading an inquiry into this practice and other ODA abuses.

A health care system’s goal should be to provide the best patient-centered care. Coverage decisions and resource allocations must prioritize value to patients — not insurers’ or pharma companies’ profits. If we are committed as a society to curing diseases such as SMA, dangling treatments like nusinersen just out of patients’ reach is cruel. Collectively, government, pharma, insurers, hospital systems and physicians all have a role to play in providing access to the right care at justifiable cost.

Jensen Question
Is there a study of where national health care plans like those in Canada and Finland are drawing the line on paying for very costly medications such as a cancer drug costing over $100,000 per year


April 5, 2016

U.S. House approves bill to ease employee stock rules
Startups and other privately held companies would have greater flexibility in awarding stock to employees without triggering what critics say are overly intrusive reporting requirements, under legislation passed by the U.S. House Tuesday.


Economics is Overwhelmingly the Most Popular Major in the Ivy League ---
http://www.businessinsider.com/most-popular-ivy-league-major-2017-4/#university-of-pennsylvania-6
Jensen Comment
In my opinion business would overtake economics if it were available as a major in more of the Ivy universities.

The most surprising thing to me is that pre-med or its equivalent (e.g., biological sciences) is not more popular. It also surprised me that computer science is not more popular.

My experience during my 24 years on the faculty at Trinity University is that pre-med is overwhelmingly the most popular major in the first year in many private universities. However, pre-med majors frequently change majors by the second year for a variety of reasons as business majors often take over in popularity across campus. Certainly some of the required courses such as chemistry take their toll on pre-med majors. But in my conversations with former pre-med majors I discovered that as students learned more about the careers of being physicians they became discouraged. Other than uncertainties about being admitted to medical school and mounting student debt commonly cited negatives are stress on the job and in family life, boring lifetime routines, long hours, hospital politics, price fixing by insurance companies (including Medicaid and Medicare), and costs of being a doctor (including malpractice insurance and meeting a payroll for office staff).

Economics is most likely the most popular undergraduate major in the Ivy League because economics majors have such an enormous variety of opportunities for varied graduate studies and careers (think graduate studies in law and business and higher education).

I think economics is more popular in the Ivy League than in less prestigious universities because of confidence of Ivy League graduates that they will be later admitted into the most prestigious graduate studies programs in law schools, MBA programs, and Ph.D. programs in a variety of academic disciplines. An Ivy League diploma (with an almost certain high gpa given the exceptional grade inflation in the Ivy League) is almost certainly a ticket to admission into a prestigious graduate school. That's the way the game is played in higher education aside from some other tickets to success such as graduate study affirmative action for promising African Americans and Native Americans.


Operating Leverage --- https://en.wikipedia.org/wiki/Operating_leverage

From the CFO Journal's Morning Ledger on April 28, 2017

MetLife to invest $1 billion to reduce costs
MetLife Inc.
intends to invest $1 billion in technology improvements that it hopes will help it slash operating costs, Reuters reports.

Jensen Comment
This is an effort to increase "operating leverage" (not the same as financial leverage)  that we teach in cost and managerial accounting courses. It might be a good project for students to report on how MetLife is trying to increase operating leverage with technology investments that entail a lot of fixed costs.


From the CFO Journal's Morning Ledger on April 26, 2017

SEC registrant number keeps falling
The number of public companies filing their financial statements with the SEC has shrunk dramatically in recent decades, Accounting Today reports.


From the CFO Journal's Morning Ledger on April 26, 2017

Toshiba considers replacing auditor (PwC) With a More Lenient CPA Firm
Toshiba Corp.
, the troubled Japanese conglomerate, wants to replace auditor PricewaterhouseCoopers Aarata LLC to resolve an impasse over full-year earnings and remain listed, two sources briefed on the matter said, as reported by Reuters.


From the CFO Journal's Morning Ledger on April 26, 2017

Perrigo reaches agreement over royalty accounting
Perrigo Co.
’s agreement with auditor Ernst & Young over an accounting issue, announced late Tuesday, paves the way for the drugmaker to file its delayed 10-K annual report and removes one problem from Chief Executive John Hendrickson’s overfull plate, Vipal Monga reports.


From the CFO Journal's Morning Ledger on April 26, 2017

President Donald Trump on Wednesday is planning to unveil a proposal to cut corporate taxes on U.S. companies’ foreign profits and to slash the top tax rate on so-called pass-through businesses, including many owner-operated companies, to 15% from 39.6%, Michael C. Bender and Richard Rubin write.

Most U.S. businesses are pass-throughs, which are called that because their income and deductions pass through to their owners’ individual returns. That group includes many small firms, but it also includes large global law firms, hedge funds and Mr. Trump’s own real estate and branding businesses. These businesses don’t pay the corporate tax rate, which Mr. Trump also wants to lower to 15%.

House Republicans have proposed a 20% corporate tax rate and a 25% top tax rate on pass-through businesses, and those are both ambitious goals that require politically difficult tradeoffs. Mr. Trump’s plan is leaning toward even deeper cuts in tax rates, bigger budget deficits and bold estimates of the economic growth his tax cuts could generate.

By restating core pieces of his campaign-trail plan, Mr. Trump is trying to frame the coming tax debate in Congress. But parts of his plan clash with House Republicans’ ideas, and the party is embarking on the enormous task of trying to rewrite the tax code with major fault lines on tax rates, tax breaks and budgetary goals.

Jensen Comment
Since there are so many loopholes for corporations to legally circumvent corporate taxes I propose doing away with it entirely so that when the Democrats swoop back into power they can pass a more effective VAT tax ---
https://en.wikipedia.org/wiki/Value-added_tax


From the CFO Journal's Morning Ledger on April 24, 2017

PCAOB targets accounting firms
The Public Company Accounting Oversight Board announced six settled actions against non-U.S. accounting firms late last month for failure to report certain disciplinary or regulatory actions.


"Don't count on that government pension," by Terry Savage, The Chicago Tribune, April 17, 2017 ---
http://www.chicagotribune.com/business/sns-201704171833--tms--savagectnts-a20170417-20170417-column,amp.html

. . .

This newly collected data should be frightening to those counting on a state or municipal pension. The latest numbers are available at http://www.statedatalab.org/pensiondatabase. There you can search by state to find both state and local pension statistics. The report for each city and state includes the amount of pension plan assets, the amount of plan promises, and the dollar amount and percentage of pension underfunding. Every plan also receives a letter grade, from A to F.

Of the 237 cities studied, 29 received an "F" grade, reflecting a funding ratio of less than 35 percent. Those plans cover many thousands of workers who cannot possibly be paid their full promised pensions, absent a huge tax increase (which would also come out of their pockets as workers).

Based on the size of its unfunded pension liabilities, Chicago is in the worst shape, with more than $62 billion worth of unfunded pension promises. Chicago has less than 33 cents set aside for every dollar promised.

The Chicago Municipal Employees plan is estimated to run out of assets in seven years, since it is only 20.3 percent funded. The police fund (funded at 25.4 percent) and the firefighter's fund (funded at 21.7 percent) will not be far behind. The Public School Teachers' Pension and Retirement Fund is in slightly better shape with 51.6 percent funding.

New York City is in second worst shape in terms of total dollars needed, with an unfunded pension liability of more than $61 billion, but at least it is 71 percent funded.

At another extreme, Portland, Ore., has set aside less than 1 percent of what it needs to pay its $2.9 billion of pension promises.

What's Going On?

How have these cities gotten away with underfunding their pension promises? Until last year, the Governmental Accounting Standards Board required state and local governments to report only a small fraction of their pension liabilities. And there have been no sanctions, other than public outrage, to force employers to top up their pension funds.

Many states, including Illinois, have constitutional provisions making it difficult to change pension formulas, such as cost-of-living increases. These laws have restricted attempts to substitute more appropriate defined-contribution plans, such as the 401(k) plans, used in most businesses.

In corporate America, there are rules requiring disclosure of pension liabilities and forcing increased contributions to underfunded pensions -- costs that are taken out of earnings. That's why most big corporations phased out their defined-benefit pension plans years ago. Instead, they offer 401(k) plans that allow workers to make their own saving and investment decisions, with matching contributions from employers.

If a corporation declares bankruptcy, the Pension Benefit Guaranty Corporation will pick up promised pension payments, up to certain levels. There is no such guarantee for state and municipal pensions.

Obviously, there are a lot of unfunded promises in America. The largest come from the federal government and are related to Social Security and military and federal worker retirement pension plans.

Continued in article

Explore Your State ---
http://www.statedatalab.org/

Jensen Comment
Compounding the problem of pensions is fraud in state spending. For example, Illinois is having a very bad time honoring state worker pensions. At the same time research uncovered that half the people receiving Medicaid were not eligible for Medicaid.


From the CFO Journal's Morning Ledger on April 24, 2017

Trump administration rejects sanctions waiver for Exxon
President Donald Trump has rejected Exxon Mobil Corp.’s bid to sidestep U.S. sanctions against Moscow and resume an oil venture with a politically powerful Russian energy firm. Mr. Trump’s family and political aides have previously faced scrutiny over their possible ties to Russia. Competitor Chevron Corp. said Monday it would sell its Bangladeshi subsidiary to Chinese investors, Reuters reports.


From the CFO Journal's Morning Ledger on April 24, 2017

Grant Thornton, former partner fined over audit
Grant Thornton U.K. LLP
, a member of professional services network Grant Thornton International, and one of its former partners have admitted misconduct and agreed to fines following an investigation by the Financial Reporting Council, the U.K. watchdog for reporting and audit. This comes after a review of the financial statements of AssetCo PLC, a U.K. company listed on the AIM, a submarket of the London Stock Exchange, Nina Trentmann writes. Grant Thornton acted as the statutory audit firm of AssetCo.

According to the FRC, Grant Thornton and its former partner Robert Napper insufficiently appreciated audit risks arising from AssetCo’s financial statements. “The respondents have admitted widespread and significant failings in their audit work. The…sanctions will send a strong signal to the audit profession of the importance of upholding high standards of conduct,” said Gareth Rees, an executive counsel to the FRC, according to a statement.

Grant Thornton will have to pay £2.27 million ($2.92 million) plus £200,000 as a contribution to the FRC’s costs. Mr. Napper has been fined £130,000

Bob Jensen's threads on the frauds and negligence of Grant Thornton audits ---
http://faculty.trinity.edu/rjensen/fraud001.htm


From the CFO Journal's Morning Ledger on April 24, 2017

Gaining Insights from Innovations in a Financial Statement Audit
New technology innovations, when embedded into audit practices and processes, can provide organizations with business insights that go beyond the core audit. Understand how advanced analytics and cognitive technologies are bringing value to audits, including how senior management and the board can make optimum use of insights derived from audit innovation, how a risk-based approach to an audit might work in practice, and what the audit of the future could look like.

Continue ---
http://deloitte.wsj.com/cfo/2017/04/24/gaining-insights-from-innovations-in-a-financial-statement-audit/?mod=WSJBlog


From the CFO Journal's Morning Ledger on April 21, 2017

IASB suggests changes to IFRS 9 (before it's even out of the station)
The International Accounting Standards Board, which sets reporting standards used in more than 120 countries, said Friday it has proposed amendments to the financial instruments standard IFRS 9, Nina Trentmann reports.

The move is aimed at enabling companies to measure prepayable financial assets with so-called negative compensation at amortized cost, the IASB said in a statement. "These amendments to the standard respond to comments received about the accounting for prepayment options under IFRS 9 and are consistent with the Board’s enhanced focus on supporting implementation of major new Standards," IASB Chairman Hans Hoogervorst said, according to the statement


From the CFO Journal's Morning Ledger on April 21, 2017

President Donald Trump’s bid to stanch imports flowing into the U.S. steel market is fighting strong currents: domestic prices that are among the world’s highest and a buoyant dollar that pushes down the cost of imports, Bob Tita writes.

High labor costs have long pushed up the price of U.S. steel. Domestic producers increased prices further last year after new tariffs helped trim the share of imports in the U.S. steel market in 2016 for the first time in three years. Washington imposed those duties, up to 500%, on some steel products from competitors in China and other countries after U.S. steelmakers complained they were benefiting from unfair government subsidies and selling steel in the U.S. for less than it cost to make.

Meanwhile, the U.S. dollar’s recent strength has made imported steel a bargain for domestic manufacturers and construction companies. Wider duties on imports could encourage U.S. producers to further drive up their prices, complicating another of Mr. Trump’s campaign pledges: to support U.S. manufacturers.

“For every steelworker, there are 60 workers in steel-using industries,” said Lewis Leibowitz, a Washington attorney who has worked on trade cases involving steel in the past. “You need competitive steel prices for those industries to be competitive and to export.”

From the CFO Journal's Morning Ledger on April 20, 2017

IMF warns high corporate leverage could threaten stability
U.S. corporate debt has risen because of cheap credit, reaching levels that exceed those before the 2008 financial crisis. This could shake financial stability, the International Monetary Fund stated.

Jensen Comment
What do you expect when borrowing rates are almost down to zero?


From the CFO Journal's Morning Ledger on April 18, 2017

External auditor assessment tool updated
The Center for Audit Quality and the Audit Committee Collaboration have updated the External Auditor Assessment Tool, a resource that helps audit committees better evaluate audit firms, Accounting Today reports.


From the CFO Journal's Morning Ledger on April 14, 2017

U.S. banks not in the top five on list of biggest banks
The top four spots go to banks in China with $3.5 trillion in total assets at the end of last year. A bank in Japan is number five with $2.6 trillion. J.P. Morgan Chase & Co. comes in at $2.5 trillion, occupying the sixth spot.


From the CFO Journal's Morning Ledger on April 12, 2017

U.S. audit regulator probes leak of confidential information to KPMG. 
Six employees at KPMG LLP have resigned after the Public Company Accounting Oversight Board started investigating a leak of a confidential plan to inspect work performed by the firm.

Scroll Down for Teaching Case on This Issue


From the CFO Journal's Morning Ledger on April 12, 2017

Accountants may need to go beyond their expertise with numbers. The uniform certified public accountant exam began testing candidates on critical thinking, problem solving and analysis at the beginning of the month. The American Institute of CPAs, National Association of State Boards of Accountancy and Prometric announced the change Wednesday. One of the biggest changes is to the "exam blueprints" which have replaced the Content Specification Outline (CSO) and Skill Specification Outline (SSO) as the primary testing element. They identify knowledge linked directly to representative tasks performed by newly licensed CPAs, according to the AICPA. The new assessment will help accountants who are using these skills early in their career “stay ahead of the curve,” said Michael Decker, the vice president of examinations at AICPA, in a written statement

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

. . .

Why the exam is changing
The CPA exam is designed to provide state boards of accountancy reasonable assurance that those who receive passing grades have sufficient technical knowledge and skills to be licensed. The AICPA periodically conducts a practice analysis to ensure that the exam measures the right knowledge and skills to protect the public interest and meet the needs of the boards of accountancy as they license CPAs.

A practice analysis launched in early 2014 collected input from boards of accountancy, state societies, public accounting firms, academics, standard setters, regulators, and business and industry on the knowledge and skills needed by newly licensed CPAs. The research revealed that because of advances in technology and outsourcing of routine tasks, newly licensed CPAs increasingly need to use higher-order cognitive skills and professional skepticism while performing tasks such as planning and reviewing the work of others.

As a result, the research showed, the profession supports changing the exam to enable more testing of higher-order skills that would align more closely with the tasks newly licensed CPAs regularly perform.

“With this practice analysis, we heard from the profession that newly licensed CPAs not only need to have the knowledge, but they need to have higher-order skills,” Decker said. “They need to analyze financial and tax information. And they must be able to think critically and problem-solve in their day-to-day jobs.”

What’s new

The next CPA exam will continue to test in the familiar four sections—Auditing and Attestation (AUD), Business Environment and Concepts (BEC), Financial Accounting and Reporting (FAR), and Regulation (REG). The exam will place less emphasis on remembering-and-understanding skills, enabling higher-level analysis and evaluation skills to be tested:

  • The number of task-based simulations, a highly effective way to assess higher-order skills, will increase. Task-based simulations will be added to the BEC section for the first time, and the AUD, FAR, and REG sections each will have their number of task-based simulations increased to eight or nine.
     
  • Total testing time will increase from 14 to 16 hours. This will accommodate increases of one hour each for the BEC and REG sections. The extra time is being allotted partly because of the increase in task-based simulations. A review found that there is sufficient time for prepared candidates to complete the AUD and FAR sections.
     
  • Multiple-choice questions and task-based simulations each will contribute about 50% toward the candidate’s score in the AUD, FAR, and REG sections. In the BEC section, multiple-choice questions will contribute about 50% of the scoring, with 35% coming from task-based simulations and 15% from written communication.

In the past, multiple-choice questions were weighted about 60% in the total scoring of the exam. That will decrease to about 50% in the next exam.

“The profession is demanding stronger critical-thinking skills from newly licensed CPAs,” Decker said. “They need to be able to form conclusions in basic areas and identify issues in more complex and riskier areas. And, based on the feedback from our stakeholders, we have designed each of the exam sections based on a task and skill framework to meet those requirements.”

New blueprints for preparation
To prepare for the next exam, candidates will be able to use new blueprints that will replace the current Content Specification Outline (CSO) and Skill Specification Outline (SSO). The blueprints will provide candidates more detail about what to expect on the exam. The blueprints contain about 600 representative tasks, which are aligned with the skills required of newly licensed CPAs, across the four exam sections. The blueprints are designed to provide candidates with clearer information on the material the exam will test, and will show educators what knowledge and skills candidates need as newly licensed CPAs.

Continued in article

A Practice Analysis ---
http://www.aicpa.org/BecomeACPA/CPAExam/nextexam/DownloadableDocuments/2016-practice-analysis-final-report.pdf

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


From the CFO Journal's Morning Ledger on April 10, 2017

America’s credit-card tab hits $1 trillion
New data from the Federal Reserve indicated that credit-card debt reached the $1 trillion threshold in the United States. It joined auto loans and student debt in crossing that level, hitting its highest mark since the last recession.


From the CFO Journal's Morning Ledger on April 10, 2017

Companies issuing nonvoting shares in the wake of the Snap Inc. IPO may be left out of major indexes. FTSE Russell is considering whether to add such stocks and what to do about such companies – like Alphabet Inc. – it already includes, writes CFO Journal’s Richard Teitelbaum. The issue of voting rights is raising the ire of some shareholders’ rights advocates because founders and executives often end up with far more votes than shares.

There will be a consultation period over the next few months, FTSE said. Still, more nonvoting share issues are in the pipeline. IAC/InterActiveCorp. shareholders approved a nonvoting share class last year, but is facing a lawsuit to block the move. Facebook Inc. last year proposed the issuance of a nonvoting class of stock and is also the subject of a lawsuit

"Non-Voting Shares are in Vogue: Do (Lousy) Accounting Rules Play a Part?," by Tom Selling, The Accounting Onion, April 13, 2013 ---
http://accountingonion.com/2017/04/non-voting-shares-are-in-vogue-do-lousy-accounting-rules-play-a-part.html

Jensen Comment
Since Tom tends not to cite academic research in his posts, I thought I might cite samples of  the many academic studies on this issue.
Note that this type of equity division of voting power is much more common in Europe and South America.

"The value of the corporate voting right: Evidence from Switzerland," by Melchior R. Horner, Journal of Banking & Finance, Volume 12, Issue 1, March 1988, Pages 69-83 ---
http://www.sciencedirect.com/science/article/pii/0378426688900519

This paper analyzes the value of voting power of Swiss firms which usually issue high-voting- rights stock, low-voting-rights stock, and non-voting stock. Two variables measuring voting- power-inequality are constructed. They are both useful in explaining the voting-rights-premia. Also, the allocation of the voting rights is analyzed. It is shown that majority shareholders hold the high-voting-rights stock


"Fractional cointegration of voting and non-voting shares," by  Ingolf Dittmann, Applied Financial Economics, Volume 11, 2001 - Issue 3 ---
http://www.tandfonline.com/doi/abs/10.1080/096031001300138726

Voting and non-voting shares of ten German companies are analysed for fractional cointegration. It turns out that seven pairs of price series are fractionally cointegrated. The estimated long-memory parameter of the equilibrium errors lies between 0.5 and 0.8. If two stocks are fractionally cointegrated, future returns of at least one of the stocks can be predicted by past prices. This contradicts the weak form of the efficient market hypothesis. A simple trading strategy is proposed and analysed; it leads to considerable excess returns in two out-of-sample evaluations.


The Value of Control: Implications for Control Premia, Minority Discounts and Voting Share Differentials
SSRN, November 14, 2005
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=837405

Author

Aswath Damodaran

Abstract

It is not uncommon in private company and acquisition valuations to see large premiums attached to estimated value to reflect the 'value of control'. But what, if any, is the value of control in a firm, and if it exists, how do we go about estimating it? In this paper, we examine the ingredients of the control premium. In particular, we argue that the value of controlling a firm has to lie in being able to run it differently (and better). Consequently, the value of control will be greater for poorly managed firms than well run ones. The value of control has wide ranging implications beyond acquisitions. We show that the expected likelihood of control changing is built into the price of every publicly traded company and that this provides a way of measuring the payoff to strong corporate governance. We also argue that getting a better handle on the value of control can allow us to better explain the differences between voting and non-voting share prices and the minority discount in private company valuations.


A Theory of Pyramidal Ownership and Family Business Groups
SSRN, May 2005"

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=721801

Authors

Heitor Almeida --- University of Illinois at Urbana-Champaign; National Bureau of Economic Research (NBER)

Daniel Wolfenzon --- Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Abstract

We provide a rationale for pyramidal ownership (the control of a firm through a chain of ownership relations) that departs from the traditional argument that pyramids arise to separate cash flow from voting rights. With a pyramidal structure, a family uses a firm it already controls to set up a new firm. This structure allows the family to 1) access the entire stock of retained earnings of the original firm, and 2) to share the new firm's non-diverted payoff with minority shareholders of the original firm. Thus, pyramids are attractive if external funds are costlier than internal funds, and if the family is expected to divert a large fraction of the new firm's payoff; conditions that hold in an environment with poor investor protection. The model can differentiate between pyramids and dual-class shares even in situations in which the same deviation from one share - one vote can be achieved with either method. Unlike the traditional argument, our model is consistent with recent empirical evidence that some pyramidal firms are associated with small deviations between ownership and control. We also analyze the creation of business groups (a collection of multiple firms under the control of a single family) and find that, when they arise, they are likely to adopt a pyramidal ownership structure. Other predictions of the model are consistent with systematic and anecdotal evidence on pyramidal business groups.

 


How do you account for superpower voting stock?
Is our old classification of Debt, Mezannine, and Equity out of date?

From the CFO Journal's Morning Ledger on April 4, 2017

Technology companies are seeking windfalls from their IPOs, minus the shareholders. Snap Inc. was the first major company since at least 2000 to do an initial public offering in the U.S. that gave new shareholders no voting rights, Maureen Farrell reports. The company’s earlier investors got one vote for every 10 held by the two co-founders.

This is part of a growing trend which sees tech companies grabbing power when they go public. These companies are structuring their IPOs so that founders and executives have far more votes than actual shares. The voting power gives those few shareholders dominance over all corporate decisions, ranging from the election of directors to whether to sell the company someday.

More tech companies—among them Facebook Inc., Fitbit Inc. and Twilio Inc.—are going public with at least two classes of stock. The structure makes it possible for companies to assign different voting rights to different groups of shareholders. The tech industry’s use of so-called supervoting shares has climbed so much in the past five years that it is roughly in line with IPOs as a whole.

The shift troubles some investors, corporate-governance advocates and even Silicon Valley executives. They say watered-down voting power hurts shareholder democracy and leaves those investors vulnerable.

 


From the CFO Journal's Morning Ledger on March 31, 2017

AICPA issues additional industry guides. The U.S. accounting industry body has unveiled 11 drafts for applying new revenue accounting rules in the airlines, gaming, hospitality and time-share industries, Tatyana Shumsky reports.

The American Institute of Certified Public Accountants’ latest guides address issues such as how casinos account for customer loyalty programs. The guides also tackle the way airlines account for vouchers and how companies should approach the collectability of sales of real estate time-sharing interests.

The new rules apply to reporting periods beginning Dec. 16 and replace industry-specific practices with a unified, principles-based model. The AICPA established 16 industry task forces to identify and tackle specific practice issues amid industry concerns over the lack of specific guidance.


From the CFO Journal's Morning Ledger on March 31, 2017

FASB updates standard for callable debt securities
The Financial Accounting Standards Board has released an accounting standards update that changes the treatment of the amortization of premiums for purchased callable debt securities, shortening the amortization period for the premium to the earliest call date, Accounting Today reports.

Jensen Comment
Note that this changes premium amortizations but not discount amortizations.


From the CFO Journal's Morning Ledger on March 30, 2017

IASB aims at more effective disclosures, proposes changes to standards. 
The International Accounting Standards Board, the setter of International Financial Reporting Standards, on Thursdaypublished a discussion paper aimed at making disclosures in financial statements more effective.

The paper could lead to amendments to IAS 1, the standard covering general disclosure requirements, or the development of a new general disclosure standard, Nina Trentmann writes. “Investors and companies have told us that there is room for improvement in the disclosures in financial statements,” said IASB chairman Hans Hoogervorst, according to a statement. The consultation is open for comments until October 2.

On Wednesday, the IASB published proposed improvements to IFRS 8. The standard sets out disclosure requirements for information about a company’s operating segments, products and services. The IASB also suggested amending IAS 34, the standard on interim financial reporting. It wants to require companies that change their segments to provide restated segment information for prior interim periods earlier than they currently do. The consultation on IFRS 8 and IAS 34 is open for comments until July 31.


Oxnard accountant sentenced to 10 years for tax fraud ---
http://www.vcstar.com/story/news/local/communities/oxnard/2017/04/10/oxnard-man-sentenced-10-years-tax-fraud/100309284/

An Oxnard-based tax preparer was sentenced Monday to 10 years in federal prison for filing more than $56 million in fraudulent tax returns and ordered to pay restitution, federal officials said.

According to the Department of Justice, Rodrigo Pablo "Paul" Lozano, 61, was convicted in July of running a multimillion-dollar scheme by applying for individual tax identification numbers, which are issued to undocumented workers who don't have Social Security numbers to file taxes.

Lozano, who was also known as "El Profe" because of his prior profession as a teacher, filed more than 13,000 false income tax returns and collected more than $23 million in refunds during 18 months in 2011 and 2012, federal officials said. U.S. District Judge Pilip S. Gutierrez ordered Lozano to pay back that money to the IRS.

According to evidence provided at the trial in July, Lozano's co-conspirators provided him with fabricated identification documents that he used to obtain individual tax identification numbers. The numbers were used with fake W-2 forms and fictional dependents to maximize the amount of the additional child tax credit. The tax refunds ranged from $3,000 to $4,000 per filing, federal officials said.

According to the Department of Justice, Lozano's employees said the identity and W-2 documents looked suspicious, and the IRS sent hundreds of notices stating that the tax returns and W-2s were invalid. Despite these warnings, Lozano continued to order his employees to file the false tax returns.

At times, he made employees "count out tens of thousands of dollars in cash" in a bathroom located next to his office space, federal officials said.

Lozano's main base of operations was Las Playas Market, but he also operated out of Casa de Cambio, La Mexicana Market and Casa de Cambio Elias Business Office. All are located in or near Oxnard.

Continued in article

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


The IRS Scandal, Day 1437: Lois Lerner Fears For Her Life, Asks Federal Court To Seal Her Upcoming Deposition Testimony ---
http://taxprof.typepad.com/taxprof_blog/2017/04/the-irs-scandal-day-1437-lois-lerner-fears-for-her-life-asks-federal-court-to-seal-her-upcoming-depo.html




New Institute of Magagement Accounting Educational Cases in 2017
Volume 10 Issue 1 IMA Educational Case Journal ISSN 1940-204X
https://www.imanet.org/educators/ima-educational-case-journal/iecj-index/2017/volume-10-issue-1?ssopc=1

Northern State University: A Balanced Scorecard Strategy Map

Community Gone Awry (Internal Control Weaknesses)


Teaching Case from The Wall Street Journal Accounting Weekly Review on March 24, 2017

U.S. Cities Battle Each Other for Jobs With $45 Billion in Incentives
by: Ruth Simon
Mar 17, 2017
Click here to view the full article on WSJ.com

TOPICS: Governmental Accounting

SUMMARY: Some city mayors quoted in the article say they have no choice but to offer economic-development tax incentives. Cities such as Lansing, Michigan with old, vacant buildings and contaminated industrial properties would not see redevelopment because it would not be cost effective for businesses to do so without the incentives. Yet by competing with these incentives, cities and towns compete with each other in nearby locations. The article begins with the example of Riddell, maker of sports helmets, moving to a new location 2 miles away to take advantage of such incentives. New disclosure requirements about tax abatements is being implemented by the GASB.

CLASSROOM APPLICATION: The article may be used in a governmental accounting course.

QUESTIONS: 
1. (Introductory) What are economic-development tax incentives?

2. (Advanced) One study estimates that by 2015 "the total annual cost of these incentives was $45 billion." Do you think these costs are recouped by the cities that incur them? In the overall U.S. economy? Explain.

3. (Introductory) What new disclosure requirement is the Governmental Accounting Standards Board implementing in relation to tax incentives? In your answer, define the term tax abatement.

4. (Advanced) How will this new disclosure help the usefulness of states', cities' and towns' Comprehensive Annual Financial Reports (CAFRs) to a their constituents? In your answer, state what a CAFR is.

5. (Advanced) Could this new disclosure be used to help answer question 2 above? Explain.

Reviewed By: Judy Beckman, University of Rhode Island

 

"U.S. Cities Battle Each Other for Jobs With $45 Billion in Incentives," by  Ruth Simon, The Wall Street Journal, March 24, 2017 ---
https://www.wsj.com/articles/u-s-cities-battle-each-other-for-jobs-with-45-billion-in-incentives-1489675343?mod=djem_jiewr_AC_domainid

When Elyria Mayor Holly Brinda learned that Riddell Inc. was looking to leave this small city in northeast Ohio, she came up with a $14 million package of tax incentives and offered to lease land to the company for $1 a year.

It wasn’t enough. Riddell, which makes the football helmets used by many NFL and college players, decided to move its roughly 320 employees just over 2 miles down the road to a neighboring town, which offered its own bundle of incentives and lower corporate and individual income-tax rates.

Riddell is one of a string of local businesses that Ms. Brinda, now in her sixth year as mayor, is struggling to hang onto. These days, the competition often isn’t Mexico, China or some other country promising cheap wages and low taxes. In many cases, Elyria, which celebrates its 200th birthday this month, is vying with cities that aren’t very far away.

The race to woo companies has intensified as state and local governments struggle with a slow economic recovery, sluggish new business formation and job losses resulting from automation. Many older industrial cities see tax incentives as one of the few levers they can pull.

The fight to attract and retain companies “is probably as competitive as it has ever been in the 30 years I have been doing this type of work,” said Lawrence Kramer, managing partner with Incentis Group, the consulting firm that helped Riddell with incentive negotiations.

Economic-development tax incentives more than tripled over the past 25 years, offsetting about 30% of the taxes the companies receiving incentives would have otherwise paid in 2015, compared with about 9% offset in 1990, according to an analysis of incentives covering more than 90% of the U.S. economy.

By 2015, the total annual cost of these incentives was $45 billion, according to the analysis, by Timothy Bartik, a senior economist at the W.E. Upjohn Institute for Employment Research in Kalamazoo, Mich. The study looked at 47 cities in 32 states plus the District of Columbia.

Total incentives are likely higher because the analysis didn’t include some used by cities, including Elyria, such as city income tax rebates for companies.

“The national headwinds are not in favor of these older, industrial small-to-midsize places,” said John Lettieri, senior director of policy and strategy at the Economic Innovation Group, a nonprofit, bipartisan research and advocacy organization. The cities are often tied to a single sector and tend to have more-static economies, with a low rate of firm formation and little growth or even declines in population, he said.

During his January news conference, then President-elect Donald Trump seemed to bless efforts by manufacturers and other big companies to pit states or cities against each other, even as he warned them against moving American jobs across the border.

“You can move from Michigan to Tennessee and to North Carolina and South Carolina,” Mr. Trump said. “You’ve got a lot of places you can move. And I don’t care as long as it’s within the U.S.”

A clearer picture of incentive use should begin to emerge later this year as new Governmental Accounting Standards Board rules take effect. They require state and local governments to disclose for the first time information about their tax incentive programs, including the dollar amount of taxes being abated.

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on March 24, 2017

Should College Students Be Required to Take a Personal Finance Course?
by: Annamaria Lusardi and Lauren E. Willis
Mar 20, 2017
Click here to view the full article on WSJ.com

TOPICS: Financial Literacy

SUMMARY: Dr. Annamaria Lusardi is the Denit Trust Chair of Economics and Accountancy at the George Washington School of Accountancy. She answers "yes" to the title question because financial literacy is crucial in today's world. Dr. Lusardi argues that the basic knowledge needed to understand burdens of student loans before taking them is a responsibility of the programs students use these loans to acquire. "The latest National Financial Capability Study "finds that more that half of millennials take on student loans without even attempting to calculate what their payments will be." She argues that understanding the basic "ABCs of personal finance" including interest compounding and its impact on savings, risk diversification, and inflation is fundamental to financial decision-making. These topics, she argues, should be the focus of a personal finance course. The "No "response is given by Lauren E. Willis, Professor of Law at Loyola Law School in Los Angeles based on the concern that these college courses miss the real issues. Professor Willis cites findings in recent research that "after receiving personal-finance training, participants knew more about the availability of products but couldn't determine the lowest-cost loan or identify the best savings or insurance product..." Regarding concerns with high student loan default rates, she points to for-profit schools as the problem because defaults are concentrated among young people who attend these institutions.

CLASSROOM APPLICATION: The article may be used in any class to discuss students' perceptions about their own financial literacy. Business students should have relatively sophisticated understanding because of having learned the concepts recommended for these courses. The article also may be used to discuss ethical responsibilities in providing personal financial planning and the CFP designation.

QUESTIONS: 
1. (Introductory) What are the main arguments that Dr. Lusardi makes in favor of requiring a personal finance course in all college educations? Try to list in bullet format with clear, brief descriptions.

2. (Introductory) What are the main argument points made by Professor Willis? Provide them in the same format as your answers to #1 above.

3. (Advanced) Do you feel you have obtained personal financial literacy through your college coursework?

4. (Introductory) What is a certified financial planner professional?

5. (Advanced) What ethical responsibilities face CFPs because of the factors described in this article?

SMALL GROUP ASSIGNMENT: 
Potential homework: Have each student select a non-business major they know outside of class. Have them discuss the "ABCs of personal finance" listed in the article: the concepts of interest compounding, risk diversification, and inflation. Are the non-business majors interested in learning about these concepts? Report back in groups in a second class and summarize findings.

Reviewed By: Judy Beckman, University of Rhode Island

 

"Should College Students Be Required to Take a Personal Finance Course?" by Annamaria Lusardi and Lauren E. Willis, The Wall Street Journal, March 20, 2017 ---
https://www.wsj.com/articles/should-college-students-be-required-to-take-a-course-in-personal-finance-1489975500?mod=djem_jiewr_AC_domainid

Supporters of the idea say financial literacy is crucial in today’s world. Opponents say courses miss the real issues.

Being knowledgable about money management, budgeting and finance is no guarantee of success in life.

But ignorance about such concepts often comes at great cost.

When it comes to financial literacy, however, the U.S. gets a failing grade at least by one count. The U.S. ranked 14th in a 2015 global study conducted by Standard & Poor’s Ratings Group and others, with a financial literacy rate of 57%.

One solution would be to have colleges require students to take a personal-finance course. Would that help? Two experts weigh in.

Annamaria Lusardi, Denit Trust chair of economics and accountancy at the George Washington University School of Business, argues that for people to survive and thrive in today’s financial environment, knowledge of personal finance is a necessity, and that requiring college students to take personal-finance courses begins to fill the gap.

Lauren E. Willis, professor of law and Rains senior research fellow at Loyola Law School in Los Angeles, looks at reasons why such courses shouldn’t be required, topped by what she says is a lack of evidence that they are effective.

YES: Ignorance Carries a High Price

By Annamaria Lusardi

Think about driving. To ensure orderly traffic, we create speed limits and roadway rules. We erect signs to warn where turns are difficult or roads are treacherous. And before we allow someone behind the wheel, we make sure they understand the basics. That’s where a driver’s license comes in. We take those precautions to protect the drivers and to protect others.

It is time to extend that type of thinking to financial knowledge by making personal finance a required course at U.S. colleges and universities. For people—especially young people—to survive and thrive in today’s financial environment, knowledge of personal finance is a necessity.

We’re already seeing what happens when young adults juggle high-impact financial decisions without the benefit of financial knowledge. Take the well-known burden of student-loan debt. Student loans are the second-largest part of the consumer credit market, after mortgages. The lion’s share of that debt sits in the hands of millennials—and our research shows they worry about their ability to pay off those loans. As well they should. The default rate on student loans is sobering.

Multiple studies confirm that students have little understanding of how student loans work. Our analysis of the latest National Financial Capability Study, or NFCS, finds that more than half of millennials take on student loans without even attempting to calculate what their payments will be. Given that student loans are pursued to acquire an education, it seems only prudent to have that education include the knowledge needed to manage that debt.

But student debt is just one of the challenges. These young people will have to support long retirements on savings and investments managed throughout their careers. To accomplish that feat, they will depend on interest compounding—a basic concept that they don’t fully understand. They also struggle with two other critical concepts: risk diversification and inflation.

These are the ABCs of personal finance, the benchmarks by which we measure financial literacy. By age 40, when a majority of Americans have already made most of their important financial decisions, only 1 in 3 has mastered these concepts, according to the NFCS. Unless something changes, millennials will become part of that disturbing statistic.

Such courses must be well designed to be effective. There is mounting evidence that personal-finance courses with a rigorous curriculum and trained teachers are influencing behaviors of young people in matters such as debt and defaulting on debt. Teaching personal finance is not about describing financial products, it is about teaching the principles of financial decision-making so that people understand how financial instruments work. When people are knowledgeable, they also are better able to benefit from the services of financial advisers.

Those opposed to requiring personal-finance courses say that the main thing students should learn is skepticism about the financial industry and its products. Some skepticism is always warranted, and I teach my students about the potential conflicts of interest that financial advisers may have. But the purpose of a personal-finance course goes beyond those topics.

Financial literacy is about prevention. Regulators simply cannot keep up; they tend to come in when a problem already exists. This is why regulation is not enough.

The lack of financial literacy—just like the lack of a driver’s license—is more than a personal problem. It is dangerous for our country’s economic health. The Great Recession was driven by mortgages and loan terms consumers didn’t understand. The entire nation went into an economic tailspin as a result of that lack of understanding.

Continued in article

Bob Jensen's hypothesis is that personal finance ignorance is the major cause of breakdowns in relationships like marriage

Financial Literacy and Personal Finance --- 
http://faculty.trinity.edu/rjensen/Bookbob1.htm#InvestmentHelpers


Teaching Case from The Wall Street Journal Accounting Weekly Review on March 24, 2017

Leaked Returns Show Trump Paid $38 Million in Taxes in 2015
by: Richard Rubin and Michael C. Bender
Mar 15, 2017
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com 

TOPICS: Alternative Minimum Tax, AMT, Individual Taxation

SUMMARY: In 2005 President Trump paid $38 million in taxes on income of approximately $153 million and adjusted gross income of $48.6 million. The White House has confirmed the authenticity of the leaked page from Mr. Trump's 2005 return. The related video describes greater details of the general features of the alternative minimum tax (AMT). According to the first related article, an opinion piece, the leak of Trump's 2005 tax return backfired on the Rachel Maddow Show. The second related article discusses interesting history to our nation's interest in our leaders' tax payments.

CLASSROOM APPLICATION: The article may be used in an individual income tax class particularly when discussing the Alternative Minimum Tax (AMT).

QUESTIONS: 
1. (Introductory) What is the reasoning behind the great interest in President Trump's tax returns? Is this interest unique to our current times? Refer to the second related article for help.

2. (Advanced) What is the purpose of the alternative minimum tax (AMT)?

3. (Introductory) According to the article and videos, how did the AMT affect President Trump's 2005 taxes?

4. (Advanced) What is an effective tax rate?

5. (Advanced) Why do the authors write that "it is difficult to calculate an accurate effective tax rate for Mr. Trump..."?

Reviewed By: Judy Beckman, University of Rhode Island

RELATED ARTICLES: 
Madow's $38 Million Man
by James Freeman
Mar 15, 2017
Page: ##

Would You Rather See Trump's Tax Return or Have Saturday Off?
by Amity Shlaes
Mar 17, 2017

 

"Leaked Returns Show Trump Paid $38 Million in Taxes in 2015," by Richard Rubin and Michael C. Bende, The Wall Street Journal, March 15, 2017 ---
https://www.wsj.com/articles/trump-tax-records-leaked-to-msnbc-white-house-confirms-1489540089?mod=djem_jiewr_AC_domainid

Documents were obtained by DCReport.org and revealed in conjunction with MSNBC’s ‘The Rachel Maddow Show’

President Donald Trump reported about $153 million in income in 2005 and paid $38 million in federal taxes, according to a leaked tax return that was published on Tuesday.

The documents and White House confirmation show that Mr. Trump—often criticized for overstating his wealth and income—did make significant income in 2005. They also show that most of his taxes were because of the alternative minimum tax, a parallel tax system designed to make sure that high-income individuals can’t use legal deductions and credits to avoid all income taxes.

The returns were obtained by DCReport.org, a website that tracks government action, and revealed in conjunction with a broadcast on MSNBC’s “The Rachel Maddow Show.” Ms. Maddow held up a 2005 copy of Mr. Trump’s Form 1040 and said it had been obtained by DCReport.org, a news site.

“Before being elected president, Mr. Trump was one of the most successful businessmen in the world with a responsibility to his company, his family and his employees to pay no more tax than legally required,” said a White House official, who confirmed the numbers and criticized media outlets for publishing them.

In a tweet Wednesday morning, Mr. Trump said: “Does anybody really believe that a reporter, who nobody ever heard of, ‘went to his mailbox’ and found my tax returns? @NBCNews FAKE NEWS!”

Continued in article

What Does Trump’s Released Tax Return Really Show?
http://www.accountingweb.com/tax/individuals/what-does-trumps-released-tax-return-really-show?source=ei032917


Teaching Case from The Wall Street Journal Accounting Weekly Review on March 24, 2017

Mexican Peso Gains Against Dollar
by: Ben Eisen
Mar 21, 2017
Click here to view the full article on WSJ.com

TOPICS: Foreign Currency Exchange Rates

SUMMARY: The article may be used to introduce concepts behind currency exchange rates with a focus on current circumstances in North America and the Trump administration. The value of the Mexican peso has rebounded since the November election. The author notes that during the run-up to the election, "the peso's value against the U.S. dollar became a proxy for Donald Trump's chances of winning the presidency...." NOTE: INSTRUCTORS MAY WANT TO REMOVE THE FOLLOWING DISCUSISON BEFORE DISTRIBUTING TO STUDENTS. Questions ask students to begin by describing general factors influencing foreign exchange. Students should discuss overall economic performance of each country, inflation rates, interest rates, the level of governmental indebtedness, and trade terms between two countries. These concepts may be discussed in an introductory section in Advanced Accounting texts or students must integrate them from an economics or international finance class. All of these factors have been a focus of the Trump campaign and early administration activities.

CLASSROOM APPLICATION: The article may be used to introduce foreign currency fluctuations prior to discuss accounting for foreign exchange transactions or financial statement translation or remeasurement.

QUESTIONS: 
1. (Advanced) In general, what are the major factors driving two countries' relative foreign exchange rates?

2. (Introductory) How has the value of the peso changed since the November election? What are the reasons for that change?

3. (Advanced) Refer to the currency quotation that the peso "closed at its highest level since the Nov. 8 vote" and that the change has been "pushing the dollar down 8.3% against it this year...." Which of these two descriptions is a direct quote of the peso's value as a currency and which is an indirect quote? In your answer, define these two views of measuring a currency's value.

Reviewed By: Judy Beckman, University of Rhode Island

"Mexican Peso Gains Against Dollar," by Ben Eisen, The Wall Street Journal, March 21, 2017 ---
https://blogs.wsj.com/moneybeat/2017/03/20/mexican-peso-quietly-strengthens-as-political-spotlight-fades/?mod=djem_jiewr_AC_domainid

The Mexican peso has been on a roll, quietly chugging higher after a harsh selloff following the U.S. presidential election in November.

The rising currency has pushed the dollar down 8% against it this year through Friday. That’s made the peso the best performer against the dollar among 52 major currencies, according to WSJ Market Data Group. One dollar recently bought just about 19 pesos.

Other Mexican assets have also been gaining in value. The iShares MSCI Mexico Capped exchange-traded fund, which invests in the nation’s publicly-traded companies, is up 15% this year.

In the run-up to the U.S. election last year, the peso’s value against the U.S. dollar became a proxy for Donald Trump‘s chances of winning the presidency, since Mexico’s economy was thought to be at risk from his policy proposals. The currency weakened during the election as his chances of victory increased. That continued after the vote, as Mr. Trump’s protectionist trade rhetoric jolted the currency around.

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on March 31, 2017

FASB Proposal Looks to Trim 'Hedge Accounting' Requirements
by: Tatyana Shumsky
Mar 27, 2017
Click here to view the full article on WSJ.com

TOPICS: Derivatives, FASB, Hedging

SUMMARY: The FASB is planning to complete their Accounting Standards Update (ASU) on accounting for hedging activities in 2017. This project focuses on hedge accounting for both financial instruments and non-financial items. The board reached additional decisions at its meeting on March 8 based on feedback from its proposed ASU issued September 8, 2016 for which the comment letter period ended November 22, 2016. One significant item being addressed is the current requirement to hedge against the entirety of a specified risk. The change will allow designation of a contractually specific component or interest rate for hedging. This change will increase similarity with IFRS 9 which allows hedging a "separately identifiable and reliably measurable" risk component. Despite this similarity, one preparer quoted in the article has concerns that IFRS and U.S. GAAP requirements are not worded exactly the same.

CLASSROOM APPLICATION: The article may be used in an advanced financial accounting class covering derivatives and hedging.

QUESTIONS: 
1. (Advanced) Consider the example in the article of Archer Daniels Midland (ADM) wanting to hedge a flour sales contract. They have used derivatives to undertake their desired hedging, but are only able to hedge against the wheat-price portion of their risk. Are they entering into fixed price contracts to purchase or to sell the wheat? Explain your answer.

2. (Introductory) How significant is the impact on ADM's net income from the fact the company's hedging strategy does not meet current accounting requirements to be treated as a hedge?

3. (Advanced) What are the general requirements to qualify for hedge accounting treatment?

4. (Advanced) As the article states, when requirements are met, hedge accounting treatment allows deferral of the change in fair value of the hedging instrument until the hedged transaction actually occurs and is shown in the income statement. Where is the change in fair value of the hedging instrument reflected until that time?

5. (Advanced) What is hedge ineffectiveness? What disclosure requirement is Mark Scoles of Grant Thornton referring to when he says that companies are "doing a lot of math every quarter" under current requirements?

6. (Introductory) What is Deutsche Bank's position on this FASB change?

7. (Advanced) What two sets of accounting requirements is Deutsche Bank referring to as impeding comparability of financial reports? In your answer, define the accounting concept of comparability in financial reporting.

Reviewed By: Judy Beckman, University of Rhode Island

"FASB Proposal Looks to Trim 'Hedge Accounting' Requirements," by Tatyana Shumsky, The Wall Street Journal, March 27, 2017 ---
https://www.wsj.com/articles/fasb-proposal-looks-to-trim-hedge-accounting-requirements-1490619600?mod=djem_jiewr_AC_domainid

Agency would give companies more time to complete documentation, expand treatment to wider range of circumstances

One of the most Byzantine areas of corporate accounting is about to get simpler.

The Financial Accounting Standards Board is putting the finishing touches on new rules governing how companies report their hedging activities, such as using futures and options to insulate profits from currency or interest-rate swings.

Current rules allow companies to delay recording the economic impact of a hedge on their income statement until the same period as the transaction involved is completed. This typically results in less volatile earnings quarter to quarter.–

The FASB’s proposal aims to give companies more time to meet the strict documentation requirements needed to qualify for hedge accounting. The new rules also expand its application to a broader range of circumstances, simplify the way hedges are recorded and offer relief for companies that made small errors in applying the rules.

At stake for companies is the treatment of futures, options and other derivatives worth billions of dollars that don’t currently qualify for hedge accounting.

“It will simplify the documentation process, saving us time and money.” said Thomas Timko, vice president, controller and chief accounting officer at General Motors Co.

GM uses futures and other derivatives to hedge its foreign currency, commodity and interest-rate risk, but not all of these qualify for hedge accounting. At the end of 2016, GM held derivatives not designated as hedges with $47.7 billion in total notional value, a measure of the amount covered when the hedge is triggered. The fair value of these contracts was insignificant at the end of 2016, according to regulatory filings.

GM is one of roughly three dozen companies, including Verizon Communications Inc. and Archer Daniels Midland Co. , that have thrown their support behind the effort to make hedge accounting easier. The new rules are expected to be completed this summer and become effective as early as 2018.

“There’s still going to be rules, there’s still going to be hurdles, but it’s not going to be as onerous as it is now,” said Rob Royall, partner in financial accounting and advisory services practice at Ernst & Young.

The commodities sector is expected to benefit from the proposal. When a company such as Archer Daniels Midland agrees to mill wheat into flour and sell it to its customers in the future, the company might lock in the wheat price using futures, as no flour futures exist.

Current rules require companies like ADM to hedge the total price of its flour sales contract, without singling out the wheat-price risk on its own, and so such hedges may not qualify for hedge accounting treatment.

Changes in the price of derivatives that don’t qualify as hedges must be recorded in the income statement each quarter, which can result in large earnings swings.

The result is that ADM’s losses on derivatives not designated as hedges reduced earnings by $352 million, to $1.28 billion in 2016. The company held derivatives not designated as hedges with a fair value of $1.26 billion at the end of 2016.

By contrast, the economic impact of qualified hedges for expected sales or purchases is only recognized in the income statement at the same time as the relevant transaction is concluded, like the delivery of flour to the customer.

The proposal “would allow ADM increased ability to adopt accounting models that reflect the way risk is actually managed,” said John Stott, corporate controller and principal accounting officer, in a letter to FASB.

Still, several companies said the changes could have gone further. Deutsche Bank AG called for better alignment between U.S. and international hedge accounting guidelines in a comment letter, saying that “significant differences” between the two impede comparability of financial statements.

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on March 31, 2017

Foreign Robots Invade American Factory Floors
by: Daniel Michaels
Mar 27, 2017
Click here to view the full article on WSJ.com

TOPICS: Capital Spending

SUMMARY: "Commerce department data show the U.S. last year ran a trade deficit of $4.1 billion in advanced 'flexible manufacturing' goods with Japan, the European Union and Switzerland," countries which lead in this industry. This is down from $7 billion but the reason is that foreign companies have invested here in the U.S., not that the U.S. has come back in its ability to produce this equipment domestically. "In 1995, [U.S. firms] satisfied 81% of domestic demand for factory equipment. In 2015...that had slipped to 63%." The conundrum under the Trump administration policies is that growing U.S. manufacturing will necessarily require more equipment purchases from foreign firms.

CLASSROOM APPLICATION: This article may be used in a management accounting class to discuss automated manufacturing, capital budgeting and equipment purchasing, and interaction with the Trump administration policies.

QUESTIONS: 
1. (Advanced) What are the major factors considered when companies decide to buy robotic systems for manufacturing?

2. (Advanced) Is comparative cost a factor in this decision of purchasing robotic systems?

3. (Introductory) Why are the companies described in this article not choosing to buy American automated manufacturing equipment?

4. (Introductory) What challenges do smaller manufacturing firms face when buying automated manufacturing equipment?

5. (Advanced) In what ways might the U.S. become more of a "player" in the automated manufacturing equipment market?

Reviewed By: Judy Beckman, University of Rhode Islan

"Foreign Robots Invade American Factory Floors," by Daniel Michaels, The Wall Street Journal, March 27, 2017 ---
https://www.wsj.com/articles/powering-americas-manufacturing-renaissance-foreign-robots-1490549611?mod=djem_jiewr_AC_domainid  

The U.S. is being beaten by European and Japanese firms in the race to supply cutting-edge production machinery behind the new automated manufacturing sector.

Vickers Engineering Inc. embodies the potential of American manufacturing. The New Troy, Mich., machining company supplies precision parts to clients including Toyota Motor Corp. and Volkswagen AG , and exports to Mexico and Canada. Its staff has risen fivefold and average pay has doubled over the past decade, says Chief Executive Matt Tyler.

What’s helping to power Vickers’s made-in-America success? Advanced Japanese and German factory equipment. When Vickers first bought industrial robots in 2006, it chose between only European and Japanese models, says Mr. Tyler, and has been adding Japanese robots ever since. “We were not aware of any American-made option.”

America is losing the battle to supply the kind of cutting-edge production machinery that is powering the new automated factory floor, from digital machine tools to complex packaging systems and robotic arms.

Commerce Department data show the U.S. last year ran a trade deficit of $4.1 billion in advanced “flexible manufacturing” goods with Japan, the European Union and Switzerland, which lead the industry. That is double the 2003 deficit. It was down from $7 billion in 2001, but much of the decline came from foreign equipment suppliers expanding in the U.S., not from an American comeback.

U.S. firms are also losing market share at home, according to Germany’s VDMA industrial-machinery trade group. In 1995, they satisfied 81% of domestic demand for factory equipment. In 2015, the most-recent data, that had slipped to 63%.

The trade gap presents a conundrum for President Donald Trump, who wants the U.S. to manufacture more and import less. He has criticized makers of cars, air conditioners and farm equipment for moving production abroad. Companies have responded by touting investments in U.S. factories. Yet a resurgent U.S. manufacturing sector would fuel more equipment purchases from foreign firms, because companies have little other choice.

If Vickers could find what it needed domestically, “we would absolutely go with the American option,” says Mr. Tyler, “all things being equal.”

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on March 31, 2017

You Choose: $1 Million vs. $5,000 Every Month?
by: Shlomo Benartzi and Hal. E. Hershfield
Mar 27, 2017
Click here to view the full article on WSJ.com

TOPICS: Disclosures, Time Value of Money

SUMMARY: Dr Benartzi is a professor and co-head of the behavioral decision-making group at UCLA Anderson School of Management. Dr. Hershfield is an assistant professor there. The authors discuss perceptions of difference between a lump sump payment of $1,000,000 and monthly income of $5,000. "The first thing to note is that these two amounts are roughly equivalent based on current annuity pricing...And yet, despite this equivalence, people often have sharply different feelings about the two financial descriptions." The conclusion of the article emphasizes the importance of disclosure format on users' perceptions and financial decisions. Financial websites and apps generally only present the lump sum saved in a retirement account but they could include projected monthly income as well.

CLASSROOM APPLICATION: The article may be used when covering the topic of the time value of money and annuities versus lump sum amounts.

QUESTIONS: 
1. (Advanced) Define an annuity.

2. (Advanced) How could you determine the equivalence between the lump sum of $1,000,000 and the annuity of $5,000 discussed in the article? What specific terms must you know or estimate?

3. (Introductory) How did researchers assess the perceptions about the relative value of the lump sum versus the annuity?

4. (Advanced) Why is it important to understand these perceptions?

5. (Introductory) How do the perceptions described in the article lead to concerns about how financial information is presented?

SMALL GROUP ASSIGNMENT: 
Begin the class by conducting a survey of the students' perceptions of the adequacy of $1,000,000 lump sum versus $5,000 per month income just as described in the article. Use the Likert scale described in the article: completely inadequate somewhat inadequate neither adequate nor inadequate somewhat adequate completely adequate The discussion could also lead into the power of compounding by saving from an early age.

Reviewed By: Judy Beckman, University of Rhode Island

"You Choose: $1 Million vs. $5,000 Every Month?" by Shlomo Benartzi and Hal. E. Hershfield, The Wall Street Journal, March 27, 2017 ---
https://www.wsj.com/articles/would-you-rather-have-1-million-or-5-000-monthly-in-retirement-1490582208?mod=djem_jiewr_AC_domainid

These days, investors can track at any moment how the market’s daily ups and downs are affecting their wealth.

Even investors with multiple investment accounts spread across different firms can calculate changes in their net worth in real time, thanks to websites and apps that do all of the work for them.

One might think that having all of this information would make people more financially savvy, especially when it comes to saving for retirement. New research, however, suggests that for many people, it may be the opposite.

That’s in part because many of the digital tools used to track net worth present information in a way that leads some investors to develop mistaken beliefs about how much money they actually have for retirement.

To understand why this is so, consider a phenomenon known as the illusion of wealth and the illusion of poverty, which we, along with researcher Daniel Goldstein at Microsoft Research, studied in a paper published in the Journal of Marketing Research.

To see which illusion you might suffer from, assume you have $1 million for retirement. How adequate does this amount seem on a seven-point scale, with one being “totally inadequate” and seven being “totally adequate”?

Next, assume you have $5,000 to spend every month during your retirement. How adequate does this amount seem on that same seven-point scale?

The first thing to note is that these two amounts are roughly equivalent based on current annuity pricing. (A rule of thumb is that monthly annuity payments are about 1/200th of the corresponding lump sum, assuming they begin at age 65.) And yet, despite this equivalence, people often have sharply different feelings about the two financial descriptions.

Reinforcing illusions

Most tools give savers the total amount saved—the $1 million. The problem is that depending on how you answered the above question, you will view that $1 million differently

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on March 31, 2017

Tax Prep, with a Side of Psychology
by: Sue Shellenbarger
Mar 29, 2017
Click here to view the full article on WSJ.com

TOPICS: Accounting Careers, Individual Taxation

SUMMARY: The article presents excerpts from an interview with an owner of a Pennsylvania accounting practice. The practice has 14 employees, has operated for 27 years, and now prepares 1,100 tax returns per year. The owner, Julia Brufke Wenger, describes managing relationships with clients who have different psychological profiles and behaviors. One example she labels "the shoeboxers"-those who haul in cartons "with every wayward item they received during the year...[These] people tend to provide the least information [as they might] include receipts for buying their kid a Happy Meal at McDonald's but forget the W-2 they received electronically."

CLASSROOM APPLICATION: The article may be used in a tax class to discuss skills needed in handling clients in a small accounting practice. It could also be used in an introductory level accounting class to discuss career options based on accounting studies.

QUESTIONS: 
1. (Introductory) Julia Brufke Wenger describes the tax clients of her 14-member accounting firm in Pennsylvania according to their personalities and attitudes toward money. Why is that information important to managing her practice?

2. (Advanced) Define a deductible expense item. Do some clients push the limits of deductibility? Is there a risk for Ms. Wenger's practice from this behavior?

3. (Advanced) Some of Ms. Wenger's clients neglect to take all eligible tax deductions. Is this rational behavior? How can a tax accountant best help these clients?

4. (Introductory) What accounting knowledge outside of taxes does Ms. Wenger use in providing services to her clients?

Reviewed By: Judy Beckman, University of Rhode Island

"Tax Prep, with a Side of Psychology," Sue Shellenbarger, The Wall Street Journal, March 20, 2017 ---
https://www.wsj.com/articles/your-accountant-knows-you-better-than-you-know-yourself-1490711412?mod=djem_jiewr_AC_domainid

As tax deadlines near, one preparer explains how reading her clients helps their bottom lines.

Does the approach of tax season fill you with dread? Do you stuff financial papers in a shoebox at the last minute and race to your accountant’s office?

Julia Brufke Wenger, 58, has owned and run a Phoenixville, Pa., accounting practice for 27 years. She and her 14 employees prepare 1,100 tax returns each year for individuals at a wide range of income levels. In an interview, she discussed what goes on in her mind as she tries to help different types of clients minimize taxes, prepare accurate returns and plan for the future. Here are excerpts of that conversation:

What personal hangups affect the way people manage their taxes?

Some people walk in the door saying, “I hate paperwork. I hate taxes.” These people are avoiders. They don’t seem to care that much about money. Even if avoiding tax planning costs them money, they’d rather not deal with it. They don’t see themselves as able to get ahead financially. They don’t feel like they have any control, when in fact they do.

Others are procrastinators who have fallen years behind on filing returns, and the onset of the tax season triggers guilt or anxiety. These clients need more structure from us. Before they leave the office, I suggest they set another appointment in advance. Or I say, “Here’s one action to take: When you go back to the office I want you to adjust your W-4 and have an additional $50 taken out of your paycheck.”

Does tax time expose people’s problems with organization?

Yes. There are the shoeboxers, who haul in shoeboxes or cartons brimming with every wayward item they received during the year, usually at the last minute. The people who bring the most stuff tend to provide the least necessary information. They’ll include receipts for buying their kid a Happy Meal at McDonald’s but forget the W-2 they received electronically. Shoeboxers can get stressed out and a little combative.

No matter what type of tax filer you are, there are almost always opportunities to improve your results.

Do people push the limits?

I have one who sends me her hairdresser receipts, claiming she says she needs to look good for work. I have to tell her getting your hair highlighted is not a deductible business expense. I’ve had people try to stretch deductions for a home office or charitable contributions.

Most of these people are testing you. They want to see how you’ll approach it. Rather than putting them on the defensive, I’m somewhat lighthearted and keep the conversation friendly. Usually I can spin it around so we’re still a team, and we can find legitimate deductions and complete a good tax return.

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on March 31, 2017

GM Under Pressure to Divide Stock
by: David Benoit and Mike Colias
Mar 29, 2017
Click here to view the full article on WSJ.com

TOPICS: Stock Split, Stock Valuation, Stockholders' Equity

SUMMARY: The article covers an unusual type of stock split into two classes as proposed by activist investor David Einhorn of Greenlight Capital. Mr. Einhorn argues the move would increase the firm' valuation by separating the stock into one paying dividends and one deriving value entirely from future growth prospects. GM has opposed the proposal saying it involves too much risk.

CLASSROOM APPLICATION: Questions ask the student to compare this proposal to a standard stock split of, say, 2 for 1 which divides the par value in half but doubles the number of shares. It may be used in a financial reporting class when covering stockholders' equity.

QUESTIONS: 
1. (Introductory) What is a stock split? Describe a 2-for-1 stock split.

2. (Introductory) How does the proposal by Mr. David Einhorn of Greenlight Capital differ from a traditional form of stock split?

3. (Advanced) Does a 2-for-1 or similar type of stock split create shareholder value? Explain your answer.

4. (Introductory) On what basis does Mr. Einhorn argue that the stock split would increase the market's valuation of GM?

5. (Advanced) Refer to the related article. How could the terms of a company's shares of stock influence the quality rating on its outstanding bonds?

Reviewed By: Judy Beckman, University of Rhode Island

RELATED ARTICLES: 
Ratings Firms Sound Warning over Einhorn's GM Share-Split Proposal
by Chris Dieterich and David Benoit
Mar 28, 2017
Page: ##

"GM Under Pressure to Divide Stock," by David Benoit and Mike Colias, The Wall Street Journal, March 20, 2017 ---
https://www.wsj.com/articles/david-einhorn-wants-gm-to-create-two-classes-of-stock-1490711620?mod=djem_jiewr_AC_domainid

Hedge fund says auto maker isn’t getting credit for its earnings potential or its dividend payouts

Investor David Einhorn is pressing General Motors GM -0.14% Co. to create two classes of common stock that would separate its dividend from its operations, a novel proposal designed to invigorate a stock that has languished despite rising sales and profits.

Mr. Einhorn, founder of hedge fund Greenlight Capital Inc., on Tuesday publicly called on the auto maker to split its common stock into two classes: one that pays dividends and a second that would entitle its holders to all additional earnings.

His theory is that the two classes of stock would attract new yield-hungry investors and those looking for growth. The increased demand for the stocks, Mr. Einhorn said, could boost the auto maker’s $52 billion market capitalization by as much as $38 billion.

GM rejected the proposal, saying it “creates an unacceptable level of risk,” including the potential loss of its investment-grade credit rating. It also cited “unknown and uncertain market demand” for the proposed shares and raised concerns about governance challenges that could arise from having two groups of shareholders with competing interests.

GM shares rose 2.5% to $35.56 Tuesday, a sign that investors are hopeful the campaign will produce gains in the stock.

Mr. Einhorn, a competitive poker player famous for his bearish bet on Lehman Brothers Holdings Inc., has signaled he is willing to fight, telling the company he may seek four seats on its board. Greenlight has a 4.9% stake in GM, including options, according to a Tuesday regulatory filing.

The campaign is another dilemma for a company that has grown used to them. GM staved off a board fight with a group of hedge funds two years ago with a $5 billion share buyback and emerged from a government-sponsored trip through bankruptcy court in 2009. Chief Executive Mary Barra has publicly wrestled with GM’s stock price, which has underperformed the S&P 500 since its 2010 return to the public markets.

The move has reignited a debate over whether a company’s capital structure influences its market value. Mr. Einhorn has privately pushed similar dual-class structures at other companies in recent years but hasn’t yet found a taker, people familiar with the matter said.

“If it makes the equities more attractive to investors, because now they can have more choice, great,” said James Angel, a finance professor at Georgetown University. “Is it a panacea for low valuation? I doubt it.”

Ms. Barra and GM’s board met with Greenlight several times over the past seven months to discuss the idea. Two banks told the company the plan wouldn’t work, according to people familiar with the matter. GM secretly consulted with a third bank, saying the proposal was its idea, the people said. The outcome was the same.

 

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on April 7, 2017

AmTrust Revises Earnings Downward
by: Michael Rapoport
Apr 05, 2017
Click here to view the full article on WSJ.com

TOPICS: Internal Controls, Material Misstatement, Material Weakness, Restatements, Revenue Recognition

SUMMARY: INSTRUCTORS WILL WANT TO REMOVE THIS SUMMARY BEFORE DISTRIBUTING TO STUDENTS BECAUSE IT ANSWERS SEVERAL OF THE QUESTIONS ASKED. AmTrust Financial Inc. is an insurance company offering property and casualty, workers' compensation, commercial auto, general liability and extended warranty insurance. Students are likely familiar with auto insurance and extended service warranty plans. The company has restated its financial reports for 3 years following required reporting for error corrections. The two primary errors relate to: (1) upfront recognition of the portion of warranty contract revenue associated with administration services, instead of recognizing the revenue over the life of the contract, and (2) bonuses that were expensed in the year paid but that should have been accrued as earned. The two primary errors relate to: (1) upfront recognition of the portion of warranty contract revenue associated with administration services, instead of recognizing the revenue over the life of the contract, and (2) bonuses that were expensed in the year paid but that should have been accrued as earned. Accounting standards and SEC requirements referenced in the company's summary of the error include ASC 250-10 on Accounting Changes and Error Corrections, SEC Staff Accounting Bulletin No. 99 on Materiality, ASC 270 on Interim Reporting, and ASC 450 on Contingencies. The restated beginning balances in Retained earnings are shown on page F-7 of the annual report and net income is labeled "As Restated" on the consolidated income statements on page F-5. Reports by both KPMG LLP and BDO begin on page F-2.

CLASSROOM APPLICATION: The article may be used in a financial reporting class covering error corrections and/or interim reporting, an accounting systems class, or an auditing class. Questions include discussing the related report of material weakness in internal control. The related article describes an initial error in DowJones newswire reporting of the restatement as 3 quarters rather than 3 years. The last question therefore asks students to think about the problem's significance if it were 3 quarters rather than 3 years of restatements.

QUESTIONS: 
1. (Introductory) What does AmTrust Financial Services Inc. do?

2. (Advanced) Do you think that confidence and trust in the company's reporting is integral to its business transactions? Explain your answer

3. (Advanced) Summarize the required accounting when a company finds an error.

4. (Introductory) Access the AmTrust annual report for 2016 filed with the SEC on Form 10-K on April 4, 2017 and available at https://www.sec.gov/Archives/edgar/data/1365555/000136555517000059/0001365555-17-000059-index.htm Click on the link to the 10-K and read the Explanatory Note. What was the nature of the error(s) for which AmTrust restated its financial reporting?

5. (Introductory) Compare the reporting in AmTrust's financial statements to the requirements you identified in answer to question 3 above. Specifically give page references for where you observe the required reporting.

6. (Advanced) Does such an error in financial reporting imply a weakness in internal control? In your answer, define such a material weakness.

7. (Advanced) What reports are issued by management and auditors in relation to internal control? Access these reports in the Amtrust 10-K filing and summarize the reporting you find.

8. (Advanced) Refer to the related article. Do you think referring to correction of 3 quarters of earnings is significantly different from revising 3 years? Explain, referring to this company's specific situation and to accounting requirements for interim periods versus annual reporting.

SMALL GROUP ASSIGNMENT: 
Questions 4-5 and 6-7 could be assigned as group work in class or outside of class.

Reviewed By: Judy Beckman, University of Rhode Island

RELATED ARTICLES: 
Correction to Amtrust Revised Earnings Headline
by DowJones Newswires
Apr 04, 2017
Online Exclusive

"AmTrust Revises Earnings Downward," by Michael Rapoport, The Wall Street Journal, April 5, 2017 ---
https://www.wsj.com/articles/amtrust-revises-earnings-from-last-three-quarters-1491311546?mod=djem_jiewr_AC_domainid

AmTrust Financial Services Inc. AFSI 5.82% revised its last three years’ worth of earnings downward Tuesday by about $136 million because of accounting errors, notably in how the company books revenue from the warranty contracts it provides.

The New York property and casualty insurance company filed its delayed 10-K annual report with the Securities and Exchange Commission. In addition to the restatement of earnings dating back to 2014, the company reiterated that it has weaknesses in its internal accounting safeguards.

AmTrust said it was now current on all exchange listing requirements, which had been jeopardized by the delay in the company’s filing. “We are well positioned in the markets we serve to continue to realize AmTrust’s potential,” Barry Zyskind, the company’s chairman and chief executive, said in a statement. “Our operations are financially sound and appropriately reserved.”

AmTrust, controlled by the Karfunkel family, is one of the nation’s largest worker’s-compensation insurers. It also is a significant provider of extended-service plans on automobiles and other consumer products, a business which was the source of the key accounting error it acknowledged. Some of that revenue has been recognized upfront in the past, but AmTrust says it should have been deferred, to be recognized over the life of the contract.

The company’s shares tumbled after its March 17 announcement that a restatement would be needed, but it rebounded Tuesday on optimism that the company’s problems were behind it. AmTrust shares jumped 20.1% to close at $21.95, their highest close in nearly a month.

AmTrust has been the target of scrutiny from short-sellers and other critics in the past. Articles published by Barron’s have questioned whether the company had overstated profits by setting aside inadequate reserves for underwriting losses. Barron’s is owned by News Corp., which also publishes The Wall Street Journal.

AmTrust revised its previously reported 2016 net income downward by $51.9 million, or 12.5%. 2015 net income was restated downward by $52.9 million, or 11.2%. 2014 net income was restated downward by $31.3 million, or 7.2%.

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on April 7, 2017

Oil Companies' Goal: Break Even
by: Sarah Kent
Apr 03, 2017
Click here to view the full article on WSJ.com

TOPICS: Cash Flow, Dividends

SUMMARY: The headline in the article touts the issue as "break-even" but the article focuses on free cash flow. "The two-year slump in oil prices led Exxon Mobil Corp., Royal Dutch Shell PLC, Chevron Corp. and BP PLC to rein in spending and lay off workers but....all four firms ended last year with more debt than they began it." The major concern is the companies' large dividends. "They are paying investors the same or more as they did when oil prices were over $100 a barrel, piling on debt and selling off assets to do so. "

CLASSROOM APPLICATION: The article may be used in a managerial accounting class to cover break-even analysis and compare it to cash flow or it may be used in a financial reporting class to cover dividend policy. It is particularly useful for oil & gas accounting coverage.

QUESTIONS: 
1. (Advanced) What is break-even? What is a break-even analysis?

2. (Introductory) What measure is examined in this article? Is this the same as the definition of break-even you gave in answer to question 1 above?

3. (Introductory) 'BP says it will need oil at $60 a barrel to balance cash generation against capital expenditures and dividends...Chevron is targeting $50 a barrel with the help of asset sales." Explain how you think companies make these assessments using a break-even type of calculation.

4. (Advanced) These companies' shareholders are concerned about the ability to maintain current dividend levels after the fall in oil prices. Why do certain shareholders invest in high dividend paying stocks while others will invest in companies that don't pay consistent dividends but instead aim for long term growth?

Reviewed By: Judy Beckman, University of Rhode Island

"Oil Companies' Goal: Break Even," by Sarah Kent, The Wall Street Journal, April 3, 2017 ---
https://blogs.wsj.com/moneybeat/2017/04/03/big-oil-reaches-for-a-modest-goal-breaking-even-energy-journal/?mod=djem_jiewr_AC_domainid

The world’s biggest oil companies are struggling to break even as they prioritize paying out costly dividends to investors, writes The Wall Street Journal.

The two-year slump in oil prices led Exxon Mobil Corp., Royal Dutch Shell PLC, Chevron Corp. and BP PLC to rein in spending and lay off workers but the firms still didn’t make enough money in 2016 to cover their costs,” reports Sarah Kent.

According to a Journal review, all four firms ended last year with more debt than they began it.

At issue, are the companies’ large dividends. They are paying investors the same or more as they did when oil prices were over $100 a barrel, piling on debt and selling off assets to do so.

“The result is that spending on dividends and capital investments has ballooned above cash generated from their businesses,” the Journal reports.

GLENCORE SELLS OIL STORAGE ASSETS TO CHINA’S HNA GROUP

Glencore PLC, one of the world’s biggest oil traders, is set to offload a majority stake in its petroleum-products storage and logistics business for $775 million to an Asian conglomerate, writes Scott Patterson.

HNA Group has a myriad of assets including hotel chains, supermarkets and shipping firms. Recently, the company bought a stake in Germany’s troubled Deutsche Bank.

The deal comes as Glencore is trying to restore its finances to health.

PRESSURE HEATS UP ON VENEZUELAN PRESIDENT EVEN AS HE BACKS DOWN

Venezuelan President Nicolás Maduro backed down from an attempt to dissolve the country’s congress, delaying the government’s ability to sign new oil deals with foreign companies, writes Anatoly Kurmanaev.

Mr. Maduro has struggled to keep order and exert power as Venezuela’s economy suffers from falling oil prices and what critics say are policies that are hostile to business.

Venezuela’s top court, which is allied with Mr. Maduro, ordered the country’s national assembly to be dissolved, a move that some opposition members described as a coup. The resulting constitutional crisis resulted in protests, with Mr. Maduro and the court backing down over the weekend.

The new ruling likely set back Mr. Maduro’s attempts to sign new oil agreements with international companies.

“Although the court’s revised ruling gives Mr. Maduro the right to create new oil joint ventures without congressional approval, those deals will now attract greater public and investor scrutiny,” writes Mr. Kurmanaev.

MARKETS

Crude-oil futures edged lower on Monday, after the resolution of output disruptions in Libya brought the recent rally in prices to a halt.

Brent crude, the global oil benchmark, eased 0.2% to $53.40 a barrel on London’s ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were trading down 0.1% at $50.55 a barrel.

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on April 7, 2017

Avoid These Pitfalls as Tax Deadline Nears
by: Laura Saunders
Apr 01, 2017
Click here to view the full article on WSJ.com

TOPICS: Individual Income Taxation

SUMMARY: The article describes trends in filing at the end of tax season. It also lists last minute tax steps such as IRA contributions and possibilities for filing an extension request. Interesting coverage of the AICPA's policy on filing with a health coverage declaration versus the policies adopted by Intuit's TurboTax and H&R Block is useful to tie in Trump administration impact on the Obama-era regulations related to the Affordable Care Act.

CLASSROOM APPLICATION: The article may be used in an individual tax class.

QUESTIONS: 
1. (Introductory) What proportion of tax returns are filed in the last two weeks of tax season?

2. (Advanced) What impact does this trend have on CPA firm practices?

3. (Introductory) Who are the companies H&R Block Inc. and Intuit Inc.? What health care related policies have they adopted in providing their products and services?

4. (Advanced) What is the American Institute of CPAs? What policy do they recommend on this matter that differs from policies adopted by H&R Block and Intuit?

5. (Introductory) What are two tax saving strategies that can still be implemented now, before the April 18 filing deadline?

Reviewed By: Judy Beckman, University of Rhode Island

"Avoid These Pitfalls as Tax Deadline Nears," by Laura Saunders, The Wall Street Journal, April 1, 2017 ---
https://www.wsj.com/articles/avoid-this-years-tax-pitfalls-before-its-too-late-1490952600?mod=djem_jiewr_AC_domainid

Many filers can choose to omit health-coverage information, but they risk questions from the IRS

In the home stretch to Tax Day—April 18—a new issue is causing confusion.

This year, the Internal Revenue Service was set to begin automatically rejecting returns if they omitted information about health-care coverage. But in February, the IRS reversed course in response to President Donald Trump’s executive order that directed agencies to lessen the burden of complying with the Affordable Care Act, also known as Obamacare.

That would seem like a simple change. But note, tax firms have responded differently to the new guidelines.

H&R Block and Intuit , the maker of TurboTax, changed their systems in March to allow taxpayers to file returns that are “silent” about health coverage—that is, those leaving the line blank.

But the American Institute of CPAs, advised its members not to leave the line blank, because the change in IRS procedures hasn’t changed the underlying law. The law requires individuals to report either that they had appropriate health coverage in 2016 or else an exemption from such coverage. Otherwise, a stiff payment is due.

For a married couple with two children and $150,000 of income, the payment comes to about $3,200 for 2016, according to the Tax Policy Center in Washington.

The AICPA has taken its position because the IRS can come back to filers who are silent about their health coverage and assess them payment and penalties. Members should “do the right thing today before an IRS notice winds up on your client’s doorstep,” says the AICPA.

The suggestion is just one of many for last-minute filers. Nearly one-third of returns or extension requests come in during the last two weeks of filing season, according to an IRS spokesman. The agency expects more than 150 million individual returns for 2016.

If you are in that group, here are more tips:

•Tax-saving moves. Eligible savers can still open or fund traditional individual retirement accounts for 2016 by April 18 and get a tax deduction. The limit is $5,500 ($6,500 for people 50 and older).

Taxpayers can also open or fund Roth IRAs for 2016 until the tax deadline, and the contribution limits are the same. There is no tax deduction for a Roth contribution, but these accounts can provide future tax benefits that often make them a good choice for younger workers. For more details, see IRS Publication 590-A.

•HSA Contributions. Contributions made to Health Savings Accounts for 2016 can also be deductible if made before the tax deadline. For more information, see IRS Publication 969.

•Charitable contributions. Taxpayers have a nasty habit of cutting corners when deducting donations. According to the law, taxpayers deducting charitable donations of $250 or more must have a notice in hand from the charity before filing the return. The notice should give the date and amount of the donation and value of goods or services received in return, such as a dinner or tote bag. For cash donations less than $250, a canceled check may suffice.

Special rules apply for noncash donations. For contributions of property such as used clothing or books totaling $500 or less, a receipt from the charity may be adequate proof. But Gerard Schreiber, a CPA who practices in Metairie, La., cautions donors not to overvalue these gifts. “People have grandiose ideas about what Grandmother’s armoire is worth,” he says.

The IRS is watching. In mid-March, a Tax Court judge disallowed $18,000 of deductions a couple took for donations of used clothing they didn’t have proper proof for—and imposed a stiff penalty as well.

What’s stuff worth? There are valuation guides online posted by Goodwill Industries International and the Salvation Army, among others. For more information on deducting donations, see IRS Publications 526 and 561.

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on April 7, 2017

Raw Materials, Sleek Tech
by: Stephanie Yang
Apr 05, 2017
Click here to view the full article on WSJ.com

TOPICS: Bitcoin, blockchain technology

SUMMARY: The article covers use of blockchain technology for financial transactions as well as commodities trading and related financing. It includes a useful graphic on the supply chain process for both financing and delivering oil. This technological improvement solves issues arising "because the exchange of physical goods is plagued by pitfalls...in these notoriously opaque markets. Trades are routinely bogged down by paper documents that take time to verify and can be lost or forged during ownership changes."

CLASSROOM APPLICATION: The article may be used in an accounting systems class or in an auditing class.

QUESTIONS: 
1. (Introductory) What is bitcoin?

2. (Introductory) What is blockchain technology?

3. (Advanced) Refer to the related graphic. Specifically consider step 1. What is a letter of credit (LOC)? How does an LOC support commodities trading, especially internationally?

4. (Introductory) Again refer to the related graphic. How do paper-based documentation steps potentially slow down the transaction process and/or allow the potential introduction of fraud? Identify one issue with at least two steps in the process.

5. (Advanced) How do electronic documents, particularly with one central documentation source using blockchain technology-based contracts, help to resolve the problem you identify in answer to question 5?

6. (Introductory) European banks ING and Societe Generale SA and trading house Mercuria Investment Co. executed an oil contract to assess the impact of this technology on oil trades. What operational benefits did they find?

7. (Advanced) Name one or two audit procedures that could be used to generate the assessments you gave in answer to question 6 above.

SMALL GROUP ASSIGNMENT: 
Group idea: Question 4, identifying risk in paper based documents inherent in the related graphic, can be done in 7 groups with each group identifying: 1. A possible delay or potential fraud in transactions at each step arising from paper documentation 2. solutions to the issue using electronic documents 3. audit steps that may be required either for internal auditing (operational) to test systems experiments on IBM's platform as described in the article or for financial statement auditing in general

Reviewed By: Judy Beckman, University of Rhode Island

"Raw Materials, Sleek Tech," by Stephanie Yang, The Wall Street Journal, April 5, 2017 ---
https://www.wsj.com/articles/banks-turn-to-virtual-world-to-modernize-physical-commodities-trading-1491303623?mod=djem_jiewr_AC_domainid

Commodities players are trying out blockchain, the technology behind bitcoin, to help buy and sell raw materials

Banks and traders are experimenting with the technology behind bitcoin in an effort to solve longstanding problems in the trading of physical commodities.

Blockchain, the technology used to record ownership of the cryptocurrency bitcoin, has been making inroads recently in the financial world. Central banks and other institutions are exploring it for payments and data sharing. Big banks including J.P. Morgan Chase & Co. and Citigroup Inc. have tested the technology in recording financial transactions.

Now commodities players are trying out blockchain to help buy and sell goods and raw materials.

French bank Natixis and commodity trading firm Trafigura Pte. Ltd. unveiled a platform in late March with International Business Machines Corp. to carry out U.S. crude-oil transactions electronically using blockchain technology.

A group of participants in the cotton market is also evaluating the use of blockchain in trading and plans to release its results in May. The consortium, which has collaborated with IBM to use its blockchain platform, includes big agricultural commodities traders Cargill Inc. and Louis Dreyfus Co.

The technology records each transaction in a ledger of which every computer has an identical copy. This makes counterfeiting virtually impossible because every transaction can be checked against the other records. It also obviates the need for costly and time-consuming back-office record-keeping by third parties like finance companies

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on April 7, 2017

Firms Curb Raids on 401(K)s
by: Anne Tergesen
Apr 03, 2017
Click here to view the full article on WSJ.com

TOPICS: Time Value of Money

SUMMARY: "American companies are trying to stop employees from raiding their 401(k)s...." The motive for the employer is, in part, to ensure that employees will retire and make room for advancement of younger employees. "About a fifth of 401(k) participants with access to 401(k) loans take them....While most 401(k) borrowers repay themselves with interest, about 10% default on about $5 billion a year..." Employees also cash out their 401(k) plans when changing employers, paying taxes and penalties as a result." A research analyst at Morningstar estimates the total of cash outs and loans was $68 billion in 2013.

CLASSROOM APPLICATION: The article may be used in a tax class covering 401(k) plans, in a financial reporting class covering pension plans, or in any class to discuss the time value of money.

QUESTIONS: 
1. (Advanced) What is the difference between a defined-benefit retirement plan and a defined-contribution plan?

2. (Advanced) Which type of plan is a 401(k)? Where does the term "401(k)" come from?

3. (Introductory) Why do employers encourage employees to save for retirement by shouldering the costs of administering plans and including plans in pay packages?

4. (Advanced) For what reasons are employees taking out loans against their 401(k) plan assets?

5. (Advanced) Why is the impact of withdrawing funds from a 401(k) significant for future retirement savings? Include in your answer a brief definition of the time value of money and comment on its connection to the statement that "most people don't realize the impact of taking a loan."

Reviewed By: Judy Beckman, University of Rhode Island

"Firms Curb Raids on 401(K)s," by  Anne Tergesen, The Wall Street Journal, April 3, 2017 ---
https://www.wsj.com/articles/the-rising-retirement-perils-of-401-k-leakage-1491171015?mod=djem_jiewr_AC_domainid

Companies are trying to discourage employees from borrowing from their retirement accounts

American companies are trying to stop employees from raiding their 401(k)s, in an attempt to ensure that older workers can afford to retire and make room for younger, less-expensive hires.

Employers of all types—from Home Depot Inc. HD -1.12% to a mortgage lender—are taking steps to better inform workers of the financial implications of borrowing from their retirement accounts and pulling the money out when they leave jobs.

Tapping or pocketing retirement funds early, known in the industry as leakage, threatens to reduce the wealth in U.S. retirement accounts by about 25% when the lost annual savings are compounded over 30 years, according to an analysis by economists at Boston College’s Center for Retirement Research.

“Employers have done a lot to encourage people to save in 401(k) plans, such as automatically enrolling them. But there is a growing recognition that if the money isn’t staying in the system, the objective of helping employees reach their retirement goals isn’t being met,” says Lori Lucas, defined-contribution practice leader at investment-consulting firm Callan Associates Inc.

Movement Mortgage LLC, a Fort Mill, S.C.-based mortgage lender with 4,200 employees, this year started requiring workers who initiate a 401(k) loan to consult with a financial counselor first, at the company’s expense.

Movement Mortgage aims to help employees get “a game plan in place for financial success,” said Chief Executive Casey Crawford. “We want them to stop looking at their 401(k) like a cash register.”

Employees who grew accustomed to borrowing from their 401(k)s during the recession are tempted by the rising balances in these types of plans, which currently hold $7 trillion, up from $4.2 trillion in 2009, experts say.

“People are getting statements telling them they have $5,000 in this account and they are asking themselves, ‘How can I get my hands on this money?’” said Rob Austin, director of retirement research at Aon Hewitt, a human-resources consulting firm.

Home Depot in recent years launched several initiatives aimed at “getting people out of the habit of going from one [401(k)] loan to the next,” says director of benefits Don Buben.

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on April 14, 2017

Foxconn Targets Toshiba Chip Unit
by: Takashi Mochizuki
Apr 11, 2017
Click here to view the full article on WSJ.com

TOPICS: business combinations

SUMMARY: After an accounting scandal, subsidiary Westinghouse's cost overruns led to it declaring bankruptcy in the U.S., leaving parent Toshiba Corp. near collapse. Toshiba is selling its highly valuable chip-making business to stay alive. Foxconn Technology Co. has offered up to 3 trillion yen ($27 billion) for this business. According to the article, the next highest bidder came in at about 2 trillion yen when initial bids were submitted to Toshiba. Another article in this week's review addresses Toshiba's financial statements amid questions about the company's financial viability.

CLASSROOM APPLICATION: The article may be used in an advanced accounting class on business combinations to discuss a bidding process. The final question asks students to consider the accounting definition of a business combination and definition of a business.

QUESTIONS: 
1. (Introductory) Why is Toshiba selling this highly valuable component of its business? You may refer to the related article to help with this answer.

2. (Advanced) Are there many bidders vying to buy Toshiba Corp.'s computer-chip business? Support your answer.

3. (Advanced) What factors do you think entered into Foxconn's determination of the amount to bid for this acquisition of Toshiba's chip business?

4. (Introductory) What factors will be considered by Toshiba management in deciding on accepting a bid as winning?

5. (Introductory) What factors would the Japanese government ask for Toshiba to consider in this process?

6. (Advanced) Do you think the acquisition of Toshiba's chip making business will likely be considered a business combination for accounting by the successful bidder? Support your answer and include definitions of the term "business combination" and "business" with reference to authoritative literature.

Reviewed By: Judy Beckman, University of Rhode Island

RELATED ARTICLES: 
Toshiba's Meltdown: Chairman Out, $6.3 Billion Write Down
by Takashi Mochizuki
Feb 14, 2017
Online Exclusive

"Foxconn Targets Toshiba Chip Unit," by Takashi Mochizuki, The Wall Street Journal, April 11, 2017 ---
https://www.wsj.com/articles/foxconn-could-bid-up-to-27-billion-for-toshibas-chip-business-1491833399?mod=djem_jiewr_AC_domainid

Next highest bidder said to be at about $18 billion

Foxconn Technology Co. offered up to ¥3 trillion ($27 billion) for Toshiba Corp.’s TOSYY -1.74% computer-chip business, people familiar with the matter said, another bold bid for a pillar of Japan’s high-tech industry.

The Taiwanese company, the world’s largest electronics contract manufacturer and an assembler of Apple Inc. products, used a similar strategy last year to win control of Sharp Corp. SHCAY 4.87% It put forth a bid price well beyond what others were offering and ultimately beat out a Japanese government-backed investment fund.

The latest bid by Foxconn, formally known as Hon Hai Precision Industry Co. 2317 -0.31% , could put the government of Japanese Prime Minister Shinzo Abe in a tough spot. Some in the government are hoping to see a Japanese company or a joint U.S.-Japan team take the prized Toshiba asset because they see the chip business as strategic, say people familiar with the matter. But it would be hard for financially strapped Toshiba to turn down extra cash if Foxconn has the highest bid.

Analysts have estimated the business’s fair value at between ¥1.5 trillion and ¥2 trillion. One person familiar with the matter said the next-highest bidder after Foxconn offered about ¥2 trillion when initial bids for the business were accepted in late March.

Representatives for Toshiba and Foxconn declined to comment on the bidding process.

The people familiar with the bids cautioned that the process isn’t yet in the final stages. Bids can often change as contenders get a closer look at the target.

In Sharp’s case, Foxconn ended up paying less than an earlier offer after it discovered unexpected liabilities. It acquired about two-thirds of Sharp, a maker of smartphone displays and consumer products, for ¥388.8 billion in a deal that closed in August 2016.

Toshiba has said it intends to sell up to 100% of the chip business, which makes flash-memory chips for smartphones and computer servers. Battered by huge cost overruns at U.S. nuclear-reactor construction projects, Toshiba is looking to cash out assets to stay alive.

Last month, nuclear reactor maker Westinghouse Electric Co., which is majority-owned by Toshiba, filed for bankruptcy in the U.S., and Toshiba said it expected to book a ¥1 trillion loss in the year ended March 31 to account for losses at Westinghouse.

Toshiba’s chief executive, Satoshi Tsunakawa, said last month the most important factor in selecting a buyer for the chip unit was the amount of the offer, followed by the buyer’s ability to close the deal quickly. He said he was aware that the Japanese government wanted Toshiba to pay heed to national-security concerns, but Toshiba said that criterion would come after the other two.

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on April 14, 2017

Toshiba Warns It May Be Unable to Stay in Business
by: Takashi Mochizuki
Apr 02, 2017
Click here to view the full article on WSJ.com

TOPICS: Audit Reports, Going Concern

SUMMARY: Toshiba published its earnings for the nine months ended December 31, 2016. The report is late and Toshiba's auditor PwC Aarata LLC declined to give an opinion on the Toshiba financial statements. The auditor's disclaimer of conclusion is available on the Toshiba Corporation web page at http://www.toshiba.co.jp/about/ir/en/news/20170411_1.pdf Management acknowledges it may be unable to stay in business after expecting a $9 billion loss for the year ending March 31, 2017; however, management also claims that financial position is better than reflected in the historical cost financial statements because of the offers that have been received for Toshiba's computer chip business.

CLASSROOM APPLICATION: The article may be used in an advanced financial reporting class or in an auditing class.

QUESTIONS: 
1. (Introductory) In what report did Toshiba express doubt that it can stay in business?

2. (Introductory) What factors have led to Toshiba's disastrous financial condition? What steps is Toshiba taking to try to stay in business?

3. (Advanced) What is the accounting assumption related to a question of whether a business can stay in operation?

4. (Advanced) Toshiba Chief Executve Satoshi Tsunakawa said that he believes the company's "financial standing is solid" despite the results of operations and financial position of the company as shown in its financial statements. How is it possible that a company executive makes this statement? Hint: consider the amounts included in balance sheet for an ongoing business unit as compared to the price bidders might pay to acquire it.

5. (Advanced) Who is Toshiba's auditor? What is its dispute with the auditor?

6. (Advanced) Access the Toshiba announcement of the auditor issue on Toshiba's web site at http://www.toshiba.co.jp/about/ir/en/news/20170411_1.pdf What are the auditors' concerns that lead to its disclaimer of opinion? Do they stem only from the question of whether Toshiba is a going concern? Explain your answer.

Reviewed By: Judy Beckman, University of Rhode Island

"Toshiba Warns It May Be Unable to Stay in Business," Takashi Mochizuki, The Wall Street Journal, April 2, 2017 ---
https://www.wsj.com/articles/after-delays-toshiba-files-earnings-without-auditors-approval-1491901443?mod=djem_jiewr_AC_domainid

Japanese conglomerate says Westinghouse’s bankruptcy filing is likely to lead to $9.1 billion net loss for fiscal year

TOKYO— Toshiba Corp. on Tuesday expressed doubt for the first time that it can survive in light of huge losses at its U.S. nuclear subsidiary, which filed for bankruptcy last month.

The company issued the warning alongside its latest earnings report, which came two months late and without the approval of its auditor.

Toshiba, which traces its roots to 1875, is fighting for survival because of two blows: an accounting scandal in 2015 and then cost overruns at U.S. nuclear-reactor projects being built by its Westinghouse Electric Co. subsidiary.

Westinghouse’s bankruptcy filing March 29 is likely to push Toshiba into a net loss of ¥1.01 trillion ($9.1 billion) for its fiscal year ended March 31, Toshiba reiterated Tuesday.

“[T]here are material events and conditions that raise substantial doubt about the company’s ability to continue as a going concern,” Toshiba said. But the company said it has a comeback plan that includes selling its semiconductor unit and asking its banks for forbearance.

The semiconductor business, which makes flash-memory chips for smartphones and computer servers, has drawn a bid of up to ¥3 trillion from Foxconn Technology Group of Taiwan, people familiar with the bid said earlier this week.

“I believe our financial standing is solid, despite the numbers we put out, if we consider the value of the unit for sale,” Toshiba Chief Executive Satoshi Tsunakawa said at a news conference on Tuesday. He declined to comment on the status of the sale.

Analysts say the memory-chip market is likely to keep growing, and Toshiba’s latest results suggested the business is healthy. The memory-chip business posted an operating profit of ¥102 billion in the April-December period of 2016, up 9% from a year earlier, Toshiba said, thanks in part to strong demand from Chinese smartphone makers.

Toshiba has the second-largest market share in terms of revenue for widely used NAND flash-memory chips, according to IHS Markit, though it is well behind market leader Samsung Electronics Co.

Westinghouse’s bankruptcy removed the unit from the Toshiba group’s balance sheet, and Toshiba has said it believes it can wall itself off from any further losses connected to nuclear-reactor projects Westinghouse has undertaken in Georgia and South Carolina.

Toshiba had to postpone the announcement of its nine-month results on two occasions because of differences with its auditors. On Tuesday, it pushed ahead with the release even though the auditors refused to sign off.

The auditors, PricewaterhouseCoopers Aarata LLC, said they couldn’t be certain that earlier accounting for Westinghouse was proper.

Mr. Tsunakawa said Toshiba believes its figures are solid, and he expressed frustration about the standoff.

“They asked us to prove that we didn’t have anything wrong in our bookkeeping process, and that is quite a burden,” he said.

Getting the approval of auditors is customary for an earnings filing in Japan but isn’t mandatory.

A spokeswoman for the Tokyo Stock Exchange said the exchange would look into why auditors didn’t sign off on Toshiba’s results.

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on April 14, 2017

KPMG Fires Partners Over Leak of Audit Regulator's Confidential Plan
by: David Michaels and Michael Rapoport
Apr 12, 2017
Click here to view the full article on WSJ.com

TOPICS: Ethics, Internal Controls, PCAOB

SUMMARY: The head of KPMG LLPs audit practice, the national managing partner of audit quality and professional practice, three other partners, and another KPMG employee were fired for unethical conduct. They are said to have received information from a former PCAOB employee about audit engagements selected for inspection by the regulatory board. The employee who leaked the information left the PCAOB. The PCAOB has hired an outside law firm to examine the incident.

CLASSROOM APPLICATION: The article may be used in an auditing or business ethics class. Questions ask students to discuss the PCAOB inspections process, to consider the difficulties arising from close ties between a regulator and the profession it regulates, and to propose internal controls the PCAOB could use to prevent such a breach.

QUESTIONS: 
1. (Introductory) What is the Public Company Accounting Standards Board (PCAOB)?

2. (Introductory) How does the PCAOB inspection process help to achieve continuous improvement in audit quality?

3. (Introductory) The PCAOB's "...inspections tend to focus on the most difficult businesses and transactions." Why do you think that is the case?

4. (Advanced) What pressure do the inspections put on auditors in practice engagements addressing difficult accounting areas? On auditors leading the firms' practice quality initiatives?

5. (Introductory) The author further writes that these most difficult audit areas are ones which the PCAOB "believes accountants may have cut corners or made mistakes." Identify a difficult area of accounting in which auditors may receive PCAOB findings that the audit work needs improvement. Does this mean that an auditor "cut corners" or "made mistakes"? Explain your answer.

6. (Advanced) Describe the close ties between the regulatory staff of the PCAOB and the profession it regulates. What do you think there are the reasons for these close ties?

7. (Advanced) Professor Michael Shaub of Texas A&M University states that it is obvious there are internal control failures at the PCAOB over their inspection plans. Describe internal control procedures that could help to alleviate the risk of an incident impairing the integrity of the inspections such as reported in this article.

Reviewed By: Judy Beckman, University of Rhode Island

 

"KPMG Fires Partners Over Leak of Audit Regulator's Confidential Plan," David Michaels and Michael Rapoport, The Wall Street Journal, April 12, 2017 ---
https://www.wsj.com/articles/u-s-audit-regulator-probing-leak-of-confidential-inspection-information-to-kpmg-1491922950?mod=djem_jiewr_AC_domainid

Big Four accounting firm improperly received information about which audits PCAOB planned to review

Five KPMG LLP partners, including the head of its audit practice, were fired after the Big Four accounting firm improperly obtained information about which audits its regulator planned to inspect, the company said.

The company’s regulator, the Public Company Accounting Oversight Board, began investigating a leak discovered in February of its plans to inspect KPMG’s work. Among the fired KPMG employees was Scott Marcello, who was a partner and headed the audit practice, the company said.

An employee of the accounting board who leaked the information to KPMG left the PCAOB after the leak was reported to the regulator, which oversees firms that audit U.S.-traded public companies, according to the PCAOB.

The firm on Tuesday confirmed the role of its executives and their firings after being contacted by The Wall Street Journal. Mr. Marcello didn’t respond to requests for comment.

Also among those fired was David Middendorf, KPMG’s national managing partner for audit quality and professional practice, according to a person familiar with the matter. Mr. Middendorf couldn’t immediately be reached for comment. The identities of the other fired partners weren’t known Tuesday evening. The company said it also dismissed a sixth employee, whose identity and role could not be learned.

The breach is the latest incident that spotlights concerns about and challenges at KPMG and the other Big Four accounting firms. KPMG audits Wells Fargo & Co. and has faced questions about why it didn’t uncover the bank’s sales-practice scandal before the lender reached a $185 million settlement with regulators last fall. PricewaterhouseCoopers LLP, another member of the Big Four, also faced a trial on allegations by MF Global Holdings Ltd. that bad advice from the accounting firm had contributed to MF Global’s collapse. The claims were resolved with a confidential settlement between the parties.

The accounting board, which is investigating the actions of its former employee, hired an outside law firm to examine the incident, according to people familiar with the matter. The board was created by Congress after the accounting scandals that took down Enron Corp. and WorldCom Inc. to exclusively police the audits of listed companies’ financial results. Its employees earn some of the highest salaries among all financial regulators, a practice designed to discourage them from switching sides and going to work for the audit firms.

The KPMG employee who received the leak formerly worked at the accounting board, according to the audit firm. The company said the person received “improper advance warnings of engagements to be inspected,” and shared it with other KPMG executives. KPMG says it told both the accounting board and the Securities and Exchange Commission, which oversees the board, about the leak as soon as it was discovered.

“KPMG has zero tolerance for such unethical behavior,” said Lynne Doughtie, KPMG’s chairman and CEO. “KPMG is committed to the highest standards of professionalism, integrity and quality, and we are dedicated to the capital markets we serve. We are taking additional steps to ensure that such a situation should not happen again.”

A spokeswoman for the accounting board said the organization has taken steps to “maintain and reinforce the integrity of its inspection process” since discovering the leak.

The leaked information relates to annual inspections the accounting board performs of each of the major accounting firms, reviewing dozens of a firm’s audits to gauge performance and compliance with auditing rules. Inspections are particularly sensitive because they are the board’s primary means of assessing audit quality.

Inspectors can fault the accounting firms for deficiencies, and the findings are widely seen as a report card for how the firms are performing and whether audit quality is getting better or worse.

The accounting board’s inspections tend to focus on the most difficult businesses and transactions, ones in which it believes accountants may have cut corners or made mistakes.

The inspectors generally give accounting firms two to three weeks’ notice about the audits they intend to examine, according to people familiar with the matter. Because the accounting board sometimes inspects more than 60 annual audits performed by a Big Four firm, the board often will disclose them in batches of five to 10 so the auditors can gather records and fill out forms associated with the inspection.

If an accounting firm found out which audits would be subject to inspection before it completed them, it could devote more time to those projects to ensure they pass muster with regulators, the people said.

If it learned after an audit was issued, any last-minute changes to an audit or the work papers behind it would have to be documented under board rules.

The news of the leak is “pretty eye-opening,” said Bryan Church, an accounting professor at the Georgia Institute of Technology. “These guys feel enormous pressure dealing with inspectors, and they do stupid things,” he said.

Mr. Marcello had been KPMG’s vice chairman of audit, the firm’s top executive overseeing its U.S. audit practice, since 2015. Along with Ms. Doughtie, he would review the results of inspections and sign the firm’s official response, which is included in the board’s annual inspection report, which is released publicly.

Mr. Marcello also sat on the firm’s management committee, which implements KPMG policies as decided by its board.

Among the Big Four accounting firms, KPMG had the highest number of deficiencies cited by the accounting board in each of the past two years. In the previous year, 20 of KPMG’s inspected audits, or 38% of those inspected, were found to be deficient. In 2015, the number of deficient audits was 28, or 54% of those inspected.

Overall, the accounting board found deficiencies in 28% of the Big Four audits it inspected last year, down from 35% the year before.

The investigation by the PCAOB also could ratchet up scrutiny of the accounting board at the SEC and within Congress, said Michael Shaub, an accounting professor at Texas A&M University. Top SEC officials publicly criticized the board in 2014, saying it was slow to finish nuts-and-bolts standards governing public-company audits. “Obviously you have what is a material weakness in PCAOB controls because the information got out of the PCAOB to a former employee,” he said.

Continued in article

Fired KPMG Audit Head: How Did Scott Marcello Fall From Grace? ---
https://www.wsj.com/articles/fired-kpmg-audit-head-how-did-scott-marcello-fall-from-grace-1492371198

Scott Marcello was supposed to be the man to redeem KPMG LLP’s audit business. Instead, the 54-year-old and other top partners became the center of a scandal that tarnished the firm’s reputation

Scott Marcello was supposed to be the man to redeem KPMG LLP’s audit business. Instead, he and other top partners became the center of a scandal that tarnished the firm’s reputation.

The accounting world was stunned last week when Mr. Marcello, KPMG’s top audit official, was fired over a leak of confidential information. The firm said Mr. Marcello, who turns 54 this month, and four other partners were let go over the mishandling of a tip that gave the firm improper advance word about which of its audits its regulator planned to scrutinize in its annual inspections.

Mr. Marcello, a three-decade veteran at the firm, was a highly regarded and technically accomplished auditor, specializing in the intricate financial statements of banks and insurers. He climbed the ladder at KPMG to become the Big Four accounting firm’s vice chair of audit, managing a workforce of thousands of auditors. After his 2015 promotion from national leader of the firm’s financial-services practice, he faced the challenge of satisfying KPMG’s regulator, the Public Company Accounting Oversight Board, which in recent years had scored KPMG’S auditing performance below that of other big firms.

People who know Mr. Marcello said they were surprised such an experienced, knowledgeable auditor—someone who volunteered as a mission hospital consultant in Africa, and has chaired a Christian school in Connecticut—is accused of having gotten into such a fix.

“It’s a huge and disappointing thing to happen to such a fine individual,” said Dennis Beresford, former chairman of the Financial Accounting Standards Board, the U.S. accounting rule-writing panel, who knows Mr. Marcello from common ties to a professional organization. He called Mr. Marcello “personable and extremely competent.”

Mr. Marcello declined to comment to a Wall Street Journal reporter at his Connecticut home. KPMG and the accounting board declined to comment.

Details of the leak to KPMG are still unclear, as are the precise roles that Mr. Marcello and his deputy David Middendorf, who also was fired, are alleged to have played in the process. But they were aware that others at KPMG had received leaked information and “failed to report the situation in a timely manner,” KPMG said in a statement Tuesday.

Lynne Doughtie, the firm’s chairman and CEO, said KPMG has “zero tolerance for such unethical behavior,” and KPMG has said it told the accounting board about the matter as soon as top management learned of it.

The leaked information could have given KPMG a leg up in preparing for the PCAOB’s inspection, widely seen as a key report card on the quality of the firm’s audits. Among the Big Four accounting firms, KPMG has had the highest number of deficiencies cited by the accounting board in each of the past two years.

The leak reflects the tension between the Big Four accounting firms and the rigorous demands of the accounting board, which was created in the wake of the Enron Corp. scandal.

Some auditors have long felt stressed by the board’s inspections, feeling their careers could be set back if the regulator finds problems with too many of their audits. “They are all feeling the pain and the frustration,” said Bob Conway, a former KPMG partner who later ran the accounting board’s Southern California office.

Mr. Marcello took over as KPMG’s vice chair of audit after several years in which the firm’s inspection results had steadily worsened. The rate of deficient audits found by the PCAOB had risen from 22% for 2010 to 54% for 2014.

Several months before Mr. Marcello’s appointment, the accounting board unsealed previously confidential criticisms that the firm had failed to sufficiently evaluate information that could have contradicted its audit conclusions—a public rebuke of the firm, similar to what the regulator had done with other Big Four firms.

Mr. Marcello cast the image of an auditor well prepared for the job: He had deep knowledge of accounting practices through his auditing of complex financial companies as well as a two-year fellowship at the FASB, which also gave him experience as a rule maker and in dealing with the Securities and Exchange Commission.

He was “straight out of central casting,” said a person who had worked with him. He was an everyman, “the exact opposite of flashy,” the person said.

Mr. Marcello wanted to find a way to provide more timely services to companies and investors than an auditor’s typical annual audit opinion on a company. “We’ve got to get to this place where we are really dealing in the real time with the things that people use to make important decisions,” he told an industry conference last August.

Outside the accounting world, Mr. Marcello has volunteered as a consultant for missionary hospitals in Africa and contributed to the construction of a clinic for HIV-infected Kenyans, said Jon Fielder, president of the African Mission Healthcare Foundation

Continued in article

Teaching Case from The Wall Street Journal Accounting Weekly Review on April 21, 2017

KPMG's Star Auditor Falls Hard
by: Michael Rapoport and Dave Michaels
Apr 17, 2017
Click here to view the full article on WSJ.com

TOPICS: Audit Inspections, PCAOB

SUMMARY: Scott Marcello was KPMG's vice chair of audit having been promoted in 2015 from the role as the national leader of the firm's financial services practice. His was responsible for implementing practice improvements driven by the Public Company Accounting Oversight Board's inspections process. He and his deputy, David Middendorf, reportedly knew the firm had received leaked information about planned PCAOB audit inspections but did not inform top management in a timely manner. "KPMG has said it told the accounting board about the matter as soon as top management learned of it."

CLASSROOM APPLICATION: The article may be used in an auditing or an ethics class.

QUESTIONS: 
1. (Introductory) Refer to the related article. How was information about planned PCAOB audit inspections leaked to KPMG?

2. (Introductory) According to the article, was Scott Marcello directly involved in the leaked information?

3. (Advanced) Did KPMG use information about planned PCAOB inspections to improve those particular audits? Explain your answer.

4. (Advanced) What are the consequences to KPMG as a firm overall from these events? What are the consequences to the audit profession overall?

Reviewed By: Judy Beckman, University of Rhode Island

RELATED ARTICLES: 
KPMG Fires Partners Over Leak of Audit Regulator's Confidential Plan
by David Michaels and Michael Rapoport
Apr 12, 2017
Page: A1

"KPMG's Star Auditor Falls Hard," by Michael Rapoport and Dave Michaels, The Wall Street Journal, April 17, 2017 ---
https://www.wsj.com/articles/fired-kpmg-audit-head-how-did-scott-marcello-fall-from-grace-1492371198?mod=trending_now_2?mod=djem_jiewr_AC_domainid

Scott Marcello was supposed to be the man to redeem KPMG LLP’s audit business. Instead, the 54-year-old and other top partners became the center of a scandal that tarnished the firm’s reputation.

Scott Marcello was supposed to be the man to redeem KPMG LLP’s audit business. Instead, he and other top partners became the center of a scandal that tarnished the firm’s reputation.

The accounting world was stunned last week when Mr. Marcello, KPMG’s top audit official, was fired over a leak of confidential information. The firm said Mr. Marcello, who turns 54 this month, and four other partners were let go over the mishandling of a tip that gave the firm improper advance word about which of its audits its regulator planned to scrutinize in its annual inspections.

Mr. Marcello, a three-decade veteran at the firm, was a highly regarded and technically accomplished auditor, specializing in the intricate financial statements of banks and insurers. He climbed the ladder at KPMG to become the Big Four accounting firm’s vice chair of audit, managing a workforce of thousands of auditors. After his 2015 promotion from national leader of the firm’s financial-services practice, he faced the challenge of satisfying KPMG’s regulator, the Public Company Accounting Oversight Board, which in recent years had scored KPMG’S auditing performance below that of other big firms.

People who know Mr. Marcello said they were surprised such an experienced, knowledgeable auditor—someone who volunteered as a mission hospital consultant in Africa, and has chaired a Christian school in Connecticut—is accused of having gotten into such a fix.

“It’s a huge and disappointing thing to happen to such a fine individual,” said Dennis Beresford, former chairman of the Financial Accounting Standards Board, the U.S. accounting rule-writing panel, who knows Mr. Marcello from common ties to a professional organization. He called Mr. Marcello “personable and extremely competent.”

Mr. Marcello declined to comment to a Wall Street Journal reporter at his Connecticut home. KPMG and the accounting board declined to comment.

Continued in article

Bob Jensen's threads on KPMG fraud and negligence ---
http://faculty.trinity.edu/rjensen/fraud001.htm


Teaching Case from The Wall Street Journal Accounting Weekly Review on April 14, 2017

Secret Recordings Play Role in SEC Probe of Insurer AmTrust
by: Mark Maremont, Leslie Scism and Michael Rapoport
Apr 11, 2017
Click here to view the full article on WSJ.com

TOPICS: Audit Quality, Ethics

SUMMARY: AmTrust has restated three years of revenues and now is audited by KPMG LLP. The WSJ article describes an employee of AmTrust's former auditor, BDO, recording conversations about audit work done during the period subsequently restated. The BDO employee has left and is associated with a group who states they have made a presentation to the FBI and a submission to the SEC in 2013 under the agency's Whistleblower program. The group claims their concerns center on accounting unrelated to the revenue recognition issue for which the company has restated. The article acknowledges that the FBI investigation seems not to have progressed. The company has responded to this article with the following release: http://ir.amtrustgroup.com/releasedetail.cfm?ReleaseID=1020977

CLASSROOM APPLICATION: The article may be used in an auditing or an ethics class.

QUESTIONS: 
1. (Introductory) Is it ethical for an auditor at an accounting firm to try to strike up conversations about an audit engagement? Specifically describe when and where such conversations may take place.

2. (Introductory) Is it ethical to strike up conversations about audit procedures if an auditor becomes concerned after observing work practices he or she disagrees with? How would you handle such a situation if you were the concerned auditor?

3. (Advanced) Access information about the Securities and Exchange Commission's whisteblower program on the agency's web page at www.sec.gov/whistleblower Describe the reasons for such a program and the size of the awards from it.

4. (Advanced) Is it ethical for an auditor to attempt to record conversations about audit and accounting work if the auditor is motivated by potential significant financial gain? Specifically cite this case of an auditor working with outsiders on a "whistleblower" submission that could generate such a gain.

5. (Introductory) How has AmTrust responded to this WSJ article?

Reviewed By: Judy Beckman, University of Rhode Island

"Secret Recordings Play Role in SEC Probe of Insurer AmTrust." by Mark Maremont, Leslie Scism and Michael Rapoport, The Wall Street Journal, April 11, 2017 ---
https://www.wsj.com/articles/secret-recordings-play-role-in-sec-probe-of-insurer-amtrust-1491903011?tesla=y#livefyre-toggle-SB11280836134675634271604583070872063149386?mod=djem_jiewr_AC_domainid

Probe focus includes accounting practices at major U.S. player in workers’ compensation insurance

The auditor at BDO USA LLP casually wandered around the accounting firm’s New York offices, striking up conversations with colleagues about BDO’s audit of the large insurer AmTrust Financial Services Inc. AFSI -0.58%

Unknown to the colleagues, the auditor was carrying a tiny recording device disguised as an ordinary Starbucks gift card, capturing every word for the Federal Bureau of Investigation.

The clandestine recordings in 2014, described to The Wall Street Journal by the BDO auditor, were part of a continuing federal investigation now being led by the Securities and Exchange Commission, according to people familiar with the matter.

The focus of the probe includes accounting practices of AmTrust, a fast-growing, New York-based insurance company that in recent years has attracted skepticism about its results from investors betting against its stock.

The FBI investigation and the parallel probe by the SEC haven’t been reported before. Neither has the involvement of the BDO auditor, who has joined forces with a group that is led by the man who made a name for himself exposing Bernard Madoff’s Ponzi scheme.

Last week, AmTrust restated earnings going back to 2014 under a new auditing firm, KPMG LLP, acknowledging a range of accounting errors and shaving more than 9% off its cumulative net income for the past three years.

The status of the FBI probe, which the BDO auditor said was focused on whether the accounting firm tried to bury poor practices in its AmTrust audits, isn’t clear. But the SEC investigation is ongoing and is being led by the agency’s Fort Worth, Tex. office, the people said. The agency can close a probe without taking action.

Before going to the government, the whistleblower—the former BDO auditor—joined forces in 2013 with a larger group that includes Harry Markopolos, a forensic accountant who warned the SEC about the Madoff scheme before it became public in late 2008. The auditor was directly assigned to AmTrust audits for at least three years but has since left the firm.

The Markopolos group hopes to profit by collecting a reward under the SEC’s Whistleblower Program, if the agency ever successfully brings legal action in the matter.

An AmTrust spokeswoman declined to comment on whether the company knows of any SEC probe, saying the company didn’t speak for the agency. The company said it wasn’t aware of any FBI investigation. It said questions about its accounting practices are “fantasies concocted and intentionally publicized by parties who clearly have a self-serving agenda and appear to be trying to profit from misinformation about AmTrust.”

After The Wall Street Journal story was published online Tuesday morning, AmTrust issued a statement saying there was “nothing” in the story “that is different from these old, recycled” themes circulated for years by the company’s critics, some of whom are hoping to profit by betting against its stock.

On Monday, AmTrust disclosed it has recently beefed up its financial-accounting team with the hiring of a chief accounting officer and other moves.

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on April 14, 2017

Index Firms Take Issue with Nonvoting Rights
by: Richard Teitelbaum
Apr 09, 2017
Click here to view the full article on WSJ.com

TOPICS: Preferred Stock, Stockholders' Equity

SUMMARY: The article can be used to discuss voting rights associated with common stock, preferred shares, and the atypical structures discussed in the article. Nonvoting classes of shares are issued by Snap Inc.,, Google's parent Alphabet Inc., Under Armour Inc., and Zillow Group Inc.

CLASSROOM APPLICATION: The article may be used in a financial reporting class.

QUESTIONS: 
1. (Introductory) What rights typically are associated with shares of common stock? With preferred shares?

2. (Advanced) How do these structures reflect alignment of shareholders' economic interests and their voting rights?

3. (Introductory) How do the Class A shares of Snap, Inc. differ from those typical structures? What other companies have such atypical stock structures?

4. (Advanced) What is a stock index? Why would a stock indexing company care about the rights associated with a company's shares of stock?

5. (Introductory) How does chief financial officer of Zillow Group, Inc., Kathleen Philips, respond to this concern expressed by stock indexing firms?

Reviewed By: Judy Beckman, University of Rhode Island

"Index Firms Take Issue with Nonvoting Rights." Richard Teitelbaum, The Wall Street Journal, April 9, 2017 ---
https://www.wsj.com/articles/index-firms-take-issue-with-nonvoting-rights-1491739227?mod=djem_jiewr_AC_domainid

The issue of voting rights is raising the ire of some shareholders’ rights advocates.

No vote, no index. FTSE Russell said it won’t add Snap Inc. or other companies with nonvoting shares to its major stock benchmarks when it updates them in June.

The issue of voting rights is raising the ire of some shareholders’ rights advocates because founders and executives often end up with far more votes than shares. That has put index firms in the spotlight.

FTSE Russell issued a statement last week in response to concerns about stocks with no voting rights, such as the Class A shares Snap sold in March. The firm plans to consult with investors and other stakeholders over the next few months about whether to include companies with no voting rights in its indexes.

Changes could affect companies like Alphabet Inc. The technology giant’s Class C shares, which carry no voting rights, are already included in various FTSE and Russell indexes, according to FactSet. So are its Class A shares, which do carry voting rights.

Alphabet is controlled by co-founders Larry Page and Sergey Brin and executive chairman Eric Schmidt through Class B shares that have 10 votes each.

“We as an index provider need to come to a decision on what the policy is,” said FTSE Russell spokesman Tim Benedict. The firm said it plans to announce the results of its consultations in July.

Other companies with nonvoting share classes include Under Armour Inc. and Zillow Group Inc.

“It doesn’t make sense to exclude companies that are well run,” said Zillow finance chief Kathleen Philips, especially if there is no evidence that the lack of voting rights hurts performance.

Companies are generally eager to be included in a market index because doing so increases their investor base, according to Ben Johnson, director of exchange-traded fund research at Morningstar Inc. “From the point of view of Snap, I’m sure they are desperate to get on the other side of the velvet rope,” he said.

Spokeswomen for Snap and Under Armour declined to comment. Alphabet didn’t respond to an email and phone call.

Still, more nonvoting shares are in the pipeline. IAC/InterActiveCorp. shareholders approved a nonvoting share class last year, but the company said it won’t issue stock until it resolves a lawsuit challenging the move. A company spokeswoman declined to comment.

Facebook Inc. last year proposed the issuance of a nonvoting class of stock and is also the subject of a lawsuit to prevent it from doing so. A Facebook spokeswoman declined to comment.

Big investors have begun to weigh in on the topic, since in many cases they are required to hold the stocks in an index.

“We are increasingly troubled by the rise of nonvoting and low-voting shares,” said Arianna Stefanoni Sherlock, a spokeswoman for index fund giant Vanguard Group in an email. “These structures contradict our fundamental belief that shareholders’ economic interests and voting rights should be aligned.”

Some governance experts caution against excluding companies from indexes based on voting rights, noting how the precipitous decline in stock listings over the past 20 years has diminished the pool accessible to investors.

“Recent regulations have discouraged many private companies from making their equity available to the public,” said Lori Ryan, director of the Corporate Governance Institute at San Diego State University. “The ability to separate economic offerings from voting rights allows control-oriented founders to make shares available to the public.”

FTSE Russell, which is owned by the London Stock Exchange Group PLC, maintains thousands of major indexes under the the FTSE and Russell names. They are used by asset managers and others to gauge performance and determine which securities go into certain exchange-traded funds. The company said more than $10 trillion is benchmarked to FTSE and Russell indexes.

Each year, FTSE Russell adds and subtracts companies to its Russell indexes based on characteristics like market capitalization. The additions and deletions are disclosed beginning in early June. FTSE indexes are generally reviewed quarterly or semiannually.

FTSE Russell and rival MSCI Inc. excluded shares of Snap, parent of the photo-based messaging app Snapchat, from accelerated inclusion in some of their broad stock market indexes after the company’s IPO because they failed to meet certain market criteria

Continued in article


How do you account for superpower voting stock?
Is our old classification of Debt, Mezannine, and Equity out of date?

From the CFO Journal's Morning Ledger on April 4, 2017

 

Technology companies are seeking windfalls from their IPOs, minus the shareholders. Snap Inc. was the first major company since at least 2000 to do an initial public offering in the U.S. that gave new shareholders no voting rights, Maureen Farrell reports. The company’s earlier investors got one vote for every 10 held by the two co-founders.

 

This is part of a growing trend which sees tech companies grabbing power when they go public. These companies are structuring their IPOs so that founders and executives have far more votes than actual shares. The voting power gives those few shareholders dominance over all corporate decisions, ranging from the election of directors to whether to sell the company someday.

 

More tech companies—among them Facebook Inc., Fitbit Inc. and Twilio Inc.—are going public with at least two classes of stock. The structure makes it possible for companies to assign different voting rights to different groups of shareholders. The tech industry’s use of so-called supervoting shares has climbed so much in the past five years that it is roughly in line with IPOs as a whole.

 

The shift troubles some investors, corporate-governance advocates and even Silicon Valley executives. They say watered-down voting power hurts shareholder democracy and leaves those investors vulnerable.

From the CFO Journal's Morning Ledger on April 10, 2017

Companies issuing nonvoting shares in the wake of the Snap Inc. IPO may be left out of major indexes. FTSE Russell is considering whether to add such stocks and what to do about such companies – like Alphabet Inc. – it already includes, writes CFO Journal’s Richard Teitelbaum. The issue of voting rights is raising the ire of some shareholders’ rights advocates because founders and executives often end up with far more votes than shares.

There will be a consultation period over the next few months, FTSE said. Still, more nonvoting share issues are in the pipeline. IAC/InterActiveCorp. shareholders approved a nonvoting share class last year, but is facing a lawsuit to block the move. Facebook Inc. last year proposed the issuance of a nonvoting class of stock and is also the subject of a lawsuit


"Non-Voting Shares are in Vogue: Do (Lousy) Accounting Rules Play a Part?," by Tom Selling, The Accounting Onion, April 13, 2013 ---
http://accountingonion.com/2017/04/non-voting-shares-are-in-vogue-do-lousy-accounting-rules-play-a-part.html

Jensen Comment
Since Tom tends not to cite academic research in his posts, I thought I might cite samples of  the many academic studies on this issue.
Note that this type of equity division of voting power is much more common in Europe and South America.

"The value of the corporate voting right: Evidence from Switzerland," by Melchior R. Horner, Journal of Banking & Finance, Volume 12, Issue 1, March 1988, Pages 69-83 ---
http://www.sciencedirect.com/science/article/pii/0378426688900519

This paper analyzes the value of voting power of Swiss firms which usually issue high-voting- rights stock, low-voting-rights stock, and non-voting stock. Two variables measuring voting- power-inequality are constructed. They are both useful in explaining the voting-rights-premia. Also, the allocation of the voting rights is analyzed. It is shown that majority shareholders hold the high-voting-rights stock


"Fractional cointegration of voting and non-voting shares," by  Ingolf Dittmann, Applied Financial Economics, Volume 11, 2001 - Issue 3 ---
http://www.tandfonline.com/doi/abs/10.1080/096031001300138726

Voting and non-voting shares of ten German companies are analysed for fractional cointegration. It turns out that seven pairs of price series are fractionally cointegrated. The estimated long-memory parameter of the equilibrium errors lies between 0.5 and 0.8. If two stocks are fractionally cointegrated, future returns of at least one of the stocks can be predicted by past prices. This contradicts the weak form of the efficient market hypothesis. A simple trading strategy is proposed and analysed; it leads to considerable excess returns in two out-of-sample evaluations.


The Value of Control: Implications for Control Premia, Minority Discounts and Voting Share Differentials
SSRN, November 14, 2005
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=837405

Author

Aswath Damodaran

Abstract

It is not uncommon in private company and acquisition valuations to see large premiums attached to estimated value to reflect the 'value of control'. But what, if any, is the value of control in a firm, and if it exists, how do we go about estimating it? In this paper, we examine the ingredients of the control premium. In particular, we argue that the value of controlling a firm has to lie in being able to run it differently (and better). Consequently, the value of control will be greater for poorly managed firms than well run ones. The value of control has wide ranging implications beyond acquisitions. We show that the expected likelihood of control changing is built into the price of every publicly traded company and that this provides a way of measuring the payoff to strong corporate governance. We also argue that getting a better handle on the value of control can allow us to better explain the differences between voting and non-voting share prices and the minority discount in private company valuations.


A Theory of Pyramidal Ownership and Family Business Groups
SSRN, May 2005"

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=721801

Authors

Heitor Almeida --- University of Illinois at Urbana-Champaign; National Bureau of Economic Research (NBER)

Daniel Wolfenzon --- Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Abstract

We provide a rationale for pyramidal ownership (the control of a firm through a chain of ownership relations) that departs from the traditional argument that pyramids arise to separate cash flow from voting rights. With a pyramidal structure, a family uses a firm it already controls to set up a new firm. This structure allows the family to 1) access the entire stock of retained earnings of the original firm, and 2) to share the new firm's non-diverted payoff with minority shareholders of the original firm. Thus, pyramids are attractive if external funds are costlier than internal funds, and if the family is expected to divert a large fraction of the new firm's payoff; conditions that hold in an environment with poor investor protection. The model can differentiate between pyramids and dual-class shares even in situations in which the same deviation from one share - one vote can be achieved with either method. Unlike the traditional argument, our model is consistent with recent empirical evidence that some pyramidal firms are associated with small deviations between ownership and control. We also analyze the creation of business groups (a collection of multiple firms under the control of a single family) and find that, when they arise, they are likely to adopt a pyramidal ownership structure. Other predictions of the model are consistent with systematic and anecdotal evidence on pyramidal business groups.


Teaching Case from The Wall Street Journal Accounting Weekly Review on April 21, 2017

Complexity is the Root of All Evil (at Least in the Tax Code)
by: Nina E. Olson
Apr 18, 2017
Click here to view the full article on WSJ.com

TOPICS: Individual Income Taxation, Individual Taxation Tax Reform

SUMMARY: The author of this opinion page piece is the National Taxpayer Advocate an independent entity within the IRS. The link to their website is https://taxpayeradvocate.irs.gov/ She presents six principles for simplifying the tax code for individual taxpayers to use if Congress succeeds in carrying out its planned overhaul. Barring that outcome, she also describes several areas with significant numbers of choices which lead to taxpayer errors, such as family status, that should be reduced.

CLASSROOM APPLICATION: The article may be used in an individual income tax class.

QUESTIONS: 
1. (Introductory) How many individual taxpayers file IRS returns in the U.S.? How many corporate taxpayers do so?

2. (Introductory) What principles does Ms. Olson recommend Congress use when considering the tax code overhaul expected this year?

3. (Advanced) Ms. Olson recommends tax overhaul which maintains revenues to the federal government by lowering income tax rates and reducing tax deductions. How could such an approach benefit taxpayers if overall tax bills remain constant?

4. (Advanced) Does simplifying the tax code affect your prospects as a tax professional? Explain your answer.

Reviewed By: Judy Beckman, University of Rhode Island

 

"Complexity is the Root of All Evil (at Least in the Tax Code)," by Nina E. Olson, The Wall Street Journal, April  18, 2017 ---
https://www.wsj.com/articles/complexity-is-the-root-of-all-evil-at-least-in-the-tax-code-1492469801?mod=djem_jiewr_AC_domainid

As Congress takes up reform, it should consider radically simplifying the rules for individuals

As the national taxpayer advocate, I oversee an independent unit within the Internal Revenue Service that has helped more than four million individual and business taxpayers resolve their IRS account problems, and I am required to report to Congress annually on the most serious problems encountered by U.S. taxpayers.

If I had to distill everything I’ve learned into one sentence, it would be this: The root of all evil is the complexity of the tax code.

There is currently considerable support in Congress to take up corporate tax reform, and corporate reform is certainly needed. But I urge policy makers to remember that, as compared with about two million taxable corporations, there are 151 million individual taxpayers, including 27 million who report sole-proprietor or farm business income with their individual returns. There are also nearly nine million pass-through entities (S corporations and partnerships), the income from which is reported on individual income-tax returns. These taxpayers desperately need relief from the extraordinary compliance burdens the tax code imposes.

I have long believed comprehensive tax simplification is achievable by following the model of the landmark Tax Reform Act of 1986. Skeptics point out that asking taxpayers to give up tax breaks from which they currently benefit will generate pushback, and that’s certainly true. But if policy makers pair substantial reductions in tax expenditures with substantial reductions in tax rates, and maintain current tax-burden levels by income decile, I believe taxpayers will appreciate that their tax burdens on average won’t change much—and they will actually end up better off because they will save money on compliance costs. That approach prevailed 30 years ago, and despite some significant differences in circumstances, it could prevail again today.

I recommend that policy makers consider the following core principles in developing tax-reform legislation:

First, the tax system should not be so complex as to create traps for the unwary.

Second, the tax laws should be simple enough so that most taxpayers can prepare their own returns and compute their tax liabilities on a single form, and simple enough so that IRS customer-service personnel can accurately answer taxpayers’ questions over the phone.

Third, the tax laws should anticipate the largest areas of noncompliance and minimize the opportunities for such noncompliance.

Fourth, the tax laws should provide some choices, but not too many, since choices can be confusing and lead to taxpayer errors.

Fifth, when the tax laws provide for refundable credits, they should be designed in a way that is minimally burdensome both for the taxpayers claiming the credits and for the IRS in administering them.

Sixth, the law should incorporate a mandatory periodic review of the tax code—a sanity check to guard against creeping complexity.

If policy makers decide comprehensive simplification is too heavy of a lift, there are still many steps Congress could take to simplify the tax code in smaller bites. Among them:

Consolidate and simplify the six “family status” provisions in tax code. These include filing status, personal and dependency exemptions, the child tax credit, the earned-income tax credit, the child- and dependent-care credit, and the separated spouse rule. Every individual taxpayer is affected by at least two of these provisions, and many taxpayers are affected by five. I have proposed a family credit and a worker credit to replace them, which would have the added benefit of reducing improper EITC payments.

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on April 21, 2017

Spoiler Alert for Netflix: Debt and Cash Flow Matter
by: Miriam Gottfried
Apr 17, 2017
Click here to view the full article on WSJ.com

TOPICS: Interim Financial Statements, Operating Margin

SUMMARY: The article discusses Netflix's quarterly letter to investors. In the letter, the company emphasizes measuring revenue growth and global operating margins, replacing their previous focus on subscriber net additions and U.S. segment operating margins. The company's subscriber growth has been slowing.

CLASSROOM APPLICATION: The article may be used to discuss quarterly reporting, performance metrics, and cash flow.

QUESTIONS: 
1. (Introductory) What was Netflix's overall performance for the first quarter of 2017? Specifically discuss the trend in both revenues and operating profits for this period.

2. (Introductory) What programming release impacted comparison of the first quarter 2017 with first quarter 2016?

3. (Advanced) According to accounting requirements for interim reporting, how must quarter revenues and costs be matched together? What must a company do if it reports significant changes in results, either from trends such as seasonality or the program timing shift described in question 2 above?

4. (Advanced) What is free cash flow? How is Netflix performing on this measure? How does that measure relate to business growth?

Reviewed By: Judy Beckman, University of Rhode Island

RELATED ARTICLES: 
Netflix's Subscriber Growth Slows at Home and Abroad
by Shalini Ramachandran and Bowdeya Tweh
Apr 17, 2017
Page: ##

 

"Spoiler Alert for Netflix: Debt and Cash Flow Matter," by Miriam Gottfried, The Wall Street Journal, April 17, 2017 ---
https://www.wsj.com/articles/spoiler-alert-for-netflix-debt-and-cash-flow-matter-1492468397?mod=djemheard_t?mod=djem_jiewr_AC_domainid

Netflix  wants to be measured by a more conventional yardstick. The problem is that its valuation is anything but conventional.

The video-streaming company reported disappointing first-quarter results on Monday as subscriber growth for both its domestic and international streaming businesses fell short of the company’s own forecast. Netflix said moving the fifth season of “House of Cards” to the second quarter from the first quarter led to lower-than-expected subscriber additions but also lower-than-expected costs, flattering earnings.

Netflix’s forecasts for subscriber net additions in the second quarter—600,000 domestically and 2.6 million internationally—came in ahead of analyst’s estimates. But its projections for second-quarter revenue and operating margins both fell short of the expectations of analysts polled by FactSet.

Netflix told its investors not to focus on subscriber additions, but such nonstandard measures may be helping to sustain its multiple

In its quarterly letter to investors, the company said that starting this year it should be measured by revenue growth and global operating margins as opposed to subscriber net additions and U.S. segment margins, which had previously been their primary focus. 

Indeed, building their models around these unconventional metrics may have helped Netflix’s investors justify the steep multiple—100 times forward earnings expectations—they have been willing to pay for its shares.

Of course, subscriber growth may not be enough to sustain Netflix’s multiple, either. The company, which finished the quarter with 49.38 million paid U.S. streaming subscribers, has said it can reach 60 million to 90 million domestic streaming subscribers. But its growth rate has been slowing.

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on April 21, 2017

Solar Leasing Loses Appeal
by: Cassandra Sweet
Apr 15, 2017
Click here to view the full article on WSJ.com

TOPICS: Lease Accounting, Securitization

SUMMARY: The average price of a six-kilowatt residential array for solar power fell 17% in the past year driven by a 20% reduction in the cost of the solar panels. That price drop has led to an increase in the percentage of homeowners who buy panels with cash or a loan, rather than sign a lease or power-purchase agreement, to more than 50% from 38% in 2015. The change is hurting large firms such as SolarCity and Vivint Solar who have built sales forces to generate significant leases and then bundle them in financing transactions.

CLASSROOM APPLICATION: The article may be used to introduce lessor/seller issues in general aspects of their business and related accounting issues when covering lease accounting.

QUESTIONS: 
1. (Advanced) In general, what factors influence a lessee in deciding between leasing and buying an item?

2. (Advanced) Which of these factors is/are changing significantly for the solar leasing industry?

3. (Introductory) How have the large solar array companies built their businesses?

4. (Advanced) Why are smaller solar array installers able to compete with the large companies? Explain your answer and comment on whether these companies may offer lower prices to customers than the large companies.

5. (Advanced) Do sellers offering leases report sales from those transactions in the same way as they report outright sales to customers who buy for cash? Explain your answer.

6. (Advanced) What is the implication of the large solar firms' business model relying on "bundling leases and selling shares to investors"? In your answer, define the term securitization.

Reviewed By: Judy Beckman, University of Rhode Island

"Solar Leasing Loses Appeal," by Cassandra Sweet, The Wall Street Journal, April 15, 2017 ---
https://www.wsj.com/articles/solar-installers-struggle-as-panels-become-cheap-enough-to-own-1492162203?mod=djem_jiewr_AC_domainid

Big players like SolarCity, Vivint see market share drop as homeowners opt to buy rather than lease panels

Solar panels are more affordable than ever for U.S. homeowners, and that is bad news for the biggest players in the industry.

The price of solar panels dropped by 20% in the past year thanks in part to a global glut of panels and better technology, according to GTM Research, accelerating a shift among homeowners to buy panels rather than lease them.

For a six-kilowatt residential array, the average price fell 17% to $17,340, according to GTM. More than half of U.S. homeowners now buy their panels with cash or a loan, rather than sign a lease or power purchase agreement, up from 38% of home installations in 2015.

The trend has created a business-model challenge for large solar companies such as Tesla Inc.’s TSLA +0.28% SolarCity and  Vivint Solar Inc., VSLR -1.69% which spent billions building sales forces and marketing teams as they raced to amass market share.

Solar firms that offer leases—like SolarCity and Vivint—need to keep adding customers and installing new panels at a fast pace, since their business model relies on bundling leases together and selling shares to banks and other investors.

“You need to support the volume to attract the capital,” said David Field, chief executive of OneRoof Energy Inc., a solar firm that is in the process of liquidating after it ran out of money late last year. “You find yourself in a vicious cycle.”

After racing to lease as many panels as possible, SolarCity and other firms are now retooling and refocusing on selling them, and trimming sales and marketing budgets to pare their sizable debts.

Both SolarCity and Vivint have been losing ground to smaller home solar companies that sell the same panels for similar prices, often through word-of-mouth.

SolarCity’s market share fell to 22% in the fourth quarter of 2016, from 34% a year earlier, while Vivint’s fell to 7%, from 9% during the same period, according to GTM Research. Meanwhile, the smallest installers, as a group, expanded their share to 43% during the same period, from less than 30% a year earlier, according to GTM.

The U.S. residential solar market grew by 19% last year, as developers installed more than 2,500 megawatts of panels on about 362,000 homes, according to GTM Research and the Solar Energy Industries Association. But the market is likely to grow by just 9% this year, they predict, as demand slows in California and large firms pull back or go out of business.

Sungevity Inc., the fifth-largest home solar company in the U.S. by market share, filed for bankruptcy protection last month after hitting a cash crunch. Another large player, NRG Energy Inc.,  recently quit the home installation business.

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on April 21, 2017

Older Workers Challenge Firms' Aggressive Pursuit of the Young
by: Jacob Gershman
Apr 17, 2017
Click here to view the full article on WSJ.com

TOPICS: Accounting Careers

SUMMARY: A class action lawsuit alleging age bias against job applicants is being led by two men, one 53 years old and one 47, who applied for entry level positions at PricewaterhouseCoopers (PwC). The two "have years of accounting and bookkeeping experience" according to the article. This litigation is brought under the Age Discrimination in Employment Act (ADEA). It is part of a wave that tests legal limits of age-discrimination liability and may "cast a cloud over college recruitment programs." As the article notes, "the idea that company recruitment efforts aimed at students and recent graduates can be unlawful is a controversial premise that no federal appeals court has ever endorsed."

CLASSROOM APPLICATION: The article may be used to discuss accounting careers in any level class.

QUESTIONS: 
1. (Advanced) Are you familiar with your college or university's campus recruiting activities? Describe what you know.

2. (Introductory) How does the outcome of this lawsuit potentially affect all college campus recruiting activities?

3. (Advanced) What is the concern behind the lawsuit described in this article? Specifically identify how college recruiting for entry level positions may incidentally discriminate against other, older job applicants.

4. (Advanced) This lawsuit is directed at one firm, PwC. Do you think their recruiting practices differ from other public accounting firms?

Reviewed By: Judy Beckman, University of Rhode Island

"Older Workers Challenge Firms' Aggressive Pursuit of the Young," by Jacob Gershman, The Wall Street Journal, April 17, 2017 ---
https://www.wsj.com/articles/older-workers-challenge-firms-aggressive-pursuit-of-the-young-1492340404?mod=djem_jiewr_AC_domainid

In one class action against PricewaterhouseCoopers, two men say they were rejected because they lacked the youthful profile possessed by many PwC recruits

PricewaterhouseCoopers bills itself as the “place to work for millennials,” who have taken jobs and internships with the accounting giant in droves. The firm annually recruits thousands of newly minted college graduates.

The firm’s aggressive pursuit of youth is now the focus of a class-action suit, part of an emerging wave of litigation that is both testing the boundaries of age-discrimination liability and casting a legal cloud over college recruitment programs.

Employment lawsuits alleging age bias aren’t new and are usually brought by fired employees. Cases like the one against PwC allege discrimination against job applicants, whose civil rights involve a surprisingly unsettled area of law.

The named plaintiffs in the PwC case are two men—one 53 years old and the other 47—whose applications for entry-level associate positions at the firm were rejected.

The litigants have years of accounting and bookkeeping experience under their belts, but both failed to make the cut. They allege they were turned down because they lacked the youthful profile possessed by so many PwC recruits. To “attract and maintain ‘millennials,’ PwC intentionally screens out individuals ages 40 and older...and denies them employment opportunities,” claims their lawsuit in San Francisco federal court.

Such favoritism toward millennials, the suit alleges, violates the federal Age Discrimination in Employment Act, or ADEA.

The plaintiffs say the ADEA was meant to cover hiring practices that may not intentionally discriminate against older workers but have a disproportionately adverse effect on them.

Lawyers for PwC say the plaintiffs’ reading of the law conflicts with Congress’s intent

Continued in article

 




Humor for April 2017

The Onion:  Notable Commencement Speeches for the Class of 2017 ---
http://www.theonion.com/infographic/notable-commencement-speakers-class-2017-55876?utm_medium=RSS&utm_campaign=feeds

How to Remove Grumpiness ---
https://groups.google.com/forum/#!topic/9th-intake-hmas-leeuwin/iw3MjOk4mNU

SNL Video:  Yes Harvard Does Have a Dorm by That Name ---
https://www.insidehighered.com/quicktakes/2017/04/17/yes-harvard-does-have-dorm-name?utm_source=Inside+Higher+Ed&utm_campaign=b60fb2979f-DNU20170417&utm_medium=email&utm_term=0_1fcbc04421-b60fb2979f-197565045&mc_cid=b60fb2979f&mc_eid=1e78f7c952

Berkeley Campus On Lockdown After Loose Pages From ‘Wall Street Journal’ Found On Park Bench ---
http://www.theonion.com/article/berkeley-campus-lockdown-after-loose-pages-wall-st-55815?elqTrackId=cfa773c038ce47e398a51a5f89f13d51&elq=a8199b8e70984d42bf73b213b36428b1&elqaid=13610&elqat=1&elqCampaignId=5646

BERKELEY, CA—Advising students to remain in their dormitories and classrooms until the situation was resolved, the University of California, Berkeley declared a campuswide lockdown Thursday after several loose pages from The Wall Street Journal were found on a park bench outside a school building. “At 11:15 this morning, several pages from two separate sections of today’s Wall Street Journal were discovered spread across a bench outside of Eshleman Hall in Lower Sproul Plaza,” read the urgent alert sent to all students and faculty, emphasizing that while campus security and local police had safely disposed of the pages, there was no way of knowing if others were strewn elsewhere on university grounds. “As of now, the perpetrator remains at large, so it is vital that you stay where you are until the all-clear is given. In the meantime, notify police immediately if you have any additional information at all regarding this incident.” At press time, a black-clad group of 50 students were throwing bottles at the bench while chanting, “No Nazis, No KKK, No Fascist U.S.A!”

A Note on the Fabrications and Plagiarism in this Article ---
https://www.mcsweeneys.net/articles/a-note-on-the-fabrications-and-plagiarism-in-this-article?elqTrackId=345ddc1812004e2f862432f2f52ce166&elq=a8199b8e70984d42bf73b213b36428b1&elqaid=13610&elqat=1&elqCampaignId=5646

The Rhetorical Limits of Satire: An Analysis of James Finn Garner's Politically Correct Bedtime Stories ---
http://nca.tandfonline.com/doi/abs/10.1080/00335630308175

Bill O’Reilly Tearfully Packs Up Framed Up-Skirt Photos From Desk ---
http://www.theonion.com/article/bill-oreilly-tearfully-packs-framed-skirt-photos-d-55818?utm_medium=RSS&utm_campaign=feeds ----
 

 


Forwarded by Paula
Two robins were sitting in a tree. "I'm really hungry", complained the first one. "Me, too" consented the second. "Let's fly down and find some lunch." They flew to the ground and found a nice plot of plowed ground full of worms. They ate and ate and ate and ate 'til they could eat no more. "I'm so full I don't think I can fly back up to the tree," admitted the first one. "Me either. Let's just lay here and bask in the warm sun," suggested the second. "O.K." agreed the first. They plopped down, basking in the sun. No sooner than they had fallen asleep, when a big fat tomcat snuck up and gobbled them up! As he sat, washing his face after his meal, he thought to himself, "I just love baskin' robins."


 




Humor April 2017 --- http://faculty.trinity.edu/rjensen/book17q2.htm#Humor017.htm 

Humor March 2017 --- http://faculty.trinity.edu/rjensen/book17q1.htm#Humor0317.htm

Humor February 2017 --- http://faculty.trinity.edu/rjensen/book17q1.htm#Humor0217.htm

Humor January 2017 --- http://faculty.trinity.edu/rjensen/book17q1.htm#Humor0117.htm

Humor December 2016 --- http://faculty.trinity.edu/rjensen/book16q4.htm#Humor1216.htm 

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Humor October 2016 --- http://faculty.trinity.edu/rjensen/book16q4.htm#Humor1016.htm

Humor September 2016 --- http://faculty.trinity.edu/rjensen/book16q3.htm#Humor0916.htm

Humor August  2016 --- http://faculty.trinity.edu/rjensen/book16q3.htm#Humor083116.htm

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




And that's the way it was on April 30, 2017 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

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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