March 2016

Bob Jensen's New Bookmarks for March 2016

Bob Jensen at Trinity University 


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

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

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

 

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

How to Download IRS Forms from the IRS ---
https://www.irs.gov/pub/irs-pdf/?C=M;O=D

On-This-Day-History ---
http://www.on-this-day.com/
Also see http://www.mybirthdayfacts.com/#facts




Recommendations for Change on the American Accounting Association's
Notable Contributions to Accounting Literature Award

http://www.trinity.edu/rjensen/TheoryNotable.htm

March 28, 2016 reply from Paul Williams

Bob, Hurray for you!! The AAA is still the last remaining Politburo on earth. Like Russian generals with medal strewn chests, the Notable awards process is truly a farce. The same applies to the Seminal Contribution award; does anyone know how that process works? It mustn't work very well because if we are to believe in the wisdom of the process nothing of any worth was written before 1968. The two Notable exceptions were the result of selection committees that were put together by the AAA to create the appearance that it was taking diversity seriously. For the Notable Contribution why do we need a Nominating Committee and a Selection Committee? Because the nominating committee is a way to let the peons participate but deny them any power to actually decide what is or is not noteworthy (as if within a five year period that is possible). Here is a study for someone to do. Two awards, the Horizons and Issues best papers, are by a vote of the membership. All of the others are by a committee whose members are selected, I assume, by the "Board. My sense is that there is a dramatic contrast between who wins by vote and who wins by committee. Tony Tinker and Tony Puxty published a book a number of years ago titled Policing Accounting Knowledge, which documents with actual cases of how the review and awards process at AAA worked in the past. Until the bylaws are changed to allow a more democratic selection of directors of research and publication nothing is going to happen. In former AAA president Gregory Waymire's white paper "Seeds of Innovation" he made the following assessment of the status of the U.S. academy's premier research: "As a result, I believe our discipline is evolving towards irrelevance within the academy and the broader society with the ultimate result being intellectual irrelevance and eventually extinction." That assessment is spot on, but when a leader of the academy apparently is powerless to alter the course, it indicates how firmly entrenched and institutionalized the intellectual mindset of the AAA is. Until it takes the view that the purpose of research and writing is not to garner politically correct academic reputations but to address serious and interesting questions then we will become extinct and no one will even notice. Our plenary speaker the last time our meeting was in Anaheim was Diedre McCloskey whose message was the message that Bob has been harping on for years -- the mindlessness of regressions and obsession with p values. Did it have any effect? Just look at the content of our so-called U.S. based premier journals. One huge linear model after another utilizing data completely ill-suited to the task. Bob: Guess when we get old the Don Quixote in us comes out. I wish you well.

Bob, Addenda to my previous rant. Your point about replication is more significant than some seem to appreciate. No archival study that I know of has ever been literally replicated. Even worse none of those studies can be replicated because the people who did them violate one of the fundamental "ethics" of science. Every laboratory scientist must maintain a log book which describes in great detail how the result of a particular experiment was produced, i.e., a complete recipe that permits an independent scientist to actually replicate the study in its entirety to simply validate the knowledge claim being made by the scientist. Without that capacity, the claim being made is merely an anecdote (think of the Jim Hunton affair). It should be sobering to an academy to realize that the corpus of its knowledge is simply a collection of anecdotes. "Anecdotal evidence"-- the ultimate put-down, yet most of our evidence is little more than anecdotes.


Accounting History Corner
IFRS History Before and After 2007

IFRS – Ten Years Later
SSRN, February 26, 2016
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2745245

Author

Ray Ball University of Chicago

Abstract

A decade ago, the near-simultaneous adoption of IFRS in over one hundred countries could fairly have been described as a “brave new world” in financial reporting. Any systems innovation, and especially an innovation of such importance and magnitude, thrusts those involved (companies, users and accountants) into the unknown. There was good reason to expect success, based largely on widespread enthusiasm for international standards and, behind that, recognition of the strong forces of globalization. Nevertheless, there were risks involved and there was limited a priori evidence to guide the decision makers. A decade later, this is still the case. Globalization remains a potent economic and political force, and drives the demand for globalization in accounting. Nevertheless, most political and commercial activity remains local, so adoption of uniform rules does not by itself lead to uniform reporting behavior around the world. For many of the claimed benefits of IFRS adoption to be realized, uniform implementation would have to occur in a wide range of countries, which seems unlikely and requires more than simply creating regulatory enforcement mechanisms. Some evidence of actual outcomes from IFRS adoption has come to light but, as will be argued below, by and large the evidence to date is not very useful. So IFRS adoption is an innovation of historical proportions whose worldwide effects remain somewhat uncertain.

Editor's note: This commentary, based on a lecture at the 2011 American Accounting Association Annual Meeting in Denver, CO, was invited by Senior Editor John Harry Evans III, consistent with the AAA Executive Committee's goal to promote broad dissemination of the AAA Presidential Scholar Lecture.

I have drafted this paper based on my Presidential Scholar address at the American Accounting Association Annual Meeting on August 10, 2011 in Denver, Colorado. I gratefully acknowledge the comments on earlier drafts by Kees Camfferman, Jim Leisenring, Harry Evans, Paul Pacter, and Kay Stice. I am solely responsible for what remains.

 
 
ABSTRACT:

In this article, I undertake to review the major developments and turning-points in the evolution of the IASC, followed by the evolution of the IASB. At the conclusion, I suggest five challenges facing the IASB.

Jensen Comment
Also See
Financial Reporting and Global Capital Markets:
A History of the International Accounting Standards Committee, 1973-2000

by Kees Camfferman and Stephen A. Zeff
ISBN-13: 978-0199296293
ISBN-10: 0199296294
Oxford University Press; First Edition (May 17, 2007)

Bob Jensen's threads on accounting history ---
http://www.trinity.edu/rjensen/theory01.htm#AccountingHistory


The Science Crusades Against Regression Analysis and Statistical Inference Testing

"Leading Economist Stuns Field by Deciding to Become a Woman," by Robin Wilson,  Chronicle of Higher Education, February 16, 1996 ---
http://chronicle.com/article/Leading-Economist-Stuns-Field/96442?cid=cr&utm_source=cr&utm_medium=en&elqTrackId=afc108a635e9461f99054666208e6fba&elq=643abf6e991646b0add1ae54b2ff6c9a&elqaid=8325&elqat=1&elqCampaignId=2707

"The Lives of Deirdre McCloskey:  Her gender change may be the least iconoclastic thing about her," by Alexander C. Kafka, Chronicle of Higher Education, March 20, 2016 ---
http://chronicle.com/article/The-Lives-of-Deirdre-McCloskey/235721?cid=cr&utm_source=cr&utm_medium=en&elqTrackId=52356824c4854953b33d7bf0754f7113&elq=643abf6e991646b0add1ae54b2ff6c9a&elqaid=8325&elqat=1&elqCampaignId=2707

"Scholars Talk Writing: Deirdre McCloskey," by Rachel Toor, Chronicle of Higher Education, March 20, 2016 ---
http://chronicle.com/article/Scholars-Talk-Writing-Deirdre/235767?cid=trend_right_a

The Cult of Statistical Significance:  How Standard Error Costs Us Jobs, Justice, and Lives, by Stephen T. Ziliak and Deirdre N. McCloskey (Ann Arbor:  University of Michigan Press, ISBN-13: 978-472-05007-9, 2007)

My threads on Deidre McCloskey and my own talk are at
http://www.cs.trinity.edu/~rjensen/temp/DeirdreMcCloskey/StatisticalSignificance01.htm

 

Bob Jensen's threads on "The Crusade Against Regression Analysis" and Misleading Statistical Inference in General ---
http://www.trinity.edu/rjensen/theory01.htm#WhatWentWrong
Accountics scientists will probably be the last bastion of defense of misleading science and research. It comes as no surprise that they do not encourage validation and replication of their "research" findings ---
http://www.trinity.edu/rjensen/TheoryTar.htm

"'Statistically Significant' Doesn't Mean 'Right'," by Faye Flam, Bloomberg View, March 18, 2016 ---
http://www.bloombergview.com/articles/2016-03-18/-statistically-significant-doesn-t-mean-right

In response to charges that their field is churning out unreliable science, psychologists this month issued a defense that may be tough to dispute. At issue was a claim, published in the journal Science, that only 39 of 100 experiments published in psychology papers could be replicated. The counterpoint, also published in Science, questioned the assumption that the other 61 of the results must have been wrong.

If two experimental results are in conflict, who’s to say the original one was wrong and not the second one? Or maybe both are wrong if, as some argue, there’s a flaw in the way social scientists analyze data.

This is an important puzzle, given the current interest in drawing conclusions from huge sets of data. And it's not just a problem for psychologists. Researchers have also had trouble replicating experimental results in medicine and economics, creating what's been dubbed "the replication crisis."

Some insights come from a new paper in the Journal of the American Medical Association. While previous discussions of the replication crisis have focused on the way scientists misuse statistical techniques, this latest paper points to a human fallibility component – a marketing problem, which boils down to a universal human tendency, shared by scientists, to try to put their best foot forward.

At the center of both the math and the marketing problem is the notion of statistical significance – roughly, a measure of the odds of getting a given result due to chance. Computing statistical significance is a way to protect scientists from being fooled by randomness. People’s behavior, performance on tests, cholesterol measures, weight and the like vary in a random way. Statistical significance tests can prevent scientists from mistaking such fluctuation for the workings of a drug or the miracle properties of artichokes.

Statistical significance in medicine and social science is expressed as a p value, which represents the odds that a result would occur by chance if there’s no effect from the diet pills or artichokes being tested. Popular press accounts make much of their potential for trouble in the hands of scientists. A headline at the website "Retraction Watch" claimed, "We’re Using a Common Statistical Test All Wrong," and Vox ran with "An Unhealthy Obsession with P-values is Ruining Science."

It'll take more than that to ruin science, though, since many fields don’t use p values the way clinical researchers or social scientists do. The problem, as JAMA author John Ioannidis sees it, is partly in the way medical researchers use p values as a marketing tool.

Statistical significance is a continuum – a measure of probability -- but in medical research it’s been turned into something black or white. Journals have informally decided that results should be considered statistically significant only if the p value is 5 percent or lower. (Since most scientists hope their results are not due to chance, lower is better.)

Ioannidis worries that researchers are making too much of this arbitrary cutoff. He sifted through millions of papers and found that most advertised their statistical significance up high, in the abstract, while burying important but perhaps less flattering aspects of the study. A statistically "successful" drug may only reduce the risk of a disease from 1 percent to 0.9 percent, for example, or raise life expectancy by 10 seconds.

Just as food manufacturers have advertised all manner of products as low-cholesterol, all natural, fat- or sugar-free, hoping to give the impression of health benefits, so scientific papers have advertised themselves as statistically significant to give the impression of truth.

The same 5-percent cutoff is used in a lot of social science and has been a source of trouble there too.

In 2011, the psychologist Uri Simonsohn showed that it's all too easy to produce bogus results even in experiments that clear the 5-percent p-value bar.

He set up an experiment to show that he could use accepted techniques to obtain a result that was not just ridiculous but impossible. He divided students into two groups, one hearing the song “Kalimba” and the other “When I’m 64.” Then he collected data on both groups, looking for differences between them.

He found something that varied by chance – the ages of people in the groups -- then, using math tricks that had been common in his field (but are considered cheating by statisticians), he showed that it was possible to come up with a statistically significant claim that listening to “When I’m 64” will make people get 1.5 years younger.

Statistician Ron Wasserstein agrees that there is a right way and a wrong way to use statistical tools. And that means those trying to replicate studies can also get it wrong, which was the concern of those psychologists defending their field.

Getting a different p value in a replication effort is not enough to discredit an existing study. Imagine, he said, you are trying to replicate a study that showed that cats gained weight eating Brand X cat food. The original result shows the cats got fatter, with only a 2 percent chance that this happened by chance. A new study also shows they got fatter, but with 6 percent odds that it’s by chance.

Is it fair to call the original experiment a failure because the second result missed the 5-percent p-value cutoff? Should we assume that Brand X is not fattening? There’s not enough information to draw a conclusion either way, Wasserstein said. To get an an answer you’d also want to know the size of the effect. Did the cats gain pounds or ounces? Did the cats eat more of the food because it tasted good, or was it more fattening per bowl? Statistical significance has to be weighed alongside other factors.

 

Bob Jensen's threads on "The Crusade Against Regression Analysis" and Misleading Statistical Inference in General ---
http://www.trinity.edu/rjensen/theory01.htm#WhatWentWrong
Accountics scientists will probably be the last bastion of defense of misleading science and research. It comes as no surprise that they do not encourage validation and replication of their "research" findings ---
http://www.trinity.edu/rjensen/TheoryTar.htm

 

P-Value --- https://en.wikipedia.org/wiki/P-value

ASA = American Statistical Association
The ASA's statement on p-values: context, process, and purpose ---
http://amstat.tandfonline.com/doi/abs/10.1080/00031305.2016.1154108

David Johnstone from Australia gave me permission to broadcast his reply to the AECM with respect to the attached paper from the American Statistical Association.

The ground is shaking beneath the accountics science foundations upon which all accounting doctoral programs and the prestigious accounting research journals are built. My guess is, however, that the accountics scientists are sleeping through the tremors or feigning sleep because, if they admit to waking up, their nightmares will become real!
"A Scrapbook on What's Wrong with the Past, Present and Future of Accountics Science"
 by Bob Jensen
http://www.trinity.edu/rjensen/AccounticsWorkingPaper450.pdf

Bob Jensen

*************************************************************************

Dear Sudipta and Bob, thanks for sending this Sudipta, it was actually written up in the local newspaper (Sydney Morning Herald) the other day. There has also been a series of articles on economic modelling that starts with the conclusion and works back to the argument. People are waking up to rorts slowly but inevitably, it seems.

There are multi-million dollar industries (e.g. “accounting research”) that depend on p-levels and would need a big clean out and recanting/retraining if the tide were to turn. I think that the funding bodies (e.g. taxpayers) are starting to smell rats, so life is going to be different for younger researchers in 10 years I suspect. Much more scepticism about supposed “research”.

I have been toying with writing a book on the P-level problem. I used to be excited about this stuff, I thought it was deeply interesting and other people would also find it interesting. I didn’t realize that most researchers are not intrinsically interested in the techniques they use, and I also didn’t realize that most will resist bitterly anything that makes their lives less glamorous and their self-image less wonderful. This is what I see as the “positive theory of accounting researchers”.

Great to have a couple of old fashioned academics to talk to on this.

By the way, all the young statisticians schooled in Bayesian theory know about the issues with P-levels, and they are breeding up in computer science and elsewhere.

Tom Dyckman’s paper on P-levels is coming out in Abacus 2nd issue 2016. In that same issue is an excellent survey paper by Jeremy Bertomeu on cost of capital etc, which will give that issue further credibility and hopefully prompt some extra readers to see Tom’s paper.

David Johnstone

Jensen Comment
Note that the following article has enormous implications for what is taught in most Ph.D. programs in the social sciences, business, accounting, finance, and other academic disciplines.  Regression analysis has become the key to the kingdom of academic research, a Ph.D. diploma, journal article publication, tenure, and performance rewards in the Academy. Now the sky is falling, and soon researchers skilled mostly at performing regression analysis are faced with the problem of having to learn how to do real research.

Regression Analysis --- https://en.wikipedia.org/wiki/Regression_analysis

Richard Nisbett --- https://en.wikipedia.org/wiki/Richard_E._Nisbett


"The Crusade Against Multiple Regression Analysis A Conversation With Richard Nisbett," Edge, January 21, 2016 ---
http://edge.org/conversation/richard_nisbett-the-crusade-against-multiple-regression-analysis

A huge range of science projects are done with multiple regression analysis. The results are often somewhere between meaningless and quite damaging. ...                             

I hope that in the future, if I’m successful in communicating with people about this, that there’ll be a kind of upfront warning in New York Times articles: These data are based on multiple regression analysis. This would be a sign that you probably shouldn’t read the article because you’re quite likely to get non-information or misinformation. RICHARD NISBETT is a professor of psychology and co-director of the Culture and Cognition Program at the University of Michigan. He is the author of Mindware: Tools for Smart Thinking; and The Geography of Thought. Richard Nisbett's Edge Bio Page.

THE CRUSADE AGAINST MULTIPLE REGRESSION ANALYSIS
The thing I’m most interested in right now has become a kind of crusade against correlational statistical analysis—in particular, what’s called multiple regression analysis. Say you want to find out whether taking Vitamin E is associated with lower prostate cancer risk. You look at the correlational evidence and indeed it turns out that men who take Vitamin E have lower risk for prostate cancer. Then someone says, "Well, let’s see if we do the actual experiment, what happens." And what happens when you do the experiment is that Vitamin E contributes to the likelihood of prostate cancer. How could there be differences? These happen a lot. The correlational—the observational—evidence tells you one thing, the experimental evidence tells you something completely different.

The thing I’m most interested in right now has become a kind of crusade against correlational statistical analysis—in particular, what’s called multiple regression analysis. Say you want to find out whether taking Vitamin E is associated with lower prostate cancer risk. You look at the correlational evidence and indeed it turns out that men who take Vitamin E have lower risk for prostate cancer. Then someone says, "Well, let’s see if we do the actual experiment, what happens." And what happens when you do the experiment is that Vitamin E contributes to the likelihood of prostate cancer. How could there be differences? These happen a lot. The correlational—the observational—evidence tells you one thing, the experimental evidence tells you something completely different.

In the case of health data, the big problem is something that’s come to be called the healthy user bias, because the guy who’s taking Vitamin E is also doing everything else right. A doctor or an article has told him to take Vitamin E, so he does that, but he’s also the guy who’s watching his weight and his cholesterol, gets plenty of exercise, drinks alcohol in moderation, doesn’t smoke, has a high level of education, and a high income. All of these things are likely to make you live longer, to make you less subject to morbidity and mortality risks of all kinds. You pull one thing out of that correlate and it’s going to look like Vitamin E is terrific because it’s dragging all these other good things along with it.

This is not, by any means, limited to health issues. A while back, I read a government report in The New York Times on the safety of automobiles. The measure that they used was the deaths per million drivers of each of these autos. It turns out that, for example, there are enormously more deaths per million drivers who drive Ford F150 pickups than for people who drive Volvo station wagons. Most people’s reaction, and certainly my initial reaction to it was, "Well, it sort of figures—everybody knows that Volvos are safe."

Continued in article

Drawing Inferences From Very Large Data-Sets

David Johnstone wrote the following:

Indeed if you hold H0 the same and keep changing the model, you will eventually (generally soon) get a significant result, allowing "rejection of H0 at 5%", not because H0 is necessarily false but because you have built upon a false model (of which there are zillions, obviously).

"Drawing Inferences From Very Large Data-Sets,"   by David Giles, Econometrics Beat:  Dave Giles� Blog, University of Victoria, April 26, 2013 ---
http://davegiles.blogspot.ca/2011/04/drawing-inferences-from-very-large-data.html

. . .

Granger (1998; 2003has reminded us that if the sample size is sufficiently large, then it's virtually impossible not to reject almost any hypothesis. So, if the sample is very large and the p-values associated with the estimated coefficients in a regression model are of the order of, say, 0.10 or even 0.05, then this really bad news. Much, much, smaller p-values are needed before we get all excited about 'statistically significant' results when the sample size is in the thousands, or even bigger. So, the p-values reported above are mostly pretty marginal, as far as significance is concerned. When you work out the p-values for the other 6 models I mentioned, they range from  to 0.005 to 0.460. I've been generous in the models I selected.

Here's another set of  results taken from a second, really nice, paper by
Ciecieriski et al. (2011) in the same issue of Health Economics:

Continued in article

Jensen Comment
My research suggest that over 90% of the recent papers published in The Accounting Review use purchased databases that provide enormous sample sizes in those papers. Their accountics science authors keep reporting those meaningless levels of statistical significance.

What is even worse is when meaningless statistical significance tests are used to support decisions.

"Statistical Significance - Again " by David Giles, Econometrics Beat:  Dave Giles� Blog, University of Victoria, December 28, 2013 ---
http://davegiles.blogspot.com/2013/12/statistical-significance-again.html

Statistical Significance - Again

 
With all of this emphasis on "Big Data", I was pleased to see this post on the Big Data Econometrics blog, today.

 
When you have a sample that runs to the thousands (billions?), the conventional significance levels of 10%, 5%, 1% are completely inappropriate. You need to be thinking in terms of tiny significance levels.

 
I discussed this in some detail back in April of 2011, in a post titled, "Drawing Inferences From Very Large Data-Sets". If you're of those (many) applied researchers who uses large cross-sections of data, and then sprinkles the results tables with asterisks to signal "significance" at the 5%, 10% levels, etc., then I urge you read that earlier post.

 
It's sad to encounter so many papers and seminar presentations in which the results, in reality, are totally insignificant!

 

How Standard Error Costs Us Jobs, Justice, and Lives, by Stephen T. Ziliak and Deirdre N. McCloskey (Ann Arbor:  University of Michigan Press, ISBN-13: 978-472-05007-9, 2007)
http://www.cs.trinity.edu/~rjensen/temp/DeirdreMcCloskey/StatisticalSignificance01.htm

Page 206
Like scientists today in medical and economic and other sizeless sciences, Pearson mistook a large sample size for the definite, substantive significance---evidence s Hayek put it, of "wholes." But it was as Hayek said "just an illusion." Pearson's columns of sparkling asterisks, though quantitative in appearance and as appealing a is the simple truth of the sky, signified nothing.

 

pp. 250-251
The textbooks are wrong. The teaching is wrong. The seminar you just attended is wrong. The most prestigious journal in your scientific field is wrong.

You are searching, we know, for ways to avoid being wrong. Science, as Jeffreys said, is mainly a series of approximations to discovering the sources of error. Science is a systematic way of reducing wrongs or can be. Perhaps you feel frustrated by the random epistemology of the mainstream and don't know what to do. Perhaps you've been sedated by significance and lulled into silence. Perhaps you sense that the power of a Roghamsted test against a plausible Dublin alternative is statistically speaking low but you feel oppressed by the instrumental variable one should dare not to wield. Perhaps you feel frazzled by what Morris Altman (2004) called the "social psychology rhetoric of fear," the deeply embedded path dependency that keeps the abuse of significance in circulation. You want to come out of it. But perhaps you are cowed by the prestige of Fisherian dogma. Or, worse thought, perhaps you are cynically willing to be corrupted if it will keep a nice job

 

Bob Jensen's threads on the often way analysts, particularly accountics scientists, often cheer for statistical significance of large sample outcomes that praise statistical significance of insignificant results such as R2 values of .0001 ---
The Cult of Statistical Significance: How Standard Error Costs Us Jobs, Justice, and Lives ---
http://www.cs.trinity.edu/~rjensen/temp/DeirdreMcCloskey/StatisticalSignificance01.htm

Those of you interested in tracking The Accounting Review's  trends in submissions, refereeing, and acceptances'rejections should be interested in current senior editor Mark L. DeFond's annual report at
http://aaajournals.org/doi/full/10.2308/accr-10477
This has become a huge process involving 18 editors and hundreds of referees. TAR is still the leading accountics science journal of the American Accounting Association. However, there are so many new specialty journals readers are apt to find quality research in other AAA journals. TAR seemingly still does not publish commentaries and articles without equations and has not yet caught on the the intitiatives of the Pathways Commission for more diversification in research in the leading AAA research journal. Virtually all TAR editors still worship p-values in empirical submissions.

"Not Even Scientists Can Easily Explain P-values," by Christie Aschwanden, Nate Silver's 5:38 Blog, November 30, 2015 ---
http://fivethirtyeight.com/features/not-even-scientists-can-easily-explain-p-values/

P-values have taken quite a beating lately. These widely used and commonly misapplied statistics have been blamed for giving a veneer of legitimacy to dodgy study results, encouraging bad research practices and promoting false-positive study results.

But after writing about p-values again and again, and recently issuing a correction on a nearly year-old story over some erroneous information regarding a study’s p-value (which I’d taken from the scientists themselves and their report), I’ve come to think that the most fundamental problem with p-values is that no one can really say what they are.

Last week, I attended the inaugural METRICS conference at Stanford, which brought together some of the world’s leading experts on meta-science, or the study of studies. I figured that if anyone could explain p-values in plain English, these folks could. I was wrong.

Continued in article

Jensen Comment
Why all the fuss? Accountics scientists have a perfectly logical explanation. P-values are numbers that are pumped out of statistical analysis software (mostly multiple regression software) that accounting research journal editors think indicate the degree of causality or at least suggest the degree of causality to readers. But the joke is on the editors, because there aren't any readers.

November 30, 2015 reply from David Johnstone

Dear Bob, thankyou for this interesting stuff.

 

A big part of the acceptance of P-values is that they easily give the look of something having been found. So it’s an agency problem, where the researchers do what makes their research outcomes easier and better looking.

 

There is a lot more to it of course. I note with young staff that they face enough hurdles in the need to get papers written and published without thinking that the very techniques that they are trying to emulate might be flawed. Rightfully, they say, “it’s not my job to question everything that I have been shown and to get nowhere as a result”, nor can most believe that something so established and revered can be wrong, that is just too unthinkable and depressing. So the bandwagon goes on, and, as Bob says, no one cares outside as no one much reads it.

 

I do however get annoyed every time I hear decision makers carry on about “evidence based” policy, as if no one can have a clue or form a vision or strategy without first having the backing of some junk science by a sociologist or educationist or accounting researcher who was just twisting the world whichever way to get significant p-values and a good “story”. This kind of cargo-culting, which is everywhere, does great harm to good or sincere science, as it makes it hard for an outsider to tell the difference.

 

One thing that does not get much of a hearing is that the statisticians themselves must take a lot of blame. They had the chance to vote off P values decades ago when they had to choose between frequentist and Bayesian logic. They split into two camps with the frequentists in the great majority but holding the weakest ground intellectually. The numbers are moving now, as people that were not born when de Finetti, Savage, Lindley, Kadane and others first said that p-values were ill-conceived logically. Accounting, of course, being largely ignorant of there being any issue, and ultimately just political, will not be leading the battle of ideas.

January 28, 2016 reply from Paul Williams

Bob,

Thank you for this. In accounting the problem is even worse because at least in other fields it is plausible that one can have "scientific" concepts and categories. Archival research in accounting can only deal with interpretive concepts and the "scientific" categories are often constructed for the one study in question. We make a lot of s... up so that the results are consistent with the narrative (always a neoclassical economic one) that informs the study. Measurement? Doesn't exist. How can one seriously believe they are engaged in scientific research when their "measurements" are the result of GAAP? Abe Briloff described our most prestigious research (which Greg Waymire claimed in his AAA presidential white paper "...threatens the discipline with extinction."). as simply "low level financial statement analysis." Any research activity that is reduced to a template (in JAE the table numbers are nearly the same from paper to paper) you know you are in trouble. What is the scientific value of 50 control variables, two focus independent variables (correlated with the controls), and one dependent variable that is always different from study to study? This one variable at a time approach can go on into infinity with the only result being a huge pile of anecdotes that no one can organize into any coherent explanation of what is going on. As you have so eloquently and relentlessly pointed out accountants never replicate anything. In archival research it is not even possible to replicate since the researcher is unable to provide (like any good scientist in physics, chemistry, biology, etc.) a log book providing the detailed recipe it would take to actually replicate what the researcher has done. Without the ability to independently replicate the exact study, the status of that study is merely an anecdote. Given the Hunton affair, perhaps we should not be so sanguine about trusting our colleagues. This is particularly so since the leading U.S. journals have a clear ideological bias -- if your results aren't consistent with the received wisdom they won't be published.

Paul

 

Bob Jensen's threads on statistical mistakes ---
http://www.cs.trinity.edu/rjensen/temp/AccounticsScienceStatisticalMistakes.htm

How Accountics Scientists Should Change: 
"Frankly, Scarlett, after I get a hit for my resume in The Accounting Review I just don't give a damn"

http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm
One more mission in what's left of my life will be to try to change this
http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm

"A Scrapbook on What’s Wrong with the Past, Present a nd Future of Accountics Science," by Bob Jensen, Working Paper 450.06, Date Fluid ---
http://www.cs.trinity.edu/~rjensen/temp/AccounticsWorkingPaper450.06.pdf

The purpose of this paper is to make a case that the accountics science monopoly of our doctoral programs and publish ed research is seriously flawed, especially its lack of concern about replication and focus on simplified arti ficial worlds that differ too much from reality to creatively discover findings of greater relevance to teachers of accounting and practitioners of accounting. Accountics scientists themselves became a Cargo Cult.

Gaming for Tenure as an Accounting Professor ---
http://www.trinity.edu/rjensen/TheoryTenure.htm
(with a reply about tenure publication point systems from Linda Kidwell)


"Changes in Tax Legislation in 2015: Lots of Them!," by Annette Nellen, Tax Insider, March 24, 2016---
http://www.thetaxadviser.com/newsletters/2016/mar/changes-in-tax-legislation-2015.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=29Mar2016

March 29, 2016 reply from Scott Bonacker

Prof Nellen is prolific –

 

http://www.21stcenturytaxation.com/

http://www.bna.com/annette-nellen-h3386/

http://www.sjsu.edu/people/annette.nellen/website/

http://www.salestaxsupport.com/blogs/authors/annette-nellen/

https://www.taxconnections.com/taxblog/author/annettenellen/

http://www.libratax.com/blog/future-money-episode-2/

 


Florence Nightingale Created Revolutionary Visualizations of Statistics That Saved Lives (1855) ---
http://www.openculture.com/2016/03/florence-nightingale-created-revolutionary-visualizations-of-statistics-that-saved-lives-1855.html 

Bob Jensen's threads on multivariate data visualizations ---
http://www.trinity.edu/rjensen/352wpvisual/000datavisualization.htm 


Accounting History Corner
USING A WHITE-COLLAR PROFESSION IN ACCOUNTING COURSES: APPROACHES TO ADDRESSING DIVERSITY
Accounting Historians Journal, 2006, Vol. 33, no. 1
Go to http://www.olemiss.edu/depts/general_library/dac/files/ahj.html 
Then scroll down to 2010 Volume 36 Number 1 and click on the line that says to View Searchable PDF Text File Then scroll down to the article Page numbers may not exactly coincide with the table of contents depending upon the resolution of your browser.

Abstract
Accounting educators no doubt agree that diversity is an important and much neglected part of accounting education. They further recognize that it is difficult to incorporate this important topic into the accounting curriculum. This paper describes the efforts of various professors to expose business and accounting students to the evolution of diversity issues related to the accounting profession by using the book A White-Collar Profession [Hammond, 2002]. A White- Collar Profession: African-American CPAs Since 1921 is a seminal work which presents a history of the profession as it relates to African- American CPAs and documents the individual struggles of many of the first one hundred blacks to become certified. This paper describes efforts of faculty at four different colleges to utilize this book in their teaching of accounting. Instructors found that students not only de - veloped an enhanced awareness about the history of the accounting profession, but that other educational objectives were advanced, such as improved communication and critical thinking skills, increased social awareness, and empathy for others. African-American students, in particular, embraced the people in the book as role models, while most every student saw the characters as heroic in a day when the ac - counting profession is badly in need of role models and heroes. This is encouraging given the profession’s concern with diversity and the attention and resources directed at increasing the number of minori - ties entering the profession.

INTRODUCTION
Throughout its history, America has struggled with the issues of discrimination despite its renown as a cultural melting pot. A number of groups have received treatment ranging from less than fair to extraordinarily harsh with regard to justice, economic opportunity, social acceptance, and equality based on race, religion, sexual preference, and gender. The accounting profession has contributed to this shameful history as minorities have encountered obstacles blocking their way to licensure as CPAs [Hammond, 2002]. A White-Collar Profession documents the struggles of many of the first one hundred African-American CPAs to enter the accounting profession by recounting their efforts to achieve licensure. It comes at a time when the profession is at a lowpoint, in desperate need of attracting qualified minorities. The nation is re-examining issues of race and opportunity in areas such as college admission criteria and the role of affirmative action and preference [Euben, 2001; Gudeman, 2001; Downing et al., 2002].

This paper describes the experience of the authors in using A White-Collar Profession at various colleges and in various ways. The objective of this paper is to share these experiences with instructors who might be reluctant to incorporate such an assignment into their accounting courses. A range of institutions of higher education is represented in this article: 1) a predominately white, large, public university in the deep south; 2) an historically black, public college; 3) an historically black, private college; and 4) a small, private, urban, Catholic, northern university. The instructors’ approaches differed at each institution as did the courses and the level of students. While the impact the book has had upon students varied somewhat, the authors have all found A White-Collar Profession valuable as a supplementary text for their courses and its overall impact as consciousness raising.

In the next section of the paper, the objectives of incorporating the book into an accounting course are described. This is followed by a discussion of alternatives for using A White-Collar Profession in accounting courses. In the succeeding sections, the four instructors describe their experiences: what took place, the approaches used, and the student reactions observed. The final section of the paper considers the concerns reluctant readers may still have in adopting this book.

SUMMARY OF THE BOOK
A White-Collar Profession has as its focal point the under- representation of African Americans in the public accounting profession. Currently, fewer than one percent of certified public accountants are African American, a marked contrast to other large professions in the U.S., including those with more rigorous educational requirements (see Table 1)

Continued in article


Rubrics in Academia --- https://en.wikipedia.org/wiki/Rubric_(academic)

"Assessing, Without Tests," by Paul Fain, Inside Higher Ed, February 17, 2016 ---
https://www.insidehighered.com/news/2016/02/17/survey-finds-increased-use-learning-outcomes-measures-decline-standardized-tests?utm_source=Inside+Higher+Ed&utm_campaign=60a80c3a41-DNU20160217&utm_medium=email&utm_term=0_1fcbc04421-60a80c3a41-197565045

Jensen Comment
Testing becomes more effective for grading and licensing purposes as class sizes increase. It's less effective when hands on experience is a larger part of competency evaluation. For example, in the final stages of competency evaluation in neurosurgery testing becomes less important than expert evaluation of surgeries being performed in operating rooms. I want my brain surgeon to be much more than a good test taker. Testing is more cost effective when assigning academic credit for a MOOC mathematics course taken by over 5,000 students.

One thing to keep in mind is that testing serves a much larger purpose than grading the amount of learning. Testing is a huge motivator as evidenced by how students work so much harder to learn just prior to being tested.

Some types of testing are also great integrators of multiple facets of a course. This is one justification of having comprehensive final examinations.

Testing also can overcome racial, ethnic, and cultural biases. This is the justification, for example, for having licensing examinations like CPA exam examinations, BAR examinations, nursing examinations, etc. be color blind in terms of  race, ethnic, and cultural bias. This is also one of the justifications (good or bad) of taking grading out of the jurisdiction of teachers. Competency examinations also serve a purpose of giving credit for learning no matter of how or where the subject matter is learned. Years ago people could take final examinations at the University of Chicago without ever having attended classes in a course ---
http://www.trinity.edu/rjensen/assess.htm#ConceptKnowledge

Bob Jensen's threads on assessment ---
http://www.trinity.edu/rjensen/assess.htm

 

"Using Rubrics to Assess Accounting Learning Goal Achievement," by Thomas F. Schaefer and Jennifer Sustersic Stevens, Issues in Accounting Education, Volume 31, Issue 1 (February 2016) ---
http://aaajournals.org/doi/full/10.2308/iace-51261
Free only to subscribers (including users of campus libraries)

This paper illustrates the development and use of rubrics to improve the learning assessment process and enhance the teaching-learning relationship. We highlight the multidimensional benefits of rubrics as valuable tools for student assessment (grading), course assessment (at the instructor level), and program assessment (at the administrator/curriculum committee/accreditation level). Moreover, rubrics may improve qualitative feedback on learning to students and instructors. Development of effective rubrics is framed in terms of learning goals, measurable learning outcomes, choice of assessment vehicle/assignment, and use of data collected from rubrics for feedback and/or improvement. The paper then offers an example set of rubrics designed to assess student achievement of three learning goals common to many undergraduate accounting programs: accounting measurement, research, and critical thinking. This paper may prove useful for instructors looking to use rubrics to improve the teaching-learning process and concurrently evaluate learning goal achievement for course or program assessment. As an auxiliary benefit, the use of scoring rubrics may simplify grading, as well as data collection in documenting assurance of learning for accreditation purposes.

In higher-education institutions, faculty members often are tasked with measuring individual student performance, assuring their students meet established course learning goals, as well as evaluating overall student progress toward a particular program's learning goals. However, instructors often struggle with assessing student learning in an effective and efficient manner. Scoring rubrics represent a valuable tool to enhance the teaching-learning process by providing a systematic approach to measuring learning outcomes, yet very few studies in the accounting literature highlight the benefits of using rubrics or provide guidance in their application.1

Rubrics—detailed lists of competencies for designated learning outcomes accompanied by levels of performance criteria—can guide assessments at both the student and course level, as well as contribute to a program-level assessment. Moreover, rubrics enhance feedback to students and promote learning (Brookhart 2013; Stevens and Levi 2013). The purpose of this paper is to offer guidance on the development and use of scoring rubrics for classroom and assessment purposes. The paper also provides an example set of scoring rubrics designed to assess student achievement for accounting measurement, research, and critical thinking learning goals.

Rubrics enrich the teaching-learning process at the student level by enabling a discussion of quality for complex work products. Unlike a traditional assessment system in which the instructor judges quality and assigns a grade, a rubric conveys descriptions of quality and connects how a student's performance falls within those guidelines (Brookhart 2013). This facilitates a more objective, productive conversation regarding a student's progress compared to learning expectations and allows the student to identify his or her own strengths and weaknesses (Suskie 2010). If shared with students when distributing the assignment, then scoring rubrics may also help communicate performance expectations and lead to improved student submissions (McTighe and O'Connor 2005). Moreover, scoring rubrics can help standardize the grading process and provide more reliable, fair, and valid feedback to instructors and students (McTighe and Ferrara 1994).

At the course level, instructors should consider their educational program's learning goals when developing student assignments. A carefully designed scoring rubric may complement this process by helping the instructor to clarify the purpose of the assignment, as well as to focus on its most important learning objectives (Ammons and Mills 2005). Feedback from the process may persuade instructors to modify instruction, course content, or assignments to improve teaching and enrich learning within the course. In addition, rubrics may facilitate coordination with other course instructors or teaching assistants by creating a more objective, consistent guide for scoring student submissions (Stevens and Levi 2013).

At the program level, accounting undergraduate and graduate programs routinely assess and document progress toward the achievement of established educational learning goals. In addition, accrediting agencies typically require evidence of student achievement for institution-specific learning goals (Kimmell, Marquette, and Olsen 1998; Stivers, Campbell, and Hermanson 2000; J. Shaftel and T. Shaftel 2007). The development of scoring rubrics may prove useful in constructing assignments to assess specific program learning goals, evaluating progress in meeting learning goals, and facilitating ease of data collection for accreditation or other program evaluations. Scoring rubrics may also help decrease subjectivity in determining when assessments fail to provide evidence of sufficient student learning, so that curricular efforts can be targeted to remedy the deficiency.

Continued in article

Bob Jensen's threads on assessment ---
http://www.trinity.edu/rjensen/Assess.htm


This 25-year-old data engineer is helping disrupt the world of finance ---
http://www.businessinsider.com/avant-robert-krzyzanowski-on-disrupting-finance-2016-3


Volunteer Tax Assistance Program (VITA) --- https://en.wikipedia.org/wiki/IRS_Volunteer_Income_Tax_Assistance_Program

A review of the literature on the role of the Volunteer Income Tax Assistance (VITA) program in accounting education
"VITA: A Comprehensive Review of the Literature and an Analysis of the Program in Accounting Education in the U.S.," by Cynthia Blanthorne and Stu Westin,  Issues in Accounting Education, Volume 31, Issue 1 (February 2016) ---
 http://aaajournals.org/doi/full/10.2308/iace-51243
Free only to subscribers (including users of campus libraries)

This paper provides a review of the literature on the role of the Volunteer Income Tax Assistance (VITA) program in accounting education. The consensus is that the VITA program affords students an experiential learning opportunity to enhance their academic experience with real-life work exposure. However, there also seems to be a sense of underutilization of VITA as a service learning activity. Underlying that sentiment, somewhat, is the lack of an ongoing, constructive discourse on current practices. These observations provided us the impetus to develop and administer a cross-sectional survey investigating the structure of VITA programs in accounting education in the U.S. We utilize a non-sampling research design in that we reach out to the entire population of accounting programs in the U.S. The study includes an analysis of active VITA programs, an investigation into the demise of discontinued programs, and descriptive information on institutions that have never offered a program. Our goal is to energize VITA program activity in accounting education and promote future discussion and research about the program. We contribute to the literature by providing the first comprehensive literature review of VITA programs in accounting education coupled with a data-driven description of the current status of VITA.


"Valeant: Blame Our Accounting, Please!," by Holman W. Jenkins, Jr., The Wall Street Journal, March 25, 2016 ---
http://www.wsj.com/articles/valeant-blame-our-accounting-please-1458943148?mod=djemMER

The drug company hopes you will focus on how its revenues were booked, not how they were generated.

Valeant’s fall from grace did not begin with discovery of accounting shenanigans. It began with congressional subpoenas looking into Valeant’s successful exploitation of the price-insensitivity programmed into our health-care markets by government policies.

The accounting accusations did not precede revelations of its dealings with Philidor, a mail-order pharmacy that Valeant controlled in order to maximize the price insurers and hospitals paid for Valeant’s drugs.

Valeant’s Philidor dealings were first exposed by an investigative blogger, Roddy Boyd, who unearthed a lawsuit against Valeant by a California pharmacist; only then did an independent short seller start questioning whether Valeant properly accounted for sales through Philidor. By then, Valeant’s stock had already lost one-third of its towering value in a matter of a couple months.

Mr. Schiller had been CFO in 2014, when Valeant changed its relationship with Philidor, which required no longer recognizing sales when drugs were delivered to Philidor but only after Philidor delivered the drugs to customers. The now-surfaced accounting snafu concerns not just the timing of this change; a small portion of the revenue appears to have been doubled-counted during the transition.

Mr. Schiller stepped down as CFO last year but remained a member of the board. This week, the company asked him to resign his board seat, alleging something vague about “the tone at the top” and seeming to blame the accounting mistake on a “performance-based environment at the company, where challenging targets were set and achieving those targets was a key performance expectation.”

Huh? If setting “challenging targets” is tantamount to authorizing employees to cheat, then every company—as well as all business schools, all motivational speakers, all writers of business how-to books—are accessories to crime.

Mr. Schiller, in a moment of anarchy, refused this week to resign his board seat, saying he did nothing wrong. His refusal, naturally, has set the financial media a-clucking.

One likely reason for these weird events is that both the Securities and Exchange Commission and Justice Department claim to look more favorably on companies that quickly identify and hold accountable miscreant executives.

Mr. Schiller is an obvious candidate to hold accountable because Valeant fervently hopes federal inquisitors will focus on the Philidor accounting, not how the Philidor revenues were actually generated and their role in supporting Valeant’s once highflying valuation as a new kind of drug company that hiked prices rather than engaged in drug research.

Not that there is anything illegal about raising prices. But the means Philidor allegedly used to flimflam payers into actually paying its high prices appear highly suspect. Ultimately, what unraveled Valeant’s share price wasn’t flaky accounting but pushback from private payers and politicians (who, after all, oversee half the nation’s health-care spending) over Valeant’s profiteering methods.

One commentator has already compared Valeant to Enron, an analogy fair only in this limited sense: Enron’s troubles began when the Internet bubble lofted the former gas-pipeline company’s stock into the stratosphere. Much of what followed amounted to a corruptible management trying to defend an implausible stock price. At least part of the blame lies with investors who confused Enron with some kind of miracle company that was about to corner every business-to-business opportunity created by the Internet.

Continued in article

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


March 17, 2016 message from Tom Selling

On Its “Materiality” Proposals, Will the FASB Heed the Handwriting on the Web?

Posted: 17 Mar 2016 01:33 AM PDT

As I described in a previous post the FASB has two related proposals on the table related to materiality and financial statement notes:

An amendment to Concepts Statement No. 8 to replace its ersatz definition of “materiality” — nothing but a re-phrasing of its description of “relevant” information — with a reference to the Supreme Court’s “definition” — itself a fluid collection of decisions in specific cases. Many of these cases have little or nothing to do with financial statements or note disclosures. Proposed ASU No. 2015-310 would amend the Accounting Standards Codification to provide as follows: An entity may omit disclosure requirements if they are “immaterial” individually or in the aggregate.  (This is already self-evident.) Omitting a disclosure of immaterial information would not be an accounting “error.”  (See below for how “error” has been added to the FASB’s lexicon of doublespeak.) Without referring to CON 8, due to its lack of authoritativeness, a material omission of a disclosure would be nothing more or less than a question of applying the law of the land.

My objective in this latest post is to report that my concerns expressed earlier have been validated by numerous comment letters to the FASB by or on behalf of investors.  I [Read More...]

March 17, 2016 reply from Bob Jensen

Hi Tom,

I think what the FASB is troubled by is the legal definition of materiality that takes into "context" into context.

The problem with "context" is that its virtually impossible in auditing to anticipate all "contexts." Of course this is also a problem when writing laws. Security laws use the criterion:
"a reasonable shareholder would consider it important in deciding how to vote their shares or invest their money."
https://en.wikipedia.org/wiki/Materiality_(law)  

This backflushes the definition to what is a "reasonable shareholder?"

But that is not enough. Auditors and juries must sometimes make cost-benefit decisions regarding materiality without knowing particular contexts. Clearly, preparers of financial statements are seeking to avoid having to incur immense expenses on what they consider data that is expensive to generate, validate, and present relative ot benefits to "reasonable shareholders."

An example with the FASB versus the IASB diasgree in in the realm of embedded derivatives.

Some of the corporate executives that I invited to present modules in my former FAS 133 executives contended that it was extremely expensive to pour over thousands or tens of thousands of financing contracts searching for embedded derivatives. This was especially the case for contracts of with Asian customers where it's considered bad manners to put too much in writing into contracts.

The IASB made a command decision that it would not be necessary to discover embedded derivatives. The FASB disagrees in FAS 133 and its amendments. In most contexts the embedded derivatives are not material due having underlyings that are "ckearly and closely related" to the underlying in the host contracts. However, the FASB did not ipso facto declare embedded derivatives to be immaterial in all contexts unlike what was decided by the IASB in IFRS 9 regarding embedded derivatives.

My point here is that materiality depends upon context, and accounting standard setters do not always agree on the definition of materiality apart from context. I'm not certain a definition can ever be agreeable to everybody, including yourself, apart from context that is impossible to know ahead of time in most instances. There are obvious exceptions such as the IRS decision to round all tax return items to the nearest dollar. But not all contexts are so easy to anticipate.

The comment letters sent to standard setters often take different sides. It becomes the task of standard setters to take positions such as when the IASB decided embedded derivatives need not be detected and the FASB decision that they most be detected, thereby giving rise to many financial statements prepared under US GAAP versus IFRS. I've not yet seen any research on the magnitude of such differences in practice.

Embedded Derivatives --- http://www.trinity.edu/rjensen/acct5341/speakers/133glosf.htm#E-Terms
Scroll down to the definition of an embedded derivatives and the criterion of "clearly and closely related."

One of the serious differences, in my viewpoint, between IFRS and US GAAP is the accounting for embedded derivatives. The IASB in IFRS 9 simply lets firms off the hook from having to search and account for embedded derivatives. I view this as a cop out!

"FASB clarifies embedded derivative standards," by Ken Tysiac, Journal of Accountancy, March 14, 2016 ---
http://www.journalofaccountancy.com/news/2016/mar/fasb-standard-embedded-derivatives-201614048.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=15Mar2016

The guidance in Accounting Standards Update 2016-06, Derivatives and Hedging (Topic 815), Contingent Put and Call Options in Debt Instruments, is intended to resolve accounting practices that have diverged. The new standard is the result of a project undertaken by FASB’s Emerging Issues Task Force.

U.S. GAAP requires embedded derivatives to be separated from the host contract and accounted for separately as derivatives if certain criteria are met. One of those criteria is that the economic characteristics and risks of the embedded derivatives are not clearly and closely related to the economic characteristics and risks of the host contract. This is called the “clearly and closely related” criterion.

GAAP states that call or put options that can accelerate the repayment of principal on a debt instrument meet the clearly and closely related criterion if they can be indexed only to interest rates or credit risk. The standard issued Monday clarifies that an entity is required to assess the embedded call or put options solely in accordance with a four-step decision sequence that was created by FASB’s Derivatives Implementation Group.

The four-step sequence requires an entity to consider whether:

The payoff is adjusted based on changes in an index.

The payoff is indexed to an underlying other than interest rates or credit risk.

The debt involves a substantial premium or discount.

The call or put option is contingently exercisable.

The new standard clarifies that when a call or put option is contingently exercisable, an entity does not have to assess whether the event that triggers the ability to exercise a call or put option is related to interest rates or credit risks. Through this clarification, FASB intends to eliminate diversity in practice in which some entities were assessing whether the event that triggers the ability to exercise the call or put option is indexed only to interest rates or credit risk in addition to the four-step decision sequence. -

Continued in article

Bob Jensen's free tutorials on Accounting for Derivative Financial Instruments and Hedge Accounting (including a detailed glossary) ---
http://www.trinity.edu/rjensen/caseans/000index.htm


EY:  Financial Reporting Briefs March 2016 ---
http://www.ey.com/Publication/vwLUAssetsAL/FinancialReportingBriefs_00039-161US_23March2016/$FILE/FinancialReportingBriefs_00039-161US_23March2016.pdf

Options Accounting Under FAS 133 --- http://www.trinity.edu/rjensen/acct5341/speakers/133glosf.htm#O-Terms
Scroll down to options

From EY on March 18, 2016

FASB clarifies guidance on assessing contingent put and call options in debt instruments
http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB3153_PutsandCalls_15March2016/$FILE/TothePoint_BB3153_PutsandCalls_15March2016.pdf

What you need to know


• The FASB issued final guidance clarifying that an assessment of whether an embedded contingent put or call option is clearly and closely related to the debt host requires only an analysis of the four-step decision sequence in ASC 815-15-25-42.

• Entities are required to apply the guidance to existing debt instruments (or hybrid financial instruments that are determined to have a debt host) using a modified retrospective transition method as of the period of adoption.

• The guidance is effective for public business entities for fiscal years beginning after 15 December 2016, and interim periods within those years. For other entities, the guidance is effective for fiscal years beginning after 15 December 2017, and interim periods within fiscal years beginning after 15 December 2018. Early adoption is permitted.
 

Overview
The Financial Accounting Standards Board (FASB or Board) issued final guidance clarifying that the assessment of whether an embedded contingent put or call option is clearly and closely related to the debt host only requires an analysis of the four-step decision sequence outlined in Accounting Standards Codification (ASC) 815-15-25-42. That is, an entity does not have to separately assess whether the contingency itself is indexed only to interest rates or the credit risk of the entity.

. . .

Background
Under ASC 815, instruments that contain embedded derivatives must be assessed to determine whether those derivatives should be accounted for separately from the host contracts. An
embedded derivative must be separated (i.e., bifurcated) from the host contract when (1) its economic characteristics and risks are not clearly and closely related to the economic characteristics of the host contract, (2) the hybrid instrument that embodies both the embedded derivative and the host contract is not measured at fair value with changes in fair value reported in earnings and (3) a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative.

Debt instruments often contain put and call options, and in certain cases, those options are contingently exercisable. ASC 815 requires that for contingent put or call options to be considered clearly and closely related to a debt host, they can only be indexed to interest rates or credit risk of the entity. This guidance raised interpretive questions that the FASB’s Derivatives Implementation Group (DIG) tried to clarify by providing a four-step decision sequence to be used to determine whether puts and calls are clearly and closely related to the host contract (codified in ASC 815-15-25-42). The four-step decision sequence requires an entity to consider whether (1) the amount paid upon settlement is adjusted based on changes in an index, (2) the amount paid upon settlement is indexed to an underlying other than interest rates or credit risk, (3) the debt involves a substantial premium or discount and (4) the put or call option is contingently exercisable.

However, entities have developed two different approaches to the assessment. Many entities assess whether contingent put or call options are clearly and closely related to the debt host using only the four-step decision sequence. Others also assess whether the event that triggers the ability to exercise the put or call is indexed only to interest rates or credit risk of the entity, and not to what the guidance calls some extraneous event or factor.2 This type of assessment could result in the bifurcation of more options than just applying the four-step decision sequence.

Continued in article

Bob Jensen's free tutorials on accounting for derivative financial instruments and hedge accounting ---
http://www.trinity.edu/rjensen/caseans/000index.htm


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

From EY on March 11, 2016

FASB says hedge accounting relationships may continue after a novation ---
http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB3152_Novations_10March2016/$FILE/TothePoint_BB3152_Novations_10March2016.pdf

 What you need to know

The FASB issued final guidance clarifying that the novation of a derivative contract in a hedge accounting relationship does not, in and of itself, require dedesignation of that hedge accounting relationship.

Hedge accounting relationships could continue as long as all of the other hedge accounting criteria are met, including the expectation that the hedge will be highly effective when the creditworthiness of the new counterparty to the derivative contract is considered.

For public business entities, the guidance is effective for fiscal years beginning after 15 December 2016, and interim periods within those years. For all other entities, it is effective for fiscal years beginning after 15 December 2017, and interim periods within fiscal years beginning after 15 December 2018. Early adoption is permitted.

Entities may adopt the guidance prospectively or use a modified retrospective approach to apply it to derivatives outstanding during all or a portion of the periods presented in the period of adoption.

 

From EY on March 11, 2016

2016 XBRL US GAAP Taxonomy available for use

The SEC staff has updated the EDGAR system to allow companies to use the 2016 XBRL US GAAP taxonomy, which adds tags for accounting standards updates and makes certain industry-related changes and other revisions. The SEC staff strongly encourages companies to transition to the 2016 taxonomy for their first reporting period ending after 7 March 2016 (e.g., the first quarter Form 10-Q for calendar-year registrants). Companies also may continue to use the 2015 or 2014 taxonomies. The staff does not expect to remove the 2014 taxonomy before June 2016.

 https://www.sec.gov/info/edgar/edgartaxonomies.shtml

Bob Jensen's threads on XBRL and XML and OLAP are at
http://www.trinity.edu/rjensen/XBRLandOLAP.htm

From EY on March 4, 2016

Technical Line: A closer look at the new guidance on classifying and measuring financial instruments ---
http://www.ey.com/Publication/vwLUAssetsAL/TechnicalLine_BB3145_ClassificationMeasurement_3March2016/$FILE/TechnicalLine_BB3145_ClassificationMeasurement_3March2016.pdf

The FASB issued final guidance that will require entities to measure equity investments (except those accounted for under the equity method, those that result in consolidation of the investee and certain other investments) at fair value and recognize any changes in fair value in net income. Entities will have to record changes in instrument-specific credit risk for financial liabilities measured under the fair value option in other comprehensive income. The new guidance also changes certain disclosure requirements and other aspects of current US GAAP. It does not change the guidance for classifying and measuring investments in debt securities or loans.

What you need to know

The FASB issued final guidance that will require entities to measure equity investments (except those accounted for under the equity method, those that result in consolidation of the investee and certain other investments) at fair value and recognize any changes in fair value in net income.

The standard doesn’t change the guidance for classifying and measuring investments in debt securities or loans.

Entities will have to record changes in instrument-specific credit risk for financial liabilities measured under the fair value option in other comprehensive income.

Entities that are not public business entities (PBEs) will no longer have to disclose the fair value of financial instruments that are not measured at fair value (e.g., those measured at amortized cost), and PBEs will have to make fewer fair value disclosures.

The guidance is effective for calendar-year PBEs beginning in 2018. For all other calendar-year entities, it is effective for annual periods beginning in 2019 and interim periods beginning in 2020. Non-PBEs can adopt the standard at the same time as

From EY on March 4, 2016

EITF Update: March 2016 ---
http://www.ey.com/Publication/vwLUAssetsAL/EITFUpdate_BB3147_3March2016/$FILE/EITFUpdate_BB3147_3March2016.pdf

The Emerging Issues Task Force (EITF) reached a consensus-for-exposure on the following issue:

Issue 16-A: Restricted Cash (previously included in EITF Issue No. 15-F, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments)

From EY on March 4, 2016

Comment letter on FASB proposal on Fair Value Measurement disclosures ---
http://www.ey.com/Publication/vwLUAssetsAL/CommentLetter_BB3144_FairValueDisclosureProject_29February2016/$FILE/CommentLetter_BB3144_FairValueDisclosureProject_29February2016.pdf

In our comment letter, we support both the FASB’s objective to improve the effectiveness of disclosures and the proposed elimination of certain fair value disclosure requirements, including the relief that would be provided to private companies. However, we highlight the cost of implementing some of the additional requirements the FASB proposed, including the disclosures of the amount of changes in unrealized gains and losses for recurring Level 1 and Level 2 measurements disaggregated by class.


Specialized Textbooks from the AICPA in 2016 ---
http://media.cpa2biz.com/publication/c2b/pdfs/Academic_Catalog_spring_2016.pdf?cm_em=rjensen@trinity.edu&cm_mmc=C2B:CheetahMail-_-PUB-_-MAR16-_-16MA92

Jensen Comment
When planning courses I suspect that most accounting faculty overlook textbook alternatives from the AICPA. These are probably not what you want for introductory and intermediate accounting. However, they should be considered for specialty topics like tangible and intangible asset valuation, goodwill impairment, XBRL, COSO tools, internal control, forensic accounting, audit committee guides, etc. Positives in these textbooks include their wealth of illustrations. Negatives include the lack of supplements that accounting instructors often look for such as test banks and multimedia supplements.

My point is that learning material should be at least evaluated by our Academy when choosing course content.

In most cases complimentary review copies are available. Go for it!


Nine tips for Microsoft Powerpoint for Chartered Accountants ---
https://www.icas.com/ca-today-news/top-tips-for-microsoft-powerpoint


Turbo Tax Versus H&R Block Tax Act ---
http://www.businessinsider.com/turbotax-vs-hr-block-2016-2
 


Block Chain Database and Distributed Ledgers --- https://en.wikipedia.org/wiki/Block_chain_(database)
 

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

"Hype springs eternal Distributed ledgers are the future, but their advent will be slow," The Economist, March 19. 2016 ---
http://www.economist.com/news/finance-and-economics/21695068-distributed-ledgers-are-future-their-advent-will-be-slow-hype-springs?cid1=cust/ednew/n/bl/n/20160317n/owned/n/n/nwl/n/n/NA/n

NORMALLY, it is Simon Taylor’s job to persuade sceptical colleagues at Barclays that rapid technological change will disrupt the bank’s business. So it comes as something of a surprise to have to dampen the excitement about the blockchain. “It’s quite silly. I get ten invitations to speak at a conference every day,” he says. “The technology will have real impact, but it will take time.”

The blockchain is the technology underpinning bitcoin, a digital currency with a chequered history. It is an example of a “distributed ledger”: in essence, a database that is maintained not by a single actor, such as a bank, but collaboratively by a number of participants. Their respective computers regularly agree on how to update the database using a “consensus mechanism”, after which the modifications they have settled on are rendered unchangeable with the help of complex cryptography. Once information has been immortalised in this way, it can be used as proof of ownership. The blockchain can also serve as the underpinning for “smart contracts”—programs that automatically execute the promises embedded in a bond, for instance.

t is easy to see why bankers get excited about distributed ledgers. Instead of having to keep track of their assets in separate databases, as financial firms do now, they can share just one. Trades can be settled almost instantly, without the need for lots of intermediaries. As a result, less capital is tied up during a transaction, reducing risk. Such ledgers also make it easier to comply with anti-money-laundering and other regulations, since they provide a record of all past transactions (which is why regulators are so keen on them—see article).

Besides, embracing the technology allows big banks to appear innovative. For the most breathless evangelists, it holds out the prospect of liberation from all the dross that has accumulated in the financial system, from incompatible IT systems to expensive intermediaries. “For many, the blockchain is the Messiah,” says Gideon Greenspan, the founder of Coin Sciences, a blockchain startup based in Israel.

Continued in article


USA Today:  Ten Top Accounting Programs ---
http://college.usatoday.com/2016/02/26/top-colleges-for-accounting/

. . .

1. Bentley University

The accountancy department is the oldest department at Bentley University, and has a long tradition of providing a high-quality accounting education. Classes in cost accounting, auditing, financial accounting and information technology help to provide a core understanding of the business world and the role accounting plays in it. Accounting is one of the most popular majors in the school, and it is no wonder as graduates are often highly successful in their careers, earning an average starting salary of $51,000 and mid-career salary of $99,000.

2. University of Notre Dame

The Mendoza College of Business at the University of Notre Dame is a top-tier business school, combining a liberal arts education with advanced knowledge and research in accounting to provide students with a strong understanding of the field.

Students take specialized classes in strategic cost management, audit and assurance services and federal taxation among others to help develop critical thinking and leadership skills. Graduates of the accountancy program have a solid grasp of the field and find careers within the accounting industry earning an average mid-career salary of $119,000.

3. Bryant University

Founded in 1863, Bryant University has a strong history of producing professionals who are leaders in the field. Its accounting program is no exception.

Classes in leadership, financial reporting, taxation, auditing and management introduce students to the business world, while improving communication and analytical skills. Graduates of this program have a dynamic understanding of accounting and are prepared for a career in a challenging field. They typically earn an average starting salary of $52,000 and mid-career salaries of $80,000.

4. New York University

The Leonard N. Stern School of Business at New York University offers two different undergraduate degrees in accounting, one with an emphasis in C.P.A., and the other less technical in nature. The second option allows students to blend liberal arts classes with core business and accounting classes to give them a broad education in the field.

A B.S in accounting from Stern leads to a high average starting salary of $65,000. Graduates of this program often progress to positions of leadership, earning an average mid-career salary of $114,000.

5. University of Illinois at Urbana-Champaign

Accounting is a global field that plays a core role in all business functions. A degree from the University of Illinois at Urbana-Champaign will prepare you for a successful career at any organization. The undergraduate program is centered on preparing graduates for a career in a variety of accounting fields, ranging from corporate to governmental.

Students are exposed to the fundamental principles of accounting, while learning how to apply current best business practices. The curriculum integrates liberal arts classes with core business classes in management, finance and analytics to create an environment that enhances critical thinking skills. Graduates of this program have been highly successful in the business world, earning an average mid-career salary of $100,000.

6. University of Southern California

The Marshall School of Business at the University of Southern California houses the distinguished Leventhal School of Accounting. This undergraduate accounting program is one of the best in the country due to the exclusivity of the program. Students study the art of accounting, while understanding the role it plays in business. They have the ability to customize their major, so they are taking classes that prepare them for quick advancement in the business world.

Classes in finance, economics and management help promote discussions about accounting practices, while supplementing classes on accounting principles. USC graduates of the accounting program earn an average starting salary of $55,000, but typically advance quickly, to an average mid-career salary of $110,000.

7. The University of Texas-Austin

In addition to offering a Bachelor of Business Administration (BBA) in accounting, the McCombs School of Business at the University of Texas also has an integrated Master in Professional Accounting (iMPA) program that allows strong students to earn both an BBA and MPA in five years.

Students can choose a corporate track or a financial institutions track, depending on their desired career plans. Upon graduation, accounting majors typically accept jobs in industry or government with an average starting salary of $51,000.

8. CUNY Bernard M. Baruch College

The Zicklin School of Business at CUNY Bernard M Baruch College is a highly-ranked business school with a reputation of providing a quality accounting education. The school attracts top faculty that have developed a curriculum that exposes the relationship between accounting and other crucial business practices.

Students take core classes in cost accounting, financial accounting, auditing and taxation along with electives in areas such as corporate finance and business law. A degree from Baruch leads to well-paying jobs, with graduates earning an average mid-career salary of $89,000.

9. Boston College

Boston College is a top school known for its strong curriculum and the success of its graduates. The accounting department holds the same reputation due to its world-class faculty and collaborative classes.

Accounting majors take their core business classes in finance, taxation, economics, analysis and auditing at the Carroll School of Management. They are given the option to specialize in Accounting, Accounting Information Systems or Corporate Reporting. Each of these concentrations is challenging and prepares graduates for rewarding careers in a variety of accounting services, earning an average mid-career salary of $109,000.

10. Villanova University

The Villanova University School of Business offers an accountancy program that prepares students for careers at business firms, corporations and governmental organizations. The school has a dynamic curriculum that incorporates theory and principles with exposure to current business practices. This gives students the opportunity to gain a well-rounded business education and secure jobs after graduation.

Classes in accounting, auditing and taxation are supplemented by electives in areas such as fraud, international accounting and accounting for real estate. Villanova graduates are well-equipped for an accounting career, earning an average starting salary of $55,000 and mid-career salaries averaging $107,000.

 

US News Ranking of Top Accounting Undergraduat Programs --- http://grad-schools.usnews.rankingsandreviews.com/best-graduate-schools/top-business-schools/accounting-rankings

#1
Overall Score:
University of Texas—​Austin (McCombs) 

Austin, TX

$32,298 per year (in-state, full-time); $48,832 per year (out-of-state, full-time)
#2
Overall Score:
University of Pennsylvania (Wharton) 

Philadelphia, PA

$62,424 per year (full-time)
#3
Overall Score:
University of Illinois—​Urbana-​Champaign 

Champaign, IL

$21,974 per year (in-state, full-time); $32,974 per year (out-of-state, full-time)
 
#4
Overall Score:
University of Chicago (Booth) 

Chicago, IL

$61,520 per year (full-time)
#5
Overall Score:
Stanford University 

Stanford, CA

$61,875 per year (full-time)
#6
Overall Score:
Brigham Young University (Marriott) 

Provo, UT

$11,620 per year (LDS member, full-time); $23,240 per year (Non-LDS member, full-time)
#7
Overall Score:
University of Michigan—​Ann Arbor (Ross) 

Ann Arbor, MI

$54,450 per year (in-state, full-time); $59,450 per year (out-of-state, full-time)
#8
Overall Score:
New York University (Stern) 

New York, NY

$60,744 per year (full-time)
#9
Overall Score:
University of Southern California (Marshall) 

Los Angeles, CA

$51,786 per year (full-time)
#10Tie
Overall Score:
Indiana University—​Bloomington (Kelley) 

Bloomington, IN

$25,500 per year (in-state, full-time); $44,460 per year (out-of-state, full-time)
#10Tie
Overall Score:
University of North Carolina—​Chapel Hill (Kenan-​Flagler) 

Chapel Hill, NC

$34,015 per year (in-state, full-time); $52,470 per year (out-of-state, full-time)

Jensen Comment
The USA rankings lean toward universities in big cities where starting salaries are somewhat higher but living costs are much higher than than say living costs in Utah and surrounding mountain states. Exceptions include Bryant, Illinois and Notre Dame, but these universities feed nearby urban centers.

I favor the US News report that is influenced more heavily by opinions of administrators that, in turn, are more influenced by reputations of accounting faculty. The US News anointed universities have more stars.


How many taxpayers overpaid when challenged by this from the IRS?
Math Is Hard, IRS Addition
http://www.taxabletalk.com/2016/03/03/math-is-hard-irs-addition/

Jensen Comment
One of the problems with IRS errors is that computerized notices can coonhound the error over and over and over and over.


The Tax Foundation's 2016 Analysis of the 50 States in the USA ---
http://taxfoundation.org/sites/taxfoundation.org/files/docs/FF16_FINAL.pdf
Thanks to Scott Bonacker for the heads up.


"For-profit education is a $35 billion cesspool of fraud—and the US government has let it fester," by Amy X. Wang, Quartz, March 17, 2016 ---
http://qz.com/640872/for-profit-education-is-a-35-billion-cesspool-of-fraud-and-the-us-government-has-let-it-fester/

It may have taken a while, but things are finally starting to unravel.

The US government is intensely scrutinizing for-profit colleges, many of which stand accused of stealing federal dollars, preying on low-income students, and falsely reporting job placements, among other deceptive practices. Big names like ITT Tech, DeVry University, and the University of Phoenix are all being called to account. The 107-campus Corinthian Colleges  stumbled to its end last year.

Corruption in for-profit education is hardly new, and the recently retired US education secretary Arne Duncan says the biggest regret of his tenure is not cracking down on its “bad actors” sooner.

The question is: Why didn’t he—or anyone?

“There’s been a serious gap in our understanding about where these institutions came from and how they’ve developed over time,” says Winthrop University history professor A.J. Angulo, who calculates the size of the industry, based on government documents, to be over $35 billion.

Angulo traces the surprisingly long legacy of for-profits in his new book, Diploma Mills: How For-Profit Colleges Stifled Students, Taxpayers, and the American Dream. Schools that operate around profit have indulged in unscrupulous practices since as far back as the 18th century, Angulo argues. Diploma Mills calls out all those practices, as well as the institutions that’ve let them slide for so long. Quartz spoke with the author for a look at the myriad of tensions involved.

QZ: Why’s it important to look back at the history of for-profits?

Angulo: Right now, we have a great deal of literature from economists and political scientists and sociologists who offer case studies from the 1990s onward. But there’s been very little on the historical evolution of how these institutions came about. When I was looking through the 2012 Senate investigations, I saw these startling documents—four-volume, multi-thousand-page studies on for-profits in recent history—and I got to thinking I’d like to put it in historical context.

Continued in article

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


"It is easier to move a cemetery," said President Woodrow Wilson, "than to effect a change in curriculum.")
In addition to being President of the United States Wilson was a former President of Princeton University.

Pathways Commission Updates
Accounting Education News, Winter 2016 --- http://aaahq.org/Portals/0/documents/journals/Accounting Education News/AEN_Winter_2016_WEB.PDF

The Pathways Commission Homepage is at
http://commons.aaahq.org/groups/0fa82ab56d/summary
Since it is in the Commons it's possible that only AAA members can access this page. If so, that's unfortunate.

In the context of Woodrow Wilson many of us are hoping that the Pathways Commission can move the academic accounting cemetery in terms of teaching, research, and service


"Rethinking Gen Ed," by Colleen Flaherty, Inside Higher Ed, March 10, 2016 ---
https://www.insidehighered.com/news/2016/03/10/undergraduate-curricular-reform-efforts-harvard-and-duke-suggest-theres-no-one-way?utm_source=Inside+Higher+Ed&utm_campaign=6ae1de344d-DNU20160310&utm_medium=email&utm_term=0_1fcbc04421-6ae1de344d-197565045

Amid concerns that requirements may not mean much to students or professors, Harvard and Duke Universities both look to curricular changes to improve undergraduate education.

Jensen Comment
Amidst the turf wars where some academic disciplines low on numbers of majors depend upon including their basic courses in the Gen Ed core. Harvard led the way by making the Gen Ed core a smorgasbord of courses from nearly all academic disciplines. This, in turn, led to gamesmanship on the part of students to choose the easiest courses rather than traditional courses that traditionally part of gen ed. The closest that students may ever get to Shakespeare and calculus or civics may now be in high school.

What is sadly lacking in most core requirements or even alternatives in the gen ed core is financial literacy even though financial ignorance is probably the leading cause of too much consumer debt and divorce in the USA.


In 2016, government auditors in Washington state discovered $420,300 in unemployment benefits paid out to prisoners. Prisoners, by the way, are ineligible for unemployment benefits ---
http://kimatv.com/news/local/washington-state-paying-unemployment-to-people-in-jail-audit-says


Smart Watch and Other Device Cheating

Eye Openers.

Go to
https://www.bing.com/

Enter
"Smart Watch Cheating"

Especially note the Consumer Reports article

Is this extreme grade inflation or what?
"Bill Gates Never Attended Any Classes He Signed up for at Harvard --- But He Got As Anyway," by Megan Willett, Tech Insider via Business Insider, March 9, 2016 ---
http://www.businessinsider.com/bill-gates-never-attended-class-at-harvard-2016-3

Bob Jensen's threads on the grade inflation scandal across the USA ---
http://www.trinity.edu/rjensen/Assess.htm#RateMyProfessor


"A Scholar’s Sting of Education Conferences Stirs a Hornet’s Nest," by Peter Schmidt, Chronicle of Higher Education, March 14, 2016 ---
http://chronicle.com/article/A-Scholar-s-Sting-of/235650?cid=at&utm_source=at&utm_medium=en&elqTrackId=4d62785f6d864222af3d9b69c4eb981d&elq=4b43e89bf5f342359880190332147922&elqaid=8231&elqat=1&elqCampaignId=2650

Jim Vander Putten suspected that some education conferences accepted any study pitched by someone willing to pay a registration fee. He worried that the gatherings enabled scholars to pad their publishing records while tainting research in the field.

To test his hypothesis, he sent fake research-paper summaries larded with unforgivable methodological errors to the organizers of 15 conferences he believed to have lax standards. All responded by offering to let him present his findings and to publish his papers as part of their proceedings.

But instead of exposing the dissemination of bad research, Mr. Vander Putten now stands accused of research misconduct himself.

Administrators at the University of Arkansas at Little Rock, where he is an associate professor of higher education, have told him he violated policy by undertaking a study of human subjects without the approval of the campus’s institutional review board. They have rejected his defense that an outside, commercial review board signed off on his plans — after Little Rock’s board failed to do so. A research-integrity officer on his campus has called on him to relinquish the data that he gathered. University officials took such actions after conference organizers he had duped threatened to sue.

Mr. Vander Putten’s unusual case highlights inconsistencies in the judgments that review boards make. It also raises questions of how much commercial boards, which account for a growing share of such reviews, can be trusted to safeguard colleges’ interests.

Continued in article

Jensen Comment

I innocently ended up in one of these phony conferences in a historic village in Germany before I realized it was an expensive, albeit phony, conference for accounting, finance, and business presenters. The first clue that it was phony was that there were no plenary sessions or any sessions with attendees met as a group. There were no dinners, receptions, or vendors selling books.

Here are some other features of phony academic conferences.

  1. These conferences represent no associations. Declarations that the papers accepted for the conference are first refereed are false. Virtually all papers submitted are accepted. Some are even published afterwards if the authors pay publishing fees.

     
  2. The location is in a popular tourist location on a beach, in the mountains, or situated near casinos. Sometimes they are even on a ship. I'm told that they're modeled after some phony medical conferences attended by physicians on vacations paid for by pharmaceutical and medical equipment vendors.

     
  3. Faculty submit expense reimbursement requests to their universities for what turns out often to be family vacations. At the German conference mentioned above I met a friend of mine who said his main purpose of attending was to buy a new Mercedes, drive his family around Europe, and then ship the Mercedes back to the USA.

     
  4. Nothing new or exciting is presented at these conferences. Mostly they old papers rejected by journals are dusted off and presented without enthusiasm.

     
  5. Only the persons assigned to present a paper in a program time slot attend the session. If there are four presenters there will be one rotating speaker and three in the audience. Sometimes the presenter will leave the session before it's over, thus making it possible that the last speaker has no audience.

     
  6. Speakers show up only for part of one day fore their assigned presentations. Most arrive late to the conference and leave before the conference ends.

     
  7. Sometimes the conference is organized by an academic who learns that organizing such fees for such conferences and fees for published proceedings are are better ways of making money than earning a salary at college.

     

Free Trade --- https://en.wikipedia.org/wiki/Free_trade

It’s enough to take the word of an eminent Nobel laureate (Paul Krugman)
"Three Cheers for Free Trade," by Ross Kaminsky, The American Spectator, March 16, 2016 ---
http://spectator.org/articles/65797/three-cheers-free-trade

. . .

Allow me to offer a few quotes (emphasis added) from one prominent economist, at the time a professor at an elite university, who was lamenting the poor understanding of international trade in the United States:

So who is this paragon of capitalist dogma, this right-wing hater of the Rust Belt, this heartless fiend in the pocket of the Koch Brothers? Is it Steve Moore? Larry Kudlow? Ben Stein? Is it a deep-thinking conservative from the American Enterprise Institute or a Cato Institute libertarian?

No, these words are from a 1993 paper published by one Paul Krugman (H/T Don Boudreaux), at the time a professor in the economics department at MIT, who later won the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel (the official name of the world’s most famous non-athletic prize) for innovative explanations of free trade including that similar countries may trade with each other, including importing and exporting similar products, to satisfy consumer demand for a wider variety of products.

Again, although there is debate at the margins, the very large net benefit of free trade to a nation that engages in it is largely uncontroversial among economists, at least among honest ones — a group that sadly no longer includes Dr. Krugman. This includes the fact that free trade benefits the importing country even if the exporting country does not equally reciprocate with reduced tariffs. As the aforementioned Don Boudreaux puts it, just because the other guys are filling their ports with boulders doesn’t mean we should.

Continued in article

Jensen Comment
The fact of the matter is that candidates for public office like Bernie Sanders are appealing for votes from workers who are either unemployed or, like Michael Moore of Roger and Me fame, believe in their hearts that selected high tariffs will lead to high wages for them personally. At a personal level they may even be correct for particular trades. But what these voters don't take into account or don't care about is the adverse effect on millions of other workers and consumers who benefit greatly by free trade.

And the hourly worker advocating a high tariff for strictly personal reasons may find that the higher tariffs backfire on him or her personally. The guy on a GM assembly line may think this wage will quadruple with a tariff only to discover that the tariff puts him out of a job or lowers his wage. The current unemployed person may discover that tariffs further reduce the chances of finding work.

And the guy on the GM assembly line anticipating a quadruple increase in wages in Detroit may discover that, if a USA tariff puts 10 million skilled assembly line workers in Mexico out of work, most of those 10 million workers will find their way to Detroit in a matter of weeks and compete for the high wage jobs.

The bottom line is that protectionism is great for getting votes but lousy for the economy except in very rare instances where national defense and economic well being becomes a serious concern. I say "well being" because when the USA entirely stops producing a very strategic ingredient the nation is at risk of being extorted by foreign producers. Our current dependency on China for lithium, for example, is a serious concern. But there are ways other than tariffs when strategic supplies are of concern.


Carried Interest --- https://en.wikipedia.org/wiki/Carried_interest#Taxation
When performance compensation can be taxed as a capital gain

"The New Yorker: The Carried Interest Tax Loophole," by Paul Caron, TaxProf Blog, March 8, 2016 ---
http://taxprof.typepad.com/taxprof_blog/2016/03/the-new-yorkerthe-carried-interest-tax-loophole.html

The New Yorker, The Billionaires’ Loophole: A Tax Law Helps David Rubenstein Perform Major Patriotic Philanthropic Works. Is It Fair?:

Until recently, relatively little attention had been paid to one source of Rubenstein’s wealth, which he has quietly fought to protect: the so-called carried-interest tax loophole. The tax break has helped private equity become one of the most lucrative sectors of the financial industry. Since the end of the recession, private equity has reported record profits, and at least eighteen private-equity executives are estimated to be worth two billion dollars or more each. And during the current Presidential campaign, with its populist themes, the loophole has become a target among Democrats and Republicans alike. ...

Private-equity partners argue that their tax treatment is justified under the tradition of encouraging risky business partnerships and is necessary for their industry to flourish. So far, the partners have won out: despite the rise of anti-Wall Street sentiment after the 2008 financial collapse, the loophole has withstood every effort at reform. ...

The person most responsible for inspiring the movement against the carried-interest tax loophole is Victor Fleischer, a tax-law professor at the University of San Diego School of Law. Fleischer, the son of two college professors in Buffalo, became aware of the loophole in the late nineteen-nineties, when he was working as a tax attorney at Davis Polk, in New York. Fleischer does not consider himself particularly liberal. He is motivated, he told me, by a basic idea. “It’s important to think about how the tax system treats people. The tax system has to fund the government and the government has to do things for everyone.”

For more than a decade, Fleischer has argued that the loophole contributes significantly to income inequality, by inflating what he calls the “alpha income” of financiers in the top one per cent of the one per cent. In legislative circles, he is among the foremost authorities on the issue. The other side has acknowledged his expertise in its own way: early in his research, he declined a consulting gig for a private-equity lobbyist. ...

In 2006, Fleischer, then an untenured professor at U.C.L.A., circulated a research paper, his first on the carried-interest loophole, called “Two and Twenty.” (It was published two years later, in the New York University Law Review.) He argued that the compensation scheme in private-equity firms meant that partners were not taking the kind of risk for which the capital-gains tax was designed. “If the fund does well, the managers share in the treasure,” he wrote. “If the fund does badly, however, the manager can walk away.” He noted that some partners were even taking a portion of their management fees in the form of carried interest, to increase the tax advantage. “This quirk in the tax law allows some of the richest workers in the country to pay tax on their labor income at a low rate.”

Members of Congress aren’t known to scrutinize academic articles about tax law. But Fleischer’s report had been picked up by several economics blogs, and in 2007, as Democrats assumed control of both Houses of Congress, it circulated among tax staffers on the Senate Finance Committee. Fleischer was asked to come in and brief committee aides. Soon afterward, the chairman, Max Baucus, of Montana, and the top Republican, Chuck Grassley, of Iowa, produced a bill to close one part of the loophole, which covered the corporate taxes of publicly traded companies. It was nicknamed the “Blackstone bill,” because that firm was then preparing a $4.7-billion public offering. Senator Barack Obama was one of the bill’s four co-sponsors. ...

Obama has continued to invoke carried-interest reform as a way to raise revenue. Rubenstein, who no longer has to contend with any real attempts to close the loophole, has little to gain by insisting that it be retained. Instead, he characterizes reform efforts as a distraction. He told Charlie Rose in 2012, “Our bigger problem isn’t carried interest. Our bigger problem is the one-trillion-dollar annual deficit and the sixteen trillion dollars of debt we have.” At the Credit Suisse forum in 2013, Rubenstein said of the potential savings from closing the loophole, “It’s a very modest amount of money.”

Continued in article


Unbooked Intantible Assets:  brand value, customer data, even algorithms

From the CFO Journal's Morning Ledger on March 22, 2016

Some of companies’ most valuable assets cannot be listed on their books under current U.S. accounting rules. Intangible assets—brand value, customer data, even algorithms—are of great interest to investors, as businesses these days tend to invest more in their nonphysical assets than they do in building new factories, CFO Journal’s Vipal Monga reports. But the problem of how to value such intangible assets has vexed accountants for decades.

The absence of abstractions like brand value on corporate balance sheets prevents investors from properly gauging their risks, said Baruch Lev, an accounting and finance professor at New York University’s Stern School of Business. “It’s an incredibly important issue,” he said. “Investment in intangibles is almost completely obscured from investors.”

Altogether, companies in the U.S. could have more than $8 trillion in intangible assets, according to Leonard Nakamura, an economist at the Federal Reserve Bank of Philadelphia. That’s nearly half of the combined $17.9 trillion market capitalization of the S&P 500 index

"Accounting for Contingent Liabilities: What You Disclose Can Be Used Against You," by Linda Allen, SSRN, June 20, 2014 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2457177 

Abstract
Accounting standards require disclosure of estimable losses from contingent liabilities such as litigation expenses. However, revelation of the firm’s private estimates of the probability of loss and possible legal damages can be detrimental to the firm by encouraging litigation and increasing the costs of settlement. In this paper, I propose a model (the US-patented TMTM) that uses publicly-available data to provide accurate and unbiased estimates of litigation damages without requiring firms to publicly disclose their private assessments or litigation reserves. This provides valuable information to the users of financial statements without undermining the firm’s right to preserve sensitive internal information
.

Bob Jensen's threads on accounting for intangibles and contingencies ---
http://www.trinity.edu/rjensen/theory01.htm#TheoryDisputes


From the CFO Journal's Morning Ledger on March 16, 2016

Who stole $100 million from Bangladesh at the New York Fed?
Someone using official codes stole $100 million from Bangladesh’s account at the New York Fed over a recent weekend. Now, officials in four countries are trying to figure out what happened. The breach funneled $81 million from the country’s account at the New York Federal Reserve to personal bank accounts in the Philippines. Another $20 million was directed to a bank in Sri Lanka.


From the CFO Journal's Morning Ledger on March 15, 2016

SEC clears accounting watchdog’s (PCAOB) budget but flags spending
The Public Company Accounting Oversight Board, which polices the biggest U.S. accounting firms, won begrudging approval of its $257 million budget. Two members of the Securities and Exchange Commission voiced persistent concerns about spending at an agency that pays each of its five board members more than $540,000 a year


Credit Rating Firms --- http://en.wikipedia.org/wiki/Credit_rating_firms
Credit Rating Firms are rotten to the core --- http://www.trinity.edu/rjensen/FraudRotten.htm#CreditRatingAgencies

From the CFO Journal's Morning Ledger on March 10, 2016

Moody’s to pay Calpers $130 million to settle lawsuit
Moody’s Investors Service has agreed to pay $130 million to end a prominent lawsuit alleging crisis-era misconduct, a record settlement for the world’s second-largest ratings firm. The California Public Employees’ Retirement System alleged in a 2009 lawsuit that Moody’s and two other ratings firms made “negligent misrepresentations” when they awarded rosy grades to residential mortgage bonds that later soured.

"Ending the Credit Ratings Racket:  Seven years after the financial crisis, the SEC enacts a critical reform," The Wall Street Journal, September 18, 2015 ---
http://www.wsj.com/articles/ending-the-ratings-racket-1442615384?mod=djemMER

America’s financial system is sturdier today thanks to some rare good news from a Washington regulator. Seven years after the financial crisis, the Securities and Exchange Commission has taken a big step toward ending a policy that helped cause the mess.

For decades before the crisis, SEC staff had recognized a small group of private credit-rating agencies—including Standard & Poor’s, Moody’s and Fitch—as official judges of risk. Federal regulators referred to these favored companies in their rules and even forced financial institutions to invest in paper rated highly by this anointed cartel.

When the members of the cartel turned out to be wrong about the risks in mortgage-backed securities, the result was catastrophic because the government had forced so many other firms to follow their advice.

The new rule enacted by the commission this week says that instead of simply holding assets rated highly by the cartel, the operators of money-market mutual funds must instead rely on their own analysis to select securities presenting minimal credit risk. Investors probably assume that’s what mutual fund companies do already, and many of them do. All of them should.

Kudos to SEC Commissioner Daniel Gallagher, who has the welcome habit of breaking Beltway decorum. In various public fora, Mr. Gallagher kept reminding his colleagues that this needed reform was being ignored while they went about drafting rules that had nothing to do with addressing the causes of the last crisis or preventing the next one.

This week’s reform leaves one SEC rule that still carries an endorsement of the ratings cartel—so-called Regulation M for securities offerings. SEC Chair Mary Jo White should now get her agency all the way out of the business of deciding whose opinions about credit risk ought to be followed. Let markets decide whose opinions have value. It will make financial crises less likely.

There’s also need for reform outside Washington. Too many state pension systems still show too much deference to the cartel. A rating expresses a point of view, not a guarantee.

Continued in article

 
Credit Rating Firms Were Rotten to the Core:  At last the DOJ is taking some action (Bailout, Credit Rating Agendies, Agencies, Banks, CDO, Bond Ratings, CDO. Auditing, Fraud)
citation:
"DOJ vs. Rating Firms,"  by David Hall, CFO.com Morning Ledger, February 5, 2013
journal/magazine/etc.:
CFO.com Morning Ledger
publication date:
Februry 5, 2013
article text:

There are two superpowers in the world today in my opinion. There’s the United States and there’s Moody’s Bond Rating Service. The United States can destroy you by dropping bombs, and Moody’s can destroy you by down grading your bonds. And believe me, it’s not clear sometimes who’s more powerful.  The most that we can safely assert about the evolutionary process underlying market equilibrium is that harmful heuristics, like harmful mutations in nature, will die out.
Martin Miller, Debt and Taxes as quoted by Frank Partnoy, "The Siskel and Ebert of Financial Matters:  Two Thumbs Down for Credit Reporting Agencies," Washington University Law Quarterly, Volume 77, No. 3, 1999 --- http://www.trinity.edu/rjensen/FraudCongressPartnoyWULawReview.htm

Credit rating agencies gave AAA ratings to mortgage-backed securities that didn't deserve them. "These ratings not only gave false comfort to investors, but also skewed the computer risk models and regulatory capital computations," Cox said in written testimony.
SEC Chairman Christopher Cox as quoted on October 23, 2008 at http://www.nytimes.com/external/idg/2008/10/23/23idg-Greenspan-Bad.html

"CREDIT RATING AGENCIES: USELESS TO INVESTORS," by Anthony H. Catanch Jr. and J. Edward Ketz, Grumpy Old Accountants Blog, June 6, 2011 --- http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/113

In 2008 it became evident that credit rating firms were giving AAA ratings to bonds that they knew were worthless, especially CDO bonds of their big Wall Street clients like Bear Stearns, Merrill Lynch, Lehman Bros., JP Morgan, Goldman, etc. ---
http://www.trinity.edu/rjensen/2008Bailout.htm#Sleaze

Bob Jensen's threads on the fraudulent credit rating agencies --- http://www.trinity.edu/rjensen/FraudRotten.htm#CreditRatingAgencies


From the CFO Journal's Morning Ledger on March 8, 2016

The intelligence required to complete a sound audit is increasingly of the artificial variety. The Big Four auditing firms are enlisting cutting-edge technology to help them review their clients’ finances, reports Michael Rapoport for CFO Journal. AI has come a long way from competing with humans in chess competitions or on game shows. Under an agreement expected to be announced Tuesday, KPMG LLP and International Business Machines Corp. would deploy IBM’s Watson artificial-intelligence unit to develop high-tech tools for auditing and other businesses.

The new tools automate critical but rote tasks, letting auditors focus on more substantive issues. Deloitte & Touche LLP has its Argus and Optix. And Ernst & Young LLP and PricewaterhouseCoopers LLP have their own smart tools. They can examine all of a client’s transactions, instead of just a sample, reducing the chances of missing a problem, the firms say. They also make auditors better able to detect patterns in a client’s finances worth investigating for errors or fraud.

The technology could also benefit the firms by making accounting more appealing as a career to young people who have grown up with high tech as an everyday part of life. Still, some say the technology could be a double-edged sword in attracting young employees. Using the technology will require auditors to master new skills. And if they have to do important, substantive work almost as soon as they start their jobs, they’ll have less time for on-the-job training

From the CFO Journal's Morning Ledger on March 8, 2016

More street gangs turn to financial crimes
Gangs traditionally associated with drugs and violent crimes are increasingly committing financial frauds that can be more lucrative and harder to detect, law-enforcement officials say. The issue is posing a new challenge for police departments that typically have separate silos for their gang and financial-crimes units.

 


From the CFO Journal's Morning Ledger on February 29, 2016

American companies are watching for the outcome of Intel Corp.’s tax dispute with the Internal Revenue Service over cost-sharing arrangements with its foreign subsidiaries. The firms stand to gain billions in new tax benefits if an earlier court ruling is upheld, the WSJ’s Richard Rubin reports. At least 20 companies, including Microsoft Corp. and eBay Inc., have disclosed they’re monitoring the case. However, the case’s uncertainty has kept them from quantifying the potential benefits.
http://www.wsj.com/articles/googles-parent-could-be-big-winner-in-intel-tax-dispute-1456698129?mod=djemCFO_h

Cost-sharing arrangements typically are agreements between the U.S. parent and a subsidiary in a low-tax country that manages and profits from foreign sales. That foreign subsidiary, funded by the parent company, must pay back the parent for its share of corporate costs, such as salaries of employees at the U.S. headquarters who develop the product they are selling abroad. The more that costs stay with the U.S. parent, the more deductions it can pile up in the U.S. and less income gets taxed at the 35% U.S. rate. Accordingly, if the foreign subsidiary has fewer deductions, it can pile up profits that get lower tax rates.


"Can Science’s Reproducibility Crisis Be Reproduced?," by Paul Basken, Chronicle of Higher Education, March 3, 2016 ---
http://chronicle.com/article/Can-Science-s/235582?cid=at&utm_source=at&utm_medium=en&elqTrackId=00007892b7d44a308a34645f63b6464b&elq=1bba946be0e647438f1c8bf3d0d86e3a&elqaid=8136&elqat=1&elqCampaignId=2593 

Broad fears over reproducibility were stoked by a 2005 article in PLOS Medicine by John P.A. Ioannidis, a professor of health research and policy at Stanford University, contending that most published research findings are false. Last year a team of hundreds of researchers raised further alarm. After working over three years to faithfully repeat 100 studies that had been published in psychology journals, the team reported that it could not replicate most of the original results.

Now, two new studies, published on Thursday in Science magazine, are pushing back. One, a Harvard-led critique of the project that repeated 100 psychology studies, suggests that that ambitious effort overlooked some critical factors. The other, an attempt to repeat 18 studies in leading economics journals, found that 61 percent of them replicated successfully.

 

"Our results were pretty encouraging," said the lead author of the economics study, Colin F. Camerer, a professor of behavioral economics at the California Institute of Technology.

Together, the two papers this week should help calm the widespread worries about the reliability of science fanned by Mr. Ioannidis, said the lead author of the psychology critique, Daniel T. Gilbert, a professor of psychology at Harvard.

"It’s very easy to come to the wrong conclusion when you try to replicate other people’s research," Mr. Gilbert said.

Continued in article

Jensen Comment
In accounting research replication efforts are rare. There's almost no incentive to conduct exacting replication studies since there's no outlet for publication of replication efforts or even commentaries on research published in the six leading academic accounting research journals. It is not so much that the journals will not publish commentaries. A leading former editor (Steve Kachelmeir) of The Accounting Review writes that his 574 referees had zero interest in accepting commentaries for publication.
http://www.trinity.edu/rjensen/TheoryTar.htm

We might argue that argue that accountants simply trust each other to only publish truth in accounting. But more to the point is that in terms of the leading top six academic accounting journals (that only publish articles with equations) there is virtually zero interest among accountants in the findings of the esoteric "accountics" articles published in those journals.
“An Analysis of the Evolution of Research Contributions by The Accounting Review: 1926-2005,” (with Jean Heck), Accounting Historians Journal, Volume 34, No. 2, December 2007, pp. 109-142.

. . .

Practitioner membership in the AAA faded along with their interest in journals published by the AAA [Bricker and Previts, 1990]. The exodus of practitioners became even more pronounced in the 1990s when leadership in the large accounting firms was changing toward professional managers overseeing global operations. Rayburn [2006, p. 4] notes that practitioner membership is now less than 10 percent of AAA members, and many practitioner members join more for public relations and student recruitment reasons rather than interest in AAA research. Practitioner authorship in TAR plunged to nearly zero over recent decades, as reflected in Figure 2.

 

To my knowledge there has only been one noteworthy cheating scandal causing retraction of research papers in the leading academic journals. Those papers had cheater James Hunton as a co-author, but none of Professor Hunton's research cheating was detected by replication efforts. Hence it's safe to say that in accounting research there's been no cheating or serious error detection revelations except where the authors themselves later detected their own errors and apologized in public. You can read about Professor Hunton's cheating at
http://www.trinity.edu/rjensen/plagiarism.htm#ProfessorsWhoPlagiarize

There have been instances where cheating, usually plagiarism, was detected that did not lead to formal retractions in the accounting research journals. I mention one such case at where a friend of mine at a Big 10 university plagiarized parts of a student's Ph.D. dissertation and was embarrassed when the cheating was detected after the student, also a close friend of mine, was recalled to testify at that university ---
http://www.trinity.edu/rjensen/plagiarism.htm

But professorial cheating never, to my knowledge, was detected in replication efforts in the discipline of accounting. There are instances in the physical and social sciences where replication efforts led to the detection of cheating and/or serious unintended research mistakes ---
http://www.trinity.edu/rjensen/plagiarism.htm

The biggest reason for encouraging replication research is to either detect research error or to detect intentional fabrication of data. In the leading accounting research journals fabrication of data is less likely because most accounting researchers, at least those in financial accounting, reply on purchased databases like Compustat. Those researchers seldom collect their own data, and hence data fabrication is less likely. But in the case of James Hunton there was allegedly data fabrication.


Fast Food Restaurant Replacement of Workers With Machines ---
http://www.businessinsider.com/carls-jr-wants-open-automated-location-2016-3

Jensen Comment
Students in cost accounting courses may be assigned tasks of contacting local restaurants to analyze in terms of cost incentives for automation.


AACSB
From 2012 to 2015 the mean salary for a new accounting doctorate increased from $142,500 to $156,900. For a summary of the 2012 and 2015 reports see

 http://maaw.info/ArticleSummaries/ArtSumAACSB2013SalaryReports.htm

Jensen Comment
When it comes to salary data I prefer medians to means. Means in this case are pulled down greatly by low-paying AACSB universities that are chosen for reasons other than salary such as geographic location, spouse employment opportunities, etc. For example, there are quite few NYC universities that are not known for high salaries. But opportunities for spouses are hign in NYC. Also there are some financial incentives for outside consulting unique to the NYC metroplex.

Small religious universities have attractions other than salary.

Also mean salaries are not good for comparing the top R1 research universities in accounting. For example, some universities provide only small research slush funds for researchers, including new accounting faculty. Others purportedly go well above $20,000 for research slush funds controlled by accounting researchers. Also some universities like Harvard provide many more opportunities for lucrative consulting supplemental incomes.

"Exploring Accounting Doctoral Program Decline:  Variation and the Search for Antecedents," by Timothy J. Fogarty and Anthony D. Holder, Issues in Accounting Education, May 2012 ---
Not yet posted on June 18, 2012

ABSTRACT
The inadequate supply of new terminally qualified accounting faculty poses a great concern for many accounting faculty and administrators. Although the general downward trajectory has been well observed, more specific information would offer potential insights about causes and continuation. This paper examines change in accounting doctoral student production in the U.S. since 1989 through the use of five-year moving verges. Aggregated on this basis, the downward movement predominates, notwithstanding the schools that began new programs or increased doctoral student production during this time. The results show that larger declines occurred for middle prestige schools, for larger universities, and for public schools. Schools that periodically successfully compete in M.B.A.. program rankings also more likely have diminished in size. of their accounting Ph.D. programs. Despite a recent increase in graduations, data on the population of current doctoral students suggest the continuation of the problems associated with the supply and demand imbalance that exists in this sector of the U.S. academy

This shortage has made new accounting Ph.D. graduates among the highest paid in new hires in top research universities in North America. But the result is that most business schools have shortages of accounting Ph.D.s and have had to supplement teaching staff with adjuncts and in the case of tax accounting lawyers are put in tenure track positions. Whereas Purdue will struggle for graduate assistants in the English Department Purdue will struggle with having more adjuncts in the business school, especially in accounting. Some universities like the University of Houston now has over a dozen "clinical" accounting faculty but an adjunct by any other name is still an adjunct.

Bob Jensen's threads on the sad state of North American accounting doctoral programs ---
http://www.trinity.edu/rjensen/theory01.htm#DoctoralPrograms


National Cultural Dimensions in Finance and Accounting Scholarship: An Important Gap in the Literatures?
SSRN, February 24, 2016
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2737411

Authors

Raj Aggarwal University of Akron; Federal Reserve Banks - Federal Reserve Bank of Cleveland

John W. Goodell University of Akron - Department of Finance, College of Business Administration

Abstract

There have been relatively few studies in finance and accounting that include the use of cultural dimensions. We conclude that both the accounting and finance fields make sparse use of cultural dimensions in scholarship. However, the field of accounting has made greater use of cultural dimensions than the field of finance. We note that this is in part due to particular seminal theories regarding the connection of national culture with the behavior of individuals in accounting. Finance, on the other hand, has been more focused on effects of larger market aggregates. Finance just recently seems to have discovered the impact of national culture, particularly via the impact of individualism on market momentum and the impact of uncertainty avoidance on transactions costs. We conclude that the field of finance is being well served by the Journal of Behavioral and Experimental Finance championing research on cultural finance.

Jensen Comment
The authors note some of the leading studies of culture impacts on accounting, notably those of Geert Hoffstede that are cited by the authors.

Hofstede, Geert, (1980), Culture's Consequences: International Differences in Work-Related Values (Sage Publications, Newbury Park, California).

Hofstede, Geert, (2001), Culture's Consequences (Sage Publications, London).

Hofstede, Geert, (2003), "What is culture? A reply to Baskerville", Accounting, Organizations and Society 28 (No. 7, November) pp. 811-813. Hofstede, Geert, Gert Jan Hofstede, and Michael Minkov, (2010), Cultures and Organizations: Software of the Mind (McGraw-Hill, New York).

However, I'm inclined to think there are many more indirectly related history studies that just may not have used the terms culture or cultural in the titles. It may overstate the case a bit to state that accounting researchers have been remiss in looking at cultural dimensions


Accountability as a Concept
SSRN, February 26, 2016
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2738419

Author

Peter Oluwaseun Otegbeye

Abstract

The recent surge in popularity of ‘accountability’ in public administration and international development seems in part divorced from centuries of conceptual and empirical work done in related disciplines of finance and accounting, and in political science. This article brings together the core meaning of accountability as used in hundreds of previous works, and seeks to bring order to the litany of subtypes in this literature. An organizing scheme with three dimensions (source of control, strength of control, and direction of relationship) captures all the existing varying types of accountability. The resulting typology also clarifies that varying subtypes have not only different actors and characteristics, but also seek to uphold varying values and are facing different challenges. These have important implications both for research and the im-possibility of translating findings from one subtype field to another; as well as practical implications for the policy world.

Points for practitioners Accountability has several different forms depending on the actors (e.g. citizens-politicians; politicians-bureaucrats; or judges-citizens). These types of accountability seek to protect different values, and are accompanied by varying challenges. Yet, everything is not accountability: it is but one of many possible ways to constrain the (mis-)use of power. This article clarifies the core idea of accountability. It then depicts the full range of subtypes with their different characteristics and problems. This can function as a guide for policy makers and practitioners when seeking to address weaknesses in accountability of varying actors based on acknowledging their differences.

Fundamental to governance is how power and authority are allocated and applied in a variety of public realms: selection of leaders, provision of basic public goods and services (e.g., health, education, transportation and communications infrastructure), maintenance of law and order, revenue generation and allocation, economic and social policy-making, and so on. In all of these realms, public officials, by virtue of the authority accorded the roles and positions they occupy, exercise varying degrees of power as they carry out their functions. What, however, assures that public officials will use their power and authority properly and responsibly? The answer lies with systems, procedures, and mechanisms that impose restraints on power and authority and that create incentives for appropriate behaviors and actions. These all fall within the conceptual and operational boundaries of the term, accountability, which is the topic of this paper. Concerns with limiting power, subjecting authority to a set of rules, and curbing abuses have preoccupied societies for centuries. In today’s world, accountability has taken on a high degree of importance for two main reasons. First, the size and scope of the administrative state in modern economies is large, according governments broad and significant power to intervene in people’s lives. Second, democracy has emerged as the pre-eminent and most aspired-to form of governance system. Thus, the sense that government’s power is dominant, coupled with the desire to see that power exercised according to the will of the citizenry, puts accountability front and center on the stage of current governance issues. In fact, along with transparency and responsiveness, accountability constitutes one of the core components of the definition of democratic governance. Yet despite its centrality to notions of democratic governance and the surface simplicity of the idea of checks and restraints on power, accountability is a “complex and chameleon-like term” (Mulgan, 2000: 555). “Accountability represents an under explored concept whose meaning remains evasive, whose boundaries are fuzzy, and whose internal structure is confusing.” This paper seeks to clarify the meaning of accountability, to elaborate its basic elements, and to offer options for increasing accountability. The focus of the discussion is on countries that are transitioning to, or consolidating, democratic governance systems. The audience consists of democracy/governance officers in the U.S. Agency for International Development (USAID) and in other donor organizations, and host country policy-makers and public managers. Civil society organizations may also find the paper useful. The first section of the paper defines the essential features of accountability and develops a typology. The second section examines accountability in relation to democratic governance, and looks at the different dimensions of accountability, which answers the question, accountable for what? The interconnections among the different dimensions of accountability are discussed. The third section specifies the various categories of actors involved in accountability by asking two questions. Who is accountable? And, accountable to whom? The fourth section discusses issues and options for increasing accountability. It looks at facilitating conditions, and offers targets and strategies for strengthening accountability. The emphasis is on feasibility and fit with politico bureaucratic realities. Throughout the paper, examples are cited.


2016 States in the USA With the Highest and Lowest Tax Rates ---
https://wallethub.com/edu/best-worst-states-to-be-a-taxpayer/2416/

Overall, Illinois has the highest tax rates, followed by Nebraska, Wisconsin, Connecticut, Rhode Island, and New York, according to an analysis by WalletHub. Notably, tax rates are about 10.56% higher in blue states than in red states.

New York has the highest cigarette excise tax at $4.35 per pack, while Missouri has the lowest at $0.17. Pennsylvania has the highest gas tax at $0.5040 per gallon, while Alaska has the lowest at $0.1225.

Jensen Comment
Some of those most taxing states were also subject to state-worker pension frauds and enormous pension underfunding, notably Illinois, Connecticut, and Rhode Island.

Note the far right column that provides an adjusted cost of living index. California, Oregon, and Washington DC, for example, do fairly well on tax rates but come out horribly on the adjusted cost of living index. There are not many surprises on the high cost of living where the worst states are New York, Connecticut, Hawaii, Rhode Island, and New Jersey.


The Concise Encyclopedia of Economics --- http://www.econlib.org/library/CEE.html
Don't forget that most of the terminology can be found in greater detail in Wikipedia


Solar Thermal Energy --- https://en.wikipedia.org/wiki/Solar_thermal_energy

"Ivanpah’s Problems Could Signal the End of Concentrated Solar in the U.S.," by Richard Martin, MIT's Technology Review, March 24, 2016 ---
https://www.technologyreview.com/s/601083/ivanpahs-problems-could-signal-the-end-of-concentrated-solar-in-the-us/#/set/id/601103/

Cancellations of solar thermal projects likely mean the technology’s future is dim in the U.S., so companies are looking overseas.

When it first came online in late 2013, the massive Ivanpah concentrated solar power plant in the California desert looked like the possible future of renewable energy. Now the problems it faces underline the challenges facing concentrated solar power, which uses mirrors to focus the sun’s rays to make steam and produce electricity.

Last week the California Public Utilities Commission gave the beleaguered Ivanpah project, the world’s largest concentrated solar facility, one year to increase its electricity production to fulfill its electricity supply commitments to two of the state’s largest utilities (see “One of the World’s Largest Solar Facilities Is in Trouble”). The $2.2 billion plant is designed to have 377 megawatts of capacity. But it has been plagued by charges of numerous bird deaths (zapped by the fierce beams between the mirrors and the collecting tower) and accusations of production shortfalls.

Saying that over the last 12 months the facility has reached 97.5 percent of its annual contracted production, BrightSource officials dismissed the supply issues as a normal part of the plant’s startup phase. But the troubles at Ivanpah have joined the delay or cancellation of several high-profile projects as evidence that concentrated solar power could be a dying technology.

Continued in article

Jensen Comment
This does not of course doom solar power in general as an alternative energy source, nor is it even spelling the end of concentrated solar thermal energy in other parts of the world.

Massive solar power generators must be combined with sound financing.

Nearly all all alternative power financings are now troubled by significantly lower pricing of gas and oil on world markets. This is also troubling alternative sourcing of gas such as from shale and tar sands.

One advantage of solar is that it can generate power on a small scale such as from the roof of a house or barn. This allows for financing to be dispersed to homeowners who in the USA are, however, still depending upon government subsidies. Especially troubling is the costly technology for storing solar power for when it may be needed the most at night for lighting, heating, and cooling.

Solar is rapidly increasing in many countries, notably in Asia and Africa. These are boom times for solar in China. One of the neat things about solar is that it can provide power to remote (think jungle) homes and businesses without having a tremendous investment in power line infrastructure.

Coal appears doomed earlier than expected since it's becoming one of the costlier alternatives for energy.

There are high hopes that experimental nuclear fusion plants in Germany and France will become cost effective.

Many of us, however, have higher hopes for the cheapening of hydrogen electrolysis of water ---
https://en.wikipedia.org/wiki/Electrolysis_of_water 
Hydrogen can fill fuel cells that, in turn, eliminate the need for costly infrastructure of enormous power plants and power lines. It would be terrific to eliminate the ugliness of power lines as well as the fear of power outages due to wind and ice storms.

Alternative Energy --- https://en.wikipedia.org/wiki/Alternative_energy

 


From the CFO Journal's Morning Ledger on February 29, 2016

As disclosures balloon, it is getting easier to bury information
Regulations requiring companies to divulge more financial information to investors have contributed to lengthy filings that can make it harder for investors to identify important information, CFO Journal’s Tatyana Shumsky reports. “If the old way of hiding information or making it less prominent was to put it in the footnotes, the new way is to leave it in the text,” said Ron Schneider, director of governance services for R.R. Donnelley & Sons Co.


High Frequency Trading --- https://en.wikipedia.org/wiki/High-frequency_trading

Francine's First Hit in the WSJ
"Critic of High-Frequency Trading Gets Whistleblower Award:  Eric Hunsader receives $750,000 payout from SEC related to NYSE fine
," by Francine McKenna, The Wall Street Journal, March 1, 2016 ---
http://www.wsj.com/articles/critic-of-high-frequency-trading-gets-whistleblower-award-1456858288


27 Companies That Paid No Income Taxes ---
http://ritholtz.com/2016/03/27-companies-that-paid-no-taxes/

March 12, 2016 reply from Tom Amlie

The story referred to "tax expense", not taxes paid, but that's not the main point here.

The first two - Level 3 and United - had large negative tax expense due to the reversal of valuation allowances on large deferred tax assets arising from loss carryforwards. Unfortunately people look at summaries such as this and assume there's some sort of nefarious give-away or special tax break being taken advantage of.

Tom A.

 


Question
As anybody in academe discovered block chain accounting?

Block Chain Database --- https://en.wikipedia.org/wiki/Block_chain_(database)

In January, PwC announced it formed a team of 15 blockchain experts to advise clients.
"The unsexy future of blockchain is accounting," by Oliver Staley, Quartz, March 3. 2016 ---
http://qz.com/629662/the-unsexy-future-of-blockchain-is-accounting/

Champions of blockchain, the technology that underpins the Bitcoin currency, claim it will have as big an impact on the world as the Internet, promising to radically reshape finance, entertainment and pubic policy. A less glamorous, but more immediate, application may be in accounting.

A blockchain essentially works as a global and public ledger. Information is stored on a distributed network of computers, there’s no central database that can be tampered with or hacked. Every 10 minutes, all transactions are recorded in a virtual block, and a new block is created, linked to all the previous blocks in the chain. The blocks are visible to both parties involved in the transaction. All of which makes it a system well-suited for storing and sharing accounts.

Accounting, auditing and compliance are a massive cost for business globally. (Fines alone have cost banking $200 billion since 2009.) Blockchain accounting could help cut those costs. For example, instead of a company employing its own auditors to examine the books of its various units, all transactions could be logged on an internal blockchain, and recorded centrally. Likewise, external auditors or even regulators could inspect a corporation’s books in real time. Even the accounting firms that make their money from auditing see the value in the technology: “This solution could significantly reduce the reliance on auditors for testing financial transactions,” Matt Spoke, an consultant at Deloitte Canada, wrote.

Other firms are jumping in, too. In January, PwC announced it formed a team of 15 blockchain experts to advise clients. It expects the group to grow to 40 by the end of the year.

Regulators are also exploring blockchain as way to stress-test firms and identify questionable practices. By charting the flows of funds, unusual events could be flagged as they happen, said Joseph Lubin, the founder of ConsenSys, a blockchain consultancy and developer that works with financial institutions and regulators.

“Putting all this stuff on blockchain changes the nature of fraud,” Lubin told Quartz. “If data is locked in, the opportunities for fraud are greatly reduced.”

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

"Here’s why you have to start taking bitcoin seriously," by Brent Arens, MarketWatch, February 19, 2016 ---
http://www.marketwatch.com/story/heres-why-you-have-to-start-taking-bitcoin-seriously-2016-02-19

For years the conventional wisdom in finance has been that bitcoins are a silly technological game, a bubble, and a fad.

Today: Not so much.

Bitcoins have just gotten serious, and people are going to have to start paying attention to this digital currency. That means investors, governments, and those trying to fight crime as well.

This was already true even before the news out of California that criminals just used bitcoins to extort $17,000 in blackmail from a hospital and make, so far, a clean getaway.

Bitcoins are booming. They have doubled in price in the last six months. Indeed bitcoins were actually the best performing currency in the world last year. I ran an exhaustive screen on FactSet, making sure to include everything from the Afghanistan afghani (down 16% against the U.S. dollar DXY, -0.17% ) to the Zambian kwacha (down 42%). Bitcoin trounced them all. The dollar value of each bitcoin jumped 40% during 2015, from $310 to $434. (The currency in second place, the Gambian dalasi of all things, was nowhere near: It rose just 9% against the U.S. dollar.).

At current prices, the total value of bitcoins in the world now tops $6 billion. That’s quite some “fad.”

Continued in articl

"Technical Roadblock Might Shatter Bitcoin Dreams," by Tom Simonite, MIT's Technolology Review, February 16. 2016 ---
https://www.technologyreview.com/s/600781/technical-roadblock-might-shatter-bitcoin-dreams/#/set/id/600813/

The total value of the digital currency Bitcoin is over $5 billion, reflecting how some people think it will one day become widely useful. But a new analysis of the software that powers the currency concludes that Bitcoin needs a complete redesign if it is to support more than the paltry number of transactions that take place today.

That suggests that the people, companies, and investors who are banking on the currency becoming widely used must overcome fundamental technical challenges that currently have no known solutions, not just the economic and cultural issues associated with a currency independent of any government.

The findings, from a large group of researchers mostly affiliated with Cornell University, also offer new perspective on an acrimonious debate that has recently riven the world of Bitcoin (see “The Looming Problem That Could Kill Bitcoin”).

Continued in article

FASB:  No GAAP for Bitcoins ---
http://www.bna.com/no-gaap-bit-b17179880752/

December 17, 2013 reply from Tom Selling

From the BNA Bloomberg piece:

"There is no generally accepted accounting principles (GAAP) that specifically addresses financial reporting for bit coins, which means this would fall under other comprehensive basis of accounting (OCBOA), FASB members who weighed in said."

I don't know if I agree with that assessment — assuming that it is accurately reported. Bit coins are clearly not a currency (yet), since they are not universally (or near universally) accepted as a medium of exchange. Thus, it seems to me that the portion of the ASC dealing with barter credits (starting at ASC 845-10-30-17) covers bit coins. Basically, a sale in exchange for a barter credit can be counted as revenue if the entity has a practice of converting the barter credit into cash in the "near term."

Am I missing something? I realize that the sponsors (if that's the right word) aspire that bit coins should become a new currency, but right now, they seem to be the functional equivalent of some forms of barter credits.

Best,
Tom

Jensen Reply

Hi Tom,

You made a very good point since both bitcoins (and other virtual currencies) and barter credits are sometimes traded on exchanges that set values apart from the fair values of the items traded initially. In the exchange markets values can be complicated by speculators in the virtual currencies and the varying willingness of businesses to accept them.

The question is whether barter credits meet the definitions of virtual currencies. I'm not familiar enough with barter credits to know that they have the "block chain central bodies" doing the mathematical calculations that, among other things, prevent double spending ---
http://en.wikipedia.org/wiki/Bitcoin

Virtual currencies differ from private currencies, and I tend to view barer credits private currencies rather than virtual currencies ---
http://en.wikipedia.org/wiki/Private_currency
One key difference is that private currencies tend to trade in terms of specified commodities (such as gold) or regions (such as BerkShares in the Berkshire region of Massachusetts) whereas virtual currencies tend to take on a life of their own. apart from commodities or spending regions.

It seems like accounting for bitcoins may become less complicated than accounting for private currencies in that bitcoins and other virtual currencies are more like international legal tender than private currencies subject to possible thinner markets such as the market for BerkShares. Of course bitcoins are not yet legal tender per se.

Barter credit accounting is also complicated by other revenue recognition rules. For example, if barter credits apply to discount coupons then all the complications of revenue accounting for discount coupons enter the picture.

I don't think the IRS, the FASB, and the IASB have yet dealt with all the complications of private currencies or virtual currencies traded on exchanges and the liquidity risks and speculation risks inherent in such transaction valuations. One complication is that the markets may be very thin such as the BerkShares trading market restricted to vendors in the Berkshires region.

A Bit of History
"Accounting For Transactions Involving Barter Credits," by Joel Steinberg, The CPA Journal, July 1999 ---
http://www.nysscpa.org/cpajournal/1999/0799/departments/D56799.HTM

Commercial barter transactions have been increasing in recent years, and there are currently a number of commercial barter websites. A barter transaction can involve an exchange of goods or services for other goods or services, or barter credits. In a transaction involving barter credits, a company exchanges an asset such as inventory for barter credits. The transaction might be done directly with another entity that will provide goods or services, or it might be done through a barter broker or network. In a barter network, goods or services are exchanged for barter credits or "trade dollars" that can be used to purchase goods or services from either the barter broker or members of the network. The goods and services to be purchased may be specified in a barter contract or may be limited to items made available by members of the network. Credits for advertising are the most common items received in barter transactions. This is because advertisers can often run additional spots with little additional overhead and are therefore willing to exchange such services for nonmonetary consideration.

When a company enters into a barter transaction, two things need to be addressed from an accounting standpoint. First, the exchange transaction needs to be accounted for properly. Second, the recorded amount of unused barter credits has to be evaluated at each financial statement reporting date.

Recording the Exchange Transaction

Guidance on accounting for the exchange transaction is provided in FASB Emerging Issues Task Force (EITF) Issue No. 93-11, Accounting for Barter Transactions Involving Barter Credits. The task force reached a consensus that APB No. 29, Accounting for Nonmonetary Transactions, should be applied to an exchange of a nonmonetary asset for barter credits. The basic principle of APB No. 29 is that accounting for nonmonetary transactions should be based on the fair values of the assets or services involved. (This excludes situations where the exchange is not the culmination of an earning process, in which case the recorded amount of the asset surrendered should be used.) The transaction is generally measured based on the fair value of the asset surrendered. The fair value of the asset surrendered becomes the cost basis of the asset acquired. A gain or loss should be recognized based on the difference between the fair value of the asset surrendered and its carrying amount.

The fair value of the asset received in an exchange should be used to record the transaction only if it is more clearly evident than the fair value of the asset surrendered. In the case of barter credits, it should be presumed that the fair value of the asset exchanged is more clearly evident than the fair value of the barter credits received. Accordingly, the barter credits received should be recorded at the fair value of the asset exchanged. That presumption might be overcome if the barter credits can be converted into cash in the near term, or if independent quoted market prices exist for items to be received in exchange for the barter credits.

When determining the fair value of the asset surrendered, it should be presumed that the fair value of the asset does not exceed its carrying amount, unless there is persuasive evidence supporting a higher value. When determining the value of inventory or other assets exchanged in a barter transaction, skepticism should be used. The reality is that the company would prefer to sell the inventory for cash rather than barter credits. The fact that the company is bartering with inventory could indicate that the company's normal selling price may not be an accurate measure of fair value. This could also raise lower-of-cost-or-market valuation questions about any items remaining in inventory.

The EITF also concluded that if the fair value of the asset exchanged is less than its carrying amount, an impairment should be recognized prior to recording the exchange. For example, inventory exchanged in a barter transaction should be adjusted to the lower of cost or market prior to recording the barter transaction. In the case of long-lived assets, impairment should be measured and recognized in accordance with SFAS No. 121, Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed Of.

Evaluating the Recorded Amount of Barter Credits

At each balance sheet date, the recorded amount of barter credits should be evaluated for impairment. An impairment loss should be recognized if the fair value of any remaining barter credits is less than the carrying amount, or if it is probable that the company will not use all of the remaining barter credits.

The first step in evaluating the realizability of barter credits is to evaluate the likelihood that the counterparty will perform. If the credits are directly with another entity that will provide the goods or services, that entity should be evaluated. This can be done by investigating the credit rating of that entity and obtaining references from other companies that have been involved in similar transactions with the entity. If the credits are with a barter broker or network, the credibility and history of the broker or network should be evaluated. This can be done by contacting the International Reciprocal Trade Association (www.irta.net) or similar organizations.

The next step is to evaluate, based on current and future operations, whether the company is expected to fully utilize the recorded amount of the credits. For example, if a company has available $100,000 of advertising credits, but typically spends only $5,000 on advertising each year, it might take 20 years to fully utilize the credits. Similarly, credits may allow the company to purchase whatever goods or services happen to be available from members of the network, and it may be uncertain whether the company will ever need any of them. Barter credits may also have a contractual expiration date, at which time they become worthless. Finally, some arrangements may require the payment of cash in addition to barter credits, in which case the ability of the company to use the credits may be limited. *

 

Jensen Comment
Abuses by companies could change this in a New York minute such as the EITF changed revenue recognition ploys by tech companies in the roaring 1990s ---
http://www.trinity.edu/rjensen/ecommerce/eitf01.htm 


SALES TAX SLICE: IDAHO GIRL SCOUTS FAIL TO EARN SALES TAX EXEMPTION BADGE ---
http://www.bna.com/sales-tax-slice-b57982068404/

What kind of cookie person are you? Specifically, what type of Girl Scout cookie person—thin mints, caramel delights, peanut butter patties, or, like Leonardo DiCaprio, are you a trefoil fan? Whichever cookie you prefer, Idaho legislators are considering making Girl Scout cookie purchases a little more fun. A bill that would exempt Girl Scout cookies from the Idaho sales and use tax recently squeaked through the Idaho House of representatives and is now headed to the Idaho Senate. According to local Spokane newspaper the Spokesman-Review, Idaho and Hawaii are currently the only two states to tax Girl Scout cookies.

This recent move in Idaho to exempt Girl Scout cookies from sales tax reflects a nationwide trend of generally taxing sales to and by charitable organizations while exempting only specific charities or specific types of charitable sales from sales and use taxes. In fact, while a majority of states, including Florida, New York, Texas, and Virginia, provide a general sales tax exemption for purchases by all nonprofits or charitable organizations, a large minority of states exempt only specific charities from the sales and use taxes.

For example, while Alabama has no general exemption for sales or purchases by charitable or nonprofit organizations, the state exempts several specific charities from paying sales and use taxes. Exempt charities include the Diabetes Trust Fund, the headquarters of the American Legion, the Grand Chapter of all Orders of the Eastern Star, the Alabama Goodwill Industries, and several others. Oh, and the Girl Scouts are also exempt.

Additionally, in Oklahoma, while sales to charitable organizations are generally taxable, sales to 4-H clubs, Boys and Girls Clubs, and YMCA’s are exempt from sales and use taxes. In Washington, instead of exempting sales to specific charities, the state provides exemptions for sales of certain types of property or services to certain types of charities and nonprofits. For example, in Washington, sales of trail grooming services to nonprofit corporations and sales of clay targets used during clay target shooting to a nonprofit gun club are exempt from tax. Also, neither state imposes sales tax on Girl Scout cookies.

According to the Spokesman-Review, some Idaho lawmakers have questioned the fairness and the wisdom of passing exemptions for specific charitable organizations instead of a general, more broad-based exemption for all charitable or nonprofit organizations. One lawmaker stated that the singling out of organizations is “a horrible precedent to be setting in our tax policy.” However, concerns over preferential treatment for some charities apparently haven’t hindered Idaho from passing specific sales and use tax exemptions for the Idaho Ronald McDonald House, the Blind Services Foundation, and the Idaho Foodbank Warehouse. Indeed, imagine what the Girl Scouts’ reactions would be if popcorn sales by Boy Scouts were exempt while their cookie sales weren’t!

Continued in article

Jensen Comment
There must be some limits to curb abuse of sales tax exemption in those states the majority that exempt business transactions of all charities. For example, what about big ticket items like used cars. Municipalities in many instances commenced to also clamp down of property tax exemptions for charity-owned businesses.


A Film Soon to Be Released

The Accountant

A forensic accountant un-cooks the books for illicit clients

Director:

Writer:

(screenplay)

Stars:

, , | See full cast & crew »

IRS Says 114,000, 334,000, 724,000 Taxpayer Accounts Were Hacked ---
http://taxprof.typepad.com/taxprof_blog/2016/02/wsjirs-says-114000-330000-700000-taxpayer-accounts-were-hacked-.html


From the CFO Journal's Morning Ledger on February 29, 2016

Valeant isn’t what the doctor ordered
Valeant Pharmaceuticals International Inc
.’s fundamental risks are too severe to suggest the stock is poised for a lasting rebound, writes Steven Russolillo for Ahead of the Tape. The Canadian drugmaker late Sunday said it would postpone its fourth-quarter results and conference call, originally scheduled for Monday. The move came as Valeant confirmed Michael Pearson would return as chief executive after being on leave since December due to a severe case of pneumonia and other complications.


From the CFO Journal's Morning Ledger on March 2, 2016

Olympus unit to pay $646 million to settle kickback charges
The U.S. unit of Olympus Corp. admitted it paid bribes to U.S. doctors and hospitals to promote sales of its medical devices, and agreed to pay criminal penalties as part of what prosecutors called the largest-ever settlement under federal anti-kickback laws.

Jensen Comment
This does not say much good for the U.S. doctors and hospitals that accepted those bribes, which also explains in part why Medicaid, Medicare, and Obamacare fraud is rampant in the USA.


34 charged with multi-million tax fraud conspiracy in Battle Creek Battle Creek Veterans Affairs Medical Center and inmates of the Michigan Department of Corrections ---

More than 30 people from Battle Creek have been indicted in federal court and accused of committing a conspiracy to defraud the IRS of $22 million through false tax forms.

United States Attorney Patrick Miles Jr. announced the indictments in Grand Rapids for 34 people on Tuesday.

During raids that began early Monday, 24 people were arrested by officers from several federal, state and local law enforcement agencies.

An investigation officials said began in 2008 showed the defendants allegedly used information obtained in part from patients and employees of the Battle Creek Veterans Affairs Medical Center and from inmates of the Michigan Department of Corrections to file 4,668 federal income tax returns claiming "false, fictitious and fraudulent refunds totaling over $22 million" between the 2007 and 2014 tax years.

Derrick J. Gibson, 52, of Battle Creek, was named the lead defendant.

Officials said the defendants used obtained names, social security numbers, and dates of birth to file fradulent returns.

According to the indictment:

• MDOC inmates including Bobby Crabtree, David Haymer and Joseph J. Johnson provided personal information of fellow inmates and expected money or personal items in exchange.

• Inmate Shawn McKnight attempted to recruit others outside the prison to provide personal information.

• VA employees including Alvin Stephenson II provided personal information of veterans who were patients.

• Several others filed the false returns, often using the personal information to claim dependents or earned income credits and obtain tax refunds.

• Several of the defendants opened and maintained bank accounts to deposit the tax refunds.

The indictment outlined several cases of people filing false tax forms and receiving several thousands of dollars in refunds.

Each defendant faces up to 10 years imprisonment and a fine of $250,000 if convicted.

Continued in article

Accountant Who Cooked Wholesaler's Books Gets 27 Months ---
http://www.law360.com/articles/775230/accountant-who-cooked-wholesaler-s-books-gets-27-months

Law360, New York (March 23, 2016, 7:09 PM ET) -- A Manhattan federal judge on Wednesday hit a Long Island accountant who helped a Florida-based beauty products wholesaler overstate its financial position with a 27-month prison sentence after the fraud cost a bank lender $4.9 million.

U.S. District Judge Lewis A. Kaplan also hit Marc Wieselthier, 57, with $161,000 in forfeiture and $4.9 million in restitution for the fraud, which was revealed when the company, DIT Inc., fell into bankruptcy.

The judge said prison was the only way to send the message to CPAs and lawyers...

Continued in article

"IRS Employee Pleads Guilty to $1 Million ID Theft Tax Fraud Scheme
United States Department of Justice, February 9, 2016
http://www.justice.gov/usao-ndal/pr/irs-employee-pleads-guilty-1-million-id-theft-tax-fraud-scheme

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


2016 PWC GLOBAL ECONOMIC CRIME SURVEY - THE UK: FRAUDSTERS AND FRAUD SCHEMES ARE MATURING ---
http://www.accountingeducation.com/index.cfm?page=newsdetails&id=153826&utm_source=MailerMailer&utm_medium=email&utm_content=news+story&utm_campaign=Double+Entries+22(04)  

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


"How expected credit loss standards will challenge auditors," by Ken Tysiac, March 3, 2016 ---
http://www.journalofaccountancy.com/news/2016/mar/auditing-expected-credit-losses-201613987.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=04Mar2016#sthash.0yM5AWh9.dpuf

Auditors and others that deal with a company’s financial statement will experience new challenges as a result of implementation of new financial reporting standards requiring reporting of expected credit losses related to financial instruments.

IFRS 9, Financial Instruments, which will take effect Jan. 1, 2018, contains a new expected credit loss (ECL) model. FASB also is working on a financial instruments standard that has not yet been issued but is expected to include requirements to report expected credit losses.

The International Auditing and Assurance Standards Board (IAASB) has issued a new publication to highlight the challenges IFRS 9 will create for auditors, management, governance bodies such as audit committees, and users. -

Continued in article

See more at: http://www.journalofaccountancy.com/news/2016/mar/auditing-expected-credit-losses-201613987.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=04Mar2016#sthash.0yM5AWh9.dpuf

 


 

"Why Solar Giant SunEdison Might be Doomed," by Richard Martin, MIT's Technology Review, March 8, 2016 ---
https://www.technologyreview.com/s/600999/why-solar-giant-sunedison-might-be-doomed/#/set/id/601000/

. . .

The company has also delayed its 2015 earnings report while it conducts an internal investigation into the accuracy of its financial disclosures. In a statement, the company said that inquiry could cause the company to “reassess its liquidity position.” In other words, SunEdison, once the world’s largest developer of renewable energy projects (and No. 6 on MIT Technology Review’s 2015 list of 50 smartest companies), could file for bankruptcy very soon.

Jensen Comment
Smart technology is frequently not equated with smart finance. Exhibit A is SunEdison. Exhibit B currently is China where debt is now out of control. Exhibit C is the USA government entitlements financing that burdens future generations with over $100 trillion in unfunded financial obligations for things like Public Pension and Medicaid and Medicare obligations of the future.

 




Teaching Case from The Wall Street Journal on February 26, 201

Deloitte Affiliate Fined in Mexico Over OHL Audits
by: Santiago Perez
Feb 20, 2016
Click here to view the full article on WSJ.com

TOPICS: Auditing, Big Four Accounting Firms

SUMMARY: Mexico's financial watchdog fined the local member firm of Deloitte Touche Tohmatsu Ltd. over what it said were improper auditing practices related to its work for toll-road operator OHL de Mexico SAB, which is also under investigation by the agency over accounting practices that boosted its income and asset valuations. It marks the country´s first fine against a provider of global auditing services.

CLASSROOM APPLICATION: This article could be used in an auditing class as a basis for discussion the international accounting firms, as well as discussing auditing of companies in other countries.

QUESTIONS: 
1. (Introductory) What are the facts of the fine discussed in the article? Who was involved in the fine? Who was fined?

2. (Advanced) What is meant by Big Four accounting firms? Please name the Big Four firms. What are the differences between these firms and regional or local firms? What are the career opportunities in each? What are the strengths and weaknesses of working at each type of firm?

3. (Advanced) The article mentions a Deloitte affiliate. What is that? Why does Deloitte have affiliates? How much control does Deloitte have over affiliates? How is Deloitte affected by the actions and activities of its affiliates?

Reviewed By: Linda Christiansen, Indiana University Southeast

RELATED ARTICLES: 
Spain's OHL Hits a Pothole in Mexico
by Santiago Perez
Dec 10, 2015
Online Exclusive

"Deloitte Affiliate Fined in Mexico Over OHL Audits," by Santiago Perez, The Wall Street Journal, February 26, 2016 ---
http://www.wsj.com/articles/deloitte-affiliate-fined-in-mexico-over-ohl-audits-1455919358?mod=djem_jiewr_AC_domainid 

MEXICO CITY—Mexico’s financial watchdog fined the local member firm of Deloitte Touche Tohmatsu Ltd. over what it said were improper auditing practices related to its work for toll-road operator OHL de Mexico SAB, which is also under investigation by the agency over accounting practices that boosted its income and asset valuations.

It marks the country´s first fine against a provider of global auditing services.

Mexico´s Banking and Securities Commission said the auditing firm paid a penalty of more than 4.2 million pesos (some $233,000), or about 65% of the maximum penalty set in Mexican regulations, over auditing irregularities in financial statements of the local unit of Spanish construction giant Obrascón Huarte Laín SA.

Authorities also issued a formal warning against four auditors at Deloitte Mexico.

“We think external auditors must do a better job,” Mexico´s financial watchdog Jaime González told local radio late on Thursday. “We imposed a sanction against the firm and they accepted it, we also issued warnings against four of their auditors and they also accepted them.”

Deloitte Mexico executives didn´t respond to requests for comment.

 


Teaching Case from The Wall Street Journal on February 26, 2016

Boeing Chief Defends Accounting Practice
by: Jon Ostrower
Feb 17, 2016
Click here to view the full article on WSJ.com

TOPICS: Financial Accounting, GAAP, Program Accounting, SEC

SUMMARY: Boeing uses program accounting to spread its high early costs over a large block of deliveries. The method, which is compliant with Generally Accepted Accounting Principles, lets the company book future profits and cost-cutting expectations in current earnings, allowing Boeing to consider the 787 Dreamliner program profitable, despite its cost to build each jet still being higher than its sale price. Boeing expects to break even on those unit costs later in 2016. There were no plans to change its program accounting system, which has so far tallied more than $28.5 billion in deferred costs building the Dreamliner.

CLASSROOM APPLICATION: This article is a follow-up and fuller explanation to a previous article on program accounting, and is appropriate for financial accounting classes.

QUESTIONS: 
1. (Introductory) What is GAAP? Who determines GAAP? What is included in GAAP?

2. (Advanced) What is program accounting? Why does Boeing choose to use it?

3. (Advanced) What are the benefits of program accounting? How is it beneficial for financial reporting purposes? Are there any issues or problems associated with using it?

4. (Advanced) Why is program accounting allowed under GAAP? Why is program accounting not widely used? What are the other options? Should Boeing change? Why or why not?

5. (Advanced) How were Boeing's share prices affected by concerns about its accounting methods? Why did the market react that way?

Reviewed By: Linda Christiansen, Indiana University Southeast

RELATED ARTICLES: 
Boeing Shares Fall on Accounting Probe Report
by Jon Ostrower and Doug Cameron
Feb 12, 2016
Online Exclusive

Boeing Shares Fall Sharply Following Weak 2016 Forecast
by Jon Ostrower
Jan 28, 2016
Online Exclusive

"Boeing Chief Defends Accounting Practice," by Jon Ostrower, The Wall Street Journal, February 17, 2016 ---
http://www.wsj.com/articles/boeing-chief-defends-accounting-practice-1455724675?mod=djem_jiewr_AC_domainid

Boeing Co. Chief Executive Dennis Muilenburg on Wednesday defended the aerospace company’s accounting practices and corporate strategy in the wake of weeks of volatile stock movements.

The company’s shares have slumped almost 20% this year on concerns about its cash generation and competitive position, and took another hit last week following a media report that the Securities and Exchange Commission was probing its financial projections.

Mr. Muilenburg defended the company’s longtime use of a system called program accounting and reaffirmed the expectation that it would deliver the profitability and cash flow that it has promised investors on its flagship 787 Dreamliner. He neither confirmed nor denied the existence of any investigation—the SEC has also declined to comment—but sought to calm investor concerns.

“We are very confident in our financials,” Mr. Muilenburg said at an investor event. “I personally signed off on [our filings] last week.”

Boeing uses program accounting to spread its high early costs over a large block of deliveries. The method, which is compliant with Generally Accepted Accounting Principles, lets the company book future profits and cost-cutting expectations in current earnings, allowing Boeing to consider the 787 Dreamliner program profitable, despite its cost to build each jet still being higher than its sale price. Boeing expects to break even on those unit costs later in 2016.

Continued in article

 


Teaching Case from The Wall Street Journal on February 26, 2016

The Worst Tax Form
by: Laura Saunders
Feb 20, 2016
Click here to view the full article on WSJ.com

TOPICS: 1099-B, Cost Basis, Individual Taxation, Wash Sales

SUMMARY: The worst tax form is Form 1099-B. It is used by brokerage firms to report a taxpayer's investment transactions to both the taxpayer and the Internal Revenue Service. Later the agency compares the broker's filings to individual returns, looking for discrepancies that may signal unreported income. It also frequently keeps taxpayers from filing their returns early. Brokers are supposed to send these forms to taxpayers by Feb. 15 and to the IRS by March 31 in most cases. But the firms sometimes get extensions of the deadline, or issue one or more revisions to the forms. Some advice offered in the article include: avoid amending a return, beware of cost-basis issues, double-check "wash" sales, and correct errors carefully.

CLASSROOM APPLICATION: This article offers good information about the 1099-B for individual tax return preparation. It includes common challenges and errors, along with advice regarding handling those issues.

QUESTIONS: 
1. (Introductory) What is a 1099-B? What is its function? When is it due to taxpayers and to the IRS?

2. (Advanced) What are some of the problems and challenges caused by 1099-Bs?

3. (Advanced) How could the 1099-B issues be relieved or solved? What could the issuers do? What could the IRS do to minimize these problems?

4. (Advanced) How can a 1099-B cause taxpayers to have to amend their returns? What can taxpayers do to avoid that?

5. (Advanced) What is cost basis? What cost-basis problems can be related to 1099-Bs? What can taxpayers do to address that problem?

6. (Advanced) What is a wash sale? What is the tax law regarding wash sales? Are wash sales reported on 1099-Bs? If so, how? Is not, should they be?

7. (Advanced) What should taxpayers do if they find an error on a 1099-B? What actions should they avoid?

Reviewed By: Linda Christiansen, Indiana University Southeast

"The Worst Tax Form," by Laura Saunders, The Wall Street Journal, February 20, 2016 ---
http://www.wsj.com/articles/the-worst-tax-form-1455877800?mod=djem_jiewr_AC_domainid

In the battle for worst tax form, it appears we have a winner.

That dubious distinction goes to Form 1099-B, according to an informal survey of tax preparers. It is used by brokerage firms to report a taxpayer’s investment transactions to both the taxpayer and the Internal Revenue Service. Later the agency compares the broker’s filings to individual returns, looking for discrepancies that may signal unreported income.

It also frequently keeps taxpayers from filing their returns early.

“Unquestionably, the 1099-B is my least favorite form,” says Jeffrey Porter, a CPA who practices in Huntington, W.Va. “They’re maddening when I’m trying to be efficient,” he adds, because they are often late, incomplete or subject to revision.

Tax preparers say the 1099-B is worse than other vexing forms, such as those for partnership income and foreign income, because far more people have brokerage accounts.

Continued in argument

 


Teaching Case from The Wall Street Journal on February 26, 2016

SEC Chief Says No Decision on Audit Regulator Leader, For Now
by: Andrew Ackerman and Michael Rapoport
Feb 20, 2016
Click here to view the full article on WSJ.com

TOPICS: Auditing, Financial Accounting, PCAOB, SEC

SUMMARY: The Securities and Exchange Commission has decided not to decide on the leadership of the government's audit regulator now. Meanwhile, James Doty, the current PCAOB chairman whose term officially expired last October, can remain at the agency indefinitely until he's either reappointed or the SEC taps a successor.

CLASSROOM APPLICATION: This article offers updates on the SEC and the PCAOB, which are useful in auditing and financial accounting classes.

QUESTIONS: 
1. (Introductory) What is the SEC? What are its duties and its authority? How is it involved with financial accounting and auditing?

2. (Introductory) What is the PCAOB? What are its duties and its authority? When and why was it started? How is it involved with financial accounting and auditing?

3. (Advanced) What is the status of the composition of the SEC commissioners? What positions are open? How could this affect the SEC's work?

4. (Advanced) What is the status of the PCAOB chairman position? What are the duties of the chairman? What has the current chairman focused on during his term?

Reviewed By: Linda Christiansen, Indiana University Southeast

"SEC Chief Says No Decision on Audit Regulator Leader, For Now," by Andrew Ackerman and Michael Rapoport, The Wall Street Journal, February 20, 2016 ---
http://www.wsj.com/articles/sec-chief-says-no-decision-on-audit-regulator-leader-for-now-1455900477?mod=djem_jiewr_AC_domainid 

WASHINGTON—The Securities and Exchange Commission has decided not to decide on the leadership of the government’s audit regulator, at least for now.

SEC Chairwoman Mary Jo White on Friday said her agency is waiting until it has a full complement of five commissioners before picking a head for the Public Company Accounting Oversight Board. The commission is currently down to just three members.

Meanwhile, James Doty, the current PCAOB chairman whose term officially expired last October, can remain at the agency indefinitely until he’s either reappointed or the SEC taps a successor.

“It’s a decision I think should be left to the full commission, as in the past,” Ms. White told reporters, after remarks at a securities conference here. She added that Mr. Doty and the current PCAOB board were doing “quite well, without missing a beat.”

It’s unclear when the SEC will be back to its full strength. President Barack Obama nominated two individuals to fill the agency’s vacancies in November—former Republican Senate aide Hester Pierce and law professor Lisa Fairfax, a Democrat—but the Senate Banking Committee has yet to take up the nominations. Sen. Richard Shelby (R., Ala.), the panel’s chairman, has said he is focused on his March 1 primary election and hasn’t yet scheduled a nominations hearing.

The PCAOB declined to comment.

Mr. Doty, who has headed the PCAOB since 2011, has said he would like to remain as PCAOB chairman if the SEC wishes to keep him in the post. “I’ve made it clear that if the SEC thinks I should be there, I want to be there,” he said last fall, adding there is ”more work we need to do.”

During his tenure, Mr. Doty has focused on initiatives such as requiring audit firms to name the partner in charge of each client’s audit and expanding the audit report to have auditors tell investors more about what they discover. He says those disclosures will improve audit quality and make auditors more accountable.

But, Mr. Doty has faced pushback at times from the accounting industry and questioning from SEC officials about the audit panel’s approach. Last September, Ms. White indicated the SEC was looking at other potential candidates to head the PCAOB in addition to Mr. Doty.

 


Teaching Case from The Wall Street Journal on February 26, 2016

SEC Nods to Multinationals
by: Tatyana Shumsky
Feb 23, 2016
Click here to view the full article on WSJ.com

TOPICS: Financial Reporting, GAAP, IFRS, International Business, SEC

SUMMARY: The Securities and Exchange Commission is trying to strike a delicate balance: advancing its plans to simplify financial-reporting requirements without making them any less stringent. The SEC is looking to free multinational companies from what some consider a particularly onerous requirement. Such companies now must report financial data to the SEC using U.S. generally accepted accounting principles and reconcile all non-GAAP financial data with that standard, detailing how they did so. The efforts include making it easier for public companies with operations abroad to report pertinent financial information, beefing up disclosure requirements, and clearing the way for progress toward a single global financial-reporting standard.

CLASSROOM APPLICATION: These valuable updates regarding multinational companies can be used in financial accounting classes.

QUESTIONS: 
1. (Introductory) What is the SEC? What is its area of authority? How is the SEC involved with financial reporting? Why?

2. (Advanced) What SEC goal is discussed in the article? Why is this a priority for the SEC?

3. (Advanced) How could these proposals benefit companies? How could they benefit users of financial statements and other financial-reporting information? Could any potential negative consequences result from the proposals?

4. (Advanced) Why are multinational companies the focus of these changes? Why aren't domestic companies involved?

5. (Advanced) What additional information and reporting might the SEC decide to require? Why?

Reviewed By: Linda Christiansen, Indiana University Southeast

"SEC Nods to Multinationals," by Tatyana Shumsky, The Wall Street Journal, February 23, 2016 ---
http://www.wsj.com/articles/sec-nods-to-multinationals-1456197043?mod=djem_jiewr_AC_domainid

The Securities and Exchange Commission is trying to strike a delicate balance: advancing its plans to simplify financial-reporting requirements without making them any less stringent.

The agency, which is operating with just three of its full complement of five commissioners, including Chairwoman Mary Jo White, laid out several projects and priorities for 2016 at an annual conference last week in Washington.

The efforts include making it easier for public companies with operations abroad to report pertinent financial information, beefing up disclosure requirements, and clearing the way for progress toward a single global financial-reporting standard.

“They’re trying to streamline the rules; they’re trying to reduce the redundancy,” said David Rubenstein, a partner at accounting firm WeiserMazars LLP in New York, who attended the meetings. “It’s about getting information out there that’s meaningful and important and interesting to a stakeholder.”

The SEC is looking to free multinational companies from what some consider a particularly onerous requirement. Such companies now must report financial data to the SEC using U.S. generally accepted accounting principles and reconcile all non-GAAP financial data with that standard, detailing how they did so.

James Schnurr, the SEC’s chief accountant, said his office is working on a​proposal to drop the reconciliation requirement, letting companies supplement their U.S. financial reports with ones filed with foreign regulators using international standards.

Mr. Schnurr didn’t provide a timetable for the change, which appears to be a refinement of the SEC earlier efforts to allow companies to report the additional information voluntarily.

“We believe the SEC’s proposal is a useful next step,” said Paul Andonian, Ford Motor Co. ’s director of global accounting. “Yet we are concerned that providing both [international accounting standards] and U.S. GAAP financial data could be complicated.”

U.S. and international accounting rule makers have failed thus far to unify the U.S. standard with the standards used in more than 100 countries. Still, the Financial Accounting Standards Board, which sets U.S. standards, and the International Accounting Standards Boards, which oversees foreign ones, cooperate closely. “It’s very important for the two boards, the IASB and the FASB, to continue to work together to try to have further convergence down the road,” said Mr. Schnurr.

The SEC is especially interested in how well prepared U.S. public companies might be for new accounting requirements. In particular, Mr. Schnurr cited concern about new revenue-recognition rules, which go into effect in 2018. They are less prescriptive than current rules, and more closely aligned with international accounting standards. That has contributed to some companies delaying the changes. According to a November survey by PricewaterhouseCoopers LLP and the Financial Executives Research Foundation, just 25% of companies have assessed how the rule changes will affect their business and started preparing.

Continued in article

 


Teaching Case from The Wall Street Journal on March 4, 2016

Google's Parent Could Be Big Winner in Intel Tax Dispute
by: Richard Rubin
Mar 01, 2016
Click here to view the full article on WSJ.com

TOPICS: Corporate Taxation, Cost Sharing, International Business

SUMMARY: Alphabet Inc., Google's parent company, could gain at least $3.5 billion in new tax benefits if Intel Corp. succeeds in its international tax dispute with the Internal Revenue Service, an amount that exceeds Google's entire 2015 tax cost. Because U.S. companies don't owe U.S. taxes on their foreign profits until they bring the money home, they have an incentive to earn money abroad and leave it there. Cost-sharing arrangements typically are agreements between the U.S. parent and a subsidiary in a low-tax country that manages and profits from foreign sales. That foreign subsidiary, funded by the parent company, must pay back the parent for its share of corporate costs, such as salaries of employees at the U.S. headquarters who develop the product they are selling abroad. The more that costs stay with the U.S. parent, the more deductions it can pile up in the U.S. and less income gets taxed at the 35% U.S. rate. Accordingly, if the foreign subsidiary has fewer deductions, it can pile up profits that get lower tax rates.

CLASSROOM APPLICATION: This article offers a good explanation of cost sharing multinational companies do to reduce U.S. tax liability.

QUESTIONS: 
1. (Introductory) What are the facts of the Intel case? Who are the parties? In what phase is the case?

2. (Advanced) What is the legal issue in the Intel case? Why could it have an affect on other companies? What could the impact be on other companies?

3. (Advanced) Why could Alphabet be affected by the outcome of the Intel case in such a major way? What is the extent of potential benefits or penalties?

4. (Advanced) What are the two main legal issues in the Intel case? What is the likely result for each of these issues?

Reviewed By: Linda Christiansen, Indiana University Southeast

"Google's Parent Could Be Big Winner in Intel Tax Dispute," by Richard Rubin, The Wall Street Journal, March 1, 2016 ---
http://www.wsj.com/articles/googles-parent-could-be-big-winner-in-intel-tax-dispute-1456698129?mod=djem_jiewr_AC_domainid

Alphabet Inc., Google’s parent company, could gain at least $3.5 billion in new tax benefits if Intel Corp. succeeds in its international tax dispute with the Internal Revenue Service, an amount that exceeds Google’s entire 2015 tax cost.

The case, which the IRS appealed to the Ninth U.S. Circuit Court of Appeals last week, is being closely watched in the tech industry and elsewhere. At least 20 companies, including Microsoft Corp. and eBay Inc., have disclosed they’re monitoring the outcome of the case involving share-based compensation. However, the case’s uncertainty has kept them from quantifying the potential benefits.

“They’re paying a huge amount of attention to this case, because this is probably the largest unresolved tax issue that high-technology companies now have,” said Eric Ryan, a partner at the law firm DLA Piper.

The Intel dispute has been brewing since 2003, part of a decadeslong tug of war between the IRS and companies over what are known as cost-sharing arrangements between U.S. corporations and their low-taxed foreign subsidiaries.

The biggest disclosed possible effect of the Intel court case is at Alphabet. In its annual report, the company recorded a potential $3.5 billion benefit, citing a lower court’s ruling. That was offset by a $3.5 billion deferred tax liability, meaning it didn’t result in a major one-time boost to the company’s earnings.

In its 10-K, Alphabet said it couldn’t take the whole tax benefit because it hasn’t decided whether it can and would put the money it would gain, if Intel wins, into its offshore subsidiaries. Alphabet could then leave the money abroad, outside the U.S.’s tax reach, until it decides to bring it home. The company could record the benefit after the court case concludes.

Alphabet, Intel and the IRS all declined to comment.

Intel inherited the case from Altera Corp., which it purchased last year. That case involved about $80 million in corporate expenses from 2004 to 2007, according to the U.S. Tax Court decision.

“If Google is $3.5 billion, there must be many other companies that have billions of dollars at stake on this issue,” said Reuven Avi-Yonah, a tax law professor at the University of Michigan.

That doesn’t even include benefits in future years that companies could get if Intel prevails.

Continued in article


Teaching Case from The Wall Street Journal on March 4, 2016

New Rule to Shift Leases Onto Corporate Balance Sheets
by: Michael Rapoport
Feb 26, 2016
Click here to view the full article on WSJ.com

TOPICS: FASB, Financial Accounting, Lease Accounting

SUMMARY: Accounting rule makers made their overhaul of lease accounting official, issuing a new rule that will require U.S. companies to add huge amounts of leases to their balance sheets and thus make many companies look much more leveraged. Under the Financial Accounting Standards Board's new rule, companies will have to add to their books the debt-like obligations they incur when they pay to lease real estate, airplanes, office equipment and other items. Currently, companies are required to disclose their lease obligations only out of the spotlight, in the footnotes to their financial statements. Many companies, like airlines who lease planes and retail chains who lease real estate for their stores, have large amounts of long-term lease obligations that are effectively the same as debt, but under current rules they aren't carried on the balance sheet and their impact isn't readily visible to the average investor who doesn't delve into the footnotes. The change is intended to make it easier for those investors to get a better, clearer picture of companies' true obligations.

CLASSROOM APPLICATION: These articles offer lease accounting updates for financial accounting classes.

QUESTIONS: 
1. (Introductory) What changes did FASB make to lease accounting? How do the changes differ from the previous accounting treatment for leases?

2. (Advanced) How will each of the four financial statements be affected by the changes in lease accounting? What types of companies will have improved financial results? Companies in what situations will have less favorable financial results under the new rules?

3. (Advanced) What is FASB? Why does the organization have the authority to make this change?

4. (Advanced) The article mentions off-balance-sheet accounting. What is that? Why do companies use it? What are the benefits? What problems could it cause?

5. (Advanced) How is accounting by lessors affected by these changes? Why?

6. (Advanced) What is the IASB? What is its area of authority? What is it doing regarding accounting for leases?

Reviewed By: Linda Christiansen, Indiana University Southeast

RELATED ARTICLES: 
A Silver Lining to New Lease Accounting Rules: Savings
by Tatyana Shumsky
Feb 25, 2016
Online Exclusive

Lease-Accounting Overhaul Gets Green Light, Could Swell Balance Sheets by $2 Trillion
by Michael Rapoport
Nov 12, 2015
Online Exclusive

Coming to a Balance Sheet Near You: $2 Trillion in Leases
by Michael Rapoport
Nov 11, 2015
Online Exclusive

IASB Changes Rule on Accounting for Leases
by Michael Rapoport
Jan 14, 2016
Online Exclusive

"New Rule to Shift Leases Onto Corporate Balance Sheets," by Michael Rapoport, The Wall Street Journal, February 26, 2016 ---
http://www.wsj.com/articles/new-rule-to-shift-leases-onto-corporate-balance-sheets-1456414200?mod=djem_jiewr_AC_domainid

Accounting rule makers made their overhaul of lease accounting official on Thursday, issuing a new rule that will require U.S. companies to add huge amounts of leases to their balance sheets and thus make many companies look much more leveraged.

Under the Financial Accounting Standards Board’s new rule, companies will have to add to their books the debt-like obligations they incur when they pay to lease real estate, airplanes, office equipment and other items. Currently, companies are required to disclose their lease obligations only out of the spotlight, in the footnotes to their financial statements.

Some large companies like Walgreens Boots Alliance Inc. and AT&T Inc. may have to add tens of billions of dollars in leases to their balance sheets, and overall balance sheets could swell by as much as $2 trillion, according to some estimates.

The rule, which the FASB approved in principle in November, will take effect for public companies in 2019.

Many companies, like airlines who lease planes and retail chains who lease real estate for their stores, have large amounts of long-term lease obligations that are effectively the same as debt, but under current rules they aren’t carried on the balance sheet and their impact isn’t readily visible to the average investor who doesn’t delve into the footnotes. The change is intended to make it easier for those investors to get a better, clearer picture of companies’ true obligations.

“It puts things in a more transparent condition,” said James Kroeker, the FASB’s vice chairman.

In effect in 2019, accounting shift may make many firms look much more leveraged

Some large companies like AT&T Inc. may have to add tens of billions of dollars to their balance sheets to account for debt-like obligations they incur when they pay to lease real estate, airplanes, office equipment and other items. That’s due to a new rule issued Thursday by the Financial Accounting Standards Board that takes effect for public U.S. companies in 2019. ENLARGE Some large companies like AT&T Inc. may have to add tens of billions of dollars to their balance sheets to account for debt-like obligations they incur when they pay to lease real estate, airplanes, office equipment and other items. That’s due to a new rule issued Thursday by the Financial Accounting Standards Board that takes effect for public U.S. companies in 2019. Photo: Reuters .

Accounting rule makers made their overhaul of lease accounting official on Thursday, issuing a new rule that will require U.S. companies to add huge amounts of leases to their balance sheets and thus make many companies look much more leveraged.

Under the Financial Accounting Standards Board’s new rule, companies will have to add to their books the debt-like obligations they incur when they pay to lease real estate, airplanes, office equipment and other items. Currently, companies are required to disclose their lease obligations only out of the spotlight, in the footnotes to their financial statements.

Some large companies like Walgreens Boots Alliance Inc. and AT&T Inc. may have to add tens of billions of dollars in leases to their balance sheets, and overall balance sheets could swell by as much as $2 trillion, according to some estimates.

The rule, which the FASB approved in principle in November, will take effect for public companies in 2019.

Many companies, like airlines who lease planes and retail chains who lease real estate for their stores, have large amounts of long-term lease obligations that are effectively the same as debt, but under current rules they aren’t carried on the balance sheet and their impact isn’t readily visible to the average investor who doesn’t delve into the footnotes. The change is intended to make it easier for those investors to get a better, clearer picture of companies’ true obligations.

“It puts things in a more transparent condition,” said James Kroeker, the FASB’s vice chairman.

‘(The new rule) adds light to one of the last remaining crevasses of off-balance-sheet accounting.’

—James Kroeker of the Financial Accounting Standards Board . Regulators and other observers have long been concerned about rules that allow companies to keep some items off their balance sheets. Mr. Kroeker said the new lease rule “adds light to one of the last remaining crevasses of off-balance-sheet accounting.”

The new rule calls for both assets and liabilities reflecting the value and costs of leases to be added to the balance sheet, so companies’ book value isn’t likely to change significantly. But companies’ leverage will be much more evident, and some financial ratios like return on assets could be affected

Short-term leases, those lasting less than a year, will be exempt from the new rule. In addition, the accounting for those on the other end of lease transactions—the lessors, the owners of the property that’s being leased—will remain largely unchanged from current rules.

The FASB’s new rule culminates more than a decade of work. Lease-accounting rules haven’t been significantly revamped in 40 years, and critics have contended that companies use the current rules to their advantage, structuring the terms of their leases to allow them to be kept off the balance sheet. In 2005, the Securities and Exchange Commission called on the FASB to overhaul its lease rules, and the board has been moving toward a revamp since then.

Continued in article


Teaching Case from The Wall Street Journal on March 4, 2016

As Company Disclosures Balloon, It's Getting Easier To Bury Information
by: Tatyana Shumsky
Feb 27, 2016
Click here to view the full article on WSJ.com

TOPICS: Disclosure, Disclosure Requirements, Financial Reporting

SUMMARY: Regulations requiring companies to divulge more financial information to investors have contributed to lengthy filings that can make it harder for investors to identify important information. The Compensation Discussion and Analysis portion of annual proxy statements are ballooning. The average length of a S&P 100 company's CD&A proxy segment increased by 705 words in the last five years to 9,121 words in 2015. Last year's largest CD&A proxy segment, at 19,288 words, was filed by Pfizer Inc. Still, the pursuit of a streamlined financial reporting process for corporations must be balanced with ensuring investors aren't overwhelmed by those disclosures.

CLASSROOM APPLICATION: This informative article regarding increasing required disclosures can be used in financial accounting and auditing classes.

QUESTIONS: 
1. (Introductory) What is Compensation Discussion and Analysis? Where is it included? What value does it offer?

2. (Advanced) What disclosure requirements have been added in recent years? What is the reason for the increase in required disclosure?

3. (Advanced) What problems can result from the proliferation of disclosures? How can governing bodies balance the advantages of various types of financial disclosures with the issues and problems that can result?

Reviewed By: Linda Christiansen, Indiana University Southeast

RELATED ARTICLES: 
SEC Nods to Multinationals
by Tatyana Shumsky
Feb 23, 2016
Online Exclusiv

"As Company Disclosures Balloon, It's Getting Easier To Bury Information," by Tatyana Shumsky, The Wall Street Journal, February 27 ---
http://blogs.wsj.com/cfo/2016/02/26/as-company-disclosures-balloon-its-getting-easier-to-bury-information/?mod=djem_jiewr_AC_domainid

Regulations requiring companies to divulge more financial information to investors have contributed to lengthy filings that can make it harder for investors to identify important information.

The Compensation Discussion and Analysis portion of annual proxy statements are ballooning. The average length of a S&P 100 company’s CD&A proxy segment increased by 705 words in the last five years to 9,121 words in 2015, according to a study by Equilar Inc., an executive data provider. Last year’s largest CD&A proxy segment, at 19,288 words, was filed by Pfizer Inc.PFE -0.30%, Equilar said.

“If the old way of hiding information or making it less prominent was to put it in the footnotes, the new way is to leave it in the text,” said Ron Schneider, Director of Governance Services for R.R. Donnelley RRD +1.03% & sons Co., a printing company which operates EDGAR Online and annual files more than 166,000 documents with the SEC.

Securities and Exchange Commission Chairwoman Mary Jo White said last week that “disclosure effectiveness” remains a priority for the agency. The agency continues to work on simplifying disclosure requirements without making them less stringent.

Still, the pursuit of a streamlined financial reporting process for corporations must be balanced with ensuring investors aren’t overwhelmed by those disclosures, said former SEC Commissioner Troy Paredes following Ms. White’s comments.

“It’s about the way in which investors can be actually worse off when they’re overwhelmed with a lot of information that’s not particularly useful to making an informed investment or voting decision,” he said.

The length of CD&As — in terms of word count– is expected grow by at least 20% or more in the next two years, as new disclosure requirements go into effect, according to John Ellerman, a Partner at Pay Governance LLC, an executive compensation advisory.

The Securities and Exchange Commission last year enacted a rule requiring public companies to disclose the ratio of its chief executive pay relative to the median compensation of its employees. The Commission is considering additional rules surrounding whether executives can hedge their stock awards using derivatives, and is pushing companies and auditors to disclose more detailed analysis of business risks under existing regulations.

One way companies are helping investors navigate the tsunami of disclosures is by adding proxy summaries to their filings, similar to an executive summary found in other kinds of reports. While fewer than 5% of S&P 100 companies had a proxy summary in 2011, 73% included one in their most recent year, according to Equilar.

 


Teaching Case on Pro Forma Reporting from The Wall Street Journal on March 4, 2016

S&P 500 Earnings: Far Worse Than Advertised
by: Justin Lahart
Feb 25, 2016
Click here to view the full article on WSJ.com

TOPICS: Financial Reporting, GAAP, Pro Forma Reporting

SUMMARY: The difference between pro forma and GAAP results has long been a point of contention between companies, regulators and many investors. Companies ostensibly provide pro forma figures to better reflect the underlying tenor of their operations. They may, for example, exclude the cost of laying off workers on grounds this won't recur. To be sure, there are instances when ignoring items like that which are required under GAAP can make sense. But companies have had a history of treating the ordinary as extraordinary when business conditions worsen.

CLASSROOM APPLICATION: This article is appropriate to use when discussion pro forma reporting.

QUESTIONS: 
1. (Introductory) What is pro forma reporting? What does it usually include and not include?

2. (Advanced) What is GAAP? How can pro forma reporting differ from GAAP? Why does it differ? Please list some examples featured in the article.

3. (Advanced) Why is GAAP not required for pro forma reporting? Why are different results allowed to be reported? Could this confuse users of financial reporting?

4. (Advanced) What are some common circumstances in which pro forma results and GAAP results differ greatly?

5. (Advanced) What is the value of pro forma reporting? Should companies be allowed to do pro forma reporting? Why or why not?

Reviewed By: Linda Christiansen, Indiana University Southeast

RELATED ARTICLES: 
U.S. Corporations Increasingly Adjust to Mind the GAAP
by Theo Francis and Kate Linebaugh
Dec 15, 2015
Online Exclusive

Securities Rules Help to Close The Earnings Reports GAAP
by Jonathan Weil
Apr 24, 2003
Online Exclusive

Blowing the Froth Off Tech Earnings
by Miriam Gottfried
May 20, 2015
Online Exclusive
e

"S&P 500 Earnings: Far Worse Than Advertised," by Justin Lahart, The Wall Street Journal, February 25, 2016 ---
http://www.wsj.com/articles/s-p-500-earnings-far-worse-than-advertised-1456344483?mod=djem_jiewr_AC_domainid

There’s a big difference between companies’ advertised performance in 2015 and how they actually did.

How big? With most calendar-year results now in, FactSet estimates companies in the S&P 500 earned 0.4% more per share in 2015 than the year before. That marks the weakest growth since 2009. But this is based on so-called pro forma figures, results provided by companies that exclude certain items such as restructuring charges or stock-based compensation.

Look to results reported under generally accepted accounting principles and S&P earnings per share fell by 12.7%, according to S&P Dow Jones Indices. That is the sharpest decline since the financial crisis year of 2008. Plus, the reported earnings were 25% lower than the pro forma figures—the widest difference since 2008 when companies took a record amount of charges.

​The implication: Even after a brutal start to 2016, stocks may still be more expensive than they seem. Even worse, investors may be paying for earnings and growth that aren’t anywhere near what they think. The result could be that share prices have even further to fall before they entice true value investors.

The difference shows up starkly when looking at price/earnings ratios. On a pro forma basis, the S&P trades at less than 17 times 2015 earnings. But that shoots up to over 21 times under GAAP

The difference between pro forma and GAAP results has long been a point of contention between companies, regulators and many investors. Companies ostensibly provide pro forma figures to better reflect the underlying tenor of their operations. They may, for example, exclude the cost of laying off workers on grounds this won’t recur.

Continued in article


Teaching Case from The Wall Street Journal on March 4, 2016

Marvell Says Internal Probe Finds Issues
by: Don Clark and Tess Stynes
Mar 02, 2016
Click here to view the full article on WSJ.com

TOPICS: Audit Committee, Auditing, Financial Accounting

SUMMARY: Marvell Technology Group Ltd. said an audit-committee investigation identified a number of accounting problems at the chip maker but didn't find fraudulent activity. The investigation by the committee of Marvell directors found that internal protocols weren't fully followed in the case of certain transactions and some revenue was recognized prematurely. It cited "tone at the top" issues, including pressure from management on sales and finance personnel to meet revenue targets. Analysts characterized the committee's findings as mild, having stopped short of recommending a broad restatement of Marvell's past financial results.

CLASSROOM APPLICATION: This is a good example of an audit committee investigation into accounting issues. It is appropriate for financial accounting and auditing classes.

QUESTIONS: 
1. (Introductory) What is an audit committee? What are its responsibilities?

2. (Advanced) What are the facts of Marvell's accounting issues? What are the issues included in the probe? What was the conclusion of the audit-committee investigation?

3. (Advanced) What problems did the audit committee find? How serious were these problems? What were some causes of these problems?

4. (Advanced) How did the stock market react to the results of the investigation? Why? Should management be concerned about its company's stock price?

5. (Advanced) Why did Marvell hire a new accounting firm? How should the new firm approach its initial audit of the Marvell given this information? Why?

Reviewed By: Linda Christiansen, Indiana University Southeast

RELATED ARTICLES: 
Marvell Technology Discloses Probe, Warns of Second-Quarter Loss
by Lisa Beilfuss
Sep 12, 2016
Online Exclusive

Marvell Discloses SEC, Justice Department Probes
by Don Clark
Dec 08, 2015
Online Exclusive

CFO Moves: Old Dominion Freight Line, Marvell Technology Group, Nortek, China Lodging Group
by John Kester
May 22, 2015
Online Exclusive

"Marvell Says Internal Probe Finds Issues," Don Clark and Tess Stynes, The Wall Street Journal, March 2, 2016 ---
http://www.wsj.com/articles/marvell-says-internal-probe-finds-some-issues-1456843960?mod=djem_jiewr_AC_domainid

Marvell Technology Group Ltd. said an audit-committee investigation identified a number of accounting problems at the chip maker but didn’t find fraudulent activity.

The investigation by the committee of Marvell directors found that internal protocols weren’t fully followed in the case of certain transactions and some revenue was recognized prematurely. It cited “tone at the top” issues, including pressure from management on sales and finance personnel to meet revenue targets.

Marvell, led by the husband-and-wife team of Sehat Sutardja and Weili Dai, has been grappling with issues that include the accounting investigation, a patent battle and the disclosure in early February that activist investor Starboard Value LP held a 6.7% stake in the company.

Analysts characterized the committee’s findings as mild, having stopped short of recommending a broad restatement of Marvell’s past financial results. The company’s shares rose 2% Tuesday.

The probe, launched in September, focused on accounting of revenue recognized in the quarters ended in January, April and July of 2015. Marvell later disclosed that the Securities and Exchange Commission and U.S. Attorney’s Office had also inquired about its accounting practices.

Continued in article


Teaching Case from The Wall Street Journal on March 11, 2016

The Truth About Tax Records: An Index Card Can Make or Break You
by: Laura Saunders
Mar 06, 2016
Click here to view the full article on WSJ.com

TOPICS: Deductions, Individual Taxation

SUMMARY: The tax rules on record-keeping have a surprising history. In the 1920s, the entertainer George M. Cohan deducted more than $50,000 for travel and entertainment related to his profession, including "entertaining" drama critics. Mr. Cohan didn't have receipts for many of the expenses, so the IRS denied them. In 1930, however, the celebrated jurist Learned Hand ruled that Mr. Cohan's lack of records didn't bar him from taking deductions, as long as they had a basis in fact and could reasonably be estimated. His pro-taxpayer decision became known as the Cohan Rule. Congress has since whittled away Mr. Cohan's tax legacy by enacting stiff standards for some deductions, especially ones subject to abuse. As for the IRS, its gold standard for write-offs without receipts, such as miles driven in one's own car for business, is "contemporaneous records." That means notes made when the expense was incurred, such as a log recording miles driven.

CLASSROOM APPLICATION: This article offers good information regarding the history of proof required for tax deductions and information for what is needed.

QUESTIONS: 
1. (Introductory) What is the history of the evidence required for tax deductions? Why have the rules changed?

2. (Advanced) What are the evidence rules regarding proof of charitable contributions? What was the example given for how strict the rules are? How could those taxpayers have planned better? Why are these rules so strict?

3. (Advanced) What are the rules for travel, meals, and entertainment? What should taxpayers to do make sure all of their deductions will be allowed by the IRS?

4. (Advanced) What are the rules for taxation of gain on residences? Why is it important for homeowners to keep careful records of home improvements?

5. (Advanced) How long should taxpayers keep tax records? What is the statute of limitations for tax audits?

Reviewed By: Linda Christiansen, Indiana University Southeas

"The Truth About Tax Records: An Index Card Can Make or Break You," by Laura Saunders, The Wall Street Journal, March 6, 2016 ---
http://www.wsj.com/articles/the-truth-about-tax-records-an-index-card-can-make-or-break-you-1457157603?mod=djem_jiewr_AC_domainid

Working on your tax return? Put your records in order now to cope with a challenge from the Internal Revenue Service down the road.

To see the difference proper proof makes, consider the results of two Tax Court cases released in December. In the first one, the judge ruled that a business consultant owed more than $23,000 in taxes and penalties for 2010 and 2011 because he didn’t have convincing records of write-offs for wages, travel, meals and entertainment.

The same week, another judge ruled that a couple who owned a small business could deduct nearly $7,000 in mileage expenses for business travel in 2010—even though their records were handwritten on index cards, and some were missing.

“The better your records, the less agita you’ll have with the IRS,” says Ed Mendlowitz, a CPA with accounting firm WithumSmith+Brown who is based in New Brunswick, N.J.

The tax rules on record-keeping have a surprising history. In the 1920s, the entertainer George M. Cohan—who wrote the songs “(I’m a) Yankee Doodle Dandy” and “Give My Regards to Broadway”—deducted more than $50,000 for travel and entertainment related to his profession, including “entertaining” drama critics. Mr. Cohan didn’t have receipts for many of the expenses, so the IRS denied them.

In 1930, however, the celebrated jurist Learned Hand ruled that Mr. Cohan’s lack of records didn’t bar him from taking deductions, as long as they had a basis in fact and could reasonably be estimated. His pro-taxpayer decision became known as the Cohan Rule.

Congress has since whittled away Mr. Cohan’s tax legacy by enacting stiff standards for some deductions, especially ones subject to abuse. As for the IRS, its gold standard for write-offs without receipts, such as miles driven in one’s own car for business, is “contemporaneous records.” That means notes made when the expense was incurred, such as a log recording miles driven.

But IRS agents and judges also can accept good-faith estimates and other forms of proof for write-offs. Because the couple in the December case kept timely records on index cards, the judge allowed their testimony regarding some missing cards.

As you make your way to this year’s April deadline, here is record-keeping advice from experts.

Avoid charitable-donation pitfalls. Current law is both clear and rigid: taxpayers who make cash contributions need proper proof of the donation in hand before filing their returns in order to get a deduction. If the taxpayer gets the proof only after filing, the IRS could disallow it.

Proper proof of a cash donation typically consists of a letter from the charity giving its amount, date and the value of anything (such as a tote bag or dinner) received in return. That value must be subtracted from the deduction.

The rules for other types of donations, such as property, are also persnickety about proof. In a famous 2012 case, a California couple lost an $18.5 million deduction for property donated to charity because they didn’t have the correct records. The judge acknowledged that the decision was harsh, but said the law left him no choice. For more on substantiating charitable deductions, see IRS Publication 526.

Take care with T&E. Large deductions for travel, meals, and entertainment are often an audit magnet, so treat them carefully. Taxpayers are supposed to keep records showing who, what, when, where, and why; experts say the one people most frequently forget is the “business purpose” of the activity. Suggestion: when setting up a meeting that will include deductible expenses, record the business purpose at the same time.

For details on travel, meals and entertainment deductions, see IRS Publication 463.

Update records for your home. Did you add a room to your home this year, install new windows, or add a deck? Such investments can increase your “cost basis” in the home, which could lower the tax bill when it is sold.

For example, say a couple bought a home for $100,000 years ago in a high-growth area such as Seattle. If they sell it for $700,000, the law allows them to avoid tax on $500,000 of their $600,000 profit—so they would owe tax on $100,000. If, however, they invested $75,000 in improvements over the years, their cost basis rises by that amount and they would owe tax only on $25,000 of profit.

For more about what qualifies as an investment in a home, see IRS Publication 523.

Continued in article


Teaching Case from The Wall Street Journal on March 11, 2016

FASB's New Standard Brings Most Leases onto the Balance Sheet
by: Deloitte CFO Journal Editor
Mar 04, 2016
Click here to view the full article on WSJ.com

TOPICS: GAAP, IFRS, Lease Accounting

SUMMARY: After working for almost a decade, the FASB issued its new standard on accounting for leases, ASU 2016-02, which represents a wholesale change to lease accounting. The IASB issued its own version, IFRS 16, and although the project was a convergence effort and the boards conducted joint deliberations, there are several notable differences between the two standards, which are highlighted in the table included in the article.

CLASSROOM APPLICATION: This article offers an excellent summary of the key provisions of the new lease accounting rules, and compares the U.S. rules to IFRS rules.

QUESTIONS: 
1. (Introductory) What is lease accounting? When were the lease rules changed? When do the new rules go into effect?

2. (Advanced) What is FASB? What is its area of authority? How is FASB involved in lease accounting? Why does the organization have the authority to make this change?

3. (Advanced) What is GAAP? What is IASB? What is IFRS? In general, how does IFRS compare with GAAP?

4. (Advanced) How did the FASB change the lease accounting rules? How will this change benefit users of the financial statements?

5. (Advanced) Review the table included in the article. What are the most significant differences between lease accounting rules under GAAP and under IFRS rules?

6. (Advanced) The article states the FASB and the IASB conducted joint deliberations. Why were they interested in a convergence effort? Was it successful?

7. (Advanced) Should GAAP and IFRS be the same? Why or why not? In general, how do they differ? What are the differences in philosophies?

8. (Advanced) How could each of the four financial statements be affected by the changes in lease accounting?

9. (Advanced) What types of companies could have improved financial results under the new rules? Companies in what situations could have less favorable financial results under the new rules?

Reviewed By: Linda Christiansen, Indiana University Southeast

RELATED ARTICLES: 
New Rule to Shift Leases Onto Corporate Balance Sheets
by Michael Rapoport
Feb 26, 2016
Online Exclusive

A Silver Lining to New Lease Accounting Rules: Savings
by Tatyana Shumsky
Feb 25, 2016
Online Exclusive

Lease-Accounting Overhaul Gets Green Light, Could Swell Balance Sheets by $2 Trillion
by Michael Rapoport
Nov 11, 2015
Online Exclusive

Coming to a Balance Sheet Near You: $2 Trillion in Leases
by Michael Rapoport
Nov 11, 2015
Online Exclusive

IASB Changes Rule on Accounting for Leases
by Michael Rapoport
Jan 14, 2016
Online Exclusive

New Lease Accounting Rules Won't Impact Ratings, Fitch Says
by Tatyana Shumsky
Mar 03, 2016
Online Exclusive

"FASB's New Standard Brings Most Leases onto the Balance Sheet," by Deloitte CFO Journal Editor, The Wall Street Journal, March 4, 2016 ---
http://deloitte.wsj.com/cfo/2016/03/04/fasbs-new-standard-brings-most-leases-onto-the-balance-sheet/?mod=djem_jiewr_AC_domainid

Read the full newsletter piece ---
http://www.iasplus.com/en-us/publications/us/heads-up/2016/issue-5?id=en-us%3aemail%3aHU03012016


Teaching Case from The Wall Street Journal on March 11, 2016

Auditing Firms Count on Technology for Backup
by: Michael Rapoport
Mar 08, 2016
Click here to view the full article on WSJ.com

TOPICS: Auditing, Auditing Software

SUMMARY: Auditing firms are enlisting cutting-edge technology to help them review their clients' finances. The Big Four are pouring hundreds of millions of dollars into new technologies, betting they will make audits more accurate and comprehensive, giving investors greater assurance that a company's finances are sound. The new tools automate critical but rote tasks, letting auditors focus on more substantive issues. The tools can examine all of a client's transactions, instead of just a sample, reducing the chances of missing a problem. They also make auditors better able to detect patterns in a client's finances worth investigating for errors or fraud. The technology push stems from several factors, including a desire to improve audits, in part to satisfy regulators who are insisting the firms do so; audit clients who are upgrading their own technology in a move toward harnessing "big data"; and competitors who are using technology to make their own push into parts of the auditing firms' business, such as consulting.

CLASSROOM APPLICATION: This is an excellent article to use for an auditing class to discuss new software and technology used in auditing. What is particularly interesting is how entry-level auditors no longer do as many basic and mundane tasks as they would do in the past. Because of technology, our students must be prepared to do higher levels of work at the beginning of their careers.

QUESTIONS: 
1. (Introductory) What is the Big Four? What firms does that include? How do they differ from other firms? Why are there four?

2. (Advanced) What new software packages are accounting firms using in their audit practices? What does the software do?

3. (Advanced) How has technology helped the audit process? How is it changing auditing? What benefits does the audit software offer the firms? How does it benefit clients?

4. (Advanced) How has the audit software changed the work of auditors, particularly new staff? How has the entry-level auditing job changed? Please offer specific examples and details.

5. (Advanced) How can accounting students be well-prepared for the work in entry-level jobs at accounting firms? What knowledge and skills should applicants have to be hired and succeed in the position?

6. (Advanced) How can audit software benefit users of financial statements?

7. (Advanced) What are some potential problems or issues that could occur as a result of this software usage? How could those issues be addressed and overcome?

8. (Advanced) How could advances in software change the auditing industry?

Reviewed By: Linda Christiansen, Indiana University Southeast

RELATED ARTICLES: 
Audit Automation May Spur Career Interest
by Michael Rapoport
Mar 08, 2016
Online Exclusive

 "Auditing Firms Count on Technology for Backup," by Michael Rapoport, The Wall Street Journal, March 8, 2016 ---
http://www.wsj.com/articles/auditing-firms-count-on-technology-for-backup-1457398380?mod=djem_jiewr_AC_domainid

KPMG LLP will soon have a new assistant to help it examine corporate America’s books: Watson.

The auditing firm is forming an alliance with International Business Machines Corp. IBM Watson artificial-intelligence unit to develop high-tech tools for auditing and its other businesses. The deal is expected to be announced Tuesday

Other auditing firms also are enlisting cutting-edge technology to help them review their clients’ finances. Deloitte & Touche LLP has its Argus and Optix. And Ernst & Young LLP and PricewaterhouseCoopers LLP have their own smart tools.

The Big Four are pouring hundreds of millions of dollars into new technologies, betting they will make audits more accurate and comprehensive, giving investors greater assurance that a company’s finances are sound.

The new tools automate critical but rote tasks, letting auditors focus on more substantive issues. The tools can examine all of a client’s transactions, instead of just a sample, reducing the chances of missing a problem, the firms say. They also make auditors better able to detect patterns in a client’s finances worth investigating for errors or fraud.

Other auditing firms also are enlisting cutting-edge technology to help them review their clients’ finances. Deloitte & Touche LLP has its Argus and Optix. And Ernst & Young LLP and PricewaterhouseCoopers LLP have their own smart tools.

The Big Four are pouring hundreds of millions of dollars into new technologies, betting they will make audits more accurate and comprehensive, giving investors greater assurance that a company’s finances are sound.

The new tools automate critical but rote tasks, letting auditors focus on more substantive issues. The tools can examine all of a client’s transactions, instead of just a sample, reducing the chances of missing a problem, the firms say. They also make auditors better able to detect patterns in a client’s finances worth investigating for errors or fraud.

 Continued in article

 


Teaching Case from The Wall Street Journal on March 11, 2016

Linn Energy Looks to Ease Tax Hit on Investors
by: Liz Hoffman, Matt Jarzemsky, and Laura Saunders
Mar 10, 2016
Click here to view the full article on WSJ.com

TOPICS: Business Structure, Limited Partnerships, Master Limited Partnerships, Partnership Taxation, Partnerships, Taxation

SUMMARY: A wave of expected bankruptcy filings and debt restructurings could trigger taxes for investors at a number of energy firms, a doubly unpleasant outcome that has companies searching for a fix. The issue stems from the fact that Linn is taxed as a master limited partnership, or MLP, rather than a corporation, a popular arrangement among energy companies when oil prices were soaring. In good times, that status allowed income to flow straight through to investors without the Internal Revenue Service taking a cut at the corporate level. But the collapse in oil and gas prices has exposed the structure's double-sided risk: Investors with potentially worthless shares (or units) may nonetheless owe taxes on debt that is forgiven in a bankruptcy or an out-of-court restructuring. That is because MLPs pay no corporate taxes and instead pass certain tax burdens, along with a share of their income, to investors. Debt forgiven in a restructuring counts as noncash income, or "cancellation of debt income," which creates a tax liability for investors without an associated cash distribution.

CLASSROOM APPLICATION: This is an excellent article to use when discussions partnership accounting and taxation.

QUESTIONS: 
1. (Introductory) What is a master limited partnership? How does it differ in structure from other partnerships?

2. (Advanced) How are MLPs taxed? How are MLP investors taxed? What are the tax benefits of a MLP? How has this business structure helped investors?

3. (Advanced) What are the potential problems of owning MLPs? Why do these problems occur?

4. (Advanced) Why do investors choose MLPs? How could investors in MLPs plan for tax issues?

Reviewed By: Linda Christiansen, Indiana University Southeast

RELATED ARTICLES: 
Thousands Hit With Surprise Tax Bill on Income in IRAs
by Laura Saunders
Nov 14, 2015
Online Exclusive

Why Falling Oil Prices Startled MLP Investors
by Jason Zweig
Oct 10, 2015
Online Exclusive

"Linn Energy Looks to Ease Tax Hit on Investors," by Liz Hoffman, Matt Jarzemsky, and Laura Saunders, The Wall Street Journal, March 10, 2016 ---
http://www.wsj.com/articles/linn-energy-looks-to-ease-tax-hit-on-investors-1457554295?mod=djem_jiewr_AC_domainid

For some energy investors, there are worse things than going to zero.

A wave of expected bankruptcy filings and debt restructurings could trigger taxes for investors at a number of energy firms, a doubly unpleasant outcome that has companies searching for a fix.

Linn Energy LLC, a Houston-based oil-and-gas producer, is exploring a change to its corporate structure that could shield investors from a tax hit triggered by a likely debt restructuring, according to people familiar with the matter. Distressed peers are watching closely, hoping Linn can provide a blueprint to follow as low oil prices continue to spread pain through their ranks.

The issue stems from the fact that Linn is taxed as a master limited partnership, or MLP, rather than a corporation, a popular arrangement among energy companies when oil prices were soaring.

In good times, that status allowed income to flow straight through to investors without the Internal Revenue Service taking a cut at the corporate level. Linn distributed some billions of dollars of cash to investors as U.S. energy production boomed.

But the collapse in oil and gas prices has exposed the structure’s double-sided risk: Investors with potentially worthless shares—or units, as they are known—may nonetheless owe taxes on debt that is forgiven in a bankruptcy or an out-of-court restructuring.

That is because MLPs pay no corporate taxes and instead pass certain tax burdens, along with a share of their income, to investors. Debt forgiven in a restructuring counts as noncash income, or “cancellation of debt income,” which creates a tax liability for investors without an associated cash distribution.

The roughly 60% plunge in oil prices since the summer of 2014 already has sent a number of energy companies into bankruptcy court, and more are expected to follow. Fitch Ratings expects the default rate for U.S. high-yield energy bonds to rise to 11% by the end of the year, compared with 1.5% for bonds outside the battered energy and metals-and-mining sectors.

A gusher of bankruptcies and debt restructurings could be especially painful for MLP investors, most of whom are individual investors. Big institutions like BlackRock Inc., as well as many endowments and foreign institutions, can’t legally own partnership units or don’t want to, given their complexity.

Lee Hiller, a retired retail executive in Boca Raton, Fla., invested in four energy MLPs and was happy with the payouts for several years. “The sales literature and much of the press coverage compared them to toll roads and made them seem pretty safe,” he said. “Rarely, if ever, was there a discussion of the effect of a major oil-price decline.”

Continued in article

 


Teaching Case from The Wall Street Journal on March 11, 2016

Repayment of Health-Insurance Tax Credits Threatens Refunds
by: Louise Radnofsky
Mar 09, 2016
Click here to view the full article on WSJ.com

TOPICS: ACA, Individual Taxation, Tax Credits

SUMMARY: Most people who got tax credits to buy insurance under the federal health law will be repaying part of them for the second year in a row, according to a leading tax preparer. H&R Block Inc. executives said to date, 60% of 2015 tax filers with the credit have found that they owe the government money because they had been credited too much. That is up from 52% last year, the first year in which filers had to reckon with reporting the credit and figuring out if their income projections had been accurate. On average, tax filers were repaying almost $580 each for excessive credits, up from $530 for overpayments during the 2014 filing year.

CLASSROOM APPLICATION: This article is appropriate for individual taxation.

QUESTIONS: 
1. (Introductory) What is the ACA? Why is a tax credit associated with it?

2. (Advanced) How is the ACA tax credit calculated? What taxpayers are eligible?

3. (Advanced) What percentage of taxpayers who claimed the credit calculated it correctly? What percentage calculated too high of an amount? What percentage calculated too low?

4. (Advanced) How must the taxpayers who incorrectly calculated the ACA tax credit remedy the error?

5. (Advanced) How could these problems and issues be eliminated? Should the IRS or Congress make some changes? If so, what changes would you suggest?

Reviewed By: Linda Christiansen, Indiana University Southeast

RELATED ARTICLES: 
Hundreds of Thousands Face Health Law Subsidy Deadline
by Stephanie Armour
Sep 29, 2014
Online Exclusive

"Repayment of Health-Insurance Tax Credits Threatens Refunds," by Louise Radnofsky, The Wall Street Journal, March 9, 2016 ---
http://www.wsj.com/articles/repayment-of-health-insurance-tax-credits-threatens-refunds-1457461969?mod=djem_jiewr_AC_domainid

For the second year in a row, a majority of filers who used Obamacare tax credits are finding they owe the government money, according to H&R Block

Most people who got tax credits to buy insurance under the federal health law will be repaying part of them for the second year in a row, according to a leading tax preparer.

H&R Block Inc. executives said Tuesday that, to date, 60% of 2015 tax filers with the credit have found that they owe the government money because they had been credited too much. That is up from 52% last year, the first year in which filers had to reckon with reporting the credit and figuring out if their income projections had been accurate.

On average, tax filers were repaying almost $580 each for excessive credits, up from $530 for overpayments during the 2014 filing year.

The Kansas City, Mo., tax-preparation firm based the calculation on about 10.6 million returns filed to date. There is still more than a month to go in the filing season. Last year, the share of people with repayments didn’t decrease over time.

The 2010 health law has a complicated formula for determining how much financial help low- and middle-income Americans get to help pay premiums to buy insurance on their own if they don’t get it through a job or government program such as Medicare.

The exact tax credit is based on a household’s income for the year as well as the local cost of coverage and the age of the people insured. Because people can opt to get the credit upfront and directly applied as a subsidy to their premiums, millions of households have been wrestling with the new task of predicting their income for the year ahead. These filers risk receiving lower-than-anticipated refunds if more money was paid to insurance companies on their behalf than they were eligible for.

Some consumer groups, aware that people felt stung by repayments, hope the rate of repayment will drop over time as people become more used to the system.

Mark Ciaramitaro, vice president of H&R Block taxes and health-care services, said the current finding suggested there was still a steep learning curve for tax filers. Mr. Ciaramitaro said he was surprised that it had grown rather than lessened.

Among the most common situations involved people who had focused on their main source of income in their projections and missed other kinds, Mr. Ciaramitaro said. Also affected were people whose income increased unexpectedly in the year but who didn’t update their information with HealthCare.gov or a state equivalent, he said. The health law actually uses a particular kind of income calculation, known as modified adjusted gross income, that can trip up many.

The finding also showed that, in some cases, people may have acted in their own interests by erring on the side of getting needed financial help upfront and repaying it when they were better positioned to do so, Mr. Ciaramitaro said.

Most people who get too much credit only have to pay the excess. But people very close to the cutoff to qualify for tax credits at all—which is four times the federal poverty level, or around $63,000 for a household of two—are at particular risk from the impact from unexpected income. If those people go over the line, they lose the whole credit.

There are few options to rectify that after the year is up, but a contribution to a traditional IRA account was one choice still available to people, Mr. Ciaramitaro said.

Continued in article

 


Teaching Case from The Wall Street Journal on March 18, 2016

Federal CFO: Three Steps To Improve Improper Payments Prevention Strategies
by: Deloitte CFO Journal Editor
Mar 11, 2016
Click here to view the full article on WSJ.com

TOPICS: Fraud, Governmental Accounting, Internal Controls

SUMMARY: Despite continuing efforts by federal agencies, improper payments remain a government-wide issue. Federal CFOs can help strengthen their agency's strategies to prevent improper payments by taking three steps: establish a holistic improper payments risk management framework using fraud risks assessment techniques, employ continuous monitoring using data analytics, and deploy root cause analysis techniques to identify and implement corrective action plans. This article explains all three strategies.

CLASSROOM APPLICATION: This article is useful for a governmental accounting class, as well as for use when covering internal controls in any class.

QUESTIONS: 
1. (Introductory) What is a CFO? To whom is the author referring as a federal CFO?

2. (Advanced) What are internal controls? How are they used? Why are they important?

3. (Advanced) Please give three general examples of internal controls that could apply to any business. What are the benefits of each of those types of internal controls? What issues or problems do they limit?

4. (Advanced) What is an improper payment as the term is used in this article? Why are improper payments a concern for the federal government? What are the estimates of losses?

5. (Advanced) What are risk management assessment techniques? How can they help reduce or eliminate improper payments?

6. (Advanced) What is data analytics? How can it be used to prevent or detect improper payments?

7. (Advanced) What is root cause analysis? How is it used to remedy the problem of improper payments?

Reviewed By: Linda Christiansen, Indiana University Southeast

"Federal CFO: Three Steps To Improve Improper Payments Prevention Strategies," by Deloitte CFO Journal Editor, The Wall Street Journal, March 11, 2016 ---
http://deloitte.wsj.com/cfo/2016/03/11/federal-cfo-three-steps-to-improve-improper-payments-prevention-strategies/?mod=djem_jiewr_AC_domainid

Despite continuing efforts by federal agencies, improper payments remain a government-wide issue. Federal CFOs can help strengthen their agency’s strategies to prevent improper payments by taking three steps: establish a holistic improper payments risk management framework using fraud risks assessment techniques, employ continuous monitoring using data analytics, and deploy root cause analysis techniques to identify and implement corrective action plans.

The federal government estimates improper payments, attributable to 124 programs across 22 agencies in fiscal year (FY) 2014, of $124.7 billion, up from $105.8 billion in FY 2013.¹ The latest of several congressional legislations to impose more stringent improper payments requirements to mitigate the risk of improper payments, the Digital Accountability and Transparency Act of 2014 (Data Act), once implemented, will increase agency data transparency and monitoring requirements and provides more resources to monitor and review funding under improper payments programs. While preparing for compliance guidance for implementing the Data Act, CFOs can take steps now to address improper payments, fraud, waste and abuse.

Recently, the Government Accounting Office (GAO) presented to the Congressional Oversight Committee on the progress that CFOs of federal agencies have made in combating improper payments and fraud, waste and abuse.² The GAO report highlights significant areas of improper payments. For example, the report provided noncompliance with criteria in IPERA strategies for using preventive and detective controls, potentially unreliable or understated estimates, programs that do not report on improper payments, improper payments resulting from fraud and root causes of the improper payments.

A review of the report and an assessment of the improper payments’ results across agencies suggests that federal CFOs can help strengthen their agencies’ strategies to mitigate the risks of improper payments by taking the following three actions:

1. Implement a holistic framework for managing fraud risks by using risk management assessment techniques. Agencies will benefit from taking an all-inclusive approach to fraud detection, leveraging an enterprise view of the people, processes, technology, data and analytic techniques necessary to adopt a proactive stance against fraud, waste and abuse. CFOs should commit to a framework that continuously mitigates the risk and likelihood of fraud by monitoring and adapting to the environment. The GAO has established the GAO Fraud Risk Management Framework,³ which incorporates a set of leading practices for CFOs to identify and mitigate fraud risks. The GAO framework provides agency leadership with guidance on how to effectively employ risk management activities through the following steps:

—Commit. Leadership is key in demonstrating integrity and setting the tone to create a fraud detection culture rooted in the organization. When senior leadership commits to the prevention, detection and response to fraud, it creates a culture dedicated to managing and combatting risks facing the agency from the top-down. It is not enough to rely solely on an initial commitment to develop the framework— the constant presence of a CFO’s commitment is integral to the continued success of the programs. Engaging each individual at all levels of an agency reinforces the culture throughout and increases the likelihood that fraud can be prevented.

—Assess. CFOs should consult with internal and external stakeholders, such as general counsel or contractors, who may be able to provide additional insight into potential fraud risks threatening the program. No two programs will be alike in the inherent risks threatening an agency; therefore, each risk assessment must be tailored based on the program. To assess and understand the fraud risks, the following actions can be considered:

Identify inherent fraud risks affecting the program

Assess likelihood and impact of inherent fraud risks

Determine risk tolerance

Examine the suitability of existing fraud controls and prioritize residual fraud risk

Document the program’s fraud risk

—Design and Implement. After fraud risks are identified, a strategy is designed to mitigate these risks with the focus again placed on the prevention of the assessed risk. A fraud response plan can also be developed which may include accepting, reducing, sharing or avoiding the risk. Evaluate control activities, and review costs and benefits to determine a balance between successfully executing the goals of the agency and effectively managing this risk. It is important that CFOs identify the amount of risk they are willing to accept when evaluating the controls to be implemented. Effective implementation relies on the involvement and collaboration of those involved at all levels.

—Evaluate and Adapt. The creation and implementation of a strategy relying on control activities designed to combat fraud risks, and the commitment to understand, monitor, analyze and adapt to the ever-changing threat environment, both internally and externally, may allow an agency to take steps to mitigate the likelihood of fraud occurring. CFOs must understand, however, that risk cannot be completely eliminated, and controls must be evaluated to achieve an equilibrium of effective use of resources to prevent, deter and respond to fraud while achieving the agency’s goals and missions.

2. Continuous monitoring using data analytics with current data systems and using the Do Not Pay portal. Agencies will benefit from implementing an integrated continuous monitoring platform containing a cross-section of capabilities to provide an effective vehicle for improper payment mitigation both now and into the future.

Strategic deployment of data analytics can be used to identify improper payments, providing operational insight into the agency as a whole as well as the decentralized field offices, and assist in identifying risks that may not currently be on the radar. Data analysis is the key to helping agencies become risk intelligent in managing the decision-making process for both up and downstream. An effective continuous monitoring platform can include:

—Real-Time Detection. In the case of improper payments, an effective strategy involves deploying a technical infrastructure designed to prevent disbursement of these funds. Continuous monitoring technology provides the capability to analyze payment data in near-real time and queue up potential problems for review before disbursement. By doing so, organizations can move from “pay and chase” to “protect and prevent” and provide the technological capability to accelerate follow-up reviews.

Continued in article

 

 


Teaching Case from The Wall Street Journal on March 18, 2016

Donald Trump's Donations Put Him in Line for Conservation Tax Breaks
by: Richard Rubin
Mar 11, 2016
Click here to view the full article on WSJ.com

TOPICS: Charitable Contributions, Conservation Easement, Deductions, Individual Taxation

SUMMARY: Donald Trump might have millions of dollars in federal tax deductions as a result of promising to limit development on some of his properties. He donated development rights for some of his most valuable properties to conservation groups and local governments, giving himself the ability to claim federal tax deductions. The easement tax break is a valuable tool for protecting open spaces and habitats that has bipartisan support in Congress. In 2012, 1,114 taxpayers donated a total of $972 million in conservation easements. To get a tax break, the taxpayer would need an appraisal before and after the easement. He or she could then deduct the difference from his federal income taxes.

CLASSROOM APPLICATION: This article offers detailed examples of charitable deductions from donations of conservation easements for use in an individual tax class.

QUESTIONS: 
1. (Introductory) What is a conservation easement? Please give some examples provided in the article, and also some examples not mentioned in the article.

2. (Advanced) Why do conservation easements qualify as charitable contributions for tax purposes?

3. (Advanced) How are conservation easements valued for tax purposes? What must the taxpayer show to be eligible for the deduction?

4. (Advanced) Why is a taxpayer able to take a charitable tax deduction if he or she continues to own and enjoy the property?

Reviewed By: Linda Christiansen, Indiana University Southeast

RELATED ARTICLES: 
IRS Tees Off on Golf Courses' Green Tax Claims
by Richard Rubin
Jan 04, 2016
Online Exclusive

"Donald Trump's Donations Put Him in Line for Conservation Tax Breaks," by Richard Rubin, The Wall Street Journal, March 11, 2016 ---
http://www.wsj.com/articles/donald-trumps-land-donations-put-him-in-line-for-conservation-tax-breaks-1457656717?mod=djem_jiewr_AC_domainid

Donald Trump might be scoring millions of dollars in federal tax breaks by promising to limit development on some of his properties.

The self-described “ardent philanthropist” donated development rights for some of his most valuable properties to conservation groups and local governments, protecting songbirds and big brown bats, and giving himself the ability to claim federal tax deductions, according to land records in four states.

Last year, the front-runner for the Republican presidential nomination pledged not to build on 74% of his Westchester County, N.Y., estate, and in 2014, he promised not to construct houses on a driving range in California, according to the records. He previously donated so-called conservation easements on his Mar-a-Lago Club in Palm Beach, Fla., and his Bedminster, N.J., golf course. The land restrictions are legally binding and permanent.

Mr. Trump’s campaign in a news release described him last year as a “major contributor” to charities, citing donations of “valuable parcels of land throughout the country.” The campaign said he had donated $102 million over five years, far exceeding reported gifts to his foundation.

The campaign hasn’t provided a detailed list of donations and didn’t respond to requests for comment.

Because Mr. Trump has so far declined to release his tax returns, citing continuing audits, it is impossible to tell what he deducted, how he valued the donations and whether the Internal Revenue Service challenged him. The 2015 easement would appear on tax returns for that year. Federal law prohibits the IRS from discussing individual taxpayers’ returns.

Each easement includes specific prohibitions on what Mr. Trump can do with the property, and each gives him certain rights, such as the ability to run a golf course or a private club. At his Westchester estate, for example, Mr. Trump can install solar panels or wind turbines, build picnic shelters and fire pits and “construct a reasonable number of wildlife hunting or observation stands” under the supervision of a land trust. But he can’t erect any significant building, introduce non-native plants or excavate.

To get a tax break, Mr. Trump would need an appraisal before and after the easement. He could then deduct the difference from his federal income taxes.

Continued in article

 


Teaching Case from The Wall Street Journal on March 18, 2016

Colgate-Palmolive to Seek Further Job Cuts Under Expanded Restructuring Plan
by: Ezequiel Minaya
Mar 11, 2016
Click here to view the full article on WSJ.com

TOPICS: Financial Accounting, International Business, Managerial Accounting, Restructuring

SUMMARY: Colgate-Palmolive Co. said it would look to cut more jobs as part of a restructuring program that was originally slated to end this year but has been extended through 2017. In a regulatory filing, the company said, as result of the expansion of the 2012 restructuring plan, the company expected to register charges of $1.41 billion to $1.59 billion, up from previous estimates of $1.29 billion to $1.44 billion. Colgate-Palmolive said that the program would focus on expanding commercial hubs and cutting structural costs. Many consumer-product companies that do a large amount of business abroad have blamed the stronger U.S. dollar for lackluster results, as it makes their products more expensive abroad and diminishes revenue once repatriated. For Colgate, roughly 80% of revenue is generated abroad.

CLASSROOM APPLICATION: This article can be used to show how a restructuring can impact various parts of a business, as well as affect its accounting and its financial statements.

QUESTIONS: 
1. (Advanced) What is a restructuring? Why do companies elect to restructure?

2. (Introductory) What are the facts of Colgate's restructuring? What areas of the business are involved? What are some reasons for the restructure? What does the company hope to achieve with its restructuring?

3. (Advanced) What cost saving measures is the company planning? How will they help the company? How will those changes affect the financial statements?

4. (Advanced) What are restructuring charges? What amount of charges is Colgate expected to report? How are restructuring charges reported on the financial statements? Which statements are affected?

5. (Advanced) Colgate's business is worldwide. How much of the company's business occurs outside of the U.S.? How does that affect the company's financial statements? How does it affect management's strategies?

6. (Advanced) How do exchange rates affect financial statements? How are exchange rate adjustments and changes reported?

Reviewed By: Linda Christiansen, Indiana University Southeast

RELATED ARTICLES: 
Strong Dollar Hurts Colgate-Palmolive Sales
by Ezequiel Minaya
Nov 01, 2015
Online Exclusive

Colgate to Trim Jobs in Restructuring
by Anna Prior
Oct 25, 2016
Online Exclusive

"Colgate-Palmolive to Seek Further Job Cuts Under Expanded Restructuring Plan," by Ezequiel Minaya, The Wall Street Journal, March 1, 2016 ---
http://www.wsj.com/articles/colgate-palmolive-to-seek-further-job-cuts-under-expanded-restructuring-plan-1457651309?mod=djem_jiewr_AC_domainid

Colgate-Palmolive Co. said Thursday it would look to cut more jobs as part of a restructuring program that was originally slated to end this year but has been extended through 2017.

The consumer-product company said that a total net head-count reduction would fall within the range of 3,300 to 3,800 jobs—above the roughly 2,300 jobs the company had originally said it would cut when it outlined the program in 2012.

The company’s board approved the expanded plan on Thursday.

In a regulatory filing Thursday, the company said, as result of the expansion of the 2012 restructuring plan, the company expected to register charges of $1.41 billion to $1.59 billion, up from previous estimates of $1.29 billion to $1.44 billion.

Colgate-Palmolive said that the program would focus on expanding commercial hubs and cutting structural costs.

Many consumer-product companies that do a large amount of business abroad have blamed the stronger U.S. dollar for lackluster results, as it makes their products more expensive abroad and diminishes revenue once repatriated. For Colgate, roughly 80% of revenue is generated abroad.

Continued in article


Teaching Case:  "The Lehman Brothers Bankruptcy D: The Role of Ernst & Young"

From the CFO Journal's Morning Ledger on March 22, 2016

Former Lehman CFO tells her side of the firm’s collapse
Erin Montella’s new memoir offers a unique perspective on the events that led to the financial crisis. “Full Circle,” which was released Sunday on Amazon.com, tells the story of how Ms. Montella rose to become the highest-ranking woman on Wall Street in 2008, only to resign from the firm six months after being named CFO. She accepted the position only after becoming convinced she could make the role more important, “something close to the CEO heir apparent.”

"The Lehman Brothers Bankruptcy D: The Role of Ernst & Young"
Authors

Rosalind Z. Wiggins Yale University - Yale Program on Financial Stability
Rosalind L. Bennett FDIC, Division of Insurance and Research
Andrew Metrick Yale School of Management ; National Bureau of Economic Research (NBER)

SSRN, October 1, 2015
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2588551

Abstract:
For many years prior to its demise, Lehman Brothers employed Ernst & Young (EY) as the firm’s independent auditors to review its financial statements and express an opinion as to whether they fairly represented the company’s financial position. EY was supposed to try to detect fraud, determine whether a matter should be publicly disclosed, and communicate certain issues to Lehman’s Board audit committee. After Lehman filed for bankruptcy, it was discovered that the firm had employed questionable accounting with regard to an unorthodox financing transaction, Repo 105, which it used to make its results appear better than they were. EY was aware of Lehman’s use of Repo 105, and its failure to disclose its use. EY also knew that Lehman included in its liquidity pool assets that were impaired. When questioned, EY insisted that it had done nothing wrong. However, Anton R. Valukas, the Lehman bankruptcy examiner, concluded that EY had not fulfilled its duties and that probable claims existed against EY for malpractice. In this case, participants will consider the role and effectiveness of independent auditors in ensuring complete and accurate financial statements and related public disclosure.

Number of Pages in PDF File: 22

Keywords: Systemic Risk, Financial Crises, Financial Regulation

 

From the CFO Journal's Morning Ledger on April 16, 2015

Ernst & Young settles with N.Y. AG.
http://www.wsj.com/articles/ernst-young-n-y-attorney-general-close-to-10-million-settlement-over-lehman-1429116634?mod=djemCFO_h
Ernst & Young LLP
agreed Wednesday to pay $10 million to settle allegations from the New York attorney general’s office that the Big Four accounting firm had turned a blind eye when its client Lehman Brothers Holdings Inc. misled investors before its 2008 collapse.

Jensen Comment
I think this is on top of an earlier $99 million settlement in the Lehman Brothers repo accounting scandal ---

"$99 Million Buys EY Ticket Out Of Private Lehman Litigation, Finally," by Francine McKenna, re:TheAuditors, October 21. 2013 ---
http://retheauditors.com/2013/10/21/99-million-buys-ey-ticket-out-of-private-lehman-litigation-finally/

 

"JPMorgan to pay $1.42 billion cash to settle most Lehman claims," by Jonatan Stemel, Reuters, January 25, 2016 ---
http://www.reuters.com/article/us-jpmorgan-lehman-idUSKCN0V4049

JPMorgan Chase & Co (JPM.N) will pay $1.42 billion in cash to resolve most of a lawsuit accusing it of draining Lehman Brothers Holdings Inc of critical liquidity in the final days before that investment bank's September 2008 collapse.

The settlement was made public on Monday, and requires approval by U.S. Bankruptcy Judge Shelley Chapman in Manhattan.

It resolves the bulk of an $8.6 billion lawsuit accusing JPMorgan of exploiting its leverage as Lehman's main "clearing" bank to siphon billions of dollars of collateral just before Lehman went bankrupt on Sept. 15, 2008, triggering a global financial crisis.

Lehman's creditors charged that JPMorgan did not need the collateral and extracted a windfall at their expense.

Monday's settlement also resolves Lehman's challenges to JPMorgan's decision to close out thousands of derivatives trades following the bankruptcy, court papers showed.

The accord would permit a further $1.496 billion to be distributed to the creditors, including a separate $76 million deposit, court papers showed.

Continued in article

"Goldman Reaches $5 Billion Settlement Over Mortgage-Backed Securities:  Pact marks largest settlement in history of Wall Street firm," by Justin Baer and Chelsey Dulaney, The Wall Street Journal, January 14, 2016 ---
http://www.wsj.com/articles/goldman-reaches-5-billion-settlement-over-mortgage-backed-securities-1452808185?mod=djemCFO_h

Goldman Sachs Group Inc. agreed to the largest regulatory penalty in its history, resolving U.S. and state claims stemming from the Wall Street firm’s sale of mortgage bonds heading into the financial crisis.

In settling with the Justice Department and a collection of other state and federal entities for more than $5 billion, Goldman will join a list of other big banks in moving past one of the biggest, and most costly, legal headaches of the crisis era.

Goldman said litigation legal expenses stemming from the accord would trim its fourth-quarter earnings by about $1.5 billion, after taxes. The firm is scheduled to report results Wednesday.

“We are pleased to have reached an agreement in principle to resolve these matters,” Lloyd Blankfein, Goldman’s chief executive, said in a statement.

Government officials previously won multibillion-dollar settlements from J.P. Morgan Chase & Co., Bank of America Corp. and Citigroup Inc. The probes examined how Wall Street sold bonds tied to residential mortgages, and whether banks deceived investors by misrepresenting the quality of underlying loans.

The government’s inquiry into Goldman related to mortgage-backed securities the firm packaged and sold between 2005 and 2007, the years when the housing market was soaring and investor demand for related bonds was still strong.

Continued in article

New Rules for CDOs
"Statement at Open Meeting: Asset-Backed Securities Disclosure and Registration," by Commissioner Kara M. Stein, SEC, August 27, 2014 ---
http://www.sec.gov/News/PublicStmt/Detail/PublicStmt/1370542772431#.VBgvYBZS7rx

I begin my remarks by echoing others and commending the work of the team that has been working on this rule, including Rolaine Bancroft, Hughes Bates, Michelle Stasny, Kayla Florio, Heather Mackintosh, Silvia Pilkerton, Robert Errett, Max Rumyantsev, and Kathy Hsu. 

Heather and Sylvia have been working on the data tagging and preparing EDGAR to accept this new data.  This is no small endeavor. 

I want to give a special thank you to Paula Dubberly, who retired last year from the SEC and is in the audience today.  She has been a champion for investors through her leadership on asset-backed securities regulation from the development of the initial Reg AB proposal through the rules that are being considered today.

This rule is an important step forward in completing the mandated Dodd-Frank Act rulemakings.[1]  The financial crisis revealed investors’ inability to actually assess pools of loans that had been sliced and diced, sometimes multiple times, by being securitized, re-securitized, or combined in a dizzying array of complex financial instruments.  The securitization market was at the center of the financial crisis.  While securitization structures provided liquidity to nearly every sector in the U.S. economy, they also exposed investors to significant and non-transparent risks due to poor lending practices and poor disclosure practices. 

As we now know, offering documents failed to provide timely and complete information for investors to assess the underlying risks of the pool of assets.[2]   Without sufficient and accurate loan level details, analysts and investors could not gauge the quality of the loans – and without an ability to distinguish the good from the bad, the secondary market collapsed.

Congress responded and required the Commission to promulgate rules to address a number of weaknesses in the securitization process.[3]

Six years after the financial crisis, the securitization markets continue to recover.  While certain asset classes have rebounded, others continue to struggle.

The rule the Commission issues today partially addresses the Congressional mandate.  In effect, today’s rules provide investors with better information on what is inside the securitization package.  The rules today do for investors what food and drug labeling does for consumers – provide a list of ingredients.

This rule also addresses certain critical flaws that became apparent in the securitization process, including a dearth of quality information and insufficient time to make informed assessments of the underlying investments.  This rule is an important step toward providing investors with tools and data to better understand the underlying risks and appropriately price the securities. 

There are several important and laudable aspects of today’s rule that merit specific mentioning.

First, the rule requires the underlying loan information to be standardized and available in a tagged XML format to ensure maximum utility in analysis.[4]   As noted in the Commission’s 2010 Proxy Plumbing Release: “If issuers provided reportable items in interactive data format, shareholders may be able to more easily obtain information about issuers, compare information across different issuers, and observe how issuer-specific information changes over time as the same issuer continues to file in an interactive format.”[5]  The same is true for underlying loan information.  Investors can unlock the value and efficiency that standardized, machine readable data allows. 

Today’s rule also improves disclosures regarding the initial offering of securities and significantly, for the first time, requires periodic updating regarding the loans as they perform over time.  This information will provide a more nuanced and evolving picture of the underlying assets in a portfolio to investors.

The rule also requires that the principal executive officer of the ABS issuer certify that the information in the prospectus or report is accurate.  These kinds of certifications provide a key control to help ensure more oversight and accountability.

As for the privacy concerns that prompted a re-proposal, the staff has worked hard to balance investor needs for loan level data with concerns that the data could lead to identification of individual borrowers.   I believe the rule achieves a workable balance between these two competing needs, while still providing invaluable public disclosure.

Finally, I believe that the new disclosure rule will provide investors with the necessary tools to see what is “under the hood” on auto loan securitizations.  In its latest report on consumer debt and credit, the Federal Reserve Bank of New York noted a recent spike in subprime auto lending.  As the report shows, although consumer auto debt balances have risen across the board, the real growth has been in riskier loans.[6] The disclosure and reporting changes that the Commission is adopting today will help investors see the quality of the loans in a portfolio and the performance of those loans over time. 

While today’s rules are an important step forward, more work needs to be done regarding conflicts of interest.   We now know that many firms who were structuring securitizations before the financial crisis were also betting against those same securitizations. 

In April 2010, the Commission charged the U.S broker-dealer of a large financial services firm for its role in failing to disclose that it allowed a client to select assets for an investment portfolio while betting that the portfolio would ultimately lose its value.  Investors in the portfolio lost more than $1 billion.[7]  

In October 2011, the Commission sued the U.S broker-dealer of a large financial services firm for among other things, selling investment products tied to the housing market and then, for their own trading, betting that those assets would lose money.  In effect, the firm bet against the very investors it had solicited.  An experienced collateral manager commented internally that a particular portfolio was “horrible.”  While investors lost virtually all of their investments in the portfolio, the firm pocketed over $160 million from bets it made against the securitization it created.[8]

The Dodd-Frank Act directed the Commission to adopt rules prohibiting placement agents, underwriters, and sponsors from engaging in a material conflict of interest for one year following the closing of a securitization transaction. Those rules were required to be issued by April 2011.[9]   The Commission initially proposed these rules in September 2011, and still has not completed them.[10]  We need to complete these rules as soon as possible, hopefully, by the end of this year.  These rules will provide investors with additional confidence that they are not being hoodwinked by those packaging and selling those financial instruments. 

Unfortunately, the Commission has put on hold its work to provide investors with a software engine to aid in the calculation of waterfall models.  Although the final rule provides for a preliminary prospectus at least three business days before the first sale, this is reduced from the proposal, which provided for a five-day period.   With only three days to conduct due diligence and make an investment determination, such a software engine could be an important and much needed tool for investors to use in analyzing the flow of funds.  Such waterfall models can help investors assess the cash flows from the loan level data.  We should return to this important initiative to provide investors with the mathematical logic that forms the basis for the narrative disclosure within the prospectus.

 

Bob Jensen's threads on CDO accounting scandals and new rules ---
http://www.trinity.edu/rjensen/theory02.htm#CDO

Bob Jensen's threads on the 2008 bailouts and non-bailouts (as in the case of Lehman) in the Greatest Swindle in the History of the World ---
http://www.trinity.edu/rjensen/2008Bailout.htm 

 


Teaching Case from The Wall Street Journal on March 18, 2016

SEC Issues Record Fine to California's Largest Agricultural Water District
by: Tamara Audi
Mar 10, 2016
Click here to view the full article on WSJ.com

TOPICS: Debt Coverage Ratio, Financial Statement Analysis, Fraud, Governmental Accounting, SEC

SUMMARY: The SEC fined California's largest agricultural water district $125,000 to settle civil charges that it misled investors over its ability to pay debt on a $77 million bond. It is only the second time the SEC has fined a municipal bond issuer and represents the largest fine paid by an issuer. The Westlands Water District, which serves central California, overstated its ability to make payments on a 2012 bond offering as the drought reduced water supply and depressed revenue. The district assured investors it could still generate revenue equal to 125% of its debt-service payments, known as a debt coverage ratio, despite a water shortfall. Investors use those assurances to make decisions about purchasing bonds. Failing to meet a debt covenant could put an issuer in technical default and drive up the cost of borrowing.

CLASSROOM APPLICATION: This is a good article for use when covering governmental accounting or financial statement analysis, as well as for fraud.

QUESTIONS: 
1. (Introductory) What are the facts of this case? Who is involved? What was the result of the investigation?

2. (Advanced) What is a debt coverage ratio? How is it calculated? What does it communicate?

3. (Advanced) What is a debt covenant? Why are debt covenants included in lending agreements? What happens if a business violates a debt covenant? What do debt covenants have to do with accounting or financial statement analysis? Why are debt covenants important to investors? Why is it important for companies to monitor financial results related to debt covenants?

4. (Advanced) The article quotes one official regarding engaging in "a little Enron accounting." What does that mean? Why did the water district officials engage in this activity?

5. (Advanced) The article states the district and its officials agreed to the settlements without admitting or denying wrongdoing. What does that mean? Why would each of the parties agree to this settlement and also agree to no admission or denial of wrongdoing?

Reviewed By: Linda Christiansen, Indiana University Southeast

"SEC Issues Record Fine to California's Largest Agricultural Water District," by Tamara Audi, " The Wall Street Journal, March 10, 2016 ---
http://www.wsj.com/articles/sec-issues-record-fine-to-californias-largest-agricultural-water-district-1457565499?mod=djem_jiewr_AC_domainid

LOS ANGELES—California’s sustained drought has set another record, this time with the U.S. Securities and Exchange Commission.

The SEC on Wednesday fined California’s largest agricultural water district $125,000 to settle civil charges that it misled investors over its ability to pay debt on a $77 million bond. It is only the second time the SEC has fined a municipal bond issuer and represents the largest fine paid by an issuer.

According to SEC documents, the Westlands Water District, which serves central California, overstated its ability to make payments on a 2012 bond offering as the drought reduced water supply and depressed revenue.

Long-Parched California Set to Get a Drenching (March 6, 2016) California Faces Lost Decades in Solving Drought (Dec. 24, 2015) California’s Growers Bear Brunt of Drought Woes(Oct. 25, 2015) . During a 2010 board meeting discussing transactions meant to boost the district’s revenue numbers to show investors it could meet its debt obligations, General Manager Thomas Birmingham joked that district officials were engaging in “a little Enron accounting,” according to SEC documents.

Mr. Birmingham has agreed to pay a $50,000 penalty, and former Assistant General Manager Louie David Ciapponi has agreed to pay $20,000, the SEC said.

The district and its officials agreed to the settlements without admitting or denying wrongdoing, according to the district and the SEC.

“Westlands, [Messrs.] Birmingham and Ciapponi determined that entering into the settlement to fully resolve the matter was in the District’s best interest,” according to a statement from the district.

The SEC didn’t allege the district or officials “intended to mislead potential purchasers” of the 2012 bond, the district statement said.

California has endured a drought that has pummeled the state and prompted Gov. Jerry Brown to mandate a 25% cut in water use in urban areas.

The Westlands Water District supplies water to more than 700 family-owned farms in western Fresno and Kings counties that produce $1 billion in crops each year, according to the district.

The district pulls water from the Sacramento-San Joaquin Delta and the San Luis Reservoir. According to the district’s website, the total water available “is about 13% short” of what’s needed to “to water the entire irrigable area” in the district.

The district assured investors it could still generate revenue equal to 125% of its debt-service payments, known as a debt coverage ratio. Investors use those assurances to make decisions about purchasing bonds. Failing to meet a debt covenant could put an issuer in technical default and drive up the cost of borrowing.

SEC investigators said Westlands “failed to disclose it had engaged in extraordinary accounting transactions” in 2010 to meet its debt coverage ratio without raising rates on customers.

Continued in article

 


Teaching Case from The Wall Street Journal on March 18, 2016

SEC Clears Accounting Watchdog's Budget but Flags Spending
by: Dave Michaels
Mar 15, 2016
Click here to view the full article on WSJ.com

TOPICS: PCAOB, SEC

SUMMARY: The Public Company Accounting Oversight Board, a little-known body that polices the biggest U.S. accounting firms, won begrudging approval of its $257 million budget. The SEC under SEC Chairman Mary Jo White has taken a more critical view of the PCAOB, which was founded 14 years ago after accounting scandals at Enron Corp. and WorldCom Inc. dented investor confidence in the auditing profession. Jim Schnurr, the SEC's chief accountant, said in December 2014 that too many of the PCAOB's rule-making priorities "simply have been moving too slowly." The total amount of fees charged to industry will rise 12% this year from 2015 levels. Public companies with a market value greater than $75 million pay the fee. The levy varies based on a company's market capitalization, with about 30 firms paying more than $1 million in 2014.

CLASSROOM APPLICATION: This article offers information regarding how the PCAOB is funded and its relationship to the SEC.

QUESTIONS: 
1. (Introductory) What is the PCAOB? What is its purpose? When was it created and why?

2. (Introductory) What is the SEC? How is it related to the PCAOB?

3. (Advanced) How is the PCAOB funded? Why was this funding model established? Should it be funded differently? Please offer reasons to support your answer.

4. (Advanced) What complaints does the SEC have about the PCAOB? What can the PCAOB do to address these complaints? Are the SEC's views reasonable? Why or why not?

Reviewed By: Linda Christiansen, Indiana University Southeast

"SEC Clears Accounting Watchdog's Budget but Flags Spending," by: Dave Michaels, The Wall Street Journal, March 15, 2016 ---
http://www.wsj.com/articles/sec-clears-accounting-watchdogs-budget-but-flags-spending-1457975430?mod=djem_jiewr_AC_domainid

WASHINGTON—The U.S. watchdog of public-company auditors is itself increasingly under the microscope.

The Public Company Accounting Oversight Board, a little-known body that polices the biggest U.S. accounting firms, won begrudging approval Monday of its $257 million budget. Two members of the Securities and Exchange Commission, which oversees the PCAOB, voiced persistent concerns about spending at an agency that pays each of its five board members more than $540,000 a year.

“I encourage the board to take a hard look at funding and expenses in the coming year, including with respect to compensation, and identify possible savings and efficiencies,” SEC Chairman Mary Jo White said at meeting where commissioners voted 2-1 to authorize the PCAOB’s funding.

Board members at the PCAOB are paid more than Ms. White, who receives $170,400 a year; Federal Reserve Chairwoman Janet Yellen, who gets $199,700; or even President Barack Obama, whose salary is $400,000.

The SEC under Ms. White has taken a more critical view of the PCAOB, which was founded 14 years ago after accounting scandals at Enron Corp. and WorldCom Inc. dented investor confidence in the auditing profession. Jim Schnurr, the SEC’s chief accountant, said in December 2014 that too many of the PCAOB’s rule-making priorities “simply have been moving too slowly.”

In response, the PCAOB hired an outside consultant to help speed up its standard-setting agenda, an effort Ms. White applauded on Monday. But she and Commissioner Michael Piwowar, a Republican who voted against the budget, both expressed concern about the level of fees charged to public companies and brokerage firms that pay for the board’s operations.

“The five-year projections for further spending represent a mountain of escalating costs,” Mr. Piwowar said at the meeting. “A more modest budget should have been presented for 2016.”

The total amount of fees charged to industry will rise 12% this year from 2015 levels, Ms. White said Monday. Public companies with a market value greater than $75 million pay the fee. The levy varies based on a company’s market capitalization, with about 30 firms paying more than $1 million in 2014, according to the PCAOB’s most recent annual report.

This year’s spending growth was mostly driven by the need to hire more inspectors to keep tabs on brokerage-firm auditors, said PCAOB Chairman James Doty. “We have a very rigorous budget-review process,” he told reporters after the meeting.

Continued in article

 


Teaching Case from The Wall Street Journal on March 25, 2016

Accounting's 21st Century Challenge: How to Value Intangible Assets
by: Vipal Monga
Mar 21, 2016
Click here to view the full article on WSJ.com

TOPICS: FASB, Financial Accounting, GAAP, Intangible Assets, Valuation

SUMMARY: Assigning a value to a physical asset like a store or equipment is relatively easy. But, in the murky world of intangible assets, the calculations are squishy. Under current accounting rules, U.S. companies don't record those items on their books as assets. These days, companies put far more money into nonphysical assets, such as customer databases, than they do in building new factories. The absence of abstractions like brand value on corporate balance sheets prevents investors from properly gauging their risks. Altogether, companies in the U.S. could have more than $8 trillion in intangible assets.

CLASSROOM APPLICATION: This is an excellent discussion regarding how intangible assets appear on the financial statements. It also discusses the increase of intangible asset values in many industries.

QUESTIONS: 
1. (Introductory) What are intangible assets? How do they differ from other types of assets?

2. (Advanced) How do current accounting rules treat intangible assets? How are they valued? In what situations do intangible assets appear in the financial statements? When they do appear on the financial statements, how are they presented?

3. (Advanced) How has intangible asset ownership changed for many companies and industries in recent years? Have these trends and changes been properly reflected on the financial statements of those companies? Why or why not?

4. (Advanced) What is FASB? What is FASB's area of authority? What is FASB considering regarding accounting for intangible assets?

5. (Advanced) How likely is it that accounting rules for intangible assets will change in the near future? Should the rules change? Why or why not?

Reviewed By: Linda Christiansen, Indiana University Southeast

"Accounting's 21st Century Challenge: How to Value Intangible Assets." Vipal Monga, The Wall Street Journal, March 21, 2016 ---
http://www.wsj.com/articles/accountings-21st-century-challenge-how-to-value-intangible-assets-1458605126?mod=djem_jiewr_AC_domainid

Issue takes on growing significance as companies rely more on holdings like brands, data and algorithms.

When RadioShack Corp. filed for bankruptcy protection last year, it raised more than $170 million by selling such holdings as real estate, leases and inventories of smartphones, computer cables and cameras.

But the retailer’s books didn’t acknowledge two of its most valuable assets: its brand and its customer data.

How do you attach a price tag to something you can’t see or touch?

The question is increasingly significant for investors as more companies collect information about their customers and use it to develop products and services. Some companies rely on the hipness of their brands to propel sales.

Assigning a value to a physical asset like a store or equipment is relatively easy. But, in the murky world of intangible assets, the calculations are squishy. The problem of how to value such assets has vexed accountants for decades.

Under current accounting rules, U.S. companies don’t record those items on their books as assets. “It’s 19th-century accounting,” said Baruch Lev, an accounting and finance professor at New York University’s Stern School of Business.

The absence of abstractions like brand value on corporate balance sheets prevents investors from properly gauging their risks, said Mr. Lev. “It’s an incredibly important issue,” he said. “Investment in intangibles is almost completely obscured from investors.”

Altogether, companies in the U.S. could have more than $8 trillion in intangible assets, according to Leonard Nakamura, an economist at the Federal Reserve Bank of Philadelphia. That’s nearly half of the combined $17.9 trillion market capitalization of the S&P 500 index.

These days, companies put far more money into nonphysical assets, such as customer databases, than they do in building new factories. Companies invested the equivalent of 14% of the private sector’s gross domestic product in intangibles in 2014, according to research by economist Carol Corrado. The investment in physical assets was about 10% of that sum. That’s essentially the reverse of 40 years ago, when 13% of private-sector GDP went to tangibles and 9% to intangible assets.

Last month a small group of researchers at the nation’s accounting standards-setter began grappling with the idea of updating its rules to recognize the growing importance of intangibles. The effort is still in its early stages, but the Financial Accounting Standards Board is considering adding the topic to its rule-making agenda. That could lead to a new rule requiring companies to bring those assets onto their books.

Continued in article

 


Teaching Case from The Wall Street Journal on March 25, 2016

The Other March Madness: What the IRS Thinks of Your Bracket
by: Laura Saunders
Mar 17, 2016
Click here to view the full article on WSJ.com

TOPICS: Gambling Income, Individual Taxation

SUMMARY: The American Gaming Association estimates that more than 70 million Americans will wager $9.2 billion this year on the NCAA men's basketball tournament through office pools, Nevada sports books, illicit offshore sites and bookies, compared with $9 billion last year. All gambling winnings are taxable, whether or not the game was legal. Meanwhile, gambling losses are deductible-but only with restrictions. Typically taxpayers can claim losses only up to the amount of their winnings, and taking losses can require elaborate record keeping. In 2013, the most recent year for which IRS data are available, taxpayers claimed about $30 billion of gambling income and deducted about $17 billion in losses on nearly two million individual tax returns. Total 2013 earnings were 50% higher than a decade earlier, and the total number of gamblers was nearly 25% higher.

CLASSROOM APPLICATION: This article is appropriate to use when discussing gambling winnings and losses in an individual taxation class.

QUESTIONS: 
1. (Introductory) How are gambling winnings treated for tax purposes? What portion, if any, is taxable?

2. (Advanced) On what parts of the individual tax return can gambling winnings and losses appear? Why can they appear on more than one tax form? What fact situations are appropriate for each of the possible locations?

3. (Advanced) How can gambling be a business for tax purposes? What are the requirements and limitations?

4. (Advanced) Is income from illegal gambling taxable? Are losses from illegal gambling deductible? Why or why not?

5. (Advanced) How does a taxpayer prove gambling winnings? How does a taxpayer prove gambling losses?

6. (Advanced) In general, how is forgiveness of debt treated for tax purposes? Is the treatment different if it is a result of a gambling debt? Why or why not?

Reviewed By: Linda Christiansen, Indiana University Southeast

"The Other March Madness: What the IRS Thinks of Your Bracket," by Laura Saunders, The Wall Street Journal, March 17, 2016 ---
http://www.wsj.com/articles/the-other-march-madness-what-the-irs-thinks-of-your-bracket-1458207007?mod=djem_jiewr_AC_domainid

All gambling winnings are taxable, while gambling losses are deductible—but with restrictions

Meanwhile, gambling losses are deductible—but only with restrictions. Typically taxpayers can claim losses only up to the amount of their winnings, and taking losses can require elaborate record keeping.

As March Madness gets under way, millions of people are grappling with critical questions: Can you trust Oregon? Which no. 5 seed will go down this year? Is a busted bracket tax-deductible?

The American Gaming Association estimates that more than 70 million Americans will wager $9.2 billion this year on the NCAA men’s basketball tournament through office pools, Nevada sports books, illicit offshore sites and bookies, compared with $9 billion last year.

Naturally, Uncle Sam wants his cut, and the tax code’s rules for gamblers have a whiff of “heads I win, tails you lose.”

To begin with, all gambling winnings are taxable, whether or not the game was legal.

Meanwhile, gambling losses are deductible—but only with restrictions. Typically taxpayers can claim losses only up to the amount of their winnings, and taking losses can require elaborate record keeping.

Advertisement

“The burden of proving losses falls on the taxpayer, while gambling winnings are often reported to the IRS,” says Donald Zidik, a CPA with the accounting firm Marcum LLP in Needham, Mass.

In 2013, the most recent year for which IRS data are available, taxpayers claimed about $30 billion of gambling income and deducted about $17 billion in losses on nearly two million individual tax returns. Total 2013 earnings were 50% higher than a decade earlier, and the total number of gamblers was nearly 25% higher.

Here is what to know about gambling income and deductions.

Was it business or pleasure? Recreational gamblers report their winnings on Line 21 of the 1040 form, as “other income.” They can also owe income tax on “comps” such as free lodging and travel.

According to an IRS spokesman, these gamblers can deduct losses both from legal and illegal games, if they itemize write-offs on Schedule A (line 28) instead of taking the standard deduction.

The good news is that such losses needn’t exceed 2% of adjusted gross income to qualify for a write-off. Taxpayers must have records proving them, however.

The IRS advises gamblers to keep a diary recording the date and type of wagers, the name and address of the gambling business, the names of other people present, and the amounts won or lost. “This can take some of the fun out of it, but it’s necessary if you want deductions,” says Scott Kaplowitch, a CPA with Edelstein & Company LLP in Boston. For more information, see IRS Publication 529, Miscellaneous Deductions.

By contrast, professional gamblers claim both their winnings and losses on Schedule C, because for them it qualifies as a full or part-time “trade or business.” In such cases, the taxpayer can deduct other reasonable costs as well, such as for entertainment, travel, meals and coaching.

The trouble with that option: The IRS often scrutinizes taxpayers who claim to be professional gamblers, according to Mr. Kaplowitch. Recently he won an audit on this issue for a client who is a full-time poker player with a six-figure income, he says.

He adds that gamblers who qualify for Schedule C can deduct losses only up to the amount of their winnings—but they can carry over and deduct excess expenses against profits from other years. In addition, they often must show a profit in three out of five years, or the IRS may argue that the business is actually a hobby.

Continued in article

 


Teaching Case from The Wall Street Journal on March 25, 2016

Valeant Provides More Restatement Details
by: Michael Rapoport
Mar 22, 2016
Click here to view the full article on WSJ.com

TOPICS: Financial Reporting, Internal Controls, Restatements, Revenue Recognition

SUMMARY: Valeant Pharmaceuticals International Inc. confirmed a possibility it had raised last month - that it would have to restate past earnings because it had recognized a chunk of revenue too soon-and explained more about exactly how that happened. It also suggested it had effectively counted some revenue twice. The main accounting issue dogging Valeant is how it accounted for revenue through a mail-order pharmacy, Philidor RX Services, with which it had close ties. If the ties were as close as they proved to be, revenue shouldn't have been counted until drugs reached the patient, not when Valeant delivered the drugs to Philidor.

CLASSROOM APPLICATION: This is an excellent example of accounting problems caused by problematic internal controls, improper revenue recognition, and a negative "tone at the top."

QUESTIONS: 
1. (Introductory) What is the accounting situation at Valeant? What areas of accounting have been found to be problematic?

2. (Advanced) What is the main accounting issue at Valeant? What are the details of that problem? What areas of the financial statements are affected by these problems?

3. (Advanced) What is a restatement? In general, what are some reasons for a restatement? What is the reason for Valeant's restatement?

4. (Advanced) What are internal controls? What is the purpose of internal controls? What internal control problems were present at Valeant? What did those problems cause? What changes must the management make to strengthen its internal controls?

5. (Advanced) What is tone at the top? Why is it important? What can it affect? What was the tone at the top at Valeant? How can it be changed?

Reviewed By: Linda Christiansen, Indiana University Southeast

RELATED ARTICLES: 
Valeant Starts CEO Search, Alleges Improper Financial Conduct
by Jacuqi McNish, Liz Hoffman, and David Benoit
Mar 23, 2016
Online Exclusive

Valeant Could Have Trouble Getting Clean Opinion From Auditor
by Vipal Monga
Mar 21, 2016
Online Exclusive

Valeant: Pearson Is Out, Ackman Is In, Controversy Continues
by Erik Holm
Mar 21, 2016
Online Exclusive

"Valeant Provides More Restatement Details," by Michael Rapoport, The Wall Street Journal, March 22, 2016 ---
http://www.wsj.com/articles/valeant-provides-more-restatement-details-1458595922?mod=djem_jiewr_AC_domainid

Drug company recognized a chunk of revenue too soon and may have counted some twice

Valeant Pharmaceuticals International Inc. provided more detail Monday about what went wrong with its accounting.

The drug company confirmed a possibility it had raised last month—that it would have to restate past earnings because it had recognized a chunk of revenue too soon—and explained more about exactly how that happened. It also suggested it had effectively counted some revenue twice.

The main accounting issue dogging Valeant is how it accounted for revenue through a mail-order pharmacy, Philidor RX Services LLC, with which it had close ties. If the ties were as close as they proved to be, revenue shouldn’t have been counted until drugs reached the patient, not when Valeant delivered the drugs to Philidor, the company acknowledges and accountants say.

Valeant had said in February it should have waited to recognize $58 million in revenue through Philidor, which it said it wrongly booked upon delivery to Philidor rather than dispensation to customers. Much of that amount should have been booked in 2015 rather than 2014, Valeant said.

The company did switch in December 2014 to waiting longer, once it had acquired an option to buy Philidor and started consolidating the pharmacy’s finances as part of its own.

Valeant elaborated Monday that some sales before the option were “not executed in the normal course of business,” including sales executed at a time when the company was expecting the option agreement. It should have waited to book the revenue on those sales until the medications were dispensed, it said.

“You would expect they would have figured this out when they first did the consolidation with Philidor,” said Jack Ciesielski, president of R.G. Associates, an accounting-research firm.

In addition, on some transactions, Valeant said Monday, it booked revenue before it was sure it could collect it. So for that reason as well, Valeant said, it should have waited longer to record it.

Valeant’s explanation of what happened also suggests it may have double-counted some revenue, accounting experts said. In a Securities and Exchange Commission filing on Monday, Valeant said the $58 million in revenue that was booked too soon, in 2014, “does not result in an increase to revenue in 2015 as a result of the company having previously also recognized that revenue in 2015.”

As Valeant explains it, when it consolidated Philidor in December 2014, the pharmacy was still holding inventory for which Valeant had already recognized the revenue, under the old delivery-to-Philidor method. After the consolidation, Philidor itself recognized revenue from that inventory when the products were dispensed to patients, and that revenue was consolidated into Valeant’s, Valeant said.

Continued in article


Teaching Case from The Wall Street Journal on March 25, 2016

SEC Signals It Could Curb Use of Adjusted Earnings Figures
by: Dave Michaels and Michael Rapoport
Mar 17, 2016
Click here to view the full article on WSJ.com

TOPICS: Adjusted Earnings, Financial Accounting, Financial Reporting, GAAP, SEC

SUMMARY: The Securities and Exchange Commission sounded the alarm on companies' reliance on customized accounting figures, saying regulators are considering whether to curb some of the freedom firms enjoy to provide adjusted earnings figures. SEC Chairman Mary Jo White mention of regulation shows how skeptical regulators have grown about homegrown accounting measures that don't comply with generally accepted accounting principles, or GAAP. The SEC's current rules allow companies to report profit figures that don't comply with GAAP, provided they don't obscure the official numbers and reconcile the non-GAAP numbers to the equivalent GAAP figure. Profits usually are higher under a non-GAAP formula because companies back out what they consider unusual or noncash costs; they claim the resulting measures are a better way to gauge core operating performance.

CLASSROOM APPLICATION: This is an excellent article to use when covering the use of adjusted earnings, and how it differs from GAAP.

QUESTIONS: 
1. (Introductory) What is the SEC? What is its area of authority and its charge?

2. (Introductory) What is GAAP? Why do companies use GAAP?

3. (Advanced) What did the SEC's chair state regarding U.S. accounting rules? Is this possibility significant? Why is the SEC concerned about what companies are doing?

4. (Advanced) What are adjusted earnings? How do they differ from GAAP? Why do some companies report adjusted earnings?

5. (Advanced) What are the benefits of GAAP reporting? What are the benefits of non-GAAP reporting? What are the potential problems? Should non-GAAP accounting be regulated? Why or why not?

Reviewed By: Linda Christiansen, Indiana University Southeast

RELATED ARTICLES: 
Non-GAAP Numbers May Confuse Investors: SEC Chair
by Richard Teitelbaum
Dec 10, 2015
Online Exclusive

U.S. Corporations Increasingly Adjust to Mind the GAAP
by Theo Francis and Kate Linebaugh
Dec 15, 2015
Online Exclusive

"SEC Signals It Could Curb Use of Adjusted Earnings Figures," by Dave Michaels and Michael Rapoport, The Wall Street Journal, March 17, 2016
http://www.wsj.com/articles/sec-scrutinizing-use-of-non-gaap-measures-by-public-companies-1458139473?mod=djem_jiewr_AC_domainid

The Securities and Exchange Commission sounded the alarm on companies’ reliance on customized accounting figures Wednesday, saying regulators are considering whether to curb some of the freedom firms enjoy to provide adjusted earnings figures.

“It’s something that we are really looking at—whether we need to rein that in a bit even by regulation,“ SEC Chairman Mary Jo White said Wednesday at a conference of finance and business lobbyists in Washington. ”We have a lot of concern in that space.”

Ms. White’s use of the “R” word—regulation—shows how skeptical regulators have grown about homegrown accounting measures that don’t comply with generally accepted accounting principles, or GAAP. The SEC has historically policed the customized metrics by questioning aggressive adjustments, often in letters that investors must sift through the SEC’s electronic filing system to find.

The SEC’s current rules allow companies to report profit figures that don’t comply with GAAP, provided they don’t obscure the official numbers and reconcile the non-GAAP numbers to the equivalent GAAP figure.

Profits usually are higher under a non-GAAP formula because companies back out what they consider unusual or noncash costs; they claim the resulting measures are a better way to gauge core operating performance. Researchers at the University of Washington and the University of Georgia have reported this tactic can be opportunistic; their 2014 paper found companies are more likely to report non-GAAP numbers that back out losses rather than gains.

The SEC is weighing whether new rules are needed to ‘rein in’ use of non-GAAP reporting. ENLARGE The SEC is weighing whether new rules are needed to ‘rein in’ use of non-GAAP reporting. Photo: Associated Press . With companies relying more on non-GAAP results, regulators are ramping up their scrutiny of the practice. For members of the Dow Jones Industrial Average that reported non-GAAP earnings per share last year, the adjusted metric was on average 30% above earnings per share under GAAP, according to data from FactSet.

Ms. White made clear Wednesday that regulators know how much better earnings look when some costs are backed out of them. “Your investor relations folks, your CFO, they love the non-GAAP measures because they tell a better story,” she told the conference sponsored by the U.S. Chamber of Commerce.

It is unclear how soon the SEC could propose new rules that would restrict non-GAAP metrics. Ms. White is likely to leave the commission sometime before the end of the Obama administration, meaning rule changes likely aren’t imminent.

Regulators also say they don’t want to choke off non-GAAP reporting because many investors say it can be valuable in some circumstances.

Regulators could, however, target gaps in their rules that allow companies to give more prominence to non-GAAP results on websites and other venues that aren’t covered by the commission’s rules, according to a person familiar with the matter. Separately, regulators worry that less-sophisticated investors rely on media reports and other sources that don’t always distinguish between adjusted numbers and GAAP results.

“A lot of people would say there is gamesmanship going on here,” said Joseph Carcello, an accounting professor at the University of Tennessee who sits on the SEC’s Investor Advisory Committee. “But you have to craft a rule that targets the abuses without killing what is valuable information.”

The SEC previously has expressed concern about companies’ non-GAAP metrics. In 2011, regulators raised questions with Groupon Inc. before the firm went public about its use of a non-GAAP profit measure that excluded its marketing costs to land new subscribers. Groupon scaled back its use of the metric in response to the SEC’s concerns. Groupon couldn’t be reached for comment.

In addition, the SEC has said in comment letters to dozens of companies in the past few years that they were giving “undue prominence” to non-GAAP numbers. In the past year, the SEC sent such letters to companies including Equifax Inc. and T-Mobile US Inc., both of which told the commission they would revise their future disclosures to address the issue.

Continued in article

 


Teaching Case from The Wall Street Journal on March 25, 2016

Tips on Home-Related Tax Deductions
by: Anya Martin
Mar 16, 2016
Click here to view the full article on WSJ.com

TOPICS: Charitable Contributions, Home-Office Deduction, Individual Taxation, Mortgage Deductions

SUMMARY: This article offers information regarding maximizing home-related deductions, including mortgage interest deduction, the home office deduction, short-term rentals of a taxpayer's home, energy credits, charitable contributions of real estate, and the deduction of points related to the refinancing of a home mortgage.

CLASSROOM APPLICATION: This article is appropriate for an individual income tax class.

QUESTIONS: 
1. (Introductory) What are the tax rules regarding the mortgage interest deduction? What are the limits? For what purchases is it applicable?

2. (Advanced) What is a home-office deduction? What is deductible? What are the rules for the simplified method? Why was the new method instituted?

3. (Advanced) How must taxpayers treat short-term rentals of their home for tax purposes? What exclusions does the tax law allow? How should taxpayers plan carefully to benefit the most?

4. (Advanced) How are energy credits related to home ownership? What are the limitations?

5. (Advanced) What is the tax treatment of costs related to refinancing a mortgage? What can homeowners do to maximize deductions related to refinancing?

Reviewed By: Linda Christiansen, Indiana University Southeast

RELATED ARTICLES: 
How to Get the Most Out of Mortgage Rewards
by Anya Martin
Mar 24, 2016
Online Exclusive

An RV Loan Helps You Hit the Road
by Anya Martin
Jul 30, 2016
Online Exclusive

What to Know Before Buying an Investment Property
by Anya Martin
May 14, 2016
Online Exclusive

"Tips on Home-Related Tax Deductions," by Anya Martin, The Wall Street Journal, March 16, 2016 ---
http://www.wsj.com/articles/tips-on-home-related-tax-deductions-1458054077?mod=djem_jiewr_AC_domainid

Advice from tax advisers to help maximize home-related deductions on your income-tax return

April 15 is only about a month away, but there’s still time for homeowners to reap tax savings on their 2015 returns. Here are some tips from tax advisers to help maximize home-related deductions. Be sure to consult a tax expert for specifics on your home and mortgage.

A matter of interest. The biggest deduction is typically interest paid on up to $1 million of debt used for its purchase, construction or improvement, as well as an additional $100,000 in debt applied to purchase or in the form of home-equity loans or lines of credit. This debt can be from up to two of any combination of a primary residence, second/vacation home and even a recreational vehicle or boat if it has plumbing and a bathroom.

Borrowers often assume they will get the biggest bang from deducting the interest payments on the loan with the highest interest rate, but that’s not always the case, says Eric J. Wexler, a Rockville, Md.-based tax attorney/certified public accountant. In year one of a mortgage, most of the monthly payment is interest and as you get closer to year 30, it shifts to principal, he adds.

Instead, deduct first on the home with the highest interest expense, which typically is the one with the most recently closed loan, Mr. Wexler says. “The only way to tell for sure is to run both numbers,” he adds. High earners also need to remember that when an income hits $258,250 (single) or $309,900 (married, filing jointly), the IRS starts to reduce deductions, such as mortgage interest.

And while married couples are limited to the $1.1 million, a federal appellate court in 2015 ruled that two single people who co-own a high-end home can each deduct interest up to the $1.1 debt limit, says Mary Canning, dean emerita and professor, Golden Gate University’s Braden School of Taxation and Accounting in San Francisco. “It could be a very good reason not to get married,” she adds.

Continued in article

 




March 2016 Humor

How to Sound Smart in a TED Talk: A Funny Primer by Saturday Night Live‘s Will Stephen ---
http://www.openculture.com/2016/03/how-to-sound-smart-in-a-ted-talk-a-funny-primer-by-saturday-night-lives-will-stephen.html

15 jokes that only smart people will truly appreciate ---
http://www.businessinsider.com/best-jokes-for-smart-people

The Daily Show skewered all of Hillary Clinton’s recent gaffes. It’s hard to watch ---
http://www.vox.com/2016/3/16/11244294/daily-show-hillary-clinton-gaffes

Larry David returned to 'Saturday Night Live' to reprise his role as Bernie Sanders ---
http://www.businessinsider.com/larry-david-bernie-sanders-impersonation-saturday-night-live-snl-supporters-2016-3

The Speaker is a Weatherman ---
 https://www.youtube.com/embed/LR2qZ0A8vic?rel=0 

Happy St. Patrick's Day Pub Lunch ---
http://www.jacquielawson.com/preview.asp?cont=1&hdn=0&pv=3153666&path=98301

Les Beaux Frères - Serviette (brief nudity) ---
https://www.youtube.com/watch?v=lUr3XbROoA8
I had to wait a long time for a commercial for a new movie to end

Age Activated Attention Deficit Disorder --- https://www.youtube.com/embed/6oHBG3ABUJU

David Niven Presents an Oscar and Gets Interrupted by a Streaker (1974) ---
http://www.openculture.com/2014/03/david-niven-presents-an-oscar-and-gets-interrupted-by-a-streaker-1974.html

George Burns --- http://www.youtube.com/watch?v=F3c-WBn5cCg

Leave the Driving to the Bus Driver But Bring Your Own Depends ---
http://www.20min.ch/ro/videotv/?vid=339276

Cartoons from the April 2014 edition of the Harvard Business Review --- Click Here
http://blogs.hbr.org/2014/02/strategic-humor-cartoons-from-the-april-2014-issue/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+harvardbusiness+%28HBR.org%29&cm_ite=DailyAlert-030314+%281%29&cm_lm=sp%3Arjensen%40trinity.edu&cm_ven=Spop-Email

The Darwin Awards --- http://www.darwinawards.com/

 


Humor March 2016 --- http://www.trinity.edu/rjensen/book16q1.htm#Humor033116

Humor February 2016 --- http://www.trinity.edu/rjensen/book16q1.htm#Humor022916

Humor January 2016 --- http://www.trinity.edu/rjensen/book16q1.htm#Humor013116

Humor December 1-31,  2015 --- http://www.trinity.edu/rjensen/book15q4.htm#Humor123115

Humor November 1-30,  2015 --- http://www.trinity.edu/rjensen/book15q4.htm#Humor113015

Humor October 1-31,  2015 --- http://www.trinity.edu/rjensen/book15q4.htm#Humor103115

Humor September 1-30,  2015 --- http://www.trinity.edu/rjensen/book15q3.htm#Humor093015

Humor August 1-31,  2015 --- http://www.trinity.edu/rjensen/book15q3.htm#Humor081115

Humor July 1-31,  2015 --- http://www.trinity.edu/rjensen/book15q3.htm#Humor073115

Humor June 1-30,  2015 --- http://www.trinity.edu/rjensen/book15q2.htm#Humor043015

Humor May 1-31,  2015 --- http://www.trinity.edu/rjensen/book15q2.htm#Humor043015

Humor April 1-30, 2015 --- http://www.trinity.edu/rjensen/book15q2.htm#Humor043015

Humor March 1-31, 2015 --- http://www.trinity.edu/rjensen/book15q1.htm#Humor033115

Humor February 1-28, 2015 --- http://www.trinity.edu/rjensen/book15q1.htm#Humor022815

Humor January 1-31, 2015 --- http://www.trinity.edu/rjensen/book15q1.htm#Humor013115

 




 

And that's the way it was on March 31, 2016 with a little help from my friends.

 

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

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

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

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

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

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


 

For an elaboration on the reasons you should join a ListServ (usually for free) go to   http://www.trinity.edu/rjensen/ListServRoles.htm

AECM (Accounting Educators)  http://listserv.aaahq.org/cgi-bin/wa.exe?HOME
The AECM is an email Listserv list which started out as an accounting education technology Listserv. It has mushroomed into the largest global Listserv of accounting education topics of all types, including accounting theory, learning, assessment, cheating, and education topics in general. At the same time it provides a forum for discussions of all hardware and software which can be useful in any way for accounting education at the college/university level. Hardware includes all platforms and peripherals. Software includes spreadsheets, practice sets, multimedia authoring and presentation packages, data base programs, tax packages, World Wide Web applications, etc

Roles of a ListServ --- http://www.trinity.edu/rjensen/ListServRoles.htm
 

CPAS-L (Practitioners) http://pacioli.loyola.edu/cpas-l/  (closed down)
CPAS-L provides a forum for discussions of all aspects of the practice of accounting. It provides an unmoderated environment where issues, questions, comments, ideas, etc. related to accounting can be freely discussed. Members are welcome to take an active role by posting to CPAS-L or an inactive role by just monitoring the list. You qualify for a free subscription if you are either a CPA or a professional accountant in public accounting, private industry, government or education. Others will be denied access.

Yahoo (Practitioners)  http://groups.yahoo.com/group/xyztalk
This forum is for CPAs to discuss the activities of the AICPA. This can be anything  from the CPA2BIZ portal to the XYZ initiative or anything else that relates to the AICPA.

AccountantsWorld  http://accountantsworld.com/forums/default.asp?scope=1 
This site hosts various discussion groups on such topics as accounting software, consulting, financial planning, fixed assets, payroll, human resources, profit on the Internet, and taxation.

Business Valuation Group BusValGroup-subscribe@topica.com 
This discussion group is headed by Randy Schostag [RSchostag@BUSVALGROUP.COM

 


 

Concerns That Academic Accounting Research is Out of Touch With Reality

I think leading academic researchers avoid applied research for the profession because making seminal and creative discoveries that practitioners have not already discovered is enormously difficult. Accounting academe is threatened by the twin dangers of fossilization and scholasticism (of three types: tedium, high tech, and radical chic)
From http://www.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm
 

“Knowledge and competence increasingly developed out of the internal dynamics of esoteric disciplines rather than within the context of shared perceptions of public needs,” writes Bender. “This is not to say that professionalized disciplines or the modern service professions that imitated them became socially irresponsible. But their contributions to society began to flow from their own self-definitions rather than from a reciprocal engagement with general public discourse.”

 

Now, there is a definite note of sadness in Bender’s narrative – as there always tends to be in accounts of the shift from Gemeinschaft to Gesellschaft. Yet it is also clear that the transformation from civic to disciplinary professionalism was necessary.

 

“The new disciplines offered relatively precise subject matter and procedures,” Bender concedes, “at a time when both were greatly confused. The new professionalism also promised guarantees of competence — certification — in an era when criteria of intellectual authority were vague and professional performance was unreliable.”

But in the epilogue to Intellect and Public Life, Bender suggests that the process eventually went too far. “The risk now is precisely the opposite,” he writes. “Academe is threatened by the twin dangers of fossilization and scholasticism (of three types: tedium, high tech, and radical chic). The agenda for the next decade, at least as I see it, ought to be the opening up of the disciplines, the ventilating of professional communities that have come to share too much and that have become too self-referential.”

 

What went wrong in accounting/accountics research? 
How did academic accounting research become a pseudo science?
http://www.trinity.edu/rjensen/theory01.htm#WhatWentWrong

Avoiding applied research for practitioners and failure to attract practitioner interest in academic research journals ---
"Why business ignores the business schools," by Michael Skapinker
Some ideas for applied research ---
http://www.trinity.edu/rjensen/theory01.htm#AcademicsVersusProfession

 

Clinging to Myths in Academe and Failure to Replicate and Authenticate Research Findings
http://www.trinity.edu/rjensen/theory01.htm#Myths

 

Poorly designed and executed experiments that are rarely, I mean very, very rarely, authenticated
http://www.trinity.edu/rjensen/theory01.htm#PoorDesigns
 

Discouragement of case method research by leading journals (TAR, JAR, JAE, etc.) by turning back most submitted cases --- http://www.trinity.edu/rjensen/000aaa/thetools.htm#Cases
 

Economic Theory Errors
Where analytical mathematics in accountics research made a huge mistake relying on flawed economic theory and interval/ratio scaling

http://www.trinity.edu/rjensen/theory01.htm#EconomicTheoryErrors

 

Accentuate the Obvious and Avoid the Tough Problems (like fraud) for Which Data and Models are Lacking
http://www.trinity.edu/rjensen/theory01.htm#AccentuateTheObvious

 

Financial Theory Errors
Where capital market research in accounting made a huge mistake by relying on CAPM

http://www.trinity.edu/rjensen/theory01.htm#AccentuateTheObvious

 

Philosophy of Science is a Dying Discipline
Most scientific papers are probably wrong
http://www.trinity.edu/rjensen/theory01.htm#PhilosophyScienceDying

 

Accountancy, Tax, IFRS, XBRL, and Accounting History News Sites  --- http://www.trinity.edu/rjensen/AccountingNews.htm

Accounting Professors Who Blog --- http://www.trinity.edu/rjensen/ListservRoles.htm

Cool Search Engines That Are Not Google --- http://www.wired.com/epicenter/2009/06/coolsearchengines

Free (updated) Basic Accounting Textbook --- search for Hoyle at
http://www.trinity.edu/rjensen/ElectronicLiterature.htm#Textbooks

CPA Examination --- http://en.wikipedia.org/wiki/Cpa_examination
Free CPA Examination Review Course Courtesy of Joe Hoyle --- http://cpareviewforfree.com/
 


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

 

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