Bob Jensen's New Additions to Bookmarks

May 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

 

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

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




The theme of the 2016 American Accounting Association Annual Meeting in New York is "Celebration of the Century" as the AAA celebrate's its centennial year. Registration is now open for than meeting ---
http://aaahq.org/Meetings/2016/Annual-Meeting


11 things other CEOs could learn from Marissa Mayer’s struggle to turn around Yahoo ---
http://www.businessinsider.com/lessons-for-ceos-from-marissa-mayers-struggle-to-turnaround-yahoo-2016-4

“It’s like a 39-year-old home run hitter who keeps swinging for the fences,” says Aswath Damodaran, a professor of finance at NYU’s Stern School of Business and a Yahoo shareholder. “And all he does is keep striking out.”

Here's a challenge to all you professors/students who favor fair value accounting derived from aggregation of exit value or entry values of tangible and intangible assets and liabilities ---
http://www.bloomberg.com/features/2016-yahoo/?cmpid=BBD042816_BIZ&utm_medium=email&utm_source=newsletter&utm_campaign=

. . .

Think of Yahoo as a traditional enterprise (with all the assets mentioned above that are not quoted in this tidbit) stuck on top of a small safe deposit box. Inside that box: a huge pile of cash, plus stock certificates of two Asian tech companies. Yahoo owns about 15 percent of Internet giant Alibaba, a stake that would trade on the open market for roughly $29 billion. It also has a 36 percent holding (worth about $9 billion) in Yahoo! Japan, a publicly traded company based in Tokyo that long ago abandoned Yahoo’s search technology for Google’s. If you add up the cash and the stocks, you’ll notice that the value of the contents of the box totals $43 billion. That’s $8 billion more than the market capitalization of Yahoo, $35 billion, which includes the company and the stuff in that imaginary box. The implication: Everything you think of as Yahoo—apps, websites, employees, computers, buildings—has a negative value.

A more charitable analysis, where one imagines Yahoo selling its stock and paying the full corporate tax rate, yields a depressing result: Its operating business might be worth $6 billion.

This discrepancy, or the “significantly negative value” of Yahoo’s operating business, as the hedge fund Starboard Value put it in an exasperated letter in November, is also a withering assessment of Marissa Mayer, Yahoo’s chief executive officer, who until recently was one of Silicon Valley’s brightest stars.

“It’s hard to get someone of this caliber,” the venture capitalist Marc Andreessen said when Mayer’s hiring was announced in 2012. Andreessen celebrated the move as a bold departure from what had been a series of ineffectual CEOs—Mayer was the sixth in five years—who’d allowed Yahoo to fall behind Google and Facebook. Investors were charmed, as were the media, which found in Mayer, 40, something severely lacking in most techies: glamour. Mayer, “an unusually stylish geek,” as Vogue described her in 2013, was the rare Silicon Valley figure who could credibly attend both an all-night hackathon and a Met Gala after-party.

Mayer’s plan for Yahoo was straightforward, if hard to do: Develop products and revamp old ones to transform the mid–1990s-vintage company into a startup capable of exponential growth. It was an audacious idea, but Mayer seemed qualified to pull it off. A graduate of Stanford’s Symbolic Systems Program, she was employee No. 20 at Google and the product manager responsible for the design of the search bar. Partly thanks to her eye for simplicity, Google became not just a searchable index of Web pages but, for many users, a synonym for the Internet itself. Mayer helped sideline Yahoo; now she was going to help save it.

Given another three years—the amount of time Mayer recently suggested she would need to complete a turnaround—it’s possible her high-risk strategy could bear fruit. But it seems less and less likely she’ll be able to hang on anywhere near that long.

In December, SpringOwl Asset Management, a small activist hedge fund, published a 99-page litany of Yahoo’s missteps, including—by its calculation—$2.8 billion spent on failed acquisitions, $450 million on free food, $9 million on new phones, and $7 million on a Great Gatsby-themed holiday party. “I don’t think she has any management skills,” says Eric Jackson, managing director of SpringOwl.

Mayer vigorously defended her turnaround in a February call with investors, during which the company also reported its largest-ever quarterly loss. She contended that Jackson’s figures for the food and holiday party were “exaggerated by more than a factor of three,” while characterizing Yahoo’s flat revenue as a sort of achievement. “Yahoo today is a far stronger, more modern company than the one I joined three and a half years ago,” she said, announcing layoffs of 15 percent of her staff and drastic cost-cutting measures.

“I kind of wish the story hadn’t been told that Yahoo was miraculously saved by Marissa”

These moves haven’t mollified investors. In March, Starboard Value, which once got the board of Darden Restaurants replaced by, among other things, criticizing Olive Garden for failing to salt its pasta water, announced that it would attempt to unseat Mayer and Yahoo’s entire board—if the company didn’t sell itself first. (On April 27, Yahoo announced a compromise with Starboard, giving the hedge fund four board seats.) Yahoo is now in the midst of what it terms a “strategic review,” a nice way of saying “for sale.” Preliminary bids were due on April 18. According to someone who’s seen them, the bids for Yahoo’s core business range from $4 billion to $8 billion—which, true, would be a big step up from –$8 billion. Among the candidates are Verizon and YP Holdings, better known as the publisher of the Yellow Pages.

Mayer’s position is so weak that when a Bloomberg Businessweek reporter and an editor visited the company’s offices in New York to press the case for an interview, a security guard asked, unprompted, whether Mayer would keep her job. When the question was put back to him, he shook his head, grimaced, and tugged at his collar. “Those hedge fund guys,” he said, “they really don’t like her.”

Mayer, who declined multiple requests for comment, has said she hopes to stay at the company. But two people familiar with the thinking at Verizon, the leading candidate, say that’s not the plan.

The most commonly discussed charge against Mayer, which was distilled in an unauthorized biography by Business Insider reporter Nicholas Carlson, Marissa Mayer and the Fight to Save Yahoo!, is that she’s guilty of micromanagement. In the book, Mayer is depicted as agonizing over such details as colors and fonts and is described as “robotic, stuck up, and absurd in her obsession with detail.”

Privately, her defenders suggest these criticisms of Mayer are sexist. Micromanagement is a fetishized quality among many male CEOs—Elon Musk, Mark Zuckerberg, and Larry Page are all fluent in the minute details of their products. High-risk acquisitions and spare-no-expenses human resources policies are celebrated practices in Silicon Valley. Mayer’s appointment, her defenders argue, represents a perfect illustration of the so-called glass cliff, where women promoted to the C-suite are set up for failure.

 

The implication:
Any turnaround at Yahoo was probably doomed from the start. There are CEOs who specialize in extracting cash from declining companies, but they’re not common in Silicon Valley, and Mayer, who’s spent her entire career at a highly profitable, fast-growing company, isn’t one of them. She’s what’s known in the Valley as a product person, who, with the blessing of Yahoo’s board and the enthusiastic encouragement of her peers, focused on an aggressive revamp of Yahoo’s product portfolio, treating a stagnating media company as if it were Google or Facebook or the next big unicorn. Instead of scaling back Yahoo’s ambitions (which would have certainly meant huge and immediate layoffs), she followed a well-worn path of tech evangelists who’ve attempted long-shot corporate reinventions—for instance, former Apple retail chief Ron Johnson and his short-lived rebranding of JCPenney, or Facebook co-founder Chris Hughes, who had a brief and controversial stewardship of the New Republic magazine.
“It’s like a 39-year-old home run hitter who keeps swinging for the fences,” says Aswath Damodaran, a professor of finance at NYU’s Stern School of Business and a Yahoo shareholder. “And all he does is keep striking out.”

Jensen Comment
A huge problem is that investors in Yahoo and most other firms rely on earnings measures (like eps and p/e ratio trends) to adjust their portfolios. The IASB and FASB in their obsession to set fair value standards for many balance sheet items destroyed the concept in earnings (imcome) that was dominant in the historical cost and matching principles of theorists like AC Littleton, Bill Paton, and Yuji Ijiri. These theorists repeated over and over that historical cost is an accounting system and not a valuation system. Historical cost earnings were shown over and over again to be of value to investors and predictive of future economic performance although valuation information is useful as supplementary disclosures since they deal with opportunity and risk.

And yet the FASB and the IASB destroyed the concept of earnings in their obsession for adding more fair value components to balance sheets. The problem with fair value components is that they created earnings measures that fluctuated with market prices when most unrealized ups and downs in the fair value earnings components are not realized until assets and liabilities are disposed.

Net earnings and EBITDA cannot be defined since the FASB and IASB elected to give the balance sheet priority over the income statement in financial reporting ---
"The Asset-Liability Approach: Primacy does not mean Priority," by Robert Bloomfield, FASRI Financial Accounting Standards Research Initiative, October 6, 2009 ---
http://www.fasri.net/index.php/2009/10/the-asset-liability-approach-primacy-does-not-mean-priority/

Similar problems arise with variations in quality and standardization of components of balance sheets. For example, measures of cash might be relatively accurate in terms of error variations, whereas variations in goodwill and other intangibles is subject to high error variations.

"Whither the Concept of Income?" by Shizuki Saito University of Tokyo and Yoshitaka Fukui Aoyama Gakuin University, SSRN, May 17, 2015 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2607234

Abstract:
Since the 1970s, the decision-usefulness has taken center stage and our attention has been concentrated on valuation of assets and liabilities instead of income measurement. The concept of income, once considered the gravitational center of accounting has lost its primacy and become a byproduct of the balance sheet derived from the measurement of assets and liabilities.

However, we have not been equipped with robust conceptual foundation supporting theoretically reasoned accounting measurement. It is not only theoretically but also practically important to renew our seemingly waned interest in the concept of income because ongoing reforms of accounting standards cannot be successfully implemented without a sound understanding of the concept of income.

Be that as it may, net earnings and EBITDA are all-important because investors change their portfolios based on net earnings and its derivatives more than anything in the balance sheet.
"Accounting Alchemy," by Robert E. Verrecchia, Accounting Horizons, September 2013, pp. 603-618.
Verrecchia alleges that it's not that managers have a functional fixation for earnings metrics as it is that they believe that other managers and investors are so fixated with earnings that it because of monumental importance not because it is inherently a great metric but because they believe deeply that the market itself makes this index of vital importance.

. . .

In summary, my thesis is that managers project that others are fixated on earnings—independent of any evidence in support of, or contrary to, this phenomenon. This leads to managers resisting the inclusion in earnings items that fail to enhance performance, such as the amortization of Goodwill, or measures that make future performance more volatile, such as those based on fair value. In the absence of acknowledging PEF and attempting to grapple with it, I continue to see confrontations over accounting regulation along the lines of recent debates about fair value accounting, in addition to further impediments along the path to greater transparency in financial statements.

It's a bit like requiring calculus for undergraduate accounting courses. Calculus probably is not essential in any undergraduate accounting course in the curriculum, but faculty are fixated that the best accounting majors are the ones do well in calculus. Similarly, investors change their portfolios based on earnings, eps, EBITDA, and P/E ratios when in fact those metrics are not defined and may have a lot of misleading noise and secret manipulation

Bob Jensen's threads on accounting theory or lack thereof ---
http://www.trinity.edu/rjensen/Theory01.htm

Bob Jensen's threads on the controversies of Fair Value Accounting that virtually took over much of the decisions of the IASB and FASB (to a fault in my opinion) ---
http://www.trinity.edu/rjensen/theory02.htm#FairValue 


Advantages and Disadvantages of Real Options in Valuation

Bob Jensen's threads on Bob Jensen's Threads on Real Options, Option Pricing Theory, and Arbitrage Pricing Theory ---
http://www.trinity.edu/rjensen/realopt.htm

Real Options Valuation --- https://en.wikipedia.org/wiki/Real_options_valuation

Real Options
by Vladimir Antikarov and Thomas E. Copeland
ISBN: 1587991861 Hard Cover 9/1/2003
http://www.traderslibrary.com/s/Real-Options-Revised-Edition-A-Practitio-9781587991868/2097420.htm

Synopsis:
This revised edition of the highly successful book, Real Options, offers corporate decision-makers the ability to assess the profitability of their ventures and decide which avenue of expansion or investment to go down and, crucially, when to take that leap. The reader goes on a journey through real options, from the basics to more advanced topics such as options and game theory. It provides expert guidance on how to implement the theory to maximize investment opportunities by utilizing uncertainty as an asset and reducing downside risk.

Jacket Description:
Determining the feasibility and the priority of potential investments is critical in business decision making. A new method for estimating the value of investments -- real options -- is gaining ground over the traditional approach of calculating net present value (NPV). Tom Copeland and Vladimir Antikarov argue that in ten years real options will replace NPV as the central paradigm for investment decisions. This book offers the first practitioner's guide for understanding and implementing real options in everyday decision making. The authors bring years of experience with dozens of corporations in implementing real options. Copeland and Antikarov show how NPV is flawed and tends to undervalue investment opportunities. NPV is a static calculation that fails to consider the many options that management has over the lifetime of an investment project. Such options include expanding or extending the project if results are better than expected or scaling down or abandoning the project if it turns out to be worse than expected. There are chapters that deal with valuing various types of simple options, such as deferral, abandonment, expansion, and contraction of projects, and more advanced options such as compound and switching options. Chapter 2 shows how Airbus Industrie uses real options in its marketing efforts and discusses the difficulties encountered in implementing real options. Chapter 7 shows how to write an Excel spreadsheet to value simple options, combinations of them, and compound options. Chapters 9 and 10 discuss ways of modeling uncertainties. The analysis is enriched with case histories and case solutions. The end-of-chapter questions and problems provide both experience and additional insights into the application of real options. The authors also offer solutions to the questions posed in the book, as well as real option models useful to the would-be practitioner on their Web site, www.corpfinontine.com .

 

"Real option analysis of aircraft acquisition: A case study," by Qiwei Hu and Anming Zhang, Journal of Air Transport Management, Volume 46, July 2015, Pages 19–29 ---
http://www.sciencedirect.com/science/article/pii/S0969699715000381

This paper demonstrates that aircraft acquisition by airlines may contain a portfolio of real options (flexible strategies) embedded in the investment's life cycle, and that if airlines rely solely on the static NPV method, they are likely to underestimate the true investment value. Two real options are investigated: i) the “shutdown-restart” option (a carrier may shutdown a plane if revenues are less than costs, but restarts it if revenues are more than costs), and ii) the option to defer aircraft delivery. We quantify the values of these options in a case study of a major U.S. airline. The economic insight could help explain observed capital expenditures of airlines, and serve as a rule of thumb in evaluating capital budgeting decisions. A compound option (consisting of both the shutdown-restart and defer options) is also analyzed.

Airbus and Boeing: Superjumbo Decisions
by Samuel E BodilyKenneth C. Lichtendahl
Harvard Case
https://hbr.org/product/airbus-and-boeing-superjumbo-decisions/UV1312-PDF-ENG

Real Options Valuation Limitations --- https://en.wikipedia.org/wiki/Real_options_valuation#Limitations

Jensen Comment
 

Many moons ago, Stewart Myers and I were in a doctoral program together at Stanford University. After graduation, Stewart became one of the most outstanding economics and financial researchers of the world --- http://mitsloan.mit.edu/faculty/detail.php?in_spseqno=95&co_list=F

The term "real options" can be attributed to the Stewart Myers ("Determinants of Capital Borrowing", Journal of Financial Economics, Vol..5, 1977). The theory of real options extends the concept of financial options (in particular call options) into the realm of capital budgeting under uncertainty and valuation of corporate assets or entire corporations.

The real options approach is dynamic in the sense that includes the effect of uncertainty along the time, and what/how/when the relevant real options shall be exercised. Some argue that real options do little more than can be done with dynamic programming of investment states under uncertainty, real options add a rich economic theory to capital investing under uncertainty.

The real options problem can be viewed as a problem of optimization under uncertainty of a real asset (project, firm, land, etc.) given the available options. Since I have been asked to teach a bit about real options theory while I lectured years ago at Monterrey Tech in Mexico, I thought I might share a bit of my source material that I discovered on the Web.

Real Options are mentioned in the FASB's "Special Report: Business and Financial Reporting, Challenges from the New Economy," by Wayne Upton, Financial Accounting Standards Board, Document 219-A, April 2000 --- http://accounting.rutgers.edu/raw/fasb/new_economy.html  (Like so many older Rutgers FASB links the link is broken and lost forever)

Wayne Upton wrote as follows on pp. 91-93:

Measurement and Real Options

Perhaps the most promising area for valuation of intangible assets is the developing literature in valuation techniques based on the concept of real options. Techniques using real options analysis are especially useful in estimating the value of intangible assets that are under development and may not prove to be commercially viable.

A real option is easier to describe than to define. A financial option is a contract that grants to the holder the right but not the obligation to buy or sell an asset at a fixed price within a fixed period (or on a fixed date). The word option in this context is consistent with its ordinary definition as “the power, right or liberty of choosing.” Real option approaches attempt to extend the intellectual rigor of option-pricing models to valuation of nonfinancial assets and liabilities. Instead of viewing an asset or project as a single set of expected cash flows, the asset is viewed as a series of compound options that, if exercised, generate another option and a cash flow. That’s a lot to pack into one sentence. In the opening pages of their recent book, consultant Martha Amram and Boston University professor Nalin Kulatilaka offer five examples of business situations that can be modeled as real options: 56

• Waiting to invest options, as in the case of a tradeoff between immediate plant expansion (and possible losses from decreased demand) and delayed expansion (and possible lost revenues)

• Growth options, as in the decision to invest in entry into a new market

• Flexibility options, as in the choice between building a single centrally located facility or building two facilities in different locations

• Exit options, as in the decision to develop a new product in an uncertain market

• Learning options, as in a staged investment in advertising.

Real-options approaches have captured the attention of both managers and consultants, but they remain unfamiliar to many.

Proponents argue that the application of option pricing to nonfinancial assets overcomes the shortfalls of traditional present value analysis, especially the subjectivity in developing risk-adjusted discount rates. They contend that a focus on the value of flexibility provides a better measure of projects in process that would otherwise appear uneconomical. A real-options approach is consistent with either fair value (as described in Concepts Statement 7) or an entity-specific value. The difference, as with more conventional present value, rests with the selection of assumptions. If a real option is available to any marketplace participant, then including it in the computation is consistent with fair value. If a real option is entity-specific, then a measurement that includes that option is not fair value, but may be a good estimate of entity-specific value.

 

Bob Jensen's threads on Bob Jensen's Threads on Real Options, Option Pricing Theory, and Arbitrage Pricing Theory ---
http://www.trinity.edu/rjensen/realopt.htm

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


Deloitte just trashed the hype around a $180 billion fintech market ---
http://www.businessinsider.com/deloitte-report-marketplace-lending-not-significant-players-peer-to-peer-2016-5


Michael Lewis --- https://en.wikipedia.org/wiki/Michael_Lewis
Especially note his impressive list of books exposing frauds and deceptions

"The Book That Will Save Banking From Itself," by Michael Lewis, Bloomberg, May 5, 2016 ---
http://www.bloomberg.com/view/articles/2016-05-05/the-book-that-will-save-banking-from-itself?cmpid=BBD050516_BIZ&utm_campaign=&utm_medium=email&utm_source=newsletter


Some Topic Summaries on MAAW (especially useful for management accounting history research) ---
http://maaw.blogspot.com/2016/05/some-topic-summaries-on-maaw.html

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


Top 100 Economics Blogs of 2016 --- https://www.intelligenteconomist.com/top-economics-blogs-2016/

Bob Jensen's threads on listservs and blogs and the social media ---
http://www.trinity.edu/rjensen/listservroles.htm
The above reference contains links to the miniscule number of accounting professor blogs.


Bank of America Corp. (NYSE: BAC) on Monday notched a major legal win when a U.S. appeals court overturned a $1.27 billion penalty handed down in a high-profile fraud case tied to mortgages sold by its Countrywide unit prior to the financial crisis of 2008 ---
http://www.bizjournals.com/charlotte/news/2016/05/23/big-win-for-bank-of-america-as-court-overturns-1-3.html

Jensen Comment
Former BofA CEO Ken Lewis always claimed that Secretary of the Treasury Hank Paulson illegally strong-armed him into buying the felonious Countrywide, Eventually the Government turned around and sued BofA for felonies committed at Countrywide long before Countrywide was dumped on BofA by Hank Paulson. I always thought that Paulson, as former CEO of Goldman Sachs gave Goldman great bailout deals while trashing Lehman Bros., BofA, and others. Exhibit A is the fact that Paulson did not try to dump Countrywide on Goldman Sachs.


"American companies are 'masking' a $6.6 trillion mountain of debt," by Bob Bryer, Business Insider, May 2016 ---
http://www.businessinsider.com/companies-masking-66-trillion-of-debt-2016-5

Debt can be a good thing. It gets the wheels of the economy moving.

Too much debt, however, can be a bit of a problem to say the least (see: the financial crisis).

Well, American companies may just have a mountain's worth of problems, according to a new report from Andrew Chang and David Tesher of S&P Global Ratings.

"At the same time, the imbalance between cash and debt outstanding we reported on last year has gotten even worse: Debt outstanding increased 50x that of cash in 2015," wrote Chang and Tesher.

"Total debt rose by roughly $850 billion to $6.6 trillion last year, dwarfing the 1% cash growth ($17 billion)."

To be fair, Chang and Tesher do mention that the $1.84 trillion in cash that the over 2,000 companies they analyzed are holding is the largest amount ever. The issue is, a big pile of cash doesn't help mask the much, much larger mountain of debt.

Even more worrying, according to the analysts is the distribution of cash and debt among the companies they covered.

"Removing the top 25 cash holders from the equation paints an even more concerning picture: Total debt rose $730 billion in 2015, while cash declined by $40 billion," wrote Chang and Tesher.

Continued in article

Jensen Comment
I suspect the explosion in debt issuances were timed in anticipation that the Federal Reserve was going to raise borrowing rates. Some of this debt may be speculative based on a strategy that there will be gains from debt having lower interest rate than future market rates after the Fed raises borrowing rates. However, the Fed is fooling a lot of companies by making zero or only very small increases in interest rates. This can lead to agonizing delays in cashing in on debt gains.

The term "masking" debt is a bit misleading in the above article title since bond debt discussed in the above article is booked into the accounting ledgers as debt. In the past companies truly masked debt with off-balance-sheet financing ploys such as operating leases and employee stock options. However, new FASB standards are making it increasingly difficult to mask debt, e.g., the new leasing standard that will bring many operating lease obligations onto balance sheets.


Social Security Administration --- https://www.ssa.gov/
This site has a reasonably good search engine

"Here's when you should start claiming your Social Security benefits," by Ben Carlson, Business Insider, May 2016 ---
http://www.businessinsider.com/when-to-claim-social-security-benefits-2016-5

. . .

What if you’re still working?

What age gives you the highest benefits?

What happens in a widow(er) situation?

What’s the breakeven if you wait to claim?

What about divorced spousal benefits?

How does social security affect tax planning

Continued in article

Retirement Planner: Benefits For Your Divorced Spouse --- https://www.ssa.gov/planners/retire/yourdivspouse.html

Here’s What You’ll Pay for Health Care In Retirement (Social Security benefits won't even cover your health care costs if you add supplemental Medicare insurance (that I recommend by the way)) ---
http://time.com/money/4340299/what-youll-pay-healthcare-in-retirement/

Forget about retiring on Social Security. Health care costs alone will devour the entire lifetime benefits—and then some—of a 45-year-old couple when they retire, according to projections released Wednesday by HealthView Services, a Danvers, Mass.- based company that provides retirement health care cost data and tools to financial advisers.

Social Security payments will stretch farther for current retirees, but the numbers are still stark: In 2016, the average 66-year-old couple will require 57% of their lifetime, pre-tax Social Security benefits to pay for health care costs, according to HealthView Services. The average 45-year-old couple, by contrast, will need 116% of lifetime Social Security payments to cover health care costs.

Total retirement health care expenses for that 45-year-old couple planning to retire at age 65 will come to $592,275 in today’s dollars and $1.6 million in future dollars, HealthView Services projects. The projection assumes the male member of the couple will live to 87 and the female to 89.

The total tab includes premiums for Medicare Part B, which covers doctors’ visits, Part D, which covers drugs, and Part F, which is the most comprehensive supplemental insurance. It also includes expenses not covered by Medicare, such as dental work and hearing aids. Notably, it does not include long-term care costs. Medicare does not pay for long-term stays in nursing homes, or for assisted living facilities.

Of course, these averages won’t reflect everyone’s experience. People’s individual health status will influence how much they pay. What’s more, not everyone will choose to buy a Part F Medigap policy. It’s a popular but expensive choice, with monthly premiums that vary widely by region but average around $200.

While expensive, Part F plans eliminate a lot of the uncertainty of medical expenses. Premiums are predictable and cover most of beneficiaries’ out-of-pocket expenses. Without a supplemental plan, beneficiaries could be on the hook for even more if they have a big medical episode, such as a stroke, or a serious diagnosis like cancer.

On Plan F, “if you never have a problem and drop dead at 110, you’ll have wasted a lot of money,” said Ron Mastrogiovanni, founder and CEO of HealthView Services. A more likely scenario, he said, is that, “We’re not going to stay healthy throughout retirement.”

Continued in article

Bob Jensen's personal finance helpers ---
http://www.trinity.edu/rjensen/bookbob1.htm#InvestmentHelpers

Bob Jensen's universal health care messaging --- http://www.trinity.edu/rjensen/Health.htm 


Critical Thinking --- https://en.wikipedia.org/wiki/Critical_thinking

Cynicism --- https://en.wikipedia.org/wiki/Cynic

Critical Thinking versus Cynicism
"Against Self-Criticism: Adam Phillips on How Our Internal Critics Enslave Us, the Stockholm Syndrome of the Superego, and the Power of Multiple Interpretations," by Maria Popova, Brain Pickings, May 23, 2016 ---
https://www.brainpickings.org/2016/05/23/against-self-criticism-adam-phillips-unforbidden-pleasures/?mc_cid=5e19106c81&mc_eid=4d2bd13843

I have thought and continued to think a great deal about the relationship between critical thinking and cynicism — what is the tipping point past which critical thinking, that centerpiece of reason so vital to human progress and intellectual life, stops mobilizing our constructive impulses and topples over into the destructiveness of impotent complaint and embittered resignation, begetting cynicism? In giving a commencement address on the subject, I found myself contemplating anew this fine but firm line between critical thinking and cynical complaint. To cross it is to exile ourselves from the land of active reason and enter a limbo of resigned inaction.

But cross it we do, perhaps nowhere more readily than in our capacity for merciless self-criticism. We tend to go far beyond the self-corrective lucidity necessary for improving our shortcomings, instead berating and belittling ourselves for our foibles with a special kind of masochism.

The undergirding psychology of that impulse is what the English psychoanalytical writer Adam Phillips explores in his magnificent essay “Against Self-Criticism”, found in his altogether terrific collection Unforbidden Pleasures (public library).

Continued in article

  • "Critical Thinking:  Why It's So Hard to Teach," by Daniel T. Willingham ---
    http://www.aft.org/pubs-reports/american_educator/issues/summer07/Crit_Thinking.pdf

    Also see Simorleon Sense --- http://www.simoleonsense.com/critical-thinking-why-is-it-so-hard-to-teach/
    This link is now broken

    “Critical thinking is not a set of skills that can be deployed at any time, in any context. It is a type of thought that even 3-year-olds can engage in—and even trained scientists can fail in.”

    “Knowing that one should think critically is not the same as being able to do so. That requires domain knowledge and practice.”

    So,  Why Is Thinking Critically So Hard?
    Educators have long noted that school attendance and even academic success are no guarantee that a student will graduate an effective thinker in all situations. There is an odd tendency for rigorous thinking to cling to particular examples or types of problems. Thus, a student may have learned to estimate the answer to a math problem before beginning calculations as a way of checking the accuracy of his answer, but in the chemistry lab, the same student calculates the components of a compound without noticing that his estimates sum to more than 100 percent. And a student who has learned to thoughtfully discuss the causes of the American Revolution from both the British and American perspectives doesn’t even think to question how the Germans viewed World War II. Why are students able to think critically in one situation, but not in another? The brief answer is: Thought processes are intertwined with what is being thought about. Let’s explore this in depth by looking at a particular kind of critical thinking that has been studied extensively: problem solving.

    Imagine a seventh-grade math class immersed in word problems. How is it that students will be able to answer one problem, but not the next, even though mathematically both word problems are the same, that is, they rely on the same mathematical knowledge? Typically, the students are focusing on the scenario that the word problem describes (its surface structure) instead of on the mathematics required to solve it (its deep structure). So even though students have been taught how to solve a particular type of word problem, when the teacher or textbook changes the scenario, students still struggle to apply the solution because they don’t recognize that the problems are mathematically the same.

    Thinking Tends to Focus on a Problem’s “Surface Structure”
    To understand why the surface structure of a problem is so distracting and, as a result, why it’s so hard to apply familiar solutions to problems that appear new, let’s first consider how you understand what’s being asked when you are given a problem. Anything you hear or read is automatically interpreted in light of what you already know about similar subjects. For example, suppose you read these two sentences: “After years of pressure from the film and television industry, the President has filed a formal complaint with China over what U.S. firms say is copyright infringement. These firms assert that the Chinese government sets stringent trade restrictions for U.S. entertainment products, even as it turns a blind eye to Chinese companies that copy American movies and television shows and sell them on the black market.”

    With Deep Knowledge, Thinking Can Penetrate Beyond Surface Structure
    If knowledge of how to solve a problem never transferred to problems with new surface structures, schooling would be inefficient or even futile—but of course, such transfer does occur. When and why is complex,5 but two factors are especially relevant for educators: familiarity with a problem’s deep structure and the knowledge that one should look for a deep structure. I’ll address each in turn. When one is very familiar with a problem’s deep-structure, knowledge about how to solve it transfers well. That familiarity can come from long-term, repeated experience with one problem, or with various manifestations of one type of problem (i.e., many problems that have different surface structures, but the same deep structure). After repeated exposure to either or both, the subject simply perceives the deep structure as part of the problem description.

  • Bob Jensen's threads on critical thinking ---
    http://www.trinity.edu/rjensen/HigherEdControversies.htm#CriticalThinking


    Jim Martin wrote the following in his MAAW Blog on May 20,2016
    http://maaw.blogspot.com/2016/05/financial-shenanigans-update.html

    Financial Shenanigans update
    I added the following note to my summary of Schilit, H. 2002. Financial Shenanigans: How to Detect Accounting Gimmicks & Fraud in Financial Reports. 2nd edition. McGraw Hill.

    Schilit includes seven main shenanigans that include 30 accounting tricks and techniques. See
    http://maaw.info/ArticleSummaries/ArtSumSchilit2002.htm

    The third edition of this book was published in 2010. See Schilit, H. and J. Perler. 2010. Financial Shenanigans: How to Detect Accounting Gimmicks & Fraud in Financial Reports, 3rd edition. McGraw-Hill Education.

    Part three includes four chapters on cash flow shenanigans:

    Chapter 10: Shifting financing cash flows to the operating section.

    Chapter 11: Shifting normal operating cash flows to the investing section.

    Chapter 12: Inflating operating cash flows using acquisitions or disposals.

    Chapter 13: Boosting operating cash flows using unsustainable activities.

     

    Part four includes two chapters on key metrics shenanigans:

    Chapter 14: Showcasing misleading metrics that overstate performance.

    Chapter 15: Distorting balance sheet metrics to avoid showing deterioration

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


    STUDY FINDS THAT, AS AUDIT COMPETITION INCREASES, SO DOES CORPORATE OPINION-SHOPPING REGARDING INTERNAL CONTROLS ---
    Accounting Education News --- Click Here
    Also see
    http://aaahq.org/Outreach/Newsroom/As-audit-competition-increases-so-does-corporate-opinion-shopping-new-research-finds


    Funds managed by activists are poor performers (something campus activists fail to mention)
    Hedge funds that are managed by activist investors have underperformed the S&P 500 for years, according to a Fundstrat report. These funds have posted a cumulative return of 113% since 2005 compared with the 115% of the S&P 500

    MarketWatch --- http://www.marketwatch.com/story/why-activist-investors-in-the-boardroom-is-not-cause-for-celebration-2016-04-27


    529 College Prepaid and Savings Plans With Serious Tax Benefits --- https://en.wikipedia.org/wiki/529_plan
    These plans are often used by parents and grandparents for young children who will one day enter college
    These plans vary with such things as state of residence and plan manager fees

    From the CPA Newsletter in May 27, 2016

    Assets in college savings plans up 4.3%, data show

    Assets held in 529 college savings plans reached $227.3 billion at the end of 2015, a 4.3% increase from a year earlier, according to a report from Morningstar. Growth was fastest for direct-sold plans, which had a 53.3% market share last year, up from 51.7% a year earlier.

    Pensions & Investments (free access for SmartBrief readers) (5/26) 


    Siemens' USA apprenticeship plan is modeled after common apprenticeship plans in Germany
    "College Isn’t Always the Answer:  Plenty of alternatives can prepare young people to enter the workforce," by Professor Jeffrey J. Selingo, The Wall Street Journal, May 26, 2016 ---
    http://www.wsj.com/articles/college-isnt-always-the-answer-1464300544?mod=djemMER

    During this particularly rancorous election season, at least one bipartisan consensus persists: More Americans, we are told, need to earn undergraduate degrees. The political debate tends to focus on the best way to graduate more people with less debt. But it makes little sense to send more students to college when nearly half of new graduates are working jobs that don’t require a bachelor’s degree, according to a 2014 report from the Federal Reserve Bank of New York.

    It would be better to reconsider the entire issue. There’s a disconnect between supply (what the education system produces) and demand (what employers seek). Rather than trying to shuffle young people off to college three months after they graduate from high school, policy makers should support alternative routes to the education and training required for high-quality jobs. Plenty of successful examples have sprung up around the country.

    Siemens and other manufacturers, for example, developed a high-school apprenticeship program in North Carolina when they couldn’t find enough workers with advanced skills. After completing a three-year apprenticeship, the students leave with an associate degree and a $55,000 starting salary.

    John Deere runs a similar program at Walla Walla Community College in Washington state. Students are trained to fix million-dollar farm equipment, which allows them to use their hands and advanced math and mechanical skills. High-school guidance counselors, who are evaluated on the proportion of students they send to four-year universities, may discourage such choices.

    It might also be helpful if more high-school graduates took a “gap year” before heading off to college. Too often they pick a field of study based on what’s familiar, with little exposure to many of the jobs that exist today. Having high-school graduates take time to explore careers before college—through internships or national service—gives them a sense of focus and purpose. It likely saves money in the long run too.

    While not a traditional gap year, a program in Baltimore called BridgeEdU bills itself as a reinvention of the freshman experience. It offers college credits, internships and coaching for under $8,000.

    The number of teenagers who have some sort of job while in school has dropped to 20% in 2013 from about 45% in 1998, according to the Bureau of Labor Statistics. Once in college, students need to combine education with relevant work experience. Otherwise, they know little about the workplace before they land their first full-time job after graduation.

    More colleges should embrace the idea of cooperative education. At universities such as Northeastern and Drexel, students alternate between the classroom and the job. Co-ops are part of the undergraduate experience at these institutions, and paid work makes up anywhere from one-third to almost half of the time a student spends in school. Co-op education helps students develop a tolerance for ambiguity in their work, which so many employers say today’s college graduates lack.

    Many who earn a bachelor’s degree are not prepared to enter the workforce. A new learning ecosystem is emerging outside of traditional higher education to assist them. General Assembly offers courses on topics like Web design, and Koru teaches practical business skills. Students can also use free or inexpensive online courses from edX and Lynda.com to build skills that can help them get that first job.

    Continued in article

    Bob Jensen's helpers for finding online training programs (not all are free) ---
    http://www.trinity.edu/rjensen/Crossborder.htm


    "The new astrology:  By fetishising mathematical models, economists turned economics into a highly paid pseudoscience," by Alan Jay Levinovitz, AEON, May 2016 ---
    https://aeon.co/essays/how-economists-rode-maths-to-become-our-era-s-astrologers

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

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

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

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

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

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

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

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

    Times are changing in social science research (including economics) where misleading p-values are no longer the Holy Grail. Change among accountics scientist will lag behind change in social science research but some day leading academic accounting research journals may publish articles without equations and/or articles of interest to some accounting practitioner somewhere in the world ---
    http://www.trinity.edu/rjensen/theory01.htm#WhatWentWrong 


    Booth Graduate School of Business at the University of Chicago ---
    https://www.chicagobooth.edu/

    Eugene Fama --- https://en.wikipedia.org/wiki/Eugene_Fama

    Kenneth French --- https://en.wikipedia.org/wiki/Kenneth_French

    David Booth Brings Academic Research to Life ---
    http://www.institutionalinvestor.com/article/3552928/investors-endowments-and-foundations/david-booth-brings-academic-research-to-life.html#/.Vzy3Co-cEcQ

    Jensen Comment
    Although David Booth is doing well bringing academic research to life, we can also remember how two Nobel Prize winning economics professors  (Merton and Scholes) and some of their doctoral students brought academic research to death in the infamous Long Term Capital Management (LTCM) trillion dollar failure
    http://www.trinity.edu/rjensen/FraudRottenPart2.htm#LTCM


    "The Relative and Incremental Explanatory Power of Earnings and Alternative (to Earnings) Performance Measures for Returns"
    by Jennifer Francis, Katherine Schipper, and Linda Vincent
    Contemporary Accounting Research
    Volume 20, Issue 1, pages 121–164, Spring 2003

    Abstract
    We analyze the ability of earnings and non-earnings performance metrics to explain the variability in annual stock returns for industries where we identify, ex ante, an allegedly preferred (for valuation purposes) summary performance metric. We identify three industries where earnings before interest, taxes, depreciation, and amortization (EBITDA) and cash from operations (CFO) are preferred, and three industries where specific non-GAAP performance metrics are preferred. As a benchmark, we also examine the ability of EBITDA and CFO to explain returns for seven industries for which earnings is the preferred metric. Results for the benchmark earnings industries show that earnings dominates EBITDA and CFO in explaining returns. All other results are inconsistent with the view that perceptions of preferred metrics are reflected in actual aggregate investment behaviors.

    WARNING USE OF EBITDA MAY BE DANGEROUS TO YOUR CAREER
    by ALFRED M. KING
    Strategic Finance
    http://go.galegroup.com/ps/anonymous?id=GALE%7CA78355003&sid=googleScholar&v=2.1&it=r&linkaccess=fulltext&issn=1524833X&p=AONE&sw=w&authCount=1&isAnonymousEntry=true

    Using EBITDA (earnings before interest, taxes, depreciation, and amortization) in financial analysis may be dangerous to your career prospects. It's one of the most flawed concepts to be adopted by the financial community. Finance professionals rightly focus on cash flows. Valuations are based on the present value of future cash flows. Standard discounted cash flow valuation techniques taught in all finance and MBA programs have stood the test of time. They have served us well. Many investors and security analysts have also focused on price/earnings (PIE) ratios. The assumption is that if Company "A" is now earning $2.00 per share and the stock is $30.00, then the 15 PIE ratio can: 1) be compared to other stocks and 2) used to forecast future stock prices. To use a P/E ratio for comparative purposes, assume Company "A" is in the auto parts business. All its competitors are selling at PIE ratios between 13 and 17. Thus you might reasonably conclude that the stock is fairly priced on a current basis. Using a PIE ratio for forecasting purposes is simple: If the stock is likely to earn $2.40 a share next year, it would be expected to sell for about $36 a share (15 * 2.40 = 36), assuming the PIE ratio holds constant. So, cash flow and price/earnings analyses are two tools with which financial professionals are familiar. They work. But now we have detected an intruder on our financial radar: The rapid approach of EBITDA is closing fast on cash flow and price/earnings. It's time to shoot the enemy out of the sky before we suffer another defeat. HOW EBITDA IS BEING USED EBITDA is being used by security analysts because its "answers" appear more attractive. For example, if a company has $4 million of after-tax earnings and one million shares outstanding, the earnings per share are $4. If the stock is in a popular field such as media, it might sell today for a PIE of 35x earnings, or $140 per share. But substitute EBITDA for earnings per share, and you could easily get $7 per share or $7 million overall. Then, using the same current price of the stock,...

    Bob Jensen's Threads on Return on Business Valuation, Business Combinations, 
    Investment (ROI), and Pro Forma Financial Reporting ---
    http://www.trinity.edu/rjensen/roi.htm


    Five Books Bill Gates Wants You to Read This Summer ---
    http://www.openculture.com/2016/05/5-books-bill-gates-wants-you-to-read-this-summer.html


    A new book says you need passion and perseverance to achieve your goals in work and life. Is this a bold new idea or an old one dressed up to be the latest self-help sensation?
    "Is “Grit” Really the Key to Success?" by Daniel Engber, Slate, May 2016 ---
    http://www.slate.com/articles/health_and_science/cover_story/2016/05/angela_duckworth_says_grit_is_the_key_to_success_in_work_and_life_is_this.html#rt

    Scientists have tried to solve this puzzle for more than 50 years, writes Duckworth in her new book Grit: The Power of Passion and Perseverance. But even the school’s best means of screening its applicants—something called the “whole candidate score,” a weighted mixture of a student’s SATs, high school ranking, leadership ability, and physical fitness—does not anticipate who will succeed and who will fail at Beast. So Duckworth designed her own way of scoring candidates, giving each a survey that tested his or her willingness to persevere in pursuit of long-term goals. She called this measure “grit.” And guess what? Grit worked. The cadets’ survey answers helped predict whether they would make it through the grueling program. Duckworth’s best-seller peddles a pair of big ideas: that grit—comprising a person’s perseverance and passion—is among the most important predictors of success and that we all have the power to increase our inner grit. These two theses, she argues, apply not just to cadets but to kids in troubled elementary schools and undergrads at top-ranked universities and to scientists, artists, and entrepreneurs. Duckworth’s book describes a wide array of  “paragons of grit,” people she’s either interviewed or studied from afar: puzzlemasters and magicians, actors and inventors, children and adults, Steve Young and Julia Child. Grit appears in all of them, sprinkled over their achievements like a magic Ajax powder. In tandem with some feisty scrubbing, it dissolves whatever obstacles might hold a person back.

    While her book has only just arrived, Duckworth’s gritty tales—and the endlessly extensible ideas they represent—have already spread throughout the country, into classrooms, boardrooms, and locker rooms alike. Popularized in a viral TED talk from 2013 and validated by that year’s MacArthur “genius” grant, they’ve been inscribed into national education policy, and public school districts in California are grading kids—as well as schools themselveson grit. Duckworth’s message has been broadcast with such speed and thoroughness that other people even started selling books on grit before she published her own.

    With Grit, Duckworth has now put out the definitive handbook for her theory of success. It parades from one essential topic to another on a float of common sense, tossing out scientific insights as it goes along. How to raise your kids, how to unearth your inner passion, how to find a higher purpose—like other self-help authors, Duckworth finds authoritative answers to these questions, promising to change how we see the world. And like other self-help authors, she pulls a sleight of hand by which even widely held assumptions end up looking like discoveries. It’s as important to work hard, the book contends, as it is to be a natural talent. Who would disagree with that?

    Continued in article

    Jensen Comment
    Years ago one of my psychology professors at Stanford who did a long-term (funded by the US Navy) study of predictors of success and concluded that the fundamental problem of such research was in defining and measuring "success."
    He termed this "The Criterion Problem" ---
    http://www.trinity.edu/rjensen/assess.htm#Predictors 

    A message from Professor XXXXX

    I recently submitted an article on Assessment Outcomes for distance education (DE) to "The Technology Source". The editor suggested that I include a reference to profiling the successful DE student because he was sure some research existed on the subject. Well I have been looking for it casually for 3 years in my reading and the 3-4 conferences per year that I attend, and never have come across anything. Have spent the last week looking in InfoTrac and reviewed close to 300 abstracts, without a single good lead. You are the man. So hoping you can answer the question - is there any empirical research on the question of profiling a successful DE student and in particular any research where an institution actually has a hurdle for students to get into DE based on a pedagogically sound questionnaire? Hoping you know the answer and have time to respond.

    Reply from Bob Jensen

    Hi XXXXX,

    I am reminded of a psychology professor, Tom Harrell, that I had years ago at Stanford University.  He had a long-term contract from the U.S. Navy to study Stanford students when they entered the MBA program and then follow them through their careers.  The overall purpose was to define predictors of success that could be used for admission to the Stanford GSB (and extended to tests for admission into careers, etc.)  Dr, Harrell's research became hung up on "The Criterion Problem   (i.e., the problem of defining and measuring "success.")  You will have the same trouble whenever you try to assess graduates of any education program whether it is onsite or online.  What is success?  What is the role any predictor apart from a myriad of confounded variables?

    You might take a look at the following reference:
    Harrell, T.W. (1992). "Some history of the army general classifications test," Journal of Applied Psychology, 77, 875-878.

    Success is a relative term.  Grades not always good criteria for assessment.  Perhaps a C student is the greatest success story of a distance education program.  Success may lie in motivating a weak student to keep trying for the rest of life to learn as much as is possible.  Success may lie in motivating a genius to channel creativity.  Success may lie in scores on a qualification examination such as the CPA examination.  However, use of "scores" is very misleading, because the impact of a course or entire college degree is confounded by other predictors such as age, intellectual ability, motivation, freedom to prepare for the examination, etc.  

    Success may lie in advancement in the workforce, but promotion and opportunity are subject to widely varying and often-changing barriers and opportunities.  A program's best graduate may end up on a dead end track, and its worst graduate may be a maggot who fell in a manure pile.  For example, it used to be virtually impossible for a woman to become a partner in a large public accounting firm.  Now the way is paved with all sorts of incentives for women to hang in there and attain partnership. Success also entails being at the right place at the right time, and this is often a matter of luck as well as ability.  George Bush probably would never have had an opportunity to become one of this nation's best leaders if there had not been a terrorist attack that afforded him such an opportunity.  Certainly this should not be termed "lucky," but it is a rare "opportunity" to be a great "success."

     


    Expected-Credit Loss Standard to Replace Incurred-Credit Loss Standard
    "FASB to draft final standard on credit losses," by Ken Tysiac, Journal of Accountancy, April 27, 2016 ---
    http://www.journalofaccountancy.com/news/2016/apr/fasb-votes-to-issue-credit-loss-standard-201614335.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=28Apr2016

    Financial reporting of credit losses on loans and other financial assets would move from an incurred-loss approach to an expected-loss approach under accounting rules FASB voted Wednesday to draft for issuance.

     

    Current GAAP requires organizations to defer recognition of a credit loss until the loss is probable or has been incurred. The most recent global financial crisis resulted in calls for more timely reporting of credit losses on loans and other financial assets held by banks, lending institutions, and public and private organizations.

     

    As a result, FASB and the International Accounting Standards Board (IASB) began a joint project to change financial reporting rules. Although both boards decided to issue standards that would reflect expected losses of credit rather than incurred losses, they settled on different models and could not agree on a converged standard. The IASB introduced its expected-loss model in 2014 when it issued IFRS 9, Financial Instruments.

     

    The IASB’s standard takes effect for annual periods beginning on or after Jan. 1, 2018.

     

    Continued in article


    These billionaires moved out of state just to avoid state income taxes ---
    http://finance.townhall.com/columnists/markskousen/2016/05/11/these-billionaires-moved-just-to-avoid-state-income-tax-n2161291?utm_source=thdaily&utm_medium=email&utm_campaign=nl


    The University of Cambridge is planning one of the most expensive business (Doctoral) degrees in the world ---
    http://www.businessinsider.com/cambridge-expensive-executive-mba-2016-5

    The University of Cambridge has proposed a new business program that may cause some sticker shock.

    The four-year course is a doctorate of business and will cost students $332,000, as Times Higher Education reported. Not including room and board, that makes it one of the most expensive degrees in the world.

    The "Doctor of Business Degree" will be comparable to a PhD program, a representative for Cambridge told Business Insider in an email, noting that it's still subject to approval.

    "The four-year programme's annual fees are comparable to leading Executive MBA programmes, while also reflecting the fact that the programme will be very small and selective, demanding substantial resources for intensive teaching and support services," the representative said. For comparison, the Wharton School of the University of Pennsylvania has a two-year executive-education program that runs students $192,900. The London Business School has a 20-month-long program that runs students 72,795 pounds, or $106,328. The University of Cambridge's massive price tag has already led some faculty members to implore the school to think through the implications of creating the new course.

    Continued in article

    Jensen Comment
    In the past few decades DBA degrees are on the decline relative to Ph.D. degrees. Typically a DBA entails less specialization in a given business discipline such as accounting, finance, marketing, management, MIS, etc. Executive Ph.D. or DBA programs are more popular in Europe than the USA and typically are of much shorter duration than a North American business Ph.D. program. Usually research universities in the USA do not hire executive doctoral program graduates on tenure tracks, although this proposed Cambridge program may become more of an exception. One sign of prestige of a doctoral program is the research reputations of thesis supervisors plus the number of doctoral theses being supervised by a given thesis supervisor. Executive doctoral programs whether online or onsite tend to lack research prestige.

    Bob Jensen's threads on the sad state of accounting (read that "accountics" doctoral programs) ---
    http://www.trinity.edu/rjensen/theory01.htm#DoctoralPrograms


    Here’s What You’ll Pay for Health Care In Retirement (Social Security benefits won't even cover your health care costs if you add supplemental Medicare insurance (that I recommend by the way)) ---
    http://time.com/money/4340299/what-youll-pay-healthcare-in-retirement/

    Forget about retiring on Social Security. Health care costs alone will devour the entire lifetime benefits—and then some—of a 45-year-old couple when they retire, according to projections released Wednesday by HealthView Services, a Danvers, Mass.- based company that provides retirement health care cost data and tools to financial advisers.

    Social Security payments will stretch farther for current retirees, but the numbers are still stark: In 2016, the average 66-year-old couple will require 57% of their lifetime, pre-tax Social Security benefits to pay for health care costs, according to HealthView Services. The average 45-year-old couple, by contrast, will need 116% of lifetime Social Security payments to cover health care costs.

    Total retirement health care expenses for that 45-year-old couple planning to retire at age 65 will come to $592,275 in today’s dollars and $1.6 million in future dollars, HealthView Services projects. The projection assumes the male member of the couple will live to 87 and the female to 89.

    The total tab includes premiums for Medicare Part B, which covers doctors’ visits, Part D, which covers drugs, and Part F, which is the most comprehensive supplemental insurance. It also includes expenses not covered by Medicare, such as dental work and hearing aids. Notably, it does not include long-term care costs. Medicare does not pay for long-term stays in nursing homes, or for assisted living facilities.

    Of course, these averages won’t reflect everyone’s experience. People’s individual health status will influence how much they pay. What’s more, not everyone will choose to buy a Part F Medigap policy. It’s a popular but expensive choice, with monthly premiums that vary widely by region but average around $200.

    While expensive, Part F plans eliminate a lot of the uncertainty of medical expenses. Premiums are predictable and cover most of beneficiaries’ out-of-pocket expenses. Without a supplemental plan, beneficiaries could be on the hook for even more if they have a big medical episode, such as a stroke, or a serious diagnosis like cancer.

    On Plan F, “if you never have a problem and drop dead at 110, you’ll have wasted a lot of money,” said Ron Mastrogiovanni, founder and CEO of HealthView Services. A more likely scenario, he said, is that, “We’re not going to stay healthy throughout retirement.”

    Continued in article

    Bob Jensen's universal health care messaging --- http://www.trinity.edu/rjensen/Health.htm 


    Sorry, Bernie fans. His health care plan is short $17,000,000,000,000. The studies, published jointly by the nonpartisan Tax Policy Center and the Urban Institute in Washington, concludes that Sanders's plans are short a total of more than $18 trillion over a decade ---
    Max Ehrenfreund. Washington Post ---
    https://www.washingtonpost.com/news/wonk/wp/2016/05/09/the-17-trillion-problem-with-bernie-sanderss-health-care-plan-2/


    KPMG was at the bottom (worst) of the PCAOB's inspection reports of the Big Four audit firms in 2015. KPMG auditors also ended up in the bottom in the UK in 2016.

    "Audit Regulator Finds 28 Deficient Audits By KPMG in Annual Report:  PCAOB says Big Four firm’s deficiency rate of 54% is up from 46% a year ago," by Michael Rapoport, The Wall Street Journal, November 10, 2015 ---
    http://www.wsj.com/articles/audit-regulator-finds-28-deficient-audits-by-kpmg-in-annual-report-1447177800


    The UK found similar bad news for KPMG auditors ---
    http://www.ft.com/intl/cms/s/f418e1d2-1da7-11e6-b286-cddde55ca122,Authorised=false.html?siteedition=intl&_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2Ff418e1d2-1da7-11e6-b286-cddde55ca122.html%3Fsiteedition%3Dintl&_i_referer=http%3A%2F%2Fgoingconcern.com%2F0267e6094658820051eabb1f65ef45f3&classification=conditional_standard&iab=barrier-app#axzz497HuXT00

     

    "UK lawmaker piles pressure on watchdog over HBOS accounting probe (of KPMG)," by Huw Jones, Reuters, February 3, 2016 ---
    http://www.reuters.com/article/britain-parliament-hbos-idUSL8N15I27G

    Feb 3 Britain's accounting watchdog came under further political pressure on Wednesday to undertake a full, independently supervised investigation into the auditing of HBOS's accounts by KPMG before the bank collapsed in 2008.

    The Financial Reporting Council said last month it would undertake an initial enquiry into how KPMG and its staff audited HBOS before it went bust at the height of the financial crisis.

    That announcement followed calls for a full probe from Andrew Tyrie, chairman of parliament's Treasury Select Committee, who on Wednesday intervened again to detail the conditions he wanted for the FRC enquiry to "command public confidence".

    "This work is long overdue. Furthermore, the process by which the FRC has reached this decision, as well as the approach it plans for its preliminary enquiries, both raise a number of concerns," Tyrie said in a letter to the FRC and released to the media.

    The FRC, which had no immediate comment, looked at aspects of KPMG's accounts of HBOS during 2013, but found no grounds to take matters further.

    In his letter, Tyrie asked why the FRC was still only looking at two elements of the HBOS audit rather than undertaking a broader review.

    He said a review of the HBOS collapse by the Bank of England and the Financial Conduct Authority published last November had benefited from independent supervision.

    "What provision will be made for independent and external oversight of the FRC's enquiries into the auditing of HBOS ?"

    Tyrie asked what deadline the FRC was working to, and whether the findings will be published in full.

    Continued in article

     

    After KPMG paid $456 million in 2006 fines for selling phony tax shelters, KPMG promised it would never happen again. Yeah Right!
    Four KPMG partners arrested in tax evasion investigation ---
    http://www.accountancyage.com/aa/news/2436814/four-kpmg-partners-arrested-in-tax-evasion-investigation

     

    "FIFA auditor KPMG totally missed the soccer scandal," by Francine McKenna, Market Watch, June 3, 2015 ---
    http://www.marketwatch.com/story/fifa-auditor-kpmg-missed-scandal-but-stays-out-of-spotlight-2015-06-03 

     

    Bob Jensen's threads on KPMG audit litigation ---
    http://www.trinity.edu/rjensen/fraud001.htm


    The Inspector General for the IRS said Thursday that the tax collection agency continues to be at risk of paying out billions of dollars in fraudulent Earned Income Tax Credit payments each year, and that there's nothing the IRS can do about it. The Treasury Inspector General for Tax Administration released a report that said almost 25 percent of EITC payments issued last year should not have been issued. That amounts to $15.6 billion in payments under a program that's meant to boost low and moderate-income people and families.

    Without Expanded Error Correction Authority, Billions of Dollars in Identified Potentially Erroneous Earned Income Credit Claims Will Continue to Go Un addressed Each Year
    TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION
    April 27, 2016
    https://www.treasury.gov/tigta/auditreports/2016reports/201640036fr.pdf

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


    Why we need the FASB to reduce the risk that Washington lobbyists will set accounting rules

    "Schumer’s Self-Detonating Confirmation Demand," by Joseph A. Grundfest, The Wall Street Journal, April 24, 2016 ---
    http://www.wsj.com/articles/schumers-self-detonating-confirmation-demand-1461531681?mod=djemMER

    Are senators sometimes too smart for their own good?

    President Obama has nominated Lisa Fairfax, a Democrat, and Hester Peirce, a Republican, to fill two vacancies on the Securities and Exchange Commission. New York Sen. Charles Schumer demands that the nominees promise—in writing—that if the SEC ever considers a rule requiring publicly traded corporations to disclose political contributions, the nominees will support it.

    The nominees haven’t done so, and on April 7 Mr. Schumer lambasted them for “fence-sitting” and for feeding him a bunch of “gobbledy gook.” So spurned, Sen. Schumer, joined by fellow Banking Committee Democrats Elizabeth Warren, Robert Menendez and Jeff Merkley, announced that they will oppose the nominees. The confirmation process has now ground to a halt.

    Are these senators striking a powerful blow for disclosure of campaign-finance reform, or are they merely shooting themselves in the foot? There’s every reason to believe that these senators will end up limping out of the hearing room.

    The law is clear that when it comes to adopting a rule, SEC commissioners must be open to persuasion based on public comment. If a commissioner has an “unalterably closed mind”—as the U.S. Court of Appeals for the District of Columbia Circuit put it in a 1980 decision—then she can’t participate.

    What better evidence is there of an unalterably closed mind than a nominee’s written promise to support a senator’s policy no matter what? Any nominee who agrees to such a demand effectively disqualifies herself from participating in the rule-making that the senator so ardently desires. By demanding the promise, Mr. Schumer and his colleagues destroy her ability to deliver on the promise. It also transforms the nomination process into a scene from the theater of the absurd: “I promise to support a policy position that I won’t be able to vote on because I am making this promise.”

    Continued in article

    Jensen Comment
    We can only imagine how the Senate may extend this confirmation power to abuse of the separation of powers doctrine in the USA system of division of power between Congress, the President, and the Supreme Court. For example, the Senate dictate how a Supreme Court nominee votes on the most controversial cases. Eventually the Supreme Court would not longer be needed for such cases since the Senate really pre-determines the vote.

    From an accounting perspective, we might encounter a situation where the SEC has no say in the issue of convergence of US GAAP and IFRS.


    That some bankers have ended up in prison is not a matter of scandal, but what is outrageous is the fact that all the others are free.
    Honoré de Balzac

    Bankers bet with their bank's capital, not their own. If the bet goes right, they get a huge bonus; if it misfires, that's the shareholders' problem.
    Sebastian Mallaby. Council on Foreign Relations, as quoted by Avital Louria Hahn, "Missing:  How Poor Risk-Management Techniques Contributed to the Subprime Mess," CFO Magazine, March 2008, Page 53 --- http://www.cfo.com/article.cfm/10755469/c_10788146?f=magazine_featured
    Now that the Government bailed out these crooks with taxpayer funds makes it all the worse.

    Wall Street Remains Congress to the Core
    The boom in corporate mergers is creating concern that illicit trading ahead of deal announcements is becoming a systemic problem. It is against the law to trade on inside information about an imminent merger, of course. But an analysis of the nation’s biggest mergers over the last 12 months indicates that the securities of 41 percent of the companies receiving buyout bids exhibited abnormal and suspicious trading in the days and weeks before those deals became public. For those who bought shares during these periods of unusual trading, quick gains of as much as 40 percent were possible.
    Gretchen Morgenson, "Whispers of Mergers Set Off Suspicious Trading," The New York Times, August 27, 2006 ---
    Click Here

    From the CFO Journal's Morning Ledger on May 26, 2016

    Bankers rarely do time
    The Wall Street Journal examined 156 criminal and civil cases brought by the Justice Department, Securities and Exchange Commission and Commodity Futures Trading Commission against 10 of the largest Wall Street banks since 2009. In 81% of those cases, individual employees were neither identified nor charged. A total of 47 bank employees were charged in relation to the cases. One was a boardroom-level executive, the Journal’s analysis found. The analysis shows not only the rarity of proceedings brought against individual bank employees, but also the difficulty authorities have had winning cases they do bring.

    Bob Jensen's threads on bankers who were rotten to the core ---
    http://www.trinity.edu/rjensen/FraudRotten.htm#InvestmentBanking

     


    From the CFO Journal's Morning Ledger on May 23, 2016

    Investors are fleeing Europe
    Fund managers are pulling cash out of European equity and debt markets in response to concerns about the continent’s fractious politics, ultralow interest rates and weak banks, and relentless economic malaise. The money is finding a home in places from U.S. Treasurys to emerging economies, helping to push up prices in those markets.


    From the CFO Journal's Morning Ledger on May 23, 2016

    Health-care executives go on trial
    Two criminal trials of former health-care executives set to begin in a Boston courthouse in the coming weeks illustrate what the federal government says is a new push to hold more individuals accountable for alleged corporate wrongdoing. A former division president at drugmaker Allergan PLC’s Warner Chilcott unit will stand trial on a charge of conspiring to pay kickbacks to doctors to prod them to prescribe the company’s medicines, including osteoporosis drug Atelvia. And two former senior officers of Johnson & Johnson medical-device unit Acclarent are charged with marketing a sinus-opening device for a use not authorized by the Food and Drug Administration. All three executives deny wrongdoing.


    From the CFO Journal's Morning Ledger on May 19, 2016

    Proceed with non-GAAP metrics at your own peril
    http://www.wsj.com/articles/sec-tightens-crackdown-on-adjusted-accounting-measures-1463608923?mod=djemCFO_h
    The Securities and Exchange Commission is keeping up its recent drumbeat criticizing the use of “non-GAAP” financial measures that may make a company’s earnings look stronger than they really are, report Michael Rapoport and Dave Michaels. More SEC comment letters to companies will soon be released in which the commission’s staff questions the companies’ use of the customized metrics, a senior SEC staff member said Wednesday. The SEC also issued new guidance this week that clarifies some of the issues surrounding non-GAAP measures and emphasized some of the circumstances in which the SEC would take issue with them. “We are sending a message and we are going to continue talking about it,” said Mark Kronforst, chief accountant of the SEC’s corporation-finance division. There will be “an uptick” soon in the number of SEC comments to companies, he said at a meeting of an advisory group to the Public Company Accounting Oversight Board, as concerns have mounted that non-GAAP metrics could mislead investors and the commission has devoted more attention to them.

    Bob Jensen's Threads on Return on Business Valuation, Business Combinations, Investment (ROI), and Pro Forma Financial Reporting ---
    http://www.trinity.edu/rjensen/roi.htm

     


    From the CFO Journal's Morning Ledger on May 12, 2016

    Boeing’s buybacks make analysts jittery
    Boeing Co., the world’s biggest plane maker by deliveries, has spent $19 billion buying back its own stock over the past three years, a spending spree that worries analysts who think the airplane-building cycle may be near its peak. The plane maker has been directing almost all of its free cash back to shareholders, boosting buybacks and dividends with the proceeds from record deliveries of its passenger jets.

    Jensen Comment
    When teaching accounting for stock buybacks, instructors should stress why such buybacks are still popular. In particular, business graduates should fully understand why buying back a corporation's own stock is not like buying an asset.


    From the CFO Journal's Morning Ledger on May 9, 2016

    Three big global issues are looming as we start the week; talk about a case of the Mondays. China is doubling down on efforts to keep unprofitable factories afloat despite for years pledging to curb excess capacity. Its overproduction of industrial goods has driven down prices and crippled competitors, leading to thousands of lost jobs in the U.S. and elsewhere. As trade disputes ramp up against the backdrop of the U.S. presidential election, China is subsidizing its steel, coal, solar, copper, chemicals and other industries.

    Saudi Arabia forged ahead on a far-reaching government shake-up this weekend, adding to a barrage of proposals aimed at overhauling the economy. The monarchy announced a sweeping reorganization Saturday that included new leadership at some of Saudi Arabia’s most important institutions, including the powerful oil ministry and the central bank. The changes come less than two weeks after Saudi Arabia said it would wean itself off oil, which still provides the vast majority of government revenue even though prices have fallen. We imagine finance chiefs of Saudi Arabian Oil Co. and Tadawul, the country’s stock exchange, aren’t thrilled with the last-minute set of questions they’ll likely have to field on the road shows for their planned initial public offerings.

    Meanwhile, the dollar is hovering around a one-year low against a basket of currencies. That could mean good news for U.S. multinationals, whose overseas revenue and earnings have been hamstrung when translating weak foreign-currency sales back into dollars. But that will depend on how well companies hedged currencies, both naturally—building where you sell, daily cash sweeps and demanding payment in dollars, for example—and synthetically through hedging contracts. Perhaps more importantly for CFOs, if second-quarter results are helped—or not badly hurt—because of the dollar, do you lead with that benefit? Companies have been quick to point out how badly their numbers have suffered as global currencies have plunged against the greenback, so it will be interesting to see if they are candid about the reverse should the situation prove tonic to the income statement.


    From the CFO Journal's Morning Ledger on May 4, 2016

    Tesla is heading straight for a speed trap
    On the supposed long-term road to success, Tesla Motors Inc. bulls face a harsh short-term reality, likely evident in Wednesday’s quarterly results, writes Steven Russolillo for Ahead of the Tape. Tesla has reported years of losses and has burned through billions of dollars. The hope is that the new, shiny and more affordable Model 3, unveiled earlier this year but not expected to ship until late 2017, will reverse those trends.

    Jensen Comment
    This begs the question of how Amazon kept being favored by investors in the face of years of reported losses and burning of cash. Amazon did this because its enormous investments were putting it ahead of literally all competitors in both prices and services. Tesla has been doing pretty well on in terms of innovations, but it is not doing so well in terms of pricing and services. For example, the Chevy Bolt is much cheaper and will be sold and serviced by dealers in most of the entire free market world. Japanese and German automakers are poised to become extremely competitive at the high end market.

    I think it's a fact. Tesla is heading for a speed trap where it will not be competitive in terms of pricings or services. Being first in the market does not always mean you will be another Amazon.

     


    From the CFO Journal's Morning Ledger on May 4, 2016

    The hottest metric in finance: ROIC
    A metric known as return on invested capital is all the rage, used by companies such as General Motors Co. to placate activist investors. For ROIC lovers, which also include traditional stock pickers, the measure is the best way to distill what activists view as the most critical skill of management: how they allocate capital.

    Bob Jensen's neglected threads on financial ratios ---
    http://www.trinity.edu/rjensen/bookbob1.htm#010303FinancialRatios


    From the CFO Journal's Morning Ledger on May 4, 2016

    MetLife to pay $25 million Finra penalty over variable annuities
    MetLife Inc.
    misled tens of thousands of customers about a product retirees seek out for safety, according to regulators, who levied a near-record $25 million fine against it. In a rare black eye for MetLife, a brokerage industry regulator said MetLife failed to help customers properly compare old and new versions of variable annuities, leading some clients to give up versions of products that were cheaper and had more-generous features than new ones.

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





     

    From The Wall Street Journal Accounting Weekly Review on April 29, 2016

    What Is Prince's Legacy Worth? The Tax Man Wants to Know
    by: Richard Rubin
    Apr 28, 2016
    Click here to view the full article on WSJ.com

    TOPICS: Estate Tax, Valuation

    SUMMARY: After the doves cry, there's IRS Form 706. Estate-tax attorneys for Prince must attempt to put a precise financial value on his name, image and likeness. That Prince-ness could make him one of America's top-earning deceased celebrities, and it may be one of his estate's largest assets-subject to a 40% federal tax. The Internal Revenue Service is used to putting price tags on tradeable assets and is well-trained in taking existing revenue streams and capitalizing them into a value. It is much trickier to divine the worth of a unique niche business-marketing Prince's legacy-that doesn't really exist yet. There is no real precedent for Prince. The closest thing is the Michael Jackson estate-tax battle, headed for trial in the U.S. Tax Court. The toughest issue won't be Prince's real estate, song royalties or his unreleased trove of recordings, though that could all be contentious. It isn't even the future profits from his name, image and unpronounceable glyph, which the government will tax as income as it is earned. The estate-tax challenge is setting a cumulative value on Prince's profit potential on the day he died.

    CLASSROOM APPLICATION: This is an excellent article for use when covering estate tax and for asset valuation of image and likeness.

    QUESTIONS: 
    1. (Introductory) What is the estate tax? What is the top estate tax rate?

    2. (Advanced) Why are estates taxed? What estates are taxable?

    3. (Advanced) What are the tax reporting requirements for an estate? What tax form is required? When is it due? What must be reported?

    4. (Advanced) What are the special estate tax issues facing Prince's estate? How is his estate different from most estates? How is his case unique even for a celebrity?

    5. (Advanced) What is precedent? Why is there no precedent for Prince's estate? What are some close cases? Why are they close?

    6. (Advanced) What is asset valuation? What are the challenges involved with valuation of some of Prince's assets? What parts of the estate will be most challenging to value? Why?

    7. (Advanced) How are these cases ultimately resolved? How long might that take?

    8. (Advanced) What estate tax planning could Prince have done to minimize estate taxes?

    Reviewed By: Linda Christiansen, Indiana University Southeast

     

    "What Is Prince's Legacy Worth? The Tax Man Wants to Know," by Richard Rubin ,The Wall Street Journal, April 28, 2016 ---
    http://www.wsj.com/articles/what-is-princes-legacy-worth-the-tax-man-wants-to-know-1461784686?mod=djem_jiewr_AC_domainid

    After the doves cry, there’s IRS Form 706.

    Estate-tax attorneys for Prince, who died last week, must attempt to put a precise financial value on his name, image and likeness.

    That Prince-ness could make him one of America’s top-earning deceased celebrities, and it may be one of his estate’s largest assets—subject to a 40% federal tax.

    The Internal Revenue Service is used to putting price tags on tradeable assets and is well-trained in taking existing revenue streams and capitalizing them into a value. It is much trickier to divine the worth of a unique niche business—marketing Prince’s legacy—that doesn’t really exist yet.

    There is no real precedent for Prince. The closest thing is the Michael Jackson estate-tax battle, headed for trial in the U.S. Tax Court in February.

    Mr. Jackson’s estate initially said his image and likeness were worth $2,105 when he died in 2009, near the nadir of a career dragged down by scandal. The IRS, however, said the King of Pop’s posthumous image was worth $434 million.

    Mr. Jackson’s total estate, according to court records, tops $1 billion under the original IRS estimate, while the estate first said it was just $7 million. The two sides have resolved some valuation disputes, but the name-and-likeness fight is what the estate-tax bar is following closely.

    “This could be very ground-breaking,” said Jonathan Blattmachr, a retired estate-tax lawyer from Milbank, Tweed, Hadley & McCloy LLP. A victory for the IRS, he said, could spur celebrities to alter how their estate plans handle their image rights.

    Beyond hundreds of millions of dollars for the U.S. government, Mr. Jackson’s case also has tax-planning consequences for any actor, musician, politician or athlete famous enough to earn beyond the grave.

    The dilemma has been tripping up celebrity estates since at least 1994, when a federal court decided a dispute involving V.C. Andrews, author of the novel “Flowers in the Attic.” The IRS said Ms. Andrews’s name was worth $1.2 million.

    That was based in part on her publisher’s ability to produce ghostwritten books after her 1986 death, discounted for the risk that the ghostwriter would flub the task. The court, looking at what a buyer could have known before the ghostwritten books were successful, set the value at $703,500.

    Still, there are virtually no rules for the IRS or taxpayers to follow, said Mr. Blattmachr. He has suggested exempting the value of names and likenesses from the estate tax but taxing future earnings as ordinary income, not capital gains.

    “Michael Jackson will be different from Prince who will be different from Madonna,” Mr. Blattmachr said. “It’s horribly speculative as to what the value is.”

    Continued in article


    From The Wall Street Journal Accounting Weekly Review on April 29, 2016

    CFOs with CPAs Skimp in Growth Industries
    by: Richard Teitelbaum
    Apr 21, 2016
    Click here to view the full article on WSJ.com

    TOPICS: Accounting Careers, CFO, Chief Financial Officer

    SUMMARY: CFOs with accounting backgrounds in high-growth industries invest less in research and development, make lower capital expenditures and are less likely to obtain external financing for their businesses, according to a paper to be published in an upcoming issue of the Journal of Accounting and Economics. It shows that such "accounting CFOs," CPAs, or those who worked previously as an auditor or controller before their appointments, are more effective at controlling costs at low-growth industries than those without such backgrounds.

    CLASSROOM APPLICATION: This is an interesting article for its content, but also to raise the issue of career opportunities for accounting majors.

    QUESTIONS: 
    1. (Introductory) What is a CFO? What are the duties of that position?

    2. (Advanced) How are accountants uniquely qualified for CFO positions? What backgrounds, skills, and experience could be beneficial for a person in the CFO position?

    3. (Advanced) How does the article make a distinction between low-growth and high-growth industries? What are the differences in CFO actions and requirements for each of those categories?

    4. (Advanced) What are some other career paths for accounting majors? What positions are not specifically accounting, but a candidate with an accounting background would be valuable?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    RELATED ARTICLES: 
    Three Stubborn Types of Mistakes Dog Financial Reporting
    by Tatyana Shumsky
    Apr 12, 2016
    Online Exclusive

     

    "CFOs with CPAs Skimp in Growth Industries," by Richard Teitelbaum ,The Wall Street Journal, April 21, 2016 ---
    http://blogs.wsj.com/cfo/2016/04/21/cfos-with-cpas-skimp-in-growth-industries/?mod=djem_jiewr_AC_domainid

    Certified public accountants may be hazardous to your company’s growth.

    CFOs with accounting backgrounds in high-growth industries invest less in research and development, make lower capital expenditures and are less likely to obtain external financing for their businesses, according to a paper to be published in an upcoming issue of the Journal of Accounting and Economics.

    It shows that such “accounting CFOs,” CPAs, or those who worked previously as an auditor or controller before their appointments, are more effective at controlling costs at low-growth industries than those without such backgrounds.

    The study looked at how the two kinds of CFOs performed in high-growth industries, such as pharmaceuticals, electronics, and business services as well as low-growth industries, such as transportation, machinery and petroleum.

    The upshot was that companies with accounting CFOs tended to be more risk averse. CFOs with accounting backgrounds in high-growth industries on average were associated with a 7.4% lower investment expenditure at their company and a 14.6% lower likelihood of financing. That might hurt growth.

    Professor Rani Hoitash of Bentley University, his younger brother Udi Hoitash, an associate professor of Northeastern University, and assistant professor Ahmet Kurt of Suffolk University, examined a sample size of about 1,800 CFOs, looking at how they performed between 2000 and 2010.

    With data more than five years old, Mr. Kurt said he suspects boards may have already shifted CFO hiring practices. “Companies are making some changes,” he said. “Some firms are realizing that accounting CFOs are not working for them.”

    In the low-growth industries, accounting CFOs showed a tendency towards greater cost efficiency. When revenues were increasing in such industries, according to the paper, the accounting CFOs showed a 19% increase in cost efficiency. “It’s associated with their conservative nature,” said Mr. Kurt in an interview. “They hold the costs down when sales are growing.”

    In low-growth industries, accounting CFOs were not linked with investment expenditures, external financing or cash holdings, according to the study.

    Mr. Kurt said the study built on previous research that showed accounting CFOs were linked to fewer restatements at the companies they work at, as well as fewer discretionary accruals. The key was distinguishing between the kinds of businesses the CFOs were heading, because each requires different skillsets. “When we sliced the sample into high-growth and low-growth it was a bit of a surprise,” he said.

    The study doesn’t weigh in on whether the accounting CFOs’ tendencies toward risk aversion is good or bad. “This may increase firm value in some cases and lower it in others,” it reads.


    From The Wall Street Journal Accounting Weekly Review on April 29, 2016

    Questions to Ask When Using a Non-GAAP Measure
    by: Deloitte CFO Journal Editor
    Apr 22, 2016
    Click here to view the full article on WSJ.com

    TOPICS: Financial Accounting, Financial Reporting, GAAP, Non-GAAP Reporting, SEC

    SUMMARY: Press coverage and Securities and Exchange Commission (SEC) scrutiny of non-GAAP measures have exploded recently. The intense focus on these measures results from their increased use and prominence, the nature of the adjustments and the progressively large difference between the amounts reported for GAAP and non-GAAP measures. Although non-GAAP measures can be meaningful and provide valuable information about what is important to management, the SEC is concerned that the measures may be confusing to investors and analysts. This article offers a list of questions management should consider when using non-GAAP measures.

    CLASSROOM APPLICATION: This article is appropriate when discussing non-GAAP financial reporting in financial accounting classes.

    QUESTIONS: 
    1. (Introductory) What is GAAP? How is it determined? Who and what entities use GAAP?

    2. (Advanced) What in non-GAAP reporting? Why do companies engage in non-GAAP reporting? What are the benefits of this type of reporting?

    3. (Advanced) If a company chooses to report non-GAAP financial results, must it also report financial information on a GAAP basis? Why or why not?

    4. (Advanced) What is the purpose of the questions listed in the article? Who should be answering these questions? Why are these questions valuable? What are some of the benefits for users of the financial statements?

    5. (Advanced) What is the SEC? What is its area of authority? How is it involved with non-GAAP reporting? Should the SEC regulate and/or restrict non-GAAP reporting?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    RELATED ARTICLES: 
    SEC Enforcement, Non-GAAP Measures: Regulatory Considerations
    by Deloitte Risk Journal Editor
    Apr 13, 2016
    Online Exclusive

    SEC Signals It Could Curb Use of Adjusted Earnings Figures
    by Dave Michaels and Michael Rapoport
    Mar 17, 2016
    Online Exclusive

    Non-GAAP Numbers May Confuse Investors: SEC Chair
    by Richard Teitelbaum
    Dec 09, 2015
    Online Exclusive

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

    S&P 500 Earnings: Far Worse Than Advertised
    by Justine Lahart
    Feb 25, 2016
    Online Exclusive

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

    Securities Rules Help to Close The Earnings Reports GAAP
    by Jonathan Weil
    Apr 25, 2003
    Online Exclusive

    Investing Red Flag: Pro Forma Results and Share-Price Performance
    by Justine Lahart
    Mar 25, 2016
    Online Exclusive

     

    "Questions to Ask When Using a Non-GAAP Measure," by Deloitte CFO Journal Editor" ,The Wall Street Journal, April 22, 2016 ---
    http://deloitte.wsj.com/cfo/2016/04/22/questions-to-ask-when-using-a-non-gaap-measure/?mod=djem_jiewr_AC_domainid

    . . .

    What to Ask

    As companies prepare earnings releases and periodic filings for first-quarter 2016 and future reporting periods, management should consider the following questions when using a non-GAAP measure:

    1. Is the measure misleading or prohibited? While such instances have been infrequent, the SEC has objected to the use of non-GAAP measures when they are potentially misleading. For example, in one comment letter, the SEC objected to a non-GAAP measure that excluded certain marketing expenses that were considered normal recurring operating cash expenditures.

    2. Is the measure presented with the most directly comparable GAAP measure and with no greater prominence than the GAAP measure?

    3. Is the measure appropriately defined and described, and clearly labeled as non-GAAP?

    4. Does the reconciliation between the GAAP and non-GAAP measure clearly label and describe the nature of each adjustment, and is each adjustment appropriate?

    5. Is there transparent and company-specific disclosure of the substantive reason(s) why management believes that the measure is useful for investors and the purpose for which management uses the measure? Mr. Schnurr indicated in his speech that companies should question “why, in contrast to the GAAP measure, the non-GAAP measure is an appropriate way to measure the company’s performance and is useful to investors.”

    6. Is the measure consistently prepared from period to period in accordance with a defined policy, and is it comparable to that of the company’s peers?

    7. Is the measure balanced (i.e., it adjusts not only for nonrecurring expenses but also for nonrecurring gains)?

    8. Does the measure appropriately focus on material adjustments and not include immaterial adjustments that would not seem to be a focus of management?

    9. Do the disclosure controls and procedures address non-GAAP measures?

    10. Is the audit committee involved in the oversight of the preparation and use of non-GAAP measures?

    For a summary of the disclosure requirements and rule prohibitions related to non-GAAP measures, see the appendix in the full Heads Up report


    From The Wall Street Journal Accounting Weekly Review on April 29, 2016

    Mystery on Wall Street: How P&G Will Deliver on Cost Cuts
    by: Sharon Terlep
    Apr 25, 2016
    Click here to view the full article on WSJ.com

    TOPICS: Financial Reporting, Business Segments, Managerial Accounting, Financial Statement Analysis, , Business Segments, Financial Reporting, Managerial Accounting

    SUMMARY: Procter & Gamble Co. is slashing costs and commanding higher prices for staples from shaving cream to paper towels. The maker of Gillette razors and Pampers diapers reported higher profit for its fiscal third quarter ended in March and improvement in a core sales metric. Even so, sales volume declined across nearly all of its businesses. P&G, which has struggled for years to accelerate sales growth, said economic woes in emerging markets coupled with the company's moves to sell off dozens of brands further slowed sales the past quarter. Procter & Gamble Co.'s new boss has promised investors $10 billion in belt-tightening, as the world's largest consumer-goods company tries to adjust to a future of slower growth.

    CLASSROOM APPLICATION: This article and the related article are appropriate for financial and managerial accounting classes.

    QUESTIONS: 
    1. (Introductory) What challenges has P&G been facing in recent years? What has company management stated are its plans for the future of the company?

    2. (Advanced) What is P&G's current financial condition? What financial ratios and indicators are being used by management and investors to analyze the company's position? What are those metrics revealing about the company's condition?

    3. (Advanced) What accounting tools can management use to address investor concerns? Which of these tools are related to financial accounting, and which are more closely related to managerial accounting?

    4. (Advanced) What is forecasting? What has the company forecasted for the coming quarters? How can forecasting be used to manage investor concerns?

    5. (Advanced) What is a business segment? What has P&G been doing regarding its various business segments? Which segments are successful; which are (or were) struggling? What business segments has the company chosen to keep, and which has it sold? Why? How is the company likely using segment analysis to make these decisions?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    RELATED ARTICLES: 
    P&G Posts Higher Profit, but Sales Volume Declines Across Most Businesses
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    "Mystery on Wall Street: How P&G Will Deliver on Cost Cuts," by Sharon Terlep ,The Wall Street Journal, April 25, 2016 ---
    http://www.wsj.com/articles/mystery-on-wall-street-how-p-g-will-deliver-on-cost-cuts-1461531632?mod=djem_jiewr_AC_domainid

    Procter & Gamble Co. ’s new boss has promised investors $10 billion in belt-tightening, as the world’s largest consumer-goods company tries to adjust to a future of slower growth.

    The trouble is, Wall Street doesn’t know how he will get there. “People are uncertain as to how this is being accounted for,” said UBS analyst Stephen Powers. “It is not written down on any slide anywhere, and they did not quantify any bucket from which the money is supposed to come from.”

    At his first public meeting with investors in February, P&G Chief Executive David Taylor said he would follow a recently completed $10 billion cost-cutting plan with a program that would pare another $10 billion of costs during the next five years.

    When it launched its previous round of cost cuts in 2012, P&G laid out specifics: $3 billion would come from overhead reductions, $6 billion from reducing the cost of goods sold and $1 billion from its marketing budget. The company itemized cost-reduction targets for transportation, warehousing and research and development. P&G ended up eliminating more than 20,000 jobs.

    This time around, executives gave few details. Chief Financial Officer Jon Moeller said at the February meeting that P&G would be able to squeeze more out of its supply chain, and there was “room to improve” in trimming the $1.5 billion a year it is spending on advertising agencies. He also said the company plans to shift more toward digital ads to bring in additional savings. P&G said job cuts would account for just a small part of the savings.

    At the same time, Mr. Moeller warned investors not to expect the new cost-cutting campaign to yield a major improvement in the company’s profit margins. “Margins will continue to grow, but not at as high levels.” he said.

    P&G declined to discuss its cost-cutting plan, which is expected to spark questions from investors and analysts Tuesday when the Cincinnati-based company reports its latest quarterly results. Analysts are expecting a revenue decline of 13% and profit to tick higher following the divestiture of several brands.

    The maker of Gillette razors and Pampers diapers still lags behind nimbler rivals Kimberly-Clark Corp. and Colgate-Palmolive Co. , which are grabbing market share, particularly in emerging markets such as China and in key categories like diapers.

    In February, P&G cut its revenue growth expectations for the fiscal year ending in June to between 2% and 3%, down from 3% to 4%. Earlier this month, the company said it would boost its quarterly dividend by 1%, the smallest increase since at least 1977.

    Mr. Taylor, a 36-year P&G veteran before becoming CEO in November, has described the company’s recent performance as “unacceptable,” even though it cut billions of dollars in costs through layoffs, the elimination of 40% of its ad agencies and the sale of several businesses, including Duracell batteries and a raft of beauty brands.

    In a private session with Messrs. Taylor and Moeller immediately following the February presentation, analysts pressed the executives to break down the cost-cutting targets in its latest plan, but they left without concrete answers, according to analysts who attended the meeting.

    Research notes to investors recapping the event either questioned or barely mentioned P&G’s plan. Goldman Sachs analyst Jason English said the company put forth “various new tactics,” but, “none that seemed needle-moving for a company of P&G’s size.”

    “For a company that used to say it was very lean, we were surprised to see another $10 billion of cost savings being announced,” said Bernstein Research analyst Ali Dibadj, in a recent email. The analyst has called for a breakup of P&G.

    Continued in article


    From The Wall Street Journal Accounting Weekly Review on April 29, 2016

    Sheltering Foreign Profits From U.S. Taxes Is No Big Feat
    by: Vipal Monga
    Apr 26, 2016
    Click here to view the full article on WSJ.com

    TOPICS: Auditing, Corporate Taxation, Financial Accounting, International Business

    SUMMARY: While most countries tax only the money companies earn inside their borders, the U.S. taxes profits that American companies make world-wide at 35%, minus any foreign taxes paid. Still, accounting regulations and auditing standards make it relatively easy for U.S.-based businesses to avoid taxes on their overseas profits. All those companies have to do is say the money is "indefinitely reinvested" abroad. Using that phrase allows them to avoid deducting U.S. taxes on those funds from their overall earnings. That can save them billions of dollars, fattening their bottom line.

    CLASSROOM APPLICATION: This article features the intersection between financial accounting, auditing, and taxation for American companies doing business in other countries.

    QUESTIONS: 
    1. (Introductory) What is the tax treatment of corporate profits earned outside the U.S. by American companies? Why?

    2. (Advanced) How does U.S. corporate tax law differ from the law in most countries? What issues can that create? How are corporations responding? In what types of tax planning do they participate?

    3. (Advanced) How do accounting regulations make it relatively easy for U.S.-based businesses to avoid taxes on their overseas profits?

    4. (Advanced) How do auditing standards contribute to this type of tax planning?

    5. (Advanced) For purposes of this area of law, what are reinvested earnings? What is the difference in treatment between reinvested earnings and other earnings?

    Reviewed By: Linda Christiansen, Indiana University Southeast

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    by Vipal Monga
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    "Sheltering Foreign Profits From U.S. Taxes Is No Big Feat," by Vipal Monga ,The Wall Street Journal, April 26, 2016 ---
    http://www.wsj.com/articles/sheltering-foreign-profits-from-u-s-taxes-is-no-big-feat-1461627831?mod=djem_jiewr_AC_domainid

    The U.S. government chalked up a big victory this month when it stopped pharmaceutical giant Pfizer Inc. from merging with Allergan PLC and shifting its address overseas to avoid U.S. taxes.

    But there is at least one thing the Treasury Department still can’t do: force Pfizer to book taxes on $80 billion in foreign profits the New York-based company has socked away overseas.

    While most countries tax only the money companies earn inside their borders, the U.S. taxes profits that American companies make world-wide at 35%, minus any foreign taxes paid.

    Still, accounting regulations and auditing standards make it relatively easy for U.S.-based businesses to avoid taxes on their overseas profits.

    All those companies have to do is say the money is “indefinitely reinvested” abroad. Using that phrase allows them to avoid deducting U.S. taxes on those funds from their overall earnings. That can save them billions of dollars, fattening their bottom line.

    What counts as reinvestment? “It’s fair to say the bar is very low,” said Michael Minihan, a principal at Dallas-based tax consulting firm Ryan LLC.

    S&P 500 companies including Pfizer, Apple Inc. and Microsoft Corp. indefinitely put away a record $2.3 trillion of cumulative foreign earnings by the end of 2015, according to Credit Suisse Group AG , up 11% from 2014 and more than the gross domestic product of Italy.

    Under U.S. accounting rules, companies have to persuade their auditors that they are justified in designating foreign earnings as permanently reinvested. But the evidence doesn’t have to be ironclad. It can include plans for new overseas factories, prospective acquisition sprees, or restrictions in loan agreements that prevent them from transferring money to the U.S.

    “It’s a very big loophole, and I think companies use it liberally,” said Tony Sondhi, a financial consultant and member of the Emerging Issues Task Force of the Financial Accounting Standards Board, which sets U.S. accounting rules.

    The companies and their auditors also can take into account the “tax consequences” of any decision to bring money back to the U.S. or reinvest overseas, according to an accounting guide published by accounting firm PricewaterhouseCoopers. They can justify parking the money overseas to avoid paying U.S. taxes by arguing that taxes are too high, said Ryan’s Mr. Minihan.

    Continued in article

     


    From the Wall Street Journal Accounting Weekly Review on May 5, 2016

    Happy Anniversary! The Estate Tax Turns 100
    by: Laura Saunders
    Apr 30, 2016
    Click here to view the full article on WSJ.com

    TOPICS: Estate Tax

    SUMMARY: In 1916, as World War I raged in Europe, Congress wanted to boost U.S. revenues in case America joined the fighting, so lawmakers voted for a new tax on a person's assets at death. This levy affected fewer than 1% of Americans who died and raised less than 1% of federal revenue in 1917. So began the modern U.S. estate tax. Today, the tax comes in the form of owing the government up to 40% of your assets at death, above an exemption of $5.45 million per person. The estate tax-together with the gift tax, which applies to asset transfers made during life-contributed an average of 1.4% annually to total federal revenues between 1950 and 2014.

    CLASSROOM APPLICATION: This article about the 1000 years of the estate tax is appropriate for coverage of the estate tax class. It could be useful for a discussion of whether it should exist and how to assist clients with estate tax planning.

    QUESTIONS: 
    1. (Introductory) What is the estate tax? How is it calculated? What are the tax rates?

    2. (Advanced) What is the history of the estate tax? Why was it enacted? How has the estate tax changed over the past 100 years?

    3. (Advanced) What is the extent of the estate tax? How many people are affected? What funds are raised by the estate tax?

    4. (Advanced) Should the estate tax be repealed? Why or why not?

    5. (Advanced) What is a stepped-up basis? How is it related to the estate tax? How would the step-up in basis be affected by the repeal of the estate tax?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    "Happy Anniversary! The Estate Tax Turns 100," by: Laura Saunders, The Wall Street Journal, April 30, 2016 ---
    http://www.wsj.com/articles/happy-anniversary-the-estate-tax-turns-100-1461945166?mod=djem_jiewr_AC_domainid

     

    In 1916, as World War I raged in Europe, Congress wanted to boost U.S. revenues in case America joined the fighting, so lawmakers voted for a new tax on a person’s assets at death. This levy affected fewer than 1% of Americans who died and raised less than 1% of federal revenue in 1917.

    In an editorial at the time, The Wall Street Journal called the tax “frankly a class discrimination.” But most lawmakers who voted in favor of the levy, which had a top rate of 10% and an exemption of $50,000 (about $1 million in current dollars), saw it as a reasonable way to raise revenue. Opponents thought such levies should be left to the states.

    So began the modern U.S. estate tax. Today, the tax comes in the form of owing the government up to 40% of your assets at death, above an exemption of $5.45 million per person.

    One hundred years later, experts across the political spectrum continue to debate if it should remain. While important details of the estate tax, such as rates and exemptions, have changed over the years, some fundamentals haven’t.

    The idea of such a tax wasn’t new: The ancient Egyptians and the Romans had versions of it, and Congress had imposed temporary taxes at death to help pay for a conflict in 1797, the Civil War and the Spanish-American War.

    Unlike the earlier levies, the 1916 estate tax stuck.

    As was true in 1917, the estate tax has seldom raised much money compared with other levies. According to Congress’s Joint Committee on Taxation, the estate tax—together with the gift tax, which applies to asset transfers made during life—contributed an average of 1.4% annually to total federal revenues between 1950 and 2014. That’s a far cry from the average of 44% the individual income tax contributed annually to the total for the same period.

    The U.S. estate tax has never affected many people, either. According to Paul Caron, an estate-tax specialist who teaches at Pepperdine Law School, it often has applied to fewer than 2% of those dying each year.

    Continued in article

     


    From the Wall Street Journal Accounting Weekly Review on May 5, 2016

     

    SEC Cracks Down on Novel Earnings Measures That Boost Profits
    by: Dave Michaels
    Apr 29, 2016
    Click here to view the full article on WSJ.com

    TOPICS: Financial Accounting, Financial Reporting, GAAP, Non-GAAP Reporting, SEC

    SUMMARY: The Securities and Exchange Commission is stepping up its scrutiny of companies' homegrown earnings measures, signaling it plans to target firms that inflate their sales results and employ customized metrics that stray too far from accounting rules. The move to intensify oversight signals that regulators have grown weary of the widespread use of some adjusted measures, which often result in a rosier view of profits than what is reported under generally accepted accounting principles, or GAAP. The campaign comes after SEC Chairman Mary Jo White said that the agency could use its rule-making powers to rein in non-GAAP reporting.

    CLASSROOM APPLICATION: This article is appropriate when discussing non-GAAP financial reporting in financial accounting classes.

    QUESTIONS: 
    1. (Introductory) What is GAAP? How is it determined? What entities use GAAP?

    2. (Advanced) What in non-GAAP reporting? Why do companies engage in non-GAAP reporting? What are the benefits of this type of reporting?

    3. (Advanced) What is the SEC? What is its area of authority? Why has the SEC chosen to get involved with non-GAAP reporting? What is the agency planning to do?

    4. (Advanced) If a company chooses to report non-GAAP financial results, must it also report financial information on a GAAP basis? Why or why not?

    5. (Advanced) Should the SEC regulate and/or restrict non-GAAP reporting? Why or why not?

    Reviewed By: Linda Christiansen, Indiana University Southeast

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    "SEC Cracks Down on Novel Earnings Measures That Boost Profits," by Dave Michaels, The Wall Street Journal, April 29, 2016 ---
    http://www.wsj.com/articles/sec-cracks-down-on-novel-earnings-measures-that-boost-profits-1461870107?mod=djem_jiewr_AC_domainid

    The Securities and Exchange Commission is stepping up its scrutiny of companies’ homegrown earnings measures, signaling it plans to target firms that inflate their sales results and employ customized metrics that stray too far from accounting rules.

    The move to intensify oversight signals that regulators have grown weary of the widespread use of some adjusted measures, which often result in a rosier view of profits than what is reported under generally accepted accounting principles, or GAAP. The campaign comes after SEC Chairman Mary Jo White said in March that the agency could use its rule-making powers to rein in non-GAAP reporting.

    Regulators plan to push back on companies that accelerate the recognition of revenue that is supposed to be deferred into the future, said Mark Kronforst, chief accountant of the SEC’s corporation finance division. Firms that sell their product on a subscription model, for instance, are required to book the revenue as they deliver the goods or services. But some firms are using non-GAAP measures that assume all sales are recorded as soon as customers are billed, which adds revenue to their books earlier than what is allowed under GAAP, Mr. Kronforst said.

    “The point is, now the company has created a measure that no longer reflects its business model,” he said. “We’re going to take exception to that practice.”

    In the coming months, the agency plans to make public letters to companies that question the practice of booking revenue on an accelerated basis. Mr. Kronforst, who also spoke Thursday at a Northwestern University legal conference about the issue, declined to name them.

    One company that recognizes revenue early under a non-GAAP approach is Microsoft Corp. That move boosted its non-GAAP measure of earnings per share in the first quarter of 2016 by about 32% over its GAAP result. The company’s latest earnings announcement said the deferred revenue was largely related to its rollout of its Windows 10 operating system. Microsoft spokeswoman Cameron Bays declined to comment.

    The SEC’s 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.

    Firms say investors value the adjusted measures because they don’t count unusual or noncash costs, resulting in measures that better reflect future operating results. Technology firms such as Facebook Inc. and other Silicon Valley brand names are particularly devoted users of non-GAAP formulas, reporting numbers that strip out hundreds of millions of dollars of stock compensation.

    But the SEC has recently seen companies report adjusted earnings that go further. In one instance, a company uses different accounting assumptions, such as changing the lifespan of equipment that must be expensed over time. Stretching out the useful life of machinery typically results in lower annual costs and boosts profits.

    Mr. Kronforst said regulators also plan to challenge companies that report their adjusted earnings on a per-share basis. The results are often higher than per-share GAAP earnings and look too much like measures of cash flow, which decades-old accounting rules prevent from being presented on a per-share basis, Mr. Kronforst said. That is because investors could confuse cash flow with actual earnings, which truly represent the amounts that could be distributed to investors.

    “We are going to look harder at the substance of what companies are presenting, rather than what the measures are called,” he said.

    Sarah McVay, an accounting professor at the University of Washington, said the SEC should target instances in which companies use non-GAAP metrics that make results look better, but ditch the metrics when they would make earnings look worse. Ms. McVay’s 2014 paper, co-written with colleagues at the University of Washington and University of Georgia, found that 27% of companies disclosed non-GAAP earnings that excluded one-time losses, but didn’t report the adjusted figures when they had fleeting gains.

    “I’m a little disappointed to hear those are what they’re going after,” she said. “It seems like there are more opportunistic things happening.”

    SEC officials say they often push back on instances in which companies “cherry-pick” non-GAAP measures that only serve to put the company in the best light.

    Continued in  article

     


    From the Wall Street Journal Accounting Weekly Review on May 5, 2016

    Cloud Unit Pushes Amazon to Record Profit
    by: Greg Bensinger
    Apr 29, 2016
    Click here to view the full article on WSJ.com

    TOPICS: Business Segments, Financial Statement Analysis, Managerial Accounting

    SUMMARY: Amazon.com Inc. delivered its most profitable quarter ever, topping last year's record holiday period, thanks to surging sales from its lucrative cloud-computing business. Despite a persistent reputation as a profit miser, Amazon turned in its fourth straight moneymaking quarter and expanded margins in its core retail business, as well as the Amazon Web Services division that rents computing power to other companies. Shares in the Seattle online retailer surged more than 12% after hours as the company's results far outpaced analyst estimates. Superlatives abound: Its 28% sales growth was the highest since the second quarter of 2012, while its operating margin of 3.7% was its best in more than five years.

    CLASSROOM APPLICATION: This article offers a mini-case study with opportunities for analysis in financial and managerial accounting, as well as financial statement analysis and business strategy.

    QUESTIONS: 
    1. (Introductory) What are the results of Amazon's more recent quarter? What is the overall view of Amazon's financial performance?

    2. (Advanced) What is segment analysis? What does segment analysis reveal about Amazon? What are Amazon's various business segments? Which segments are profitable? Should any segments be eliminated?

    3. (Advanced) The article states Amazon has a reputation has a profit miser. What does that mean? Why does the company have that reputation? What is the company's strategy in that regard? Has it been successful or is it problematic?

    4. (Advanced) What are Amazon's forecasts for the future of the company and its business segments?

    Reviewed By: Linda Christiansen, Indiana University Southeast

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    "Cloud Unit Pushes Amazon to Record Profit," by Greg Bensinger, The Wall Street Journal, April 29, 2016 ---
    http://www.wsj.com/articles/amazon-reports-surge-in-profit-1461874333?mod=djem_jiewr_AC_domainid

    Amazon Inc. on Thursday delivered its most profitable quarter ever, topping last year’s record holiday period, thanks to surging sales from its lucrative cloud-computing business.

    Despite a persistent reputation as a profit miser, Amazon turned in its fourth straight moneymaking quarter and expanded margins in its core retail business, as well as the Amazon Web Services division that rents computing power to other companies.

    Shares in the Seattle online retailer surged more than 12% after hours as the company’s results far outpaced analyst estimates.

    Superlatives abound: Its 28% sales growth was the highest since the second quarter of 2012, while its operating margin of 3.7% was its best in more than five years.

    The cash cow driving these figures is AWS, a decade-old operation that pioneered the business of hosting computer servers for companies like Netflix Inc. and the Central Intelligence Agency. AWS has become the go-to provider for a generation of startups, government agencies and other corporations seeking to offload computing power to Amazon’s thousands of servers.

    The cloud division’s sales rose 64% to $2.57 billion. While that is less than one-tenth of Amazon’s overall revenue, AWS generated about 67% of the company’s operating income in the quarter.

    In other words, AWS is supporting Amazon’s sprawling, 20-year-old business that spends billions of dollars in an effort to upend traditional brick-and-mortar retail by providing customers nearly everything imaginable in as quickly as one hour.

    Chief Executive Jeff Bezos has said he expects AWS to reach $10 billion in sales this year, even as Microsoft Corp., Alphabet Inc. and others ramp up pressure. AWS’s operating margin was 28%.

    Continued in article

     


     

    From the Wall Street Journal Accounting Weekly Review on May 5, 2016

    FASB Approves Move Requiring Banks to Book Loan Losses More Quickly
    by: Michael Rapoport
    Apr 28, 2016
    Click here to view the full article on WSJ.com

    TOPICS: FASB, Financial Accounting, Financial Reporting, Reserves,

    SUMMARY: The Financial Accounting Standards Board, which sets accounting rules for U.S. companies, agreed in principle to require U.S. banks to book losses on soured loans much more quickly, a move that would force banks to set aside more in reserves for failed loans and thus cut into their profits. Banks will have to record all losses they project over the lifetime of their loans as soon as the loans are made. That is sharply different from the current approach, in which banks wait to record losses until there is evidence a loss has actually occurred. Banks that are publicly traded would have to adopt the FASB's change beginning in 2020, with privately held banks following in 2021, though any bank could choose to implement the new approach as early as 2019.

    CLASSROOM APPLICATION: This article would be appropriate for financial accounting classes when discussing the topics of reserves or the FASB.

    QUESTIONS: 
    1. (Introductory) What is FASB? What is its area of authority?

    2. (Advanced) What rule did the FASB approve regarding banks? What are the reasons for this rule?

    3. (Advanced) What effects could this new rule have on each of the financial statements? How could it impact the business of the banks? How could in impact bank stock prices?

    4. (Advanced) What are the effective dates for the implementation of the new rule? Why aren't the rules required to be implemented sooner?

    5. (Advanced) What are the rules for non-U.S. banks? How are they similar to the U.S. rules? How do they differ?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    RELATED ARTICLES: 
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    "FASB Approves Move Requiring Banks to Book Loan Losses More Quickly," by Michael Rapoport, The Wall Street Journal, April 28, 2016 ---
    http://www.wsj.com/articles/fasb-approves-move-requiring-banks-to-book-loan-losses-more-quickly-1461780911?mod=djem_jiewr_AC_domainid

    Accounting rule makers on Wednesday agreed in principle to require U.S. banks to book losses on soured loans much more quickly, a move that would force banks to set aside more in reserves for failed loans and thus cut into their profits.

    The long-discussed change approved by the Financial Accounting Standards Board, which sets accounting rules for U.S. companies, is intended to require banks to be more conservative and disclose more about the risks of their loans, in the wake of problems that surfaced during the financial crisis.

    Banks will have to record all losses they project over the lifetime of their loans as soon as the loans are made. That is sharply different from the current approach, in which banks wait to record losses until there is evidence a loss has actually occurred. Many observers believe the go-slower approach led banks to record losses too little and too late during the crisis, leaving investors in the dark about the banks’ true condition.

    The move is expected to force banks to significantly boost their loan-loss reserves, reducing profits. Estimates vary widely as to how much, but the Office of the Comptroller of the Currency estimated in 2013 that the FASB’s change, which it had proposed in 2012, would lead banks to boost reserves by 30% to 50% industrywide.

    Banks that are publicly traded would have to adopt the FASB’s change beginning in 2020, with privately held banks following in 2021, though any bank could choose to implement the new approach as early as 2019.

    The move “will significantly improve this area of financial reporting” and lead to banks providing information “that better meets the needs of investors,” FASB Chairman Russell Golden said.

    Wednesday’s move authorizes the FASB’s staff to draft a final version of the new rule, which is subject to ratification by the board and could undergo technical changes. The board is expected to formally issue the new rule in June.

    Banks generally haven’t resisted the idea that loan losses should be booked more quickly, but the FASB’s change has been criticized by some banks, especially smaller community banks, who argued it would be too costly and burdensome for them and could deter them from extending new loans. The FASB has tried to address some of the banks’ concerns, saying community banks could rely on methods already at their disposal to project future loan losses, instead of having to use the expensive, complex computer models they feared they’d have to use.

    In a statement Wednesday, the American Bankers Association said it still believes the costs for most banks “will be much greater than what FASB estimates, because addressing these changes on an ongoing basis will require more complex and controlled systems.”

    The International Accounting Standards Board, the FASB’s global counterpart that sets accounting rules for most countries outside the U.S., made a similar change in 2014 that will affect non-U.S. banks beginning in 2018. The IASB’s change won’t require banks to book all losses upfront, however -- the only losses that non-U.S. banks will have to book immediately are those based on the probability that a loan will default in the next year.

    Continued in article

     


     

    From the Wall Street Journal Accounting Weekly Review on May 5, 2016

    The Hottest Metric in Finance: ROIC
    by: David Benoit
    May 04, 2016
    Click here to view the full article on WSJ.com

    TOPICS: Financial Accounting, Financial Statement Analysis, ROIC

    SUMMARY: ROIC is all the rage. The popularity of return on invested capital is evidence of the influence activists have come to wield in boardrooms. For ROIC lovers, which also include traditional stock pickers, the measure is the best way to distill what activists view as the most critical skill of management: how they allocate capital. The typical ROIC equation divides a company's operating income, adjusted for its tax rate, by total debt plus shareholder equity minus cash. It aims to show how much new cash is generated from capital investments.

    CLASSROOM APPLICATION: This is an excellent article to use when covering ROIC in financial accounting and financial statement analysis classes.

    QUESTIONS: 
    1. (Introductory) What is ROIC? What is its definition of this term?

    2. (Advanced) How can ROIC be used by corporations? How can it be used by investors and other outside parties?

    3. (Advanced) What is an activist? The article reported that the use of ROIC placated activists. What does that mean? How were they placated? Why didn't other financial information placate them? What does ROIC show to activists?

    4. (Advanced) Why do some parties love ROIC? What are some of the issues or potential problems associated with ROIC?

    5. (Advanced) Should management of companies be focused on ROIC? What are some problems that could result if management focuses on ROIC?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    "The Hottest Metric in Finance: ROIC," by David Beno, The Wall Street Journal, May 4, 2016 ---
    http://www.wsj.com/articles/the-hottest-metric-in-finance-roic-1462267809?mod=djem_jiewr_AC_domainid

    Last year, General Motors Co. fended off a group of activist investors with the help of an esoteric financial metric to which it had previously paid little heed.

    The century-old auto maker began publicly touting the statistic, known as return on invested capital, or ROIC. It tied compensation to a 20% target and said that above a $20 billion cushion, cash it couldn’t earn that return on would be handed back to shareholders.

    The steps placated the activists.

    GM’s move underscores that, as much as a financial metric can be, ROIC is all the rage.

    The popularity of the figure is also more evidence of the influence activists have come to wield in boardrooms. For ROIC lovers, which also include traditional stock pickers, the measure is the best way to distill what activists view as the most critical skill of management: how they allocate capital.

    The typical ROIC equation divides a company’s operating income, adjusted for its tax rate, by total debt plus shareholder equity minus cash. It aims to show how much new cash is generated from capital investments.

    For example, at GM, over the four quarters ended in March, adjusted operating earnings were $11.4 billion, up from $8.1 billion a year earlier. The denominator shrank as GM reduced, partly via buybacks, its equity, even though debt went up. ROIC rose to 28.5% from 19.5%, showing it was earning more with less.

    “ROIC provides the clearest picture of how we are managing our capital and our business,” said GM Chief Financial Officer Chuck Stevens. “It’s really starting to become part of the DNA of our decisions.”

    Continued in article

    Jensen Comment
    The EIBTDA is a misleading ratio with trumped by earnings ratios more popular with investors such as P/E ratios and e.p.s. trends

    "The Relative and Incremental Explanatory Power of Earnings and Alternative (to Earnings) Performance Measures for Returns"
    by Jennifer Francis, Katherine Schipper, and Linda Vincent
    Contemporary Accounting Research
    Volume 20, Issue 1, pages 121–164, Spring 2003

    Abstract
    We analyze the ability of earnings and non-earnings performance metrics to explain the variability in annual stock returns for industries where we identify, ex ante, an allegedly preferred (for valuation purposes) summary performance metric. We identify three industries where earnings before interest, taxes, depreciation, and amortization (EBITDA) and cash from operations (CFO) are preferred, and three industries where specific non-GAAP performance metrics are preferred. As a benchmark, we also examine the ability of EBITDA and CFO to explain returns for seven industries for which earnings is the preferred metric. Results for the benchmark earnings industries show that earnings dominates EBITDA and CFO in explaining returns. All other results are inconsistent with the view that perceptions of preferred metrics are reflected in actual aggregate investment behaviors.

    WARNING USE OF EBITDA MAY BE DANGEROUS TO YOUR CAREER
    by ALFRED M. KING
    Strategic Finance
    http://go.galegroup.com/ps/anonymous?id=GALE%7CA78355003&sid=googleScholar&v=2.1&it=r&linkaccess=fulltext&issn=1524833X&p=AONE&sw=w&authCount=1&isAnonymousEntry=true

    Using EBITDA (earnings before interest, taxes, depreciation, and amortization) in financial analysis may be dangerous to your career prospects. It's one of the most flawed concepts to be adopted by the financial community. Finance professionals rightly focus on cash flows. Valuations are based on the present value of future cash flows. Standard discounted cash flow valuation techniques taught in all finance and MBA programs have stood the test of time. They have served us well. Many investors and security analysts have also focused on price/earnings (PIE) ratios. The assumption is that if Company "A" is now earning $2.00 per share and the stock is $30.00, then the 15 PIE ratio can: 1) be compared to other stocks and 2) used to forecast future stock prices. To use a P/E ratio for comparative purposes, assume Company "A" is in the auto parts business. All its competitors are selling at PIE ratios between 13 and 17. Thus you might reasonably conclude that the stock is fairly priced on a current basis. Using a PIE ratio for forecasting purposes is simple: If the stock is likely to earn $2.40 a share next year, it would be expected to sell for about $36 a share (15 * 2.40 = 36), assuming the PIE ratio holds constant. So, cash flow and price/earnings analyses are two tools with which financial professionals are familiar. They work. But now we have detected an intruder on our financial radar: The rapid approach of EBITDA is closing fast on cash flow and price/earnings. It's time to shoot the enemy out of the sky before we suffer another defeat. HOW EBITDA IS BEING USED EBITDA is being used by security analysts because its "answers" appear more attractive. For example, if a company has $4 million of after-tax earnings and one million shares outstanding, the earnings per share are $4. If the stock is in a popular field such as media, it might sell today for a PIE of 35x earnings, or $140 per share. But substitute EBITDA for earnings per share, and you could easily get $7 per share or $7 million overall. Then, using the same current price of the stock,...

    Bob Jensen's Threads on Return on Business Valuation, Business Combinations, 
    Investment (ROI), and Pro Forma Financial Reporting ---
    http://www.trinity.edu/rjensen/roi.htm


    Teaching Case from The Wall Street Journal Accounting Weekly Review on May 10, 2016

    As Cyberthreats Mount, Internal Audit Can Help Play Defense
    by: Deloitte Risk Journal Editor
    May 10, 2016
    Click here to view the full article on WSJ.com

    TOPICS: Auditing, Cyber Crime, Internal Audit

    SUMMARY: Bolstered by technology expansion, a surge in data growth, evolving business models and motivated attackers, the threat from cyberattacks is significant and continuously evolving. One estimate suggests that cybercrime could cost businesses more than $2 trillion by 2019, nearly four times the estimated 2015 expense. In response to the increasing threat, many audit committees and boards have set an expectation for internal audit to perform an independent and objective assessment of the organization's capabilities of managing the associated risks. A first step in meeting this expectation is for internal audit to conduct a cyber risk assessment and distill the findings into a concise report for the audit committee and board, which can provide the basis for a risk-based, multiyear internal audit plan to help manage cyber risks.

    CLASSROOM APPLICATION: This is an excellent article to show students how accountants can add great value to their organizations beyond the traditional job duties.

    QUESTIONS: 
    1. (Introductory) What is cybercrime? What are the costs to businesses? What companies can be affected?

    2. (Advanced) What is internal audit? What are the traditional duties of internal auditors? Why is internal audit an important function in businesses?

    3. (Advanced) How is the article suggesting the internal audit function increase its duties beyond its traditional function? How can internal auditors help in the battle?

    4. (Advanced) How are the ideas in the article a natural fit for internal auditors? Should these tasks be done by internal auditors or would a specialized cybercrime group be a better fit? Please give reasons for your answer.

    5. (Advanced) Which of the ideas interest you the most? Why? Which of the ideas seem to be the most effective against cybercrime? Is there anything you would not consider? What additional ideas do you have for accountants and internal auditors to assist in the battle against cybercrime?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    RELATED ARTICLES: 
    Audit Committees: The Risks and Rewards of Emerging Technologies
    by Deloitte Risk Journal Editor
    Sep 18, 2014
    Online Exclusive

    "As Cyberthreats Mount, Internal Audit Can Help Play Defense," by Deloitte Risk Journal Editor, The Wall Street Journal, May 10, 2016 ---
    http://deloitte.wsj.com/riskandcompliance/2016/05/10/as-cyberthreats-mount-internal-audit-can-help-play-defense/?mod=djem_jiewr_AC_domainid

    Bolstered by technology expansion, a surge in data growth, evolving business models and motivated attackers, the threat from cyberattacks is significant and continuously evolving. One estimate suggests that cybercrime could cost businesses more than $2 trillion by 2019, nearly four times the estimated 2015 expense.* In response to the increasing threat, many audit committees and boards have set an expectation for internal audit to perform an independent and objective assessment of the organization’s capabilities of managing the associated risks. A first step in meeting this expectation is for internal audit to conduct a cyber risk assessment and distill the findings into a concise report for the audit committee and board, which can provide the basis for a risk-based, multiyear internal audit plan to help manage cyber risks.

    “The forces driving business growth and efficiency are also opening pathways to cyber assaults,” says Michael Juergens, an Advisory managing principal at Deloitte & Touche LLP. “Internet, cloud, mobile and social technologies—now mainstream—are platforms inherently oriented for sharing. At the same time, outsourcing, contracting and remote workforces are shifting operational control,” he adds.

    Many organizations are addressing cyberthreats with multiple lines of defense. For example, business units and the information technology (IT) function at many organizations integrate cyber risk management into day-to-day decision-making and operations, which comprises an organization’s first line of defense. Making up a second line of defense are information and technology risk management leaders who develop governance and oversight protocols, monitor security operations and take action as needed, often under the direction of the chief information security officer (CISO).

    “Increasingly, many companies are recognizing the compelling need for a third line of cyber defense—independent review of security measures and performance by the internal audit function,” says Sandy Pundmann, an Advisory managing partner at Deloitte & Touche LLP. “Internal audit should play an integral role in assessing and identifying opportunities to strengthen enterprise security. Advising stakeholders on trends and leading practices in cyber and other areas is a growing expectation for internal audit leaders,” she adds.

    At the same time, internal audit has a duty to inform the audit committee and board that the controls for which they are responsible are in place and functioning correctly—a growing concern across boardrooms as directors face potential legal and financial liabilities. Since many organizations have cyber readiness initiatives still in flight, some internal audit departments have elected to defer audit procedures until these projects are completed. While this may allow for a deeper level review, deferring cyber assurance procedures may not be the right answer.

    Cyber Risk Assessment Framework

    Many internal audit functions have developed and tested procedures for evaluating components of the organization’s preparedness for cyberthreats. These targeted audits, such as attack and penetration procedures, are valuable, but do not provide assurance across the spectrum of cyber risks. To provide a comprehensive view of an organization’s ability to be secure, vigilant and resilient in the face of cyber risks, internal audit should consider taking a broad programmatic approach to cyber assurance and not perform only targeted audits, which could provide a false sense of security.

    Continued in article

     


    Teaching Case from The Wall Street Journal Accounting Weekly Review on May 10, 2016

    Update: FASB Simplifies the Accounting for Share-based Payments
    by: Deloitte Risk Journal Editor
    May 06, 2016
    Click here to view the full article on WSJ.com

    TOPICS: Compensation, FASB, Financial Accounting, Share-Based Payments

    SUMMARY: Several aspects of the accounting for employee share-based payment transactions should become less complex under the FASB's update known as ASU 2016-09. Issued on March 30, 2016, the ASU, which applies to public and nonpublic entities, simplifies the accounting treatment for share-based payments related to income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. The new guidance, which is part of the Board's simplification initiative, also contains two practical expedients under which nonpublic entities can use the simplified method to estimate the expected term of an award and make a one-time election to switch from fair value measurement to intrinsic value measurement for liability-classified awards.

    CLASSROOM APPLICATION: This article could be used as an update on the topic for financial accounting classes.

    QUESTIONS: 
    1. (Introductory) What is a share-based payment? How do companies use these types of payments? Why do companies choose to issue them? What other options do they have?

    2. (Introductory) What is the FASB? What are its duties and areas of authority?

    3. (Advanced) How did the FASB change the rules regarding share-based payments? What are the reasons for these changes? How do the changes differ from the previous rules?

    4. (Advanced) How are each of the parties involved affected by the changes to these rules? Who is helped by these changes?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    "Update: FASB Simplifies the Accounting for Share-based Payments," by Deloitte Risk Journal Editor, The Wall Street Journal, May 6, 2016 ---
    http://deloitte.wsj.com/riskandcompliance/2016/05/06/update-fasb-simplifies-the-accounting-for-share-based-payments/?mod=djem_jiewr_AC_domainid

    The following article supersedes an April 8 report on guidance issued by the FASB as it relates to accounting for share-based payments. The update, released in a recent Deloitte Heads Up newsletter, contains revisions that reflect subsequent discussions with the FASB and SEC staffs related to entities’ changes to the net-settlement terms of their share-based payment arrangements from the minimum statutory tax rate to a higher rate up to the maximum statutory tax rate. The revised article notes that such changes would not be accounted for as a modification.

    Several aspects of the accounting for employee share-based payment transactions should become less complex under the FASB’s update known as ASU 2016-09.¹ Issued on March 30, 2016, the ASU, which applies to public and nonpublic entities, simplifies the accounting treatment for share-based payments related to income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows.

    The new guidance, which is part of the Board’s simplification initiative,² also contains two practical expedients under which nonpublic entities can use the simplified method³ to estimate the expected term of an award and make a one-time election to switch from fair value measurement to intrinsic value measurement for liability-classified awards.

    Accounting for Income Taxes

    Under current guidance, when a share-based payment award is granted to an employee, the fair value of the award is generally recognized over the vesting period, and a corresponding deferred tax asset is recognized to the extent that the award is tax-deductible. The tax deduction is generally based on the intrinsic value at the time of exercise (for an option) or on the fair value upon vesting of the award (for restricted stock), and it can be either greater (excess tax benefit) or less (tax deficiency) than the compensation cost recognized in the financial statements. All excess tax benefits are recognized in additional paid-in capital (APIC), and tax deficiencies are recognized either in the income tax provision or in APIC to the extent that there is a sufficient “APIC pool” related to previously recognized excess tax benefits.

    Under the ASU, an entity recognizes all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement.⁴ This change eliminates the notion of the APIC pool and significantly reduces the complexity and cost of accounting for excess tax benefits and tax deficiencies. In addition, excess tax benefits and tax deficiencies are considered discrete items in the reporting period they occur and are not included in the estimate of an entity’s annual effective tax rate.

    The ASU’s guidance on recording excess tax benefits and tax deficiencies in the income statement also has a corresponding effect on the computation of diluted earnings per share (EPS) when an entity applies the treasury stock method.⁵ An entity that applies such method under current guidance estimates the excess tax benefits and tax deficiencies to be recognized in APIC in determining the assumed proceeds available to repurchase shares.

    However, under the ASU, excess tax benefits and tax deficiencies are excluded from the calculation of assumed proceeds since such amounts are recognized in the income statement. In addition, the new guidance affects the accounting for tax benefits of dividends on share-based payment awards, which will now be reflected as income tax expense or benefit in the income statement rather than as an increase to APIC.

    Further, the ASU eliminates the requirement to defer recognition of an excess tax benefit until the benefit is realized through a reduction to taxes payable.

    Continued in article


    Teaching Case from The Wall Street Journal Accounting Weekly Review on May 10, 2016

    Boeing's Buyback Spending Makes Some Analysts Jittery
    by: Jon Ostrower
    May 11, 2016
    Click here to view the full article on WSJ.com

    TOPICS: Cash, Cash Management, Stock Buybacks

    SUMMARY: Boeing Co., the world's biggest plane maker by deliveries, has spent $19 billion buying back its own stock over the past three years, a spending spree that worries analysts who think the airplane-building cycle may be near its peak. The plane maker has been directing almost all of its free cash back to shareholders, boosting buybacks and dividends with the proceeds from record deliveries of its passenger jets.

    CLASSROOM APPLICATION: This article offers a good case study for stock buybacks and cash management in general.

    QUESTIONS: 
    1. (Introductory) What is a stock buyback? Why do some companies choose to participate in stock buybacks?

    2. (Advanced) How do stock buybacks affect a company's financial statements? How is the transaction entered into the company's financial records? What accounts are affected?

    3. (Advanced) How is a business affected by the stock buyback? How does it affect the company's stock price? How does it affect the company's strategies and options for growth?

    4. (Advanced) Why are some parties opposed to stock buybacks? What are possible disadvantages or negative ramifications?

    5. (Advanced) Besides buying stock, what is the Boeing doing with its cash? What is management's strategy behind each of these actions?

    6. (Advanced) Do you agree with Boeing's strategies? Why or why not? How can these actions help the company? How could they hinder the company? How are various stakeholders affected by these actions?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    RELATED ARTICLES: 
    Boeing Boosts Buyback Program, Increases Dividend
    by Doug Cameron
    Dec 15, 2015
    Online Exclusive

    Jet Prices Take Center Stage in Boeing Job Cuts
    by Jon Ostrower
    Mar 31, 2016
    Online Exclusive

    Is the Surge in Stock Buybacks Good or Evil?
    by E.S. Browning
    Nov 23, 2015
    Online Exclusive

    Beware the Stock-Buyback Craze
    by John Waggoner
    Jun 20, 2015
    Online Exclusive

    As Activism Rises, U.S. Firms Spend More on Buybacks Than Factories
    by Vipal Monga, David Benoit, and Theo Francis
    May 26, 2015
    Online Exclusive

    "Boeing's Buyback Spending Makes Some Analysts Jittery," by Jon Ostrower, The Wall Street Journal, May 11, 2016 ---
    http://www.wsj.com/articles/boeings-buyback-spending-makes-some-analysts-jittery-1462920092?mod=djem_jiewr_AC_domainid

    Boeing Co. , the world’s biggest plane maker by deliveries, has spent $19 billion buying back its own stock over the past three years, a spending spree that worries analysts who think the airplane-building cycle may be near its peak.

    The plane maker has been directing almost all of its free cash back to shareholders, boosting buybacks and dividends with the proceeds from record deliveries of its passenger jets.

    While many investors like having excess cash returned via buybacks, some Boeing analysts worry the company is unwisely borrowing from the future. The worry is what will happen to cash flow if sales fall from their current very high levels.

    Some analysts and investors watching Boeing’s plans are jittery about the path for cash flows to keep rising through the end of the decade to pay for buybacks and research and development.

    “The upward trajectory on cash runs out next year,” said Robert Stallard, managing director at RBC Capital Markets. He said Boeing should be preserving its cash, citing a coming cut in the production of its profitable 777 jet and the billions of dollars Boeing and rival Airbus Group SE spent to right their recent jetliner programs.

    A Boeing spokesman said that “the strong core operating performance across our business continues to generate significant cash flow and financial strength.” He said that strength, combined with a healthy growth outlook, provides the company with a foundation to continue its balanced cash deployment strategy where it can invest in “innovative products, technology and delivering returns to shareholders.”

    Boeing ended the first quarter with $7.9 billion in cash and forecasts approximately $10 billion in operating cash flow in 2016, and signals it expects that to climb through the remainder of the decade. It had revenue of $96.1 billion in 2015.

    The company said both its capital expenditures and research and development spending is up in 2016 and its production increases are plotted through the end of the decade. It anticipates returning an additional $10.5 billion over the next two years or so.

     


    Teaching Case from The Wall Street Journal Accounting Weekly Review on May 10, 2016

    Kraft Heinz’s Profit Gets Boost From Cost-Cutting Efforts
    by Annie Gasparro
    May 05, 2016
    Click here to view the full article on WSJ.com

    TOPICS: Budgeting, Managerial Accounting, Zero-Based Budgeting

    SUMMARY: Kraft Heinz Co. said its quarterly profit jumped 37.7% to $896 million, as cost-cutting efforts at the packaged-foods giant worked better than expected and its sales trends turned a corner. The company's goal is to improve profitability by shrinking department budgets, eliminating jobs, and increasing the efficiency of manufacturing its plethora of packaged-food brands, from its namesake ketchup to Velveeta cheese. The private-equity firm that bought Heinz in 2013 is known for pushing its companies to slash expenses using a method called zero-based budgeting, which calls for departments to justify every cost at the start of each year.

    CLASSROOM APPLICATION: This is a good example of a company's use of zero-based budgeting, as well as use of examining and cutting costs in an effort to increase net income. This is a rare article on zero-based budgeting that you can save for coverage of that topic.

    QUESTIONS: 
    1. (Introductory) What is zero-based budgeting? How is Kraft Heinz using this type of budgeting?

    2. (Advanced) What are the benefits of zero-based budgeting? What are potential problems or limitations with its use?

    3. (Advanced) What businesses and organizations are most likely to use this type of budgeting? What entities could be helped by use of it? What entities do not use it? Why don't all entities use this tool?

    4. (Advanced) As you advance in management, would you advocate the use of zero-based budgeting? Why or why not?

    5. (Advanced) Why is the company focusing on cutting costs? How does this add value to the organization and its stakeholders?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    RELATED ARTICLES: 
    Budgeting Tool Used by 3G Attracts Wider Following
    by Rachel Emma Silverman
    Mar 25, 2015
    Online Exclusive

    Meet the Father of Zero-Based Budgeting
    by David Kesmodel
    Mar 26, 2015
    Online Exclusive

    "Kraft Heinz's Profit Gets Boost From Cost-Cutting Efforts." by Annie Gasparro, The Wall Street Journal, May 5, 2016 ---
    http://www.wsj.com/articles/kraft-heinz-sales-hurt-by-currency-headwinds-1462395761?mod=djem_jiewr_AC_domainid

    Kraft Heinz Co. said its quarterly profit jumped 37.7% to $896 million, as cost-cutting efforts at the packaged-foods giant worked better than expected and its sales trends turned a corner.

    The company was formed last July by the merger of Kraft Foods Group and H.J. Heinz, with the goal of improving profitability by shrinking department budgets, eliminating jobs, and increasing the efficiency of manufacturing its plethora of packaged-food brands, from its namesake ketchup to Velveeta cheese.

    On Wednesday, Kraft Heinz said its sales for the first quarter fell 3.8% to $6.57 billion, hurt by the stronger U.S. dollar decreasing the value of revenue earned abroad. Excluding that and divestitures, Kraft Heinz’s sales rose 1.1%, showing signs of improvement, though the company cautioned that changing consumer tastes and volatile commodity costs pose hurdles.

    “We are off to a good start; good, not great,” said Chief Executive Bernardo Hees on a conference call Wednesday. “As expected, some headwinds hung around, including consumption trends in some key categories that held us back.”

    But, he added, “our savings are coming in faster than we were expecting,” and “big bets” on product launches are gaining traction—like removing artificial coloring from Kraft’s iconic boxed macaroni and cheese, and launching a series of new Heinz barbecue sauces, such as Texas Bold & Spicy and Carolina Tangy Vinegar.

    Continued in article


    Teaching Case from The Wall Street Journal Accounting Weekly Review on May 20, 2016

    Bid to Make Audit Reports More Useful to Investors Is Rebooted
    by: Michael Rapoport
    May 12, 2016
    Click here to view the full article on WSJ.com

    TOPICS: Audit Reports, Auditing, PCAOB

    SUMMARY: The Public Company Accounting Oversight Board agreed on a revamped proposal to overhaul and expand the audit report - the opinion included in each company's annual report in which the auditor attests that the company is presenting its finances accurately. The proposal is aimed at making the audit report more useful to investors, as opposed to the current, mostly boilerplate, opinion that critics say gives investors little information about a company's true condition. Like the 2013 plan, the new proposal would retain the current report's pass-fail model but would require auditors to tell investors about each audit's "critical audit matters" - the toughest, most complex decisions they have to make in evaluating that company's financial statements.

    CLASSROOM APPLICATION: This update is very useful for an auditing class.

    QUESTIONS: 
    1. (Introductory) What is an audit report? What is its purpose?

    2. (Introductory) What is the PCAOB? What are its duties and areas of responsibility?

    3. (Advanced) What are the details of the PCAOB proposal? How does the proposal differ from the current rules?

    4. (Advanced) Why is the PCAOB making this proposal at this time? What are the reasons for the changes? What are the potential benefits of the changes?

    5. (Advanced) How could the changes affect accounting firms? How could they affect users of the financial statements and audit reports?

    6. (Advanced) Do you agree with the proposed changes to the audit report? Why or why not?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    "Bid to Make Audit Reports More Useful to Investors Is Rebooted," by Michael Rapoport, The Wall Street Journal, May 10, 2016 ---
    http://www.wsj.com/articles/audit-regulator-to-issue-revised-proposal-for-overhauling-audit-reports-1462984906?mod=djem_jiewr_AC_domainid

    Public Company Accounting Oversight Board revamps proposal to require auditors to report more of what they find

    The government’s audit regulator is taking another shot at requiring auditors to tell investors more about what they find when they review a company’s financial statements.

    The Public Company Accounting Oversight Board agreed Wednesday on a revamped proposal to overhaul and expand the audit report—the opinion included in each company’s annual report in which the auditor attests that the company is presenting its finances accurately.

    The proposal, which updates a never-enacted 2013 plan, is aimed at making the audit report more useful to investors, as opposed to the current, mostly boilerplate, opinion that critics say gives investors little information about a company’s true condition.

    Like the 2013 plan, the new proposal would retain the current report’s pass-fail model but would require auditors to tell investors about each audit’s “critical audit matters”—the toughest, most complex decisions they have to make in evaluating that company’s financial statements.

    In the words of several board members, they are the decisions that “keep the auditor up at night.”

    The new proposal narrows the definition of what constitutes a critical audit matter, in response to concerns from auditors and others that the 2013 proposal had defined them too broadly.

    Under the new proposal, they would be limited to those matters that an auditor would be required to tell the company’s audit committee about, and the materiality of an issue would have to be considered.

    “I believe we have come to the right approach,” PCAOB Chairman James Doty said.

    The new proposal also would add some language and disclosures to the audit report, notably one about how long the auditor has worked for the company—decades, in some cases.

    Some critics believe an auditor’s long tenure in working with a particular company can lead to coziness between the auditor and client that would jeopardize the auditor’s ability to perform a tough, impartial audit.

    The Center for Audit Quality, which represents public-company auditors, is “encouraged” by the PCAOB’s revised proposal, said Cindy Fornelli, the group’s executive director. The CAQ had recommended a narrower focus for critical audit matters, and “we believe this is a move in the right direction,” she said.

    The proposal doesn’t include one element the PCAOB proposed in 2013: a requirement that auditors expand their purview to evaluating the accuracy of statements a company makes in other areas of its annual report apart from the financial statements, such as the “management’s discussion and analysis” section. The board is still considering that issue, but separately from the audit-report proposal, board members said.

    Many other countries already require the sorts of additional disclosures in the audit report that the PCAOB is considering. U.S. auditors, investors and other observers have broadly agreed that changes to the report are needed, but they haven’t been able to agree on the details. The PCAOB original August 2013 proposal drew nearly 250 comment letters and prompted lengthy debate, but no action was ever taken on enacting it.

    Continued in article


    Teaching Case from The Wall Street Journal Accounting Weekly Review on May 20, 2016

    Selling Your S Corporation: A Focus on Alternative Tax Structures
    by: Deloitte Risk Journal Editor
    May 12, 2016
    Click here to view the full article on WSJ.com

    TOPICS: Built-In Gains, Corporate Taxation, S Corporations

    SUMMARY: One of the newly permanent tax provisions of the Protecting Americans from Tax Hikes Act of 2015 (PATH Act) includes a favorable five-year recognition period for built-in gains following a conversion from a C to S corporation. Generally, the built-in gains tax imposes a corporate level tax, at the highest marginal rate applicable to corporations, on the portion of gain that existed as of the C to S conversion date. The built-in gains recognition period had generally been ten years although certain sale transactions were tested as if the built-in gains recognition period had been seven or five years since 2009 due to continuing extensions of certain temporary tax provisions. The provisions of the PATH Act are effective for taxable years beginning after December 31, 2014. Making this provision permanent eliminates the uncertainty that the prior temporary provisions would be extended and allows S corporations to properly and timely consider their options with sale transactions.

    CLASSROOM APPLICATION: This update article is appropriate for corporate taxation classes.

    QUESTIONS: 
    1. (Introductory) What is the PATH Act? When was it passed? What topics does it cover?

    2. (Advanced) What is an S corporation? How does it differ from other types of corporations?

    3. (Advanced) What are built-in gains? How are these gains taxed? How does the PATH Act change how these gains are taxed?

    4. (Advanced) What are the reasons for these changes? How will the changes affect S corporations? How will owners of S corporations be affected?

    5. (Advanced) What other recent tax law changes have affected S corporation shareholders? How will those changes affect business strategy and decision-making?

    6. (Advanced) What is a deemed asset sale and how does it affect the decisions of S corporation owners?

    7. (Advanced) How does section 338(h)(10) affect purchases and sales of S corporations? What are some tax planning strategies investors can use?

    8. (Advanced) What other tax considerations should investors consider when buying or selling S corporations?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    "Selling Your S Corporation: A Focus on Alternative Tax Structures," by Deloitte Risk Journal Editor, The Wall Street Journal, May 12, 2016 ---
    http://deloitte.wsj.com/riskandcompliance/2016/05/12/selling-your-s-corporation-a-focus-on-alternative-tax-structures/?mod=djem_jiewr_AC_domainid

    Over 20 key tax provisions were made permanent as a result of the recent Protecting Americans from Tax Hikes Act of 2015 (PATH Act), which was signed by President Obama on December 18, 2015. Importantly for S corporation owners, one of the newly permanent tax provisions includes a favorable five-year recognition period for built-in gains following a conversion from a C to S corporation. Generally, the built-in gains tax imposes a corporate level tax, at the highest marginal rate applicable to corporations, on the portion of gain that existed as of the C to S conversion date. The built-in gains recognition period had generally been ten years although certain sale transactions were tested as if the built-in gains recognition period had been seven or five years since 2009 due to continuing extensions of certain temporary tax provisions. The provisions of the PATH Act are effective for taxable years beginning after December 31, 2014. Making this provision permanent eliminates the uncertainty that the prior temporary provisions would be extended and allows S corporations to properly and timely consider their options with sale transactions.

    The shortened built-in gains recognition period is meaningful to many small business owners and “gives S corporation shareholders more flexibility regarding the timing and tax structure of a sale transaction and could significantly influence the net value derived by these company owners,” according to James Calzaretta, a partner with Deloitte Tax LLP.

    Evolving Tax Landscape

    Other recent tax law changes have also had an impact on S corporation shareholders and will likely affect their business decisions. Effective January 1, 2013, the highest marginal ordinary and capital gains tax rates increased to 39.6% and 20% respectively and certain sources of capital gain income may be subject to an additional 3.8% net investment income tax.

    “Based on the ever changing tax reform, it is important for sellers to be up to date on current tax laws related to S corporation shareholders,” observes Ryan Stecz, partner, Deloitte Tax LLP.

    Transaction Tax Structure Considerations

    Several S corporation disposition alternatives are available that should be considered when planning for the sale of the S corporation. Owners should compare these various options so that the potential tax impacts and other implications can be analyzed. One such alternative is a “deemed asset sale” by way of a section 338(h)(10) election.

    “Often times a buyer is focused on finding a way to achieve a fair market value tax basis in the assets acquired, so it is important for a seller to be knowledgeable about structure alternatives available and whether it may be possible to drive incremental value in a transaction,” according to Mr. Stecz.

    Benefits and Risks of a Section 338(h)(10) Election

    The U.S. Tax Code allows corporate buyers and sellers of the stock of an S corporation to make a section 338(h)(10) election so that a qualified stock purchase* will be treated as a deemed asset purchase for federal income tax purposes. A section 338(h)(10) election is a joint election that requires agreement between and among all of the selling shareholders and the prospective corporate buyer.

    As a result of a section 338(h)(10) election, a stock sale for legal purposes will be treated as an asset sale for tax purposes for both the buyer and seller. A deemed asset sale will adjust the tax basis of the S corporation’s assets in the hands of the buyer to fair market value. As a result, the buyer may benefit from incremental tax benefits, including amortization and depreciation of the assets’ purchase price for federal income tax purposes, along with resulting future tax deductions—for the amount paid—over the tax life of the acquired assets.¹

    It is possible that the buyer’s tax benefits may substantially outweigh the potentially incremental (or additional) tax costs to sellers resulting from the election, notes Mr. Stecz. “Buyers may be willing to reimburse selling shareholders for any incremental costs incurred. Sellers who understand the potential benefits resulting from the step-up transaction may also be in a position to negotiate a higher purchase price by clearly articulating those benefits to potential buyers,” he says.

    The deemed asset sale treatment may have negative tax consequences that selling shareholders should consider. By agreeing to make a section 338(h)(10) election, selling shareholders may subject themselves to various federal and state taxes that a straight stock sale—one without such election—would not generate.

    Following are additional deemed asset sale considerations.

    —Some of the gains from a deemed asset sale may be taxed at ordinary rates. For example, purchase price allocated to fixed assets may result in ordinary gain due to depreciation recapture. Similarly, gains associated with the difference between the fair market value of inventory may also be taxed at ordinary rates. On the other hand, assumption of certain liabilities might result in additional ordinary deductions to the S corporation today that were disallowed in prior years under the economic performance rules.

    Continued in article


    Teaching Case from The Wall Street Journal Accounting Weekly Review on May 20, 2016

    California Lawmaker: Vanguard Should Pay No State Taxes
    by: Sarah Krouse
    May 13, 2016
    Click here to view the full article on WSJ.com

    TOPICS: Revenue Recognition, State and Local Taxes, State and Local Taxes

    SUMMARY: California Assemblyman Mike Gatto is concerned investors will have to pay more to park their money with indexing pioneer Vanguard as a result of claims made by a former company lawyer. So he proposed a bill that would exempt Vanguard from California taxes. A former Vanguard lawyer has alleged the company was able to keep its fees low in part because it avoided some state and federal taxes for decades. The claims hinge on the way Vanguard manages its mutual funds "at cost" rather than the higher price a third party would demand. That practice allows it to pass on savings to investors, but the attorney has alleged Vanguard should pay a tax on what its profit would be had it not provided those at-cost services.

    CLASSROOM APPLICATION: This is a rare article that discusses state and local taxation. It can be used in corporate tax classes.

    QUESTIONS: 
    1. (Introductory) What are the facts of this case? What did Vanguard's former lawyer report?

    2. (Advanced) What entities pay sales tax and which do not pay? What are some of the reasons an entity would not pay state taxes?

    3. (Advanced) On what income is Vanguard allegedly avoiding state tax? What is the charge "at cost" mean? Why was Vanguard criticized for those charges?

    4. (Advanced) What are the details of the proposed legislation? Should it be passed? Why or why not?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    "California Lawmaker: Vanguard Should Pay No State Taxes," by Sarah Krouse, The Wall Street Journal, May 13, 2016 ---
    http://www.wsj.com/articles/california-official-vanguard-should-pay-no-state-taxes-1463074431?mod=djem_jiewr_AC_domainid  

    One California politician has a new way mutual fund giant Vanguard Group can keep its fees low: pay no state taxes.

    California Assemblyman Mike Gatto is concerned investors will have to pay more to park their money with indexing pioneer Vanguard as a result of claims made by a former company lawyer. So he proposed a bill in February that would exempt Vanguard from California taxes.

    The Malvern, Pa.-based manager of trillions in savings is known for its passively managed, lower-cost funds that track the market. Vanguard is able to push down what it charges investors because the company is owned by its mutual fund shareholders, an unusual structure in the asset management industry.

    But the former company lawyer, David Danon, has alleged Vanguard was also able to keep its fees low in part because it avoided some state and federal taxes for decades. The claims hinge on the way Vanguard manages its mutual funds “at cost” rather than the higher price a third party would demand.

    That practice allows it to pass on savings to investors, but Mr. Danon has alleged Vanguard should pay a tax on what its profit would be had it not provided those at-cost services.

    He brought a mix of lawsuits and whistleblower claims against Vanguard in several states as well as to the Securities and Exchange Commission and Internal Revenue Service.

    A New York lawsuit was dismissed last year because of the nature of Mr. Danon’s position at Vanguard. In Texas, Vanguard paid some back taxes last year without penalty, though the company didn’t specify how much. Vanguard said the payment followed a “routine audit” and was “unrelated to the allegations concerning Vanguard’s at-cost model in the lawsuit that was dismissed in New York.”

    Mr. Danon received a “confidential informant” payment of about $117,000 from Texas, according to documents viewed by The Wall Street Journal.

    Mr. Gatto said he proposed the bill after reading news stories that suggested the fund firm may have to raise its fees if the whistleblower’s efforts are successful and Vanguard’s tax bill grows.

    “It seems like they had their hearts in the right place. They weren’t trying to game the system,” he said of Vanguard, adding that he didn’t discuss the proposal with the company.

    A spokeswoman for Vanguard said in a statement that the firm wasn’t involved with the bill’s drafting and didn’t hear about it until it had been introduced. The company pays its “fair and appropriate” amount of state and federal taxes, she said.

    Continued in article


    Teaching Case from The Wall Street Journal Accounting Weekly Review on May 20, 2016

    IASB Chair Rings Alarm Over Use of Non-GAAP Measures
    by: Tatyana Shumsky
    May 12, 2016
    Click here to view the full article on WSJ.com

    TOPICS: GAAP, IASB, Non-GAAP Reporting

    SUMMARY: The IASB chairman said the IASB should do more to cool the popularity of non-standard accounting metrics. While reducing the use of such measures is primarily the task of securities regulators, there is space of accounting standards setters to supplement those efforts, he said. The growing use of measures outside of Generally Accepted Accounting Principles (GAAP) to present a more favorable picture of company performance, is a concern for investors and regulators. U.S. securities regulators require public companies to file financial reports using GAAP standards. While companies can supplement those figures with non-standard accounting metrics or adjusted figures, they must reconcile that information with the results reported under standard accounting rules.

    CLASSROOM APPLICATION: This article features comments and concerns of the IASB chair regarding the non-GAAP, which we can add to pro forma reporting discussions.

    QUESTIONS: 
    1. (Introductory) What is IASB? What is its area of authority?

    2. (Introductory) What is GAAP? How is it determined? What entities use GAAP?

    3. (Advanced) What in non-GAAP reporting? Why do companies engage in non-GAAP reporting? What are the benefits of this type of reporting?

    4. (Advanced) If a company chooses to report non-GAAP financial results, must it also report financial information on a GAAP basis? Why or why not?

    5. (Advanced) What does the chair of the IASB think about non-GAAP reporting? Is the IASB involved with GAAP reporting? What is he suggesting for international reporting?

    Reviewed By: Linda Christiansen, Indiana University Southeast

     

    RELATED ARTICLES: 
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    "IASB Chair Rings Alarm Over Use of Non-GAAP Measures," by Tatyana Shumsky, The Wall Street Journal, May 12, 2016 ---
    http://blogs.wsj.com/cfo/2016/05/11/iasb-chair-rings-alarm-over-use-of-non-gaap-measures/?mod=djem_jiewr_AC_domainid

    Accounting rule setters should play a larger role reining in the use of non-standard measures, said Hans Hoogervorst, chairman of the International Accounting Standards Board.

    The growing use of measures outside of Generally Accepted Accounting Principles (GAAP) to present a more favorable picture of company performance, is a concern for investors and regulators, said the chairman in remarks made to the annual conference of the European Accounting Association in Maastricht.

    More than 88% of companies in the S&P 500 currently use non-standard accounting metrics in their earnings releases, Mr. Hoogervorst said. Of those, 82% reported an increase in net income “and are clearly designed to present results in a more favorable light.”

    There is growing evidence “of these measures becoming increasingly misleading,” Mr. Hoogervorst said.

    U.S. securities regulators require public companies to file financial reports using GAAP standards. While companies can supplement those figures with non-standard accounting metrics or adjusted figures, they must reconcile that information with the results reported under standard accounting rules.

    The IASB should do more to cool the popularity of non-standard accounting metrics, Mr. Hoogervorst said. While reducing the use of such measures is primarily the task of securities regulators, there is space of accounting standards setters to supplement those efforts, he said.

    Continued in article


    Teaching Case from The Wall Street Journal Accounting Weekly Review on May 20, 2016

    Abercrombie: Pro Forma Results Aren't Cool
    by: Miriam Gottfried
    May 16, 2016
    Click here to view the full article on WSJ.com

    TOPICS: Financial Reporting, GAAP, Non-GAAP Reporting, Pro Forma Reporting

    SUMMARY: Abercrombie's same-store sales declined 11%, 8% and 3%, in the fiscal years ending January 2014, 2015 and 2016, respectively. Earnings also have slumped. But Abercrombie has become adept at getting investors to ignore major costs by training them to focus on so-called pro forma figures. These have stripped out charges related to restructuring business units, the impairment of the value of certain stores and what Abercrombie has called its "profit improvement initiative." That includes changing its merchandise assortment, beefing up its marketing, closing underperforming stores and investing in e-commerce. Abercrombie is one of a long list of companies that have been using pro forma metrics to paint a brighter results picture. Reported earnings among S&P 500 companies were 25% lower than pro forma figures in 2015. That was the widest difference since 2008.

    CLASSROOM APPLICATION: This article provides a good example of a company using pro forma or non-GAAP financial reporting.

    QUESTIONS: 
    1. (Introductory) What are the facts regarding Abercrombie's financial reporting? How does it compare with the rest of the apparel retail industry?

    2. (Advanced) What in non-GAAP reporting? Why do companies engage in non-GAAP reporting? What are the benefits of this type of reporting?

    3. (Advanced) What is pro forma financial reporting? Why is it called pro forma?

    4. (Advanced) Why would Abercrombie choose to participate in pro forma reporting? What are the advantages? What benefits does it offer the company? How are users of this information affected?

    5. (Advanced) What is the financial health of the company? What steps should management be taking? How should investors react?

    Reviewed By: Linda Christiansen, Indiana University Southeast

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    by Deloitte CFO Jounral Editor
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    "Abercrombie: Pro Forma Results Aren't Cool," by Miriam Gottfri, The Wall Street Journal, May 16, 2016 ---
    http://www.wsj.com/articles/abercrombie-pro-forma-results-arent-cool-1463333527?mod=djem_jiewr_AC_domainid

    Abercrombie’s pro forma earnings have been significantly higher than its reported earnings for the past three years, and investors shouldn’t buy its adjustments

    Like a recalcitrant high-school student, Abercrombie & Fitch always seems ready with an excuse. And its latest one may not keep it out of detention.

    Apparel retailers have had a brutal first quarter, with Macy’s, Nordstrom and Kohl’s among the hardest hit. Abercrombie, which reports results later this month, is no stranger to pain. The teen-apparel retailer’s same-store sales declined 11%, 8% and 3%, in the fiscal years ending January 2014, 2015 and 2016, respectively.

    Earnings also have slumped. But Abercrombie has become adept at getting investors to ignore major costs by training them to focus on so-called pro forma figures. These have stripped out charges related to restructuring business units, the impairment of the value of certain stores and what Abercrombie has called its “profit improvement initiative.” That includes changing its merchandise assortment, beefing up its marketing, closing underperforming stores and investing in e-commerce.

    Abercrombie is one of a long list of companies that have been using pro forma metrics to paint a brighter results picture. Reported earnings among S&P 500 companies were 25% lower than pro forma figures in 2015. That was the widest difference since 2008. The Securities and Exchange Commission is weighing whether to curb use of adjusted earnings figures.

    . . .

    At Abercrombie, reported earnings were just 46% of pro forma ones the past two fiscal years. In the fiscal year ended January 2014, they were 98%.

    Abercrombie says it provides pro forma measures to help investors better understand its operating performance. But the adjustments are questionable: Riding the waves of popularity among a notoriously fickle demographic is core to being a teen retailer.

    Abercrombie pushed that envelope further in the most recent fiscal year. It excluded from pro forma earnings $20.6 million in charges related to a write-down of its inventory. Absent that, annual pro forma net income would have been $57 million, instead of the $78 million in its earnings release. Abercrombie’s reported net income, on the other hand, was $35.6 million.

    The write-down makes sense. As part of its turnaround strategy, the company abandoned its logo-adorned merchandise for a subtler look.

    Continued in article

    From the Wall Street Journal Accounting Weekly Review on May 27, 2016

    Fewer Shareholders Pay U.S. Taxes on Dividends
    by: Richard Rubin
    May 19, 2016
    Click here to view the full article on WSJ.com

    TOPICS: Corporate Taxation, Dividends, Double taxation, Individual Taxation

    SUMMARY: A new study showing that a shrinking fraction of shareholders of U.S. corporations pay taxes on dividends is bolstering a drive to revamp the corporate tax system. The specter of double taxation, which animates complaints about today's U.S. corporate tax code, is receding. Tax-exempt and tax-preferred entities-such as 401(k) plans and other retirement accounts-own more than 75% of U.S. corporate stock, nearly opposite the prevailing pattern from 50 years ago. The study is emboldening Senate Finance Chairman Orrin Hatch, who says he is within weeks of releasing a proposal that would largely end the remaining double taxation of corporate dividends by shifting the burden from highly mobile corporations to less mobile shareholders.

    CLASSROOM APPLICATION: This is a good update to individual and corporate tax classes on the taxing of dividends.

    QUESTIONS: 
    1. (Introductory) What are dividends? How do they relate to corporate income?

    2. (Advanced) How are dividends taxed at the corporate level? How are dividends taxed are the receiver level? How is this considered to be double taxation?

    3. (Advanced) What did the Tax Policy Center study reveal? What are the reasons for this report? How has the conditions changed from previous years?

    4. (Advanced) What are the details of Senator Hatch's plan to address these dividend tax issues? What reasons does he offer in support of his plan?

    5. (Advanced) How would the proposed change affect the various taxpayers who are involved?

    6. (Advanced) What is the likelihood that the proposal will become law? What are the reasons for your answer?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    "Fewer Shareholders Pay U.S. Taxes on Dividends by: Richard Rubin, The Wall Street Journal, May 19, 2016 ---
    http://www.wsj.com/articles/fewer-shareholders-pay-u-s-taxes-on-dividends-1463615621?mod=djem_jiewr_AC_domainid

    New study is bolstering drive to shift tax burden from corporations to investors

    A new study showing that a shrinking fraction of shareholders of U.S. corporations pay taxes on dividends is bolstering a drive to revamp the corporate tax system.

    The specter of double taxation, which animates complaints about today’s U.S. corporate tax code, is receding, according to a new study from the Tax Policy Center. Tax-exempt and tax-preferred entities—such as 401(k) plans and other retirement accounts—own more than 75% of U.S. corporate stock, nearly opposite the prevailing pattern from 50 years ago, the study said.

    The study is emboldening Senate Finance Chairman Orrin Hatch (R., Utah), who says he is within weeks of releasing a proposal that would largely end the remaining double taxation of corporate dividends by shifting the burden from highly mobile corporations to less mobile shareholders.

    Sen. Hatch’s plan would let companies deduct dividends, lowering their effective corporate tax rate as a backdoor way to reduce the U.S.’s world-high top statutory tax rate of 35%. Individual taxable shareholders’ dividends would be taxed as ordinary income instead of at lower capital-gains rates. Those taxes would be directly withheld by companies when they pay dividends to investors.

    “It’s a huge mistake to locate the high tax at the corporate level and the low tax or the zero tax at the shareholder level,” Michael Graetz, a law professor at Columbia University, said at a congressional hearing this week. “We’ve got the tax in exactly the wrong place.”

    That feature may be a major political stumbling block for Mr. Hatch, whose plan will have trouble advancing in an election year under divided government. Any big change would disrupt businesses and shareholders that enjoy tax advantages now. Beyond that, a plan that lowers corporations’ effective tax rates and places the burden elsewhere will be hard to sell publicly.

    “The politics of this are just unbelievably daunting,” said Peter Merrill, a principal in the national economics and statistics group at PwC LLP.

    The new Tax Policy Center study, from Steve Rosenthal and Lydia Austin, documents the growth of tax-advantaged investing. Just 24% of corporate stock is owned by taxable individuals, down from 84% in 1965. The remaining 76% includes tax-exempt investors such as endowments, mostly exempt foreign investors and retirement plans, which pay a second layer of tax at ordinary income-tax rates, but benefit from what can be decades of tax deferral.

    “We can either strengthen corporate taxes by closing corporate loopholes or shift taxes more aggressively to the shareholder level,” said Mr. Rosenthal, whose organization is a project of the Urban Institute and Brookings Institution. “Shifting taxes to shareholders is much more difficult if few shareholders pay tax.”

    From 2010 to 2014, public companies with positive domestic pretax book income paid 32.2% of that income as dividends and another 43.4% as share repurchases, according to Mr. Merrill. Under Mr. Hatch’s plan, companies would have greater incentives to increase dividends and substitute payouts for buybacks.

    Continued in article


    From the Wall Street Journal Accounting Weekly Review on May 27, 2016

    Are Dividends Too High and Investment Too Low?
    by: Mike Bird
    May 19, 2016
    Click here to view the full article on WSJ.com

    TOPICS: Dividend Payout Ratio, Dividend Yield, Dividends, Financial Accounting, Financial Statement Analysis

    SUMMARY: U.S. companies are paying out dividends at near-record levels because companies paying them may not have much choice in investments, with few obvious opportunities to invest for growth. With earnings relatively weak, dividend payout ratios-the proportion of earnings paid directly to shareholders in dividends-have crept higher over the past five years. S&P 500 companies have paid out 37.5% of their earnings in dividends over the past 12 months, just a fraction below the 38.1% recorded in 2009, when earnings were plunging during the depths of the financial crisis.

    CLASSROOM APPLICATION: This current-events article offers useful information for coverage of financial statement analysis, dividend yield, and dividend payout.

    QUESTIONS: 
    1. (Introductory) What trends is the writer reporting in this article? What accounts are involved?

    2. (Advanced) What is a dividend payout ratio? How is it calculated? What information does it provide to users of the financial statements?

    3. (Advanced) What is dividend yield? How is it calculated? What information does it provide?

    4. (Advanced) How can dividend payout and dividend yield be affected by corporate investment opportunities? What other conditions or strategies could affect them?

    5. (Advanced) How do the current dividend payouts compare to recent years? How have the economy and other conditions changed and affected the payouts? What factors can companies control, and what factors are outside of a company's control?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    "Are Dividends Too High and Investment Too Low?" by Mike Bird, The Wall Street Journal, May 19, 2016 ---
    http://www.wsj.com/articles/are-dividends-too-high-and-investment-too-low-1463620127?mod=djem_jiewr_AC_domainid

    U.S. companies are paying out dividends at near-record levels, leaving some investors asking: Why won’t they invest?

    U.S. companies are paying out dividends at near-record levels, leaving some investors asking: Why won’t they invest?

    But the companies paying them may not have much of a choice, with few obvious opportunities to invest for growth.

    With earnings relatively weak, dividend payout ratios—the proportion of earnings paid directly to shareholders in dividends—have crept higher over the past five years.

    S&P 500 companies have paid out 37.5% of their earnings in dividends over the past 12 months, just a fraction below the 38.1% recorded in 2009, when earnings were plunging during the depths of the financial crisis.

    In Europe, the payout ratio surpassed financial-crisis levels in late 2014.

    The Stoxx 600’s′payout ratio is at 58%. Part of the difference between the U.S. and European ratios is attributable to a preference for share buybacks in the U.S.

    Even fund managers, the beneficiaries of dividends, are becoming skeptical of the trend.

    A growing number think dividends are too high and investment is too low, according to Bank of America Merrill Lynch’s global fund-manager survey.

    The number saying that payout ratios are too high is now 17 percentage points higher than the number saying that dividends are too low.

    Meanwhile, the net proportion of fund managers who say companies are investing too little is at a record high, reaching 73%. Last time dividends were so high, that proportion was lower than 30%.

    Part of the climb in dividends is attributable to oil stocks.

    The energy sector in both the S&P 500 and Stoxx Europe 600 has payout ratios above 100%, handing more to investors than they are actually earning.

    But almost all sectors have seen dividends climb. According to some analysts, companies simply can’t help themselves.

    “The payout ratio should be a function of growth expectations; when growth is expected to be lower, companies are likely to invest less and return more to shareholders,” said a recent research note from Goldman Sachs.

    What’s more, with other assets—especially bonds—yielding little or nothing, stocks have been attractive to investors who prioritize a steady stream of annual income.

    In the U.K., an unhealthy obsession with dividends is clear, and companies that attempt to pare back their payouts often see their stock prices plunge in the aftermath.

    “The potential decrease in terms of corporate bond yields will increase the attractiveness of dividend yield,” the Goldman Sachs analysts said.

    More than 35% of S&P 500 stocks offer investors a higher dividend payout than the yield they would get from their corporate bonds. That is against less than 10% for most of the years between 2000 and the 2008 financial crisis. In Europe, that proportion is nearly twice as high.

    Even with some asset managers getting tired of the climb in dividends, low yields elsewhere pressure companies to keep up their payments.

    Companies have another reason for handing cash back to investors. Where would they put it otherwise?

    Sluggish global growth has caused companies to sit on growing piles of cash. Companies can always try to expand, hire more people, or venture into new business areas. Turning a profit at the same time is more of a challenge.

    Continued in article


    From the Wall Street Journal Accounting Weekly Review on May 27, 2016

    Tax Implications of the Internet of Things 2
    by: Deloitte Risk Journal Editor
    May 20, 2016
    Click here to view the full article on WSJ.com

    TOPICS: Corporate Taxation, Internet of Things

    SUMMARY: As the Internet of Things (IoT) blurs the line between products and services, taxation may have a bigger impact than many expect. The IoT generally refers to a suite of technologies and processes that allows data to be tracked, analyzed, shared and acted upon through ubiquitous connectivity. Companies are taxed differently depending on whether they sell a product or service, and taxed as a regulated utility if what they sell is deemed to be "telecommunications." As a result, what was a relatively straightforward process can become one riddled with complexity.

    CLASSROOM APPLICATION: This is a good article for corporate taxation and tax-planning.

    QUESTIONS: 
    1. (Introductory) What is the Internet of Things? Why is it becoming more important and common in recent years?

    2. (Advanced) What are the tax issues surrounding the Internet of Things? Why are tax issues and tax planning different for these types of business offerings than for more traditional products and services?

    3. (Advanced) How are services taxed differently that products? Why are they? How does this affect businesses engaged in the Internet of Things? What tax issues exist, and what tax planning should a business consider?

    4. (Advanced) What is telecommunications? How is it taxed? Why is it related to the Internet of Things?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    "Tax Implications of the Internet of Things 2," by Deloitte Risk Journal Editor, The Wall Street Journal, May 20, 2016 ---
    http://deloitte.wsj.com/riskandcompliance/2016/05/20/tax-implications-of-the-internet-of-things-2/?mod=djem_jiewr_AC_domainid

    As the Internet of Things (IoT) blurs the line between products and services, taxation may have a bigger impact than many expect. The IoT generally refers to a suite of technologies and processes that allows data to be tracked, analyzed, shared and acted upon through ubiquitous connectivity.

    A wide range of companies that sell products as diverse as cars, appliances, industrial equipment and medical devices are discovering new ways to generate value by adopting an IoT strategy and embedding sensors and communications capabilities in their products. Some of these organizations are starting to charge subscription-type fees for these “connected” services, ranging from monitoring to music streaming.

    “The little-discussed consequences of such business model transformations are taxation issues, which have the potential to blindside companies that are unprepared,” says Paul Sallomi, vice chairman and global Technology, Media and Telecommunications industry leader, Deloitte LLP. Indeed, companies are taxed differently depending on whether they sell a product or service, and taxed as a regulated utility if what they sell is deemed to be “telecommunications.” As a result, what was a relatively straightforward process can become one riddled with complexity.

    “No company wants tax issues to determine what it sells to customers. Nevertheless, as the IoT blurs the line between products and services, taxation may have a bigger impact than many expect,” adds Mr. Sallomi.

    Services Are Taxed Differently Than Products

    Companies regularly invent new ways to add value to traditional products, including enhancing connectivity. This type of business model transformation often makes product companies look more like service providers. Consider a company that manufactures Internet-enabled routers, which often are equipped with communications, video and audio-conferencing capabilities, as well as security protocols and a variety of commercial applications. In the past, the company sold a piece of tangible personal property for a fixed price. Today, that same company sells monthly connectivity services either bundled or separately—which might, but not always, include the cost of the router.

    “As these types of services become an increasingly important value-add element to the equipment, manufacturers could find themselves in a different type of business,” says Jim Nason, U.S. Tax Telecommunications sector leader, Deloitte Tax LLP. “The organization may have transformed convincingly into a service business—or more specifically into a telecommunications business. These are the kinds of determinations regulatory and taxing authorities will make when auditing companies that generate increased revenue streams from service and communications-type offerings,” observes Mr. Nason.

    From a global perspective, economies have become increasingly service-based, and taxation has become considerably more complicated, especially when those services are delivered via the Internet. For example, services are generally taxed where they are provided, which is a simple determination if the business is a tailor or dry cleaner. But the service could be a streaming music station that the customer consumes while on a road trip across the United States. Further, it might be a service that needs to accommodate a consumption-based model, similar to the “pay for what you use” model used by utilities.

    Even answering the question “what is the service?” can be less than straightforward than in the past, particularly when multiple value propositions are packaged into a single offering. “That’s an important question to answer because taxing authorities across the U.S. are in the process of rethinking their tax rules to ensure they are receiving a fair share of the revenues from bundled, technologically advanced services,” says Mr. Sallomi.

    Telecommunications Taxes Are Among the Most Complicated

    One of the hallmarks of the IoT is taking “dumb” products and turning them into devices with interconnected, thinking capabilities that have the ability to communicate. In the case of monthly subscription plans, the service can start to sound similar to what phone companies offer, which can present several challenges. For example, there are significant administrative and technology-related costs associated with calculating, tracking and collecting telecom-related taxes, fees and surcharges. Some non-telecom companies may be ill-equipped to perform these activities, and some may not recognize the potential tax issues.

    “This is murky territory. In the U.S., for instance, some states are still unsure of when companies that offer connectivity-based applications cross the line into providing telecommunications services,” says Mr. Nason. Further, what constitutes telecommunications in one state may pass as a more basic service in another, and often sorting out such issues requires litigation to finalize the appropriate tax treatment of certain offerings.

    To address IoT-related tax challenges effectively, an organization’s tax leader should have an understanding of the new products and services being brought to market and should consider joining the development process early.

    Continued in article


    From the Wall Street Journal Accounting Weekly Review on May 27, 2016

    The Big NumberCash on corporate balance sheets as a percentage of debt
    by: Richard Teitelbaum
    May 24, 2016
    Click here to view the full article on WSJ.com

    TOPICS: Cash, Cash Management, Financial Statement Analysis, Liquidity

    SUMMARY: The record amount of cash held by U.S. companies doesn't give them a very thick cushion. Corporate cash and liquid investments keep rising. But, as a percentage of total debt, those holdings fell to 28% last year, down three percentage points from 2014.

    CLASSROOM APPLICATION: This article with current information is appropriate for coverage of cash management and in financial statement analysis.

    QUESTIONS: 
    1. (Introductory) What was the average 'cash as a percentage of debt' last year?

    2. (Advanced) What are the trends regarding corporate cash as a percentage of debt? Why might these changes be occurring?

    3. (Advanced) What does the ratio for cash as a percentage of debt reveal to analyst and investors? Is it better for this number to be high or low?

    4. (Advanced) One of the authors of the report said this situation is a "perfect storm." What does he mean? What factors are involved to create a perfect storm? What affect is that having on companies and cash management?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    "The Big Number," by Richard Teitelbaum, The Wall Street Journal, May 24, 2016 ---
    http://www.wsj.com/articles/the-big-number-1464046142?mod=djem_jiewr_AC_domainid

    28%

    Cash on corporate balance sheets as a percentage of debt

    The record amount of cash held by U.S. companies doesn’t give them a very thick cushion.

    Corporate cash and liquid investments keep rising. But, as a percentage of total debt, those holdings fell to 28% last year, down three percentage points from 2014, says a recent report by S&P Global Ratings. That’s the lowest level since the financial crisis.

    With interest rates expected to rise, the declining ratio is especially worrisome for companies that issue high-yield debt, says credit analyst Andrew Chang, a co-author of the report, which looked at over 2,000 U.S. nonfinancial companies.

    Aside from low rates, which encourage borrowing, another force driving the drop in the cash-to-debt ratio is “synthetic cash repatriation.” U.S. technology and health-care companies in particular are generating big profits overseas and issuing debt to finance share repurchases and dividends at home.

    Companies do so to avoid the taxes that would be levied if they brought the profits home.

    “It’s sort of a perfect storm,” said Mr. Chang, referring to the combined effect of low rates and synthetic repatriations.

    Among the top 15 holders of cash that provided a geographical breakdown of their holdings, overseas cash rose 16.6% last year to $608.4 billion, while domestic cash growth was basically flat, according to the report.

    But the same 15 companies issued $99.3 billion in new debt, bringing the total to $409 billion, a 32.1% increase and nearly double the growth in overseas cash. All told, these 15 companies held 82.9% of their cash outside the U.S., up from 69% in 2011.

    Continued in article


    From the Wall Street Journal Accounting Weekly Review on May 27, 2016

    SEC Reviewed Valeant's Use of 'Non-GAAP' Financial Measures
    by: Michael Rapoport
    May 25, 2016
    Click here to view the full article on WSJ.com

    TOPICS: Financial Accounting, Financial Reporting, GAAP, Non-GAAP Reporting, SEC

    SUMMARY: The Securities and Exchange Commission reviewed Valeant Pharmaceuticals International Inc.'s use of adjusted "non-GAAP" financial measures and criticized Valeant's disclosures at one point as "potentially misleading. The SEC took issue with Valeant's practice of stripping out acquisition-related costs from its customized non-GAAP measures given that the Canadian drug company's business strategy was heavily dependent on acquisitions. The commission also questioned Valeant's disclosure of the tax effects of the costs it stripped out of its non-GAAP measures.

    CLASSROOM APPLICATION: This article offers a case study which applies the recent concerns regarding non-GAAP reporting to a company's situation. It is appropriate for discussing non-GAAP financial reporting in financial accounting classes.

    QUESTIONS: 
    1. (Introductory) What are the facts surrounding Valeant Pharmaceuticals International Inc.'s current financial situation?

    2. (Introductory) What is GAAP? How is it determined? What entities use GAAP?

    3. (Advanced) What is non-GAAP reporting? Why do companies engage in non-GAAP reporting? What are the benefits of this type of reporting?

    4. (Advanced) What is the SEC? What is its area of authority? Why has the SEC chosen to get involved with non-GAAP reporting? What is the agency planning to do?

    5. (Advanced) What are the SEC's criticisms of Valeant's recent actions? What was Valeant doing? Why did the company choose to do these actions? Why is the SEC concerned?

    6. (Advanced) How did Valeant's management respond the SEC's criticisms? What changes will the company make?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    "SEC Reviewed Valeant's Use of 'Non-GAAP' Financial Measures," by Michael Rapoport, The Accounting Review, May 25, 2016 ---
    http://www.wsj.com/articles/sec-reviewing-valeants-use-of-non-gaap-financial-measures-1464112332?mod=djem_jiewr_AC_domainid

    Valeant defended practice, but has told SEC it would make changes in its disclosures

    The Securities and Exchange Commission reviewed Valeant Pharmaceuticals International Inc.’s use of adjusted “non-GAAP” financial measures and criticized Valeant’s disclosures at one point as “potentially misleading,” according to newly public correspondence between the SEC and the company.

    The SEC took issue with Valeant’s practice of stripping out acquisition-related costs from its customized non-GAAP measures given that the Canadian drug company’s business strategy was heavily dependent on acquisitions, according to comment letters the SEC sent to the company starting in December. The commission also questioned Valeant’s disclosure of the tax effects of the costs it stripped out of its non-GAAP measures.

    SEC staff members are “concerned with your overall format and presentation of the non-GAAP measures and believe revisions to your future earnings releases and investor materials are appropriate,” the SEC’s corporation-finance division wrote to Valeant in a Dec. 4 letter.

    In responses to the SEC letters, Valeant defended its use of non-GAAP measures but said it would make changes in its disclosures. A Valeant spokeswoman said in a statement Tuesday that the company “believes that its disclosures were in accordance with applicable SEC rules.”

    The SEC has recently stepped up criticism of non-GAAP metrics—unofficial measures of corporate earnings that don’t follow generally accepted accounting principles, or GAAP. These measures strip out non-cash and one-time items to present what companies say is a clearer picture of their true performance, but critics contend the companies are taking out expenses they shouldn’t and making themselves appear stronger than they really are.

    Valeant had a GAAP loss of $291.7 million in 2015 versus an adjusted profit of $2.84 billion, after stripping out items like restructuring and acquisition costs, impairment charges and amortization of intangible assets.

    The comments came as part of a regular SEC review of Valeant’s filings, which the commission said in an April 26 letter it had completed. They don’t result in any penalty for the company.

    The correspondence shows the SEC’s “lack of comfort” with Valeant’s reporting, said Wells Fargo & Co. analyst David Maris, who has often been critical of Valeant. It “could add gravity” to the various regulatory investigations of the company, he said, including the SEC’s own probe into Valeant’s ties to a mail-order pharmacy which helped the company get insurance reimbursements for its often high-priced drugs. Valeant earlier this year restated earnings with regard to $58 million of revenue in connection with the pharmacy.

    Valeant is trying to move forward after months of questions about its accounting and business practices. The company has replaced its chief executive and much of its board, filed its belated annual report and vowed to curb the dramatic drug-price increases that drew political backlash.

    Valeant’s stock slipped 0.4% Tuesday to close at $26.11. The company’s shares have lost about 90% of their value since hitting their high last August.

    In the comment letters, the SEC asked Valeant to justify “why you remove the impact of acquisition-related expenses” and questioned the company’s reference to its “core” operating results, since its operations were so reliant on large, frequent acquisitions. Valeant stripped out $400 million in “restructuring, integration, acquisition-related and other costs” from its non-GAAP earnings in 2015, and nearly $1.3 billion in the last three years.

    Valeant replied that acquisition expenses were “not related to the company’s core operating performance,” and said that the volume and size of its acquisitions had varied over time. But the company agreed to stop referring to “core” results.

    In addition, the non-GAAP numbers seem to assume a low tax rate, the SEC said in a March 18 comment letter, giving the impression Valeant could generate big pre-tax profits without paying any significant amount of taxes. “We find this presentation to be potentially misleading,” the SEC said.

    Valeant responded that it believed its approach had been “reasonable” but said it would address the SEC’s concerns. In March, the company said it would change the tax reporting it uses when calculating its non-GAAP metrics.

    Among other issues, the SEC questioned whether Valeant was giving “equal prominence” to its GAAP results when it reported non-GAAP metrics, and criticized Valeant’s name of “cash earnings per share” for its adjusted metric, arguing that the name could be confusing since it doesn’t measure cash flows. Valeant agreed to give equal prominence to GAAP and to retitle cash EPS as “adjusted earnings per share,” a change the company told investors about in December.

    The SEC has become more critical of non-GAAP measures as evidence has mounted that they portray companies’ performance in a much more favorable light than standard GAAP measures. Earnings of S&P 500 companies fell 0.5% on a non-GAAP basis in 2015 compared with the previous year, but GAAP earnings fell 15.4%, according to data from Thomson Reuters and S&P Dow Jones Indices.

    Continued in article

    Bob Jensen's threads on pro forma reporting ---
    http://www.trinity.edu/rjensen/theory02.htm#ProForma


    From The Wall Street Journal Weekly Accounting Review on April 1, 2015

    Valuing Intangibles Doable, Despite Resistance
    by: Vipal Monga
    Mar 23, 2016
    Click here to view the full article on WSJ.com

    TOPICS: Financial Accounting, Intangible Assets, Valuation

    SUMMARY: Company executives and investors say that recording values for intangible assets like brand names and customer data is time consuming and difficult. That's why many resist the idea of having to bring them onto their balance sheets. But valuing such items is doable. There are well-established methods used by companies when they need to calculate values for assets such as trademarks. Under current accounting rules, U.S. companies don't record those items on their books as assets, leaving a growing gap in how balance sheets and income statements reflect the inner-workings of business. Companies do put values on intangibles in acquisitions and during restructurings.

    CLASSROOM APPLICATION: This article is good for coverage of how intangible assets appear on the financial statements and how they can be valued.

    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? When they appear on the financial statements? How are they presented?

    3. (Advanced) What is valuation of assets? When must companies place a value on intangible assets?

    4. (Advanced) Why do some people think it is challenging to value intangible assets?

    5. (Advanced) What are some of valuation methods? Which methods are best for what types of situations?

    6. (Advanced) Should intangible assets be included in the financial statements? Why or why not? What value would that information add? How can the value of reporting be limited?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    RELATED ARTICLES: 
    Accounting's 21st Century Challenge: How to Value Intangible Assets
    by Vipal Monga
    Mar 22, 2016
    Online Exclusive

    "Valuing Intangibles Doable, Despite Resistance," by Vipal Monga, The Wall Street Journal, March 23, 2016 ---
    http://blogs.wsj.com/cfo/2016/03/23/valuing-intangibles-doable-despite-resistance/?mod=djem_jiewr_AC_domainid

    Company executives and investors say that recording values for intangible assets like brand names and customer data is time consuming and difficult. That’s why many resist the idea of having to bring them onto their balance sheets.

    But valuing such items is doable. There are well-established methods used by companies when they need to calculate values for assets such as trademarks.

    Under current accounting rules, U.S. companies don’t record those items on their books as assets, leaving a growing gap in how balance sheets and income statements reflect the inner-workings of business.

    Companies do put values on intangibles in acquisitions and during restructurings.

    Valuation experts such as PJ Patel, co-chief executive of Valuation Research Corporation, use a “discounted cash flow” model to help companies come up with values during those instances. That involves estimating the amount of cash produced annually by the intangible and then projecting the cash flow out for many years. The firm then discounts the number to determine the present-day value of the future cash flows.

    The method isn’t as precise as it would be for estimating the value of commodities such as copper, where there are well-established markets that set prices. “There’s still subjectivity involved,” said Mr. Patel. But he added that it’s becoming more commonplace to get values for intangibles.

    Companies in distress or restructuring almost always get their intangible assets valued, especially those related to the Internet, said Holly Etlin, a managing director at consulting firm AlixPartners LLP.

    “All of it has value to potential buyers,” said Ms. Etlin. She advised defunct book seller Borders Group Inc. on its bankruptcy in 2011. She also acted as interim chief financial officer for RadioShack Corp. before it filed for bankruptcy protection last year.

    While getting values on such assets takes time, it’s not always expensive.

    The consultancy fee for initial valuations for companies involved in mergers can run as low as in the five figures for middle-market companies, said Anthony Alfonso, head of the valuation and the business analytics department of accounting and consulting firm BDO USA LLP. He added that similar work for large, multinational companies, could run into the millions, but that the number would be small compared to the market capitalization of such corporations.

    It’s unclear, however, whether investors are clamoring for the values. Putting more information onto the balance sheet would only have limited worth, say investors.

    For fund managers the balance sheets or earnings aren’t the most important financial statements; many prefer to look at cash flow to see how companies are really doing, said Jason Tauber, senior research analyst with Neuberger Berman. There are too many variables and assumptions that go into earnings statements, which can color the numbers, he explained.

    “Earnings are a story, but cash is a fact,” he said.

    Continued in article

    Bob Jensen's threads on pro forma accounting ---
    http://www.trinity.edu/rjensen/theory02.htm#ProForma

     


    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on June 19, 2015

    Tech Startups Woo Investors With Unconventional Financial Terms - but Do Numbers Add Up?
    by: Telis Demos, Shira Ovide, and Susan Pulliam
    Jun 10, 2015
    Click here to view the full article on WSJ.com
     

    TOPICS: Financial Reporting, GAAP

    SUMMARY: As young technology companies jostle for investors who will pour money into the firms as they try to make it big and strike it rich, some companies are using unconventional financial terms. Instead of revenue, these privately held firms tout "bookings," "annual recurring revenue" or other numbers that often far exceed actual revenue. The practice is perfectly legal and doesn't violate securities rules because the companies haven't sold shares in an initial public offering. Public companies can use "non-GAAP" financial terms but must explain them and disclose how they differ from measurements that follow strict accounting rules.

    CLASSROOM APPLICATION: This is a very interesting article about the use of nontraditional - "non-GAAP" - information by startups when they report to investors.

    QUESTIONS: 
    1. (Introductory) What is GAAP? What purpose does it serve? Why do companies and outside parties use it?

    2. (Advanced) What is the trend regarding providing "non-GAAP" financial information? Who is doing this? To whom are they providing it? What is their reasoning for doing this?

    3. (Advanced) In what situations would non-GAAP be acceptable reporting? In what situations would it not be allowed?

    4. (Advanced) What additional value does non-GAAP reporting add to other parties' decision-making processes? Would these parties also want GAAP information, or is the non-GAAP information sufficient?
     

    Reviewed By: Linda Christiansen, Indiana University Southeast
     

    RELATED ARTICLES: 
    Blowing the Froth Off Tech Earnings
    by Miriam Gottfried
    May 19, 2015
    Online Exclusive

    "Tech Startups Woo Investors With Unconventional Financial Terms - but Do Numbers Add Up?," by Telis Demos, Shira Ovide, and Susan Pulliam, The Wall Street Journal, June 10, 2015 ---
    http://www.wsj.com/articles/how-tech-startups-play-the-numbers-game-1433903883?mod=djem_jiewr_AC_domainid

    Hortonworks Inc. Chief Executive Rob Bearden forecast in March 2014 that the software firm would have a “strong $100 million run rate” by year-end. But the number looked a lot smaller after Hortonworks went public and then reported financial results: just $46 million in revenue last year.

    It turns out that Mr. Bearden wasn’t talking about revenue, though he didn’t say so at the time. The Santa Clara, Calif., company now says the $100 million target was for “billings,” a gauge of future business that isn’t part of generally accepted accounting principles. Mr. Bearden declines to comment.

    As young technology companies jostle for investors who will pour money into the firms as they try to make it big and strike it rich, some companies are using unconventional financial terms.

    Instead of revenue, these privately held firms tout “bookings,” “annual recurring revenue” or other numbers that often far exceed actual revenue.

    The practice is perfectly legal and doesn’t violate securities rules because the companies haven’t sold shares in an initial public offering. Public companies can use “non-GAAP” financial terms but must explain them and disclose how they differ from measurements that follow strict accounting rules.

    Continued in article

    "Tech Companies Fly High on Fantasy Accounting," The New York Times, June 18, 2015 ---
    http://www.nytimes.com/2015/06/21/business/high-tech-fantasy-accounting.html?mwrsm=Email&_r=0

    Jensen Comment
    It's not clear that the companies are in violation of FASB accounting standards. For example, they would be in violation of FAS 123r if they did not book employee vested stock options as expenses ---
    https://en.wikipedia.org/wiki/Stock_option_expensing 

    Restricted Stock --- https://en.wikipedia.org/wiki/Restricted_stock

    . . .

    Executive compensation practices came under increased congressional scrutiny in the United States when abuses at corporations such as Enron became public. The American Jobs Creation Act of 2004, P.L. 108-357, added Sec. 409A, which accelerates income to employees who participate in certain nonqualified deferred compensation plans (including stock option plans). Later in 2004, FASB issued Statement no. 123(R), Share-Based Payment, which requires expense treatment for stock options for annual periods beginning in 2005. (Statement no. 123(R) is now incorporated in FASB Accounting Standards Codification Topic 718, Compensation—Stock Compensation.)

    Prior to 2006, stock options were a popular form of employee compensation because it was possible to record the cost of compensation as zero so long as the exercise price was equal to the fair market value of the stock at the time of granting. Under the same accounting standards, awards of restricted stock would result in recognizing compensation cost equal to the fair market value of the restricted stock. However, changes to generally accepted accounting principles (GAAP) which became effective in 2006 led to restricted stock becoming a more popular form of compensation.[4] Microsoft switched from stock options to restricted stock in 2003, and by May 2004 about two-thirds of all companies surveyed by HR consultancy Mercer had reported changing their equity compensation programs to reflect the impact of the new option expensing rules.[5]

    The median number of stock options (per company) granted by Fortune 1000 firms declined by 40% between 2003 and 2005, and the median number of restricted stock awards increased by nearly 41% over the same period (“Expensing Rule Drives Stock Awards,” Compliance Week, March 27, 2007). From 2004 through 2010, the number of restricted stock holdings of all reporting executives in the S&P 500 increased by 88%.[

    Continued in article.

    FASB rules for stock compensation are set out in ASC 718, Compensation—Stock Compensation ---
    http://www.pwc.com/en_US/us/cfodirect/assets/pdf/accounting-guides/pwc_stock_based_2013.pdf 

    It would seem unlikely that auditors of companies using stock awards would allow violations of ASC 718.

    My point is that it is unlikely that "Fantasy Accounting" by tech companies are outright violations of FASB accounting standards. In the 1990s the tech industry was notoriously creative in writing contracts for creative accounting for increasing revenue and decreasing expenses. It became like a game to invent creative accounting followed by new EITFs to restrain the creative accounting.
    http://www.trinity.edu/rjensen/ecommerce/eitf01.htm 

    The article ["Tech Companies Fly High on Fantasy Accounting,"] cited above in  The New York Times, June 18, 2015] is not specific enough to allow us to judge whether the companies and auditors put themselves in jeopardy of huge lawsuits by blatantly violating FASB standards in a fantasy land. It would be interesting to learn more of the specifics, however, about how they are skating on the edge of FASB standards with tacit approval of their auditors. What the article does suggest is that some of the tech company transactions (such as acquisition transactions) are so complex that the FASB has not yet caught up with creative accounting. This most certainly has been the case of the new revenue recognition standard that keeps being delayed and delayed and delayed presumably because of costs of implementation.

    Bob Jensen's threads on creative accounting ---
    http://www.trinity.edu/rjensen/Theory02.htm#Manipulation

    "Hollywood Creative Accounting: The Success Rate of Major Motion Pictures," by Sergio Sparviero (University of Salzburg), SSRN, 2015 ---
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2617170

    Abstract:     
     
    Academic, trade, and popular publications commonly assert that 80 percent of motion pictures fail to make a net profit, suggesting also that the main players of the motion picture industry operate in highly volatile market conditions. More importantly, major film companies use this argument to negotiate for better terms with their production and distribution partners, to lobby for stricter copyright protections, and to argue in favor of media conglomeration as a hedge against adverse market conditions. This article disputes these assertions by calculating the full range of income that major motion pictures derive from their primary and secondary markets. It demonstrates that a large share of studio films are ultimately profitable, therefore challenging the arguments that conglomerates make with industry partners and government policy makers.

    June 21, 2015 reply from Tom Selling

    No good deed goes unpunished. The SEC tried to limit the use of non-GAAP financial measures by publishing pretty strict requirements prior to their use (See Reg. G and Item 10(e) of Regulation S-K. But issuers could now be assured that if they complied with the letter of the rules, then they wouldn’t have to revise their filings.

    Previously (may 12 years ago?), whether a non-GAAP measure was misleading was subject to the judgment of the Division of Corporation Finance, which reviewed disclosures only very selectively. As a result of the new rules, the use of non-GAAP measures exploded.

    Best,
    Tom

    Jensen Note
    Pro forma statements must be reconciled with traditional GAAP financial statements. Hence, investors and analysts who take the time and trouble can evaluate the extent of pro forma distortions.

    Bob Jensen's threads on Pro Forma Reporting --- http://www.trinity.edu/rjensen/Theory02.htm#ProForma

    Bob Jensen's threads on creative accounting ---
    http://www.trinity.edu/rjensen/Theory02.htm#Manipulation

     




    Humor for May 2016

    Zoological Jokes and Hoaxes --- http://daily.jstor.org/april-fools-zoological-jokes-hoaxes/

    Obama didn’t hold back at the White House Correspondents Dinner. Here were some of his best jokes.---
    http://www.vox.com/2016/4/30/11547858/barack-obama-dinner-speech-jokes

    Monty Python’s Philosopher’s Football Match: The Epic Showdown Between the Greeks & Germans (1972) ---
    http://www.openculture.com/2016/05/monty-pythons-philosophers-football-match-greeks-v-germans-1972.html


    14 Funny Reactions to "Will You Marry Me?" ---
    https://whisper.sh/stories/f758341b-b1cd-4959-932a-e9c4b42e9652/The-14-Funniest-Reactions-To-Will-You-Marry-Me


    Forwarded by Maria Popova
    Daytime Visions: A Tender and Unusual Illustrated Alphabet Celebrating the Whimsy of Words ---
    https://www.brainpickings.org/2016/05/25/daytime-visions-isol/?mc_cid=5e19106c81&mc_eid=4d2bd13843


    The day after Sven replaced Ole's outhouse with a new septic tank Lena screamed at Ole when she saw him squatting in the yard.

    "No, no, no Ole," she yellle!. "The poop is supposed to go in the tank not above it."


    Forwarded by Scott Bonacker

    What's the Moral of This Story ---
    http://www.news-leader.com/story/opinion/columnists/2016/05/01/moral-story/83802516/

    Jensen Comment
    Over the years on several occasions I've had requests from students to give the snap quiz at the start of class because they had to leave early. I've also had students arrive late for class that requested more time on quizzes that started before they arrived.


    Forwarded by Paula

    Forwarded by Paula

    WHOREHOUSE SUES LOCAL CHURCH OVER LIGHTNING STRIKE!

    What an interesting turn of events in Pahrump, Nevada...

    Diamond D's brothel began construction on an expansion of their building to increase their ever-growing business.

    In response, the local Baptist Church started a campaign to block the business from expanding -- with morning, afternoon, and evening prayer sessions at their church.

    Work on Diamond D's progressed right up until the week before the grand re-opening when lightning struck the whorehouse and burned it to the ground!

    After the brothel burned to the ground by the lightning strike, the church folks were rather smug in their outlook, bragging about "the power of prayer."

    But late last week 'Big Jugs' Jill Diamond, the owner/madam, sued the church, the preacher and the entire congregation on the grounds that the church ... "was ultimately responsible for the demise of her building and her business -- either through direct or indirect divine actions or means."

    In its reply to the court, the church vehemently and vociferously denied any and all responsibility or any connection to the building's demise.

    The crusty old judge read through the plaintiff's complaint and the defendant's reply, and at the opening hearing he commented, "I don't know how the hell I'm going to decide this case, but it appears from the paperwork, that we now have a whorehouse owner who staunchly believes in the power of prayer, and an entire church congregation that thinks it's all bullshit."

     


    Forwarded by Paula

    Mensa Test:

    Here's a puzzle that has confounded even the brightest among us.

    You are on a Horse, galloping at a constant speed.

    On your right side is a sharp drop off.

    And on your left side is an Elephant traveling at the same speed as you.

    Directly in front of you is a galloping Kangaroo and your horse is unable to overtake it.

    Behind you is a Lion running at the same speed as you and the Kangaroo.

    What must you do to safely get out of this highly dangerous situation?

    See answer below:

     

     

    Get your drunk ass off the merry-go-round!

     




    Humor May  2016 --- http://www.trinity.edu/rjensen/book16q2.htm#Humor053116.htm

    Humor April  2016 --- http://www.trinity.edu/rjensen/book16q2.htm#Humor043016.htm

    Humor March  2016 --- http://www.trinity.edu/rjensen/book16q1.htm#Humor033116.htm

    Humor February  2016 --- http://www.trinity.edu/rjensen/book16q1.htm#Humor022916.htm

    Humor January  2016 --- http://www.trinity.edu/rjensen/book16q1.htm#Humor013116.htm

    Humor December 1-31,  2015 --- http://www.trinity.edu/rjensen/book15q4.htm#Humor123115.htm.htm

    Humor November 1-30,  2015 --- http://www.trinity.edu/rjensen/book15q4.htm#Humor113015.htm

    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 May 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
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    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
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    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/

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