Bob Jensen's New Additions to Bookmarks

January 2017

Bob Jensen at Trinity University 

For earlier editions of Fraud Updates go to
For earlier editions of Tidbits go to
For earlier editions of New Bookmarks go to 
Bookmarks for the World's Library --- 

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

Bob Jensen's Blogs ---
Current and past editions of my newsletter called New Bookmarks ---
Current and past editions of my newsletter called Tidbits ---
Current and past editions of my newsletter called Fraud Updates ---


Bob Jensen's Pictures and Stories


All my online pictures ---

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:  

Google Scholar ---

Wikipedia ---

Bob Jensen's search helpers ---

Bob Jensen's World Library ---

John Arnold Made a Fortune at Enron. Now He’s Declared War on Bad Science ---

Bob Jensen's war on bad science in accounting (accountics) research ---

280 MOOCs Getting Started in January 2017: Enroll Free Today ---

HarvardX and MITx: Four Years of Open Online Courses -- Fall 2012 - Summer 2016
SSRN, December 16, 2016


Isaac Chuang Massachusetts Institute of Technology (MIT) - Office of Digital Learning; MIT

Andrew Dean Ho Harvard University; Harvard University - HarvardX


In 2014 and 2015, a joint research team from Harvard University and MIT released summary reports describing the first two years of Harvard and MIT open online courses launched on the nonprofit learning platform, edX. These reports set expectations for the demographics and behavior of course participants and established an analytic framework for understanding the then-nascent online learning context known as the Massive Open Online Course (MOOC).

This “Year 4 Report” extends these earlier findings to four complete years of HarvardX and MITx courses on edX, resulting in one of the largest surveys of MOOCs to date: 290 courses, 245 thousand certificates, 4.5 million participants, 28 million participant-hours, and 2.3 billion events logged online. We present our findings in a series of nine exhibits that address questions about the evolution of the MOOC movement from its birth in 2012, through its current adolescence.


Jensen Comment
What surprised me is that only about a third of the MOOC users are teachers and professors. I would have thought the percentage would be higher since MOOCs are windows into how your most prestigious competitors are doing their jobs.

What surprised me even more is how important certificates of completion seem to be to the users of MOOCs. MOOC courses are free, but growth leveled somewhat when edX started charging for the certificates. Also about 60% of the users are willing to pay for those certificates. It would surprise me if those certificates mattered much in the job market. But then what do I know?

Bob Jensen's links to free courses (including mathematics) and tutorials ---

Journal of Accounting Education Call for Submissions to a Special Edition
The Journal of Accounting Education invites submissions for a special issue devoted to ethics as it relates to accounting and auditing education, in particular obtaining an understanding of the drivers and impediments for compliance with the fundamental principles and independence – integrity, objectivity, professional competence and due care, confidentiality, and professional behavior as described by international standards. For example, it has been suggested that the professional skepticism and “professional fortitude” or “moral courage” help professional accountants comply with the fundamental principles and independence --- for SI on Auditing and Ethics.pdf

Bob Jensen's threads on accounting and auditing professionalism ---

It would seem that, if the constraint of double-entry bookkeeping is removed as a basis of financial reporting, the operational definitions of the major performance indicator of "profit" for for-profit businesses will have to become much more precise and operational than "profit" is presently defined as a residual phenomenon in a double-entry bookkeeping system.

In recent communications Tom Selling suggested that accounting might be improved by deleting the historic constraint of double entry bookkeeping for financial reporting.

An earlier advocate of this was Cox Bonita in the following reference:

Accountability lost: the rise and fall of double entry
Volume 31, Issue 4, August 2003, Pages 303–310


This paper discusses the need for modern accounting systems to meet the criteria of both ‘accountability’ and ‘usefulness’ and argues that the traditional double entry book keeping system serves as a constraint on the achievement of system usefulness. We look at the problems associated with the double entry book keeping system and argue for its replacement with an events accounting system (EAS) model which is more appropriate to current business requirements. We also consider the need to extend the EAS model to more adequately meet the criterion of system usefulness. It is suggested that the integration of an EAS approach with that of a strategic information systems planning approach, facilitates the meeting of this objective.

Jensen Comment
Due to tradition, functional fixation  (and whatever else)  financial analysts and investors want a primary index for tracking performance a company's performance over time and to compare inter-company performances. Net profit throughout accounting history since the days before Pacioli serves this purpose. Net profit became the most-tracked index of business performance without ever being formally defined. Before Other Comprehensive Income (OCI) was invented in FAS 130 net profit was the change in equity that's left (a positive or negative residual) after changes in defined components of liabilities and equities other than retained earnings are eliminated under a double entry system.

In my opinion OCI was initially invented in anticipation of FAS 133 so that changes in value of derivative contracts serving as cash flow and FX hedges do not impact net profit to the extent that the hedges are effective. Of course some other items are also posted to OCI (or AOCI)  ---
Tom Selling is so critical of the OCI concept I suspect that he'd like to take this "quagmire" back out of accounting standards when defining net profit.

Tom Selling would like to define profit in terms of changes in values of assets and liabilities along Hicksian lines, but this is not an operational definition without more precise definitions of assets, liabilities, and values. The standard setters (IASB and FASB) define profit in terms of revenues minus expenses, but this is not an operational definition without precise definitions of revenues and expenses.

Accounting standard setters readily admit that they do not have an operational definition of profit and other important financial definitions. The IASB just undertook a five-year effort to define profit more operationally.

IASB Plans Overhaul of Financial Definitions 

The International Accounting Standards Board, or IASB, which sets reporting standards in more than 120 countries, said Wednesday it would look at providing new definitions of common financial terms such as earnings before interest and taxes, or ebit.

The new definitions will be introduced over the next five years, in order to provide sufficient time for suggestions and comment from market participants.

The changes will not result in new standards but will require the board to overhaul existing ones.

At the moment, terms like operating profit are not defined by the IASB. The aim is to help market participants judge the suitability of a particular investment.

“We want to give investors the right handles to look at a balance sheet,” said IASB chairman Hans Hoogervorst.

Up until now, International Financial Reporting Standards, known as IFRS, leave companies too much flexibility in defining such terms, which often makes it difficult to compare financials, Mr. Hoogervorst said.

“Even within sectors, there is a lack of comparability,” Mr. Hoogervorst said. This affects both investors and companies, he added.

It is too early to tell what the changes will mean for companies reporting under IFRS, according to Mr. Hoogervorst. “They should be less revolutionary than the introduction of new standards but every change results in work”, he said.

Some firms might find that they have less latitude when reporting financial results, he said. That could mean more work.

Firms that decide against adopting the new IASB definition for ebit, for example, could be required to reconcile their own ebit calculation into one based on the IASB’s definition.

The IASB in 2017 also plans to finalize a single accounting model that would be applied to all forms of insurance contracts.

Besides that, the board will work on updating the system through which filers add disclosures to the electronic versions of their financial statements. The system is updated on a regular basis and the IASB produces an annual compilation of all changes each year.

Bob Jensen's threads on conceptual framework controversies ---

Jensen Comment
It would seem that, if the constraint of double-entry bookkeeping is removed as a basis of financial reporting, the operational definitions of the major performance indicator of "profit" for for-profit businesses will have to become much more precise and operational than "profit" is presently defined as a residual phenomenon in a double-entry bookkeeping system.

Harvard:  Midsize Cities Are Entrepreneurship’s Real Test
But the visibility of megacities masks the reality that billions do not live in these entrepreneurial epicenters. In fact, midsize cities and their associated regions are where most people live, work, and play, and will continue to do so into the future:
Forecasts tell us that even in 2050 megacities will still number just a few dozen, while thousands of midsize cities (.5 to 5 million people) will house
92% of the world’s urbanites.

Economist Magazine:  A cautionary tale about the promises of modern brain science ---

But a paper just published in PLOS Computational Biology questions whether more information is the same thing as more understanding. It does so by way of neuroscience’s favourite analogy: comparing the brain to a computer. Like brains, computers process information by shuffling electricity around complicated circuits. Unlike the workings of brains, though, those of computers are understood on every level. 

Continued in article

Jensen Comment
Something similar happens in accountancy where it's often assumed that more is better. For example, some academic accountants for years advocated more and more current value reporting of assets and liabilities combined with dubious "measures" of intangibles and contingencies without taking into account either the costs of such reporting nor the misleading outcomes and the dubious reliability of such data. Exhibit A is the ill-fated FAS 33 that required current cost data reporting for large companies. Academics salivated over the anticipated market reactions to this data. Financial analysts and investors meanwhile yawned and paid little attention to the costly requirement imposed by the FASB  Because financial analysts and investors found little value added in FAS 33 reporting the FASB rescinded the requirement not long afterwards.

The bottom line is that accountants are pretty good at bean counting but they're not so great at producing esoteric measures such as the "value" of a firm, the "value" of human resources, or expected losses from lawsuits that have not even been filed.

 Tom Selling's Third Module on Arguing Against Deferred Taxes
More Not to Like about Deferred Taxes: The Foreign Earnings Loophole ---

. . .

I reckon that I have written somewhere around 500K words in my blog posts over the years, yet only in these last three posts have I tackled the issues surrounding accounting for income taxes. As this will certainly be my last post on the topic for the foreseeable future (pun intended), I’ll conclude with a brief summing up.


I began by observing that there doesn’t seem (anymore) to be much of a conceptual difference between “income taxes” and other forms of taxation to justify making a distinction for accounting purposes. If all taxes were presented in one location on the income statement with appropriate note disclosure of the components, readers would have a clearer idea of pre-tax operating income and the dimensions of the burden imposed on the entity by taxing authorities.


The bulk of these three posts were devoted to explaining why I don’t think that there is any normative or adequate empirical justification for deferred taxes. It adds items to the balance sheet that don’t qualify as assets or liabilities, and it obscures information about the tax burden that a company will pay in the “foreseeable future.” Moreover, deferred tax accounting is extremely complex; the manuals published by the Big Four firms on this topic alone typically run to about 700 pages. Even if it were true that there is some informational benefit to deferred tax accounting, surely there is a less costly and more straightforward way to provide that information to users of financial statements.


Finally, as I conjectured in my previous post, deferred tax accounting may have survived for as long as it has because the effective rate strongly tends to indicate a higher tax rate than companies consistently pay. If you think I was being too cynical in that post, perhaps this latest post will moderate your views somewhat.

Jensen Comment
Tom tends to make fairly convincing arguments for changes in accounting standards based upon what I call bell-jar analysis. The arguments are convincing within a bell-jar world of not looking at or citing prior research on the topic outside his bell-jar analysis.

For example, Tom claims there is no "adequate empirical justification for deferred taxes" which is counter to some empirical evidence in published accounting research literature. I've discussed this previously and cited some of the contradictory evidence with tom on the AECM  listserv. I will not repeat my previous citations of this evidence in this tidbit.

However, I would like to point out that Tom's illustration in the above citation runs a common risk of a bell-jar analysis that sounds convincing inside the bell-jar but is not as convincing when looking at prior research findings outside the bell jar.

I cite the following example:

"Book-Tax Differences and Future Earnings Changes," by Mark Jackson, Journal of the American Taxation Association, Article Volume 37, Issue 2 (Fall 2015) ---


Prior studies suggest that large book-tax differences (BTDs) are associated with future earnings changes or earnings persistence. The literature has explored a number of potential explanations for this relation, without a clear answer emerging. To integrate the various assertions I divide total BTDs into temporary and permanent categories and hypothesize that temporary BTDs (reflected in deferred taxes) predict future changes in pretax earnings, whereas permanent BTDs predict future changes in tax expense. The results are consistent with these hypotheses. Prior studies also suggest that both types of BTDs are associated with earnings management and tax avoidance. I find evidence that tax avoidance firms have a more positive association between their BTDs and both pretax earnings changes and tax expense changes. However, I find only inconsistent evidence on the influence of earnings management on the association of the components of BTDs and future earnings changes, with results dependent on the research design. Overall, the evidence suggests that while tax avoidance and earnings management may contribute to the association between BTDs and future earnings changes, there are also more fundamental drivers of this association.


I don't challenge all of Tom's bell-jar conclusions per se in his third post.

What I do challenge is that his evidence may not be as convincing had he looked at "more fundamental drivers of association."


This is one of many illustrations of what econometrician David Giles recently referred to as Jagger's Theorem, although Professor Giles was not analyzing Jagger's theorem in the context deferred taxes tax accounting and inter-period allocation.

Measuring income tax accrual quality
by Preeti Choudhary, Allison Koester, and Terry Shevlin
Review of Accounting Studies September 2016 Volume 21, Issue 1, pp 89–139

We develop and validate a measure of tax accrual quality. Tax accrual quality captures variation in the extent to which the income tax accrual maps into income tax-related cash flows, with lower variation indicating a higher quality tax accrual. Low tax accrual quality arises from (1) management estimation error and (2) financial reporting standards that lead to differences between income tax expense and income tax cash flows not captured by deferred tax assets and liabilities. We validate our tax accrual quality measure by showing it is associated with firm characteristics that capture both constructs and by demonstrating it predicts future tax-related restatements and internal control material weaknesses. We illustrate the importance of our measure by showing that investors view tax expense as more informative in firms with better tax accrual quality. Future researchers can use tax accrual quality to address questions related to estimation error in the income tax account.

Ten Leading Books in Economic History ---

Ascertaining Intangible Factor Effects Upon Enterprise Value Utilizing a Firm Equation System
SSRN, December 1, 2016


Zane L. Swanson


The concept that accounting represents the economics of the firm is a premise for the allocation of scarce resources. In recent years, firm intangible assets seem to have become an increasingly important driver of firm economic value, and yet they are difficult to measure. This study develops an equation system in order to investigate both purchased (goodwill) and internally generated intangible factors impact upon firm enterprise value. The current study finds both goodwill and a measure of internally generated assets do affect firm value. Thus, this study provides/documents a useful valuation approach for intangibles analyses.

Readers of the above article are referred to the issue of clean surplus. In particular I recommend looking at the following history book:
Clean Surplus:  A Link Between Accounting and Finance, 1996
Edited by = Richard Brief and Ken Peasnell

Some Published XBRL Updates

Digitally unified reporting: how XBRL-based real-time transparency helps in combining integrated sustainability reporting and performance control
by Peter Seele
Journal of Cleaner Production
Volume 136, Part A, 10 November 2016, Pages 65–77

In this paper, I address the call for a “new approach to sustainability reporting” (Lubin and Esty, 2014) based on the present “sustainability gap” and propose the concept of “digitally unified reporting.” This is achieved by reviewing two major trends from distinct bodies of literature: “integrated reporting” from the sustainability field and unified data based “XBRL-integrated reports” as established in financial reporting making use of the digital standard XBRL (eXtensible Business Reporting Language). Based on a systematic literature review, eight trend statements are derived pointing at gaps and issues in the field of sustainability reporting and management. Following this review, I propose a new concept called “digitally unified reporting” that addresses these issues. The core contribution is an XBRL-based approach to sustainability reporting that combines digital data management of sustainability performance measurement with digitally standardized sustainability reporting. To advance theory, “digitally unified reporting” is defined and discussed and positioned as a “twin track approach” to sustainability reporting (Burritt and Schaltegger, 2010) that provides both an inside-out and an outside-in perspective on sustainability reporting and management. The major advancement and theoretical contribution of the proposed concept is a time-ontological shift due to 24/7/365 digital transparency. This proposed shift is from retrospective reporting on past performance to digitally enabled and interoperable real-time transparency of performance measurement and reporting for managers and external stakeholders. Finally, the concept is compared to current conventional reporting approaches.

From 12 Years ago
Financial Reporting in XBRL on the SEC's EDGAR System: A Critique and Evaluation
by RS Debreceny, A Chandra, AND JJ Cheh
Journal if Information Systems
Article Volume 19, Issue 2 (Fall 2005)

This paper evaluates the implications of the proposed Securities and Exchange Commission (SEC) Rule (33‐8496) which encourages companies to file reports in the eXtensible Business Reporting Language (XBRL) format. We examine the impact of the proposed rule in three domains: (1) the role of XBRL in financial reporting, (2) concerns with XBRL taxonomies, and (3) the impact of XBRL on the SEC's filing program. The paper adopts a descriptive approach to generate normative and prescriptive propositions with implications for research that will guide preparers, users, and regulators of XBRL‐tagged information.

Inline XBRL versus XBRL for SEC Reporting
by Kamile Asli Basoglu and Clinton E. (Skip) White Jr.
Journal of Emerging Technologies in Accounting
Volume 12, Issue 1 (December 2015)

As currently implemented by the SEC, financial statements in XBRL format are not as useful to analysts and investors or as transparent as they could be. In this paper, the authors discuss a number of issues contributing to this problem and compare current SEC XBRL filing to a new technique—Inline XBRL (XBRL 2013). Inline XBRL (iXBRL) is based on embedding the XBRL-tagged information within an XHTML document and has significant advantages to offer.

Irregularities in Accounting Numbers and Earnings Management—A Novel Approach Based on SEC XBRL Filings
by Klaus Henselmann, Dominik Ditter and Elisabeth Scherr
Journal of Emerging Technologies in Accounting
Volume 12, Issue 1 (December 2015)

The SEC XBRL mandate enables the gathering of accounting numbers to be fully automatic in a database-like manner that provides vast opportunities for financial analysis. Using this functionality, this study proposes a simple analytical prescreening measure that uses abnormal digit distributions at the firm-year level to identify firms suspected of having managed earnings. On average, we find that the constructed measure indicates a greater amount of irregularities in the reported accounting numbers of firms with higher incentives to engage in earnings management. The suggested XBRL-enhanced digit analysis approach may provide the SEC and investors a simple measure to flag financial reports carrying a higher probability of human interaction.

Computer-Assisted Functions for Auditing XBRL-Related Documents
by J. Efrim Boritz and Won Gyun No
Journal of Emerging Technologies in Accounting
Volume 13, Issue 1 (Spring 2016)

The increasing global adoption of XBRL and its potential to replace traditional formats for business reporting create a need for quality assurance for XBRL-tagged data. Although prior studies have addressed assurance issues on XBRL-related documents (i.e., instance documents and extension taxonomy) and related audit objectives, they primarily focus on the U.S. and, thus, may not be comprehensive enough for use in other countries. Furthermore, no prior literature discusses what and how computer-assisted audit functions can help auditors while they are performing assurance on XBRL-related documents. The main goal of this paper is to introduce computer-assisted audit functions that can be used by auditors to perform audit tasks to attain identified audit objectives. Based on professional guidelines and prior academic studies, this study introduces a set of audit objectives and related audit tasks that auditors might confront if they are asked to provide assurance on XBRL-related documents. The study then demonstrates a set of related computer-assisted audit functions for conducting the audit tasks and discuss how the identified audit objectives could be achieved using these functions.

Professional Role and Normative Pressure: The Case of Voluntary XBRL Adoption in Germany
by Robert E. Pinsker and Carsten Felden
Journal of Emerging Technologies in Accounting
Article Volume 13, Issue 1 (Spring 2016)

This paper examines voluntary eXtensible Business Reporting Language (XBRL) adoption intent in 2009 Germany. Our setting provides a unique opportunity to examine voluntary adoption behavior related to a global information technology (IT) in one of the largest non-U.S. economies. In conjunction with the organizing visions framework, we combine technology framing theory, institutional theory, and the professional role literature to serve as our theoretical guide. Results from 101 finance and IT managers indicate that professional role (finance managers more so than IT managers) and normative pressure (i.e., social networks) have positive relationships with XBRL adoption intent and explain approximately 66 percent of the variation when including top management leadership as a control variable. We also find weak evidence that finance managers' XBRL adoption intentions are more significantly influenced by normative pressure vis-à-vis IT managers; however, we find no evidence that the professional role affects the normative pressure felt by the manager in general. Our findings may be of interest to academics interested in IT adoption, as well as German regulators and other groups considering mandatory or voluntary XBRL adoption.

The Quality and Usability of XBRL Filings in the US
SSRN, June 21, 2016


Ariel J. Markelevich Suffolk University


In 2009, the US Securities and Exchange Commission (SEC) required all public companies and mutual funds to report their financial information to the SEC using a markup language called eXtensible Business Reporting Language (XBRL). The purpose of this requirement was to improve the accessibility to financial accounting data, increase the information flow between companies and investors, and make it easier and cheaper to collect and analyze data. Some controversy exists whether the benefits from using XBRL based data outweigh the costs associated with the creation of data and the use of the data. As part of that discussion, some claimed that the XBRL filings are of low quality and are difficult to use. The purpose of this paper is to examine the quality and usability of XBRL filings by examining different filing characteristics and mistakes over time. The focus of this paper is on the following characteristics: the use of extended tags, Document and Entity Information (DEI) errors, scale errors, and sign switches. Findings suggested that starting in 2012, there has been a steady improvement in the quality and usability of the XBRL filings in most aspects. Additionally, it seems that the lower quality and usability originates in data in the notes to the financial statements and in data filed by smaller companies. The results presented in the paper are consistent with the notion of companies moving along a learning curve and improving the quality and usability of the XBRL data as they gain more experience tagging. These improvements make it easier to use the XBRL filings and reap the benefits offered by this data. However, in spite of the efforts and improvements, it seems like more work is needed to continue improving the quality of the data.


Bob Jensen's threads on XBRL ---

Teaching Case:  Costs for Decision Making: An Instructional Case of Relevant Costs and Differential Analysis of Cost Reduction Alternatives
by Scott McGregor, Fairleigh Dickinson University
IMA Educational Case Journal, Volume 0, Issue 3, 2016

TEXTBOOK QUESTIONS AND CASES OFTEN ASK STUDENTS to use differential analysis to evaluate one independent cost reduction action. But businesses often have multiple cost reduction alternatives to evaluate simultaneously. Furthermore, companies may consider these options independently or through combinations of alternatives. The case is based on an actual project to evaluate alternative cost reduction actions at a large insurance company. For educational purposes, the scope of the project has been significantly reduced to one function, the accounting department, to provide students with a realistic situation in a manageable format. Students are presented with three alternative cost reduction approaches and must identify the relevant costs and calculate the estimated potential impacts of each alternative. The cost reduction actions evaluated are outsourcing (“offshoring”), greater automation, and an office relocation. Additionally, the students must identify the risks and other nonfinancial considerations associated with the potential cost reduction actions and make a recommendation. Keywords: relevant costs, differential analysis, cost reductions, outsourcing, relocation, automation.

Teaching Case:  Lack of Internal Controls: Beaumont Independent School District
by Russell Tietz, University of Mount Union;  Wendy Tietz, Kent State University; and  Linda Zucca, Kent State University
MA Educational Case Journal, Volume 7, Issue 4, 2016

THIS CASE, BASED ON A TRUE STORY, examines the misappropriation of funds by an administrator in the Beaumont Independent School District (BISD) in Beaumont, Texas. Patricia Adams Lambert diverted more than $500,000 of funds while she was a BISD employee. Students are asked to apply the Committee of Sponsoring Organizations of the Treadway Commission (COSO) 2013 Internal Control–Integrated Framework to evaluate internal controls; students will also evaluate an ethical dilemma. The case is particularly unique because it is designed to be used in introductory financial and managerial accounting classes as an example of internal controls. The case can also be used in upper-level accounting classes as appropriate.

Teaching Case:  The Student Housing Decision
Kathy Otero, Debra Kerby, and Keith Harrison --- all from Truman State University
IMA Educational Case Journal, Volume 0, Issue 3, 2016

THIS CASE PROVIDES A REALISTIC APPLICATION OF inflation-adjusted capital budgeting in a university setting. The case is designed for use in an upper-division cost accounting course or a graduate level cost/managerial accounting class. Students are required to analyze the costs of building and operating a student apartment complex, to determine a reasonable rental rate for three types of apartments, and to make a recommendation about the feasibility of the project. Critical thinking is emphasized in the development and interpretation of the present value (PV) model, identification and discussion of qualitative issues, and recognition and inclusion of uncertainty

What do accruals tell us about future cash flows?
by Barth, M. E., G. Clinch, and D. Israeli.
Review of Accounting Studies 201621(3): 768-807.

Our model, which is adapted from Feltham and Ohlson (Contemp Account Res 11:689–731, 1995) and Ohlson (Contemp Account Res 11:661–687, 1995) and extends Dechow and Dichev (Account Rev 77:35–59, 2002), characterizes the information about future cash flows reflected in accruals. It reveals investors can extract from accruals information about next period’s economic factor and the transitory part of one component of next period’s cash flow. The extent to which each accrual provides this information depends on whether the accrual aligns future or past cash flows and current period economics and whether it relates to the current or prior period. Thus each type of accrual has a different coefficient in valuation and forecasting cash flows or earnings. Each coefficient combines an information weight reflecting the information that accrual type provides and a multiple reflecting how that information is used in valuation and cash flow and earnings forecasting. The empirical evidence supports our main insight, namely that partitioning accruals based on their role in cash-flow alignment increases their ability to forecast future cash flows and earnings and explain firm value.

Special Problems in Accounting for Law Firms

"ABA urges federal lawmakers to NIX draft provision requiring law firms to adopt accrual accounting." by Martha Neil, ABA Journal, January 16, 2014 ---


The American Bar Association is urging federal lawmakers to rethink a possible plan to require businesses to use the accrual method instead of traditional cash accounting in the discussion draft Tax Reform Act of 2013.

Accrual accounting would be more complex and expensive, the ABA's president writes in letters to lawmakers, than the system currently used by many law firms, which recognizes income and expenses for tax purposes when money is actually received and paid out, respectively. A number of others also have objected to forcing businesses to adopt the accrual method, which could require companies and law firms to pay tax on income they not only haven't received but may never receive, according to the ABA and The Hill's On the Money blog.

"Although we commend you for your efforts to craft legislation aimed at simplifying the tax laws—an objective that the ABA and its Section of Taxation have long supported—we are concerned that Section 212 would have the opposite effect and cause other negative unintended consequences," President James R. Silkenat wrote in Jan. 13 letters to leaders of the Senate Finance Committee (PDF) and the House Ways and Means Committee (PDF).

"This far-reaching provision would create unnecessary complexity in the tax law by disallowing the use of the cash method; increase compliance costs and corresponding risk of manipulation; and cause substantial hardship to many law firms and other personal service businesses by requiring them to pay tax on income they have not yet received and may never receive," Silkenat continues. "Therefore, we urge you and your committee to remove this provision from the overall draft legislation."

The potential law in its present form would apply to businesses with annual gross receipts above $10 million.

Jensen Comment
The FASB requires cash flow statements as supplements to accrual accounting financial statements. Accrual accounting for revenues (apart from mark-to-market accounting for financial instruments) recognizes revenues when they become legally earned irrespective of the the timing of payments. Cash flow accounting without accrual accounting as well is frowned upon because management can manipulate (manage) earnings by simply writing contracts that time collections in advance of or after legally earning revenues.

There can also be misleading matchings expenses against cash flow revenues. For example, in one year firms can take an "earnings bath" by timing cash outflows for the purpose of next year showing an enormous jump in cash flow earnings because so many expenses were deducted the year before the revenues they helped generate are realized in cash.

Accrual accounting is generally required for firms that sell their stocks and bonds to the public. It is also generally required for firms that borrow money from financial institutions. Law firms are generally different in that partners of a law firm can usually choose most any accounting method they want since outsiders are less impacted by "misleading" financial statements.

Law firms have special problems with accounting. Most of the expenses are for relatively high priced labor. Many of the cases have great uncertainties as to when and if they will generate revenues. Whereas medical and accounting firms are relatively assured of collecting fees for cases, it's sometimes very hard to over many years to account for pending law firm cases that are still open on the books. Capitalized (accumulated prepaid expenses) cases are soft assets that are not as a rule traded among law firms like pending oil wells can be traded among oil firms.

I suspect there's a history of student projects and term papers focused on accounting for law firms. If not, now is a very good time to consider such projects that demonstrate how memorized bookkeeping in textbooks can become difficult to apply in the real world.

Bob Jensen's threads on earnings manipulation are at


Usefulness of fair values for predicting banks’ future earnings: evidence from other comprehensive income and its components
by Brian Bratten, Monika Causholli, and Urooj Khan
Review of Accounting Studies , Volume 21, Issue 1, pp 280–315

This paper examines whether fair value adjustments included in other comprehensive income (OCI) predict future bank performance. It also examines whether the reliability of these estimates affects their predictive value. Using a sample of bank holding companies, we find that fair value adjustments included in OCI can predict earnings both 1 and 2 years ahead. However, not all fair value-related unrealized gains and losses included in OCI have similar implications. While net unrealized gains and losses on available-for-sale securities are positively associated with future earnings, net unrealized gains and losses on derivative contracts classified as cash flow hedges are negatively associated with future earnings. We also find that reliable measurement of fair values enhances predictive value. Finally, we show that fair value adjustments recorded in OCI during the 2007–2009 financial crisis predicted future profitability, contradicting criticism that fair value accounting forced banks to record excessive downward adjustments.

This tidbit serves two major purposes.

1. It shows the importance of testing for effectiveness of hedging contracts when hedge accounting under FAS 133 is utilized.

2. It shows how not to treat employees who blow the whistle.

Financial Firm Allegedly Hunted Down Whistleblowers ---

A Seattle-based bank agreed to settle allegations from the Securities and Exchange Commission that it conducted improper accounting and later took steps to impede potential whistleblowers.

HomeStreet, which primarily serves the western U.S. and Hawaii, agreed to pay a $500,000 penalty without admitting or denying wrongdoing.

The bank, according to the SEC, made unsupported adjustments to its hedge effectiveness testing to ensure it could continue using favorable accounting treatment. The SEC also alleged that after HomeStreet employees reported concerns to management about accounting errors, the company concluded the adjustments to its effectiveness tests were incorrect. When the SEC contacted HomeStreet in April 2015 seeking documents related to hedge accounting, the bank assumed it was in response to a whistleblower complaint and it started trying to identify the tipster, the agency said.

One person considered to be a whistleblower, the SEC said, was told that the terms of an indemnification agreement could allow the bank to deny payment for legal costs during an SEC investigation. And the bank required former employees to sign severance agreements waiving potential whistleblower awards, or risk losing their severance payments.

“Companies that focus on finding a whistleblower rather than determining whether illegal conduct occurred are severely missing the point,” said Jina Choi, director of the SEC’s office in San Francisco, in a statement.

In a press release, HomeStreet Chairman and Chief Executive Mark Mason said the company was pleased the SEC had not alleged intentional deception or fraud by the bank or its officers, but also took issue with the SEC’s press release on the settlement: “To the extent that the SEC’s press release implies that the treasurer and chief investment officer acted with anything other than a sincere belief that he was properly testing hedge effectiveness according to his understanding of the economic correlation of the loans and swap contracts, we believe that such an implication would be inconsistent with the allegations contained in the settlement agreement.”

 Continued in accounting

Bob Jensen's threads on whistle blowing are at

Open Course Library (supplementary materials for over 80 courses) ---

Jensen Comment
A search on the word "accounting" turns up some elementary accounting and introduction to business learning materials.

A review of the IFRS adoption literature
by Emmanuel T. De George, Xi LiLakshmanan, and Shivakumar
Review of Accounting Studies September 2016, Volume 21, Issue 3, pp 898–1004

This paper reviews the literature on the effects of International Financial Reporting Standards (IFRS) adoption. It aims to provide a cohesive picture of empirical archival literature on how IFRS adoption affects: financial reporting quality, capital markets, corporate decision making, stewardship and governance, debt contracting, and auditing. In addition, we also present discussion of studies that focus on specific attributes of IFRS, and also provide detailed discussion of research design choices and empirical issues researchers face when evaluating IFRS adoption effects. We broadly summarize the development of the IFRS literature as follows: The majority of early studies paint IFRS as bringing significant benefits to adopting firms and countries in terms of (i) improved transparency, (ii) lower costs of capital, (iii) improved cross-country investments, (iv) better comparability of financial reports, and (v) increased following by foreign analysts. However, these documented benefits tended to vary significantly across firms and countries. More recent studies now attribute at least some of the earlier documented benefits to factors other than adoption of new accounting standards per se, such as enforcement changes. Other recent studies examining the effects of IFRS on the inclusion of accounting numbers in formal contracts point out that IFRS has lowered the contractibility of accounting numbers. Finally, we observe substantial variation in empirical designs across papers which makes it difficult to reconcile differences in their conclusions.

IRS Whistleblower Awards Jump 322% ---

SEC's Relatively New Whistleblowing Rewards Program isalso a Game Changer
The Securities and Exchange Commission's 5-year-old whistleblower program has obtained more than 14,000 tips, including nearly 4,000 in 2015. Officials call the program a game changer that has had a "transformative impact" on how the SEC pursues misconduct.
Peter J. Henning, New York Times, September 6, 2016

Bob Jensen's threads on whistle blowing ---

PwC Hires GE's 600-Person Global Tax Team ---

Jensen Comment
This was apparently was a win-win for both GE (seeking to cut payroll) and PwC (seeking more experts).

Autoregressive Model ---

The Book (aimed somewhat at practitioners) is Free So What's to Lose?

A terrific new book titled, Quantitative Macroeconomic Modeling with Structural Vector Autoregressions – An EViews Implementation, is from the EViews site. The book is written by Sam Ouliaris, Adrian Pagan, and Jorge Restrepo.
David Giles

The "blurb" about this important new book reads:

"Quantitative macroeconomic research is conducted in a number of ways. An important method has been the use of the technique known as Structural Vector Autoregressions (SVARs), which aims to gather information about dynamic processes in macroeconomic systems. This book sets out the theory underlying the SVAR methodology in a relatively simple way and discusses many of the problems that can arise when using the technique. It also proposes solutions that are relatively easy to implement using EViews 9.5. Its orientation is towards applied work and it does this by working with the data sets from some classic SVAR studies."

In my view, EViews is certainly the natural choice for this venture. As the authors note in their Preface:

"A choice had to be made about the computer package that would be used to perform the quantitative work and EViews was eventually selected because of its popularity amongst IMF staff and central bankers more generally."

I'm sure that his new resource will be very well received!

David Giles:  Vintage Years in Econometrics - The 1970's ---

Jensen Comment
The 1970s commenced the critical years with new tests for the sensitivity to violations of underlying assumptions (e.g. serial correlation, normality, truncated normality, specification error, dummy variables, etc.). Not mentioned here is the rise of non-parametric models and analysis.

David Giles: When a Dummy Variable is Not a Dummy Variable ---

Jagger's Theorem:  "You can't always get what you want."
David Giles the mentions Mick Jagger (a London School of Economics graduate) and the movie entitled "The Big Chill"

Jagger's Theorem:  "You can't always get what you want."
The latest issue of
Amstat News includes a piece written by Arthur Kenickell, a member of the Board of Governors of the Federal Reserve System. It's title is, "Crooked Roads: IRS Statistics of Income at 100". (See p.25.)


In the US News rankings of MBA program the Simon Business School at the University of Rochester has a USA ranking of 39 (tied with the University of Illinois) in the USA. Tuition is $46,000 (according to US News)  per year ---
One think I did not know is the very unique joint MBA and Dentistry degree program at the Simon School

The Chronicle of Higher Education recently published an interview with the Dean of the Simon School of Business at the University of Rochester.

Setting Ambitious Goals, With an Eye on the Rankings Andrew Ainslie, business dean, U. of Rochester ---

In the AAA Commons I stumbled upon one of my 23,686 comments (to date)  in the Commons.
I thought this might be of interest on the AECM.



Annuities With Unequal Compounding and Payment Periods: The CFA Deconstruction Analysis


 Annuities With Unequal Compounding and Payment Periods:  The CFA Deconstruction Analysis


Instructors might want to consider adding this to their teaching modules on time value of money and annuity mathematics of finance ---


Annuities With Unequal Compounding and Payment Periods:  The CFA Deconstruction Analysis
B ob Jensen at Trinity University

Financial calculators and Excel financial formulas for computing present value, interim payments, and rates of return assume that p=m where p is the number of equally-spaced payments per year and m is the number equally-spaced interest compoundings per year. Complications introduced by p not being equal to m are not trivial problems. These complications are overlooked in many (probably almost all) mathematics of finance modules in both high school and college courses.


This note will demonstrate how to deal with complications when the number of payments per year is unequal to the number in times interest is compounded per year. This is not a purely academic problem. Companies buying and selling annuities often do not want to change the number of times interest is compounded every time they change the number of payments per year in a contract such as semi-annual payments versus quarterly payments versus monthly payments.


The paper was inspired by the following working paper sent to me by an Australian professor named Chris Deeley. Chris subsequently allowed me to put his paper on one of my Web servers:

by Chris Deeley 
Working Paper, Charles Sturt University, Australia, September 22, 2010

For illustrative purposes I will focus on the following example on Page 11 of Professor Deeley's working paper:

Example 2
A loan of $1million is to be repaid in equal monthly installments over four years. If the annual interest rate is 10% compounded semi-annually, how much is the monthly repayment?


The two solutions given by Professor Deeley for p=12 payments per year and m=2 interest compoundings per year are as follows:

Deeley Solution 1 PMT = $25,265.60 per month which Professor Deeley claims the "conventional solution"

Deeley Solution 2 PMT = $25,260.70 per month which Professor Deeley claims is his "proposed better solution"


I contend that there is a CFA Deconstruction and Rate Equivalence solution that I offer as an "alternate conventional solution" used of Certified Financial Analyst (CFA) examinations.

CFA Deconstruction PMT = $25,483 per month which conforms to David Frick's solution tutorial



I show how to calculate this $25,483 using both Wolfram Alpha and Excel at

Bob Jensen's analysis of Annuities With Unequal Compounding and Payment Periods:  The CFA Deconstruction Analysis

Mathematics and Graphing Calculators Go Beyond What Most of Us Think of as "Calculators" ---

The Atlantic:  The Common High-School Tool That's Banned in College ---

Jensen Comment
I taught at a university where the mathematics department's faculty were badly divided regarding the use of mathematics and graphing calculators.

Perhaps even more controversial is the following Website:

Wolfram Alpha ---

 Very complicated equations, including those requiring integration, can be fed into Wolfram Alpha and solved. This takes all of the challenge out of homework assignments in both high school and college level mathematics to say nothing about mathematical computations on the job.

I provide an example of the use of Wofram Alpha for solving and inserting equations and solutions in an academic paper at 

Years ago I also provided a helper document on using the Wolfram Alpha site ---

A very, very interesting mathematics teaching blog ---
dy/dan (mathematics teaching blog) --- 

Bob Jensen's threads on free online mathematics tutorials are at
Scroll down to Mathematics and Statistics

Bob Jensen's links to free courses (including mathematics) and tutorials ---

Jagdish recently corrected me regarding whether Pfizer can outsource the clinical trials of a newly patented medicine or medical device to the the School of Medicine at the University of Michigan. Such outsourcings of big pharma clinical trials of new drugs and medical devices are enormous sources of revenue for schools of medicine in the USA.

I'm a little uneasy with this revenue source for  universities.

An analogy would be if KPMG outsourced a major part of its audit of Pfizer to the School of Accountancy at the University of Michigan.

This type of audit outsourcing could greatly increase the revenue to the University of Michigan and even give Pfizer investors/creditors greater assurance of audit independence. It could also provide more deep pockets for negligence lawsuits.

In this type of outsourcing the taxpayers of the State of Michigan are exposed to liability. If investors or creditors sue the School of Accountancy at the University of Michigan for audit negligence taxpayers might eventually have to have to make up part of the settlement since insurance is seldom available these days for audit negligence.

I did not research whether Schools of Medicine are deep pockets in similar lawsuits, especially if there is a genuine case for clinical trial negligence.

If Phizer outsources clinical trials to an independent research institute (that might even hire consultants from the University of Michigan faculty), that research institute might declare bankruptcy in an enormous lawsuit for clinical trial negligence.

I can't imagine the University of Michigan declaring bankruptcy for outsourcing revenue contracts.

Perhaps lawsuits for clinical trial negligence are not as frequent and enormous as lawsuits for financial audit negligence. And perhaps insurance is available for clinical trial negligence lawsuits.

Am I missing something here?


It appears that a big difference between clinical trials and financial auditing is that the former universities, hospitals, and institutes conducting clinical trials can apparently still get adequate insurance coverage.

In the case of financial audits of large clients by CPA firms such coverage is no longer available and the firms for years have been self-insuring where there's risk (as in the case of the recent billion-dollar lawsuits against PwC) of bringing down the entire CPA firm. Jim Peterson even wrote an overpriced  book predicting PwC would go under ---
Count Down: The Past, Present and Uncertain Future of the Big Four Accounting Firms
Fortunately, PwC settled for greatly reduced amounts.

My limited search reveals that medical schools and hospitals conducting clinical trials do get sued, sometimes by the public, sometimes by the company that funded the research, and sometimes by a government agency.
Here's an example ---

In another case, clinical trial subjects and subject representatives led a lawsuit seeking actual and punitive damages as a result of a Phase I study of a can-cer vaccine. The study enrolled patients with advanced stages of the disease who had been previously unresponsive to traditional therapies. According to reports, 94 subjects received the vaccine and 26 died during the course of the study. The plaintis sued the hospital, the principal investigator, the pharmaceutical sponsor, a top university official, the individual members of the Institutional Review Board (IRB), and a university bioethicist who consulted with the IRB.

These cases are just two examples of a clinical trial ending in a lawsuit. Things can go wrong, and when they do, the parties involved with conducting a study may find themselves in court. Obviously, scandal is not a feature of most clinical trials, as it was in the first case cited above, but errors happen sometimes with devastating consequences-- and the threat of a lawsuit is always present. Clinical trials are an important source of prestige for many hospitals, and provide vitally important bene‑ ts to the health and welfare of people everywhere. Clinical trials expose hospitals to potential liability, but in most cases decision-makers have concluded that the bene‑ ts justify the risks. “To help manage the risks a comprehensive clinical trial risk mitigation policy should be implemented by every hospital,” said Caroline Clouser, Executive Vice President, ACE USA Medical Risk.This includes a review of the hospital’s insurance program to assure that full coverage for clinical trials is in place.”


Big pharma pays medical schools to conduct clinical trials of their patented drugs and medical devices.

What I was thinking when I mentioned the possibility that CPA firms could outsource some parts of their audits to university schools of accountancy I was not thinking of test checking accounts receivable and inventories. What I was thinking was something more esoteric like data analytics (the new major buzz phrase in auditing).

Has any CPA firm outsourced data analytics in an audit to a school of accountancy? Rutgers and Bentley come to mind as possibilities, but I did not investigate these possibilities. Both schools probably relied more on general research grants from firms rather than data analytics for particular audits where lawsuit risks are greater

Richard Campbell
Using WileyPLUS Videos in thle Classroom ---

Radio Garden (8,000+ Streaming Radio Stations) ---
One huge education use of this could be in tuning radio stations from around the world to aid in learning foreign languages.

IASB proposes amendments to 3 IFRS standards ---

Implementing IFRS 16:  Lease Accounting is Now Very Complicated ---

Sounds Like a Bunch of Mickey Mouse
KPMG Officially Chooses Orlando for Its Mega Training Center ---

Ford to Take a $2 Billion Earnings Hit on an Account Change (Valuing Pensions and Retirement Benefits) ---
Ford says the change will not lower pre-tax profits

Pastor Calls For Church Transparency With IRS Form 990 ---
Perhaps this is one illustration of draining the swamp!

Radar Chart ---

Interview With Kaplan and Porter at the Harvard Business School
Managing healthcare costs and value

by Kaplan, R. S., M. E. Porter and M. L. Frigo. 2017
Strategic Finance (January 2017): 24-33.
Thank you Jim Martin for the heads up

This article provides the text of an interview with Kaplan and Porter conducted by Mark Frigo. The problem discussed is how to manage the true costs and value of health care.

The first question Frigo asked is how Kaplan and Porter got together to address the health care issue. Porter mentions his earlier work and the Value-Based Health Care Agenda described in a 2013 article by Porter and Lee (See the related summaries below). Porter called Kaplan in 2010 explaining that health care needed a better way to measure cost. Kaplan responded that time-driven activity-based costing would work well in health care, but he had not found a hospital willing to give it a chance. Porter had connections with some hospitals that were open to implementing a new cost system, and the Kaplan-Porter partnership to build a proper foundation for value-based health care began.

Frigo's second question: "What are the most important contributions management accountants can make in this area?" Kaplan's response is that management accountants can play a critical role in providing more valid measurements of cost and outcomes and in designing value-based payment models like bundled payments that cover the treatment of a patient's medical condition.

The third question is related to what tools and approaches are used in the value-based agenda to help health care organizations create greater value. Porter responds that value improvement means better outcomes for patients relative to the costs of achieving those outcomes. The most powerful step is to start measuring outcomes at the patient level for a given medical condition, including the functional status of patients after treatment. A sufficient set of outcomes should be developed and standardized for every major medical condition. The International Consortium for Health Outcomes Measurement has currently published 20 sets of outcomes covering 45% of the disease burden in the U.S.

The article includes four radar charts that illustrate the value-based framework. I developed two adaptations to show how both outcomes and cost can be presented in a visual way to compare procedures and surgeons. The first chart below, based on data from Scottsdale Healthcare, compares two alternative surgical treatments for obesity. The scale is from 0-100% where 100% is ideal. Cost is plotted as the reciprocal of the cost based on time-driven ABC. It is fairly easy to see from the illustration that sleeve surgery provides better outcomes and cost compared to gastric bypass. Sleeve surgery cost less than gastric bypass, and also involves fewer complications, readmissions, and reoperations.

Continued in article

"The Quick and Dirty on Data Visualization," by Nancy Duarte, Harvard Business Review Blog, April 16, 2014 ---

Bob Jensen's threads on visualization of multivariate data ---  

FASB ASU:  Accounting Standards Update 2017-04—Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ---

EY 2016 Standard Setter Update ---$FILE/StandardSetterUpdate_00262-171US_19January2017.pdf

Jensen Comment
If your financial accounting textbook is not totally up to date this might be a useful supplement. For example, it might help you make PowerPoint slides to supplement chapters.

EY:  Tips for complying with the SEC reporting requirements for equity method investees ---$FILE/TechnicalLine_00370-171US_3-09Pitfalls_26January2017.pdf

What you need to know

• In preparing to file annual reports with the SEC, registrants should make sure they comply with Regulation S-X Rule 3-09 and Rule 4-08(g) reporting requirements for equity method investees.

• Registrants need to include audited financial statements or summarized financial information for equity method investees that meet certain thresholds of “significance.”

• Failure to comply with the rules could make a registrant’s periodic report deficient and result in a suspension of the registrant’s eligibility to use shelf registration.

When preparing periodic reports (e.g., Forms 10-K, 10-Q) and registration statements (e.g., Form S-1), registrants need to comply with the reporting requirements for significant equity method investments under Regulation S-X Rule 3-09 and Rule 4-08(g). Based on our experience, some companies are surprised by these requirements and have to scramble to evaluate whether they comply, particularly when there have been significant changes in the financial results of the registrant or its investees. Some of these companies request that the Securities and Exchange Commission (SEC) staff waive the requirement to file S-X Rule 3-09 financial statements. Failure to comply with these rules could make the periodic report deficient, which could lead to the registrant becoming ineligible to use shelf registration, among other consequences.


EY: FASB proposes changes to inventory disclosure requirements ---$FILE/TothePoint_00156-171US_Inventory_12January2017.pdf 

What you need to know 

• The FASB proposed requiring all entities to make additional disclosures regarding changes in inventory that are outside the normal purchase, manufacture or sale of inventory and the composition of inventory.

• The FASB also proposed requiring all entities to make certain inventory disclosures currently required by the SEC.

• The FASB proposed requiring entities that make segment disclosures to make certain inventory disclosures by reportable segment.

• The FASB proposed requiring entities that apply the retail inventory method to make disclosures about the assumptions they use in their calculations. • Comments are due by 13 March 2017.

Overview The Financial Accounting Standards Board (FASB or Board) issued a proposal to expand current inventory disclosures. The proposal would require all entities to (1) make additional disclosures regarding changes in inventory and the composition of inventory and (2) make inventory disclosures currently required by the Securities and Exchange Commission (SEC). Entities that make segment disclosures would have to make disclosures about inventory by reportable segment if they provide that information to the chief operating decision maker. Entities that apply the retail inventory method (RIM) would have to make additional qualitative and quantitative disclosures about the critical assumptions they use in their inventory calculations.

The proposal is part of the FASB’s broader disclosure framework project. As part of the project, the Board has also proposed changes to the disclosure requirements for income taxes, fair value measurements and defined benefit plans. The Board also intends to review disclosure requirements for interim reporting.

EY:  Proposal would simplify how entities determine the balance sheet classification of debt

What you need to know

• The FASB proposed replacing today’s rules-based guidance for determining whether to classify debt as current or noncurrent on the balance sheet with a principles-based approach.

• Debt would be classified as noncurrent only when it is contractually due to be settled more than one year (or operating cycle, if longer) after the balance sheet date or when the entity has a contractual right to defer settlement for at least one year (or operating cycle, if longer) after the balance sheet date.

• While this approach would require entities to classify debt based on legal rights existing at the balance sheet date, an exception would be provided for waivers of debt covenant violations received after the balance sheet date but before the financial statements are issued. • Entities would no longer be able to consider their intent and ability to refinance shortterm obligations after the balance sheet date on a long-term basis to support noncurrent classification.

• Comments are due by 5 May 2017.

The Financial Accounting Standards Board (FASB) proposed replacing today’s rules-based guidance on debt classification in Accounting Standards Codification (ASC) 470-10-451 with a cohesive principle for determining whether debt should be classified as current or noncurrent on the balance sheet. The proposal is aimed at reducing the cost and complexity of determining the classification of debt and improving the transparency and consistency of information provided to users of financial statements about an entity’s debt arrangements.

The debt classification guidance in ASC 470-10-45 provides different rules and exceptions that were developed over time to address the balance sheet classification of a variety of debt arrangements. Some of the guidance requires entities to consider management’s expectations of when the debt might be settled, while other guidance focuses on the terms and conditions of the debt arrangement. The lack of an overarching principle has led to inconsistencies in the application of the guidance. This project is part of the FASB’s broader simplification initiative. The proposed changes would also increase convergence with IFRS.





Kansas State University physicists accidentally discover explosive way to make graphene ---

Jensen Questions
Were there ever any accidental discoveries in academic accounting research?

Data Mining Your General Ledger With Excel ---

The US Court of Appeals for the 10th Circuit in Denver has ruled that the Securities and Exchange Commission's system of hiring administrative law judges to hear appeals is unconstitutional ---

Student Loans:  What You Need to Know Before Signing ---

Bob Jensen's helpers for personal finance ---

Up Up and Away in My New Jersey Tax Balloon
New Jersey’s infamously high property tax bills topped $8,500 per home in 2016, a 2.35 percent increase over the previous year, according to figures released Wednesday by the Department of Community Affairs ---

PCAOB Inspectors Find IT Auditors on the Struggle Bus ---

. . .

Personally, I like to see how the IT audit teams stack up when it comes to deficiencies related to IT general controls (“ITGCs”). In sum, let’s just say there’s room for improvement.

For example, PwC, EY, and KPMG all had deficiencies related to their IT control testing. Surprisingly, Deloitte walked away relatively unscathed in this match up. Nice job, Deloitte, we’ll give you some props for that. But, again, maybe you just got lucky.

Although, this year Deloitte did have some issues with the accuracy and completeness of system generated reports, which fits in the IT testing bucket. We can all agree even if the report looks pretty, it may not be accurate or worthy of our precious billable time. It’s a good idea for someone to double-check if it’s legit. But hey, everyone struggles with that one, and it’s been a PCAOB favorite to call out for a while.

As for the rest of them -- it’s an interesting mix of issues:


PwC screwed up testing compensating controls after determining an ITGC change management control was crap for Issuer J. Based on the report’s finding, I imagine that this is what happened (with a little poetic license, of course):

1. Auditors decided the control that was in place to stop someone from tinkering with source code that processes revenue transactions (read: the computer’s instructions to handle revenue) didn’t meet muster. Exception noted.

2. After the finding had surfaced, the IT audit staff was beaming with pride for finding such a juicy exception, the audit manager wanted to wring their necks, and the client felt sick.

3. The auditors circled the wagons and scrambled to think of other controls -- doing as little additional testing as possible -- that supported the idea that even though someone at the company “could” change the code without going through the formal change process, it was unlikely that anyone did.

4. Of the six compensating controls they came up with, four were so random that the PCAOB didn’t see how they even addressed the risk of unauthorized changes.

5. The one pointed back to the original change management control (which was not working, remember). I’m sure they were hoping no one would notice the circular logic.

6. The last one was just a nice idea. No one actually did any testing to verify that the control worked.

The auditors also made the leap of faith that ITGCs would be clean and didn’t adjust sampling to beef up the application control testing. According to the report:

The Firm tested an application control at an interim date using a sample of one item for each relevant scenario; this approach was based on an assumption that ITGCs were operating effectively, which was not supported due to the deficiencies in the testing of ITGCs that are described above. As a result, the Firm's testing of this control was insufficient.

Come on, that’s just lazy.

Continued in article

Are The Big Four Accounting Firms and Grant Thornton as Great as they Seem?

Jensen Comment
This is a negative article about large CPA firm employment of entry-level accounting graduates, but in fairness the author does make an effort to balance his criticisms. He just does a lousy job of achieving this balance.

Had he been a professor in a major accounting program he would give credit that the large CPA firms are about the only firms consistently offering larger numbers of both internships and entry-level jobs. Corporations and smaller CPA firms generally have much lower turnover. Accordingly they have lower numbers of entry-level opportunities. Some can be arm twisted into providing internships, but the chances of turning those internships into job offers are much lower. And when it comes to hiring, corporations and smaller CPA firms typeically are looking for experienced candidates. Where do new graduates get that experience? In the larger CPA firms.

I grant you that the high turnover strategy of large CPA firms is controversial. It places low-paid neophytes without much experience out on audits. This puts greater stress on having quality supervisors in charge of those neophytes. One of the things that PCAOB inspections show us is that larger CPA firms sometimes poorly supervise their neophyte auditors new on the job.

In fairness, many of the graduates newly hired by the larger CPA firms are usually forewarned by faculty and alumni that working for a larger CPA firm is not all that great for workers averse to lots of travel, lots of hours on the job, and lots of stress, including the stress of competition for advancement. Larger CPA firms hire cream-of-the-crop graduates such that the competition is keen for retention, advancement, and ultimately achieving partnership status.

But in my 40 years as an accounting professor with lots of dealings with students and CPA firm recruiters, the one thing that large CPA firms usually deliver on is quality training and experience. Since I taught some of the esoteric modules of accounting like hedge accounting, I found that the largest offices (think Houston and Dallas) of the largest firms gave opportunities for my students to specialize in such things as hedge accounting, insurance accounting, ranch accounting, cross-border accounting (think Mexico), foregn-exchange accounting, acquisitions accounting, etc. Corporations and small CPA firms seldom offer entry-level experience in esoteric accounting under expert supervisors.

Am I in favor of high turnover of new hires in large CPA firms?
You bet!
If this turnover was low, the majority of our newly minted accounting graduates would be flippin' burgers and waiting for a break.

A nice thing about having only worked for a large CPA firm for 2-10 years is that there are usually good opportunities to change jobs. What I mean is that there is considerable demand for "experienced" accountants who have both job training and supervisors that will write glowing recommendations for motivated subordinates. And for those experienced accountants who want to strike out on their own and start their own accounting practices, experience in large firms provided them with skills that sell like skills in tax accounting, payroll accounting, database accounting, etc.

China Accounting Blog ---

PCAOB staff offers guidance on audit firms' work in China ---

Bob Jensen's thread on blogs, listservs, and social networking --- 

Bitcoin’s bull run faces one gigantic question mark heading into 2017 ---

Number of times Americans wrote out a check in 2015. Compare that number (17.3 billion) to the 69.5 billion debit card purchases in the same year ---

The Year 2016 in Fraudbytes ---

The Year 2016 in a blog on Technology, security, analytics and innovation in the world of audit and business ---

The Year 2016 in the MyeEYMBA Blog ---

The Year 2016 in the life of Professor Fraud's blog ---

Ruth Bender's occasional Random Thoughts ---

Prem Sikka's Guardian Blogs (mostly about UK frauds and horrors of capitalism) ---

MF Global scandal closures for pennies on the dollar
Former Goldman Sachs CEO and New Jersey Governor Jon Corzine agrees to pay a $5 million fine ---

"PwC to Pay $65 Million to Settle Lawsuit Over MF Global," by Michael Rapoport, The Wall Street Journal, April 18, 2015 ---

Bob Jensen's Threads on the MF Global Scandal ---
Scroll down or search at

When we think of repo sales scandals we tend first to think about Lehman Bros. Right after than think of MF Global ---

SEC Fines Citigroup on Claims 60,000 Clients Were Overbilled ---

The Accidental Whistle-Blower: How a Retired London Journalist Uncovered Massive Corruption Half a World Away ---

Bob Jensen's Fraud Updates ---

Can you imagine the NYT ever being critical of Senator Elizabeth Warren?
New York Times:   Elizabeth Warren, Media Mischaracterize I.R.C. § 1043 As Tax Boondoggle For Trump Appointees ---

Think You’re Safe From College Retirement-Plan Lawsuits? Think Again ---

Within a span of 10 days last August, a dozen coordinated lawsuits were filed against elite universities, alleging that they had imprudently managed their 403(b) retirement plans for faculty and staff. So far, all of the targets have one thing in common: They are private institutions, and the duties they are said to have breached derive from the Employee Retirement Income Security Act, better known as Erisa. Public universities, by contrast, are exempt from Erisa as government institutions. Does this mean that public universities have nothing to fear from this new species of litigation?

Not exactly. Although public universities are exempt from the fiduciary duties imposed by Erisa, they may be subject to similar duties under state law. Moreover, their status as government entities may allow plaintiffs to bring similar actions under government-specific state statutes, or as constitutional claims. State universities, then, would do well to insulate themselves from possible claims of imprudence — while at the same time providing an attractive benefit to employees — by instituting or continuing processes that demonstrate sound management of retirement assets.

The allegations in the employee lawsuits against Columbia, Cornell, Duke, Emory, Johns Hopkins, MIT, NYU, Northwestern, Vanderbilt, and Yale, as well as the University of Pennsylvania and the University of Southern California, follow a predictable pattern: The plaintiffs claim that by allowing unreasonable administrative fees and offering investment options that underperformed or charged relatively high fees, these institutions and their 403(b) plan administrators breached fiduciary duties owed to employees under Erisa. It is important to note that the plaintiffs’ claims are untested and are far from sure to succeed. But given the potential magnitude of the damages asserted, even the fact of the litigation itself is alarming.

Erisa is a federal statute that regulates retirement plans nationally and across almost all sectors of the economy. It imposes fiduciary duties of prudence and loyalty on employers in the administration of these plans. These concepts boil down to a requirement that in making decisions about their retirement plans, employers must act solely in the best interests of the employees who benefit under the plans, and with the care that a prudent person in similar circumstances would employ. It is a demanding standard of conduct for those subject to its requirements.

But, importantly, it does not apply to government employers. However, this does not mean that no standards apply to public-university retirement plans, or that they are immune from lawsuits like those recently filed against the private institutions. The state common law of trusts, as well as state trust statutes, can impose duties analogous to those faced by private universities under Erisa, and can form the basis for similar lawsuits.

A suit filed in Minnesota in 2010 shows how this kind of litigation might work. The defendant in that action was the Evangelical Lutheran Church in America; like those of government employers, the retirement plans of churches are exempted from Erisa’s coverage. The plaintiffs in that case therefore based their suit on fiduciary duties imposed by state common law and state statutes.

They also claimed breach of contract, arguing that the church had promised a level of benefits that it subsequently failed to deliver. The Lutheran Church case ultimately settled favorably to the employer after the plaintiffs’ motion for class certification was denied, but it may serve as a road map for suits against other non-Erisa retirement plans.

Potential litigation against public universities may involve additional complications, based on the universities’ status as government entities. In addition to the common law and generally applicable statutes, other laws specifically enabling government retirement programs may establish — or limit — fiduciary duties. For example, California’s State Constitution imposes fiduciary duties of loyalty, prudence, and diversification on the administrators of public retirement systems. On the other hand, an Arizona statute appears to expressly preclude fiduciary duties on the part of public education employers.

The governmental status of public universities may also implicate constitutional property protections, as well as complex issues of state sovereign immunity. The laws of each state are different, making it extremely difficult to generalize about the prospects of this kind of litigation.

Continued in article

Streak’s Over: Fiat Chrysler Admits to Misstating U.S. Sales Reports ---

Since the year started, Fiat Chrysler has faced a lawsuit alleging it padded monthly U.S. sales reports by paying dealerships to report unsold cars as sold. In a lengthy statement this afternoon, FCA said it has committed to “new methodology” in analyzing sales data and admitted its 71 consecutive months of year-over-year increases did not, in fact, occur.

While FCA did not admit wrongdoing in the face of multiple investigations—including the lawsuit brought by two Chicago-area FCA dealers, plus fraud probes by the Department of Justice and the Securities and Exchange Commission—it revealed it had overstated U.S. sales by hundreds of cars each month since the start of 2011 due to unsold cars reported as sold.

At issue is what FCA calls an “unwind,” in which a dealer reverses a sales transaction after reporting it to FCA as sold. This happens frequently enough each month to all automakers, typically the result of a customer’s failing to secure financing or canceling an order, insurance claims, or any number of other valid reasons. But some FCA dealers, the company has admitted, have registered sales during one month and then reversed them the next month without FCA ever recording the change. FCA says there were 4500 “unwound” cars in dealer stock as of June 30. Given FCA’s data, we can assume they’re referring to just this year alone, since new cars don’t sit on dealer lots for more than a few months at most.

While FCA says its system only allows dealers to report a VIN once—so there can be no duplicates—the company, until now, had no method to exclude “unwinds” in one month or include previously reported sales that were actually delivered in the proceeding months. That means FCA’s stated annual U.S. sales from 2011 until now have been either overstated or understated by thousands of cars each year or, as FCA puts it, “within approximately 0.7 percent of the annual unit sales volumes previously reported.” In 2015 alone, when FCA reported more than 2.2 million U.S. sales, the company actually excluded nearly 14,000 cars from its total. In total, between January 2011 and June 2016, FCA understated its total U.S. sales by nearly 19,000 cars. Through June this year, however, FCA said it overstated sales by 7450 cars.

Not all of the fluctuations are due to reversed transactions. FCA also said it was a “historical practice” to include a “reserve” of cars—press cars, employee cars, and fleet sales that hadn’t been delivered—into its monthly sales reports, since it was “probably originally designed to exclude from the reported sales number vehicles that were in transit to fleet customers, as well as vehicles that were not yet deployed in the field.” In other words, more cars that weren’t technically sold have been included (and sometimes, not included when they were finally sold) in FCA’s monthly sales reports.

When FCA ran the numbers again accounting for these extra non-sales, it admitted that the company’s consecutive monthly year-over-year increases should have stopped in September 2013 instead of February 2016, as it had reported in March of this year. Instead of a whopping 71 months, the actual number was 40 months. Starting next month, FCA says it will report all of its future U.S. sales using this new methodology

Continued in article

Chrysler Pollution Fraud
EPA Notifies Fiat Chrysler of Clean Air Act Violations FCA allegedly installed and failed to disclose software that increases air pollution from vehicles ---

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

Big profit for eBay Inc. 
Despite a mixed holiday season for online retailers, the company reported its fourth quarter of sales gains. Revenue grew by 3.1%. A big tax benefit catapulted its net income to $5.94 billion from $477 million a year ago.

Jensen Comment
I'm not sure about what the "tax benefit" is, but it may relate to foreign tax avoidance ---

Nine bankers and businesspeople have been arrested in India
From the CFO Journal's Morning Ledger on January 25, 2017

To be continued, 2. 
Nine bankers and businesspeople have been arrested in India in relation to the demise of Kingfisher Airlines Ltd., the airline controlled by London-based entrepreneur Vijay Mallya. The now-defunct company owes $1.3 billion in debt and accumulated interest, the Financial Times reports.

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

Costco settles as well.
Costco Wholesale Corp.
has agreed to pay nearly $12 million to settle Justice Department allegations of lax pharmacy controls over a four-year period.

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

Western Union settles.
Money-transfer company Western Union Co. has agreed to pay $586 million to resolve U.S. criminal and civil charges that it failed to effectively police customers who were potentially using its services to engage in fraud, authorities said Thursday.

Deutsche Bank Completes $7.2 Billion Mortgage Security Settlement With U.S. German lender admits it made ‘false representations’ to investors ---

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

Deutsche Bank AG
completed a $7.2 billion deal to resolve U.S. claims that it misled investors on mortgage securities it sold before the 2008 financial crisis, authorities said. In other news, the bank will inform senior employees as early as this week they probably won’t receive a bonus because of 2016’s performance, Bloomberg reports.

From the CFO Journal's Morning Ledger on January 13, 2017

An endangered species
For CFOs, the margin for error continues to narrow as regulators strive to hold individuals responsible for companies’ misdeeds, reports

From the CFO Journal's Morning Ledger on January 13, 2017

Wells Fargo banker sentenced
A former Wells Fargo employee who organized a bank fraud scheme to steal customer-account data was sentenced to more than seven years in prison on Thursday, according to the U.S. Attorney’s Office in the Central District of California.

From the CFO Journal's Morning Ledger on January 13, 2017

The Environmental Protection Agency on Thursday accused Fiat Chrysler Automobiles NV of using software on its diesel-powered Jeep Cherokees and Ram pickups that allowed them to spew illegal amounts of pollution into the air, the latest broadside from the government over emission standards, Chester Dawson and Mike Spector report.

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

AICPA updates knowledge guidance
The American Institute of CPAs has updated the “body of knowledge” document that provides guidance to CPA financial planners on what they should know about taxes and other matters, Accounting Today reports. One of the main changes in the document is in the tax-planning component, which has been updated from a stand-alone section and now has been integrated throughout all 12 service areas.

From the CFO Journal's Morning Ledger on January 11, 2017

World Bank says Trump’s tax plan could spur global growth
A mix of government spending and tax cuts could boost U.S. economic growth and jumpstart global business activity, the Washington-based development lender said. Still, the World Bank didn’t include the likely impact of Mr. Trump’s proposals in its forecast for U.S. growth, leaving it unchanged at 2.2% for 2017, due to the early-stage nature of the plans.

From the CFO Journal's Morning Ledger on January 11, 2017

Volkswagen AG is expected as early as Wednesday to agree to plead guilty to criminal wrongdoing and pay a $4.3 billion penalty to resolve a U.S. Justice Department probe of the German auto giant’s diesel-emissions cheating, William Boston, Mike Spector and Aruna Viswanatha report. Volkswagen said in a disclosure to financial markets on Tuesday that it had agreed to a draft settlement with the Justice Department and U.S. customs authorities. If completed, as expected, the unusually severe punishment would resolve the final significant U.S. government action expected against Volkswagen stemming from its emissions cheating.

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

IFRS 9 looming
New accounting rules, which will take effect next year, could exacerbate downturns for European banks, analysts at Barclays Bank PLC say. While the rules, known as IFRS9, could yet be changed, the analysts add that the problems might only become clear in the 2018 round of stress tests. IFRS9 will replace IAS39 in January 2018, changing how banks recognize loan losses.


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

Financial groups roll out new valuation standard (credential)
The valuation profession is getting a new standard, Vipal Monga reports. The American Institute of CPAs, the American Society of Appraisers and the Royal Institution of Chartered Surveyors announced on Tuesday that people who earn a living valuing patents, trademarks and customer relationships for companies soon will be able to get a new credential attesting to their expertise.

The Rally in Junk Bonds

From the CFO Journal's Morning Ledger on January 9, 2017

An uptick in earnings among riskier U.S. companies is bolstering investor confidence that an epic rally in junk bonds can last a little longer, Sam Goldfarb writes. After six straight quarters of year-over-year declines, earnings of low-rated companies increased 14% in the second quarter and 72% in the third quarter, according to Bank of America Corp. At the same time, defaults slowed following a wave of bankruptcies in the energy sector.

Among the many junk-rated companies that had better earnings was Sprint Corp., which reported a 17% increase in adjusted Ebita for the quarter ended Sept. 30 from a year earlier. Its 7.625% bonds due 2025 last traded at around 107 cents on the dollar, up from 75 cents on the dollar in June, according to MarketAxess Holdings Inc.

This is good article to begin with when asking students to then compare FASB versus IFRS standards in accounting for junk bonds.

Bye Bye to Defined-Benefit Pension Plans

From the CFO Journal's Morning Ledger on January 6, 2017

British letters and parcels delivery company Royal Mail PLC plans to close its 90,000-member defined-benefit pension plan, joining a long list of U.K. corporates that are withdrawing fixed retirement provisions due to rising costs, the Financial Times reports.

Jensen Comment
Such plans will probably disappear worldwide and in the 50 states of the USA. leaving only government pensions backed by money printing presses that can afford such plans.

Trump’s Tariff Plan Is Unconstitutional — Tariffs (Like Taxes) Must Originate In The House ---

Jensen Comment
Whereas many votes in the USA House of Representatives will divide almost entirely along party lines (e.g., confirmation votes) some issues like tariffs will not divide along party lines. Republicans from the farm belt will probably vote against Trump's tariff plans because they take a hit from foreign buyers that retaliate. Democrats from the rust belt will probably vote for tariffs since they want to protect manufacturing jobs. Thus predicting the outcomes of Trump's tariff plan is complicated.

From the CFO Journal's Morning Ledger on January 6, 2017

The Pending Disaster Now Called  the "border adjustment Tax"

That was quick: Constellation Brands Inc., the U.S. distributor of Corona beer, is already thinking about alternative ways to run its business should its cost base rise after a planned tax overhaul. Despite the fact that Republicans, who are set to take full control of the U.S. government later this month, haven’t yet crafted legislation, the company is looking at ways to avoid raising prices, Vipal Monga and Jennifer Maloney write.

Republican legislators are proposing to erase tax deductions on imports while exempting exports. The so-called border adjustment could lead to higher levies for the automotive and retail industries, according to an analysis by Ernst & Young LLP. Constellation would consider purchasing more natural gas and packaging material from the U.S., offsetting the potential impact of the proposed tax overhaul on imports like its Mexican beverage, Chief Executive Rob Sands said on Thursday.

Chief Financial Officer David Klein said it is possible that, under the House Republicans’ proposal, companies wouldn’t be able to deduct costs incurred abroad against their U.S. corporate taxes, creating an incentive to make as much in the U.S. as possible. The border-adjustment tax proposal has caused finance chiefs and tax directors across the country to examine their supply chains to see how they would fare.

Jensen Comment
The GOP historically promoted free trade while the Democratic Party went the other way to protect domestic jobs. Now the GOP is leading the way toward disastrous trade wars where industries like agriculture and other exporters will be hit hard.

Wal-Mart may be a big loser in the border-adjustment tax

From the CFO Journal's Morning Ledger on January 5, 2017

Wal-Mart up, too
Mexico’s largest retailer, Wal-Mart de Mexico SAB, said Thursday that its sales rose 11.9% in 2016 amid strong consumption in Mexico and relative strength in Central American currencies against the Mexican peso.


Should merchants be able to give price discounts to customers who pay cash (as opposed to using credit cards)?

In Today’s Supreme Court Case, Freedom Of Speech Meets Your Wallet ---








From the CFO Journal's Morning Ledger on January 5, 2017

CES 2017 opens
Thursday marks the official beginning of CES, the annual consumer electronics show held in Las Vegas. More than 170,000 people are expected to attend the show until Sunday, walking through a maze of 3,800 exhibitors spread over 2.5 million square feet. On the eve of CES, German car manufacturer Audi AG announced it forged a partnership with chip maker Nvidia Corp. to develop a self-driving vehicle for the road in 2020.

Jensen Comment
There are already self-driving cars on the road in several states. It just dawned on me this morning that this will be a particular boon to old folks who either should not or do not want to drive a car anymore, particularly old folks in rural areas poorly served by Uber and other forms of public transportation. My wife loves to drive and does most of the driving if we're together in a car. Of course I drive when she's not with me. But I've never particularly liked driving and will readily give up that responsibility (not emergency responsibility) to a self-driving car.

At some point in the future I may not be able to drive my tractor to mow this big yard and to throw snow from my driveway (almost daily in January, February, and March). It just dawned on me that there will most certainly be a day when I can watch my self-driving tractor operate while I sip on a rum and coke on my decks. Oops! Hold the coke!

Getting old is no longer quite so scary.

It will take much longer for a machine to be invented that will pluck the weeds out from between the tightly-packed flowers in my flower gardens or prune the roses.

From the CFO Journal's Morning Ledger on January 5, 2017

Bank loans set to float as Libor climbs above 1%
While equity investors are still waiting for the Dow to cross 20000, bank-loan investors had reason to cheer their own milestone on Wednesday: Libor 1.00. The coupons on bank loans are typically reset regularly based on moves in a benchmark rate, most often the three-month U.S.-dollar London interbank offered rate. But if Libor is below 1%, as it was since 2009, roughly three-fifths of the market has a payment “floor” that fixes the Libor portion of the coupon at 1%. On Wednesday it was set at 1.00511%, topping that key threshold for the first time in more than seven years, as investors brace for more Federal Reserve rate increases and respond to overhauls of money market funds, Ben Eisen and Vipal Monga write.

Jensen Comment
Since LIBOR is the underlying for so many existing and future interest rate swap contracts, financial statements will be impacted for some firms both now and in the future. Also this will probably cause resumed interest in using these swaps for hedging interest rates and for money management.

Bob Jensen's tutorials on how to value interest rate swaps are at

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

Credit-reporting firms settle with regulators
Top credit-reporting companies Equifax Inc. and TransUnion have agreed to pay more than $23 million over federal claims that they deceptively marketed and sold credit scores to consumers. The Consumer Financial Protection Bureau said Tuesday that the companies falsely advertised how lenders use credit scores and deceptively charged consumers for subscriptions to check their own score.



Now when professors refer to hiding money under a mattress they can show a picture of a fraudulent $20 million hidden under a single mattress ---

Jensen Comment
Now all we need is a photograph of millions of dollars in a washing machine to illustrate the concept of laundering money.

Bob Jensen's Fraud Updates ---

Third ex-Rhode Island lawmaker in 11 days charged criminally ---

A former Rhode Island state lawmaker has agreed to plead guilty to fraud charges, becoming the third former House member in 11 days to be charged with criminal conduct and prompting the U.S. attorney to decry the state's political culture.

The charges filed against Democrat Ray Gallison in federal court Monday include mail fraud, wire fraud, aggravated identity theft and filing false tax returns. Gallison, an attorney, acknowledged taking hundreds of thousands of dollars from a dead man's estate and other misconduct.

"This says something about our political culture here, which I think should get our attention," U.S. Attorney Peter Neronha said during a news conference announcing the charges and plea deal.

He listed a long string of local and state public officials his office has prosecuted and sent to prison, including former House Speaker Gordon Fox.

"I wish I could say with confidence that we are at the end of the line, and that no other trains will pass this way," Neronha said. "I suspect, however, that there will be more work to do."

 Continued in article

Why People Elect Crooks:  They flaunt their rough edges as proof that they will fight for the people. And because many have experience subverting the system, they deliver ---

List of Federal Political Scandals ---

Corruption in the United States ---

These emails about QuickBooks software are actually a phishing scam ---





Accounting Teaching Cases
IMA Instructional Cases ---

Teaching Case from The Wall Street Journal Accounting Weekly Review on January 6, 2017

Ford Tells Small Firms: Buy, Get Tax Break
by: John D. Stoll
Dec 29, 2016
Click here to view the full article on

TOPICS: Corporate Taxation

SUMMARY: Ford Motor Company's dealer group sent an advertising email Tuesday, December 27, to potential small business buyers emphasizing the tax benefits of section 179 deductions. The article mentions that Section 179 was "recently retooled and made permanent" and briefly describes features of the tax deduction.

CLASSROOM APPLICATION: The article may be used in a corporate tax class covering depreciable assets and section 179 deductions.

1. (Advanced) What is a section 179 deduction?

2. (Advanced) What is appealing about this tax law near to the end of the calendar year?

3. (Introductory) Does a Section 179 deduction apply only to vehicles such as work trucks, large sport utility vehicles, or vans for which Ford has sent out year-end advertising emails?

4. (Introductory) For what reason is Ford planning to slow down production during the first quarter of 2017? How might this advertising be related to that business plan?

Reviewed By: Judy Beckman, University of Rhode Island

"Ford Tells Small Firms: Buy, Get Tax Break." byJohn D. Stoll, The Wall Street Journal, December 29, 2016 ---

The auto maker urges prospective customers to buy a work vehicle before the end of the year to take advantage of potentially substantial tax breaks

Buy a truck and write it off.

That’s the message Ford Motor Co. is sending to small-business owners in an effort to bolster demand for its most profitable products in the final days of 2016.

The auto maker’s dealer group emailed an advertisement Tuesday to prospective buyers in the U.S. urging them to purchase a work truck, large sport-utility vehicle or van before the end of the year to take advantage of potentially substantial tax breaks. Citing the Internal Revenue Service’s Section 179 deduction, which was recently retooled and made permanent, Ford suggests customers “could get a big tax break for your business.”

The F-series pickup, large Expedition SUV and Transit work vans are highlighted in the email, which was obtained by The Wall Street Journal. Ford plans to slow production during the first quarter, including dialing back output of certain trucks and vans, in a move aimed at curtailing inventory levels.

Ford’s U.S. market share has held steady at 14.9% in 2016, and it recently put a redesigned version of its F-series Super Duty trucks on sale to take advantage of surging demand for large pickups because of low gasoline prices and healthy economic activity.

The Dearborn, Mich., company relies on big trucks and vans for a substantial portion of global profit. The company is working to fund several initiatives, including a $4.5 billion commitment to electrified vehicles, investments in new mobility ventures and autonomous vehicles, and a push to add freshened trucks and SUVs to its U.S. lineup.

Auto makers typically pour on sales incentives and ramp up advertising to ensure strong December sales. General Motors Co., for instance, is currently staging a “Red Tag Sales Event” that offers a $9,600 discount on certain versions of its Silverado pickups.

Barclays Capital auto analyst Brian Johnson sent a note to investors Wednesday projecting a relatively strong December performance for U.S. light-vehicle sales, but he added that the industry faces a plateau after seven years of growth. He also said pricing power is under increasing pressure. Many analysts expect the auto industry to set a second consecutive annual volume record, but say that demand is being propped up by hefty discounts.

Ford’s push aims to lure buyers by combining existing incentives with tax breaks being offered on vehicles put in service for business by Dec. 31. For those who qualify, the entire cost of a Transit work van can be deducted or as much as $25,000 can be deducted from the cost of Expedition SUV purchases.

Continued in article

Teaching Case from The Wall Street Journal Accounting Weekly Review on January 6, 2017

Soaring Dollar Threatens U.S. Firms
by: Andrew Tangel and Josh Zumbrun
Dec 27, 2016
Click here to view the full article on

TOPICS: Foreign Currency Exchange Rates

SUMMARY: The U.S. dollar has strongly appreciated over the past two years and surged to a 14-year high in the wake of Donald Trump's election and the Federal Reserve decision to raise interest rates. Company representatives cite these events as having various impacts: 3M and United Technologies reduced revenue forecasts, Kaman Corp. has invested in facilities in Germany to compete against European rivals' prices, while others say they are not concerned--especially if the dollar's strength offsets import prices or President-elect Donald Trump's plans to reduce regulation and taxes offer another source of relief.

CLASSROOM APPLICATION: The article may be used to introduce foreign currency transactions and translation.

1. (Advanced) What general economic factors drive changes in currency values?

2. (Introductory) For how long has the U.S. dollar been increasing in value? How does that increase impact those who purchase from overseas versus those who sell overseas?

3. (Introductory) How have manufacturers 3M Company and United Technologies Corp. changed their forecasts due to this currency change? Explain how the changing value of the U.S. dollar has this forecasted impact.

4. (Advanced) What has Kaman Corp., a manufacturer of airplane parts, done in reaction to the increasing value of the U.S. dollar? Explain how this strategy will offset the impact of the currency change.

Reviewed By: Judy Beckman, University of Rhode Island

"Soaring Dollar Threatens U.S. Firms," by Andrew Tangel and Josh Zumbrun, The Wall Street Journal, December 27, 2016 ---

Greenback surges to 14-year high in wake of Trump win and Fed move, making U.S. goods more expensive abroad

A strengthening dollar is re-emerging as a threat to U.S. manufacturers by making their exports more expensive and their foreign earnings less valuable.

The U.S. currency, which has strongly appreciated over the past two years, surged to a 14-year high in the wake of Donald Trump’s election and the Federal Reserve’s decision to raise interest rates, adding a wrinkle to the president-elect’s pledge to boost factory employment.

Certainly, a strengthening dollar is a sign of rising optimism for the U.S. economy as the stock market also soars to new highs. Prospects of higher inflation and rising interest rates encourage investment in U.S. assets, reflecting growing hopes for better returns.

spend. That in turn could boost retail sales, a key driver of economic growth, and engender more confidence in the U.S. overall.

However, while good for U.S. consumers and companies that purchase components abroad, the dollar’s rise promises to hit U.S. manufacturers reliant on sales in overseas markets.

Many have started to dial back revenue forecasts and look for ways to cut costs. 3M Co. and United Technologies Corp. have signaled a strong dollar could make it harder to boost sales in 2017

Continued in article

Teaching Case from The Wall Street Journal Accounting Weekly Review on January 6, 2017

Intel Buys Into Auto Technology
by: William Boston
Jan 04, 2017
Click here to view the full article on

TOPICS: Investments

SUMMARY: The article describes Intel's 15% investment in digital mapmaker Here International B.V. Current majority owners BMW AG, Daimler AG, and Volkswagen AG's Audit unit purchased Here from Nokia in 2015, "setting aside decades of bitter a bid to control...mapping technology...." Their combined ownership stake is estimated to fall to about 75% once this investment is completed. The transaction is yet to be approved by Germany's antitrust authority which has one month to review.

CLASSROOM APPLICATION: The article can be used to introduce investment accounting. Questions ask students to identify the investment accounting method that likely will be used and to consider factors in addition to the level of investment in making that assessment.

1. (Introductory) From what entities is Intel buying a 15% investment stake in Here International B.V.? Why did these owners make their investment in the company?

2. (Introductory) Why does Intel say it is making this investment?

3. (Advanced) What are the possible methods Intel could use to account for its investment in Here? (List all possibilities.) Which do you think that Intel will use? List all factors you consider in making this assessment.

4. (Advanced) Do you think it is likely that any one of the owner entities will consolidate Here International, B.V.? Explain your answer, stating whether you are considering U.S. GAAP or IFRS requirements in making your answer.

Reviewed By: Judy Beckman, University of Rhode Island

"Intel Buys Into Auto Technology," by William Boston, The Wall Street Journal, January 4, 2017 ---

BMW, Daimler and Volkswagen’s Audi bought Here in 2015

Intel Corp. is acquiring a 15% stake in Here International B.V. for an undisclosed sum, joining the digital mapmaker’s core shareholders BMW AG, Daimler AG and Volkswagen AG’s Audi unit in developing navigation technology for self-driving cars.

Intel and Here aim to jointly develop technology needed to support the real-time updates of traffic and road conditions that are used to enable and ensure the safety of fully automated vehicles. The companies also said they plan to explore other business opportunities to develop services that use location data generated by the vehicles and their passengers.

“Cars are rapidly becoming some of the world’s most intelligent, connected devices,” Intel Chief Executive Brian Krzanich said Tuesday.

The companies gave no details about the transaction. They said the deal was expected to close in the first three months of the year, pending regulatory approval.

The announcement comes after Germany’s antitrust authority said earlier in the day that Intel had filed a request for regulatory approval in Germany to make a strategic acquisition of a stake in Here. The agency said it had one month to decide on whether to approve the acquisition, which is unlikely to pose competition concerns.

Germany’s big three premium-brand car makers bought Here from Nokia in 2015 for about €2.5 billion ($2.6 billion). Based on the original purchase price, Intel’s stake could be worth around €375 million. The companies did not disclose any financial details.

The German auto makers, which together dominate the global market for high-end luxury cars, set aside decades of bitter rivalry to jointly acquire Here in a bid to control the mapping technology they consider crucial for self-driving vehicles.

Intel appears to be positioning itself to enter the fast-growing technology field, marking the latest illustration of how the lines between the tech industry and conventional auto makers are blurring.

As the automobile morphs into a platform for digital services with the potential to generate huge profits, auto makers and tech companies are finding common cause or are engaged in fierce rivalries for control of the new mobility economy.

“Intel can help accelerate Here’s ambitions in this area by supporting the creation of a universal, always up-to-date digital location platform that spans the vehicle, the cloud and everything else connected,” said Here CEO Edzard Overbeek.

Auto makers are entering such businesses as car-sharing and ride-hailing to capture new revenue streams generated by their vehicles. The car makers want to avoid being left behind because such services could potentially become more lucrative than their traditional businesses.

Continued in article

Teaching Case from The Wall Street Journal Accounting Weekly Review on January 6, 2017

Land-Donation Deals Face IRS Scrutiny
by: Richard Rubin
Dec 30, 2016
Click here to view the full article on

TOPICS: Charitable Contributions

SUMMARY: The IRS is clamping down on syndicated conservation easements that seem to offer a high valuation of tax deductions relative to investment in the syndication. The landowner "whose property contains important ecological features donates an easement to a nonprofit land trust, permanently restricting development...." The land is appraised before and after the easement and "the landowner counts the diminution in value as a charitable contribution." Note to professors: the paper version contains this description of how conservation easements work for an individual landowner that is not in the electronic version. The electronic version contains a link to the IRS Listing Notice that includes code section references and a similar description.

CLASSROOM APPLICATION: The article may be used in an individual taxation class covering charitable contributions.

1. (Introductory) What is an easement on a property? How do specific easements described in the article preserve land from development?

2. (Advanced) Refer to the related inset in the printed version of this article, How Conservation Easements Work, or to the IRS Listing Notice--Syndicated Conservation Easement Transactions linked in the online article (available here ) Describe the process of obtaining a tax deduction for an easement on a property.

3. (Advanced) According to the article, how are conservation easements syndicated? In your answer, define the term "syndication."

4. (Advanced) Proponents of land conservation easement syndications say the transactions "protect land and efficiently spread tax deductions." Explain what this statement means.

5. (Introductory) What are the potential abuses inherent in these syndication transactions for land conservation easements?

6. (Advanced) On what basis has the IRS flagged syndication deals? What does that flag require a U.S. taxpayer to do?

Reviewed By: Judy Beckman, University of Rhode Island

"Land-Donation Deals Face IRS Scrutiny," by Richard Rubin , The Wall Street Journal, December 30, 2016 ---

Investor solicitations for deals promise to turn $100,000 into $400,000 or more in tax deductions

The IRS is clamping down on a tax-avoidance technique that turns charitable land-conservation donations into moneymaking opportunities.

Investor solicitations for what are known as syndicated conservation easements promise to turn $100,000 into $400,000 or more in tax deductions, making them attractive to households in the top tax bracket. In one publicly-documented Tennessee deal, a restaurateur’s $35,000 investment became about $53,000 within months, subsidized by U.S. taxpayers. Interviews and public documents suggest more than 100 such deals likely have taken place—with each transaction often saving many individual investors tens of thousands of dollars or more.

Such transactions are popular in Georgia and neighboring states, where teams of investment advisers, lawyers, appraisers and land trusts leverage land-rights donations into business deals offering speedy profits. They say such transactions protect land and efficiently spread tax deductions, from landowners who don’t have enough income to use them to taxpayers who do.

The syndicates’ recent growth and professionalization alarm many tax lawyers and land trusts, who say the transactions rely on inflated appraisals and sell tax breaks reminiscent of abusive 1980s tax shelters.

Continued in article

Teaching Case from The Wall Street Journal Accounting Weekly Review on January 6, 2017

America's Roster of Public Companies is Shrinking Before our Eyes
by: Maureen Farrell
Jan 04, 2017
Click here to view the full article on

TOPICS: Disclosure Requirements

SUMMARY: The article describes the declining numbers of publicly traded companies since 1997, while average valuations have ballooned. The article discusses the negative impacts of disclosure required of publicly-traded companies. It gives an example of one young firm's CEO providing disclosures to his employees that he believes would be limited were the company to go public.

CLASSROOM APPLICATION: The article may be used to introduce the corporate form of organization and public versus private firms. It also may be used to focus on the impact of required disclosures.

1. (Introductory) What is the number of publicly traded companies in the U.S. at the end of 2016? How significant is the change in this number since 1997?

2. (Introductory) Has total valuation of publicly traded firms shown the same trend as the total number of companies since 1997? In your answer, define the term valuation.

3. (Advanced) What factors in today's economy make funds available to young companies from private sources so that they don't need to go to the public market?

4. (Introductory) Professor Jerry Davis at the University of Michigan says "the dangers of being a public company are really evident." What are they?

5. (Introductory) Matthew Prince of web-security company CloudFlare describes the trade-offs between being a private company and a public one. What are his concerns?

6. (Advanced) In both of your answers above, describe how disclosure is useful in some cases but its requirements are detrimental in other ways. In your answer, describe how disclosure is integral to accounting and financial reporting.

Reviewed By: Judy Beckman, University of Rhode Island


"America's Roster of Public Companies is Shrinking Before our Eyes," byMaureen Farrell, The Wall Street Journal, January 4, 2017 ---

Gusher of private capital, IPO slump and merger boom cause listings to plunge; ‘There’s no great advantage

Executives at LoanCore Capital LLC were plotting an initial public offering in 2015 for a portfolio company that manages commercial real-estate credit. Just before the IPO was to launch, the stock market fell sharply. LoanCore pulled the plug.

It hardly mattered. There was plenty of money elsewhere. Last March, LoanCore raised $1 billion from two sovereign-wealth funds. The company expects to continue to raise money from these investors, Canada Pension Plan Investment Board and Singapore’s GIC, according to people familiar with the matter.

LoanCore is emblematic of a new generation of companies that have shunned public markets. With interest rates hovering near record lows, big investment funds seeking higher returns are showering private companies with cash. Companies also are leaving the stock market in near-record numbers through mergers and acquisitions.

The U.S. is becoming “de-equitized,” putting some of the best investing prospects out of the reach of ordinary Americans. The stock market once offered a way for average investors to buy into the fastest-growing companies, helping spread the nation’s wealth. Since the financial crisis, the equity market has become bifurcated, with a private option available to select investors and a public one that is more of a last resort for companies.

The number of U.S.-listed companies has declined by more than 3,000 since peaking at 9,113 in 1997, according to the University of Chicago’s Center for Research in Security Prices. As of June, there were 5,734 such public companies, little more than in 1982, when the economy was less than half its current size. Meanwhile, the average public company’s valuation has ballooned.

In the technology industry, the private fundraising market now dwarfs its public counterpart. There were just 26 U.S.-listed technology IPOs last year, raising $4.3 billion, according to Dealogic. Meanwhile, private U.S. tech companies tapped the late-stage funding market 809 times last year, raising $19 billion, Dow Jones VentureSource’s data show.

Private funding markets have taken on attributes of public equity, such as an ability to hand employees shares they can trade. Airbnb Inc.’s recent $850 million funding round, which valued the home-rental company at $30 billion, enabled employees to sell $200 million of stock. Investors, particularly in late-stage funding rounds, now often have a better view of a private company’s financials than they used to, including through quarterly conference calls.

“There’s no great advantage of being public,” says Jerry Davis, a professor at the University of Michigan’s Ross School of Business and author of “The Vanishing American Corporation.” “The dangers of being a public company are really evident.”

Continued in article

Teaching Case from The Wall Street Journal Accounting Weekly Review on January 13, 2017

SEC Pick is Attuned to Needs of Wall Street
by: Dave Michaels and Liz Hoffman
Jan 05, 2017
Click here to view the full article on

TOPICS: Securities and Exchange Commission

SUMMARY: President-elect Donald Trump has nominated Wall Street lawyer Jay Clayton to lead the Securities and Exchange Commission. He is "expected to end the streak of aggressive regulators and litigators overseeing" the agency responsible for regulating markets, including setting disclosure requirements. "Mr. Clayton oversaw a 2011 New York State Bar Association report attacking the Obama-era SEC and Justice Department for 'zealous' enforcement of laws....The paper concluded their actions were 'causing lasting harm to the competitiveness of U.S. regulated companies and the U.S. capital markets."

CLASSROOM APPLICATION: The article may be used in any class to understand the impact of regulation on financial reporting and markets.

1. (Advanced) What are the responsibilities of the U.S. Securities and Exchange Commission? Hint: refer to and click on "ABOUT."

2. (Introductory) How does Mr. Clayton compare to previous SEC Chair Mary Jo White? Specifically comment on the statement in the article that he is a "deal maker rather than a prosecutor...."

3. (Advanced) SEC Commissioners generally are lawyers (with the current exception of Commissioner Michael Piwowar). Why do you think that is the case?

4. (Advanced) Do you believe that SEC Commissioners' expertise might impact how it fulfills responsibilities related to financial reporting? Explain.

Reviewed By: Judy Beckman, University of Rhode Island

SEC Chairman White to Leave Agency, Opening Door to Conservative Shift
by Dave Michaels, Aruna Viswanatha and Andrew Ackerman
Nov 14, 2016
Page: ##

"SEC Pick is Attuned to Needs of Wall Street," by Dave Michaels and Liz Hoffman, The Wall Street Journal, January 5, 2016 ---

Clayton is a Wall street lawyer who has represented top firms

WASHINGTON—Donald Trump’s nomination of veteran Wall Street lawyer Jay Clayton to lead the Securities and Exchange Commission is expected to end the streak of aggressive regulators and litigators overseeing the country’s top markets cop.

Mr. Clayton, whose clients have included Goldman Sachs Group Inc. and Barclays PLC, adds another figure with deep financial-industry ties to President-elect Donald Trump’s incoming administration. Mr. Clayton’s experience as a partner at Sullivan & Cromwell LLP on big stock and bond deals—including the 2014 initial public offering of Alibaba Group Holding Ltd.—signals Republicans prefer an SEC chairman who is attuned to the needs of Wall Street firms that prepare the markets when companies go to raise capital.

In one of his few public statements on policy, Mr. Clayton oversaw a 2011 New York State Bar Association report attacking the Obama-era SEC and Justice Department for “zealous” enforcement of laws aimed at American corporate bribery of foreign officials. The paper concluded their actions were “causing lasting harm to the competitiveness of U.S. regulated companies and the U.S. capital markets.”

Mr. Clayton’s background contrasts with that of current Chairman Mary Jo White, a former prosecutor who presided over the SEC in a period when the agency collected record amounts of penalties and disgorged profits from wrongdoers.

Many Republicans liked Ms. White personally but thought her agency’s fines punished shareholders. Mr. Clayton also will be pressed by congressional Republicans to pare back red tape that affects fundraising, chief executives’ compensation and other activities.

“That he is a deal maker rather than a prosecutor... sends a signal to the market of the new administration’s intended approach,” David Goldschmidt, a senior partner at Skadden, Arps, Slate, Meagher & Flom, said in an email.

“Jay Clayton is a highly talented expert on many aspects of financial and regulatory law,” Mr. Trump said Wednesday in an announcement of the choice, “and he will ensure our financial institutions can thrive and create jobs while playing by the rules at the same time.”

“We need to undo many regulations which have stifled investment in American businesses, and restore oversight of the financial industry in a way that does not harm American workers,” Mr. Trump added, telescoping changes he expects from the agency’s new leadership.

Mr. Clayton’s background is a throwback to past SEC chairmen who were named before the financial crisis and came directly from Wall Street, such as Bill Clinton-appointee Arthur Levitt or William Donaldson, who served under George W. Bush.

Mr. Clayton’s resume quickly attracted opposition from Senate Democrats, who have noted that Mr. Trump’s tough criticism of Goldman Sachs and other banks during his campaign seems to have melted away.

Continued in article

Teaching Case from The Wall Street Journal Accounting Weekly Review on January 13, 2017

Here's Why Some Retailers Didn't Have Awful Holidays
by: Miriam Gottfried
Jan 06, 2017
Click here to view the full article on

TOPICS: Discounting, Inventory

SUMMARY: The article finalizes reporting on six visits to four retailers with mid-town Manhattan locations during the Christmas selling season. The reporter tracked discounting by four retailers: the GAP, J.C. Penney, Macy's, and Ralph Lauren. A previous article based on tracking these data was covered in this review; it is listed as the related article.

CLASSROOM APPLICATION: The article may be used in a financial reporting class covering sales trends or in a managerial accounting class.

1. (Introductory) What information has this Wall Street Journal reporter been tracking?

2. (Introductory) Based on holiday sales reports, which of the retailers performed well during the Christmas selling season and which performed poorly?

3. (Advanced) How did the overall company performance compare to the price discounting practices found by this WSJ reporter?

4. (Advanced) How does inventory management help retailers to avoid pricing discounts?

5. (Advanced) Overall, do you think that tracking these individual items helps to understand the trends for the entire retail industry as the author argues? Explain.

Reviewed By: Judy Beckman, University of Rhode Island

Inventory Check: We Went to the Stores
by Miriam Gottfried
Dec 02, 2016
Page: ##

"Here's Why Some Retailers Didn't Have Awful Holidays," by  Miriam Gottfried, The Wall Street Journal, January 6, 2016 ---

Holiday results shed some light on the best way to interpret Heard’s pricing data

It is already clear that the fourth quarter will be rough for many retailers, but there are some notable countercurrents running beneath the broader negative narrative.

Shares of several companies tumbled Thursday after disappointing holiday sales reports from Macy’s, Kohl’s and L Brands. The news wasn’t all bad. Gap said late Thursday that comparable sales rose in November and December and were up a better-than-expected 4% for December alone. That helped retail stocks recover some lost ground on Friday.

The results came just a few days after Heard on the Street paid its sixth and final visit to bricks-and-mortar locations for four retailers—Macy’s, J.C. Penney, Ralph Lauren and Gap. We have been tracking prices on a basket of five items at each store to see whether low inventory has helped retailers avoid discounting. Those that have offered business updates so far shed some light on the best way to interpret our pricing data and the potential read-across for the industry. They also highlight why discounting, in and of itself, isn’t necessarily a bad sign.

Gap’s successful December was driven primarily by 12% growth at Old Navy, which wasn’t part of our pricing experiment. But the Gap brand also posted 1% growth. We had been focusing on the frequent 40% and 50% storewide discounts at Gap, but these were likely planned promotions. The Gap brand was more promotional than the previous year during the period from Dec. 8 to 12, according to data collected by Instinet. But its promotions later in the month weren’t measurably more aggressive than in 2015.

Moreover, the discounting seems to have at least partly achieved its intended goal. After our final visit Tuesday, Gap had sold out of two of the five items we were tracking—more than any of the other retailers. Notably, those were the scarf and the hooded parka, suggesting that Gap did a decent job unloading giftable items and cold-weather gear.

Macy’s said weakness in handbags and watches was responsible for its sales miss. Pricing for the Michael Kors handbag we were tracking varied wildly throughout the six-week period, swinging from 50%-off to full price and then falling again. The bag has been selling for at least 25%-off for the past three weeks. Our Fossil smartwatch data was less conclusive. It was marked down for three of our six visits, but it has been at full price since Christmas.

Penney said Friday that its same-store sales fell a worse-than-expected 0.8% in November and December. While its constant discounts were likely planned promotions, lower prices post-Christmas on the sweater and the slippers may have indicated some excess supply.

Continued in article

Teaching Case from The Wall Street Journal Accounting Weekly Review on January 13, 2017

Retailers Face Hit Under Tax Plan
by: Susan Pulliam, Sarah Nassauer and Richard Rubin
Jan 07, 2017
Click here to view the full article on

TOPICS: Profitability, Tax Law

SUMMARY: A Republican proposal to increase the cost of importing goods by limiting tax deductibility could significantly affect certain retailers. Analysis of the potential impact on both tax liabilities and profitability of several retailers by industry analysts and trade groups is discussed in the article. Questions ask students to demonstrate understanding of the impact of the proposal on taxes and on profitability. Students also are asked to explain their understanding of the factors listed in the article as creating difficulty for making estimates using public data.

CLASSROOM APPLICATION: The article may be used in a corporate tax class or a managerial accounting class.

1. (Introductory) What is the "border-adjusted tax proposal"? Who is making this proposal?

2. (Advanced) Who has analyzed the potential impact of the "border-adjusted tax proposal" on retailers' tax liabilities and profitability? Why are they making this analysis?

3. (Advanced) What factors make it difficult to estimate the impact of this tax proposal by using publicly-available data? List all that you can find in the article and explain your understanding of their impact on estimating taxes and profitability separately.

4. (Advanced) How might such an analysis be improved after initial estimates based on public data?

Reviewed By: Judy Beckman, University of Rhode Island


"Retailers Face Hit Under Tax Plan," by Susan Pulliam, Sarah Nassauer and Richard Rubin, The Wall Street Journal, January 7, 2016 ---

Wal-Mart, Costco and others face higher tax bills under plan to eliminate deductions for imported goods

A Republican proposal aimed at cutting tax rates and keeping jobs in the U.S. risks whacking the earnings of big U.S. retailers by driving up the cost of imported clothes, furniture and other goods.

Among the companies whose earnings are calculated to take a hit under the so-called border-adjusted tax proposal are Wal-Mart Stores Inc., Costco Wholesale Corp., Genuine Parts Co. and Dick’s Sporting Goods Inc., analysts said.

The earnings hit to six big retailers could total nearly $13 billion, according to RBC Capital Markets analyst Scot Ciccarelli, with Best Buy Co.’s annual earnings wiped out. To offset their higher tax bills, retailers would need to increase revenue by raising prices for consumers, he said.

Representatives of Wal-Mart, Genuine Parts and Best Buy declined to comment. A Costco spokesman said it is too early to assess the impact of the tax proposals. Dick’s didn’t return calls for comment or respond to an email


More broadly, the proposed tax adjustments could spell an end to an era of cheap apparel for consumers, according to Brian McGough, an analyst at Hedgeye Risk Management LLC.

In a report released Wednesday, Mr. McGough said consumer apparel prices could rise as much as 15% from the tax plan, “with specialty apparel being the category most at risk given the mix of imported merchandise.”

The proposal would cut the corporate tax rate, let multinational firms repatriate foreign profits and allow companies to write off capital expenses immediately. At the same time, the “border-adjusted” portion of the proposal would impose taxes on imported goods by making imports a nondeductible expense, and exempt exports.

Authors of the Republican tax plan crafted it to spark economic growth and reduce the incentives for U.S. companies to shift jobs, profits and headquarters out of the country.

Gauging the plan’s impact on retailers is difficult because most don’t break out what percentage of their inventory is imported, and even goods produced in the U.S. can rely on imported material. Also, it isn’t clear how any final change in policy will be shaped by a Republican-controlled Congress or a Donald Trump presidency.

Still, many investors expect the U.S. retail industry could be hit particularly hard because of the number of companies selling apparel and household goods made almost exclusively overseas.

In a note to clients Wednesday, Jessica Schoen Mace, an Instinet LLC analyst, said retailers “with a higher percentage of goods sourced from abroad, as well as those with lower product margins, will be more pressured.”

Continued in article

Teaching Case from The Wall Street Journal Accounting Weekly Review on January 13, 2017

Bonds Rebound, and Companies Dive In
by: Ben Eisen
Jan 11, 2017
Click here to view the full article on


SUMMARY: The article covers the record issuance of investment-grade corporate bonds through Tuesday January 10, 2017. The top three issuers are non-U.S. companies with operations and trading in the U.S.: Toyota Motor Corp., Deutsche Telekom AG, and Daimler AG. The author argues that the "Goldilocks'" combination of investors expecting economic rebound, forecasts of easing taxes and regulation, and corporations facing low interest rates is leading to this record issuance based on somewhat pent up demand.

CLASSROOM APPLICATION: The article may be used when covering corporate debt issuance.

1. (Introductory) How much bond indebtedness was issued by highly rated companies in 2016? In these first ten days of 2017?

2. (Advanced) Who are the biggest issuers of corporate bonds in the U.S.? Are these companies headquartered in the U.S.? Or, what makes them qualify for this list "in the U.S."?

3. (Introductory) According to the article, what is the "goldilocks scenario" for large companies at this point in time?

4. (Advanced) How are corporate bonds priced? Specifically explain the relationship to the yield on the 10-year Treasury note. Also comment on the statement in the article that Toyota Motor Corp, Deutsche Telekom and Daimler AG "all traded at a similar yield premium over Treasurys on Tuesday."

5. (Advanced) How does the pricing you describe in answer to question 4 likely lead to bond premiums or discounts upon issuance? How are premiums and discounts then accounted for?

Reviewed By: Judy Beckman, University of Rhode Islan

"Bonds Rebound, and Companies Dive In," by Ben Eisen, The Wall Street Journal, January11 , 2016 ---

Investment-grade debt sales are the most at the start of a year in two decades

So much for the death of the bond market.

For all the talk in recent months of how faster economic growth and higher inflation would spur a sustained move out of fixed-income investments and into stocks, bond prices so far have rallied in 2017 while share-price index gains have slowed.

The yield on the 10-year Treasury note has fallen 0.066 percentage point this year to 2.379%. Bond yields fall when prices rise. That is good news for a market that got hit hard at the end of last year, and it has meant more gains for other bonds, particularly those issued by highly rated companies.

U.S. investment-grade companies, including financial institutions, have issued $61.9 billion of debt in the year through Tuesday, the most for any comparable period in records going back to 1995, according to data provider Dealogic.

Among the biggest issuers in the U.S. in 2017 are Toyota Motor Corp., Deutsche Telekom AG and Daimler AG. The 10-year portions of each sale all traded at a smaller yield premium over Treasurys on Tuesday than when they were issued, a sign that investor appetite for the bonds has been healthy.

The 2017 rebound in bond prices, as nascent as it may be, reflects a sort of goldilocks scenario for large companies, in which investors expect a solid economy and easing taxes and regulations to fuel a renewed boom in corporate profits. That trend, analysts said, is likely to lead to further gains in corporate-debt prices, further driving down yields and potentially enabling more borrowing at relatively low rates.

“I think there was an element of pent-up demand,” said Jon Duensing, deputy chief investment officer at Amundi Smith Breeden, who said his firm had participated in a handful of the recent bond sales.

The healthy demand for new deals counteracts suggestions that investors were apt to exit from the bond market for stocks after the presidential election. Many investors said President-elect Donald Trump’s plans to roll back regulations, cut taxes and enact infrastructure spending would send economic growth higher and push inflation up sharply.

Those prospects helped push Treasury yields higher. The yield on the 10-year note rose nearly three-quarters of a percentage point between the presidential election and mid-December. That pushed down returns on high-grade corporate debt and other bonds.

Continued in article

Teaching Case from The Wall Street Journal Accounting Weekly Review on January 13, 2017

Companies Struggle to Fund Pension Plans in U.K.
by: Nina Trentmann
Jan 10, 2014
Click here to view the full article on

TOPICS: Pensions

SUMMARY: British companies are struggling to meet pension obligations under current worldwide trends in interest rates as well as the special impact of the 2016 Brexit vote. Analyses by PwC, Mercer, and Lane Clark & Peacock compare pension deficit funding in the U.S. and U.K. and, for the U.K., to companies' dividend payouts. One company successfully managing its obligations is Associated British Foods. Questions ask students to review the company's 2016 annual report, referenced in the question and also here which can be useful to show the disclosures under IFRS requirements.

CLASSROOM APPLICATION: The article may be used to introduce pension accounting amid current economic circumstances.

1. (Introductory) What is a pension deficit? How large are these deficits in the United Kingdom and in the United States?

2. (Advanced) What factors have added to pension deficits among U.K. firms? In your answer, include a comment on the impact of interest rates on calculations of long-term liability balances.

3. (Advanced) Why does the author compare FTSE 100 companies' dividend payments to their pension plan contributions? Specifically state how this comparison evidences conflicting demands by two corporate stakeholder groups.

4. (Advanced) What is a defined-contribution pension plan? How does moving corporate plan beneficiaries to a defined contribution plan address the problems highlighted in this article?

5. (Advanced) The article refers to the British company Associated British Foods as an entity which is successfully managing its pension obligations. Access their 2016 annual report at Read discussion of pensions on pages 43 and 122 (or search the term pension to find all disclosures related to this topic). How large was the change in the company's valuation of its pension liability from 2015 to 2016? How often are valuations and funding contribution plans reviewed? What is the company's strategy for managing this large obligation?

Reviewed By: Judy Beckman, University of Rhode Island

"Companies Struggle to Fund Pension Plans in U.K.," by Nina Trentmann, The Wall Street Journal, January 10, 2016 ---

Royal Mail, other U.K. firms face growing funding gap

Royal Mail PLC is trying to figure out how to keep paying for its employees’ pension plan.

The U.K. letter and parcel-delivery company estimates that it needs to contribute more than £1 billion ($1.22 billion) to the plan each year starting April 2018, far more than the £292 million it generated in free cash flow during its 2016 fiscal year.

The company is one of many U.K. firms struggling to fund their defined-benefit pension plans.

Lower-than-expected bond yields following the Brexit vote last June have added to U.K. pension deficits, which swelled to £560 billion, £90 billion higher than the previous year, according to a report released Monday by PricewaterhouseCoopers LLP.

The funding gap is at its highest level since PwC began its tracking in 2012. In the U.S., the estimated 2016 pension deficit for S&P 1500 firms with defined benefit plans is $408 billion, up from $404 billion at the end of 2015, according to consulting firm Mercer Investment Consulting LLC.

Brexit had the biggest short-term impact on pension deficits in 2016, resulting in a one-day increase of £80 billion. The Bank of England’s decision to lower interest rates to 0.25% and to relaunch quantitative easing in August also contributed to the rise.

The gap results from some long-term factors, too. Many pension plans have moved out of stocks into gilts, or U.K. government bonds, and corporate bonds in recent years, meaning they haven’t benefited from the most recent stock-market gains, said David Ellis, head of the bulk pensions insurance advisory practice at Mercer Ltd., part of Mercer Investment Consulting.

Going forward, there is no assurance businesses can close the gap.

Firms with defined-benefit plans have guaranteed a fixed payout to members. This makes companies, not employees, bear the brunt of fluctuating interest rates, bond and gilt yields and inflation.

Expected future returns play a large role when calculating pension deficits, said Raj Mody, global head of pensions at PwC. The PwC report covers all of the U.K.’s nearly 6,000 defined-benefit pension plans, including those of local subsidiaries of international companies. The figure is about one-third of the nation’s gross domestic product.

For CFOs, such plan deficits are a burden on their balance sheets. “Finance chiefs want stable finances. A big defined-benefit pension [plan] is not helping in that regard,” said John Towner, head of origination at Legal & General Group PLC, an insurance firm.

The problem is unlikely to go away soon, as U.K. companies strive to balance short-term shareholder interests and their long-term pension obligations. Such obligations total £2.04 trillion, of which only £1.48 trillion are currently funded, PwC stated.

Continued in article

Teaching Case (on Non-GAAP) from The Wall Street Journal Accounting Weekly Review on January 20, 2017

Big-Bank Earnings: What Not to Look At
by: Michael Rapoport
Jan 12, 2017
Click here to view the full article on

TOPICS: Banking, Non-GAAP

SUMMARY: This WSJ headline subtext sums up the main points of the article: this financial metric that large lenders are touting in their earnings releases can be deceiving. The metric is "return on tangible common equity." JP. Morgan Chase's third-quarter press release from 2016 is referenced in the article and is available at The company defines tangible common equity in item 1A on page 5, "Notes on key performance measures and non-GAAP financial measures." It says, "Tangible common equity represents the firm's common stockholders' equity...less goodwill and identifiable intangible of related deferred tax liabilities. " For publicly-traded companies under SEC jurisdiction, such non-GAAP measures must be reconciled to the most closely related GAAP-basis financial reporting item. JP Morgan Chase presents this reconciliation on p. 9 of the document.

CLASSROOM APPLICATION: The article may be used in any financial reporting class covering banking or non-GAAP reporting.

1. (Introductory) According to the article, JPMorgan Chase's reported 13% return is better than its return on equity calculated in the traditional way. How is return on equity calculated?

2. (Advanced) Refer to the 2016 3rd quarter report by JPMorgan Chase referenced in the article. How is tangible common equity calculated? Why does using this equity measure necessarily always produce a more favorable return percentage than the traditionally calculated return on equity?

3. (Advanced) How does the calculation of tangible common equity "ignore all the costs of acquisitions"?

4. (Introductory) What has been the trajectory over time of using tangible common equity as a metric by JPMorgan and other banks?

Reviewed By: Judy Beckman, University of Rhode Island


"Big-Bank Earnings: What Not to Look At," by Michael Rapoport, The Wall Street Journal, January 20, 2016 ---

This financial metric large lenders are touting in their earnings releases can be deceiving

Investors are looking for higher returns from big banks—but one measure banks are embracing can be deceiving. Some big banks now highlight “return on tangible common equity” in earnings reports, which start landing in investors’ inboxes on Friday. This performance measure typically makes banks look stronger than the more straightforward “return on equity.” In J.P. Morgan Chase’s third-quarter earnings press release last year, for instance, it touted a 13% return on tangible common equity. That looked better than its 10% return on common equity, which was only in line with banks’ theoretical cost of capital.

Banks say the tangible-equity return number helps investors gauge success in putting core capital to work. Investors should be wary. Return on tangible equity is a non-GAAP measure that doesn’t follow generally accepted accounting principles—something J.P. Morgan didn’t make clear in its release. The Securities and Exchange Commission has been warning companies in recent months about placing too much emphasis on such ersatz measures, although it hasn’t addressed banks’ use of return on tangible equity during its latest push. Tangible equity excludes intangible assets like goodwill created from acquisitions. When those assets are stripped out, earnings are measured against a smaller base, boosting the return figure. “It’s a perfect metric that ignores all the costs of acquisitions,” says David Trainer, chief executive of New Constructs, an investment-research firm. J.P. Morgan has $47.3 billion in goodwill on its balance sheet; Bank of America has $69.7 billion. At least 28 banks and other financial companies disclosed tangible-equity measures in SEC filings detailing their third-quarter results, according to consulting firm Audit Analytics. In some cases the shift to return on tangible equity gave banks a more favorable metric to tout just when it was most useful to them. At J.P. Morgan, return on tangible equity was just another line item in its financial tables back in 2011. From then on, the bank has moved it higher in releases; it has been featured in the headline section since late 2013. The change happened as banks were struggling to post returns much above their theoretical cost of capital. Bank of America had a return on average tangible common equity of 10.3% in the third quarter versus a return on average common equity of just 7.3%. It has included the non-GAAP number on the first page of its earnings releases since the second quarter of 2015—previously it was just a line item. BofA identifies it as non-GAAP and features it alongside the comparable GAAP number, although the non-GAAP disclosure is in footnotes deep in its releases.

Although investors have been starved for decent returns in recent years, they should pass when banks offer them junk food

Banks say the tangible-equity return number helps investors gauge success in putting core capital to work. Investors should be wary.

Return on tangible equity is a non-GAAP measure that doesn’t follow generally accepted accounting principles—something J.P. Morgan didn’t make clear in its release. The Securities and Exchange Commission has been warning companies in recent months about placing too much emphasis on such ersatz measures, although it hasn’t addressed banks’ use of return on tangible equity during its latest push.

Tangible equity excludes intangible assets like goodwill created from acquisitions. When those assets are stripped out, earnings are measured against a smaller base, boosting the return figure.

“It’s a perfect metric that ignores all the costs of acquisitions,” says David Trainer, chief executive of New Constructs, an investment-research firm. J.P. Morgan has $47.3 billion in goodwill on its balance sheet; Bank of America has $69.7 billion.

At least 28 banks and other financial companies disclosed tangible-equity measures in SEC filings detailing their third-quarter results, according to consulting firm Audit Analytics.

In some cases the shift to return on tangible equity gave banks a more favorable metric to tout just when it was most useful to them. At J.P. Morgan, return on tangible equity was just another line item in its financial tables back in 2011. From then on, the bank has moved it higher in releases; it has been featured in the headline section since late 2013. The change happened as banks were struggling to post returns much above their theoretical cost of capital.

Bank of America had a return on average tangible common equity of 10.3% in the third quarter versus a return on average common equity of just 7.3%. It has included the non-GAAP number on the first page of its earnings releases since the second quarter of 2015—previously it was just a line item. BofA identifies it as non-GAAP and features it alongside the comparable GAAP number, although the non-GAAP disclosure is in footnotes deep in its releases.

Continued in article

Teaching Case from The Wall Street Journal Accounting Weekly Review on January 20, 2017

EPA Action Highlights Fiat's Financial Weakness
by: Stephen Wilmot
Jan 14, 2017
Click here to view the full article on

TOPICS: Contingent Liabilities

SUMMARY: U.S. regulators have accused Fiat of using software on its diesel-powered Jeep Grand Cherokee SUVs and Ram pickups that allowed them to spew illegal amounts of pollution into the air. At this point, the software itself has not been deemed illegal as in the case of Volkswagen, but the company is accused of not having properly disclosed the software. The legality of the undisclosed software has not yet been determined.

CLASSROOM APPLICATION: The article may be used in covering contingent liabilities related to environmental regulatory requirements.

1. (Introductory) What is the accusation leveled at automotive company Fiat Chrysler by the Environmental Protection Agency (EPA)?

2. (Introductory) How does the accusation against Fiat Chrysler compare to that against Volkswagen AG?

3. (Advanced) Refer to the related graphic entitled "Taking Stock." How did the stock price react to this EPA announcement?

4. (Advanced) Is the Fiat Chrysler stock price a reaction to a known amount of fines by the EPA or to something else? Explain.

5. (Advanced) What is the accounting implication of this EPA announcement? Specifically answer what you think the company will be required to report, given the status of the EPA announcement and the company's statements so far.

Reviewed By: Judy Beckman, University of Rhode Island

Fiat Chrysler Used Emissions-cheating Software, EPA Says
by Chester Dawson and Mike Spector
Jan 12, 2017
Online Exclusive

"EPA Action Highlights Fiat's Financial Weakness," by Stephen Wilmot, The Wall Street Journal, January 14, 2016 ---

It’s still early in Fiat Chrysler’s regulatory drama, but it looks like the company is in a better position versus the regulators than Volkswagen It’s the company’s finances that make it vulnerable.

Chief Executive Sergio Marchionne was quick to stress the differences between his company’s predicament and that of Volkswagen in his public response to Thursday’s allegations by U.S. environmental authorities.

His denial is a key difference: Volkswagen had already admitted the presence of so-called defeat devices--illegal software patches that reduce emissions of nitrogen oxides during testing--when the Environmental Protection Agency announced its charges. Meanwhile, the key technical difference is that the EPA is not yet accusing Fiat Chrysler of installing illegal software patches on its diesel engines, but of failing to disclose potentially legal ones. The legality of the undisclosed patches remains under investigation.

This is where the politics comes in: The EPA is about to get a new boss. The assumption is that Scott Pruitt,Donald Trump’s nominee and a long-time critic of the department he is likely to run, will be more business-friendly. Maybe. But it will be hard for him to bury the Fiat Chrysler investigation now that it is in the open. BP’s Gulf oil spill and Volkswagen’s emissions scandal, have showed the American public’s appetite for a corporate villain, particularly ones with foreign roots.

This is a volatile situation: Fiat Chrysler’s shares opened lower in New York Friday after sentiment deteriorated in Milan, where they also trade. The share-price reaction makes sense given the company’s debt pile, which was roughly €6.5 billion at the end of September. By comparison Volkswagen had €31 billion of net cash. Fiat Chrysler’s problems with U.S. authorities look much smaller, but it is worse placed to deal with them.

Continued in article

Teaching Case from The Wall Street Journal Accounting Weekly Review on January 20, 2017

Trucking Firm Hit by Setback on Wages
by: Brian Baskin
Jan 13, 2017
Click here to view the full article on

TOPICS: payroll, Taxes

SUMMARY: "A federal judge in Arizona has ruled that Swift Transportation Co. improperly treated some of its drivers as contractors....The ruling comes after a seven-year legal battle...stemming from employee-classification claims cases backed by the International Brotherhood of Teamsters." Questions ask students to understand the payroll reporting and tax differences stemming from classification as employee versus independent contractor. NOTE: INSTRUCTORS MAY WANT TO REMOVE THE FOLLOWING BEFORE DISTRIBUTION TO STUDENTS. The web page on classifying employees as either independent contractor or employee is located at:

CLASSROOM APPLICATION: The article may be used in a class covering payroll taxes--either financial reporting or corporate taxation.

1. (Introductory) Why, and against what type of entities, have lawsuits been brought by various types of vehicle drivers?

2. (Introductory) Who is backing these lawsuits? Why do you think this organization is backing these suits?

3. (Advanced) What payroll obligations must companies satisfy for individuals classified as employees?

4. (Advanced) How are these obligations reduced for individuals classified as independent contractors? What reporting must be provided to independent contractors?

5. (Advanced) What criteria are considered in determining whether individuals are employees or independent contractors? How are these classification criteria used both for company accounting systems and in the lawsuits by drivers? Reference your source for responding to these questions.

Reviewed By: Judy Beckman, University of Rhode Island

"Trucking Firm Hit by Setback on Wages," by Brian Baskin, The Wall Street Journal, January 13, 2016 ---

Ruling finds trucking company improperly treated some of its drivers as contractors rather than employees

A federal judge in Arizona has ruled that Swift Transportation Co. improperly treated some of its drivers as contractors rather than employees, a legal setback that opens the biggest U.S. truckload carrier to claims for millions of dollars in back wages.

The ruling, which comes after a seven-year legal battle, affects only five drivers but could open up Swift to similar claims from thousands of truckers who drove for the Phoenix-based company over the last decade.

The plaintiffs say they are owed compensation paid to employees but withheld from “owner-operators,” or drivers who lease trucks from a Swift subsidiary. Swift had argued that those drivers are independent contractors, but U.S. District Judge John Sedwick in his decision last week wrote that truckers driving leased big rigs “as a practical matter, had to drive for Swift,” and that the company “had full control of the terms of the relationship.”

The case is similar to lawsuits brought by drivers for Uber Technologies Inc., FedEx Corp., Inc. and other companies that operate large fleets of vehicles. The largest cases have involved tens of thousands of drivers and resulted in settlements totaling hundreds of millions of dollars.

Trucking companies operating around the nation’s ports have faced hundreds of employee-classification claims, in a campaign backed by the International Brotherhood of Teamsters, which would gain a path toward organizing drivers if they are classified as company employees rather than independent operators. Long-haul trucking companies have been targeted less frequently for their use of contract drivers, though a victory against one of the biggest carriers could open up more legal actions, analysts say.

Contract drivers aren’t eligible for many protections given to employees, including some minimum wage laws, and often are ineligible for employer-provided health insurance and other benefits. Some owner-operators say they prefer their independent status, which allows them to jump from fleet to fleet chasing better pay and consistent work.

But Dan Getman, an attorney representing the Swift drivers, said large, long-haul trucking companies “shift the various risks of truck operation onto drivers” by locking many of these contractors into monthly lease payments, effectively forcing them to drive for one fleet and on that company’s terms.

Swift filed a notice of appeal to the U.S. Court of Appeals for the Ninth Circuit on Wednesday. Even if Judge Sedwick’s ruling is upheld, both sides would face a fight over which drivers should be retroactively classified as employees, making estimating Swift’s potential losses difficult. In the quarter ended in September, Swift averaged 17,480 active drivers, of which 4,391 were classified as owner-operators, according to a filing with the Securities and Exchange Commission.

In November, Swift set aside $22 million in estimated payouts to 1,300 drivers for Central Refrigerated, a trucking fleet the company acquired in 2013. A class-action against Swift itself would be much larger, involving up to 15,000 drivers, said Mr. Getman, who also represents the Central Refrigerated drivers.

Continued in article

Teaching Case on Revenue Recognition from The Wall Street Journal Accounting Weekly Review on January 20, 2017

Foundation Battles Over Pledges
by: Ryan Dezember
Jan 13, 2017
Click here to view the full article on

TOPICS: Nonprofit Accounting, Revenue Recognition

SUMMARY: The article describes challenges in collecting from the estate of Aubrey McClendon faced by the nonprofit entity which runs the Ronald Reagan Presidential Library and Museum. The article describes the legal process for attempting to collect on pledges made by deceased persons prior to their passing away. Questions ask students to think about the financial reporting implications of the issues discussed in the article, though the article itself does not address the accounting concerns. NOTE: INSTRUCTORS MAY WANT TO REMOVE THE FOLLOWING BEFORE DISTRIBUTING TO STUDENTS. Authoritative guidance by the FASB on these topics is given in Accounting Standards Codification (ASC) paragraph 958-605-25-2,. This section on revenue recognition by not-for-profit entities states that an unconditional promise to give shall be recognized when it is received. However, to be recognized there must be sufficient evidence in the form of verifiable documentation that a promise was made and received. Regarding collectibility issues, 958-605-30-4 states; If present value techniques are used to measure the fair value of unconditional promises to give, the entity shall determine the amount and timing of the future cash flows of unconditional promises to give cash (or, for promises to give noncash assets, the quantity and nature of assets expected to be received). In making that determination, the entity shall consider all the elements in paragraph 820-10-55-5, including the following: • a. When the receivable is expected to be collected • b. The creditworthiness of the other parties • c. The entity's past collection experience • d. The entity's policies concerning the enforcement of promises to give • e. Expectations about possible variations in the amount or timing of the cash flows (that is, the uncertainty inherent in the cash flows) • f. Other factors concerning the receivable's collectibility.

CLASSROOM APPLICATION: The article may be used in a financial reporting class covering not-for-profit entities.

1. (Advanced) How do not-for-profit entities (NFPs) show contributions in their financial reports?

2. (Advanced) At what point in time do NFPs reflect contributions in their financial reports, at the time of pledging by the donor or sometime later? Cite your source for your answer.

3. (Introductory) Who decides whether an estate will make donations pledged by a deceased prior to passing away?

4. (Introductory) How challenging has it been for NFPs to collect on pledges made by Aubrey McClendon prior to his passing? What are the implications for entities which try to make such collections?

5. (Advanced) What do these collections challenges imply about appropriate financial reporting for the pledged collections?

Reviewed By: Judy Beckman, University of Rhode Island

"Foundation Battles Over Pledges," by Ryan Dezember, The Wall Street Journal, January 13, 2016 ---

Foundation is looking to recover $960,000 the late oilman allegedly pledged

In early 2008, now-deceased Oklahoma oil man Aubrey McClendon pledged nearly a million dollars to the Ronald Reagan Presidential Foundation as part of its drive to raise money for the celebration of what would have been the former president’s 100th birthday, according to court papers.

But later that year, the financial crisis diminished Mr. McClendon’s fortune by sending commodity prices and shares of the energy giant he co-founded, Chesapeake Energy Corp., into a tailspin.

Mr. McClendon, according to papers the foundation filed in his probate case, never made the first of his planned donations, a $175,000 installment scheduled for the end of 2008. In the years that followed, the organization says, it has only received $15,000 of the $975,000 that he promised before he died last year in an Oklahoma City car crash. Now, the foundation is pursuing the rest.

The nonprofit, which runs the Ronald Reagan Presidential Library and Museum in Simi Valley, Calif., has asked the judge overseeing the unwinding of Mr. McClendon’s estate to reconsider its request for $960,000 after its claim was rejected by lawyers representing the oilman’s estate, according to filings made in Oklahoma City district court.

In a probate matter, lawyers for the deceased can reject a claim, and claimants can ask a judge to revisit that decision.

Mr. McClendon’s death has raised questions about how aggressively recipients of pledges should pursue money that had been promised before a person’s death. Lawyers say that while universities and nonprofit groups are within their rights to pursue unfulfilled pledges, the aggressive pursuit of them can endanger their ability to secure firm commitments from potential donors down the line and alienate the heirs of benefactors.

Last year, Duke University sought nearly $10 million that Mr. McClendon had promised to the school, his alma mater, but hadn’t paid before he died last March. Duke withdrew its claim after it was reported by The Wall Street Journal. “While submitting such claims is generally a routine procedure, in this case our action was misperceived as adversarial to the McClendon family, which was never the intention,” a Duke spokesman said after the university dropped its claim.

Charitable pledges are often legally binding if they’ve been made in writing, lawyers say. Documented pledges typically have standing similar to claims from other unsecured creditors in estate cases like that of Mr. McClendon, according to legal experts.

Nonprofit groups are among the many creditors who have emerged in Oklahoma City probate court claiming debts owed by the late wildcatter, who borrowed heavily to finance new oil and gas ventures after he was ousted from Chesapeake in 2013. His strained financial situation doesn't appear to have slowed his philanthropy, which was famous in his hometown and in Durham, N.C., where he and his wife had given more than $20 million to Duke.

Lawyers untangling the web of assets and liabilities he left behind have generally rejected claims stemming from unfulfilled charitable pledges, court records show.

A pair of claims made by the Boy Scouts of America, for $500,000 and $5,000, were rejected in August. So was a $7,500 claim from the Arts Council of Oklahoma City, which said an oil-and-gas venture launched by Mr. McClendon after leaving Chesapeake had agreed to sponsor a local arts festival this year but never sent a check.

Continued in article

Teaching Case from The Wall Street Journal Accounting Weekly Review on January 20, 2017

How Taxpayers Fight, and Win, Against IRS
by: Laura Saunders
Jan 14, 2017
Click here to view the full article on

TOPICS: Individual Taxation, IRS

SUMMARY: "Are you dreaming of taking the Internal Revenue Service to court? Your chances of winning may not be as bad as you think, and it isn't crazy to represent yourself." This article caption appeals to individuals under the "Weekend Investor" section of the Wall Street Journal. The article quotes a California practicing CPA who supported a client in their own case against the IRS and won. One question asks students to consider their own viewpoint in such a practicing CPA role.

CLASSROOM APPLICATION: The article may be used in a class on individual taxation.

1. (Introductory) From what report is the information in this article taken? What office is the author and why is it prepared?

2. (Introductory) How many cases between the IRS and taxpayers were heard in court between June 2015 and May 2016? What were the major items disputed?

3. (Advanced) How often do taxpayers represent themselves against the IRS? How often do they win? According to the article, what is the common thread helping these taxpayers in their success?

4. (Advanced) A CPA in Richmond, California, describes advising clients in representing themselves against the IRS. Suppose you are such a practicing CPA. What would your clients' choices be? How would you advise such clients?

Reviewed By: Judy Beckman, University of Rhode Island

"How Taxpayers Fight, and Win, Against IRS," by Laura Saunders, The Wall Street Journal, January 14, 2016 ---

Judge rules a cat with a pink bow is not income

Are you dreaming of taking the Internal Revenue Service to court? Your chances of winning may not be as bad as you think, and it isn’t crazy to represent yourself.

These insights come from data compiled by National Taxpayer Advocate Nina Olson, who is charged with representing taxpayer interests before the IRS and Congress. Each year, Ms. Olson publishes a deep dive into the IRS’s civil litigation as part of her annual report to Congress, which was released this week.

This year’s report analyzes results from 609 federal tax decisions on the most-litigated code sections for the 12 months ended May 31. Most of the cases were in Tax Court, a specialized forum devoted to taxpayer conflicts with the IRS.

A big winner in the recent survey was billionaire Sumner Redstone. A judge ruled that because Mr. Redstone relied on professional advice, he didn’t owe a penalty of up to $368,800, plus millions in interest, for a gift-tax return he should have filed in 1972 but didn’t.

The IRS had the upper hand in most of the cases surveyed by Ms. Olson. The agency won about three-quarters of them outright, while taxpayers won only about 10% outright. The rest were split decisions.

But overall results obscure important little victories. In the largest category of cases, which involved a 20% penalty for negligence and large underpayments, taxpayers won total or partial victories in about 30% of decisions. Taxpayers also got good news in about one-third of cases on business expense write-offs, the fifth-largest category.

A common thread running through many decisions was record-keeping. For example, a Tax Court judge ruled that an Arizona couple with a landscaping business didn’t owe the IRS about $12,000 in penalties because they had good records showing they relied on the advice of a tax preparer.

In another case, a Missouri couple won a deduction for nearly $7,000 of car and truck expenses for a small business. While they didn’t have the written records the IRS likes to see, the judge believed their oral testimony, which was “specific and detailed.”

Careful records don’t help if a deduction simply isn’t allowed, however.

When a Maryland couple with their own company and two children under 12 showed the Tax Court a spreadsheet listing “business expenses” for vendors such as Macy’s, Toys “R” Us, and Hair Cuttery, the judge disallowed the deductions because they were personal expenses for the benefit of the children.

Ms. Olson’s report also offered interesting details on taxpayers and their representation in court. Overall, taxpayers represented themselves in about 60% of the cases, winning about 17% of the time. By contrast, taxpayers represented by approved specialists such as lawyers won about 22% of their cases—which isn't much higher.

“If taxpayers are prepared and have good facts, good records, and good manners, it’s entirely possible for them to represent themselves and win,” says Harry Bergland, a CPA in Richmond, Calif., who advised a couple who represented themselves in Tax Court and won late last year.

Taxpayers in one category of cases nearly always argue on their own behalf—those fighting a penalty up to $25,000 for making frivolous arguments to the IRS. These taxpayers often lose.

Continued in article



Teaching Case from The Wall Street Journal Accounting Weekly Review on January 20, 2017


", The Wall Street Journal, January , 2016 ---


Continued in article




Humor for January 2017

Over 1,000 Clean Jokes Served Up by Jim Martin ---

Dave Barry's Year in Review ---

Last words of famous people ---
Bob Jensen plans to ask for an email server.

Baby Animals Video (click in the middle of the starting image) ---

"Martin Luther had a mug around which were three rings,” wrote Mr. Bainton. “The first he said represented the Ten Commandments, the second the Apostle’s Creed, and the third the Lord’s Prayer. Luther was highly amused that he was able to drain the glass of wine through the Lord’s Prayer, whereas his friend Agricola could not get beyond the Ten Commandments."
Jensen Comment
In Martin Luther's case the mug shoud've been filled with a laxative since his constipation is legendary.

If Economists Want to be Trusted Again, They Should Learn to Tell Jokes ---

Pre-birth fetus exercise and schooling
First came kindergarten.

Then came preschool.

Then came pre-preschool.

Now comes pre-birth (I saw this link in today's Chronicle of Education newsletter)
Fisher-Price Releases New In Utero Fetal Activity Gym ---

Jensen Comment
Whereas schooling after a baby is born usually makes it easier for a mother to work at a job, the Ultero Fetal Activity Gym makes life on the job more cumbersome.


Old Puns Forwarded by Paula

Puns for Educated Minds
1. The fattest knight at King Arthur's round table was Sir Cumference. He acquired his size from too much pi.
2. I thought I saw an eye doctor on an Alaskan island, but it turned out to be an optical Aleutian.
3. She was only a whiskey maker, but he loved her still.
4. A rubber band pistol was confiscated from algebra class, because it was a weapon of math disruption.
5. No matter how much you push the envelope, it'll still be stationery.
6. A dog gave birth to puppies near the road and was cited for littering.
7. A grenade thrown into a kitchen in France would result in Linoleum Blownapart.
8. Two silk worms had a race. They ended up in a tie.
9. A hole has been found in the nudist camp wall. The police are looking into it.
10. Time flies like an arrow. Fruit flies like a banana.
11. Atheism is a non-prophet organization.
12. Two hats were hanging on a hat rack in the hallway. One hat said to the other: 'You stay here; I'll go on a head.'
13. I wondered why the baseball kept getting bigger. Then it hit me.
14. A sign on the lawn at a drug rehab center said: 'Keep off the Grass.'
15. The midget fortune-teller who escaped from prison was a small medium at large.
16. The soldier who survived mustard gas and pepper spray is now a seasoned veteran.
17. A backward poet writes inverse.
18. In a democracy it's your vote that counts. In feudalism it's your count that votes.
19. When cannibals ate a missionary, they got a taste of religion.
20. If you jumped off the bridge in Paris, you'd be in Seine.
21. A vulture boards an airplane, carrying two dead raccoons. The stewardess looks at him and says, 'I'm sorry, sir, only one carrion allowed per passenger.'
22. Two fish swim into a concrete wall.  One turns to the other and says 'Dam!'
23. Two Eskimos sitting in a kayak were chilly, so they lit a fire in the craft. Unsurprisingly it sank, proving once again that you can't have your kayak and heat it too.
24. Two hydrogen atoms meet. One says, 'I've lost my electron.' The other says 'Are you sure?' The first replies, 'Yes, I'm positive.'
25. Did you hear about the Buddhist who refused Novocain during a root canal? His goal: transcend dental medication.
26. There was the person who sent ten puns to friends, with the hope that at least one of the puns would make them laugh.  No pun in ten did.

Forwarded by Paula


A paraprosdokian is a figure of speech in which the latter part of a sentence is unexpected -
and often times humorous:
1. If I had a dollar for every girl that found me unattractive, they'd eventually find me attractive.
2. I find it ironic that the colors red, white, and blue stand for freedom, until they're flashing behind you.
3. Today a man knocked on my door and asked for a small donation towards the local swimming pool, so I gave him a glass of water.
4. Artificial intelligence is no match for natural stupidity.
5. I'm great at multi-tasking--I can waste time, be unproductive, and procrastinate all at once.
6. If you can smile when things go wrong, you have someone in mind to blame.
7. Take my advice ;  I'm not using it.
8. My wife and I were happy for twenty years; then we met.
9. Hospitality is the art of making guests feel like they're at home when you wish they were.
10. Behind every great man is a woman rolling her eyes.
11. Ever stop to think and forget to start again?
12. Women spend more time wondering what men are thinking than men spend thinking.
13. He who laughs last thinks slowest.
14. Is it wrong that only one company makes the game Monopoly?
15. Women sometimes make fools of men, but most guys are the do-it-yourself type.
16. I was going to give him a nasty look, but he already had one.
17. Change is inevitable, except from a vending machine.
18. I was going to wear my camouflage shirt today, but I couldn't find it.
19. If at first you don't succeed, skydiving is not for you.
20. Sometimes I wake up grumpy; other times I let him sleep.
21. If tomatoes are technically a fruit, is ketchup a smoothie?
22. Money is the root of all wealth.


23. No matter how much you push the envelope, it'll still be stationery.



When they market a self-driving exercise bike I'll buy one ---
Bob Jensen


You know you''re old when you have a terrible morning after feeling and you did nothing the night before to deserve it.


Sign outside a Catholic confessional
"If you killed a politician please don't take time to confess it. You need not confess public service work.


Sometimes the grass is greener on the other side because it's been fertilized with more bullshit.


Humor January 2017 ---

Humor December 2016 --- 

Humor November 2016 --- 

Humor October 2016 ---

Humor September 2016 ---

Humor August  2016 ---

Humor July  2016 ---  

Humor June  2016 ---

Humor May  2016 ---

Humor April  2016 ---

Humor March  2016 ---

Humor February  2016 ---

Humor January  2016 ---

Tidbits Archives ---

And that's the way it was on January 31, 2017 with a little help from my friends.


Bob Jensen's gateway to millions of other blogs and social/professional networks ---

Bob Jensen's Threads ---

Bob Jensen's Blogs ---
Current and past editions of my newsletter called New Bookmarks ---
Current and past editions of my newsletter called Tidbits ---
Current and past editions of my newsletter called Fraud Updates ---
Bob Jensen's past presentations and lectures ---   

Free Online Textbooks, Videos, and Tutorials ---
Free Tutorials in Various Disciplines ---
Edutainment and Learning Games ---
Open Sharing Courses ---

Bob Jensen's Resume ---

Bob Jensen's Homepage ---

Accounting Historians Journal ---  and
Accounting Historians Journal
Accounting History Photographs ---