Bob Jensen's New Additions to Bookmarks

December 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 

Scholarpedia (a cross between Wikipedia and Google Scholar) --- http://www.scholarpedia.org

Google Scholar --- https://scholar.google.com/

Wikipedia --- https://www.wikipedia.org/

Bob Jensen's search helpers --- http://www.trinity.edu/rjensen/searchh.htm

Bob Jensen's World Library --- http://www.trinity.edu/rjensen/Bookbob2.htm




From the December 2016 Edition of Accounting Horizons
The Abstracts are Free, but the Full Text and PDF Versions are Not Free Without Subscriptions from the AAA
Especially note the presentation by Tom Linsmeier who was a long-time academic member of the FASB
Tom is now listed as being on the faculty of the University of Wisconsin at Madison. Years ago he was on the faculty of Michigan State University

FORUM ON PRESENTATION AND MEASUREMENT

473

 

A Synthesis of Three Commentaries on Measurement and Performance Reporting

Jeffrey Hales, Lynn Rees and T. Jeffrey Wilks
Abstract | Full Text | PDF (121 KB) 

No Access

 

485

 

Revised Model for Presentation in Statement(s) of Financial Performance: Potential Implications for Measurement in the Conceptual Framework

Thomas J. Linsmeier
Abstract | Full Text | PDF (399 KB) 

No Access

 

499

 

The Reporting of Income and Expense and the Choice of Measurement Bases

Roger Marshall and Andrew Lennard
Abstract | Full Text | PDF (139 KB) 

No Access

 

511

 

The Definitions of Net Income and Comprehensive Income and Their Implications for Measurement

Ikuo Nishikawa, Takao Kamiya and Yasunobu Kawanishi
Abstract | Full Text | PDF (82 KB) 


Securing Big Data Provenance for Auditors: The Big Data Provenance Black Box as Reliable Evidence
Journal of Emerging Technologies in Accounting
Volume 13, Issue 1 (Spring 2016) 
http://aaajournals.org/doi/abs/10.2308/jeta-51473

Author

Deniz Appelbaum --- Rutgers, The State University of New Jersey, Newark

Abstract

The purpose of this article is to highlight a main issue regarding reliable audit evidence derived from Big Data—that of secure data provenance. Traditionally, audit evidence external to the client has been regarded as superior to other forms of evidence. However, regarding external “messy” Big Data sources that may be material to aspects of the audit, these sources may lack provenance and verifiability. That is, the origins of the data may be unclear and its log files incomplete. According to the standards, such evidence should be considered as less reliable for audit evidence. External auditors, as outsiders of the client, should be able to reproduce the data lifecycle or transaction path, which may not be possible in an electronic environment with incomplete provenance. Furthermore, this mapping or provenance of the data origins and history should be securely maintained so that it cannot be thwarted. This need for secure data provenance has been largely ignored by the business community in its haste to utilize Big Data, but has been acknowledged by extant systems research as being an area that requires attention. This paper contributes to the discussion of Big Data provenance through the lens of public company auditing, where the provenance and reliability of data sources and audit evidence are of paramount importance. This paper also proposes a system of secure provenance collection, the Big Data Provenance Black Box, which is derived from several streams of extant research.


The Development of AudEx: An Audit Data Assessment System
Journal of Emerging Technologies in Accounting
Volume 13, Issue 1 (Spring 2016) 
http://aaajournals.org/doi/abs/10.2308/jeta-51445

Authors

Danielle R. Lombardi --- Villanova University

Richard B. Dull --- West Virginia University

Abstract

Tools to assist auditors in making sound, complete, and consistent judgements have become increasingly important due to regulation, litigation, and the desire to increase audit effectiveness. Historically, expert systems have been problem specific and created from scratch. Such systems were challenging to update and had limited adaptability when applied to additional problem spaces. If an adaptable system is possible, then costs and time may be reduced related to production, testing, and implementation of quality audit tools. Increased availability of such tools could be a tremendous benefit to auditors. Using a design science research method, this paper describes the process used to create a fraud risk assessment audit tool by embedding audit rules into a generic expert system shell that is widely used in the medical field. The resulting decision and training aid can assist auditors in making fraud risk assessments. While prior research has addressed many components of the issue, the current system was created to address the current risk environment, and a variety of contexts of interest, as the risk environment changes. The system was evaluated by practicing auditors while completing a series of cases. Evaluation results support the benefits of the artifact when used to assist in fraud risk assessments.


Computer-Assisted Functions for Auditing XBRL-Related Documents
Journal of Emerging Technologies in Accounting
Volume 13, Issue 1 (Spring 2016) 
http://aaajournals.org/doi/abs/10.2308/jeta-51436

Authors

J. Efrim Boritz --- University of Waterloo

Won Gyun No --- Rutgers, The State University of New Jersey, Newark

Abstract

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

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


Cutting-Edge Technologies in the Classroom
Journal of Emerging Technologies in Accounting
Volume 13, Issue 1 (Spring 2016) 
http://aaajournals.org/doi/abs/10.2308/jeta-51464

Author

Hui Du --- University of Houston–Clear Lake

Introduction

In 2015, the editorial team of Journal of Emerging Technologies in Accounting (JETA) called for papers on cutting-edge technologies in the classroom. Among all the American Accounting Association (AAA) journals and various conferences, we are the first to call papers in a special section to provide an opportunity for accounting academics to publish “cool” technologies used in the classroom. We now proudly present five papers in this theme issue.

As the technology and innovation move business forward, the accounting industry and the business world in general demand changes in accounting education (PricewaterhouseCoopers [PwC] 2015) with information technology (IT) skills and knowledge (Association to Advance Collegiate Schools of Business International [AACSB] 2014) to prepare a new generation of accounting professionals. G. Coyne, E. Coyne, and Walker (2016) provide a timely update of accounting curricula for emerging technologies to meet the challenge. An architecture is constructed with compliance, business model, and technological feasibility laying the foundation of accounting curricula. Technologies and controls are no longer add-on functions to help the creation, use, and maintenance of accounting information, pictorially as the top piece in the architecture. Instead, technologies that include the understanding of hardware, software, data storage, and information services, and controls that cover the crucial importance of accounting system security availability, integrity, and confidentiality, become two pillars to uphold the entire domain of accounting information. When accounting and business data in a rapidly changing world are captured, processed, stored, made use of, and made secure by computer technology and control, this novel architecture integrates emerging technologies in accounting curricula for academics to explore and consider. The unifying framework in the architecture along with corresponding teaching topics will help us prepare students with relevant professional competencies.

Continued in article


Book Review

Audit Analytics and Continuous Audit: Looking towards the Future
AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS, INC.,

Reviewed by Jagdish S. Gangolly
Journal of Emerging Technologies in Accounting
Volume 13, Issue 1 (Spring 2016) 
http://aaajournals.org/doi/abs/10.2308/jeta-10490


The Advent of IFRS in Canada: Incidence on Value Relevance
Journal of International Accounting Research
Article Volume 15, Issue 3 (Fall)
http://aaajournals.org/doi/abs/10.2308/jiar-51404

Authors

Denis Cormier --- University of Quebec at Montreal

Michel L. Magnan  --- Concordia University

Abstract

The paper focuses on Canada's enactment of IFRS for publicly accountable firms. We investigate whether IFRS meet one of their stated goals, which is to improve financial statements' relevance for stock markets. Results show that migrating from Canadian GAAP to IFRS enhances the value relevance of earnings but the effect is concentrated among firms that are cross-listed in the U.S. (and that do not report according to U.S. GAAP). The advent of IFRS enhances the value relevance of information contained in footnotes but attenuates the need for non-GAAP measures' disclosure. Stock market prices also embed more precise anticipations about future IFRS earnings. Additional analyses suggest that less earnings management accompanies IFRS adoption. Our results suggest that, for cross-listed firms, the adoption of IFRS enhanced the comparability of their financial statements and, ultimately, their value relevance.


An Understanding of the Differences between Internal and External Auditors in Obtaining Information about Internal Control Weaknesses ---
Journal of Management Accounting Research
Volume 28, Issue 3 (Fall 2016)
http://aaajournals.org/doi/abs/10.2308/jmar-51471

Author

Ian Burt --- Niagara University

Abstract

The Institute of Internal Auditors (IIA) argues that internal auditors often have a strong “employee” identity within their organization. While external auditors are concerned that this employee identity might negatively impact internal auditors' objectivity, the IIA argues this identity can actually be beneficial as employees may be more willing to share sensitive and audit-relevant information with the internal auditor than they would with the external auditor. Through an experiment relying on the social identity and organizational silence literatures, I test the prediction that non-audit employees will identify more highly with the internal than the external auditor and they will thus, be willing to share more information about internal control weaknesses with the internal than the external auditor. The results from a moderated mediation analysis support this prediction and also show the effect is stronger as the severity of the internal control weakness increases. Overall, this research informs external auditors and regulators about conditions under which the internal auditor may have an advantage over the external auditor in obtaining information that could help improve audit quality. It also informs managers about an important role played by their internal auditors that may result in increased quality of the internal control system while also potentially lowering audit fees.


 

McGill University Neurology will no longer patent researchers' findings, instead everything will be open access ---
https://boingboing.net/2016/12/17/mcgill-neurology-will-no-longe.html

As the Drive to Share Data Intensifies, Can Standards Keep Up? ---
http://www.chronicle.com/article/As-the-Drive-to-Share-Data/238722?cid=at&utm_source=at&utm_medium=en&elqTrackId=de3b7fff280445c193689fc52eec49ce&elq=7cd67ff93f4b4708bec4e4c074f490e9&elqaid=11893&elqat=1&elqCampaignId=4768

Patrick J. Curran struggles with the problem when studying alcoholism in families. Quynh C. Nguyen sees it when analyzing housing-voucher programs. And the Nobel laureate Harold E. Varmus encounters it while developing genomic databases for cancer patients.

Their trouble isn’t with sharing their data — all three professors are eager participants in the open-data revolution.

Instead, the problem is confidently sharing and interpreting data — huge amounts of it — with relevance and accuracy.

As they and other scientists embrace sharing, they’re finding that computer systems are quite good at storing and easing access to the enormous quantities of information they generate. But comparing and synthesizing all that data, in differing formats and styles and methods, requires human skill and judgment. And even the best aren’t sure how to do it, raising questions of whether the nationwide rush toward open data will really mean a momentous revolution in scientific progress or just a whole new level of gnarly reproducibility issues.

Mr. Curran is a professor of psychology at the University of North Carolina at Chapel Hill who studies the effects of alcoholic parents on their children. He combines findings from multiple studies and sees a challenge lurking in the varied scientific meanings and assessments that professional colleagues apply to terms such as "anxiety" and "depression."

"The thing that keeps me up at night," he said, "is, Am I making a substantive theoretical conclusion that is based on some artifact of how we scored the scale?"

Continued in article

Jensen Comment
One of the huge problems in finance and accounting is that empirical researchers often use the same purchased databases like CompuStat, CRSP, and AuditAnalytics. Efforts to replicate/reproduce research findings are rare, really rare, in financial accounting, and when they do happen they usually use the same data. Errors in that data happen a lot, and any research conclusions drawn from faulty data are likely to be the same conclusions drawn in replication attempts,. This is why findings that contradict earlier findings are so rare in accounting research.

Bob Jensen's threads on why replications are rare in financial accounting research ---
http://www.trinity.edu/rjensen/TheoryTar.htm

When is the last time you saw an accountics scientist in financial accounting collect his or her own data?
"A Scrapbook on What's Wrong with the Past, Present and Future of Accountics Science"
http://www.cs.trinity.edu/~rjensen/temp/AccounticsWorkingPaper450.06.pdf


Obama's Parting Shot at Birds
nearly four times the current limit
"Final wind-turbine rule permits thousands of eagle deaths," Matthew Daly, Associated Press, San Francisco Chronicle, December 14, 2016 ---
http://www.sfgate.com/business/article/Final-wind-energy-rule-permits-thousands-of-eagle-10795876.php

The Obama administration on Wednesday finalized a rule that lets wind-energy companies operate high-speed turbines for up to 30 years — even if means killing or injuring thousands of federally protected bald and golden eagles.

Under the new rule, wind companies and other power providers will not face a penalty if they kill or injure up to 4,200 bald eagles, nearly four times the current limit. Deaths of the more rare golden eagles would be allowed without penalty so long as companies minimize losses by taking steps such as retrofitting power poles to reduce the risk of electrocution.

The new rule will conserve eagles while also spurring development of a pollution-free energy source intended to ease global warming, a cornerstone of President Barack Obama's energy plan, said Fish and Wildlife Service Director Dan Ashe.

"No animal says America like the bald eagle," Ashe said in a statement, calling recovery of the bald eagle "one of our greatest national conservation achievements."

The new rule attempts to build on that success, Ashe said, adding that the Fish and Wildlife Service is trying to balance energy development with eagle conservation. Wind power has increased significantly since Obama took office, and wind turbines as tall as 30-story buildings are rising across the country. The wind towers have spinning rotors as wide as a passenger jet's wingspan, and blades reach speeds of up to 170 mph at the tips, creating tornado-like vortexes.

The surge in wind power has generally been well-received in the environmental community, but bird deaths — and eagle deaths in particular — have been a source of contention.

The birds are not endangered species but are protected under the Bald and Golden Eagle Protection Act and the Migratory Bird Treaty Act. The laws prohibit killing, selling or otherwise harming eagles, their nests or eggs without a permit.

 It's unclear what toll wind energy companies are having on eagle populations, although Ashe said as many 500 golden eagles a year are killed by collisions with wind towers, power lines, buildings, cars and trucks. Thousands more are killed by gunshots and poisonings.

Continued in article

Sure, it’s green energy—but it also results in hundreds of thousands of bird deaths each year
Audubon Society
http://www.audubon.org/news/will-wind-turbines-ever-be-safe-birds

Wind turbines kill an estimated 140,000 to 328,000 birds each year in North America, making it the most threatening form of green energy.

And yet, it’s also one of the most rapidly expanding energy industries: more than 49,000 individual wind turbines now exist across 39 states. The wind industry has the incentive to stop the slaughter: Thanks to the Migratory Bird Treaty Act, it’s illegal to kill any bird protected by the Act—even if the death is "incidental," meaning it occurs unintentionally on the part of the wind farm.

The Bald and Golden Eagle Protection Act recommends that to avoid eagle deaths, specifically, companies seriously consider where they site their wind developments, and that they also limit turbines’ impact using techniques like radar to detect incoming birds. But as the accident at the Peñascal wind farm shows, it’s unclear if deterrents like these actually work. The Ways Wind Farms Try to Scare Birds Away There are many kinds of retrofits that people are testing to hopefully make wind turbines better for birds.

Here are some of the options (the Audubon Society thinks clean energy is more important that the banning of windmills).

Continued in article

Photographs from Rhode Island:  America's first offshore wind farm just launched with GE turbines twice as tall as the Statue of Liberty ---
http://www.businessinsider.com/ge-wind-farm-block-island-2016-12/#the-block-island-wind-farmwill-generate-30-megawatts-of-energy-which-is-the-amount-required-to-powerevery-home-on-block-islanderic-crucerey-the-farms-project-manager-tells-business-insiderit-will-emit-about-40000-fewer-tons-of-greenhouse-gases-per-year-than-fossil-fuels-would-to-generate-the-same-amount-of-energy-thats-the-equivalent-of-taking-150000-cars-off-the-road-1
 

Jensen Comment

Here in New England many environmentalists see the Block Island wind farm as a horrid example of dirty politics ---
http://www.deepwaterresistance.org/risk_analysis.html

Environmentalists complain that Deep Water picked this island so because they would not be regulated properly ---
http://www.theday.com/article/20150821/NWS01/150829833

Having made his living in the utility industry, Warfel, a 17-year island resident, said he analyzed the project as well as Block Island’s power problems, and concluded that they could have been solved much more cheaply with energy conservation and on-island resources. He accused the Block Island Power Co. of being a “rogue utility” not properly regulated by the state that left the island vulnerable to Deepwater’s pitch. “I see no joy in taking this historic viewshed and adulterating it for the benefit of D.E. Shaw,” he said


Budget Adjustments and Spending Patterns: A Transaction Cycle View
SSRN, December 24, 2016
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2889625

Authors

Akhilesh Chandra University of Akron - The George W. Daverio School of Accountancy

Birendra K. Mishra University of California, Riverside (UCR) - A. Gary Anderson Graduate School of Management

Nirup M. Menon George Mason University

Abstract

Organizational- and departmental-level budgeting suffer from various shortcomings, such as asymmetric ratcheting. In this regard, we theorize, and propose, budgeting at the transaction-cycle level for effective budget designs. The transaction-cycle level budget requires management justification for resource assignment to business processes, often spanning multiple departments. The transaction-cycle typology consists of five cycles: production, expenditure, financial, revenue, and human-resources. In order to distinguish among transaction cycles, we use their relative positions within the value chain and technology content in their business processes. As a proof-of-concept, we develop theoretical arguments for asymmetric ratcheting in operating budgets at the transaction-cycle level in hospitals, and empirically examine this phenomenon using longitudinal archival data. Our hypotheses examine budgetary responses to over- and under-spending variances in operating budgets for fixed and variable costs. Our findings suggest that a transaction cycle’s position in the value chain and its technology content play a role in determining asymmetric ratcheting during budgeting. We discuss our contributions from the perspectives of theory and practice of accounting, budgeting, and accounting information systems.


The Effect of Regulatory Harmonization on Cross-Border Labor Migration: Evidence from the Accounting Profession
SSRN. December 23, 2016
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2889318

Authors

Matthew J. Bloomfield University of Chicago - Booth School of Business

Ulf Brüggemann Humboldt University of Berlin - School of Business and Economics

Hans Bonde Christensen University of Chicago - Booth School of Business

Christian Leuz University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Center for Financial Studies (CFS); University of Pennsylvania - Wharton Financial Institutions Center; CESifo Research

 

Abstract

The paper examines whether international regulatory harmonization increases cross-border labor migration. To study this question, we analyze European Union initiatives that harmonized accounting and auditing standards. Regulatory harmonization should reduce economic mobility barriers, essentially making it easier for accounting professionals to move across countries. Our research design compares the cross-border migration of accounting professionals relative to tightly matched other professionals before and after regulatory harmonization. We find that international labor migration in the accounting profession increases significantly relative to other professions. We provide evidence that this effect is due to harmonization, rather than increases in the demand for accounting services during the implementation of the rule changes. The findings illustrate that diversity in rules constitutes an economic barrier to cross-border labor mobility and, more specifically, that accounting harmonization can have a meaningful effect on cross-border migration.


Strategic Reactions in Corporate Tax Avoidance
SSRN, December 23, 2016
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2889145

Authors

Chris Armstrong University of Pennsylvania - Accounting Department

Stephen Glaeser University of Pennsylvania - Accounting Department

John D. Kepler University of Pennsylvania - Accounting Department

Abstract

We find that the tax avoidance of firms in the same industry exhibit strategic complementarities: a change in a firm’s tax avoidance leads to a direct change in its industry-competitors’ tax avoidance, and vice versa. We document evidence of these strategic complementarities in several measures of corporate tax avoidance using multiple sources of exogenous variation in competitors’ tax avoidance. We also find evidence that firms’ strategic response to their competitors’ tax avoidance stems from concerns about appearing more tax aggressive than their industry competitors and drawing unwanted scrutiny as a result.


Soft Information in Loan Agreements
SSRN, December 22, 2016
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2888876

Authors

Zahn Bozanic Ohio State University (OSU) - Department of Accounting & Management Information Systems

Lin Cheng The University of Arizona - Eller College of Management

Tzachi Zach Ohio State University (OSU) - Fisher College of Business

Abstract

In this study, we seek to understand whether soft information conveyed by contracting language found in private loan agreements is informative regarding borrower risk. We proxy for credit-risk-relevant soft information using Loughran and McDonald’s (2011) uncertainty measure. We first examine initial contract terms and find that, incremental to traditional summary measures of credit risk, increased contractual uncertainty is associated with higher initial loan spreads and a greater likelihood of using dynamic and performance pricing covenants. We then turn to examine realized credit risk over the life of the loan and find that increased uncertainty is associated with a higher likelihood of future loan downgrades and loan amendments. We corroborate our results on the risk relevance of soft information by showing that the bid-ask spreads of loans trading on the secondary loan market are increasing in uncertainty. Overall, the evidence we provide is consistent with embedded linguistic cues in loan agreements publicly revealing the credit risk assessments of privately informed lenders.


Ranking Accounting Authors and Departments in Accounting Education: Different Methodologies – Significantly Different Results
SSRN. Dececember 22, 2016
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2889108

Authors

Richard A. Bernardi Roger Williams University - Gabelli School of Business; Roger Williams University

Kimberly M. Zamojcin Roger Williams University - Gabelli School of Business

Taylor L. Delande Roger Williams University

Abstract

This research tests whether Holderness et al.’s (2014) accounting-education rankings are sensitive to a change in the set of journals used. It provides updated rankings for accounting-education authors from Australia, Canada, New Zealand, the Republic of Ireland, the United Kingdom, and the United States using a sample that included the publications in 13 accounting-education journals. Our analysis indicated that Holderness et al.’s rankings of authors and departments were significantly different from our rankings. This research provides rankings of the top 50 authors and departments for three periods: 2010 to 2015, 2004 to 2015 and 1992 to 2015. We provide data indicating the distribution of authors for these periods to assist authors not listed in the most-prolific lists in determining their relative ranking. Finally, we provide data on the distribution of journal choices for accounting-education publications for the authors from each country.


Is Bank Supervision Effective? Evidence from the Allowance for Loan and Lease Losses ---
SSRN, December 22, 2016
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2886636

Author

Ling Yang University of Chicago - Booth School of Business

Abstract

I investigate whether bank supervision is effective in enforcing written rules on the estimations of the allowance for loan and lease losses (ALLL) consistently between public and private banks, which have different intensity of incentives to misreport the ALLL. Results suggest that bank supervision of the ALLL estimations was effective between 2002 and 2012, but has become lax recently. State-chartered public banks underestimated the ALLL by about 13% annually between 2013 and 2015. Bank regulators are willing to cater to banks’ private interests when the economic environment is good and the regulatory emphasis is weak, but not during the crisis.


Strategic Reporting of Fair Value Estimate Levels
SSRN. December 22, 2016
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2889160

Authors

Kathleen Weiss Hanley Lehigh University - College of Business & Economics

Alan D. Jagolinzer University of Colorado - Leeds School of Business

Stanislava Nikolova University of Nebraska - Lincoln

Abstract

We investigate whether firms strategically report Levels that indicate reliance on lower quality inputs to allow flexibility to bias fair value estimates, or higher quality inputs to convey better asset liquidity. Specifically, we examine the dispersion of year-end fair value estimates and Levels for identical fixed-income securities held by multiple insurers. We find that insurers inflate estimates more when they report these estimates at Levels indicative of lower quality inputs than the consensus. Relatedly, insurers deviate from consensus Levels to indicate reliance on lower quality inputs, when they switch to carrying an asset at fair value and when they have less regulatory capital. When insurers face a decrease in liquid assets, they deviate from the consensus to a Level indicative of higher quality inputs likely to convey better asset liquidity. Collectively, our findings suggest that insurers exploit the ambiguity in the fair value estimate Level hierarchy consistent with financial reporting incentives.


Public Tax-Return Disclosure ---
SSRN, December 20, 2016
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2888385

Authors

Jeffrey L. Hoopes University of North Carolina (UNC) at Chapel Hill

Leslie A. Robinson Tuck School of Business at Dartmouth

Joel B. Slemrod University of Michigan, Stephen M. Ross School of Business; National Bureau of Economic Research (NBER)

Abstract

We investigate the effect of public disclosure of information from corporate tax returns filed in Australia on consumers, investors, and the corporations themselves that were subject to disclosure. Supporters of more disclosure argue that increased transparency will improve tax compliance, while opponents argue that it will divulge sensitive information that is, in many cases, misunderstood. Our results show that large private companies are likely to experience consumer backlash and are also, perhaps as a consequence, more likely to act to avoid disclosure. We also fail to detect any material increase in tax payments, one objective of legislating the disclosure regime. Finally, we find that investors react negatively to anticipated and actual disclosure of tax information, most likely due to anticipated policy backlash than the revelation of negative tax information. These findings are important for both managers and policymakers as the trend towards increased tax disclosure continues to rise globally.


The Effects of Tone-At-The-Top Messaging and Specialists on Auditors' Judgments during Complex Audit Tasks ---
SSRN. April 2016
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2888084

Authors

 SSRN, DJonathan S. Pyzoha Miami University - Department of Accountancy

Mark H. Taylor Case Western Reserve University - Department of Accountancy

Yi-Jing Wu Texas Tech University - Rawls College of Business

Abstract

PCAOB inspection findings indicate that audit firms overemphasize firm performance goals as opposed to audit quality in their tone-at-the-top messaging, which can suppress auditors’ professional skepticism when performing audit tasks at the engagement level. We investigate the effect of firm-level tone-at-the-top messaging on auditors’ judgments when auditing a complex audit area susceptible to management bias. We also examine whether management’s use of a specialist can influence the effect of tone-at-the-top messaging. Consistent with nonconscious goal conflicts theory, we find that when management does not engage a specialist inducing two competing goals equally (performance and audit quality) decreases auditors’ tendency to assess a complex estimate as reasonable in the presence of contradictory evidence as compared to when messaging overemphasizes performance goals. However, when management does engage a specialist, we find that an audit quality messaging approach reduces auditors’ tendency to over-rely on management’s specialists. Our results have important implications for regulators, standard setters, audit firms, and practitioners.


A Checklist for Reviewing a Paper ---
SSRN, December 21, 2016
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2887708

Authors

Jonathan Berk Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Campbell R. Harvey Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER); Duke Innovation & Entrepreneurship Initiative

David A. Hirshleifer University of California, Irvine - Paul Merage School of Business

Abstract

Despite the crucial importance of high quality reviewing for the scientific process, new scholars often learn how to do this based on casual advice and trial-and-error learning. We offer a checklist that helps referees systematically develop high quality referee reports and avoid some of the common pitfalls, in the spirit of the checklists used with success by surgeons and airplane pilots.The specific format in our checklist is not the only or `best’ one, but we believe it is useful, especially for junior scholars, to have access to at least one effective format laid out in a very specific form. This checklist is based upon ideas in Berk, Harvey and Hirshleifer (2016; 2017 forthcoming).


The Number of Professionally Certified Accounting Experts on Audit Committees and Confidence in Earnings: A Study of Retail Investors’ Perceptions
SSRN, December 21, 2016

Authors

Alan Levitan University of Louisville - College of Business and Public Administration

David A. Dubofsky University of Louisville - Department of Finance

Lyle Sussman University of Louisville

Abstract

The purpose of this study is to determine whether the composition of a company’s audit committee affects decisions by retail (non-institutional) investors. We examine if these investors’ confidence in reported earnings is affected by the number of committee experts under the U. S. Securities and Exchange Commission’s original, more restrictive definition of an expert (accountants and auditors), the expanded definition, or those who do not qualify under either definition. A sample of AAII (American Association of Independent Investors) members responded to an Internet-based questionnaire and assessed their confidence in the earnings quality of a hypothetical company, contingent on the financial expertise represented in the committee. Results suggest that as the number of Certified Public Accountants (experts under the more restrictive definition) on an audit committee increases, there is a general tendency for confidence in earnings to increase also. The statistical significance of this trend however is illuminated by both demographic and behavioral characteristics of the investors.


The Effective Income Tax Experience of U.S. and Non-U.S. Multinationals ---
SSRN, December 19, 2016
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2887658

Authors

Eric J. Allen University of Southern California - Leventhal School of Accounting

Susan C. Morse University of Texas at Austin - School of Law

Abstract

In this paper we examine how the incorporation of a parent firm outside the United States affects the effective income tax rates of global firms with material business operations in the U.S. We find that for profit firm years, firms with a non-U.S. parent corporation have lower effective tax rates than firms with a U.S. parent. However, in loss firm years we find that these non-U.S. firms report smaller negative tax expense. We find no statistically significant difference in outcomes if the non-U.S. firm engaged in an inversion transaction. We provide evidence that earnings stripping opportunities available to non-U.S. firms and the worldwide tax law applicable to U.S. firms contribute to the better tax results of non-U.S. firms in profit years. For loss firm years, we find evidence that the U.S. worldwide tax law and differences in valuation allowance practice support better tax outcomes for U.S. firms.


Probability Weighting and Analyst Bias: Theory and Evidence
SSRN, December 16, 2016
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2886643

Authors

Kathryn Elizabeth Warner Brightbill University of Iowa - Department of Accounting

Cristi A. Gleason University of Iowa - Department of Accounting

Mark Penno University of Iowa - Henry B. Tippie College of Business

Abstract

Analyst forecasting bias is frequently attributed to opportunism. We argue that opportunism is not a necessary condition for bias and propose a simple model, based on research in behavioral economics and psychology, of belief-based probability weighting. The model is used to develop benchmarks which we test empirically. Our model explains the change in the magnitude of forecast bias over the forecast horizon, the percentage of optimistic and pessimistic forecast errors at long horizons, and seemingly counter-intuitive findings around the implementation of Regulation Fair Disclosure. Our results may inform regulators as they attempt to reduce or eliminate analyst forecast bias; eliminating incentives to bias may not lead to statistically unbiased forecast


Earnings Announcements and Option Returns
SSRN, April 2016
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2886040

Authors

Sung Gon Chung Wayne State University

Henock Louis Pennsylvania State University - Smeal College of Business

Abstract

While prior studies find that returns on option straddles are generally negative, we show that returns on straddles purchased prior to earnings announcements are actually positive. The earnings announcement impact is compounded when the pre-portfolio formation volatility is low (high) and the pre-expiration realized volatility is high (low). Apparently, the average option trader underestimates future volatility before forthcoming earnings announcements, particularly after a period of relatively low volatility, and overestimates future volatility after recent earnings announcements, particularly after a period of relatively high volatility. The overestimation of future volatility after recent earnings announcements also increases with the magnitude of the earnings surprise.


Accounting Quality and Cost of Debt and Equity Capital in Deregulated Electric Utilities
SSRN, December 12, 2016
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2884906

Author

Emily Ping Yang University of Arizona, Department of Accounting

Abstract

Electric utilities play an important role in the economy and the general public’s life quality, and have caught lots of attention in the literature of Economics. However, the accounting research seems to be lacking in this area. In this paper, I use the national deregulation in electric utilities as an exogenous shock for the information uncertainty/asymmetry and analyze how accounting quality can help mitigate this information asymmetry and affect a firm’s cost of debt and equity capital, and its external financing choices. I find that accounting quality is negatively associated with cost of debt and cost of equity capital in the years after deregulation in electric utilities while such association does not exist between accounting quality and cost of debt and equity in the years before deregulation. This result shows that accounting quality serves as effective instrument to mitigate the negative effects of information uncertainty.


Andy Fastow is a liar who stole $60 million from his employer:  After six years in prison he's still a liar.

Cheryl Hall: Enron culprit Andy Fastow's ugly tale and sobering warning ---
http://www.dallasnews.com/business/business/2016/04/29/cheryl-hall-enron-culprit-andy-fastow-s-ugly-tale-and-sobering-warning

Jensen Comment
After prison Andy still cannot resist telling lies or cherry picking the facts.

What set Andy Fastow and Michael Kopper apart from most of the other Enron executives prior to the illegal self declarations of bonuses from a secret bank account set up just before Enron declared bankruptcy?
Who were the phony versus the real female whistleblowers at Enron?
See Number 10 at
http://www.trinity.edu/rjensen/FraudEnronQuiz.htm

What was the first SPE formed by Enron that was approved by the Board of Directors?  What did Andy Fastow promise the Board, a promise that he violated in the worst of possible terms?
See Number 13 at
http://www.trinity.edu/rjensen/FraudEnronQuiz.htm

What is most unusual and actually unethical about the way Enron's SPEs were managed? 
How were these related party dealings disclosed and yet obscured in the infamous Footnote 16 of Enron's Year 2000 Annual Report?
What did Professors Hartgraves and Benston conclude with respect to accounting fraud and failings of both Enron and the external auditors (Andersen) after a detailed analysis of the Powers Report commissioned by the former Chairman of the Board of Directors at Enron?
See Number 13 at
http://www.trinity.edu/rjensen/FraudEnronQuiz.htm

In round numbers, what is the amount Andy Fastow ultimately admitted to skimming from over 3,000 SPEs he set up in Enron?
What is the best estimate of the actual amount he stole from his company?
Hint:  It is tens of millions more than the $30 million fine he eventually paid
See Number 17 at
http://www.trinity.edu/rjensen/FraudEnronQuiz.htm

Was Andy Fastow considered a financial genius by financial experts within Enron?  Elaborate.
See Number 17 at
http://www.trinity.edu/rjensen/FraudEnronQuiz.htm

Aside from Andy Fastow's suggested use of SPEs for off-book transactions, who was the main instigator of accounting irregularities for items on the books of Enron?  What were some of the most typical types of accounting irregularities? Also mention some of Fastow's accounting irregularities.
See Number 27 at
http://www.trinity.edu/rjensen/FraudEnronQuiz.htm


The boss of one of the largest accounting firms in the world says his biggest concern for Europe isn't Brexit ---
http://www.businessinsider.com/kpmg-global-chairman-john-veihmeyer-brexit-populism-europe-2016-12

KPMG is one of the world's biggest accounting firms and its clients, which include some of the world's largest banks and financial institutions, are of course worried about Brexit — but the global chairman of KPMG says this is not his main concern.

John Veihmeyer told Business Insider that the rise of populism in Europe is far greater a threat to the continent's stability than Britain's exit from the European Union.

"We can all have our own views and it is going to be a personal view, but when I look at my role in the global economy and my concerns about it, I am more concerned about Europe than the UK," Veihmeyer told BI.

"The elections [in Europe] and the decisions [that are going to be made in 2017], like what will happen in France, could be very impactful for the rest of Europe — especially if we begin to see a trend or more similar activity in the Netherlands and other countries. It could threaten the [European] union. It would mean a disruptive period for years especially since there will be a focus more on Brexit.

"I wouldn't underestimate the concern I have for the health of the global economy and how this can become the biggest impediment of growth. The world is facing a lot of major uncertainties."

Republicans have a massive plan to overhaul the tax code — here's how it would work ---
http://www.businessinsider.com/republicans-plan-to-overhaul-the-tax-code-2016-12

Jensen Comment
The plan retains controversial itemized deductions like mortgage interest and charity deductions. This surprises me since proposing those will bring millions in extortion fees from lobbyists to the coffers of legislators. The plan does propose a larger standard deduction wich probably does not make those lobbyists happy.


David Giles:  More on the History of Distributed Lag Models ---
http://davegiles.blogspot.com/2016/12/more-on-history-of-distributed-lag.html
Jensen Comment
Especially note the parts about non-linear relationships

David Giles:  Top Econometrics Posts of 2016 ---
http://davegiles.blogspot.com/2016/12/top-new-posts-of-2016.html


The Emergence of Commercial Drones ---
http://www.visualcapitalist.com/emergence-commercial-drones/


Harvard Business:  Why We’re Seeing So Many Corporate Scandals ---
https://hbr.org/2016/12/why-were-seeing-so-many-corporate-scandals?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date&spMailingID=16221649&spUserID=MTkyODM0MDg0MAS2&spJobID=922560097&spReportId=OTIyNTYwMDk3S0


Why Low Interest Rates Failed to Boost Business Investments ---
https://www.bloomberg.com/view/articles/2016-12-27/why-low-rates-failed-to-boost-business-investment
Jensen Comment
If you look at the graphic on corporate investment as a share of GDP it's obvious that low interest rates most likely did not totally fail to boost business investment. But it gets complicated when the economy is in a recession. The problem is finding business investments. Certainly some companies like Tesla took on enormous investments and enormous debt. Virtually all companies have been investing in alternative sources of energy, particularly solar panels.

The crash in oil prices distorts statistics on business investment since the oil industry cut back so much on oil exploration, drilling, and development (such as cutbacks in new refineries around the world).


What's your balance with the IRS?  Do you owe anything or have any unclaimed refunds?
Has a thief already beat you to accessing your account?

New online tool allows taxpayers to check IRS account information ---
http://www.journalofaccountancy.com/news/2016/dec/tax-tool-to-check-irs-accounting-information-201615621.html?utm_source=mnl:globalcpa&utm_medium=email&utm_campaign=07Dec2016

The IRS announced on Thursday that it has launched an online tool that allows individuals to check their tax account balances online, including tax due, penalties, and interest, after they complete an online registration process called Secure Access. To register for Secure Access the first time, taxpayers must have an email address, a text-enabled cellphone in the taxpayer’s name, and specific account information for the taxpayer, such as credit card accounts and loan account numbers. Each time a taxpayer returns to use the service, he or she will be required to enter a code received from the IRS by email or text. The IRS, mindful of the many scams that try to obtain taxpayers’ information, noted that it will not send emails or texts asking for personal information or login credentials—it will only send codes for one-time use. Taxpayers who previously registered with the IRS for Get Transcript Online or through the online Get an Identity Protection Personal Identification Number (IP PIN) service can use the same usernames and passwords.

Jensen Comment
In 2014, following a Turbo Tax breach of tax data on millions of people who filed returns, a thief filed a tax return in my name using my Social Security number and my IRS PIN number. The IRS paid a refund to the thief based upon this fake tax return, just like the IRS has paid out billions every year on fake tax returns since the IRS commenced to allow electronic filings. Before electronic filings it was possible for thieves to file fake tax returns, although the IRS started getting ripped off much more after the era of electronic filing commenced. Since 2014 I will never file electronically again in my lifetime.

I detected the fraud before April 15, 2014 when the IRS refused to accept my genuine electronic filing. I immediately suspected what happened and mailed by genuine return to the IRS via snail mail. Since I had all my 1099 forms attached the IRS recognized that my mailed return was genuine and that the IRS had paid out an earlier refund to a fake Bob Jensen. The IRS then sent me my genuine (and much smaller) refund.

My question is whether this new 2016 online tool will reveal phony and well as genuine activity in my IRS account?
I've not yet tried the tool, but would love to hear from anybody is already using this tool.

What's worrisome is the thought that a thief beat me to using this tool for my IRS account.


Deloitte gives up on millions of pounds worth of government business to atone for leaked memo ---
http://www.businessinsider.com/brexit-deloitte-theresa-may-leaked-memo-firm-forfeit-millions-contracts-2016-12

Francine McKenna:  At Deloitte, the problems with audit quality and professionalism start at the top ---
http://www.marketwatch.com/story/at-deloitte-the-problems-with-audit-quality-and-professionalism-start-at-the-top-2016-12-09

Jensen Comment
Over the years Francine has had it in for Deloitte more than the other largest firms for some unknown reason in spite of evidence (think KPMG) to the contrary.

KPMG is the Worst of the Big Four Auditors (again and again)

The PCAOB released its inspection report of KPMG for 2015 yesterday and, sorry to say, it was the worst-performing Big 4 firm of the cycle with a deficiency rate of 38 percent ---
https://www.complianceweek.com/blogs/accounting-auditing-update/kpmgs-latest-inspection-shows-more-modest-improvement#.WEhliYWcGcx

Jensen Comment
This of course does not mean that in every city or country KPMG is the worst in a particular audit market. Auditing depends a great deal on local office talent and standards.

I read where KPMG is going to soon have a KPMG University that is bigger and better than Deloitte University. That we it will be easier to find out how KPMG screws up auditing better than Deloitte screws up auditing.

Bob Jensen's thread on the woes of KPMG and Deloitte and the other big firms ---
http://www.trinity.edu/rjensen/Fraud001.htm


Senate Uncovers 'Troubling' Aspects Of IRS Travel Policy ---
http://taxprof.typepad.com/taxprof_blog/2016/12/senate-finance-committee-uncovers-troubling-aspects-of-irs-travel-policy.html

Jensen Comment
This reminds me of a former student who became an internal auditor for a large multinational company. She traveled so much she did not have a home other than the house where her parents lived. The company even paid her travel expenses not to come home on week ends (saved on air fares). I don't know how long she endured this type of life, but my guess is that she eventually wanted a home and family.


How to Screw Up a Political Poll ---
19 Things We Learned from the 2016 Election ---
http://andrewgelman.com/2016/12/08/19-things-learned-2016-election/
Also read the comments


Sears is on the brink of catastrophe as stores closures loom and top execs flee the company ---
http://www.businessinsider.com/sears-problems-loom-large-2016-12

Jensen Comment
It might be interesting for accounting students to track such things as going concern disclosures and sustainability reporting.

Erika and I were in the Concord Mall recently where there's now always parking next to mall entrances. Sears is still one of the three large anchor stores along with JC Penney and Bon Ton. The mall's anchor stores are like empty tombs. About half the mall's other stores are already emptied out, and the center food court is dark with no food service stores except a hopeful Dunkin Donut shop that has a few tables in front of the shop. Judging from the lack of shoppers I don't know how this mall continues to pay for lights and heating.

Anchor store closings have  tremendous repercussions in terms of what economists call externalities. Sears often has anchor stores in large and small malls across the USA. We might say that when anchor stores go there's a smaller or non-existent Gap --- a Gap store that is.

Nationwide Black Friday shopping was down over 3.5% while there were millions of new online shoppers ordering from more than just Amazon. Sears now sends me announcements of online deals daily, and the deals make me wonder if there's any profit left in the sales. The problem is that Amazon sells stuff that I use daily like my rice bran and peanut butter and sweat suits. Sears sold me heavy appliances that I probably won't replace during the rest of my life.

December 4, 2016 reply from Beryl Simonson

And many of these malls have co-tenancy provisions in the non-anchor store leases that convert fixed rent to a percentage rent if the anchors go dark.  How do these provisions effect not only going concern considerations (which may be mitigated by financial support from the owners), but also impairment considerations.  Is this a triggering event that requires the first step in an impairment test?  What assumptions does management use for this test when an anchor goes dark and the smaller stores convert to percentage rent?


The US is $19.9 trillion in debt — here are the countries we owe the most ---
http://www.businessinsider.com/us-199-trillion-debt-china-japan-uk-hong-kong-ireland-cayman-islands-treasury-bonds-notes-politics-2016-12
Jensen Comment
I remember the Jane Fonda1981  movie called "Rollover" where the Arabs refuse to rollover their investment in US debt ---
https://en.wikipedia.org/wiki/Rollover_(film)
China has since overtaken the Arabs in holding Uncle Sam somewhere below the belt.


Question
What does political science have in common with accountics science in academic accountancy?

Answer
"At the moment the field applies this uniform methodological bar by which it (political science)  judges what’s good work," Mr. Mounk said. "It’s led by methods rather than by important questions."
After Trump’s Election, Political Scientists Feel New Urgency ---
http://www.chronicle.com/article/After-Trump-s-Election/238703?cid=at&utm_source=at&utm_medium=en&elqTrackId=434aeeb349424596b19fa8f7514785dc&elq=ad917ff8476b401494041eae861557cd&elqaid=11866&elqat=1&elqCampaignId=4750

"A Scrapbook on What's Wrong with the Past, Present and Future of Accountics Science"
http://www.cs.trinity.edu/~rjensen/temp/AccounticsWorkingPaper450.06.pdf


The demarcation between science and pseudoscience is part of the larger task to determine which beliefs are epistemically warranted ---
https://plato.stanford.edu/entries/pseudo-science/
For examples see
http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm#Pseudo-Science

"Richard Feynman on the Universal Responsibility of Scientists," by Maria Popover, Brain Pickings, March 6, 2013 ---
http://www.brainpickings.org/index.php/2013/03/06/richard-feynman-responsibility-of-scientists/

. . .

It is our responsibility as scientists, knowing the great progress and great value of a satisfactory philosophy of ignorance, the great progress that is the fruit of freedom of thought, to proclaim the value of this freedom, to teach how doubt is not to be feared but welcomed and discussed, and to demand this freedom as our duty to all coming generations

Metaphorical Meaning of the Phrase "Cargo Cult Science" ---
http://en.wikipedia.org/wiki/Cargo_cult#Metaphorical_uses_of_the_term

The term "cargo cult" has been used metaphorically to describe an attempt to recreate successful outcomes by replicating circumstances associated with those outcomes, although those circumstances are either unrelated to the causes of outcomes or insufficient to produce them by themselves. In the former case, this is an instance of the post hoc ergo propter hoc fallacy.

The metaphorical use of "cargo cult" was popularized by physicist Richard Feynman at a 1974 Caltech commencement speech, which later became a chapter in his book Surely You're Joking, Mr. Feynman!, where he coined the phrase "cargo cult science" to describe activity that had some of the trappings of real science (such as publication in scientific journals) but lacked a basis in honest experimentation.

Later the term cargo cult programming developed to describe computer software containing elements that are included because of successful utilization elsewhere, unnecessary for the task at hand.

 

Examples of Junk Science: A Pseudoscience Whistleblower Story ---
http://politicalcalculations.blogspot.com/2016/12/examples-of-junk-science-pseudoscience.html#.WEHTUoWcGcw

"The Sad Story of the Battery Breakthrough that Proved Too Good to Be True," by Kevin Bullis, MIT's Technology Review, December 6, 2013 ---
http://www.technologyreview.com/view/522361/the-sad-story-of-the-battery-breakthrough-that-proved-too-good-to-be-true/?utm_campaign=newsletters&utm_source=newsletter-daily-all&utm_medium=email&utm_content=20131209


"The Replication Myth: Shedding Light on One of Science�s Dirty Little Secrets
," by Jared Horvath, Scientific American, December 4, 2013 ---
http://blogs.scientificamerican.com/guest-blog/2013/12/04/the-replication-myth-shedding-light-on-one-of-sciences-dirty-little-secrets/

"Is Economics a Science?," by Robert Shiller, QFinance, November 8, 2013 --- Click Here
http://www.qfinance.com/blogs/robert-j. shiller/2013/11/08/nobel-is-economics-a-science?utm_source=November+2013+email&utm_medium=Email&utm_content=Blog2&utm_campaign=EmailNov13

NEW HAVEN � I am one of the winners of this year�s Nobel Memorial Prize in Economic Sciences, which makes me acutely aware of criticism of the prize by those who claim that economics � unlike chemistry, physics, or medicine, for which Nobel Prizes are also awarded � is not a science. Are they right?

One problem with economics is that it is necessarily focused on policy, rather than discovery of fundamentals. Nobody really cares much about economic data except as a guide to policy: economic phenomena do not have the same intrinsic fascination for us as the internal resonances of the atom or the functioning of the vesicles and other organelles of a living cell. We judge economics by what it can produce. As such, economics is rather more like engineering than physics, more practical than spiritual.

There is no Nobel Prize for engineering, though there should be. True, the chemistry prize this year looks a bit like an engineering prize, because it was given to three researchers � Martin Karplus, Michael Levitt, and Arieh Warshel � �for the development of multiscale models of complex chemical systems� that underlie the computer programs that make nuclear magnetic resonance hardware work. But the Nobel Foundation is forced to look at much more such practical, applied material when it considers the economics prize.

The problem is that, once we focus on economic policy, much that is not science comes into play. Politics becomes involved, and political posturing is amply rewarded by public attention. The Nobel Prize is designed to reward those who do not play tricks for attention, and who, in their sincere pursuit of the truth, might otherwise be slighted.
 

The pursuit of truth


Why is it called a prize in �economic sciences�, rather than just �economics�? The other prizes are not awarded in the �chemical sciences� or the �physical sciences�.

 

Fields of endeavor that use �science� in their titles tend to be those that get masses of people emotionally involved and in which crackpots seem to have some purchase on public opinion. These fields have �science� in their names to distinguish them from their disreputable cousins.

The term political science first became popular in the late eighteenth century to distinguish it from all the partisan tracts whose purpose was to gain votes and influence rather than pursue the truth. Astronomical science was a common term in the late nineteenth century, to distinguish it from astrology and the study of ancient myths about the constellations. Hypnotic science was also used in the nineteenth century to distinguish the scientific study of hypnotism from witchcraft or religious transcendentalism.
 

Crackpot counterparts


There was a need for such terms back then, because their crackpot counterparts held much greater sway in general discourse. Scientists had to announce themselves as scientists.

 

In fact, even the term chemical science enjoyed some popularity in the nineteenth century � a time when the field sought to distinguish itself from alchemy and the promotion of quack nostrums. But the need to use that term to distinguish true science from the practice of impostors was already fading by the time the Nobel Prizes were launched in 1901.

Similarly, the terms astronomical science and hypnotic science mostly died out as the twentieth century progressed, perhaps because belief in the occult waned in respectable society. Yes, horoscopes still persist in popular newspapers, but they are there only for the severely scientifically challenged, or for entertainment; the idea that the stars determine our fate has lost all intellectual currency. Hence there is no longer any need for the term �astronomical science.�
 

Pseudoscience?


Critics of �economic sciences� sometimes refer to the development of a �pseudoscience� of economics, arguing that it uses the trappings of science, like dense mathematics, but only for show. For example, in his 2004 book,
 Fooled by Randomness, Nassim Nicholas Taleb said of economic sciences:
 
�You can disguise charlatanism under the weight of equations, and nobody can catch you since there is no such thing as a controlled experiment.�

But physics is not without such critics, too. In his 2004 book,
The Trouble with Physics: The Rise of String Theory, The Fall of a Science, and What Comes Next, Lee Smolin reproached the physics profession for being seduced by beautiful and elegant theories (notably string theory) rather than those that can be tested by experimentation. Similarly, in his 2007 book, Not Even Wrong: The Failure of String Theory and the Search for Unity in Physical Law, Peter Woit accused physicists of much the same sin as mathematical economists are said to commit.


 

Exposing the charlatans


My belief is tha
t economics is somewhat more vulnerable than the physical sciences to models whose validity will never be clear, because the necessity for approximation is much stronger than in the physical sciences, especially given that the models describe people rather than magnetic resonances or fundamental particles. People can just change their minds and behave completely differently. They even have neuroses and identity problems - complex phenomena that the field of behavioral economics is finding relevant to understand economic outcomes.

 

But all the mathematics in economics is not, as Taleb suggests, charlatanism. Economics has an important quantitative side, which cannot be escaped. The challenge has been to combine its mathematical insights with the kinds of adjustments that are needed to make its models fit the economy�s irreducibly human element.

The advance of behavioral economics is not fundamentally in conflict with mathematical economics, as some seem to think, though it may well be in conflict with some currently fashionable mathematical economic models. And, while economics presents its own methodological problems, the basic challenges facing researchers are not fundamentally different from those faced by researchers in other fields. As economics develops, it will broaden its repertory of methods and sources of evidence, the science will become stronger, and the charlatans will be exposed.

More examples and debate
http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm#Pseudo-Science


Jensen Comment
The problem with economics is that most economists like Paul Krugman and Art Laffer also have political agendas.

Is Jagdish correct?

Is there really not one scholarly economist who advocated tax reductions among the 30+ developed  nations of the world that reduced marginal tax rates for three decades?
http://www.econlib.org/library/Enc/MarginalTaxRates.html
Note the listing of nations and the amount of the top marginal tax rate reductions
The fact of the matter is that many economists around the world supported those tax reductions

Jensen Comment
The Laffer Curve is not crap, but there's risk of crappy misuse by progressive and conservative decision makers who have only studied one side of the economic debate, analytics, and empirical research regarding the Laffer Curve

Revenue-Maximizing Corporate Income Taxes: The Laffer Curve in OECD Countries
SSRN, Posted March 20, 2013

Authors

Alex Brill American Enterprise Institute (AEI)

Kevin A. Hassett American Enterprise Institute (AEI

Abstract

Corporate tax rates among industrialized nations have been declining steadily since the mid 1980s. Theories of globalization, capital mobility and tax competition have been proposed to explain these changes. Less attention has been paid to the changes in corporate tax receipts during this period and their relationship to tax rates. This note explores these changes and finds, similar to Clausing (2007), strong statistical evidence of a Laffer curve in the international corporate tax data. This conclusion remains even when significant potential outlier countries, such as Ireland, Switzerland and Norway, are excluded from the sample. We extend her work by exploring the time variation in the revenue maximizing corporate income tax rate from 1980 to 2005. We find robust evidence that a Laffer curve has existed in the corporate tax sphere throughout most of our sample period. It is not merely a recent phenomenon. We also find that the revenue maximizing corporate tax rate was about 34 percent in the late 1980s, and that this rate has declined steadily to about 26 percent for the most recent period. In addition, we confirm our finding when using combined central and sub-central (i.e. federal plus average state) tax rates.

Jensen Comment
The problem with economics is that most economists like Paul Krugman and Art Laffer also have political agendas.


It's naive to think of the Laffer Curve as being all about reducing taxes.
Economists sometimes find the Laffer Curve useful in estimating how much they can safely increase taxes.

"Willingness to pay tax: The Laffer curve revisited for 12 OECD countries," by W.J.M. Heijman  and J.A.C. van Ophem, Journal of Socio-Economics, Volume 34, Issue 5, October 2005, Pages 714–723 ---
http://www.sciencedirect.com/science/article/pii/S1053535705000302

According to Laffer, economic activities are a decreasing function of the taxation rate. As a consequence, total tax revenue increases with the taxation rate at its lower levels and decreases against it at its higher levels. The result is the Laffer curve. According to him, the reason for this decrease lies in decreasing economic activities. Although this may be true for activities in the official (white) sector, in the unofficial (black) sector they can increase under the influence of an increasing taxation rate. Part of the Laffer effect may be nothing more than an activity switch away from the white towards the (hidden) black sector. This paper takes both effects into account: decreasing activities in the white sector combined with increasing activities in the black sector. It examines the computation of the maximum tax revenue generating taxation rate for a number of OECD countries. It concludes that, with the exception of Sweden, the marginal taxation rate in these countries is below its optimum.

"The Laffer Curve Revisited," Mathias Trabandta, et al, Journal of Monetary Economics, Volume 58, Issue 4, May 2011, Pages 305–327
http://www.sciencedirect.com/science/article/pii/S030439321100064X

"Dynamic Laffer Curves," by Alfonso Novalesa and Jesús RuizbJournal of Economic Dynamics and Control, Volume 27, Issue 2, December 2002, Pages 181–206


Five Things You Need to Know About IRS Form 990 (listing tax-exempt organizations ---
http://blog.aicpa.org/2016/12/5-things-you-may-not-know-about-irs-form-990.html#sthash.zHXEC6Rc.dpbs


History Corner
DYI ---- Do It Yourself
The University of Iowa Libraries: DIY History (Iowa history) --- https://diyhistory.lib.uiowa.edu

Jensen Comment
DYI could be a feature added to an accounting history library such as the great accounting history library at the University of Mississippi.


The Hagley Vault (USA History of Business and Fashion) --- http://hagleyvault.org
This site needs a better search engine


Not All Measures of GDP Are Created Equal ---
http://davegiles.blogspot.com/2016/12/not-all-measureds-of-gdp-are-created.html


Wal-Mart's Huge Experiment With Higher Wages and Work Schedules ---
http://www.nytimes.com/2016/10/16/upshot/how-did-walmart-get-cleaner-stores-and-higher-sales-it-paid-its-people-more.html?_r=0

Jensen Comment
Wal-Mart has always tended to pay the managers within stores quite well and tended to promote employees to managers from within.

This is more of an experiment with paying higher wages to non-managers. Wal-Mart has always had pretty good fringe benefits such as free college (on-line) and employee training. The most controversial fringe was health care that in the past had a substantial waiting period between the date of hire and the date health care benefits became available. This tended to weed out employees who were not going to stay on the job such as those with addiction problems and high absenteeism..


Proposed Destination Tax:  A plan to tax US imports has better odds of becoming law than many people think ---
http://www.cnbc.com/2016/12/21/tax-changes-taxing-imports-plan-has-chance-of-passing.html

A controversial proposal to tax all goods and services coming into the United States has a better chance of becoming law than many on Wall Street suspect.

The so-called "border-adjusted" tax is part of the House tax overhaul plan that also would reduce the corporate rate from 35 percent to 20 percent. The idea is to tax goods as they come into the country from overseas, but to avoid taxing U.S. exports at all. For instance, a car imported into the U.S. from Mexico would be taxed, but the American-made steel sent to Mexico would not.

Continued in article

Jensen Comment
It's unrealistic to assume that other nations buying USA exports would not similarly react with their own border-adjusted taxes.

The net effect will be to severely restrain world trade. This in my opinion is a lousy idea.


Yeah Right!
PLOS One: Quantity and/or Quality? The Importance of Publishing Many Papers
--- http://journals.plos.org/plosone/article?id=10.1371/journal.pone.0166149

Jensen Comment
As "research and publication" took over as the leading criterion for promotion and tenure the academic world experienced and exposion of so-called refereed journals, many of them from profit-seeking publishers. The result was an explosion in quantity and an a bifurcation of quality from extremes of highest quality to garbage with sham refereeing. The good news was an increase in specialty journals. The bad news was a shortage of dedicated referees.

One controversial factor was the impact of technology on publication and distribution costs, especially in the rise of e-journals that did not even entail hard copy printing of journals. This made it possible for libraries to be almost the entire source of revenue for some journals. My point here is that journals no longer had to rely on reader subscriptions to foot the bill in a market of supply and demand. Interestingly, the market of supply and demand now applies to blogs rather than "refereed" publications. For a blog to be successful it has to satisfy the needs of readers rather than libraries that fail to allocate resources based upon user demand. For example, one faculty member may be responsible for a campus library's subscription to an obscure journal.

What the above PLOS One Website fails to get across is that opposing the benefits of publishing many papers are the frauds perpetrated by making it so easy for faculty to get promotions and tenure based on the many P&T committees and administrators who are willing to count publication records rather than read the publications.

Commercial Scholarly and Academic Journals and Oligopoly Textbook Publishers Are Ripping Off Libraries, Scholars, and Students ---
http://www.trinity.edu/rjensen/FraudReporting.htm#ScholarlyJournals

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


The IRS may have a gift for a couple that waits until 2017 to get married ---
http://www.accountingweb.com/tax/individuals/will-year-end-newlyweds-owe-the-marriage-penalty?source=tx121216


EY:  Technical Line --- A closer look at the FASB’s hedge accounting proposal ---
http://www.ey.com/Publication/vwLUAssetsAL/TechnicalLine_04482-161US_Hedging_20December2016/$FILE/TechnicalLine_04482-161US_Hedging_20December2016.pdf

EY:  Financial Reporting Briefs, December 2016 ---
http://www.ey.com/Publication/vwLUAssetsAL/FinancialReportingBriefs_04353-161US_15December2016/$FILE/FinancialReportingBriefs_04353-161US_15December2016.pdf

EY:  FASB proposes new ‘down round’ guidance (Distinguishing Liabilities from Equity)  ---
http://www.ey.com/Publication/vwLUAssetsAL/FASBProposal_DistinguishingLiabilities_7December2016/$FILE/FASBProposal_DistinguishingLiabilities_7December2016.pdf

EY:  Statement of Cash Flows (Accounting Standards Codification 230) ---
http://www.ey.com/Publication/vwLUAssetsAL/FinancialReportingDevelopments_42856_CashFlows_15December2016/$FILE/FinancialReportingDevelopments_42856_CashFlows_15December2016.pdf

Reply from Scott Bonacker on December 18, 2016
There are quite a few documents available ---: http://www.ey.com/ul/en/accountinglink/accounting-link-home 

Bob Jensen's threads on Debt versus Equity (including mezzanine issues) ---
http://www.trinity.edu/rjensen/theory02.htm#FAS150


Fatal flaw found in PricewaterhouseCoopers SAP security software Instead of fixing the issue, PwC lawyered up ---
http://www.theregister.co.uk/2016/12/09/fatal_flaw_in_pricewaterhousecoopers_sap_software/

Bob Jensen's threads on PwC scandals ---
http://www.trinity.edu/rjensen/fraud001.htm


EY:  Highlights of the 2016 AICPA National Conference on Current SEC and PCAOB Developments ---
http://www.ey.com/Publication/vwLUAssetsAL/AICPACompendium_04331-161US_12December2016/$FILE/AICPACompendium_04331-161US_12December2016.pdf


ERISA of Lack Thereof:  The Supreme Court Case That Can Bankrupt Schools and Hospitals ---
https://www.theatlantic.com/politics/archive/2016/12/advocate-health-care-erisa/510218/


FinREC issues revenue recognition working drafts for airline, gaming industries ---
http://www.journalofaccountancy.com/news/2016/dec/revenue-recognition-for-airline-gaming-industries-201615618.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=02Dec2016


Common Income Tax Accounting Pitfalls ---
http://www.thetaxadviser.com/newsletters/2016/dec/common-income-tax-accounting-pitfalls.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=09Dec2016

AICPA's Most Popular Tax Resources (not free) ---
http://www.aicpastore.com/content/media/PRODUCER_CONTENT/generic_template_content/featured_products/taxes.jsp?cm_mmc=CPA-SocialComms-_-CPE-_-SY2016-_-Tax-Season


Economist Magazine:  India's Road to Robin Hood Monitory Hell is Paved With Good Intentions

Jensen Comment
In the USA a huge underground (cash-only) economy allows criminals to launder money, rich folks to avoid income taxes, and laborers to avoid payroll taxes.

In India the underground economy is even more of a problem.

"Modi's Bungle:  Narendra Modi needs to take measures to mitigate the damage his rupee reform has done," Economist Magazine, December 3, 2016 ---
http://www.economist.com/news/leaders/21711040-narendra-modi-needs-take-measures-mitigate-damage-his-rupee-reform-has-done-indias

. . .

Not the way to do it

The plan has laudable aims. Its initial popularity was based on the idea that the greedy rich, with their ill-gotten “black money” stored in stacks of banknotes, will get their comeuppance. Those who cannot justify the sources of their wealth will face punitive taxes. It also accords with Mr Modi’s manifesto pledge to normalise India’s black economy, estimated by the World Bank in 2010 to be worth about one-fifth of official GDP. The idea is that India will become more efficient, as more people and more money enter the banking system; counterfeit currency will become worthless; India’s woefully low tax base will expand; and government coffers will enjoy a windfall of cash expropriated from the corrupt.

It is a pity, then, that Mr Modi’s scheme to achieve these aims is so flawed. Banknotes are not just a way for the rich to store their wealth; they are also how the unbanked survive. As so often, the burden of this reform has fallen most heavily on the poor (see article). Over four-fifths of India’s workers are in the “informal” sector, paid in cash. Untold numbers have been laid off because their employers cannot pay them. Tens of millions have queued for hours at cash machines and bank branches, to get rid of the useless notes and get hold of some spending money. A new business has sprung up in laundering cash for a fee for those without the time or inclination to queue, or with more notes than they can account for.

Cash is used for 98% by volume of all consumer transactions in India. With factories idle, small shops struggling and a shortage of cash to pay farmers for their produce, the economy is stuttering. There are reports that sales of farm staples have fallen by half and those of consumer durables by 70%. Guesses at the effect on national output vary wildly, but the rupee withdrawal could shave two percentage points off annual GDP growth (running at 7.1% in the three months to September).

With a bit of forethought, much of the mayhem could have been avoided. It turns out that the new notes are smaller and require all the country’s ATMs to be reconfigured, which takes 45 days. Some 22bn notes are affected, but printing capacity is said by the previous finance minister to amount to only 3bn a month. So even if fewer notes are needed, because more money will be in banks, printing them will take some time. The banks were ill-prepared to handle about 8.5trn rupees in new deposits in the three weeks after demonetisation. After they used the deposits to buy bonds, lowering interest rates, the central bank had to order them to park the new money with it, in zero-interest accounts.

If Mr Modi’s plea for patience for a 50-day period until the end of the year looks optimistic, so does the promise of “the India of your dreams”, purged of the corrupt and their loot. In India’s black economy of undeclared, untaxed income, all sorts of transactions, from medical bills to house purchases, are sometimes settled with suitcase-loads of banknotes. Yet even if the hoarders will be wary of another confiscation in the future, they will be tempted to make use of the new 2,000-rupee note just as they used the old 1,000-rupee one.

Moreover, Mr Modi was wrong when he said that the rich now need sleeping pills, while the poor sleep peacefully. In past seizures of illegal wealth, only between 3.75% and 7.3% was found to be kept in cash. The sleepless are those who need cash to get by; the truly rich are laughing all the way to their flats in London. The punitive taxes levied on black money that is deposited will feel like flea-bites. As for the counterfeiters, most estimates of the value of fake rupees are in the tens of millions of dollars, out of $250bn in circulation.

Both for the sake of Indians and for his premiership, Mr Modi needs to mitigate some of the harm he has caused. He should find ways of printing the new money more quickly. More important, he should also lengthen the period over which notes may be exchanged or deposited and allow the old notes to remain valid as payments for a range of goods and services (tax payments, say, would seem logical).

Somewhat too sensational

Much in India needs reform—abolishing restrictive labour rules, for example. In the past such reform has often been stymied by a system that favours government by committee. Mr Modi has lurched to the other extreme. The perceived need for secrecy (to take cash-hoarders by surprise) fed into the innate sense he has of his own infallibility and his misplaced faith in his technocratic skills. By designing a scheme that was needlessly callous and which is becoming increasingly unpopular, he has squandered political capital. In future he needs to consult more widely, centralise less decision-making in his own hands and acknowledge that not all criticism is partisan or special pleading from the corrupt rich. India, fortunately, is not North Korea, and is aware that leaders are fallible. Its federal, democratic system will give voters plenty of chances to let it be known how badly Mr Modi has messed up his rupee rescue.

 


NCAA Rules Ex-Official at Cal State-Northridge Committed Academic Misconduct ---
http://www.chronicle.com/blogs/ticker/ncaa-rules-ex-official-at-cal-state-northridge-committed-academic-misconduct/116013?elqTrackId=e2197c179cf34a5ba1b324ec101c9261&elq=b789c32b577e4776b3c5e006cd13ce83&elqaid=11758&elqat=1&elqCampaignId=4689

Punishment includes infractions for helping two players cheat in courses
NCAA Wipes Out 2 Years of Notre Dame Wins in Football ---
http://www.chronicle.com/blogs/ticker/ncaa-wipes-out-2-years-of-notre-dame-wins-in-football/115700?cid=db&elqTrackId=1c792753b35c4f648600748ec7d2b57a&elq=6f8a00b797574148a45d000da6336c5f&elqaid=11597&elqat=1&elqCampaignId=4578

When the Coaches Pass the Courses Instead of Football Players
Georgia Southern U. Staff Members Helped Athletes Cheat, NCAA Rules ---
http://chronicle.com/blogs/ticker/georgia-southern-u-staff-members-helped-athletes-cheat-ncaa-rules/112712?elqTrackId=a1026a29777340c083601d5162be9744&elq=7378f786eb3748d5a44644b992d1716e&elqaid=9769&elqat=1&elqCampaignId=3508

Former U. of Southern Mississippi Coach Directed Cheating Ring, NCAA Says ---
http://chronicle.com/blogs/ticker/former-u-of-southern-mississippi-coach-directed-cheating-ring-ncaa-says/110171?elqTrackId=9d30a63574cb44dc94a698eac5a736a6&elq=ecde872b4ec84565b7b560ec97cde1ff&elqaid=8605&elqat=1&elqCampaignId=2882

The worst offender in history, basketball powerhouse University of North Carolina, got off easy after nearly 20 years of fake courses and illegal grade changes. It's a little like stealing where you get probation for stealing $10 million and a year in jail for stealing $100.

The higher the average annual performance of the college's teams the more frequent are the repeat academic cheating offenses.

And when a repeat offender like SMU finally gets serious about academic integrity the average annual performances go down the tubes.

 Bob Jensen's threads on athletics scandals in higher education ---
http://www.trinity.edu/rjensen/HigherEdControversies2.htm#Athletics


How to Mislead With Statistics

Here's how much surgeons, lawyers, and 18 other top-earning professionals make per hour ---
http://www.businessinsider.com/hourly-salaries-surgeons-lawyers-doctors-2016-11/#-1

Jensen Comment
This articles is one of the best/worst articles I've seen lately on how to lie with statistics.

Here are a few things to point out to your students if you want to highlight how not to report survey results.

First and foremost when you define the total populations (apart from sample sizes) and don't mislead about the sizes of the populations.
For example, the above article says there are 24,000 employed psychologists and 15,650 physicists.  Aren't professors and other teachers in these fields "employed?" There are more employed specialists in these disciplines employed only in academia than the numbers shown above. Most likely the average hourly wage would be greatly pulled down if academics were included in the population and the sample.

Secondly the article ignores standard deviations and kurtosis of the distributions from which averages are reported. For example, outliers in millions of dollars of compensation to attorneys and other professionals tend to skew averages upward. Even medians can be misleading for highly skewed distributions with outliers on both sides of the medians. Think of all those lawyers who will work for food.

How random are the samples from the populations identified in the study. My guess is not very random.

Watch definitions.
What is a "chief executive?" The manager-owner of our local hardware store is a "chief executive" as is the CEO of a Fortune 500 Corporation.
What's the definition of a "financial manager versus a "sales manager?" Why are there twice as many financial managers as sales managers?
What's the definition of "public relations and fundraising managers" and why are there only 60,380 of them when there are 531,161 financial managers? Many financial managers and chief executive officers and are also the public relations and fund raising managers. My guess is that the sampling population totally ignored public relations and fund raising managers for colleges, universities, churches, and charities where compensation is often quite low or contingent upon funds raised.

What's the difference between a pharmacist and the chief executive. Many pharmacists also own and manage the entire drug store?

What's "compensation?" Most CEO's of Fortune 500 companies get paid on performance-based contracts depending upon such things as corporate earnings reports. In other words what a CEO makes one year may be doubled or tripled the next year and then taken way down the following year.

What's "compensation?" Most CEOs are paid in many ways including stock options, stock awards programs, living benefits (use of the corporate jets and ski chalets), wine, women, and song.

There's an enormous difference between what a physician makes before or after malpractice insurance and other expense expenses. Those that work for much lower annual salaries often do not have to pay their own malpractice insurance, nurse expenses, receptionist expenses, accounting expenses, office rental expenses, etc.

I could go on and on, but I think students will catch my drift.

This article is so misleading it's worse than garbage.


How to Mislead With Statistics

"This graph shows how much money you can earn from each college major," by Abby Jackson, Business Insider, December 24, 2015 ---
http://www.businessinsider.com/earning-potential-by-college-major-2015-12

Jensen Comment
This graph is a great illustration of an interactive graphs, although you have to play around with it some to get the hang of it. For example, if you want to see the graphs for just "Accounting" click off the box for "All," click the box for "Accounting," and then scroll down and click on "Apply."

By now many of you are weary of my warnings about such things as definitions, averages without standard deviations, skewness (kurtosis), etc. For example, means or medians for "accounting" can be misleading without knowing how accounting is defined. For example, there's a big difference between what lowly bookkeepers make versus CPA firm partners and executives in major corporations. There's a huge difference between what accounting Ph.D. graduates make in struggling small private colleges versus what they make at Ivy League universities. Also there's a huge difference in fringe benefits such as housing subsidies, research stipends, summer pay, and fringe benefits such as contributions to TIAA/CREF. Also Ph.D. graduates tend to have opportunities for outside income in book writing and consulting. At a prestigious university like Harvard, a professor's Harvard salary is likely to be only a small part of total income.

In general, the biggest problem is in career tracking combined with income standard deviations. Comparing the lifetime earnings of a cost accountant in General Electric cannot really be compared with the lifetime earnings of a partner in a small local public accounting firm really cannot be compared because some of these partners may top out at $50,000 or more per year whereas others top out at $500,000 per year after their retirement buyouts are factored into compensation.

A top accounting graduate typically goes to work for 5-10 years with a large public accounting firm or the government. However, 80% or more of those graduates leave (most never intended to stay in public accounting or government employment) and go to work for in private industry such as when an IRS agent goes to work at a high level in a corporate tax department. At such time they often make much more than others who stay in public accounting or government. The problem is that in studies like the one cited above these "former" accountants are no longer classified as accountants such as when a public accountant becomes the CFO or CEO of a large or small corporation. Hence in studies like the one above a former accountant is excluded from the 20-year survey of "accountants."

The same problem arises when examining accountants who only have "associates" degrees. Typically these accounting graduates are no longer "accountants" ten or 20 years out. Some may be CEOs of their own companies and some might earn over $200,000 per year in stores or plumbing companies that they own. Hence, I'm extremely suspicious of graphs that compare the benefits of getting a Ph.D. versus an associates degree in accounting. The problem is that most associates  or bachelors degree holders either dropped out of the labor market (such as to have babies) or became entrepreneurs who are no longer classified as "accountants."

Problems like those mentioned above become exacerbated when comparing types of degrees such as accounting versus culinary arts versus creative writing.

Conclusion
The bottom line is that studies like this are so misleading and dangerous that I wish they did not get published.

Bob Jensen's threads on careers are at
http://www.trinity.edu/rjensen/bookbob1.htm#careers


2016:  Explore What Private-College Presidents Make ---
https://mail.google.com/mail/u/0/#inbox/158ce8c1dc528171

Information about presidents' tenures and prior employment was obtained from college websites, newspaper archives, or university offices. Photographs were obtained from university websites.

Jensen Comment
The above quotation raises a red flag about the data. The data were not collected in a statistical survey with consistent definitions and findings. For example, is it possible that the definition of "compensation" varies with the highly varied sources of the data? In some cases "compensation" may have included the value of a free house, a free car, and even a free airplane or use of an airplane (such as when a Trustee's private jet is used to ferry the president's family on vacations). In other cases "compensation" may exclude some of those fringe benefits.


There's a big change happening to Social Security in 2017 — here's what you need to know ---
http://www.businessinsider.com/maximum-social-security-tax-2017-2016-12


 If this was such a good deal Chicago and Detroit would've imposed such a surtax years ago.

Portland city council passes tax on CEOs who earn 100 times more than staff ---
https://www.theguardian.com/us-news/2016/dec/08/portland-oregon-ceo-pay-tax-passes-income-inequality

. . .

The Portland, Oregon, city council has voted to pass a first-of-its-kind measure that would levy a tax on public companies whose CEO-to-workers pay ratio is more than 100-1. Portland to vote on taxing companies if CEO earns 100 times more than staff Read more

The new tax, which seeks to address income inequality, was voted in 3-1 by the council on Wednesday. It increases corporate income tax by 10% if a company’s CEO has a salary ratio of above 100-1, and by 25% if the CEO has a ratio of 250-1 or more.

Officials expect that the measure will raise $2.5m a year from January 2018, with former environmental lawyer Steve Novick, the city commissioner who proposed the measure, saying that the revenue is intended to be used to pay for programs for homeless people.

There are around 540 publicly traded companies that do enough business in Portland to be subject to the business income tax under current law, Novick said. It is unclear how many of those have CEO-to-worker pay ratios that would make them subject to the increased surcharge.

Novick said he had decided to come up with a measure to address the problems of income inequality while reading French economist Thomas Piketty’s book Capital.

Continued in article

Jensen Comment
Keep in mind that this is not a tax on those fat-corporations. It's a regressive tax on shoppers in the City of Portland. The people paying most of the tax will be the poor and middle-class residents of Portland. For example, the prices of things like groceries may end up higher in Portland than its surrounding suburbs. Affected companies may lay off some Portland workers to protect profits. For example, inside the city the checkout lines and service counter lines may be longer than in similar stores in the suburbs.

And to the extent that the affected companies avoid investing in real estate and new jobs in Portland the city hurts in spite of the revenue raised by this new corporate income tax.

 It's probable that homeless people and panhandlers in Portland's suburbs and nearby cities like Eugene, Tacoma, and  Seattle will be attracted to the better free food and facilities for them in downtown Portland.

The criterion of taxing only businesses having highly-paid CEOs is just a smoke and mirrors excuse to tax the poor and middle class workers in Portland, Oregon.

The roses were previously wilting in the City of Roses after the surtax on large corporation operations in Portland (irrespective of CEO pay). This new surtax simply adds to the wilt.

I'm reminded that over half the license plates in our closest Wal-Mart parking lot are green due to shoppers seeking to avoid Vermont's sales tax, especially on big ticket items like tires, television sets, and computers. In return many of the homeless people moved from New Hampshire to Vermont because of the much better welfare benefits in Vermont. Meanwhile physicians and other high income people in Vermont moved across the border into New Hampshire to avoid Vermont's high state income tax. There's a big Morgan Stanley investment firm building in Lebanon, New Hampshire serving thousands of physicians, some of whom set up private practices just across the border from Vermont. There's no Morgan Stanley building on the other side of the Connecticut River.


The CEO of Ford just perfectly summarized the biggest problem for electric cars ---
http://www.businessinsider.com/ford-ceo-biggest-problem-for-electric-cars-2016-12

Jensen Comment
CEO Mark Fields contends the sales demand just isn't there.

Sure there are rich people in warm climates providing a niche market for Tesla electric cars as long as taxpayers are stupid enough to continue paying huge subsidies for purchase prices and provide free roads and bridges for electric cars. But those rich folks have gasoline cars for longer trips beyond the limited ranges of electric cars.

Sure there are rich people not worried about what Trump's angry China might do to the price of lithium. Rich folks have other cars.

I suspect there will be an increased market for hybrids since they have longer ranges. Those cars make sense.

All eyes are on the forthcoming Chevy Bolt since the Bolt is cheaper than the Tesla and has a worldwide network of dealers.

Ford's CEO Mark Fields does not seem to be losing sleep over competition from Tesla or Bolt.


FASB Takes Aim (long term) at How to Keep Accountancy in Pace With Technological Change ---
https://www.bna.com/accounting-board-weigh-n73014448218/

The Financial Accounting Standards Board will focus over the next few years on figuring out how financial reporting can keep pace with advances in technology, FASB Chairman Russell Golden said.


Ph.D. Degrees in the USA for Selected Years 2005-2015 ---
https://www.insidehighered.com/news/2016/12/09/phd-recipients-increase-number-job-prospects-vary-new-us-data-show?utm_source=Inside+Higher+Ed&utm_campaign=20f8fa2dd5-DNU20161209&utm_medium=email&utm_term=0_1fcbc04421-20f8fa2dd5-197565045&goal=0_1fcbc04421-20f8fa2dd5-197565045&mc_cid=20f8fa2dd5&mc_eid=1e78f7c952

Jensen Comment
Some of the points to note.
Less than 3% of the Ph.D. degrees in the USA are in Business Administration (not shown is that less than 0.3% of the total each year (only slightly over 100) are in accountancy. Life Sciences take the lion's share of the total due mostly to necessity to get a Ph.D. for many of the outstanding Life Science careers outside academe. In comparison, there's virtually no need to get a Ph.D. in Business Administration for careers outside academe where professional certifications (like CPA and CFA licenses) are more valuable.

The largest Ph.D. mills (e.g., the Universities of Michigan, Texas. and Wisconsin) identified in the above 2005-2015 article plus the University of Illinois were also the largest accounting Ph.D. mills before the 1990s. Then the number of accounting Ph.D. students in those mills collapsed to the miniscule numbers shown in the table at
http://www.jrhasselback.com/AtgDoct/XDocChrt.pdf 
Reasons are complicated but the main reason is that accounting was no longer the focus of accounting Ph.D. programs across the USA after the 1980s ---
http://www.trinity.edu/rjensen/Theory01.htm#DoctoralPrograms
Professional accountants lost interest in applying for Ph.D. programs and many mathematicians (especially from Asia) started applying for accounting Ph.D. degrees in the USA.


EY Tax Guide 2017 now available ---
http://www.prnewswire.com/news-releases/ey-tax-guide-2017-now-available-300367719.html
Not free


6 million Americans have stopped paying their car loans, and it's becoming a 'significant concern' ---
http://www.businessinsider.com/auto-loan-delinquency-numbers-from-ny-fed-2016-11


FASB Considers Slowdown in Standard Setting ---
http://www.journalofaccountancy.com/news/2016/dec/fasb-considers-slowdown-in-standard-setting-201615646.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=07Dec2016

Jensen Comment
It's hard to slow down when so many innovative accountants are finding ways to bend the rules. For example, think of all the clever ways accountants devised for non-GAAP reporting and cheating on revenue recognition.

Examples of revenue recognition cheating ---
http://www.trinity.edu/rjensen/ecommerce/eitf01.htm 


Elder abuse – Often the kin did it: Feds to collect data.---
https://www.washingtonpost.com/news/powerpost/wp/2016/12/06/federal-government-moves-to-collect-more-data-on-elder-abuse/?utm_term=.fc5260abe038

What kind of people cheat and financially abuse incapacitated older folks?

Sons, daughters, nieces, nephews and lawyers – people who act as guardians for their relatives and clients.

What can the federal government do about it?

Currently not much, because elder abuse generally is considered a state and local problem. But at least the federal government can help with the important step of defining the problem. The Department of Health and Human Services (HHS) plans to soon launch a data collection program that will assist experts combating elderly exploitation.

“Unfortunately, the extent of elder abuse by guardians is relatively unknown to us due to the limited data that we have available,” Sen. Claire McCaskill (D-Mo.) said at a Senate Special Committee on Aging hearing last week.

The title of the hearing gets to the point — “Trust Betrayed: Financial Abuse of Older Americans by Guardians and Others in Power.”

“The amount of money lost through exploitation of elders is staggering and growing,” said Cathy “Cate” Boyko, Minnesota judicial branch conservator account auditing program manager. She cited a 2015 study indicating the estimated national annual financial loss at $36.5 billion. “There is no question these losses are increasing at an alarming rate.”

Early next year, HHS will begin the National Adult Maltreatment Reporting System (NAMRS), which the department describes as “the first comprehensive national reporting system” for Adult Protective Service (APS) programs. The data collection will include information from investigations into the mistreatment of older adults and adults with disabilities. “The absence of data for research and best practice development has been cited by numerous entities, including the Government Accountability Office (GAO), as a significant barrier to improving APS programs,” says the HHS Administration for Community Living.

Committee Chairwoman Susan Collins (R-Maine) agrees. “There is no doubt financial abuse against our seniors is a problem—and a very serious one made even more difficult by a lack of data that makes it difficult to quantify,” she told The Washington Post. “But I think this is only the tip of the iceberg.”

Read on for examples of elder abuses

Jensen Comment

Although not intended as such, maybe this new government initiative will slightly discourage appropriation of grandma's estate so she qualifies for Medicaid to pay for her years in a nursing home.


Positive Demonstrations are Better Than Negativism

Toward a More Appropriate Objective for the FASB (and IASB)
by Tom Selling
December 4, 2016
http://accountingonion.com/2016/12/toward-a-better-objective-for-accounting-standards-setting.html

Jensen Comment
I don't think Tom wants me to rehash our old debates where we can't agree on some of these matters ---
http://www.trinity.edu/rjensen/Theory02.htm#BasesAccounting

Suffice it to say that the Number 1 topic on which we do not agree is his claim that
"The only relevant basis of measurement for the assets and liabilities that are recognized can be current value.  Comparative amounts must presented in constant units of purchasing power."

He has never convinced me of this claim, and I do not think Tom provides evidence that replacement costs (entry values, current costs) are the "only relevant" choices among the alternatives. Firstly, replacement costs suffer from the necessity of arbitrary accruals (like depreciation and depletion) that he criticizes in historical costs. Secondly, replacement cost accounting can easily mislead when replacement options are quite unlike operating assets in use. Thirdly, replacement cost accounting entails recognition of transitory market changes in inventory replacement costs that will never be realized as long as the inventory remains on hand.

Entry value accounting has never gained much traction in the academic community, certainly not like exit value accounting expounded by various leading professors in the 20th Century. Historical cost accounting is not really "value accounting," which is a point made over and over again by AC Littleton in his time. An exception is Bill Paton who broke away from Littleton later in life, but Paton's advocacy of replacement costing  never caught on in the financial analyst community.

The great FAS 33 experiment in practice certainly never excited financial analysts.  Beginning in 1979, FAS 33 required large corporations to provide a supplementary schedule of condensed balance sheets and income statements comparing annual outcomes under three valuation bases --- Unadjusted Historical Cost, Price Level Adjusted (PLA) Historical Cost, and Current Cost Entry Value (adjusted for depreciation and amortization). Companies complained heavily that users did not obtain value that justified the cost of implementing FAS 33. Analysts complained that the FASB allowed such crude estimates that the FAS 33 schedules were virtually useless, especially the Current Cost estimates. The FASB rescinded FAS 33 when it issued FAS 89 in 1986. FAS 33 failed largely because financial analysts had little interest in the supplementary FAS 33 tables.

Tom Selling can't explain why, in the many years of replacement cost (entry value, current value) measurement advocacy (going back at least as far as John Canning's thesis), replacement cost accounting never really found traction in academe or the world in investment analysts who never put up pleas to for companies to incur the huge costs of meaningful current cost financial statements.

If Tom is going to "sell" his replacement cost (entry-value) basis of accounting he's not going to do so by continued whipping the FASB in what is now his accustomed negativism style where the FASB is concerned. Negativism seldom sells in practice or academe.

If Tom Selling is going to "sell" his replacement cost basis of accounting he's going to have to convince the user community, especially financial analysts, that the benefits of replacement cost accounting to them greatly exceeds the considerable cost of generating "objective" replacement cost measurements of assets, liabilities, revenues, expenses, and net income.

I appeal to Tom to begin by writing cases, preferably focused on real world companies, that make a sales pitch to the financial analyst constituency of the FASB/IASB. Then let the analysts carry the ball demanding change by the FASB/IASB. I'm skeptical that Tom's excellent blog for accounting thought is a must-read site for financial analysts. He's going to have to make his case in their literature.

It will take a whole lot of positive demonstration instead of negativism.

Tom could begin by identifying the best of the best in the literature of replacement cost accounting. John Canning's thesis is a good place to start.
Jim Martin's MAAW site has a pretty good archive on replacement cost accounting
http://maaw.info/ReplacementCostArticles.htm
Entry-value accounting never got the support of leading academics to the extent that exit-value accounting got some traction.

Jim Martin's references in the past did not alter academic or practitioner opinion markedly.

The next step for Tom is to make financial analysts blink and take note. He should make his case with financial analysts who in turn have influence on the SEC and FASB and IASB.


From MAAW's Table of Contents Service Compiled by Jim Martin

Updates from the Journal of Accountancy

Journal of Accountancy 2016 January - December http://maaw.info/JournalofAccountancy2016.htm 

Journal of Accountancy1905-1925 and 2005 -  December 2016 http://maaw.info/JournalOfAccountancy.htm

Updates from Accounting Horizons

Accounting Horizons 2016 - March-December http://maaw.info/AccountingHorizons2016.htm

Accounting Horizons 1987-2016 - http://maaw.info/AccountingHorizons.htm

Updates from the Harvard Business Review

Harvard Business Review January/February - December 2016
 http://maaw.info/ManagementJournals/HarvardBusinessReview2016.htm 

Harvard Business Review 1922-1930 and 2002 - December 2016
http://maaw.info/ManagementJournals/HarvardBusinessReview.htm

Updates from MIT Sloan Management Review


 

Updates from the Journal of International Accounting Research

Journal of International Accounting Research Volumes 15(1) and 15(2) 2016 http://maaw.info/JournalOfInternationalAccountingResearch2016.htm 

Journal of International Accounting Research 2002-2016 http://maaw.info/JournalOfInternationalAccountingResearch.htm

Undates on Environmental, Social, and Sustainability Accounting ---
http://maaw.blogspot.com/2016/11/update-on-social-accounting.html


Updates from the Review of Accounting Studies
From MAAW's Blog Compiled by Jim Martin

Review of Accounting Studies - Volumes 21(1) - 21(3) 2016
http://maaw.info/ReviewOfAccountingStudies2016.htm

Review of Accounting Studies - Volume 1(1) 1996 - Volume 21(3) 2016
http://maaw.info/ReviewOfAccountingStudies.htm

Updates from the Journal of Management Accounting Research
From MAAW's Blog Compiled by Jim Martin

Journal of Management Accounting Research - Volumes 28(1)-28(3) 2016
http://maaw.info/JMAR2016.htm

Journal of Management Accounting Research - Volumes 1989-2016
http://maaw.info/JMAR.htm

Updates From the CPA Journal 2016 Update
From MAAW's Blog Compiled by Jim Martin

The CPA Journal 2016
http://maaw.info/TheCPAJournal2016.htm

 The CPA Journal 2008-2016
http://maaw.info/TheCPAJournal.htm

Updates From the International Journal of Accounting Information Systems 2016 Update
From MAAW's Blog Compiled by Jim Martin

International Journal of Accounting Information Systems 2016 ---
http://maaw.info/InternationalJournalofAccInfoSys2016.htm 

International Journal of Accounting Information Systems 2000-2016 ---
 http://maaw.info/InternationalJournalofAccInfoSys.htm

Updates on the Journal of Accounting and Economics
From MAAW's Blog Compiled by Jim Martin

Journal of Accounting and Economics 2016
 http://maaw.info/JournalofAccountingandEconomics2016.htm 

Journal of Accounting and Economics 1979 - August 2016
 http://maaw.info/JournalofAccountingandEconomics.htm

Updates on the journal Contemporary Accounting Research (a Canadian Academic Accounting Association journal and is the Canadian equivalent to the AAA's TAR)
From MAAW's Blog Compiled by Jim Martin

Contemporary Accounting Research 2016 ---
http://maaw.info/ContemporaryAccountingResearch2016.htm 

Contemporary Accounting Research 1984-1992 and 2010-2016 ---
 http://maaw.info/ContemporaryAccountingResearch.htm

Updates on the journal Decision Sciences
From MAAW's Blog Compiled by Jim Martin

Decision Sciences Volume 47(1) - 47(4) 2016
http://maaw.info/ManagementJournals/DecisionSciences2016.htm 

Decision Sciences Volume 1(1) 1970 - Volume 6(4) 1975 and Volumes 41(1) 2010 - 47(4) 2016
 http://maaw.info/ManagementJournals/DecisionSciences.htm

Updates on the journal Advances in Management Accounting
From MAAW's Blog Compiled by Jim Martin

Advances in Management Accounting Volume (26) 2016
http://maaw.info/AdvancesinManageAcc2016.htm 

Advances in Management Accounting Volumes (1) 1992 - (26) 2016
http://maaw.info/AdvancesinManageAcc.htm


Google Lowered 2015 Taxes by $3.6 Billion Using 'Double Irish With A Dutch Sandwich' Tax Structure ---
http://taxprof.typepad.com/taxprof_blog/2016/12/google-lowered-2015-taxes-by-36-billion-using-double-irish-with-a-dutch-sandwich-tax-structure.html

Jensen Comment
Sounds like Google did everything to win except deflate the footballs.


Comparisons between SEC's SAB 101 and 104 Revenue Recognition Rules with the New Converged Revenue Recognition Standard Effective for Periods Beginning after December 15, 2017
SSRN. December 5, 2016
 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2880628

Author

Muhammad Mehedi Hasan --- Texas Woman's University, School of Management

Abstract

This paper is the discussion and side by side comparisons between existing and proposed revenue recognition standards "Comparisons between SEC’s SAB 101 and 104 Revenue Recognition rules 
with the new converged Revenue Recognition standard effective for periods beginning after December 15, 2017."


SEC Rule 10b5-1 Plans and Strategic Trade around Earnings Announcements
SSRN, December 5, 2016
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2880878

Authors

Artur Hugon --- Arizona State University

Yen-Jung Lee --- National Taiwan University

Abstract

We examine how corporate insiders profit from private information about future earnings performance through SEC Rule 10b5-1 trading plans. We first provide evidence consistent with insiders using 10b5-1 plans to sell stock in advance of disappointing earnings results. We then examine insiders who not only currently use 10b5-1 plans, but also actively traded their own company’s stock prior to the availability of such plans. We find that this group traded aggressively on earnings information prior to 10b5-1, but then shifted their aggressive trading into 10b5-1 plans after the availability of planned trading. We also document several questionable patterns associated with their trading behavior. Namely, their trades tend to be irregularly timed, close to the plan initiation date, infrequent in nature, and executed during traditional earnings blackout periods. In terms of firm characteristics, these insiders are more likely to be employed at firms with weaker firm governance and lower institutional ownership.

From the CFO Journal's Morning Ledger on December 7, 2016

Supreme Court backs government up (on insider trading)
The Supreme Court handed the government a significant win Tuesday in its pursuit of insider trading, ruling prosecutors in such cases don’t always have to show that something valuable changed hands to prove a crime was committed. The unanimous opinion restores some of the power the government lost in a 2014 federal court case. That two-year-old decision had cast doubt on just what constituted insider trading and forced law-enforcement officials to drop a number of high-profile cases, including several against associates of hedge-fund billionaire Steven A. Cohen.


An Investigation of Wholly‐Owned Foreign Subsidiary Control Through Transaction Cost Economics Theory
SSRN, December 2016
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2879662
Also see
Accounting & Finance, Vol. 56, Issue 4, pp. 1041-1070, 2016

Authors

Francesco Giacobbe --- University of Technology Sydney (UTS) - School of Accounting; Financial Research Network (FIRN)

Zoltan Matolcsy---  University of Technology, Sydney; Financial Research Network (FIRN)

James Wakefield --- University of Technology Sydney (UTS)

Abstract

This paper investigates the management control systems used by multinational corporation headquarters to control wholly‐owned foreign subsidiaries. Our theory development is based on transaction cost economics. First, we conduct a series of exploratory interviews, providing an insight into the context, and second, we provide empirical evidence based on cross‐sectional survey data. Our results indicate that activity traits (uncertainty, asset specificity and post hoc information impactedness) have significant implications on control choices, in particular the control archetype combinations chosen by headquarters, although not all results are consistent with theory predictions. Our findings are supported by extensive alternative testing.


Audit Data Analytics Use: An Exploratory Analysis
SSRN, December 1, 2016
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2877358

Authors

Clark Hampton --- University of Waterloo

Theophanis C. Stratopoulos --- University of Waterloo - School of Accounting and Finance

Abstract

The goal of this study is to understand the current state of audit data analytics use (i.e., the leveraging of data analytics in the performance of audits) within the Canadian audit profession. Based on survey results from 394 Canadian audit practitioners, we explore the following three questions: What is the locus of motivation behind audit data analytics (ADA) use? Does the creation of a supporting environment (e.g., training opportunities) mater in ADA use? What is the tradeoff between two potential ADA training strategies (diversity of ADA tools vs. development ADA expertise)? Research questions are examined using path models estimated with components based structural equation modeling. Our study provides guidance to audit practitioners, professional organizations, and educators concerning current and future ADA initiatives.


From Assurance to Insurance: Making Audit Relevant Again
SSRN, December 1, 2016
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2846928

Authors

Christian Mouillon --- Independent

François René Lherm --- ESCP Europe and Deloitte Research Chair; Excellency Laboratory for Financial Regulation (LabEx RéFi)

Abstract

In a context of overarching concerns about the value of an audit and the relevance of the accounting profession, regulators have reported numerous failures in the audit of estimates and interpreted it as a lack of professional skepticism by auditors. This report addresses this conundrum with a view to inform regulators’ and standard-setters’ efforts to reduce the information and expectation gaps.

Based on the results of an investigation into how experienced auditors actually address the most challenging estimates, it suggests that a shift from an assurance approach of audit to an insurance approach would structurally ensure the relevance of an audit in addressing challenging estimates and enhance communication to investors.

This would provide an unprecedented opportunity to reduce the expectation and information gaps, and unleash audit’s full potential in the best interest of its stakeholders and society as a whole.

Jensen Comment

From an insurance perspective a lot depends upon what is being "insured." In general, however, I'm opposed to having audit firms shift from assurance to insurance. I think the term "insurance" should be limited to risks for which actuary science can and will assess risk probabilities and costs. I don't think actuary science will touch audit "insurance" with a ten-foot pole. Actuary science is limited to statistical analysis of reasonably stationary systems such a mortality, hazard losses, and weather systems where the past is more predictive of the future.

Josh Ronen at NYU is a long-time advocate in replacing  assurance with insurance --- -
http://pages.stern.nyu.edu/~jronen/  
CPA audit firms in essence would become insurance firms that reimburse investors and creditors for a client's violations of GAAP. Such insurance schemes would probably not totally eliminate client audits but insurance might change many auditing procedures, e.g., more analytical reviews and less detail testing. Presumably small auditing firms would not necessarily be driven out of business if they participated in insurance pools.
Josh never convinced me that this was a good idea for financial auditing.


5 ways to overcome procrastination ---
http://www.cgma.org/Magazine/News/Pages/how-to-overcome-procrastination-201613728.aspx?utm_source=mnl:cpald&utm_medium=email&utm_campaign=15Dec2016bestof

Jensen Comment
I cannot seem to find the time to read this article.


A new Institute of Internal Auditors report reveals that 23 percent of practitioners worldwide have been asked at least once to change or suppress an important audit finding ---
http://www.accountingweb.com/aa/auditing/internal-auditors-continue-to-face-ethical-dilemmas?source=ei120716

Internal Auditors Pressured to Violate Ethics and Professionalism

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

Be your best selves, bookkeepers
Internal auditors say management is often asking them to leave out the bad news, Tatyana Shumsky reports. Nearly one in four internal auditors surveyed globally by the Internal Audit Foundation said they’ve been pressured to suppress or change their findings. The main motivation is censorship.

One internal auditor hero is Cynthia Cooper who, in spite of heavy pressures from her bosses, blew the whistle on the enormous WorldCom fraud and its horrid audits by Andersen---
http://www.trinity.edu/rjensen/FraudEnron.htm#WorldcomFraud


Quicken Loans --- https://en.wikipedia.org/wiki/Quicken_Loans

United States Files Lawsuit Alleging that Quicken Loans Improperly Originated and Underwrote Federal Housing Administration-Insured Mortgage Loans ---
https://www.justice.gov/opa/pr/united-states-files-lawsuit-alleging-quicken-loans-improperly-originated-and-underwrote

The United States has filed a complaint in the U.S. District Court for the District of Columbia against Quicken Loans Inc. under the False Claims Act for improperly originating and underwriting mortgages insured by the Federal Housing Administration (FHA), the Justice Department announced today.  Quicken is a mortgage lender headquartered in Detroit.

“Those who do business with the United States must act in good faith, including lenders that participate in the FHA mortgage insurance program,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer of the Justice Department’s Civil Division.  “To protect the housing market and the FHA fund, we will continue to hold responsible lenders that knowingly violate the rules.”

Quicken participated in the FHA insurance program as a direct endorsement lender (DEL).  As a DEL, Quicken had the authority to originate, underwrite and certify mortgages for FHA insurance.  If a DEL such as Quicken approves a mortgage loan for FHA insurance and the loan later defaults, the holder of the loan may submit an insurance claim to the U.S. Department of Housing and Urban Development (HUD), FHA’s parent agency, for the losses resulting from the defaulted loan.  Under the DEL program, neither the FHA nor HUD reviews the underwriting of a loan before it is endorsed for FHA insurance.  HUD therefore relies on DELs to follow program rules designed to ensure that they are properly underwriting and certifying mortgages for FHA insurance. And, to that end, a DEL must certify that every loan endorsed for FHA insurance is underwritten according to the applicable FHA standards.

The government’s complaint alleges that, from September 2007 through December 2011, Quicken knowingly submitted, or caused the submission of, claims for hundreds of improperly underwritten FHA-insured loans. The complaint further alleges that Quicken instituted and encouraged an underwriting process that led to employees disregarding FHA rules and falsely certifying compliance with underwriting requirements in order to reap the profits from FHA-insured mortgages.  For example, Quicken allegedly had a “value appeal” process where, when Quicken received an appraised value for a home that was too low to approve a loan, Quicken often requested a specific inflated value from the appraiser with no justification for the increase– even though such a practice was prohibited by the applicable FHA requirements.  Quicken also allegedly granted “management exceptions” whereby managers would allow underwriters to break an FHA rule in order to approve a loan.

The government’s complaint alleges that Quicken’s senior management was aware of these and other problems.  The complaint alleges that Quicken’s Divisional Vice President for Underwriting, the second most senior executive in Quicken’s Operations Department, wrote in an email discussing the value appeal process that “I don’t think the media and any other mortgage company (FNMA, FHA, FMLC) would like the fact we have a team who is responsible to push back on appraisers questioning their appraised values.”  In another email, the same Divisional Vice President for Underwriting wrote to a group of Quicken executives stating that 40 percent of the management exceptions on FHA’s early payment defaults should not have been granted, adding: “we make some really dumb decisions when it comes to client service exceptions.  Example, purchase loan we pulled new credit and the client stopped paying on almost everything and the scores fell by 100 points, we [still] closed it.”  In yet another email discussing an FHA loan, the Operations Director, a senior level executive, explained that the loan was approved based on “bastard income,” which he described as “trying to put some kind of income together that is plausible to the investor even though we know its creation comes from something evil and horrible.”

The government’s complaint alleges that as a result of Quicken’s knowingly deficient mortgage underwriting practices, HUD has already paid millions of dollars of insurance claims on loans improperly underwritten by Quicken, and that there are many additional loans improperly underwritten by Quicken that have become at least 60 days delinquent that could result in further insurance claims on HUD.  For example, the government’s complaint identifies a borrower whose bank account statement showed overdrafts in multiple months and during the loan application process requested a refund of the $400 mortgage application fee so that the borrower would be able to feed the borrower's family.  Nevertheless, Quicken allegedly approved the loan.  The borrower made only five payments before becoming delinquent and as a result, HUD ultimately paid an FHA insurance claim of $93,955.19.  In another example, the complaint identifies a loan where the borrower was cashing out equity through a cash-out refinance.  Allegedly, Quicken originally received an appraised value of $180,000, but because the borrower wanted to receive more cash, Quicken requested the appraiser to inflate the value by $5,000.  The appraiser allegedly provided Quicken’s requested value of $185,000 even though the only difference between the two appraisals was the appraised value – the comparable sales analysis, and even the date of the appraiser’s signature, remained the same.  Quicken allegedly used the inflated appraisal value to approve the loan.  The borrower was delinquent on his first payment and as a result, HUD ultimately paid an FHA insurance claim of $204,208. 

The complaint further alleges that Quicken failed to implement an adequate quality control program to identify deficient loans, and that Quicken failed to report to HUD the loans it did identify.  In particular, according to the government's complaint, despite its obligation to report to HUD all materially deficient loans, during the period from September 2007 to December 2011, Quicken concealed its deficient underwriting practices and failed to report a single underwriting deficiency to the agency. 

“As the complaint alleges, Quicken violated HUD’s quality standards when obtaining HUD insurance for mortgage loans,” said U.S. Attorney John Walsh of the District of Colorado, whose office helped to lead the investigation.  “Quicken issued hundreds of defective mortgage loans, and left HUD – and the taxpayer – to pay for the loans that defaulted.  Quicken’s alleged fraudulent conduct affected communities nationwide.  This case is the latest step in our commitment to hold accountable mortgage lenders who profit by taking advantage of HUD insurance and issuing defective loans that do not meet HUD’s standards.”

“Quicken needs to be held accountable for violations of HUD requirements in the origination of FHA loans, as alleged in the complaint,” said HUD General Counsel Helen R. Kanovsky.  “HUD will continue to take action to protect the FHA and American homebuyers.

Continued in article


Deloite's Hollywood-Style Intelligence Gathering Service:  It's a Stinky Job But Somebody's Got to Do It

According to a person familiar with the operation, the two agents also spent a considerable amount of time in the men's and women's bathrooms — hiding out to avoid detection, and taking notes on conversations they overheard. "You can't believe what people will say while they're in there," said a person who participated in the operation ---
https://www.cnbc.com/2016/12/19/accountants-and-spies-the-secret-history-of-deloittes-espionage-practice.html

. . .

According to a person familiar with the operation, the two agents also spent a considerable amount of time in the men's and women's bathrooms — hiding out to avoid detection, and taking notes on conversations they overheard. "You can't believe what people will say while they're in there," said a person who participated in the operation.


From Going Concern on December 20, 2016

Accountants behaving badly

James Carey, a CPA and forensic accountant in Boston, was charged with tax fraud after he helped himself to money that wasn't his. Specifically, he administered bank accounts for insurance companies and in one case it's alleged that "a customer of one of the insurance companies sent [Carey] a payment of $594,217 intended for the insurance company, but found that almost all of that money had been used by Carey for his own purposes."

Elsewhere in ABB: Roberta Czap allegedly pulled off an elaborate scheme for quite awhile at her employer. It involved moving company funds to her personal accounts and laundering it through local casinos. 

Also! A PwC tax partner, William O’Hagan, has been charged with tax fraud and failure to file in a timely manner for his 2010-2012 tax returns.

Previously, on Going Concern...

Rachel Andujar wrote about firms that say they're "paperless" but still use processing sheets. In Open Items, someone wants to know if their offer will get rescinded


Billions of Pension Funds Diverted:  Another Corrupt Public Servant
Another Government Pension Fund Scandal

No, we’re not writing about the scandal (all too legal) that state and local pension funds have run up more than $1 trillion in unfunded liabilities. Today’s news concerns a single government pension official and the way he allegedly abused taxpayers and the workers who depended on him to guard their retirement savings.

On Wednesday U.S. Attorney Preet Bharara announced the indictment of New York State Common Retirement Fund portfolio manager Navnoor Kang for fraud and obstruction of justice. The government says Mr. Kang participated in a “pay-for-play” scheme in which he steered billions of dollars in pension-fund bond trades to two brokerage firms. In exchange, the government says the erstwhile public servant took bribes that included cocaine, prostitutes, event tickets, travel and luxury items, as well as cash to pay for strippers and other personal expenses.

Mr. Kang’s lawyer declined comment to the Journal, and he deserves the presumption of innocence, though one of the brokers involved has pleaded guilty and is cooperating with prosecutors. “This was an age-old and classic tale of quid-pro-quo corruption,” said Mr. Bharara. He might have called it a classic tale of public pension management that keeps repeating.

In October 2010, former New York State Comptroller Alan Hevesi pleaded guilty to a felony corruption charge in another pay-to-play scandal—one of several criminal convictions in the case. In November 2010 financier Steven Rattner agreed to pay more than $6 million to settle a case with the Securities and Exchange Commission. In December 2010 he agreed to pay $10 million to make New York State’s civil case go away. Among other allegations, the SEC had accused Mr. Rattner of helping arrange for the distribution of a film called “Chooch,” produced by the brother of the pension fund’s chief investment officer. Mr. Rattner denied any wrong-doing.

Two years ago the former chief executive of the California Public Employees’ Retirement System, Fred Buenrostro, admitted to accepting more than $250,000 in cash and other bribes from a former board member seeking Calpers investments with outside money managers. Buenrostro had accepted money to pay for his wedding—and later took money to pay for his divorce.

The problem here is the opportunity for corruption that comes from giving politicians and bureaucrats power over retirement money. That money belongs to workers and ought to be in individual accounts that the workers can control. It’s a great way to “drain the swamp.”

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


How to Hide $400 Million ---
http://taxprof.typepad.com/taxprof_blog/2016/12/ny-timeshow-to-hide-400-million.html#more

In any given year, trillions of dollars sit safely in the offshore financial world, effectively stateless, protected by legions of well-compensated defenders and a tangle of laws deliberately designed to impede creditors and tax collectors. Even the United States government finds it challenging: A special Internal Revenue Service division known as the “wealth squad,” set up in 2010 to crack down on high-end tax evaders with multinational holdings, today has enough manpower to assess only about 200 cases a year.

Fisher wondered whether Oesterlund’s transfers were really legal. He called Gregg D. Polsky, a law professor now at the University of Georgia, who occasionally worked for Fisher as an expert witness. Polsky knew a lot about tax law, but as he later explained to me, he did not have a satisfying answer for Fisher. In theory, Polsky says, federal rules require that related companies charge themselves the same price they would charge some other company. But in practice, the prices can be difficult to second-guess. Who can really say exactly what Apple’s intellectual property is worth? “The sophisticated people will hire high-priced advisers who will come up with a study that will give them the value they want,” Polsky says. “The I.R.S. has to decide if they disagree with that value and if they can both challenge it and prevail in court.” (In August, European regulators ordered Ireland to collect $15 billion in unpaid taxes from Apple, charging that the company’s special tax rate violated European Union rules.) ...

[L]ike many wealthy people who hire expensive help to execute complex tax transactions, Pursglove had considered herself to be avoiding taxes, not evading them — precisely the distinction wealthy people hire an accounting firm like Daszkal Bolton to observe on their behalf, however finely.

Continued in article


More Women Are Their Family’s Sole Breadwinner Than Ever Before ---
http://motto.time.com/4607876/female-breadwinners-rise-report/?xid=newsletter-brief

Bob Jensen's threads on women in the professions ---
http://www.trinity.edu/rjensen/Bookbob2.htm#Women

Jensen Comment
In the dark ages when I got my first job in a CPA firm (the Denver Office of Ernst & Ernst) the CPA profession was virtually a male profession. We had one woman in the back room doing tax returns who was not allowed to see clients. Now CPA firms hire more women than men --- in part because more women than men graduate in accounting. Because of the 150-hour requirement most graduates aspiring to become CPAs earn masters degrees in accounting. CPA firms are also making a concerted effort to break the glass ceiling to partnership status. The largest CPA firms have family leave programs and flexible work scheduling where client work can often be done at home using modern networking technology.

The sticking point for men and women is that usually less then 20% of the new hires become partners in larger CPA firms. However, most of those new hires don't aspire to become partners subject to high tension and pressures to obtain and maintain clients for their firms. What new hires typically want most from CPA firms are experience, costly training in specialties, and exposure to clients who often offer higher paying jobs with less travel and workload pressures.

Professors of accounting usually like the high turnover in the first ten years of CPA firm employment. This creates the openings for our latest graduates to get experience, costly training in specialties, and placement in a corporate world reluctant to hire new graduates who have no experience and specialty training. It seems to be win-win as far as turnover is concerned.

Not surprisingly some of our accounting graduates start their own small firms after being well-trained by the larger CPA firms. Firms specializing in tax services and investment consulting services are especially popular for younger professionals seeking to go out on their own. CPAs are often much more trusted than brokers and other finance consultants who are not CPAs with tax specialties. Often law firms secretly outsource their tax return preparations to CPA specialists.

One would think there there would be more wanting to go back for accounting Ph.D. degrees, but the huge pre-requisites in mathematics and statistics in virtually all respected accounting doctoral programs are barriers to entry, especially since life in academe is in most instances less financially rewarding. Accounting doctoral programs are no longer about accounting.

The good news is, however, that most accounting doctoral programs are free, including room and board allowances. Even so, there are now less than 150 Ph.D. graduates in accounting annually across the USA ---
http://www.jrhasselback.com/AtgDoctInfo.html
Accounting doctoral programs were larger when accounting doctoral programs were about accounting and there was less publish or perish pressure for non-tenured accounting faculty.

There are no incentives to earn an accounting Ph.D. for graduates who do not want academic careers. Certificates of specialty are much more important for non-academic careers such as CPA certificates, CMA certificates. forensic accounting certificates, CFA certificates, etc. The world of accounting can be a very, very technical world much like the world of medicine is a very technical world of sub-specialties.


Harvard:  9 Sustainable Business Stories That Shaped 2016 ---
https://hbr.org/2016/12/9-sustainable-business-stories-that-shaped-2016?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date&spMailingID=16172632&spUserID=MTkyODM0MDg0MAS2&spJobID=921921821&spReportId=OTIxOTIxODIxS0


Costs Environmentalists Don't Like to Measure or Disclose

EV = Electric Vehicle

Washington Post:  Indigenous people are left poor as tech world takes lithium from under their feet --- "
https://www.washingtonpost.com/graphics/business/batteries/tossed-aside-in-the-lithium-rush/
And we give taxpayer subsidies so the 1% won't have to pay quite so much for their luxuray Tesla elecric cars.

. . .

The silvery-white metal is essential for the lithium-ion batteries that power smartphones, laptops and electric vehicles, and the popularity of these products has prompted a land rush here. Mining companies have for years been extracting billions of dollars of lithium from the Atacama region in Chile, and now firms are flocking to the neighboring Atacama lands in Argentina to hunt for the mineral known as “white gold.” But the impoverished Atacamas have seen little of the riches.

. . .

In visits to all six of the indigenous communities, which lie on a mountain-ringed desert about 25 miles from Argentina’s northwest border with Chile, The Post found a striking contrast — faraway companies profiting from mineral riches while the communities that own the land struggle to pay for sewage systems, drinking water and heat for schools.

“We know the lithium companies are taking millions of dollars from our lands,” said Luisa Jorge, a leader in Susques, one of the six communities around the salt flats. “The companies are conscious of this. And we know they ought to give something back. But they’re not.”

Many in the communities also are worried that the lithium plants, which use vast amounts of water, will deepen existing shortages in the region, which receives less than four inches of rain a year. At least one of the six communities, Pastos Chicos, already has to have potable water trucked in.

Continued in article

Your Tesla might be worse for the environment than a gas car
http://www.digitaltrends.com/cars/hold-smugness-tesla-might-just-worse-environment-know/#ixzz4T0gPy25z 

. . .

Where did that battery come from?

Carl Sagan is famed for saying, “We live in a society exquisitely dependent on science and technology, in which hardly anyone knows about science and technology.” He could have been talking directly about lithium-ion batteries. Chances are you are sitting within three feet of something that uses lithium-ion technology, heck you are probably reading these words thanks to lithium-ion batteries. Yet, not that many people really understand what goes into them.

So how do they work? Like any battery, lithium-ions work by creating a flow of current (electrons) between a positively charged (missing electrons) cathode and a negatively charged anode (extra electrons), through a conductive electrolyte. Lithium makes a great battery because it is both very conductive, making it a good electrolyte, allows for extremely high electrical potential. And of course, because this electrochemical reaction is reversible, the batteries are readily rechargeable.

As great as lithium is for batteries, it has a dark side as well: The stuff is downright nasty. Lithium is flammable and highly reactive, as anyone who has seen photos of burning a Tesla can attest, but that’s the least of our worries. The EPA has linked the use of extremely powerful solvents in the creation of lithium electrolytes and cathodes to everything from cancer to neurological problems. Specifically, the cobalt used in the creation of the most energy dense lithium-ion batteries is poisonous and extremely carcinogenic. Pulmonary, neurological, and respiratory problems have all been connected to cobalt exposure.

A good rule of thumb is that any industrial process that makes liberal use of the word ‘slurry’ is not good for pandas, or for that matter people. And, boy, does slurry come up a lot in the battery-making process.

Other combinations of lithium are not as bad, but none is exactly good. The lithium-iron phosphate used in lower energy density batteries is better in terms of its carcinogenic effect, but might be worse in terms of the impact on the biosphere.

Is it getting hot in here?

Clearly then, EVs and plug-in hybrids have environmental costs. What effects however, do lithium-ion batteries have on John Q. Polar Bear? Well, a recent study from Norway looked at the global-warming potential of the complete lifecycle of EVs, from mining to recycling. Previous studies hadn’t accounted for the energy-intensive process of building EVs, and missed the point: They’re not that much better than gasoline cars.

The best outcome for EVs was a 24-percent improvement in global-warming potential over the average gas powered car, and between 10 percent and 14 percent over diesel. These numbers are nothing to sneeze at, but they change radically depending on the source of electricity that EVs are powered on.


The above numbers rely on the European power mix, which more heavily favors nuclear, hydroelectric, and renewable sources of energy than other parts of the world.

The global warming potential for EVs that rely on natural gas – generally considered to be the cleanest fossil fuel – show an improvement of only 12 percent over gasoline, and break even with diesel.

Most alarming, EVs that depend on coal for their electricity are actually 17 percent to 27 percent worse than diesel or gas engines. That is especially bad for the United States, because we derive close to 45 percent of our electricity from coal. In states like Texas, Pennsylvania, and Ohio, that number is much closer to 100 percent. That’s right folks; for residents of some of the most populous states, buying an EV is not only toxic, it’s warming the planet more than its gas-powered counterparts.

With cars that supposedly generate “zero tailpipe emissions,” how are these pollution numbers even possible? The simple answer is that as well as being messy to produce; battery production requires a tremendous amount of electricity. The initial production of the vehicle and the batteries together make up something like 40 percent of the total carbon footprint of an EV – nearly double that of an equivalent gasoline-powered vehicle.

Continued in article

Jensen Comment
In fairness coal is on it's way out is some nations, but not in India, China, and various coal-rich nations. Cleaner natural gas, propane, nuclear fuel, and hydrogen will still be major power sources on the grid for years to come  All these sources of grid power to recharge batteries are relatively costly..


Examples of How Both Files and Backup Files Can Be Lost Forever

1. There are 30,000+ emails lost forever in the Hillary Clinton email scandal. They were apparently destroyed before the Wikileaks backup system obtained access.

2. The IRS lost Lois Lerner's backup files after being ordered by Congress to protect those backup files in a scandal where President Obama is suspected of illegally using the IRS to help his 2012 re-election campaign.

3. The Australian government lost over 1 million gigabytes of taxpayer files and the backup files ---
https://www.theguardian.com/australia-news/2016/dec/13/tax-office-criticised-after-computer-crash-leaves-it-unable-to-provide-basic-online-services

Moral of Story
Backup file protection is not always what it's cracked up to be.

In fact the thriving ransomware industry is evidence of the frequent failure of backup systems.


Goodwill Impairment Skyrocketed in 2015, Study Finds---
http://www.accountingweb.com/aa/standards/goodwill-impairment-skyrocketed-in-2015-study-finds?source=ei122116


Speakers at meeting for graduate deans warn about the pitfalls of big data-driven research ---
https://www.insidehighered.com/news/2016/12/12/speakers-council-graduate-schools-meeting-warn-about-pitfalls-big-data-driven?utm_source=Inside+Higher+Ed&utm_campaign=7c11028e6b-DNU20161212&utm_medium=email&utm_term=0_1fcbc04421-7c11028e6b-197565045&goal=0_1fcbc04421-7c11028e6b-197565045&mc_cid=7c11028e6b&mc_eid=1e78f7c952

Jensen Comment
For example, statisticians sometimes warn that stratified sampling is better than costly big data sampling in compliance testing. I had a friend who, before he died, became quite wealthy consulting on stratified sampling in compliance testing:
Will Yancey's Legacy --- http://www.willyancey.com/
 


The FTC’s complaint said those claims, used in DeVry’s marketing material and advertisements, were exaggerated and deceptive (mostly about post-graduate employment opportunities)
DeVry University and its parent company will pay $100 million to settle a lawsuit with the Federal Trade Commission
---
http://www.chronicle.com/blogs/ticker/devry-settles-federal-lawsuit-for-100-million/116150?cid=db&elqTrackId=cd45f0235991466f88c71cec8d889066&elq=0ae47d9362e84978935c876244c1e3d8&elqaid=11867&elqat=1&elqCampaignId=4751


From the CFO Journal's Morning Ledger on December 21, 2016

Ikea settles with U.S. families
Ikea, the Swedish furniture group, has agreed to pay a total $50 million to three families in the U.S. whose children died when an Ikea dresser fell on them, Reuters reports.

Jensen Comment
It's heresy to say this but at those prices there are some families in the USA that would've pushed those dressers on top of babies. And there most certainly be lawyers advising them to do so.


From the CFO Journal's Morning Ledger on December 21, 2016

The flaws in U.S. corporate tax are legion: It encourages debt, outsourcing and tax avoidance while punishing investment, writes Greg Ip. Republicans in the House of Representatives may have found a way to solve all of this. They have an ambitious plan, which besides revamping individual taxes, would replace the current corporate tax with a tax on cash flow that exempts exports while taxing imports.

It faces the usual hurdles of any tax overhaul: losers, in this case importers, who won’t go quietly, and a potential increase in the budget deficit. It also has one unusual obstacle. Even though it’s economically similar to, and probably better than, the value-added taxes (VATs) many other countries use, it may be illegal under World Trade Organization rules. An international clash over taxes is something the world can ill afford when protectionist sentiment is already running high.

The current U.S. corporate tax rate, at 35%, is the developed world’s highest and is charged on profits earned abroad when they are repatriated (minus foreign tax paid). This incentivizes companies to rearrange their operations to book profit in low-tax countries like Ireland and avoid repatriating them. An alternative “territorial” system wouldn’t tax foreign profits, but that also encourages outsourcing to low-tax countries since operations there won’t incur U.S. taxes.

Under the House plan, companies could expense all capital investments immediately instead of over time, but no longer expense net interest, removing the current bias of debt over equity financing and old over new investment. A 20% tax rate would be applied to revenue minus costs such as labor and parts. Exports wouldn’t count toward revenue, while imports wouldn’t count toward costs. In theory, this “border adjustability” sweeps away the distortions that encourage companies to slash their tax bills to almost nothing by shifting profits and operations around the world, while other businesses pay the full rate.

Continued in article

Jensen Comment
My main beef with current USA corporate tax law is that, with the assistance of high priced accountants and lawyers, so many corporations either avoid taxes or defer them ad infinitum. The collectible tax that worries businesses the most is the VAT tax because it's so hard to play games with using expensive accountants and lawyers. And yes Jagdish, I know it's regressive.


From the CFO Journal's Morning Ledger on December 21, 2016

FASB to issue new guidance
Real estate investment trusts, pharmaceutical companies and electric-power producers face new rules in early 2017 on how to account for certain sales on non-financial assets, Bloomberg BNA reports. The U.S. Financial Accounting Standards Board approved plans to issue new guidance on the topic.


From the CFO Journal's Morning Ledger on December 21, 2016

Ford to import Indian SUV to U.S
Ford Motor Co. will start exporting small sport-utility vehicles to the U.S. from India starting late next year. The auto maker will export the EcoSport—the smallest SUV in Ford’s global lineup—from its plant near the southern Indian city of Chennai. It will be the first time Ford sells vehicles in the U.S. from its Indian factories, which have been making cars for more than 20 years.


From the CFO Journal's Morning Ledger on December 20, 2016

Whistleblowers welcome
The Securities & Exchange Commission has penalized a company for impeding outgoing employees from communicating with the agency, the latest violation of a rule protecting would-be whistleblowers. NeuStar Inc. violated the rule by routinely entering into severance agreements that contained a nondisparagement clause forbidding former employees from engaging with the SEC, the agency said


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

IASB to focus on use of infrequent items
The International Accounting Standards Board will provide stricter guidance on the use of so called infrequent items on company income statements, the organization’s chairman Hans Hoogervorst said. In the next two to three years the IASB will also specify how it wants companies to state subtotals, such as operating profit and earnings before interest and taxes, or ebit, and other special line items, Nina Trentmann reports.


Another White Collar Criminal Off the Hook
From the CFO Journal's Morning Ledger on December 15, 2016

Off the hook
The U.K. Serious Fraud Office has dropped its case against former Tesco PLC group commercial director Kevin Grace without charging him, Bloomberg reports. The company in September 2014 admitted that its accounting practices have led to an overstatement of profits by as much as £326 million ($407 million).

White Collar Crime Pays Big Even If You Know You Will Get Caught ---
http://www.trinity.edu/rjensen/FraudConclusion.htm#CrimePays
Kevin Grace will live the rest of his life in luxury


Quickly close your old Yahoo account
From the CFO Journal's Morning Ledger on December 15, 2016

Yahoo discloses second, larger data theft
Yahoo Inc. said a third party stole data connected to more than one billion user accounts in August 2013, a previously unreported theft that is separate from and twice as large as the one it disclosed earlier this year.

 


From the CFO Journal's Morning Ledger on December 14, 2016

Starbucks lashes out against EU regulators
Starbucks Corp. has attacked European Union competition watchdogs over a €30 million ($32 million) tax-repayment order, Bloomberg reports. Starbucks criticized the order, citing “manifest errors,” according to a summary of the appeal published this week.


Other than underfunding, nothing hurt pension funds more than low interest rates since the 2007 financial crisis
From the CFO Journal's Morning Ledger on December 14, 2016

As the Dow flirts with 20,000, U.S. public and corporate pensions still face funding challenges, write Vipal Monga and Heather Gillers. Corporate pensions were left with a $414 billion funding deficit in November, $10 billion larger than it was at the end of last year, according to Mercer Investment Consulting. Pensions still haven’t recovered from the chronic deficits created by the financial crisis and perpetuated by low interest rates.

Companies must reallocate cash typically used for other purposes to close pension funding gaps. General Motors Co., International Paper Co. and CSX Corp. all have borrowed money this year to pump funds into their pension plans. S&P 1500 businesses have contributed $550 billion into their pension plans between 2008 and Nov. 30 of this year, according to Mercer. Even with those contributions, their funded status was 81.3% as of Nov. 30.

Although pension-funding levels fluctuate during the year, most companies lock in their pension obligations at the end of the year for accounting purposes. November’s run-up, if it continues into December, could help lessen the burden of what had been shaping up to be a drag on 2016 financial results.

Jensen Comment
In addition to providing less financial risk to pension investing, relative to equities, high bond interest provided liquidity needed for pension payouts. Cashing in on equity investments for liquidity entails higher transactions costs.

Low interest rates also hurt senior citizens forced to consume more savings themselves when they became unable to live on the interest income of those savings. In the 1990s my parents loved those long-term CDs paying around 6%. Since 2007 those long-term CDs pay almost nothing in interest.


New Hampshire, Amazon, and LL Bean Breathe Easier
USA Supreme Court Refuses to Settle Disputes Over Sales Taxes and Customer Information That Crosses State Lines
From the CFO Journal's Morning Ledger on December 13, 2016

We are not touching this
The U.S. Supreme Court on Monday turned aside a chance to revisit the rules governing sales taxes on purchases across state lines, an issue at the center of efforts by states to collect tax on online sales. The court declined, without comment, to take up appeals on a Colorado law that requires retailers without a physical location in the state to report their customers’ names and total purchases to the government.


U.S. public companies have told shareholders precious little about what to expect from new revenue recognition accounting rules
From the CFO Journal's Morning Ledger on December 13, 2016

It is almost showtime for new revenue-recognition rules, but the largest U.S. public companies have told shareholders precious little about what to expect, Tatyana Shumsky writes in today’s Business section. Just 15 companies in the S&P 100 have so far disclosed how they plan to make the transition to the new accounting standard, according to a Wall Street Journal review of most recent quarterly filings.

Finance executives say they are working on plans to tell investors more about how the rules will affect their business, but admit they are in uncharted waters. “You literally have to take a clean sheet of paper and start from scratch,” said Lara Long, vice president for corporate accounting and reporting at agricultural-equipment maker AGCO Corp.


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

IMF chief to stand trial
Christine Lagarde, managing director of the International Monetary Fund, will go on trial following a €405 million ($428.8 million) payout by the French state to a businessman during her time as finance minister, the Financial Times reports. Ms. Lagarde is accused of negligence in public office in relation to the misuse of public funds.


Trump's Impossible Sugar Plum Dreams

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

Despite his pledges to renegotiate trade deals in order to better protect American workers, President-elect Donald Trump will have a tough time reversing the decline of U.S. manufacturing, Josh Zumbrun writes. After hitting a record of nearly 20 million in 1979, the number of American factory workers has plunged during each of the last five recessions and each time has never recovered. Today, 12.3 million people are employed in U.S. factories, a loss of nearly eight million jobs.

Forecasters in The Wall Street Journal’s monthly survey of economists doubt the numbers of bygone years can be restored. They estimate the U.S. will add about 7,000 manufacturing jobs by the end of 2017, about 40,000 by the end of 2018 and about 50,000 by the end of 2019, according to the average forecast—moving upward in coming years, but at a pace far too slow to replace what has been lost. “Manufacturing employment is now back to 1941 levels and falling,” said James Smith, chief economist of Parsec Financial. “This is a global trend and not at all specific to the U.S. It is caused by labor productivity growth.”


Bumble Bee Gets Stung (for price fixing)

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

Bumble Bee admits price fixing
A Bumble Bee Foods LLC executive has agreed to plead guilty to fixing prices on canned tuna, the first criminal charges in an ongoing Justice Department probe in the packaged seafood industry. Prosecutors on Wednesday said Walter Scott Cameron would plead guilty to one felony charge for fixing prices on packaged seafood from 2011 to 2013.

 


In my viewpoint the SEC should resist the temptation to continue approving departures from GAAP on a case-by-case basis

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

SEC to allow adjusted revenue metrics under ‘unusual circumstances
 The Securities and Exchange Commission will allow some companies to report adjusted revenues under special circumstances, but these must clear it with the regulator first, said Mark Kronforst, chief accountant for the division of corporation finance. The SEC in May issued new guidelines on the use of financial figures that don’t conform with U.S. generally accepted accounting principles, a push to rein in the practice, Tatyana Shumsky reports.

SEC Allows Some Adjusted Revenue Metrics Under “Unusual Circumstances” ---
http://blogs.wsj.com/cfo/2016/12/07/sec-allows-some-adjusted-revenue-metrics-under-unusual-circumstances/?mod=djemCFO_h

The Securities and Exchange Commission will allow some companies to report adjusted revenues under special circumstances, but these must clear it with the regulator first, said Mark Kronforst, chief accountant for the division of corporation finance.

“If you do have unusual circumstances, please do come and talk to us,” Mr. Kronfrost said, speaking on a panel at the American Institute of CPAs conference in Washington D.C. “We don’t want to suggest that there’s no circumstance under which revenue can be adjusted.”

The SEC in May issued new guidelines on the use of financial figures that don’t conform with U.S. Generally Accepted Accounting Principles, a push to rein in the practice. The guidelines targeted the prominence of non-GAAP figures in earnings releases and specifically prohibited certain adjustments to revenue.

The SEC’s focus on revenue adjustments prompted several companies in the video game industry, for example, to drop their non-GAAP revenue figures from financial filings.

Moreover, the regulator has criticized companies, including Tesla Motors Inc., for continuing the practice despite the new guidelines.

By contrast, Microsoft Corp. has continued to report adjusted revenue due to unusual business circumstances, Mr. Kronforst said.

Microsoft is transitioning its Windows business from a license sale model to a software as a service model at the same time as U.S. rules governing revenue accounting are on the cusp of change, said Frank Brod, Microsoft’s chief accounting officer, speaking on the same panel.

Under current revenue accounting rules, Microsoft recognizes its license sales revenues upfront, but must recognize its growing pool of subscription revenue over time, Mr. Brod said.  But the timing of subscription revenue recognition will change under the new accounting rules, so the company has provided non-GAAP revenue metrics as way of helping investors bridge the two standards, Mr. Brod said.

Microsoft sought input from its audit committee members, and held discussions with the SEC’s corporation finance division as well as with the office of the chief accountant to ensure it could keep reporting that non-GAAP measure while also complying with the new non-GAAP guidelines, Mr. Brod said.

“As Frank has demonstrated, there situations where we think it’s just fine [to adjust revenue],” Mr. Konforst said.

Continued in article

Jensen Comment

In my viewpoint the SEC should resist the temptation to continue approving departures from GAAP on a case-by-case basis.

Firstly, the SEC may find itself overwhelmed. For example, think of how the IRS would be swamped if it approved tax deductions for taxpayers with assurances they would not be audited for those deductions.

Secondly, this is corporate lobbying taken to extremes. It encourages payola.
We already have evidence (remember how Bernie Madoff could've been stopped early on) by SEC officials who were vulnerable to unethical behavior.

An exception is when, for a new standard, the standard setter has a special task force for implementation guidance. This happened big time when the FASB formed a Derivatives Implementation Group (DIG) when SFAS 133 was put into place. You can read many of the DIG pronouncements at
http://www.trinity.edu/rjensen/acct5341/speakers/133glosf.htm


FASB issues technical corrections ---
http://www.journalofaccountancy.com/news/2016/dec/fasb-issues-technical-changes-201615710.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=15Dec2016


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

SEC to allow adjusted revenue metrics under ‘unusual circumstances
The Securities and Exchange Commission will allow some companies to report adjusted revenues under special circumstances, but these must clear it with the regulator first, said Mark Kronforst, chief accountant for the division of corporation finance. The SEC in May issued new guidelines on the use of financial figures that don’t conform with U.S. generally accepted accounting principles, a push to rein in the practice, Tatyana Shumsky reports.

 


From the CFO Journal's Morning Ledger on December 7, 2016

Supreme Court backs government up (on insider trading)
The Supreme Court handed the government a significant win Tuesday in its pursuit of insider trading, ruling prosecutors in such cases don’t always have to show that something valuable changed hands to prove a crime was committed. The unanimous opinion restores some of the power the government lost in a 2014 federal court case. That two-year-old decision had cast doubt on just what constituted insider trading and forced law-enforcement officials to drop a number of high-profile cases, including several against associates of hedge-fund billionaire Steven A. Cohen.

 


From the CFO Journal's Morning Ledger on December 7, 2016

Non-GAAP violations under scrutiny
The Securities and Exchange Commission’s enforcement division is looking closely at violations of rules governing custom accounting metrics, said Michael Maloney, chief accountant of the division. The SEC this year stepped up its campaign to rein in the use of accounting metrics that don’t conform to the U.S. generally accepted accounting principles, known as non-GAAP figures, Tatyana Shumsky reports.


Protecting Business Value from the Hidden Costs of Intellectual Property Theft ---
http://deloitte.wsj.com/cfo/2016/12/07/protecting-business-value-from-the-hidden-costs-of-intellectual-property-theft/?mod=WSJBlog

Jensen Comment
As we watch the many rounds thus far in the Apple Verus Samsung intellectual property war we realize even more how it's impossible to measure and disclose the hidden costs of intellectual property rights. Add this to the vague listing of the many intangibles that accountants don't know how to measure or even disclose since even known disputes (let alone unknown future disputes) and you begin to question the sum total of assets and liabilities that are reported on a balance sheet, especially for technology firms.

From the CFO Journal's Morning Ledger on December 6, 2016

SEC accounting chief wants increased disclosures
U.S. companies should increase disclosures about their progress toward implementing new revenue accounting rules to help investors assess the impact, said Wesley Bricker, chief accountant at the SEC. The new rules, which govern when companies can record revenue for the goods and services they sell, become effective for public companies after Dec. 15, 2017, a year later than the original implementation date. Separately, the SEC won’t switch to International Financial Reporting Standards in the near term, but will continue reviewing a proposal to allow IFRS information to supplement U.S. financial filings, said Mr. Bricker. The SEC has been mulling for years whether to switch U.S. companies over to using IFRS instead of generally accepted accounting principles.

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

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

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


Sustainability of Sustainability Accounting

Sustainability Accounting --- https://en.wikipedia.org/wiki/Sustainability_accounting

From the CFO Journal's Morning Ledger on December 1, 2016

That isn’t what investors want
A majority of U.S. listed companies are disclosing sustainability risks to investors, but not in any meaningful detail, according to a study by the Sustainability Accounting Standards Board. The SASB analyzed annual reports of more than 700 top companies across 79 industries. It found that 81% addressed social and environmental risks. However, 52% of the companies used vague, boilerplate language to flag the risks without articulating management response strategies, Tatyana Shumsky writes.

From the CFO Journal's Morning Ledger on July 21, 2015

Investors: sustainability disclosures are mostly fluff ---
http://blogs.wsj.com/cfo/2015/07/21/investors-sustainability-disclosures-are-mostly-fluff/?mod=djemCFO_h
About 75% of companies in the S&P 500 index published sustainability reports last year, CFO Journal’s Emily Chasan reports. But U.S. investors say they are mostly disappointed in the information companies are releasing on greenhouse gas emissions or waste reduction.

Jensen Comment
Accountants do not know, and probably will never know, hot ot put verifiable numbers in sustainability forecasts. For one thing they are non-stationary. For example, today on December 1, 2016 it was announced that the State of California will seriously commence to regulate cow farts. Dairy farmers contend that these new regulation expenses seriously alter the sustainability of dairy farms and businesses. Previous statements on sustainability now have to be re-written.

Bob Jensen's threads on sustainability accounting ---
http://www.trinity.edu/rjensen/theory02.htm#TripleBottom


On December 5, 2016 China is Probably More Unhappy With President Obama (for blocking a China acquisition) Than President Elect Trump (for a 10 minute courtesy call with Taiwan)

Veto. 
President Barack Obama on Friday took the rare step of forbidding a foreign company from buying a firm with U.S. assets, telling a Chinese investment fund that it cannot complete a deal for German technology company Aixtron SE. Mr. Obama’s move, only his second outright ban on a foreign acquisition, shows the increasing suspicion the U.S. harbors toward Chinese acquisitions of certain U.S. firms. In a statement released on Friday, the Treasury Department said Mr. Obama had issued an order barring Fujian Grand Chip Investment Fund LP, part-owned by the Chinese government, from buying Aixtron. The Chinese Foreign Ministry expressed displeasure, Reuters reports.


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

Carnival fined
Carnival Corp.’s Princess Cruise Lines will need to pay $40 million penalty after pleading guilty to several charges for disposing oil in the ocean, the Guardian reports. U.S. attorney Wifredo Ferrer told a news conference the penalty was the largest ever of its kind. A plea agreement filed in federal court also requires the company to submit 78 cruise ships across its eight brands to a five-year environmental compliance program overseen by a judge.


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

Obamacare’s bright spots and drawbacks
Here’s the good news: Thanks to the Affordable Care Act, or Obamacare, more Americans have access to health care than ever before, Leemore Dafny and Dr. Thomas Lee write for Harvard Business Review. The bad news? The care itself hasn’t improved much. Despite the hard work of dedicated providers, our health-care system remains chaotic, unreliable, inefficient and crushingly expensive.


The State of AIS as an Academic Major

Hi Bill,

One problem with AIS is that it does not seem to have a well-defined home. For example, the Bureau of Labor Statistics does not list it under "Computer and Information Systems" or 'Accountants and Auditors."
 

Note that AIS is not listed under "Related Areas" in each of the following BLS categories.
 

AIS has never been well defined in terms of number of courses, course content,  credentials of specialization, and career paths.
 

Michigan State is somewhat unique, due heavily to your outstanding leadership, in the AIS concentrations and the number of AIS course offerings. You may be trying to do what most other accounting education programs in the USA are not trying to do.

 

My bottom line worry if I were going to major in AIS is that my entire career path is very uncertain relative to related majors. When students put AIS on their resumes, nobody is quite certain what that means.

 

From the Bureau of Labor Statistics
Computer and information systems managers

MIS ---
https://www.bls.gov/ooh/management/computer-and-information-systems-managers.htm

Related areas (note that AIS is not listed) ---
https://www.bls.gov/ooh/management/computer-and-information-systems-managers.htm#tab-8

 

From the Bureau of Labor Statistics
Accountants and Auditors (four-year degrees)

Related areas (note that AIS is not listed) ---
https://www.bls.gov/ooh/business-and-financial/accountants-and-auditors.htm#tab-8

 

Jensen Comment
The salary differential of $131,600 versus $67,190 lead us to question why accounting and auditing are so popular among USA colleges relative to computer and information systems?

 

My off-the-wall answer is that first there are the numbers of jobs shown above for accountants and auditors who are not even CPAs having masters degrees (remember the 150-hour requirement).

 

Secondly, I think accounting/auditing affords more opportunities to branch outward and upward. Not are there only good "related" opportunities, but there are opportunities for setting up a private practice in such specialties as tax and investment advising.

 

Foreign students may have fewer opportunities for both outward and upward mobility. For example, an Asian Senior Tax Accountant in a large CPA firm may have a harder time setting up a local-practice in Small Town, USA.

 

PS
I have an anecdotal suspicion of why IT and even computer science is not taking over the with hoards of student majors in USA colleges. One of our close friends (Dorothy) up here who, with two somewhat useless degrees in etymology, formed her own landscaping, painting, and decorating business that thrived (for over 30 years and counting) for miles around in these mountains. Customers will wait months and months to get her to finally get to them (many of whom want her wonderful New Hampshire rock walls or her wall-papered rooms) ---
http://www.trinity.edu/rjensen/tidbits/RockFences/RockFenceBeneathFoxRidge/FoxRidgeRockFence.htm

 

Her valedictorian son Alex majored for four years in IT and easily found a job in as a tech support specialist for a popular kind of business software. After the first month on the job he was bored out of his mind and abhorred the thought of spending years and years  answering tech support questions on line and on the phone. He stuck it out for two years and decided he could not spend the rest of his life answering tech support questions. So he went to work for two years at minimum wage in organic farming --- summers here in our Ski Hearth Organic Farm in Franconia and winters on an organic farm in Hawaii

,

After those two years in organic farming at minimum wage he decided his life was going nowhere. So he is now back at answering tech support questions --- this time in North Carolina.

 

He now hates his job and wishes he'd become a CPA.

When I asked him why he did not major in AIS?
He answered:  "What's AIS?"




Teaching Case from The Wall Street Journal Accounting Weekly Review on December 2, 2016

Dodd-Frank Rules: Up for a Rethink
by: Richard Teitelbaum and Kimberly S. Johnson
Nov 29, 2016
Click here to view the full article on WSJ.com

TOPICS: Disclosure, Regulation

SUMMARY: CFOs sort the costly provisions from the beneficial ones following talk of dismantling the Dodd-Frank law under a Trump administration. The law appears unlikely to be overturned in its entirety. Negotiating between Democrats and Republicans will be required because "Senate rules, in effect, would require 60 votes to bring any legislation overhauling Dodd-Frank and Republicans currently stand to control 52 seats in the coming Senate."

CLASSROOM APPLICATION: The article may be used in a financial reporting course--more likely at the intermediate level and above.

QUESTIONS: 
1. (Introductory) What are the main provisions of the Dodd-Frank Act discussed in this article?

2. (Introductory) Which of the Dodd-Frank law's requirements do corporate CFOs see as "common sense and easy to implement"?

3. (Advanced) What is the say-on-pay regulation?

4. (Introductory) Why is it likely that companies will continue the say-on-pay governance practice and its related disclosure?

5. (Advanced) What are conflict minerals? What is difficult about the requirements of Dodd-Frank in relation to conflict minerals?

Reviewed By: Judy Beckman, University of Rhode Island

RELATED ARTICLES: 
The Morning Ledger: Dodd-Frank Rules May Linger, Even if Dismantled
by Maxwell Murphy
Nov 29, 2016
Online Exclusive

 

"Dodd-Frank Rules: Up for a Rethink," by Richard Teitelbaum and Kimberly S. Johnson, The Wall Street Journal, November 29, 2016 ---
http://www.wsj.com/articles/dodd-frank-rules-on-business-up-for-a-rethink-1480334402?mod=djem_jiewr_AC_domainid

President-elect Donald Trump campaigned partly on a vow to dismantle the 2010 Dodd-Frank law, which supercharged bank oversight with myriad regulations. Corporate finance chiefs outside the sector, however, are focusing on the fate of the law’s nonbank provisions, which range from directives on executive pay to rules on hedging disclosure. Implementing some of those Dodd-Frank rules is costly, time-consuming and fails to help investors, say financial executives and experts.

Other rules are seen as reasonable by some executives—even exuding common sense—and may be continued by companies, regardless of the law’s future. “There are a lot of things you would do because they’re the right things to do,” said Teri List-Stoll, who was recently named CFO of Gap Inc., at the Financial Executives International conference earlier this month. Ms. List-Stoll, who served CFO stints at Dick’s Sporting Goods Inc. and Kraft Foods, said companies that had invested in complying with the regulations, and whose shareholders are happy with the results, will likely keep some of those measures even if Dodd-Frank were repealed in its entirety. One of the more popular rules to take effect is the so-called say-on-pay regulation the U.S. Securities and Exchange Commission adopted in 2011. It requires companies to hold a shareholder vote on executive compensation at least every three years.

It likely would be maintained by many businesses. “Say-on-pay votes may be continued by companies because investors like it,” said Meredith Cross, a partner at Wilmer Cutler Pickering Hale & Dorr LLP and a former director of the SEC’s corporation finance division. She helped write portions of Dodd-Frank. “The vote itself doesn’t cost anything,” Ms. Cross said, though she added: “The impact of having to change your compensation structure may be costly.” Some Dodd-Frank rules are common sense and easy to implement, experts say. Last year, for example, the SEC approved the issuance of a proposed rule that would require companies to disclose in their proxies whether employees or directors are allowed to hedge the company’s stock. “I assume you had to figure it out to begin with,” said Adam Pritchard, a professor of securities law at the University of Michigan. “It’s just a matter of cutting and pasting.”

On the other hand, beginning in 2018, a pay-ratio disclosure rule will require a company to compare its chief executive’s pay to the median annual compensation of all its other employees. The utility of the pay-ratio rule, however, is seen as questionable. “The CEO-to-median pay ratio may generate unneeded confusion among shareholders across many industries,” Richard Peretz, CFO of United Parcel Service Inc., said in an email. “There are several acceptable means for calculating the median employee pay, thereby rendering the resulting ratio even less valuable as a comparator across companies.”

Others agree. “How you measure it leads to very different conclusions,” said Alon Kalay, an assistant professor of accounting at Columbia Business School. “Do you include foreign workers and part-time workers?” Mr. Kalay cautioned against comparing the pay-ratio figure at two companies even in the same industry, citing Microsoft Corp. and Apple Inc., the latter of which operates a network of stores. “Apple has a lot more retail workers than engineers,” he said. Meanwhile, United Parcel’s Mr. Peretz said a rollback of regulations might simplify business for the logistics company. “If Dodd-Frank is repealed, or replaced, UPS may be able to reduce some additional data collection, analysis and auditing,” he said. Still, Dodd-Frank appears unlikely to be overturned in its entirety. For now, Senate rules, in effect, would require 60 votes to bring any legislation overhauling Dodd-Frank to a vote, and Republicans currently stand to control 52 seats in the coming Senate. So there could be some horse-trading with Democrats over any changes to the law. Some elements of Dodd-Frank have proven to be unwieldy. Some manufacturers, for example, would like to scratch the law’s Section 1502 provision on conflict minerals because of the cost and the difficulty in complying.

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on December 2, 2016

Cloudy With a Chance of Swimsuit Sales
by: Ray A. Smith
Nov 28, 2016
Click here to view the full article on WSJ.com

TOPICS: Forecasting, Managerial Accounting

SUMMARY: Fashion Institute of Technology (FIT) in New York City, "...one of the largest and best-known fashion schools...this semester launched a new, 15-week course called 'Predictive Analytics for planning and Forecasting: Case Studies with Weatherization." The course is designed to develop students' skills in understanding analytical procedures, such as regression analysis, to use them in better predicting product needs and thus improving sales.

CLASSROOM APPLICATION: Questions ask the students understand the meaning of predictive analytics, tying to their statistical studies, and considering topics covered in managerial accounting that relate to the article.

QUESTIONS: 
1. (Advanced) Based on the description and context in the article, how would you define predictive analytics?

2. (Introductory) Why are the topics of predictive analytics and other business subjects of increasing importance to fashion students at the Fashion Institute of Technology and other schools?

3. (Advanced) Why does the author of the article say weather is a "topical business issue"? Have you studied weather as a "topic" in a business course?

4. (Introductory) What is linear regression? How is this statistical tool used in making forecasts or predictions?

5. (Advanced) Consider managerial accounting topics such as fixed versus variable costs, the theory of constraints, activity-based costing, or another of your choosing. Describe how accounting information in one of these areas can be used in a predictive modeling process to help solve issues such as the weather-related sales issues described in the article.

Reviewed By: Judy Beckman, University of Rhode Island

 

"Cloudy With a Chance of Swimsuit Sales," by Ray A. Smith, The Wall Street Journal, November 28, 2016 ---
http://www.wsj.com/articles/the-next-fashion-trend-weather-forecasting-1480248007?mod=djem_jiewr_AC_domainid

As temperature fluctuations catch designers and retailers off-guard, a major fashion school wants students to learn more about predicting what’s ahead

At a recent class at the Fashion Institute of Technology in New York City, students were asked—and promised a Dunkin’ Donuts gift card for the right answer to—the question: When should a Los Angeles store stock swimsuits? Sarah Corcoran, a senior, explained she would use a “maximum temperature metric” to figure out the problem. “Yes,” cheered her professor, Calvin Williamson. And she earned the gift card. FIT, one of the largest and best-known fashion schools, with alumni including Calvin Klein, Norma Kamali and Brian Atwood, this semester launched a new, 15-week course called “Predictive Analytics for Planning and Forecasting: Case Studies with Weatherization.” The course, geared toward students interested in retail and merchandising careers, is part of a broad overhaul of FIT’s curriculum to include more topical business issues, and weather is a prime one.

Weather fluctuations have increasingly been putting fashion designers and clothing retailers on the defensive. Merchandise is often ordered months in advance based on what the weather typically is at that time of year. But when temperatures are different from what was predicted—milder-than-usual winters, cold springs or otherwise inconsistent weather—clothes that are all wrong for the climate stay on racks and get discounted, hurting sales.

Last winter was the warmest on record for the contiguous U.S., says Jake Crouch, a climate scientist at the National Oceanic and Atmospheric Administration’s National Centers for Environmental Information. The average temperature was 36.8 degrees Fahrenheit, 4.6 degrees above average, with some parts of the country even higher above average. That led to less demand for heavy winter coats.

J.C. Penney Co. Chief Executive Marvin Ellison recently told analysts warm weather hurt apparel sales for the quarter that ended Oct. 29. He cited the “warmest September ever on record” as a factor. Some mass retailers hire or consult climatologists to help them make such predictions.

Designer Michael Kors makes a point of including a range of fabric weights for his resort collections, instead of limiting them to the lightweight clothing and beachwear those collections have historically featured. Mr. Kors has cited the reality of unexpectedly chilly days or nights and unpredictable weather.

Continued in article

Jensen Comment
Remember that Burkinis help prevent deadly melanoma cancer --- seriously!


Teaching Case from The Wall Street Journal Accounting Weekly Review on December 2, 2016

Trump's Treasury Pick Hedges on Taxes
by: Richard Rubin
Dec 01, 2016
Click here to view the full article on WSJ.com

TOPICS: Individual Income Taxation

SUMMARY: President-elect Donald Trump turned to former Goldman Sachs banker and movie financier Steven Mnuchin to be the next Treasury secretary. Mr. Mnuchin told CNBC on Wednesday that high income households won't receive an overall tax cut because any proposed "reductions...in upper-income tax [rates] will be offset by less deductions" so that the middle class will receive the biggest tax cut. That promise "is at odds with tax proposals from Donald Trump and House Republicans."

CLASSROOM APPLICATION: The article may be used in a tax class. It builds on coverage from the next article covered in this review which provides a clear graphic of the current tax rates and maximum deductions under current law, the Trump proposal and the House GOP proposal. Questions ask students to differentiate between the effects of tax rate reductions, marginal and effective tax rates, and tax deductions.

QUESTIONS: 
1. (Advanced) What are top marginal tax rates for individuals? Does that rate reflect actual tax amounts when multiplied by taxable income? Explain, including a definition of effective tax rate.

2. (Advanced) Define the term tax deduction. According to the article, how does President-elect Donald Trump propose to limit the amount of deductions that U.S. individual taxpayers may take?

3. (Introductory) According to Mr. Trump's selection for Treasury Secretary (yet to be confirmed for the position) Steven Mnuchin, how do the effects of tax rate reductions and deduction limits offset for high income earners? What is the comparison for middle class taxpayers?

4. (Introductory) What evaluations of these proposed tax plans are given in the article? Who conducts these evaluations?

5. (Advanced) Define the term "distribution of the tax burden."

6. (Advanced) Why does reduction in overall taxation benefit high income earners due to the tax burden distribution you defined above?

Reviewed By: Judy Beckman, University of Rhode Island

RELATED ARTICLES: 
Deduction Limits Pose Test for Tax-Cut Proposals
by Richard Rubin
Dec 01, 2016
Page: A4

 

"Trump's Treasury Pick Hedges on Taxes." by Richard Rubin, The Wall Street Journal, December 1 , 2016 ---
http://www.wsj.com/articles/donald-trumps-treasury-choice-says-reforming-tax-code-is-priority-1480518752?tesla=y

High-income households won’t receive an “absolute tax cut” under a Trump tax plan, the president-elect’s new pick for Treasury secretary said on Wednesday, a promise that is at odds with tax proposals from Donald Trump and House Republicans.

Steven Mnuchin said that “Any reductions we have in upper-income taxes will be offset by less deductions, so that there will be no absolute tax cut for the upper class.” The big tax cut, he told CNBC, will go the middle class.

The comments echo occasional remarks from Mr. Trump, but not the tax plan he campaigned on, and point to the political and arithmetic challenges that lawmakers will face as they try to turn those promises into legislation.

Aside from moving ahead on a large tax rewrite next year, Mr. Mnuchin also said he would roll back parts of the landmark 2010 Dodd-Frank financial overhaul enacted by the Obama administration and congressional Democrats in the wake of the financial crisis. Mr. Mnuchin called that “the No. 1 one priority on the regulatory side.”

Mr. Trump’s tax plan would lower top rates dramatically, providing such large benefits to high-income households that analysts say they can’t be covered with limits on tax breaks, such as the $100,000-a-person limit on itemized deductions already in Mr. Trump’s plan. The largest deductions typically are for mortgage interest, state and local taxes and charitable contributions.

“I don’t think there is a way to make it work with the current marginal rates that they’re working with,” said Kyle Pomerleau, director of federal projects at the conservative-leaning Tax Foundation.

Under Mr. Trump’s plan, the corporate tax rate would drop from 35% to 15%. The estate tax and alternative minimum tax would be repealed. Capital-gains rates would drop. The top rate on business income reported on individual tax returns would fall from 39.6% to 15%, and the top rate on ordinary income would fall from 39.6% to 33%.

The Tax Foundation says Mr. Trump’s plan would boost after-tax incomes for the top 1% of households by at least 10%, even before accounting for any potential economic growth. The Tax Policy Center, a think tank run by a former Clinton administration official, estimates that the top 1% of households would pay an average of $214,690 less in taxes in 2017 under Mr. Trump’s plan than they would otherwise. Stephen Moore, who helped develop Mr. Trump’s tax plan, said it was designed so that the deduction cap offsets the revenue loss from lowering the top tax rate on ordinary income from 39.6% to 33%. The cap wasn’t written to offset the tax cuts on business income, estates and capital gains, which independent analyses all say flow disproportionately to top earners.

It wasn’t immediately clear on Wednesday whether Mr. Trump and his team were actually changing their tax plan. The transition team didn’t respond to a request for comment. “Trump’s plan was independently scored as giving more tax cuts to the top 1% than the bottom 99% combined,” said Gene Sperling, a former economic-policy aide to President Barack Obama. “So, we’ll watch what they do.” In response to a question about studies showing Mr. Trump’s plan would raise taxes on millions of single parents, Mr. Mnuchin said the plan would be “very clear” in ensuring a middle-class tax cut when it emerges from Congress.

Mr. Mnuchin’s comments on the distribution of the tax burden also show a potential difference with Republicans in the House, who are developing their own tax plan to lower rates and limit tax breaks.

House Speaker Paul Ryan (R., Wis.) and Ways and Means Chairman Kevin Brady (R., Texas) have brushed aside questions about a study showing that their plan would deliver most of its benefits to the top 1%. Instead, they say they are focusing on encouraging economic growth.

That is a change from Republicans’ positioning just a few years ago. In 2012, presidential candidate Mitt Romney said he would make sure taxes wouldn’t go up for high-income households, though he had trouble making the math work. In 2014, then-Rep. Dave Camp (R., Mich.) produced a plan that didn’t change the distribution of the tax burden.

A challenge for Republicans is navigating the tension between economic theories that emphasize lower tax rates and the fact that the income-tax burden is concentrated at the top of the income distribution. Cutting marginal tax rates necessarily helps the top 1%, but Mr. Trump’s campaign plan gives them a bigger share of the tax cuts than their share of income or tax payments.

The top 1% of households receives 17.2% of all U.S. pretax income and pays 28.7% of all federal taxes, according to Tax Policy Center estimates for 2017. That group would be the beneficiary of about half of Mr. Trump’s tax cuts. Mr. Mnuchin’s comments on Dodd-Frank are consistent with those made by Mr. Trump and other advisers. But they are significant since

Mr. Mnuchin himself has said little publicly about policy matters, and his Wednesday remarks offer a fresh window into his thinking and priorities.

Mr. Mnuchin, a former Goldman Sachs Group Inc. executive, said the Volcker rule provision in Dodd-Frank—named after former Federal Reserve Chairman Paul Volcker—is too complicated and signaled the Trump administration may try to roll it back. The rule is aimed at trying to stop banks from betting with deposit-insured funds. Goldman and other Wall Street firms have complained that the rule is too complex.

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on Decembe 2, 2016

Years of Turmoil Forged Tax Plan
by: Richard Rubin
Nov 21, 2016
Click here to view the full article on WSJ.com

TOPICS: Tax Reform

SUMMARY: Republicans have spent years working on U.S. tax overhaul legislation that may now pay off following Donald Trump's election as president of the U.S. and election results maintaining the Republican majorities in both houses of Congress.

CLASSROOM APPLICATION: The article may be used in a tax policy class. It emphasizes the years of work on failed proposals that may now lead Congress to implement a tax overhaul.

QUESTIONS: 
1. (Introductory) What are the Republican goals with respect to the U.S. tax code?

2. (Introductory) Refer to the graphic "GOP Tax Proposals Gain Momentum." How do the two proposals by the House GOP (Republicans, or "Grand Old Party") and President-elect Trump (during his campaign) reflect the Republican goals described in answer one above?

3. (Introductory) Who is former Representative Dave Camp? How did his work on overhauling the tax code fare through 2014?

4. (Advanced) What have Republicans learned from the failures of the legislation championed by former Representative Dave Camp?

5. (Advanced) Based on the context of the discussion in the article, what is 'dynamic scoring" in estimating the impact of tax law changes on the U.S. federal budget?

6. (Advanced) Refer to the related article. Summarize some of the concerns in corporate reactions to the House GOP tax plan described in the earlier article.

Reviewed By: Judy Beckman, University of Rhode Island

RELATED ARTICLES: 
House GOP Business-Tax Plan Upends U.S. Policy, Bares Corporate Fault Lines
by
Nov 24, 2016
Online Exclusive

 

"Years of Turmoil Forged Tax Plan," by Richard Rubin, The Wall Street Journal, November 21, 2016 ---
http://www.wsj.com/articles/after-years-of-turmoil-republican-tax-overhaul-picks-up-speed-1479662762?tesla=y

GOP brings hard-fought experience to effort to pass rate-lowering, base-broadening revamp

Republicans’ race to rewrite the U.S. tax code on the heels of this month’s election relies on years of work that is suddenly—and quite unexpectedly—poised to pay off.

A 2017 tax overhaul would be a case study in the benefits of dead ends and behind-the-scenes preparation. Failure would show again how hard it is to reshape the U.S. tax system, even with rare political momentum and one-party control of government.

Republicans have long sought a rate-lowering, base-broadening revamp of the tax code, fusing differing business interests within the GOP coalition. Corporations would get a rate cut and lighter taxes on foreign income. So would small businesses, who report profits on their owners’ individual tax returns. Individuals would get those lower rates and simpler annual tax filing.

Graphic not copied here

Whether the overhaul would give the economy a big lift is open to question. The conservative-leaning Tax Foundation says it would boost investment, after-tax income for all groups and create 1.7 million jobs in the long run. That's an optimistic view. Economic models that are more sensitive to budget deficits suggest more modest results.

The challenge is trade-offs, deciding which breaks get curtailed to prevent budget deficits from exploding.

The landmark 1986 tax overhaul took years of planning to get past those problems. Republicans are now partway through that work. “We’ve grappled with this stuff,” says conservative tax activist Ryan Ellis. “It’s ripe.” Ex-Rep. Dave Camp, a Michigan Republican who took over the House Ways and Means Committee in 2011, put out a series of detailed drafts on foreign income, derivatives and partnerships over several years.

When he unveiled a complete bill in 2014, political momentum had flagged, and some ideas—a bank tax and longer depreciation schedules—flopped inside the GOP.

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on December 2, 2016

Deduction Limits Pose Test for Tax-Cut Proposals
by: Richard Rubin
Dec 01, 2016
Click here to view the full article on WSJ.com

TOPICS: Deductions, Individual Taxation

SUMMARY: Changes to existing tax breaks may not offset revenue loss from lower rates according to analysis the Brookings Instituttion and by WSJ reporter Richard Rubin. The article focuses on itemized deductions, standard deductions, and limits to deductions.

CLASSROOM APPLICATION: The article may be used in an individual tax class to discuss policy changes proposed by the incoming administration.

QUESTIONS: 
1. (Advanced) What types of items may be included as itemized deductions in an individual tax return?

2. (Introductory) According to the congressional Joint Committee on Taxation, what are the three largest itemized deductions?

3. (Advanced) What is the standard deduction? Does it limit the amount of itemized deductions that individuals may take? Explain.

4. (Introductory) How does President-elect Trump propose to limit deductions in his tax plan?

5. (Introductory) According to President-elect Donald Trump, what is the overall effect on the federal budget of his proposed tax changes? According to reporting in the article from Brookings Institution analysis, what is the likely overall effect of these proposed changes?

Reviewed By: Judy Beckman, University of Rhode Island

"Deduction Limits Pose Test for Tax-Cut Proposals," by Richard Rubin, The Wall Street Journal, December 1, 2016 ---
http://www.wsj.com/articles/deduction-limits-pose-test-for-donald-trumps-tax-cut-plan-1480555670?mod=djem_jiewr_AC_domainid

Changes to existing tax breaks may not offset revenue loss from lower rates

Itemized deductions are on the chopping block as President-elect Donald Trump looks for ways to offset the revenue loss from his proposed tax-rate cuts.

Experts say the challenge—besides the political popularity of tax breaks for mortgage interest and charitable contributions—is that there isn’t enough money there to accomplish his goal.

“There’s just no way that restricting the deductions that Trump has talked about comes anywhere close to eliminating the tax cut for the wealthy in his plan,” said Bill Gale, a senior fellow at the Brookings Institution. “It’s just arithmetic.”

Steve Mnuchin, Mr. Trump’s pick for Treasury secretary, said Wednesday that high-income households would get no absolute tax cut, a statement that is either imprecise or at odds with every analysis of Mr. Trump’s plan.

Stephen Moore, who helped develop Mr. Trump’s tax plan, said the proposal was designed so the deduction cap offsets the revenue loss from lowering the top tax rate on ordinary income from 39.6% to 33%.

The idea is that high-income households would get no net tax advantage from that swap. But that approach means the deduction limits don’t offset the tax cuts on business income, estates and capital gains, which all flow disproportionately to top earners.

Tax cuts on capital gains, dividends, businesses and estates are especially skewed to the high end of the income and wealth distribution, said Chuck Marr, director of federal tax policy at the Center on Budget and Policy Priorities, a group that advocates for low-income families.

“You have all these other tax cuts that are disproportionately targeted to the wealthiest people in the country,” he said. “That’s the core element of the plan.”

Taxpayers under current law can itemize their deductions if they exceed the standard deduction, which this year is $6,300 for individuals and $12,600 for married couples. Most taxpayers don’t exceed that threshold, and fewer than 30% are projected to itemize in 2017.

The largest deductions are those for mortgage interest, charitable contributions and state and local taxes. Those three breaks alone total $200 billion in forgone revenue in 2017, according to the congressional Joint Committee on Taxation.

Mr. Trump would squeeze deductions from both ends. He would more than double the standard deduction and limit itemized deductions to $100,000 for individuals and $200,000 for married couples.

That deduction cap would raise about $559 billion over a decade, according to the Tax Policy Center, a project of Brookings and the Urban Institute. Even with that cap, Mr. Trump’s plan would reduce government revenues by about $6.2 trillion over a decade.

One thing that will become more apparent as Mr. Trump’s plan moves through Congress is that the impact of deduction limits doesn’t fall evenly. The state and local tax deduction tends to benefit residents of high-tax states such as California and New York.

The mortgage interest deduction helps the upper middle class, especially in areas with high housing costs. More than 60% of the tax break goes to households between the 80th and 99th percentiles of income, according to the Tax Policy Center.

And the charitable deduction helps the highest earners. According to Internal Revenue Service data, the top 0.001%—that is about 1,400 households—reported 9.5% of charitable contributions.

The focus on deductions ignores other tax benefits that high-income households get. They receive the bulk of capital gains and dividends, which are taxed at preferential rates.

They also control the timing of those gains, deferring taxes for years and not paying anything as the value of their stocks and other assets appreciate.

Mr. Trump’s plan is the latest attempt to curb deductions as part of a tax code overhaul. The House Republican plan would eliminate the state and local tax deduction while preserving write-offs for mortgage interest and charity.

 

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on December 9, 2016

Cash for Closing-Day Surprises
by: Robyn A. Friedman
Dec 02, 2016
Click here to view the full article on WSJ.com

TOPICS: Asset Acquisition

SUMMARY: This article is written for the benefit of individual home buyers but may be used to introduce the accounting concept of capitalizing all costs necessary to acquire property, plant, and equipment by businesses.

CLASSROOM APPLICATION: The article may be used in an introductory or intermediate financial reporting class or in a personal finance class.

QUESTIONS: 
1. (Advanced) Define the term closing of a real estate purchase, either when a business buys a building or an individual or couple buys a home.

2. (Introductory) What are closing costs? What types of items are included in this category?

3. (Advanced) How must businesses account for closing costs when buying real estate? Be specific, listing each of the items you identified in answer to question 2.

4. (Introductory) Consider homebuying by individuals or couples. Besides a downpayment to purchase the home, what are all of the items listed in this article for which homebuyers must save?

5. (Advanced) What is an "estoppel" letter? How can this letter help avoid concern about being surprised by hidden fees that come to light at closing or errors in assigning fees to buyer and seller?

Reviewed By: Judy Beckman, University of Rhode Island

 

"Cash for Closing-Day Surprises," by Robyn A. Friedman, The Wall Street Journal, December 2, 2016 ---
http://www.wsj.com/articles/buying-a-home-prepare-for-surprise-closing-costs-1480521375?mod=djem_jiewr_AC_domainid

Home buyers typically know how much money they’ll need for the closing. But mortgage experts say that might not be enough.

Note to house hunters on a budget: A home’s sale price isn’t really the sale price—there are lots of closing costs and expenses that jack up the final number.

According to online real-estate listings site Zillow, buyers typically pay between 2% and 5% of the purchase price in closing costs. So if a home costs $300,000, that buyer can expect to pay between $6,000 and $15,000. Since the financial crisis, there’s more transparency on the part of lenders when disclosing the costs associated with a mortgage, so buyers know in advance how much they’ll need for the closing. But experts say that might not be enough.

Lender fees are only one part of the total cost of homeownership. Buyers must also pay appraisers, home inspectors and settlement agents, as well as the cost of title insurance, homeowners insurance and property taxes. And the fees don’t stop at the closing. Utilities, regular home maintenance and unexpected repairs add up as well—and can derail even the most experienced buyer.

“Many of the hidden fees associated with financing have been eliminated,” says Jay Parker, chief executive officer of Douglas Elliman’s Florida brokerage. “But that does not eliminate some of the potential expenses associated with the homebuying process.”

In a survey of 1,300 U.S. homeowners conducted for TD Bank in March, 62% spent close to $2,000 in unexpected costs during the mortgage process. For millennials, those born between 1982 and 2004, the number is higher; 44% incurred up to $5,000 in unexpected costs.

“Millennials, in particular, go online and do their research first, but may not understand about closing costs and escrow accounts,” says Ray Rodriguez, regional mortgage sales manager for the metro New York market for TD Bank. Lenders create escrow accounts to pay insurance and tax bills on a mortgaged property when they come due.

Mr. Rodriguez recently closed a $700,000 mortgage in Connecticut where the borrower had to post $10,600 just to set up escrow accounts. Utility bills can come as a surprise as well. Some utilities and other service providers may require a deposit when an account is opened.

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on December 9, 2016

Inventory Check: We Went to the Stores
by: Miriam Gottfried
Dec 03, 2016
Click here to view the full article on WSJ.com

TOPICS: Inventory

SUMMARY: This article follows on one covered in this review from November 14, 2016 and listed as the related article. As reported in the related article, retailers have claimed they will maintain lower inventories in order to increase gross profit margins by implementing fewer markdowns, potentially at the loss of some sales for high-demand products. The WSJ is tracking their results through lists of products at 4 retailers ranging across price points: Macy's, JC Penney, Ralph Lauren, and Gap. Observations are being made at mid-town Manhattan stores so prices may not be representative of those found elsewhere but the article includes the argument that the pricing trends should be representative.

CLASSROOM APPLICATION: The article may be used in discussing managerial issues of discounting and gross profits or to introduce markdowns when covering inventory accounting. Questions also ask a statistical concept about generalizability of the results of the price tracking.

QUESTIONS: 
1. (Introductory) What is gross profit or gross margin?

2. (Advanced) Why would companies want to maintain low levels of inventory going into the Christmas shopping season? Hint: you may refer to the related article to help with this question.

3. (Introductory) What is a markdown? What is the purpose of the WSJ tracking markdowns? Over what time period will they track?

4. (Advanced) Where is the WSJ monitoring these inventory pricing trends? Do you think prices at those locations will represent price trends across the U.S.?

5. (Introductory) Explain the reasoning given by the WSJ that tracking these prices should provide useful information to any reader, not just those located where the WSJ is conducting its tracking.

Reviewed By: Judy Beckman, University of Rhode Island

RELATED ARTICLES: 
Lighter Inventory Helps Lift Retailers' Fortunes for Now
by Miriam Gottfried
Nov 14, 2016
Page: B12

 

 

"Inventory Check: We Went to the Stores," by Miriam Gottfried, The Wall Street Journal, December 3, 2016 ---
http://www.wsj.com/articles/inventory-check-we-went-to-the-stores-1480701344?mod=djemheard_t?mod=djem_jiewr_AC_domainid

Retailers claim that low inventory will mean less discounting for the holidays

Holiday 2016 is supposed to be the year of clean inventory, but you wouldn’t know that from the looks of many stores.

U.S. retailers, including Macy’s, Nordstrom, Gap, J.C. Penney and Kohl’s, have touted lower inventory heading into the most important shopping period of the year. That has driven up stock prices for many of them as investors hope for fewer markdowns and better margins in the fourth quarter. Meanwhile, vendors such as Michael Kors, Coach and Ralph Lauren have tried to stem discounting by cutting back sales to department stores and streamlining the number of styles they sell to them.

To gauge how this war on promotions is going, Heard on the Street visited the physical stores of four retailers—Macy’s, J.C. Penney, Gap and Ralph Lauren—and selected a basket of items to monitor. We plan to check back every week through early January to see how the prices of those items change. Our first visit occurred on Tuesday, Nov. 29, after the buzz surrounding Black Friday had died down.

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on December 9, 2016

Tax Returns Show Rise for the Rich
by: Richard Rubin
Dec 02, 2016
Click here to view the full article on WSJ.com

TOPICS: Individual Income Taxation

SUMMARY: Based on information from the Internal Revenue Service that removes taxpayer identification, this article presents the share of the overall tax burden and average effective tax rate of the top 400 U.S. taxpayers.

CLASSROOM APPLICATION: The article may be used in a personal income tax class to discuss tax equity, effective tax rates, and the impact of capital gains tax rates.

QUESTIONS: 
1. (Introductory) What is adjusted gross income? What level of adjusted gross income is the minimum reported by the top 400 taxpayers in the U.S. in 2014?

2. (Advanced) What has been the trend of the share of total income and total income taxes paid by this group of taxpayers?

3. (Introductory) What type of income typically is reported by this top group of taxpayers?

4. (Advanced) What is the average effective tax rate for this group of taxpayers? How do you think that is influenced by the type of income reported by this group?

5. (Introductory) What does the author Richard Rubin mean when he writes that increases in incomes might be "skewed" by tax increases that took effect in 2013? Does this mean that tax increases themselves are included in income? Explain.

Reviewed By: Judy Beckman, University of Rhode Island

 

 

"Tax Returns Show Rise for the Rich," by Richard Rubin, The Wall Street Journal, December 2, 2016 ---
http://www.wsj.com/articles/earnings-at-peak-of-u-s-income-distribution-jumped-20-in-2014-1480608351?tesla=y?mod=djem_jiewr_AC_domainid

Total income reported on the top 400 individual tax returns rose 20% in 2014

The total income reported on the top 400 individual tax returns rose 20% in 2014, according to Internal Revenue Service data released Thursday.

The figures reveal the concentration of earnings at the pinnacle of the income distribution, in a club that required $126.8 million of adjusted gross income to enter. That group, out of nearly 150 million tax returns in 2014, received 1.3% of income and 10% of capital gains that get preferential rates. The same 400 households also claimed 6.9% of all deductions for charitable contributions.

The top 400 households paid 2.13% of all individual income taxes, their highest share in the data series that goes back to 1992. Their average tax rate was 23.13%, the highest since 1997, when Congress cut capital-gains taxes.

The increases in incomes for the top 400 in 2014 may be somewhat skewed by the tax increases that took effect in 2013. Those changes encouraged taxpayers to realize capital gains in 2012 instead of 2013, causing a spike in reported income in 2012 and a dip in 2013.

The top 400 are measured by income, not wealth, and the individuals change from year to year.

Many wealthy people can avoid annual income taxes by not selling assets and wouldn’t be part of the list, which doesn’t include taxpayers’ names.

The IRS also said  on Thursday that it would no longer release data on the top 400, which it compiled going back to 1992.

 

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on December,9, 2016

Rising Rates Trigger Losses on Banks' Bond Portfolios
by: John Carney
Dec 08, 2016
Click here to view the full article on WSJ.com

TOPICS: Available-for-Sale, Banking, Investments

SUMMARY: "Rising interest rates have sent bank stocks soaring. But there is a dark side...banks in the fourth quarter are likely to report losses on their large bond portfolios." The article discusses information take from reporting on available-for-sale investments, including other comprehensive income.

CLASSROOM APPLICATION: The article may be used when covering accounting for investments.

QUESTIONS: 
1. (Advanced) What is the difference between realized and unrealized gains and losses on security holdings?

2. (Advanced) What are the three categories of investments identified in authoritative accounting literature? Cite the authoritative guidance you are referencing.

3. (Advanced) What is the difference in accounting treatment of unrealized gains and losses across these three categories of investments? Cite the authoritative guidance you are referencing.

4. (Advanced) Why do unrealized losses affect a bank's book value but "don't immediately diminish a banks profits"? In your answer, define the "special bucket...called 'accumulated other comprehensive income.'"

5. (Advanced) What are required disclosures for unrealized gains and losses? Cite the authoritative guidance you are referencing.

6. (Introductory) How does the analysis in this article use the information required in financial statements and related disclosures? List all items you find that are taken from financial statement amounts and disclosures for investments.

Reviewed By: Judy Beckman, University of Rhode Island

 

 

"Rising Rates Trigger Losses on Banks' Bond Portfolios," by John Carney Dec 08, 2016, The Wall Street Journal, December 3, 2016 ---
http://www.wsj.com/articles/rising-interest-rates-trigger-losses-on-banks-massive-bond-holdings-1481132298?tesla=y

These losses are unrealized, however, and over time they will be offset by higher net interest income

Rising interest rates have sent bank stocks soaring. But there is a dark side to this kind of market move—banks in the fourth quarter are likely to report losses on their massive bond portfolios.

U.S. banks suffered a $6.5 billion unrealized loss on the value of securities they hold as investments as of Nov. 23, according to the most recent data from the Federal Reserve. This was the first time since 2014 that the Fed data for the banking system as a whole showed a loss on these securities. As recently as early July, banks had total unrealized gains on these portfolios of $33.8 billion.

They key is that these losses, or gains, are unrealized and don’t hit earnings. While they do affect a bank’s book value, or net worth, the losses over time will be offset by increasing net interest income. That is a trade-off banks and their investors will take in stride, and even welcome.

Speaking at a financial industry conference Tuesday, Wells Fargo & Co. chief Timothy Sloan said that while there was likely to be short-term unrealized losses in the bank’s securities portfolio, higher interest rates were an overall “positive” for the bank.

When rates rise, the value of debt securities tends to fall because the relatively low rates on existing bonds will look unattractive compared with the higher rates of new bonds. The decline in bond prices brings the yields of similar bonds in line with each other.

Banks classify a big portion of their bond holdings as investment holdings, or “available for sale,” distinguishing them from those held for trading purposes. These investment holdings were $2.66 trillion for U.S. banks at the end of the third quarter, or about 16% of total assets, according to data from the Federal Deposit Insurance Corp. As well, there is a smaller group of bonds banks classify as being held to maturity.

When investment securities lose value, the losses are described as “unrealized” and don’t immediately diminish a bank’s profits. Instead, the losses go into a special bucket in shareholders’ equity called “accumulated other comprehensive income.”

This cuts into banks’ book value as well some measures of regulatory capital. That can be a problem for banks with thin capital cushions. But with many banks comfortably above required minimum capital levels, this isn’t likely to be a cause for concern today.

“I don’t hear many investors concerned about [investment-security] losses and the impact on capital because the stocks seem to be trading much more on price to earnings than price to book value and capital ratios are so strong,” said Sanford C. Bernstein analyst John McDonald.

The losses will only cut into a bank’s profits if they are realized through a sale, meaning a bank sells bonds for a price lower than what it paid. Or a hit to profit could result if a bank determines a bond has become permanently impaired—typically because it is unlikely to pay the promised cash flow.

During the financial crisis, some investors believed banks were hiding losses on permanently impaired securities in their investment portfolios. That is unlikely to be the case now. Mostly, bonds are losing value simply because of interest rate moves.

Any knock to bank balance sheets will also be cushioned by the fact that many large banks have substantially increased the portion of their securities portfolios they classify as “held to maturity.” Those bonds don’t get marked to market prices unless there is a permanent impairment.

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on December 9,,2016

China's Banks are Hiding More Thank $2 Trillion in Loans
by: Lingling Wei
Dec 07, 2016
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com WSJ Video

TOPICS: Loan Loss Allowance

SUMMARY: The Chinese Bank of Nanjing reports "$39 billion in investment receivables in the third quarter, nearly as big as its loan portfolio...." The article indicates that the bank includes in this category some banking loans in order avoid estimating losses from expected uncollectible amounts under regulatory requirements. This practice is widespread among Chinese banks although the average amount in investment receivables is approximately 20% of these banks' total loan portfolios.

CLASSROOM APPLICATION: The article may be used in covering banking, contingent losses, or receivables and investments. It is appropriate for an intermediate level or above. Questions ask students to understand the need for reporting contingent losses when they can be estimated and the impact of the practices described in the article.

QUESTIONS: 
1. (Advanced) What are contingent losses in general? In relation to loans receivable held by banks?

2. (Introductory) According to the article, how are many Chinese banks avoid reporting contingent loan losses?

3. (Introductory) Refer to the related video. How do Chinese banks classify loans as investments rather than loans receivable?

4. (Introductory) Refer to the graphic entitled "Booming Business." If loan balances are nearly 250 billion yuan and greater than the investment receivables balance of just over 200 billion yuan, how does the graphic support the statement that "Bank of Nanjing's investment receivables have grown much faster than its loans"?

5. (Advanced) According to your understanding of accounting requirements, should banks report contingent losses related to collectibility issues associated with any asset--either an investment or a loan? What differences between investment and loan accounting might result in the situation described in this article?

6. (Introductory) Why do Bank of Nanjing officials say they are not worried about non-collectibility of the loans and investments they hold? How does this affect bank managers' behavior in lending decisions?

Reviewed By: Judy Beckman, University of Rhode Island

 

 

"China's Banks are Hiding More Thank $2 Trillion in Loans," by Lingling Wei, The Wall Street Journal, December 7, 2016 ---
http://www.wsj.com/articles/chinas-banks-are-hiding-more-than-2-trillion-in-loans-1481130392?mod=djem_jiewr_AC_domainid

Accounting sleight of hand means banks don’t have to set aside capital for potential losses, sowing fears of a crisis; new apartments with no residents

In 2014, the Chinese city of Haimen on the mouth of the Yangtze River set out to build a large apartment complex and turned to Bank of Nanjing Co. for about $29 million in financing.

The bank was happy to oblige but it didn’t call the money a loan, according to people familiar with the matter. It was added to Bank of Nanjing’s balance sheet as an “investment receivable,” a loosely regulated category of assets that allows bank officials to set aside little or nothing for potential losses.

Bank officials aren’t shy about the accounting sleight of hand, which is rampant across China. The bank had about $39 billion in investment receivables in the third quarter, nearly as big as its loan portfolio, and profits have climbed by more than 20% a year.

As of June, 32 publicly traded Chinese banks had a total of $2 trillion in investment receivables as of June, up from $334 billion at the end of 2011, according to a tally by The Wall Street Journal of the latest available information from data provider Wind Information Co.

The investments are equivalent to 20% of the same banks’ total loans in dollar terms, up from 6% at the end of 2011. The 32 banks have about 70% of all the banking assets in China.

The surge shows how Chinese banks are trying to keep the credit spigot open to support the country’s slowing economy. Structuring financing deals as investments instead of loans frees up bank capital and makes it easier to extend loan deadlines or new credit to borrowers. The strategy has been especially popular at small and midsize banks, said executives and analysts.

The epidemic of investment receivables has created a parallel buildup of debt in addition to China’s rising official debt levels, now 2½ times gross domestic product. “The rapid growth in banks’ off-balance-sheet and investment activities, in essence, means hidden credit risks and could threaten financial safety,” said Shang Fulin, China’s top banking regulator, in an unusually blunt speech in September.

Economists at Swiss bank UBS AG estimate as much as $2.4 trillion (16.5 trillion yuan) was “missing” from the broadest measurement of credit disclosed by China’s central bank last year, up from $712 billion (4.9 trillion yuan) in 2014. The discrepancy is largely because Chinese commercial banks use so-called shadow lenders to mask loans as investments, the economists said.

In November, China’s top banking regulatory agency proposed rules that could force financial institutions like Bank of Nanjing to apply more-stringent accounting standards to investments that are essentially loans.

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on December 16, 2016

It is Crunch Time for New Accounting Rules
by: Tatyana Shumsky
Dec 13, 2016
Click here to view the full article on WSJ.com

TOPICS: Revenue Recognition

SUMMARY: The article discusses the status of implementing the new revenue recognition requirements-or lack thereof given that only 15 of the S&P 100 have made disclosures about the expected impact of the new accounting requirements. It also includes quotes from U.S. Securities and Exchange Commission leaders in accounting, Chief Accountant Wes Bricker and Cicely LaMothe, Associate Director in the Division of Corporation Finance, emphasizing that companies must be ready for this implementation and required disclosure or expect to face SEC comment letters.

CLASSROOM APPLICATION: The article may be used in an intermediate or advanced financial reporting class addressing revenue recognition.

QUESTIONS: 
1. (Introductory) When must the new revenue recognition accounting standard be implemented?

2. (Advanced) How extensive are the changes required by the new accounting standard?

3. (Introductory) How prepared are companies to implement these new requirements?

4. (Advanced) What must publicly-traded companies disclose now in their filings with the U.S. Securities and Exchange Commission? How many, or few, have begun to make this disclosure?

Reviewed By: Judy Beckman, University of Rhode Island

 

"It is Crunch Time for New Accounting Rules," by Tatyana Shumsky, The Wall Street Journal, December 13, 2016 ---
http://www.wsj.com/articles/as-new-accounting-rules-loom-time-to-tell-investors-more-1481568088?mod=djem_jiewr_AC_domainid

Just 15 companies in the S&P 100 have signaled how they plan to transition to new revenue-recognition rules

It is almost showtime for new revenue-recognition rules, but the largest U.S. public companies have told shareholders precious little about what to expect.

Just 15 companies in the S&P 100 have so far disclosed how they plan to make the transition to the new accounting standard, according to a Wall Street Journal review of most recent quarterly filings.

Finance executives say they are working on plans to tell investors more about how the rules will affect their business, but admit they are in uncharted waters. “You literally have to take a clean sheet of paper and start from scratch,” said Lara Long, vice president for corporate accounting and reporting at agricultural-equipment maker AGCO Corp.

Public companies are required to file quarterly and annual reports using the new guidelines for fiscal years that begin after Dec. 15, 2017. The new rules replace industry-specific practices with a unified five-step model to make revenue booking for similar transactions more comparable. It also is an effort to more accurately depict the timing, uncertainty and volatility of doing business.

Using a new standard for revenue recognition will reshape the income statements for some companies. For others, the change will be minimal, accounting experts say. As part of the transition, businesses also must provide comparative figures.

Either way, finance chiefs must begin explaining to investors how, if at all, the new accounting methods and the transition will impact their financial reports.

“I would encourage everyone, as you’re going through the technical issues and evaluating them, at the same time to think about the disclosure implications that it’s going to have,” said Josh Paul, director of accounting at Alphabet Inc., the parent company of Google.

The Securities and Exchange Commission wants coming year-end or quarterly reports to contain detailed information about the impact of the new revenue-recognition rules, said Wesley Bricker, chief accountant for the SEC.

“Revenue is one of the most significant measures used by investors in assessing a company’s performance and its prospects,” Mr. Bricker said at an accounting conference in Washington, D.C., last week.

The SEC expressed concern that preparing for this transition has overshadowed work on company disclosures. It is turning up the pressure now in part because companies have had ample time to prepare.

And there are no plans to delay implementation. Even though the SEC’s priorities likely will be reshaped under President-elect Donald Trump, the rules are set by a separate body, the Financial Accounting Standards Board. The group already pushed the start date out by a year in response to widespread lobbying from companies. Another extension to the implementation deadline isn’t in the cards, said Susan Cosper, FASB’s technical director.

The SEC’s division of corporation finance will issue comment letters on these disclosures—or lack thereof—if found to be “materially deficient,” said Cicely LaMothe, associate director of the division.

Still, Alphabet and AGCO are among the many companies that have yet to provide investors with this information.

At AGCO, Ms. Long says she has been working on implementing the new accounting rules since the fall of 2014, a few months after they were passed, and began working on new disclosures at the end of last year.

Ms. Long’s initial assessment of how the rules would affect AGCO included reviewing the contracts under which it sells tractors and combines to dealers. Ms. Long had to establish a special process for the legal team to flag any deviation from standard contracts to the finance team because it could impact the accounting.

The review and its conclusions will form the basis of AGCO’s new disclosures, which must first pass an audit. Part of the challenge is that Ms. Long had to start from scratch and describe what it is the company is promising its customers. “You have to go through all your conclusions and say whether it impacted you or whether it didn’t, and if it didn’t you have to say why,” she explained.

In its November earnings, Alphabet said it would decide how to transition to the new accounting rules this quarter, a signal the company likely will soon expand its discussion of the rules and their impact.

Still, the sense of urgency isn’t lost on Mr. Paul.

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on December 16, 2016

LendingClub Prodded on Disclosure
by: Michael Rapoport
Dec 08, 2016
Click here to view the full article on WSJ.com

TOPICS: Non-GAAP Reporting

SUMMARY: In May 2016, the U.S Securities and Exchange Commission (SEC) issued Compliance & Disclosure Interpretations (C&DIs) on the use of non-GAAP measures. They are available on the web at https://www.sec.gov/divisions/corpfin/guidance/nongaapinterp.htm The agency also indicated at that time that companies should work to improve their non-GAAP disclosures in 2016 quarterly reporting. This article reports on one company who has received comment letters from the SEC in June and October of this year. The comment letters are available on the SEC's web site by searching the EDGAR database for UPLOAD documents. For the company's responses, search for CORRESP. The SEC comment letter sent to this company in June 2016 can be found at https://www.sec.gov/Archives/edgar/data/1409970/000000000016081062/filename1.pdf

CLASSROOM APPLICATION: The article is useful to help students learn about nonGAAP reporting and the SEC's comment letter process in a financial reporting class at the intermediate level or above. The comment letter to LendingClub discusses, among other measures, the non-GAAP measure contribution margin, so faculty teaching that measure in a managerial accounting course also may find the article useful.

QUESTIONS: 
1. (Advanced) What are non-GAAP measures?

2. (Introductory) Who is Mark Kronforst? What is his general reaction to the SEC's review of non-GAAP reporting in recent filings?

3. (Advanced) Access the SEC comment letter to LendingClub about the company's non-GAAP measures, available at https://www.sec.gov/Archives/edgar/data/1409970/000000000016081062/filename1.pdf Proceed to items 7, 8, and 9. What non-GAAP measures does LendingClub report?

4. (Advanced) According to the article and the actual SEC comment letter, what other reporting questions has the SEC raised with LendingClub?

5. (Advanced) What was LendingClub's reaction to the SEC's questions?

Reviewed By: Judy Beckman, University of Rhode Island

 

"LendingClub Prodded on Disclosure," by Michael Rapoport, The Wall Street Journal, December 8, 2016 ---
http://www.wsj.com/articles/sec-urges-lendingclub-to-disclose-more-about-its-loans-funding-1481111163?mod=djem_jiewr_AC_domainid

Commission’s comment letters question firm’s use of ‘non-GAAP’ financial metrics

The Securities and Exchange Commission has urged LendingClub Corp. to disclose more about its lending operations and has questioned the company’s use of tailored “non-GAAP” financial measures, according to newly released correspondence between the regulator and the online lender.

In comment letters in June and October, the SEC asked the company to provide more detail about its loan portfolio and sources of funds. The commission also suggested that some of LendingClub’s non-GAAP metrics could run afoul of a provision requiring that such measures not mislead investors.

LendingClub told the SEC that it would provide some more information about its lending and funding, according to the letters. But the company pushed back against the commission’s requests in some respects, and insisted its metrics were “not misleading.”

LendingClub is the latest high-profile company to face SEC criticism over its use of non-GAAP metrics—unofficial measures of earnings that don’t comply with generally accepted accounting principles, or GAAP. They strip out one-time or noncash items to provide what companies consider to be a truer measure of performance, but critics fear the metrics can be used to make companies look healthier than they really are.

The SEC has been trying to rein in use of non-GAAP metrics across many industries, and many companies have revised their disclosures in response to new guidance on the issue that the SEC issued in May. Dozens of companies like LendingClub have received comment letters in which the SEC raises questions about whether they’re using the measures properly.

“It’s not every day we look at an issue like this and issue that many comment letters,” Mark Kronforst, chief accountant of the SEC’s corporation finance division, told reporters Wednesday at an accounting conference in Washington. Speaking about non-GAAP issues in general, he added: “We thought there were problems.”

In a Nov. 4, letter to LendingClub, the SEC said that it had finished its review, and it hasn’t taken any further action against the company. A LendingClub spokeswoman declined to comment on the SEC letters.

On LendingClub’s funding and lending, the SEC asked the company to provide a fuller analysis of its loan portfolio, broken down by loan type and including information such as charge-off rates and loan-delinquency rates. The commission also asked for more information on how much of LendingClub’s loans were funded by its largest investors. LendingClub has begun providing some more information in both those areas in its SEC filings.

The SEC also asked LendingClub to disclose its loan funders’ reinvestment rates, because the company had touted high reinvestment rates as an indication of the investors’ confidence. But the company told the SEC it would remove that reference altogether, after some of the funders curbed their activity.

The commission said LendingClub was featuring its non-GAAP measures too prominently, and that it should explain more about why the company considers them useful—both matters that LendingClub said it would address. The SEC also questioned LendingClub’s use of “contribution” and “contribution margin,” which gauge the profitability of the company’s loans but strip out some of its regular operating costs—a situation the SEC has said could be misleading.

But LendingClub said the measures aren’t meant to measure the company’s overall profitability in the first place, and hence it isn’t misleading to investors if they omit regular operating costs. LendingClub said it would make that clear in its disclosures.

LendingClub also pushed back against the SEC’s request for more information about the investments that some of the company’s officers and directors had made in its loans. The company said it wasn’t required to provide such information under SEC regulations.

The commission’s questions were part of its regular examination of LendingClub’s SEC filings and are separate from its scrutiny of the company over issues that arose when LendingClub ousted Chief Executive Renaud Laplanche in May, after the company found he presided over errors related to loan sales and hadn’t disclosed a personal stake in an outside investment fund. The company has said in filings that it is cooperating with that SEC inquiry and with the Justice Department and the Federal Trade Commission, which also contacted LendingClub after it revealed those events.

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on December 16, 2016

Japanese Brewer Taps into Europe
by: Megumi Fujikawa and Atsuko Fukase
Dec 14, 2016
Click here to view the full article on WSJ.com

TOPICS: Antitrust, Asset Acquisition

SUMMARY: NOTE: THIS SUMMARY ANSWERS SOME INTRODUCTORY QUESTIONS AND PROFESSORS USING THIS REVIEW MAY WANT TO DELETE PRIOR TO DISTRIBUTING TO STUDENTS. Following the regulatory requirements for AB InBev's merger with SABMiller (previously covered in this review on October 13, 2016), ABInBev is selling off brewery assets. Asian brewer Asahi, facing declining sales in Japan identified with demographics in the article, is looking to expand its global market reach. The Asian company won a bidding war involving a private equity firm and other investment firms, leading to a high price tag for the purchase. Asahi and AB InBev's shares reacted accordingly.

CLASSROOM APPLICATION: The article may be used in an intermediate or advanced financial reporting class to cover business combinations or lump sum purchases of assets.

QUESTIONS: 
1. (Introductory) Why is AB InBev selling off brewing assets in Eastern European nations?

2. (Introductory) Why is Asian brewer Asahi buying these beer operations? List all of the regulatory and strategic reasons you find referenced in the article.

3. (Introductory) What other beers also will be acquired by Asahi?

4. (Advanced) What are investors' concerns with the price paid by Asahi for these brewing assets? How does the market reaction to this announcement evidence that concern?

5. (Advanced) How could Asahi explain the price paid in a way that would lead to investors viewing the transaction more favorably?

6. (Advanced) Note the correction at the bottom of the article: previous versions of the article indicated that Asahi had agreed to buy beer brands from AB InBev. Asahi actually agreed to buy brewing assets from AB IBev. What is the difference between these two statements? How do they both differ from saying Asahi acquired an entire business? Specifically describe the different accounting implications for each type of transaction.

Reviewed By: Judy Beckman, University of Rhode Island

RELATED ARTICLES: 
SABMiller, AB InBev Shareholders Approve $100 Billion-Plus Merger
by Tripp Mickle
Sep 28, 2016

 

 

"Japanese Brewer Taps into Europe," by Megumi Fujikawa and Atsuko Fukase, The Wall Street Journal, December 14, 2016 ---
 

 

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on December 16, 2016

Dow 20000 Won't Wipe Away Pension Problems
by: Vipal Monga and Heather Gillers
Dec 14, 2016
Click here to view the full article on WSJ.com

TOPICS: Pension Accounting, Pension Smoothing

SUMMARY: Even after the stock market has soared, increasing plan assets, and interest rates have increased, reducing calculated plan liabilities, "corporate pensions were left with a $414 billion funding deficit, $10 billion larger than it was at the end of last year, according to Mercer [a consulting firm focusing on pension plans]." The article specifically delves into the smoothing processes in accounting for pensions leading to a delay in reflecting the favorable impact of these market forces.

CLASSROOM APPLICATION: The article may be used in an advanced financial reporting class covering pension accounting.

QUESTIONS: 
1. (Introductory) What is the funded status of a defined benefit pension plan?

2. (Advanced) What factors determine the funded status of pension plans? Name all that you can identify and briefly describe the influence of each.

3. (Advanced) "Almost all public retirement systems engage in an accounting practice known as 'smoothing' returns." Explain how smoothing occurs in pension accounting.

4. (Advanced) Why does the smoothing you discussed above mean that today's positive market factors have not been fully reflected in improving pension plans' overall funded status?

5. (Advanced) Refer to the related article. How does the need to reduce expected returns on plan assets impact accounting for pension plans and the funded status of these plans?

6. (Advanced) Refer again to the related article. Why does the change in expected return on plan assets by Calpers result in "real life consequences" for cities and towns in California?

Reviewed By: Judy Beckman, University of Rhode Island

RELATED ARTICLES: 
Calpers: A 7.5% Annual Return is No Longer Realistic
by Heather Gillers
Dec 14, 2016
Online Exclusive

"Dow 20000 Won't Wipe Away Pension Problems," by Vipal Monga and Heather Gillers, The Wall Street Journal, December 14, 2016 ---
http://www.wsj.com/articles/dow-20-000-wont-wipe-away-pension-problems-1481711401?mod=djem_jiewr_AC_domainid

Higher share prices and bond yields aren’t yet enough to close yawning funding gaps

The 2016 surge in stocks and bond yields is a rare positive for U.S. company and public pensions. But it doesn’t solve their problems.

In November large corporate retirement plans gained back $116 billion needed to pay out future benefits largely because of dramatic market movements following Donald Trump’s Nov. 8 election win, according to consulting firm Mercer Investment Consulting LLC.

The S&P 500 soared and long-term interest rates rose, boosting asset values and lowering liabilities for pensions at 1,500 of the largest U.S. companies. The present-day value of future obligations owed by companies falls when interest rates rise.

Even with November’s gains, corporate pensions were left with a $414 billion funding deficit, $10 billion larger than it was at the end of last year, according to Mercer. Funding deficits occur when the value of assets in pension plans don’t equal the projected future payments to retirees.

“It’s been good, but not great,” said Michael Moran, pension strategist at Goldman Sachs Asset Management. “Things are better than where we were a month ago, but it’s still too early to declare victory.”

That tempered reaction indicates the magnitude of the funding gap faced by managers of retirement assets across the U.S. Pensions still haven’t recovered from the chronic deficits created by the financial crisis and perpetuated by low interest rates.

The largest corporate-pension funds lost more than $300 billion during the 2008 downturn, according to consulting firm Milliman Inc., and that loss wiped out the previous five years of gains.

Pension deficits are a big deal for companies, because firms must close funding gaps with cash they could use for other purposes. Companies such as General Motors Co., International Paper Co., and CSX Corp. have all borrowed money this year to pump funds into their pension plans.

Companies in the S&P 1500 have contributed $550 billion into their pension plans between 2008 and Nov. 30 of this year, according to Mercer. Even with those contributions, their funded status was 81.3% as of Nov. 30.

Although pension-funding levels fluctuate during the year, most companies lock in their pension obligations at the end of the year for accounting purposes. November’s run-up, if it continues into December, could help lessen the burden of what had earlier been shaping up to be a big drag on 2016 financial results.

Funding holes are a trickier problem for funds that manage the pension assets of public workers because market rallies don’t automatically help close the gap.

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on December 16, 2016

Rally Spurs Investors to Donate Stock
by: Chana R. Schoenberger
Dec 12, 2016
Click here to view the full article on WSJ.com

TOPICS: Charitable Contributions, Tax Planning

SUMMARY: The article describes donations of appreciated stock in the current favorable stock market conditions along with discussion of tax planning for charitable donations. The tax planning underway reflects the possibility of tax rate decreases and itemized deduction limitations under campaign proposals by President-elect Donald Trump. The online article includes links to many related articles, not listed in this review, on donation behavioral research, financial gifts, and other tax-related wealth management topics.

CLASSROOM APPLICATION: The article may be used in an individual income tax class covering itemized deductions and charitable donations.

QUESTIONS: 
1. (Introductory) What does the election of Donald Trump imply about expected tax rates, both individual and corporate?

2. (Advanced) How do charitable donations affect individual taxpayers? What is the current limit on this deductibility?

3. (Introductory) Why does the expected tax rate in the future affect donations to charitable organizations now?

4. (Advanced) How might other changes proposed by President-elect Trump influence the tax benefit of charitable donations in future years?

5. (Introductory) Why is it "almost always better to donate [appreciated] stock rather than selling the stock and giving cash"?

Reviewed By: Judy Beckman, University of Rhode Island

 

"Rally Spurs Investors to Donate Stock," by Chana R. Schoenberger, The Wall Street Journal, December 12, 2016 ---
http://www.wsj.com/articles/why-more-investors-are-donating-stock-to-charity-1481511901?mod=djem_jiewr_AC_domainid

The strategy assumes that President Trump is going to cut tax rates

As the stock market reaches new heights after the presidential election, more investors are looking at their portfolios to see which securities have gone up the most—and then donating them to charity.

“We’ve seen an uptick in charitable giving using appreciated stock,” says Paul Stark, a wealth and estate-planning strategist at SunTrust Banks Inc.

That uptick is being fueled by assumptions about what a Trump administration will do.

“With Trump being elected, there’s more certainty that tax rates will be lower” in the years ahead, Mr. Stark says. That means investors who donate appreciated stock before the end of December will be able to deduct their gift’s value from a 2016 tax bill that could be higher than their 2017 tax bill.

What’s more, the Trump campaign discussed changing the limits on itemized deductions, which could make charitable giving less valuable as a tax advantage in future years, says Adrienne Penta, a senior vice president at Brown Brothers Harriman in Boston. Currently, taxpayers typically can roll forward unused charitable deductions for five years. It’s unclear if that will change, she says.

For those looking for a tax break from a donation, “it’s almost always better to donate the stock rather than selling the stock and giving cash, in a taxable account,” says Russell Rivera, president of Voice Wealth Management in New York.

That’s because investors who sell appreciated stock held in a taxable account owe taxes on those gains. They would get a tax deduction for donating those proceeds, but it might not offset the tax bill from the share sale. If those investors instead donated appreciated stock, they would pay no taxes on the gains and get a tax deduction for the full market value of the shares.

If stock has lost value, it’s a different story. In that case, investors may want to sell the shares at a loss and donate the cash proceeds, since they could write off that loss against other capital gains.

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on December 16, 2016

 

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

 

Continued in article


Teaching Case from The Wall Street Journal Accounting Weekly Review on December 16, 2016

 

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

 

Continued in article

 

 

 

 

 

 




 

Humor for December 2016

Hear “Twas The Night Before Christmas” Read by Stephen Fry & John Cleese ---
http://www.openculture.com/2016/12/hear-twas-the-night-before-christmas-read-by-stephen-fry-and-john-cleese.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+OpenCulture+%28Open+Culture%29

Bill Murray & Gilda Radner Deliver the Laughs in Two 1970s Skits for National Lampoon  ---
http://www.openculture.com/2016/12/bill-murray-gilda-radner-deliver-the-laughs-in-two-1970s-skits-for-national-lampoon.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+OpenCulture+%28Open+Culture%29

SNL's Effort to Help the GOP Win Bigger in 2018 and 2020 ---
http://www.vox.com/2016/12/18/13997238/snl-russia-baldwin-trump-putin-tillerson-goodman-cold-open
Pissing off a shirtless Putin even more is not a good way to stop the hacking
SNL = Sore Nighttime Losers on NBC

Country Singer Ray Stevens Reveals How Election Fraud Typically Takes Place ---
http://www.angrypatriotmovement.com/ray-stevens-voter-fraud-song/

An Arranged Marriage is a Family Affair ---
https://www.theatlantic.com/video/index/511472/arranged-marriage-family-affair/

Acclaimed Japanese Jazz Pianist Yōsuke Yamashita Plays a Burning Piano on the Beach ---
http://www.openculture.com/2016/12/acclaimed-japanese-jazz-pianist-yosuke-yamashita-plays-a-burning-piano-on-the-beach.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+OpenCulture+%28Open+Culture%2
Jensen Comment
The last time I saw a piano on fire was at the end of the "Great Balls of Fire" clip from the life of Jerry Lee Lewis movie
Try to not move your hands and  legs while this clip plays.

More About Social Correctness Than Political Correctness
Lake Superior State University's 41st Annual List of Banished Words ---
http://www.lssu.edu/banished/
Jensen Comment
Much depends upon context. Motivational speakers make millions of dollars beating socially incorrect words to death. Rappers make millions beating politically incorrect words to death.

The Real Obituary of Chris Connors, Age 67
Irishman Dies from Stubbornness, Whiskey
http://www.barstoolsports.com/boston/this-is-without-a-doubt-the-best-obituary-ive-ever-read-its-not-even-close-outstanding-outstanding-obituary/?utm_campaign=SocialflowTw&utm_source=BarstoolTw&utm_medium=Socialflow


Forwarded by Paula
The Miracle of Sister Tarasita ---
http://www.richmond.com/life/in-my-shoes/article_ca3e3d37-e195-5cc0-99bf-5a848619e2d7.html

An Oklahoma mother and daughter are behind bars after it was revealed they had an incestuous marriage. Patricia Ann Spann, 43, and Misty Velvet Dawn Spann, 25, were married in March 2016 in Comanche County. It has since been revealed that Patricia Spann, also known as Patricia Clayton, was previously married to one of her sons, Jody Calvin Spann, in 2008
http://www.dailymail.co.uk/news/article-3778944/Oklahoma-woman-daughter-arrested-incestuous-marriage.html
I'm My Own Grandpa ---
https://www.youtube.com/watch?v=eYlJH81dSiw




Humor December 2016 --- http://www.trinity.edu/rjensen/book16q4.htm#Humor1216.htm 

Humor November 2016 --- http://www.trinity.edu/rjensen/book16q4.htm#Humor1116.htm 

Humor October 2016 --- http://www.trinity.edu/rjensen/book16q4.htm#Humor1016.htm

Humor September 2016 --- http://www.trinity.edu/rjensen/book16q3.htm#Humor0916.htm

Humor August  2016 --- http://www.trinity.edu/rjensen/book16q3.htm#Humor083116.htm

Humor July  2016 --- http://www.trinity.edu/rjensen/book16q3.htm#Humor0716.htm  

Humor June  2016 --- http://www.trinity.edu/rjensen/book16q2.htm#Humor063016.htm

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

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




And that's the way it was on December 31, 2016 with a little help from my friends.

 

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

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

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

Free Online Textbooks, Videos, and Tutorials --- http://www.trinity.edu/rjensen/ElectronicLiterature.htm#Textbooks
Free Tutorials in Various Disciplines --- http://www.trinity.edu/rjensen/Bookbob2.htm#Tutorials
Edutainment and Learning Games --- http://www.trinity.edu/rjensen/000aaa/thetools.htm#Edutainment
Open Sharing Courses --- http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI

Bob Jensen's Resume --- http://www.trinity.edu/rjensen/Resume.htm
 

Bob Jensen's Homepage --- http://www.trinity.edu/rjensen/

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