April 2016

Bob Jensen's New Bookmarks for April 2016

Bob Jensen at Trinity University 


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

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

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

 

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

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

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

 




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

The program beginning on August 5, 2016 is outlined at
http://aaahq.org/Meetings/2016/Annual-Meeting/Program1
Of course there are CEP and other events scheduled in advance of August 5.

 

Accounting History Corner From ---
http://www.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm

By 1900, there was a journal called Accountics [Forrester, 2003]. Both the journal and the term “accountics” had short lives, but the belief that mathematical analysis and empirical research can “discover hidden thrust of the reality of economic value” (see above)  underlies much of what has been published in TAR over the past three decades. Hence, we propose reviving the term “accountics” to describe the research methods and quantitative analysis tools that have become popular in TAR and other leading accounting research journals. We essentially define accountics as equivalent to the scientific study of values in what Zimmerman [2001, p. 414] called “agency problems, corporate governance, capital asset pricing, capital budgeting, decision analysis, risk management, queuing theory, and statistical audit analysis.”

The American Association of University Instructors of Accounting, which in December 1935 became the American Accounting Association, commenced unofficially in 1915 [Zeff, 1966, p. 5]. It was proposed in October of 1919 that the Association publish a Quarterly Journal of Accountics. This proposed accountics journal never got off the ground as leaders in the Association argued heatedly and fruitlessly about whether accountancy was a science. A quarterly journal called The Accounting Review was subsequently born in 1925, with its first issue being published in March of 1926. Its accountics-like attributes did not commence in earnest until the 1960s.

Practitioner involvement, in a large measure, was the reason for changing the name of the Association by removing the words “of University Instructors.” Practitioners interested in accounting education participated actively in AAA meetings. TAR articles in the first several decades were devoted heavily to education issues and accounting issues in particular industries and trade groups. Research methodologies were mainly normative (without mathematics), case study, and archival (history) methods. Anecdotal evidence and hypothetical illustrations ruled the day. The longest serving editor of TAR was a practitioner named Eric Kohler, who determined what was published in TAR between 1929 and 1943. In those years, when the AAA leadership mandated that TAR focus on the development of accounting principles, publications were oriented to both practitioners and educators, Chatfield [1975, p. 4].

 

Following World War II, practitioners outnumbered educators in the AAA [Chatfield 1975, p. 4]. Leading partners from accounting firms took pride in publishing papers and books intended to inspire scholarship among professors and students. Over the years, some practitioners, particularly those with scholarly publications, were admitted into the Accounting Hall of Fame founded by The Ohio State University. Prior to the 1960s, accounting educators were generally long on practical experience and short on academic credentials such as doctoral degrees.

A major catalyst for change in accounting research occurred when the Ford Foundation poured millions of dollars into the study of collegiate business schools and the funding of doctoral programs and students in business studies. Gordon and Howell [1959] reported that business faculty in colleges lacked research skills and academic esteem when compared to their colleagues in the sciences. The Ford Foundation thereafter provided funding for doctoral programs and for top quality graduate students to pursue doctoral degrees in business and accountancy. The Foundation even funded publication of selected doctoral dissertations to give doctoral studies in business more visibility. Great pressures were also brought to bear on academic associations like the AAA to increase the scientific standards for publications in journals like TAR.

Continued in article


The Best 50 Colleges for African Americans ---
http://time.com/money/4282512/best-colleges-essence-money-african-americans/?xid=newsletter-brief

Jensen Comment
Virtually all the very top non-profit universities now offer totally free education applicants below the poverty line. Most also offer free tuition for children of families earning less than $60,000 or thereabouts. These are the best deals since top grades are easy to earn in those universities like Harvard and Princeton (think grade inflation where the median grades in most courses is an A or A-) and degrees from those top universities are keys to the kingdom ---
http://www.trinity.edu/rjensen/Assess.htm#RateMyProfessor

Most flagship state-supported universities now make terrific deals to African Americans with high SAT or ACT scores. Since virtually all scholarships are need based children from low income families are given priorities for scholarships.

African American athletes get tremendous financial deals, special tutors, and other attractions such as a path toward professional sports in colleges that excel in athletics. However, athletics and scholastic performance do not mix well in general. This is mostly because athletics takes so much time and attention away from courses, although sometimes athletes have attitude problems regarding study and scholarship.

Since the latest affirmative action Supreme Court decision, colleges are not supposed to have affirmative action in admissions and retention. Most colleges and universities get around this ruling in one way or another to both attract and keep African American applicants. But the numbers are still too small, especially for African American male high school dropouts who think they can earn higher incomes on the mean streets. That is such a shame.

One reason is that it's such a shame is that African American graduates in science and professional programs have a tremendous edge in affirmative action hiring and financial support for graduate studies. The AICPA, for example, offers $12,000 per year for minority accounting doctoral students. Accounting doctoral programs generally are tuition free for all students in such programs such that the $12,000 can be used for living expenses.

Application period now open (until May 16) for $12,000 AICPA Fellowship for Minority Doctoral Students Other Than Asians ---
https://www.thiswaytocpa.com/education/scholarship-search/fellowship-minority-doctoral-students/?utm_source=mnl:cpald&utm_medium=email&utm_campaign=14Apr2016

Applicants should also contact the KPMG Foundation for additional opportunities to study for an accounting Ph.D. ---
http://www.kpmgfoundation.org/
Some universities cooperating with the KPMG Foundation have tailor-made accountancy Ph.D. programs for minority students other than Asians.


Accounting History Corner
A nice timeline on the development of U.S. standards and the evolution of thinking about the income statement versus the balance sheet is provided at:
"The Evolution of U.S. GAAP: The Political Forces Behind Professional Standards (1930-1973)," by Stephen A. Zeff, CPA Journal, January 2005 --- http://www.nysscpa.org/cpajournal/2005/105/infocus/p18.htm
Part II covering years 1974-2003 published in February 2005 --- http://archives.cpajournal.com/ 
The module for 1940 is as follows:

  • 1940
    The American Accounting Association (AAA) publishes Professors W.A. Paton and A.C. Littleton’s monograph An Introduction to Corporate Accounting Standards, which is an eloquent defense of historical cost accounting. The monograph provides a persuasive rationale for conventional accounting practice, and copies are widely distributed to all members of the AIA. The Paton and Littleton monograph, as it came to be known, popularizes the matching principle, which places primary emphasis on the matching of costs with revenues, with assets and liabilities dependent upon the outcome of this matching.

    Comment. The Paton and Littleton monograph reinforced the revenue-and-expense view in the literature and practice of accounting, by which one first determines whether a transaction gives rise to a revenue or an expense. Once this decision is made, the balance sheet is left with a residue of debit and credit balance accounts, which may or may not fit the definitions of assets or liabilities.

    The monograph also embraced historical cost accounting, which was taught to thousands of accounting students in universities, where the monograph was, for more than a generation, used as one of the standard textbooks in accounting theory courses.

    1940s

    Throughout the decade, the CAP frequently allows the use of alternative accounting methods when there is diversity of accepted practice.

    Comment. Most of the matters taken up by the CAP during the first half of the 1940s dealt with wartime accounting issues. It had difficulty narrowing the areas of difference in accounting practice because the major accounting firms represented on the committee could not agree on proper practice. First, the larger firms disagreed whether uniformity or diversity of accounting methods was appropriate. Arthur Andersen & Co. advocated fervently that all companies should follow the same accounting methods in order to promote comparability. But such firms as Price, Waterhouse & Co. and Haskins & Sells asserted that comparability was achieved by allowing companies to adopt the accounting methods that were most suited to their business circumstances. Second, the big firms disagreed whether the CAP possessed the authority to disallow accounting methods that were widely used by listed companies.

    Continued in article


    "Global Financial Reporting: Implications for U.S.," by Mary Barth, The Accounting Review, Vol. 83, No. 5, September 2008 
    On Page 1166 she flatly asserts:

    First, there is no “matching principle.” That is, matching is not an end in itself and matching is not an acceptable justification for asset or liability recognition or measurement. The conceptual framework explains that matching involves the simultaneous or combined recognition of revenues and expenses that result directly and jointly from the same transactions or other events (FASB 1985, para. 146; IASB 2001, para. 95). Matching will be an outcome of applying standards if the standards require accounting information that meets the qualitative characteristics and other criteria in the conceptual framework. Matched economic positions will naturally result in matched accounting outcomes. However, the application of a matching concept in the conceptual framework does not allow the recognition of items in the statement of financial position that do not meet the definition of assets or liabilities (IASB 2001, para. 95). Thus, there would be no justification for deferring expense recognition for an expenditure that provides no future economic benefit or for deferring income recognition for a cash inflow that will not result in a future economic sacrifice.

    Jensen Comment
    But matching still seems to prevail even though there is no more "matching principle according to the IASB and the FASB. The answer is that revenue can be deferred when there will be "future economic sacrifice." Sounds like matching to me. Neither domestic nor international standards allow early realization of revenue before it is legally earned. The standards just do not allow automobile inventories to be written up to expected sales prices until those sales are finalized. Carrying the inventories at something other than sales value is part and parcel to the "matching principle" eloquently laid out years ago by Paton and Littleton. Both international and domestic standards still require cost amortization, depreciation, and creation of warranty reserves. These are all rooted in the "matching principle" which has not yet died when defining assets and liabilities in the conceptual framework. In most instances the historical cost is still being booked and spread over the expected life of future economic benefits. Even if a company adopted a replacement cost (current cost) adjustment of historical cost of a depreciable asset, those replacement costs still have to be depreciated since old equipment cannot simply be adjusted upward to new, un-depreciated replacement cost.

    Paton and Littleton never argued that the "matching principle" for expense deferral applies to assets that have "no future economic benefits." In that case there would be no benefits against which to match the deferred expense. Hence there's no deferral in such instances. I do not buy Barth's contention that there is no longer any "matching principle." If there are potential future benefits, the matching principle still is king except in certain instances where assets are carried at exit values such is the case for precious metals actively traded in commodity markets and financial assets not classified as "held-to-maturity."

    The Matching Principle lives on when there are expected "future economic sacrifices."

     

    The Matching Principle Revisited
    SSRN, April 8, 2016
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2766630

    Authors

    Aleksandra B. Zimmerman,  Case Western Reserve University; Northern Illinois University - Department of Accountancy

    Robert Bloom, John Carroll University

    Abstract

    This paper reassesses the significance of the concept of matching expenses to revenues as an accounting principle. We compare and contrast the historical views of authoritative bodies and the various scholars and practitioners who analyze this subject, drawing implications for future standard setting. Through this historical retrospective on matching, which includes a review of more contemporary research and thought, we find that matching as an approach to income measurement can be helpful in forecasting earning power. Consequently, we conclude that matching should be retained as a long-standing fundamental accounting principle in standard-setting and in practice.

    Conclusion
    Accounting theory professors should not simply declare the matching principle dead!


    Accounting History Corner
    The Influence of Price Waterhouse & Co. on the CAP, the APB, and in the Early Years on the FASB
    SSRN, March 21, 2016 ---
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2750644

    Author

    Stephen A. Zeff, Rice University

    Abstract

    Price Waterhouse & Co., for decades the premier public accounting firm in the United States and which audits a large number of “blue chip” companies, has, directly and indirectly, been a large and frequent presence in the U.S. standard-setting arena. It is the purpose of this paper to document this presence and to determine whether it had a discernible effect on the outcomes of the standard setters’ deliberations. The conclusion is that, appearances notwithstanding, there has been no evidence of a continuing, noticeable effect.

    Bob Jensen's threads on the CAP, APB, and FASB ---
    http://www.trinity.edu/rjensen/Theory01.htm#AccountingHistory

    Bob Jensen's threads on Price Waterhouse Coopers --- http://www.trinity.edu/rjensen/fraud001.htm#PwC

     


    Next CPA exam will increase focus on higher-order skills
    "What Higher Order Skills Will be Tested on the Next CPA Examination," by Ken Tysiac, Journal of Accountancy, April 4, 2016 ---
    http://www.journalofaccountancy.com/news/2016/apr/new-cpa-exam-201614166.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=04Apr2016

    . . .

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

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

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

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

    What’s new

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

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

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

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

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

    Continued in article

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

    Bob Jensen's CPA and CMA Examination Helpers ---
    http://www.trinity.edu/rjensen/Bookbob1.htm#010303CPAExam


    Harvard Business School:  A Refresher on Payback Method ---
    https://hbr.org/2016/04/a-refresher-on-payback-method?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date

    Jensen Comment
    Most finance and accounting courses put down both the Payback Method/Breakeven Method in favor of some type of cash flow discounting. However, both methods persist in the real world among decision makers who know better but still like the comfort of payback and breakeven. Indirectly this method does lean toward more rapid recovery of cash that can be reinvested. The biggest drawback is the ignoring of returns after the breakeven point. Hence investment alternatives have the highest full-term returns may be rejected in favor of low returning alternatives having shorter payback periods.

    April 20, 2016 reply from David Johnstone

  • Dear Bob,
    The practical intuition of the real world may have long realized that NPVs are often no better than guesses, especially for the cash flows long in the future (and hence after the payback period). So maybe the situation is that in such a difficult forecasting world, basic tools like payback are as good or better than more elaborate methods subject more to GIGO, and are more auditable early but after the event and perhaps less open to manipulation or bias due to overconfidence etc.

    Finance people are too in love with their analytical tools, that’s how we got the financial crisis. How many times have we seen a new MBA student go into raptures of having seen the light and newfound self-belief when they learn finance.


    2016 Update on Outrageous Grade Inflation in the USA (especially in prestigious universities but not quite as scandalous in community colleges)
    B, D, and F Grades are relatively stable, but in Lake Woebegon A Grades rose from 11.5% in 1940 to 45.5% in 2013 (read that as nearly half). The median grade in most courses in A- except in community colleges.

    Grade Distributions 1940-2013
    "The rise of the ‘gentleman’s A’ and the GPA arms race," by Catherine Rampell, The Washington Post, March 28, 2016 ---
    https://www.washingtonpost.com/opinions/the-rise-of-the-gentlemans-a-and-the-gpa-arms-race/2016/03/28/05c9e966-f522-11e5-9804-537defcc3cf6_story.html?postshare=1381459215004789&tid=ss_tw

    The waters of Lake Wobegon have flooded U.S. college campuses. A’s — once reserved for recognizing excellence and distinction — are today the most commonly awarded grades in America.

    That’s true at both Ivy League institutions and community colleges, at huge flagship publics and tiny liberal arts schools, and in English, ethnic studies and engineering departments alike. Across the country, wherever and whatever they study, mediocre students are increasingly likely to receive supposedly superlative grades.

    Such is the takeaway of a massive new report on grade inflation from Stuart Rojstaczer, a former Duke University professor, using data he and Furman University professor Chris Healy collected. Analyzing 70 years of transcript records from more than 400 schools, the researchers found that the share of A grades has tripled, from just 15 percent of grades in 1940 to 45 percent in 2013. At private schools, A’s account for nearly a majority of grades awarded.

    These findings raise questions not only about whether the United States has been watering down its educational standards — and hampering the ability of students to compete in the global marketplace in the process. They also lend credence to the perception that campuses leave their students coddled, pampered and unchallenged, awarding them trophies just for showing up.

    So, what’s behind the sharp rise in GPAs?

    Students sometimes argue that their talents have improved so dramatically that they are deserving of higher grades. Past studies, however, have found little evidence of this.

    Continued in article

    Also see the graphs at
    http://taxprof.typepad.com/taxprof_blog/2016/03/the-rise-of-the-gentlemans-a-and-the-gpa-arms-race.html

    Jensen Comment
    In my opinion there are two major causes of grade inflation.

    Cause 1 is that the C grade became tantamount to an F grade in both the job market and the for admission to graduate schools.

    Cause 2 is the changed policy of making student evaluations of teachers key to tenure and pay for teachers. This dependency made it necessary to do everything possible to avoid negative reviews, including making it hard to get an A grade in a course. Virtually all the top-rated professors on Rate-My-Professor.com are also rated by students as easy graders --- http://www.ratemyprofessors.com/
    Teachers viewed as tough graders take a hit from their students.
     

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


    Next CPA exam will increase focus on higher-order skills
    "What Higher Order Skills Will be Tested on the Next CPA Examination," by Ken Tysiac, Journal of Accountancy, April 4, 2016 ---
    http://www.journalofaccountancy.com/news/2016/apr/new-cpa-exam-201614166.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=04Apr2016

    . . .

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

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

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

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

    What’s new

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

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

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

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

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

    Continued in article

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

    Bob Jensen's CPA and CMA Examination Helpers ---
    http://www.trinity.edu/rjensen/Bookbob1.htm#010303CPAExam


    "PCAOB proposal would guide lead auditors in supervision of other auditors," by Ken Tysiac, Journal of Accountancy, April 12, 2016 ---
    http://www.journalofaccountancy.com/news/2016/apr/pcaob-other-auditors-standard-201614218.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=13Apr2016

    Jensen Comment
    A frequent complaint in PCAOB inspection audit performance inspections is failure to supervise auditors inexperienced in their assigned tasks.


    The 8 biggest mistakes taxpayers make, from the accountants who know best ---
    http://www.businessinsider.com/the-8-biggest-mistakes-taxpayers-make-from-the-accountants-who-know-best-2016-4

    Bob Jensen's Tax Helpers ---
    http://www.trinity.edu/rjensen/Bookbob1.htm#010304Taxation


    Apple is dropping QuickTime for Windows after discovery of security flaws ---
    http://www.businessinsider.com/apple-is-ending-support-for-quicktime-for-windows-after-us-government-recommended-people-uninstall-it-2016-4


    Nordstrom is cutting hundreds of (headquarters) jobs, confirming a terrifying new trend among wealthy shoppers ---
    http://www.businessinsider.com/nordstrom-is-cutting-hundreds-of-jobs-2016-4


    From EY on April 21, 2016

         FASB proposes technical corrections and improvements ---


    http://www.ey.com/Publication/vwLUAssetsAL/FASBProposal_TechnicalCorrections_21April2016/$FILE/FASBProposal_TechnicalCorrections_21April2016.pdf

    The FASB proposed technical corrections and improvements to address differences between original guidance and the Accounting Standards Codification, clarify the guidance, correct references and make minor improvements affecting a variety of topics. The FASB doesn’t expect most of the amendments to change current practice, but it is proposing transition guidance for those that could change practice for some entities. The FASB will determine the effective date for those amendments after it considers constituents’ feedback. The other amendments would be effective immediately. Comments are due by 5 July 2016.


    FASB Simplifies Accounting for Share-based Payments ---
    http://deloitte.wsj.com/cfo/2016/04/15/fasb-simplifies-accounting-for-share-based-payments/

  • Several aspects of the accounting treatment for share-based payments should become less complex once an update known as ASU 2016-09¹ goes into effect. The aim of the update, released by the Financial Accounting Standards Board (FASB) and which applies to public and nonpublic entities, is to significantly reduce the complexity and cost of accounting for excess tax benefits and tax deficiencies related to employee share-based payment transactions, which include restricted stock and stock options. Among other changes, the update requires an entity to run excess tax benefits and deficiencies through its income statement, which in effect eliminates the concept of additional paid-in capital (APIC).

    The aspects simplified by the updated standard include the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. The new guidance, which is part of the Board’s simplification initiative,² also contains two practical expedients under which nonpublic entities can use the simplified method³ to estimate the expected term of an award and make a one-time election to switch from fair value measurement to intrinsic value measurement for liability-classified awards.

    Key Provisions of the ASU

    Accounting for Income Taxes

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

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

    The ASU’s guidance on recording excess tax benefits and tax deficiencies in the income statement also has a corresponding effect on the computation of diluted earnings per share (EPS) when an entity applies the treasury stock method.⁵ An entity that applies such method under current guidance estimates the excess tax benefits and tax deficiencies to be recognized in APIC in determining the assumed proceeds available to repurchase shares. However, under the ASU, excess tax benefits and tax deficiencies are excluded from the calculation of assumed proceeds since such amounts are recognized in the income statement. In addition, the new guidance affects the accounting for tax benefits of dividends on share-based payment awards, which will now be reflected as income tax expense or benefit in the income statement rather than as an increase to APIC.

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

    Continued in article


    A Non-Invasive Sleeping Aid That's Too Heavy to Remove from the Bedroom
    The SEC's 340-page concept release on disclosures ---
    http://blogs.wsj.com/cfo/2016/04/14/sec-takes-first-step-in-disclosure-rule-revamp/

    For those of you wanting more, the SEC is promising more and more and more and then some more --- much more.
    Maybe Tom Selling is correct in claiming we no longer need an FASB.

    Ya think students should memorize this stuff? Not if you're concerned about teaching evaluations!


    "HELP YOUR STUDENTS FOCUS ON THE QUESTIONS" by Joe Hoyle, Teaching Blog, April 2, 2016 ---
    http://joehoyle-teaching.blogspot.com/2016/04/help-your-students-focus-on-questions.html

    . . .

    So, I take it as a personal challenge to get my “under B” group to do better. First, you have to get them out of a “C” mentality. After two low test grades, it is easy to become discouraged and start to think of yourself as no better than an average student. That’s nonsense. That’s absolute baloney. Everyone can do better. I am convinced of that. I like to remind them that they still have well over half of their grade to be determined. In my classes, the last regular test and the final exam make up approximately 57 percent of their overall grade. Although the semester seems to be drawing to a close, they are not even at half time yet as far as their grade is concerned. They still have plenty of time left to make an A or B but they do need to make some adjustments and they need to make them immediately. I need to impress on them that they can do better but there is some urgency. Without urgency, change is tough.

    As probably everyone who reads this blog knows, I use the Socratic Method. My class is filled with questions that the students work to answer. I am training them (I hope) to learn how to “figure out” answers for themselves. My giving them answers and information is not nearly as beneficial as them getting the information and figuring out the answers for themselves.

    When a student comes by to ask for help here in this last month, I like to ask that person to start writing one test problem after each class. I want to see one problem that they think I might ask on a test based on the material we covered. I want them to start focusing on how the material can be turned into questions. In the book Make It Stick, the authors assert that students often over-estimate what they have learned. I think that is probably true. I also think it is true that students focus on answering the questions they have already seen and not on the questions they are going to see.

    What I find fascinating is that, even after having two of my tests, students often write poor questions. For the most part, they simply take the questions that I ask in class and change a few words or numbers. I think that is how many of them have been trained in high school. The teacher says something. The student writes it down. The student hands it back on the test. The student gets an A. That does not work in my class. I ask them to take material and do something different with it. I sometimes think that the reason they are not making an A or B is that they don’t truly understand how they are going to be tested.

    When they send me their questions, I often point out “that sounds like what I asked in class. I’m probably not going to ask that same question again. What would that prove? How could I twist the question to make it different and see what you really understand?” Usually, on a second (or maybe third) attempt, the questions start looking like one of my test questions. The student starts making a break through—not on the answer side but on the question side.

    At that point, when they start to understand the nature of the questions they are going to see, then coming up with legitimate answers becomes a more realistic goal.

    If you are having students who do not seem to be able to “break through” into the A and B range, you might try that. After every class, ask them to write a question that you might ask on a test. Then, if they do not do a very good job of that, help them see what more you might be expecting from them. Get them to focus on the questions before they worry too much about the answers.

    I sent my Financial Accounting students a practice problem this morning. Sure enough, I took what we had done in class and added something a bit different. I challenged them to “figure it out.” And then I tried to make the point more clearly: “And, as you are getting ready for the third test start asking yourself two questions: (1) Can I do the standard problem? (2) How can the problem be extended to make it more challenging? That's when education gets exciting.”

    Maybe focusing on the questions will help your C and D students move up to A’s and B’s here in the last few weeks of the semester. That’s a victory for everyone.

    Jensen Comment
    When I was an MBA student one of my professors hired me to write problems for a textbook he was writing with a professor in another university. I was a logical choice since I passed the CPA exam as an undergraduate and had some experience working part-time for Ernst & Ernst in Denver. The authors hired me because even though they had nationwide reputations as top teachers these professors admitted they were not good at writing problems.

    It was then that I discovered that I also was not very good at writing textbook problems, at least not quality problems to be featured in a new textbook. Actually I did write a few good problems but the time and effort it took was out of sight. I soon begged off saying that I just did not have the time between my coursework and half-day joy at E&Y that also required some weekends.

    It seemed strange over the years that publishers hired professors to write textbooks and then pawned off writing of end-of-chapter material to people who would work for a pittance. Writing a textbook was the easy part. Professionals should be paid more than authors to write the end-of-chapter material than the authors of the textbook. The hard stuff to write came at the end of every chapter and in the test bank. This is probably why that material is typically so crappy even in good textbooks.

    The best end-of-chapter material in accounting textbooks are usually stated as being adapted from CPA and CMA examinations. Chuck Horngren invited adopters of his textbooks to send him problems. He credited the authors with the material he eventually put into his textbooks.

    Hence if I were asking students to write problems and questions my expectations would not be very high.

    I think a more efficient learning experience for them would be to make a Camtasia-style video explaining a good problem or gppd answer to an essay question. I occasionally had a student do this for a tough FAS 133 problem such as accounting for an interest rate swap that was not fully effective as a hedge. The student had the answer at hand but was assigned to make a good explanatory video. For example, the student might have the swap valuations at hand but then was assigned to explain in the video how to get those swap valuations from yield curves derived from a Bloomberg terminal.

    April 2, 2016 reply from Joe Hoyle

    I gave a presentation here on campus about two weeks ago and I argued that all textbooks should be written by a team of three people. One would be a content expert. The second would be a journalist who understood how to take complex material and write it in an understandable and interesting fashion. The third would be an educational expert who could give advice on how to structure the material to enhance efficient learning. Based on your comments, I would argue that you need a fourth person -- a person who was really good at writing end of chapter questions and problems. What a four-person team that would be!

    But, textbooks have only one of those -- the author is a content expert. He or she is not a journalist and is not an educational expert and is not necessarily a good EOC writer. Then we wonder why textbooks are often not very good. It is like having a football team made up of all quarterbacks.

     


    Richard Feynman Creates a Simple Method for Telling Science From Pseudoscience (1966) ---
     
    http://www.openculture.com/2016/04/richard-feynman-creates-a-simple-method-for-telling-science-from-pseudoscience-1966.html

    By Feynman's standard standard accountics science is pseudoscience ---
     http://www.trinity.edu/rjensen/TheoryTar.htm

     

    NY Times: Federal Judge In Puerto Rico Calls 100% Tax On Walmart Unlawful ---
    http://taxprof.typepad.com/taxprof_blog/2016/03/federal-judge-in-puerto-rico-calls-walmart-tax-unlawful.html

    Jensen Comment
    Who benefits the most from this decision given that Walmart could pull out of Puerto Rico with little or no impact on its worldwide bottom line?


    New Idea for a Managerial Accounting Case or Other Type of Assignment

    Harvesting Sunshine More Lucrative Than Crops at Some U.S. Farms ---
    http://www.bloomberg.com/news/articles/2016-03-29/harvesting-sunshine-more-lucrative-than-crops-at-some-u-s-farms?cmpid=BBD033016

    . . .

    The rise in solar comes as the value of crops in the Southeast -- with the exception of tobacco -- has dropped. Cotton prices have fallen 71 percent in the last five years. Soybeans are down 33 percent and peanuts have slipped 16 percent.

    Solar companies, meanwhile, are paying top dollar, offering annual rents of $300 to $700 an acre, according to the NC Sustainable Energy Association. That’s more than triple the average rent for crop and pasture land in the state, which ranges from $27 to $102 an acre, according to the U.S. Agriculture Department.

    The economic incentives spurring solar will be discussed at a Bloomberg New Energy Finance conference in New York starting April 4.

    “Solar developers want to find the cheapest land near substations where they can connect,” said Brion Fitzpatrick, director of project development for Inman Solar Inc. of Atlanta. “That’s often farmland.”

     

    Developers have installed solar panels on about 7,000 acres of North Carolina pasture and cropland since 2013, adding almost a gigawatt of generating capacity, according to the NC Sustainable Energy Association. Georgia has added 200 megawatts on fields and cleared forests over the same period, much of it farmland, according to the Southface Energy Institute of Atlanta.

     

    The number of megawatts developers can generate per acre of farmland varies, based on weather patterns, size of the panels and contours of the land. On Singletary’s farm, Strata Solar installed 21,600 panels, each about 6 feet by 3 feet (1.8 meters by 914 centimeters). Combined, they can power as many as 5,000 local homes. 

     

    Long-Term Contracts

    Farmers typically lease a portion of their land, signing 15- to 20-year contracts with developers who install the panels and sell the power to local utilities. In rare cases, farmers have leased their entire property to solar companies.

     

    Singletary signed a 15-year lease in 2013, with two 10-year extension options, and Chapel Hill, North Carolina-based Strata sells the power to Duke Energy Corp. He declined to disclose financial terms.

     

    Government incentives have played a key role in the spread of solar farms built on real farms. North Carolina granted developers tax credits equal to 35 percent of their projects’ costs though a program that expired at the end of 2015, helping make the state the third-biggest U.S. solar market. In Georgia, the Public Service Commission passed a bill in 2013 requiring the state’s largest utility, Southern Co.’s Georgia Power, to buy 525 megawatts of solar by 2016. Both policies sent companies scouring for open space to build.

    Solar panels have buoyed tax bases in impoverished rural counties, said Tim Echols, a member of the Georgia Public Service Commission. They also let farmers diversify their income with revenue that’s not subject to markets or unpredictable weather patterns.

    ‘Stable Income’

     

    “Solar and wind farms have become a new stable income stream for farmers -- and they don’t fluctuate with commodity prices,” said Andy Olsen, who promotes clean energy projects in rural areas for the Chicago-based Environmental Law & Policy Center.

    Not everyone is happy to see solar panels or wind turbines becoming more common on farmland. In the U.K. lawmakers have pushed to limit large clean energy projects on farms, saying they blight the landscape and squeeze out local food production. Similar criticisms have surfaced in the U.S., where local officials have pushed for zoning changes to restrict solar developments to industrial properties. 

     

    Neighbor Complaints

    “I get a lot of complaints from neighbors” said Tim Sheppard, who don’t like the looks of the 1-megawatt solar system that takes up about 5 acres of his 135-acre cattle farm in Brasstown, North Carolina.

    Continued in article

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


    "Coalition Application Releases First Essay Prompts," Inside Higher Ed, April 25, 2016 ---
    https://www.insidehighered.com/quicktakes/2016/04/25/coalition-application-releases-first-essay-prompts?utm_source=Inside+Higher+Ed&utm_campaign=8d172ea7e0-DNU20160425&utm_medium=email&utm_term=0_1fcbc04421-8d172ea7e0-197565045

    Jensen Comment
    These essay prompts are aimed at teenage writers. However, it struck me how some of the prompts are interesting challenges for writers at any age.

    Some of the prompts could also be aimed at specific challenges in a schlar's academic specialty such as:

    Has there been a time when you’ve had a long-cherished or accepted belief challenged?
    How did you respond?
    How did the challenge affect your beliefs?

    To this we might add:

    When and how did some events change your long-held beliefs?
    Was there a key difference between long-held personal beliefs versus long-held professional beliefs?

    My experience with blogging and listserv activism is that professors in our Academy rarely change long-held beliefs except when there are new and compelling discoveries. It would be interesting to catalog some of the new and compelling discoveries that changed beliefs of those of us who are stubborn about doing so.

    Sometimes we can be proud of our stubbornness.
    For example, since I graduated from college decades ago I've been critical of accountics science and now find pride that current professionals are at last changing their beliefs. I like to think I played a small role in this change taking place at last, albeit ever so slowly, in accountics science. ---
    http://www.trinity.edu/rjensen/theory01.htm#WhatWentWrong

    Sometimes we can be proud of our willingness to change.
    For example, in spite of my closeness to Bob Sterling since we were in college students together I've tended to be against exit or entry value measurements of values in a going concern as substitutes for the non-measurable value in use. I've also been opposed to mixed-model valuations that combine traditional accrual historical cost measurements with exit-entry valuations. However, the monumental rise of derivative financial instruments and hedging activities in the 1980s that triggered FAS 133 totally changed my long-held stubborn resistance to introducing more mixed value measurements into traditional financial reporting. I might even say that derivative financial instruments changed my professional life profoundly as I increasingly specialized in accounting for derivative financial instruments at hedging activities ---
    http://www.trinity.edu/rjensen/caseans/000index.htm

    On a personal level, my beliefs changed when I met two males who underwent transgender realignment surgery. I only met one of these persons (Dierdre McCluskey) face-to-face one time when I was a discussant of her plenary session presentation, but her writings before and after that encounter changed my beliefs about the ultimate transgendering surgery. What I learned to respect is the profound courage it takes to undergo such surgery in the face of all the obstacles that follow such as the great loneliness and isolation that often accompanies such surgery. I learned more about this lineliness and isolation from a friend in our church ---
    http://www.trinity.edu/rjensen/Arwen.htm


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

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

    March 28, 2016 reply from Paul Williams

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

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


    "KPMG Tops Rankings for Forensic, Investigations, Data & Tech Management and Litigation Valuation,"CPA Practice Advisor, March 61, 2016 ---
    http://www.cpapracticeadvisor.com/news/12188398/kpmg-tops-rankings-for-forensic-investigations-data-tech-management-and-litigation-valuation?utm_source=CPA+Accounting+%26+Audit+Advisor&utm_medium=email&utm_campaign=CCSN160325002
    Thank you Glen Gray for the heads up.

    . . .

    KPMG Rankings – Best of NLJ 2016 

    Number One: Global Risk and Investigations Consultant Forensic Accounting Provider Data and Technology Management eDiscovery Provider Litigation Valuation Provider

    Number Two: Litigation Dispute Advisory Services Consultant End-to-End Litigation Consulting Firm Best Cyber Security Consultancy Online Review Platform (Discovery Radar)

    Number Three: Managed eDiscovery and Litigation Support Service Provider Business Accounting Provider Expert Witness Provider eDiscovery Mobile App (Discovery Radar)

    Jensen Comment
    Not to take away from KPMG in this honor, but details are not provided on how the rankings were obtained.

    Bob Jensen's threads on the Two Faces of KPMG ---
    http://www.trinity.edu/rjensen/fraud001.htm


    Updates on the SUSTAINABILITY ACCOUNTING STANDARDS BOARD --- http://www.sasb.org/

    04/7/16

    SASB Launches Next Phase of Standards Development

    A period of deep consultation on the provisional standards and proposed codification process

    03/30/16

    Provisional Standards for 79 Industries Now Available

    With the release of infrastructure, issued today, standards for entire economy are now available

    03/28/16

    SASB Announces Advisory Partnership Program

    Trusted partners to support use of SASB standards

    Jensen Comment
    If instructors have not already done so, it's best at this point to put a module on the SASB into syllabi of financial accounting and auditing courses. Of course it should not be confused with mandatory financial accounting and auditing standards. But there is momemtum for the SASB. I suspect these standards will eventually show up in tort cases if they have not already done so.


    Prompting the Benefit of the Doubt: The Joint Effects of Auditor-Client Social Bonds and Measurement Uncertainty on Audit Adjustments
    SSRN, April 1, 2016
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2760091

    Authors

    Steven J. Kachelmeier University of Texas at Austin - Department of Accounting

    Ben W. Van Landuyt The University of Texas at Austin - Department of Accounting

    Abstract

    Results from an incentivized experiment find that social bonds arising from casual interactions between auditors and reporters moderate audit adjustments downward when audit evidence suggesting a misstatement is characterized by measurement uncertainty, but not when the amount of misstatement is known with certainty. Accordingly, our study suggests that the technical challenge posed by auditing complex estimates can be compounded by the behavioral tendency to give clients the “benefit of the doubt” when auditors develop friendly associations with client personnel. A practical implication relevant to the current debate over auditors' use of specialists in areas of measurement uncertainty is that audit-firm specialists may be able to confer not only the benefit of technical expertise, but also a more dispassionate perspective that is less likely to be influenced by day-to-day associations with client personnel.

    Jensen Comment
    Going way back to Andy Stedry's water bottle-filling experiments in the 1960s, I have a hard time extrapolating from what in this case 140 undergraduates making judgments regarding colored marbles. I hate to be negative, especially with Steve, but having students remove red marbles from a bag is just too much of a leap, at least for me, from the real world of audit adjustments.


    Non-GAAP Reporting: A Comparability Crisis
    SSRN, April 4, 2016
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2759312

    Authors

    Dirk E. Black Tuck School of Business at Dartmouth

    Theodore E. Christensen University of Georgia

    Jack T. Ciesielski Jr. R.G. Associates

    Benjamin C. Whipple University of Georgia - C. Herman and Mary Virginia Terry College of Business

    Abstract

    The IASB and the FASB have both expressed interest in the recent proliferation of non-GAAP reporting, raising questions about what this increasing reporting trend means for IFRS- and GAAP-based reporting. Our goal is (1) to inform standard setters on the current state of non-GAAP reporting and (2) explore how the discretion afforded in non-GAAP reporting influences earnings consistency and comparability, two tenets of IFRS- and GAAP-based earnings. We begin by providing an up-to-date discussion of the most common questions examined in the extant literature to provide insights on what academics have learned about non-GAAP reporting. Next, we utilize a novel dataset of detailed non-GAAP disclosures to provide in-depth descriptive evidence on the current state of non-GAAP reporting. We find that the frequency of non-GAAP reporting has increased by 35% in recent years, a trend that we find in every sector. We also provide evidence on how the frequency and magnitude of specific exclusions has changed over time. Of particular interest is the increasing frequency in which firms exclude items that are not commonly excluded by other firms, indicating that more idiosyncratic definitions of non-GAAP earnings are emerging in the marketplace. Finally, we examine how the discretion in non-GAAP reporting affects earnings consistency and comparability. We find that the consistency with which firms calculate non-GAAP metrics varies by sector and is generally increasing across time, with the exception of how firms exclude recurring items (which is becoming more inconsistent). We also find some evidence that inconsistent recurring item adjustments are associated with lower quality non-GAAP metrics, while inconsistent nonrecurring adjustments are associated with higher quality metrics. In examining comparability, we find descriptive evidence indicating that within-sector performance rankings based on GAAP earnings better explains concurrent stock returns than comparisons based on non-GAAP earnings. However, these differences are not statistically significant in our empirical analyses.

    Jensen Comment

    This study is interesting but it's not at all clear why it needed four authors. When I see more than two authors these days I'm always suspicious that authors are gaming the system.

    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)


    From the CPA Newsletter on April 26, 2016

  • Should the SEC crack down on non-GAAP numbers?

    The percentage of S&P 500 companies that report numbers that aren't based on generally accepted accounting principles has reached 90%, a 72% increase from 2009, a recent study found. That concerns some industry experts, who worry that investors may get the wrong idea about companies' financial performance. On April 13, Securities and Exchange Commission member Kara Stein issued a statement asking if changes should be made to SEC rules.

    The New York Times (free-article access for SmartBrief readers) (4/22)

     

  • Non-GAAP Reporting: A Comparability Crisis
    SSRN, April 4, 2016
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2759312

    Authors

    Dirk E. Black Tuck School of Business at Dartmouth

    Theodore E. Christensen University of Georgia

    Jack T. Ciesielski Jr. R.G. Associates

    Benjamin C. Whipple University of Georgia - C. Herman and Mary Virginia Terry College of Business

    Abstract

    The IASB and the FASB have both expressed interest in the recent proliferation of non-GAAP reporting, raising questions about what this increasing reporting trend means for IFRS- and GAAP-based reporting. Our goal is (1) to inform standard setters on the current state of non-GAAP reporting and (2) explore how the discretion afforded in non-GAAP reporting influences earnings consistency and comparability, two tenets of IFRS- and GAAP-based earnings. We begin by providing an up-to-date discussion of the most common questions examined in the extant literature to provide insights on what academics have learned about non-GAAP reporting. Next, we utilize a novel dataset of detailed non-GAAP disclosures to provide in-depth descriptive evidence on the current state of non-GAAP reporting. We find that the frequency of non-GAAP reporting has increased by 35% in recent years, a trend that we find in every sector. We also provide evidence on how the frequency and magnitude of specific exclusions has changed over time. Of particular interest is the increasing frequency in which firms exclude items that are not commonly excluded by other firms, indicating that more idiosyncratic definitions of non-GAAP earnings are emerging in the marketplace. Finally, we examine how the discretion in non-GAAP reporting affects earnings consistency and comparability. We find that the consistency with which firms calculate non-GAAP metrics varies by sector and is generally increasing across time, with the exception of how firms exclude recurring items (which is becoming more inconsistent). We also find some evidence that inconsistent recurring item adjustments are associated with lower quality non-GAAP metrics, while inconsistent nonrecurring adjustments are associated with higher quality metrics. In examining comparability, we find descriptive evidence indicating that within-sector performance rankings based on GAAP earnings better explains concurrent stock returns than comparisons based on non-GAAP earnings. However, these differences are not statistically significant in our empirical analyses.

    Jensen Comment

    This study is interesting but it's not at all clear why it needed four authors. When I see more than two authors these days I'm always suspicious that authors are gaming the system.

    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)

     


    Accounting for Prosecutors
    SSRN April 1. 2016
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2757811

    Author

    Daniel C. Richman Columbia Law School

    Abstract

    What role should prosecutors play in promoting citizenship within a liberal democracy? And how can a liberal democracy hold its prosecutors accountable for playing that role? Particularly since I’d like to speak in transnational terms, peeling off a distinctive set of potential “prosecutorial” contributions to democracy – as opposed to those made by other criminal justice institutions – is a challenge. Holding others – not just citizens but other institutions – to account is at the core of what prosecutors do. As gatekeepers to the adjudicatory process, prosecutors shape what charges are brought and against whom, and will (if allowed to) become shapers of citizenship. They also can can promote police compliance with legal and democratic norms. Because the prosecutorial role in case creation is largest when crimes are not open and notorious, prosecutors can also play an outsized role in the bringing of cases that target instances of illegitimate subordination (including domestic violence) and corruption that are antithetical to a liberal democracy.

    After considering ways in which prosecutors might promote democratic values, I explore (quite tentatively) how prosecutors can be held to account. Working from existing practices and structures, I consider how we might promote their potential contributions through legal and institutional design with respect to reason-giving obligations; geographic scale; insulation from direct political influence, and modulation of their message.


     

    "The Tesla Model 3 May Depend on This Battery Breakthrough," by Mike Orcutt,  Will Knight, MIT's Technology Review, April 1, 2016 ---
    https://www.technologyreview.com/s/601178/the-tesla-model-3-may-depend-on-this-battery-breakthrough/#/set/id/601193/

    . . .

    In addition, Quartz’s Steve LeVine points out that Tesla and partner Panasonic have quietly been developing a new technology in which silicon is combined with the graphite used in conventional lithium-ion battery anodes. Adding silicon could increase the amount of energy the battery can store, but previous efforts to commercialize the technology have failed. Levine cites a battery market investment analyst who says that the Model 3’s anodes could contain up to 10 percent silicon, which battery experts say would be a “serious breakthrough.”

    Serious enough, in fact, that it might allow Tesla to bring the cost of its batteries down from an estimated $300 per kilowatt-hour in 2014 to $200 by 2017. That would get us much closer to $150, the point at which some experts have predicted there could be a “paradigm shift” away from internal combustion cars. Unfortunately we’ll have to wait until late next year, when the first Model 3's are expected to roll off the production line, to see if Tesla truly has a breakthrough on its hands.

    jJensen Comment
    As more and more electric cars are sold states are going to have to figure out how to have electric car owners pay something toward to cost of roads and bridges which would be a paradigm shift in paying for streets and highways in the USA. To date I think Oregon is the only state to bill electric car owners for streets and highways.

     

    Bolt:  Chevy's Answer to Tesla ---
    http://www.businessinsider.com/chevrolet-bolt-ev-ces-2016-4

    Jensen Comment
    Unless you live within ten miles of a reasonably-priced car rental car service it seems to me that fully electric cars these days are still only expensive second-car commuting alternatives. They are expensive alternatives to commuting in this cheap gasoline era. The major limitation is still the 200-mile range alternative that means planned longer trips may entail renting a gasoline car if you don't own another car for longer ventures.

    And there are many unknowns such as performance in colder climates and resale value after five or more years. There is also an unkown as to how popular electric cars will be for car thieves --- epecially those within 200 miles of the Rio Grande. It's too soon for them to be popular for chop shops. There is also an unknown as to how long states (other than Oregon) will let electric cars drive free of charge in terms of contributing zero to road and bridge maintenance.

    The Bolt has a huge advantage over Tesla in that there are so many Chevy dealers in North America and elsewhere.

    Until there is an affordable SUV electric car alternative none of the electric cars will be good for hauling luggage, kids, lumber, area rugs, etc. And bigger cars require more weight and power and, of course, more horsepower cost. It's not just the bourgeoisies that want bigger vehicles.


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

    Are senators sometimes too smart for their own good?

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

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

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

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

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

    Continued in article

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

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


    The Econometric Game --- http://www.econometricgame.com/

    Every year, the University of Amsterdam is hosting the Econometric Game, one of the most prestigious projects organized by the study association for Actuarial Science, Econometrics & Operational Research (VSAE) of the University of Amsterdam. The participating universities are expected to send delegations of four students majoring in econometrics or relevant studies with a maximum of two PhD students. The teams will be given a case study, which they will have to resolve in two days. After these two days the ten teams with the best solutions will continue to day three. On the third day the finalists have to solve a second case while the other teams can go sightseeing in Amsterdam. After the teams have explored the city, the Econometric Game Congress takes place. There are different interesting lecturers, who will speech about the case and the econometric methods necessary for solving the case. The solutions will be reviewed by a jury of qualified and independent professors and they will announce the winner of the Game.

    The Econometric Game 2016 will take place on the 6th, 7th and 8th of April 2016 in Amsterdam.

    Jensen Comment
    This inspired me to thing that the AAA sponsored by private sector funding might fund a similar game for either accounting doctoral students or non-tenured accounting faculty. My preference would be to restrict the case studies to problems selected by private sector practitioners (public accountants and/or managerial accountants) of high interest to the profession. But I would focus on research methods that do not entail econometric or psychometric tools. I would prefer a case-method research game in the spirit of Pathways Commission initiatives for expanding research methodologies in accountancy.

     

    This is a bit like the Trueblood Seminars sponsored by Deloitte except that the focus would be more on research and team competition. But like the Trueblood Seminars the main purpose would be closer ties between the academic world and the professional world --- another Pathways Commission initiative.


    The FASB's New Revenue Recognition Standard in Plain English ---
    http://www.journalofaccountancy.com/newsletters/2016/mar/revenue-recognition-standard-in-plain-english.html?utm_source=mnl:globalcpa&utm_medium=email&utm_campaign=06Apr2016

    AICPA Resources for the New Revenue Recognition Standard Implementation ---
    http://www.aicpa.org/InterestAreas/FRC/AccountingFinancialReporting/RevenueRecognition/Pages/RevenueRecognition.aspx?utm_source=mnl:cpald&utm_medium=email&utm_campaign=05Apr2016 

    Revenue Accounting Controversies --- http://www.trinity.edu/rjensen/ecommerce/eitf01.htm 


    Going Concern --- https://en.wikipedia.org/wiki/Going_concern

    "Auditor warnings on large company solvency hit highest level since crisis," by Francine McKenna, Marketwatch, April 13, 2016 ---
    http://www.marketwatch.com/story/auditor-warnings-on-large-company-solvency-reach-highest-level-since-crisis-2016-04-13

    Jensen Comment
    The 2016 warnings are narrowly focused on troubled industries like oil and coal. The scandals of the 2008 economic crisis are the thousands of failing banks and mortgage lenders that escaped going concern warnings by their auditors. The popular headline was"  "Where were the auditors?"


    Equity Method --- https://en.wikipedia.org/wiki/Equity_method

    "FASB simplifies transition to equity method of accounting," by Ken Tysiac, Journal of Accountancy, March 16, 2016 ---
    http://www.journalofaccountancy.com/news/2016/mar/fasb-equity-method-of-accounting-201614065.html?utm_source=mnl:globalcpa&utm_medium=email&utm_campaign=30Mar2016


    "SEC seeking input on disclosure effectiveness," by Ken Tysiac, Journal of Accountancy, April 13, 2016 ---
    http://www.journalofaccountancy.com/news/2016/apr/sec-seeking-input-on-disclosure-effectiveness-201614237.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=14Apr2016


    "Anti-fraud controls cut significantly into losses, new report finds," by Jeff Drew, Journal of Accountancy, March 30, 2016 ---
    http://www.journalofaccountancy.com/news/2016/mar/anti-fraud-controls-cut-into-losses-201614146.html?utm_source=mnl:globalcpa&utm_medium=email&utm_campaign=06Apr2016 

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


    Deloitte Auditors Fail to Detect $350 Million Ponzi Fraud
    "Aequitas investors file suit against Tonkon Torp, Deloitte," by Jeff Manning, The Oregonian, April 4, 2016 ---
    http://www.oregonlive.com/business/index.ssf/2016/04/aequitas_investors_file_suit_a.html

    Investors burned in the flameout of Aequitas Capital Management have filed suit against Portland law firm Tonkon Torp and accounting giant Deloitte & Touche, claiming the firms enabled the massive Ponzi scheme allegedly masterminded by the Lake Oswego financial company.

    "Investors trusted Aequitas and their trust was abused," said Keith Ketterling, of the Stoll Berne Lokting & Shlachter firm in Portland. "The law makes the lawyers and accountants responsible to the same extent as Aequitas, because these professionals are the gatekeepers, and their services lend credibility to the investments."

    Tonkon Torp, one of the most respected corporate law firms in town, for several years represented Aequitas and helped prepare prepare financial documents for investors that were materially false, investors allege.

    "The Aequitas securities could not have been sold without the legal services that Tonkon provided," investors claim in the new complaint.

    Deloitte prepared the 2014 and 2015 audited financial statements for Aequitas, which painted a reassuring portrait of Aequitas' financial strength. Deloitte offered a so-called "unqualified" opinion in its 2014 audit that Aequitas' financials fairly and accurately represented the company's financial condition. The U.S. Securities and Exchange Commission now claims that Aequitas by 2014 was little more than a large Ponzi scheme, reliant on new investor money to cover its expenses.

    The new complaint, filed Monday in U.S. District Court in Portland, is likely the first of many investor lawsuits. The commission's March 10 lawsuit accused Aequitas and three top executives of concealing the catastrophic condition of the company even as it continued to raise more than $350 million from investors.

    Continued in article

    Bob Jensen's threads on Ponzi frauds ---
    http://www.trinity.edu/rjensen/FraudRottenPart2.htm#Ponzi


    Question
    What things bad for investors do Apple and Enron have in common?

    The former CFO (felon Andy Fastow) of Enron warned a group of execs that large US companies are doing the same things he did ---
    http://www.businessinsider.com/andy-fastow-talk-2016-4

    . . .

    He sent out the following event recap in an email:

    I went to an event yesterday afternoon at which Andy Fastow spoke for two hours. You may recall that he was the CFO of Enron and served six years in prison for his crimes – and he’s now out on the speaking circuit. I agreed with most of what he said. He acknowledged that he was the primary cause of Enron’s demise and apologized for all of the harm this caused. He said he knowingly engaged in numerous transactions that were designed to mislead investors by hiding debt in special purpose entities, etc. He also noted, however, that every single one of them was approved by Enron’s board, auditors, etc. – and, most alarmingly, gave numerous examples of many major companies today are doing similar things, just not (for most companies anyway) to the same degree. For example, he showed this picture and asked if anyone could name the major company whose global headquarters this was:

    Continued in article

    Bob Jensen's threads on Enron and Fastow's hundreds of SPEs are at ---
    http://www.trinity.edu/rjensen/FraudEnron.htm


    How good are you at detecting fraudulent reimbursement requests? ---
    http://www.journalofaccountancy.com/issues/2016/mar/fraud-iq-quiz.html?utm_source=mnl:globalcpa&utm_medium=email&utm_campaign=27Apr2016


    AICPA Names 2015 Elijah Watt Sells Award Recipients, Recognizing Top CPA Exam Performance ---
    http://www.aicpa.org/press/pressreleases/2016/pages/aicpa-names-2015-elijah-watt-.aspx

    Jensen Comment
    Two things I've noticed over the years.

    First, the the top accounting programs in flagship universities certainly have a share of the metal medal winners, but those taking home the medals are often not from the accounting programs ranked highest by US News and the other media rankings of accounting programs. The winners often come from such places as Marietta College or the University of Texas at Tyler.

    Second, the same can be said if you investigate the alma maters of professionals being admitted to the partnerships of the largest six multinational CPA firms.

    My point here is that top talent is widely dispersed such that prestigious universities do not have a monopoly on top talent. Also exam medal winners and partners of CPA firms are often the most motivated students and the most highly motivated graduates often come from less known colleges and universities.

    Another thing that changes the ball game is that most people passing the CPA examination now have two degrees with many (most?) having an undergraduate accounting major from one accounting program and a masters degree from another accounting program. Where did they learn the most accounting? This of course cannot be answered very well by researchers since there are so many interactive variables in when and where graduates learned their accounting.


    Supreme Court declines to hear SEC administrative law judge challenge ---
    http://www.pionline.com/article/20160425/ONLINE/160429926?AllowView=VDl3UXlaTzlDUEdCblIzQURleUhaRUt2ajBnV0ErOWZIdz09&utm_campaign=smartbrief&utm_source=linkbypass&utm_medium=affiliate


    Cabela's --- https://en.wikipedia.org/wiki/Cabela%27s

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

    Cabela’s, CFO settle SEC accounting charges
    Outdoor recreation retailer Cabela’s Inc. agreed to pay a $1 million civil penalty to settle Securities and Exchange Commission allegations that it and its longtime finance chief Ralph Castner misled investors, CFO Journal’s Maxwell Murphy reports. Neither the company nor Mr. Castner admitted wrongdoing. The SEC alleged the company in 2012 failed to eliminate an intercompany promotions fee with Cabela’s wholly owned bank subsidiary. The error effectively increased the company’s gross margins.

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


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

    Certified public accountants may be hazardous to your company’s growth
    CFOs with accounting backgrounds in high-growth industries invest less in research and development, make lower capital expenditures and are less likely to obtain external financing for their businesses, according to a paper to be published in a coming issue of the Journal of Accounting and Economics. The data studied runs only through 2010, but suggests that risk-taking companies may be better served by CFOs who don’t cling tightly to the purse strings, reports CFOJ’s Richard Teitelbaum.

    Jensen Comment
    In case you forget to notice, correlation is not causation in spite of what accountics scientists would like you to believe.

    But I like to give credit where credit is due. In all my years of providing tidbits from practitioner blogs this is one of the rare instances where an academic research journal is cited.


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

    VW nears deal on diesel-car crisis
    Volkswagen AG
    is preparing to offer a buyback to U.S. owners of some diesel-powered vehicles and payments to others, ahead of a Thursday court deadline to address cars it has long known violate air pollution rules. But VW is no longer alone in this particular problem. Mitsubishi Motors Corp. said employees improperly manipulated fuel-economy data on at least 625,000 vehicles, the latest self-inflicted wound for a company with a history of scandal.


    Christmas won't be so merry in the Redstone family
    From the CFO Journal's Morning Ledger on April 20, 2016

    Family fight heats up in Redstone lawsuit
    Sumner Redstone’s granddaughter accused his daughter, Shari Redstone, in court papers Tuesday of pressing for a “do not resuscitate” order and other noninterventionist health measures for the media mogul, over his strong objections. Meanwhile, Viacom Inc. said its discussions with satellite-TV provider Dish Network Corp. to renew carriage of its TV channels have broken down, and its programming will likely go dark for Dish customers.

     


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

    PwC’s Canada operations scored wins last year
    Out of 318 auditor departures up north last year, PwC ended up with 18 net new clients, including Royal Bank of Canada, according to Audit Analytics. RBC paid $23.2 million in 2014 audit fees to Deloitte. Ernst & Young in Canada lost a net 13 clients, but its 2015 fees are expected to tick up by about $715,000.

     


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

    Accounting-related class-action lawsuits rose again in 2015
    The number of cases filed rose for the third-straight year, according to Accounting Today, citing a report from Cornerstone Research. Moreover, the $2.6 billion in total settlements resulting from the lawsuits was nearly triple the 2014 total, despite just two more total suits last year.

     


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


    The largest coal company in the U.S. became the latest to file for court protection, underscoring the fraying future of corporate coal mining in America. Forces crushing the industry include new environmental regulations, declining steel production and the conversion of coal-fired plants to run on cheap and abundant natural gas.

    Peabody Energy’s Bankruptcy Shows the Limits of “Clean Coal”:  Investments in carbon capture and storage technology have largely been failures ---
    https://www.technologyreview.com/s/601270/peabody-energys-bankruptcy-shows-the-limits-of-clean-coal/#/set/id/601271/

    Desk-Size Turbine Could Power a Town:  GE sees its new turbine as a strong rival to batteries for storing power from the grid ---
    https://www.technologyreview.com/s/601218/desk-size-turbine-could-power-a-town/#/set/id/601265/

    Watching SunEdison’s Collapse, Solar Industry Resets ---
    https://www.technologyreview.com/s/601217/watching-sunedisons-collapse-solar-industry-resets/#/set/id/601265/

    Historically, the ocean has been a bit too powerful to harness wave energy successfully. Oscilla Power has come up with a new approach designed to withstand the forces of the ocean and generate electricity cleanly, meaningfully, and endlessly ---
    http://www.bloomberg.com/news/articles/2016-04-12/this-device-could-provide-a-third-of-america-s-power?cmpid=BBD041216_BIZ&utm_medium=email&utm_source=newsletter&utm_campaign=


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

    What happened when a business school made tuition free
    Arizona State University’s W.P. Carey School of Business received a lot more applicants than it bargained for after announcing last year that it would make its two-year M.B.A. program free starting this fall. Pricing experts say the school’s experience underlines a sometimes painful business truth: Offering something free creates a lot of extra work.

    Jensen Comment
    Extra work, some of which is dealing with a much higher proportion of rejection letters to applicants who did not make the cut.

    "What Happened When a Business School Made Tuition Free," by Lindsay Gellman, The Wall Street Journal, April 6, 2016 ---
    http://www.wsj.com/articles/what-happened-when-a-business-school-made-tuition-free-1459962679?mod=djemCFO_h

    Arizona State University’s W.P. Carey School of Business received a lot of global attention after saying it would make its two-year M.B.A. program free starting this fall. It also got a lot more applicants than it bargained for.

    Since the announcement in October that it would drop the price tag on its full-time business program—which runs from $54,000 for in-state residents to $90,000 for international students—to $0, prospective students have inundated the Tempe, Ariz., school, breaking previous application records and forcing school leaders to man jammed phone lines and respond to email queries.

    As of April 4, the full-time M.B.A. program had received 1,165 applications, nearly triple the total number of applications it received during last year’s cycle. The number of calls and emails was much larger than that, school officials say, taking the school by surprise.

    ASU’s W.P. Carey sought to attract candidates from nontraditional backgrounds, including people who had never considered business school because of the costs, said Amy Hillman, the school’s dean. To fund the scholarships, the school turned to a $50 million donation given in 2003 by real-estate mogul and philanthropist William Carey, she said.

    “I really didn’t understand the extent to which there was a demand for scholarships,” Ms. Hillman said.

    Pricing experts say the school’s experience underlines a sometimes painful business truth: offering something free creates a lot of extra work. Because Carey has a finite number of M.B.A. spots to offer, it can be more selective about whom it accepts, which will take more admissions manpower, said Sandeep Baliga, a professor of managerial economics and decision sciences at Northwestern University’s Kellogg School of Management who researches pricing.

    “It was pretty much all hands on deck” in the admissions office after the announcement, Ms. Hillman said. The school rounded up staff from other corners of the university and student ambassadors to answer phone calls and respond to emails from freebie-seeking prospective students, some from as far away as Uzbekistan, Bolivia and Uganda—well beyond its usual recruiting regions.

    The main question admissions personnel had to answer was whether the free M.B.A. was real. Some callers were “skeptical,” said Kay Keck, director of Carey’s full-time M.B.A. Admissions staff walked prospective applicants through the details and assured them that the school’s free-M.B.A. plan was not a joke, she said.

    Continued in article

    Bob Jensen's threads on higher education controversies ---
    http://www.trinity.edu/rjensen/higHerEdControversies.htm

     


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

    From the CFO Journal's Morning Ledger on April 5, 2016

     Moore’s Law meets GAAP accounting at Intel
    Intel Corp
    . co-founder Gordon Moore famously said that semiconductors would get more powerful, and cheaper, at an exponential pace. That pace has slowed, which is good for profits in the near term, but has negative repercussions over time, Maxwell Murphy reports. Intel said slower product cycles mean it will depreciate its machinery and equipment more slowly, giving them a useful life of five years instead of four years. This new accounting treatment means Intel will book $1.5 billion less in depreciation expense this year, or roughly 10% of the pretax income it reported for all of last year, research firm Audit Analytics said Monday in a blog post.


    From the CFO Journal's Morning Ledger on March 31, 2016

    External auditors handle more internal audits
    Regulation has prompted companies to step up their scrutiny of their own books, but staffing hasn’t always kept up. So, more companies are calling in outside help, CFO Journal’s Vipal Monga reports. In 2014, 56% of North American companies hired outside firms to conduct at least part of their internal audits, according to a survey by the Institute of Internal Auditors.


    Governmental Accounting Standards Board --- https://en.wikipedia.org/wiki/Governmental_Accounting_Standards_Board

    Updates on the GASB --- http://gasb.org/

    GASB Issues Pension Guidance Addressing
    Issues Raised by Stakeholders During Implementation  [04/11/16]

    ·        News Release |

    ·        Statement No. 82

    GASB Issues Enhanced Guidance on
    Irrevocable Split-Interest Agreements  [03/29/16]

    ·        News Release |

    ·        Statement No. 81

    GASB Publishes New Implementation Guidance
    to Assist Stakeholders with Recent Pronouncements  [03/24/16

     


     

    Retired U.S. Tax Court Judge Indicted For Tax Evasion While She Sat On The Court ---
    http://taxprof.typepad.com/taxprof_blog/2016/04/former-tax-court-judge-and-husband-indicted-for-tax-evasion.html

     

    SEC: Navistar International and Former CEO Misled Investors About Advanced Technology Engine ---
    http://www.sec.gov/news/pressrelease/2016-62.html

     

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


     


    Caspersen Fraud --- https://en.wikipedia.org/wiki/Andrew_Caspersen

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

    In alleged scheme, Caspersen targeted a Princeton classmate
    When Andrew W.W. Caspersen was looking to raise millions of dollars last year in what prosecutors now describe as an elaborate fraud, the Wall Street executive allegedly targeted an old college classmate with whom he had family ties.

     


    From the CFO Journal's Morning Ledger on March 30, 2016

    Hedge-fund manager’s charity was victim of alleged Caspersen fraud
    Hedge-fund manager Louis Bacon’s charitable foundation said it was the victim in a scheme allegedly orchestrated by former private-equity executive Andrew W.W. Caspersen to defraud investors out of $95 million. Mr. Bacon is the founder of hedge-fund firm Moore Capital Management.

     

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


     

    How to Mislead With Statistics Such as Counting Part-Time Jobs as Being Equal to Full-Time Jobs
    This is why Gallup’s CEO calls BLS reporting a “big lie”

    "University Professor Asks: How Accurate and at What Cost is BLS Data?" by Mike Shedlock, Townhall, April 7, 2016 ---
    http://finance.townhall.com/columnists/mikeshedlock/2016/04/07/university-professor-asks-how-accurate-and-at-what-cost-is-bls-data-n2144503?utm_source=thdaily&utm_medium=email&utm_campaign=nl

    . . .

    I still believe the BLS double counts part-time jobs. In telephone conversations, the BLS admits my assertion it is possible.

    A simple sort-merge program weeding out duplicate social security numbers would settle the debate.

    I contacted ADP twice on this issue and received no response.

    The BLS told me they would like to weed out duplicates but they do not have access to the data for security reasons.

    This about that for a second. What is the problem here?

    The answer is unencrypted social security numbers. If social security numbers were encrypted in government databases, then matches on encrypted hash keys would reveal duplicates without disclosing the underlying social security numbers to anyone.

    A simple sort merge program on raw data could do the same, coming up with a count only, so there would be no reason for anyone to see the social security numbers.

    TrimTabs maintains that tax collection analysis is the key, but as I said, the BLS does not have access to that data. However, tax collection has its own problems, such as quarterly filings, seasonal variations in vacations, etc.

    The BLS also picks up increases in self-employment which TrimTabs doesn’t because of delayed reporting. Of course, the BLS counts those selling trinkets on eBay as well as newbies getting sucked into various multi-level-marketing schemes while labeling that a job.

    Topping things off, BLS goes to great lengths to make sure it weeds out every conceivable person from the labor force that it can. Working one hour a week selling trinkets on eBay or in a MLM scheme lands you in the employed bucket.

    This is why Gallup’s CEO calls BLS reporting a “big lie”.

    Continued in article


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

    Banks’ favorite new strategy: Footnote 151
    Fine print in a regulatory document lets banks hold less capital against certain derivatives, and banks want to harness it to lower the burden of new capital rules. Big banks met with regulators this week to explain their use of the footnote. “They are trying to get around a leverage constraint,” Thomas Hoenig, the Vice Chairman of Federal Deposit Insurance Corp., said in an interview. “I call that gaming the system.”


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

    What happened when a business school made tuition free
    Arizona State University’s W.P. Carey School of Business received a lot more applicants than it bargained for after announcing last year that it would make its two-year M.B.A. program free starting this fall. Pricing experts say the school’s experience underlines a sometimes painful business truth: Offering something free creates a lot of extra work.

    Jensen Comment
    Extra work, some of which is dealing with a much higher proportion of rejection letters to applicants who did not make the cut.

    "What Happened When a Business School Made Tuition Free," by Lindsay Gellman, The Wall Street Journal, April 6, 2016 ---
    http://www.wsj.com/articles/what-happened-when-a-business-school-made-tuition-free-1459962679?mod=djemCFO_h

    Arizona State University’s W.P. Carey School of Business received a lot of global attention after saying it would make its two-year M.B.A. program free starting this fall. It also got a lot more applicants than it bargained for.

    Since the announcement in October that it would drop the price tag on its full-time business program—which runs from $54,000 for in-state residents to $90,000 for international students—to $0, prospective students have inundated the Tempe, Ariz., school, breaking previous application records and forcing school leaders to man jammed phone lines and respond to email queries.

    As of April 4, the full-time M.B.A. program had received 1,165 applications, nearly triple the total number of applications it received during last year’s cycle. The number of calls and emails was much larger than that, school officials say, taking the school by surprise.

    ASU’s W.P. Carey sought to attract candidates from nontraditional backgrounds, including people who had never considered business school because of the costs, said Amy Hillman, the school’s dean. To fund the scholarships, the school turned to a $50 million donation given in 2003 by real-estate mogul and philanthropist William Carey, she said.

    “I really didn’t understand the extent to which there was a demand for scholarships,” Ms. Hillman said.

    Pricing experts say the school’s experience underlines a sometimes painful business truth: offering something free creates a lot of extra work. Because Carey has a finite number of M.B.A. spots to offer, it can be more selective about whom it accepts, which will take more admissions manpower, said Sandeep Baliga, a professor of managerial economics and decision sciences at Northwestern University’s Kellogg School of Management who researches pricing.

    “It was pretty much all hands on deck” in the admissions office after the announcement, Ms. Hillman said. The school rounded up staff from other corners of the university and student ambassadors to answer phone calls and respond to emails from freebie-seeking prospective students, some from as far away as Uzbekistan, Bolivia and Uganda—well beyond its usual recruiting regions.

    The main question admissions personnel had to answer was whether the free M.B.A. was real. Some callers were “skeptical,” said Kay Keck, director of Carey’s full-time M.B.A. Admissions staff walked prospective applicants through the details and assured them that the school’s free-M.B.A. plan was not a joke, she said.

    Continued in article

    Bob Jensen's threads on higher education controversies ---
    http://www.trinity.edu/rjensen/higHerEdControversies.htm

     


    They Want Your IRA:  The White House pushes investors toward government accounts," The Wall Street Journal, April 6, 2016 ---
    http://www.wsj.com/articles/they-want-your-ira-1459985170?mod=djemMER

    President Obama’s regulators aren’t slowing down, alas. And on Wednesday they unveiled another part of their plan to push Americans out of private investment accounts and into government-run plans.

    The Department of Labor says its so-called fiduciary rule will make financial advisers act in the best interests of clients. What Labor doesn’t say is that the rule carries such enormous potential legal liability and demands such a high standard of care that many advisers will shun non-affluent accounts. Middle-income investors may be forced to look elsewhere for financial advice even as Team Obama is enabling a raft of new government-run competitors for retirement savings. This is no coincidence.

    Labor’s new rule will start biting in January as the President is leaving office. Under the rule, financial firms advising workers moving money out of company 401(k) plans into Individual Retirement Accounts will have to follow the new higher standards. But Labor has already proposed waivers from the federal Erisa law so new state-run retirement plans don’t have the same regulatory burden as private employers do.

    This competitive advantage could be significant. Last month the board of California’s new “Secure Choice” retirement plan wrote to state legislators about their “exciting win” in Washington. They reported that employers enrolling workers in the new government-run plan “would have no liability or fiduciary duty for the plan.” Score! The California bureaucrats added that “we have been given the green light to auto-enroll workers into an Individual Retirement Account (IRA).”

    Meanwhile, there are only losses for private competitors. The final rule Labor Secretary Tom Perez unveiled Wednesday is being marketed as less onerous than an earlier draft. Thus much of the financial industry is going to take a few weeks to decide on its response. But the main question is exactly how many billions of dollars in costs and lost opportunities will be visited upon investors. And how big the incentive will be to seek government options.

    The White House claims it is solving a $17 billion problem for consumers who suffer from “conflicted advice,” but the investment advisory industry is already among the most regulated. The $17 billion figure was assembled from a variety of data sets, many of which weren’t measuring the alleged problem that Team Obama says it can solve, and some of which were generated by people who don’t endorse the White House analysis. In any case government-run plans will have their own conflicts of interest—politicians want the money—and will be expensive.

    Mr. Perez claims his agency “worked closely” with the government’s actual IRA and investing experts at Treasury and the Securities and Exchange Commission. But when Wisconsin Sen. Ron Johnson’s Government Affairs Committee dug into the interagency email traffic, he found Labor telling an SEC staffer, “we have now gone far beyond the point where your input was helpful to me.” Senator Johnson’s report says emails show that Treasury officials also criticized Labor’s proposal.

    Still, Labor’s one-two punch on private savings has something for everyone in the progressive coalition. Senator Elizabeth Warren can check off another item on her wish list of anti-business initiatives. Mr. Perez gets to burnish his credentials as a candidate for Vice President. And Mr. Obama gets to say he helped government control more of the private economy.

    What average investors get out of this deal is much less certain. But judging by the pending California plan, one answer is: low returns. The initial investment allocation, even for young workers, is likely to be heavy on government bonds. Naturally.

    California and other states are still working out the details of their new foray into investment management. Depending on how the plans are structured, they may be headed back to Washington to seek exemptions from the SEC. They won’t want to live with the rules that the commission places on private brokerages or mutual funds, but the SEC’s mandate is to protect investors, not politicians who want government to manage workers’ financial assets.

    Charging young investors for the privilege of loaning money to government, while handicapping private competitors and denying choices to middle-income consumers. Another perfect progressive innovation


    GASB Implementation Guide 2016-01 ---
    http://gasb.org/jsp/GASB/Document_C/GASBDocumentPage?cid=1176168003586&acceptedDisclaimer=true


     

    Wells Fargo just agreed to pay $1.2 billion to settle 'shoddy' mortgage practices (phony property appraisals, loans with zero chance of repayment passed upstream to Fannie and Freddie, etc.) ---
    http://www.businessinsider.com/wells-fargo-mortgage-settlement-2016-4

    Retired U.S. Tax Court Judge Indicted For Tax Evasion While She Sat On The Court ---
    http://taxprof.typepad.com/taxprof_blog/2016/04/former-tax-court-judge-and-husband-indicted-for-tax-evasion.html

     

    SEC: Navistar International and Former CEO Misled Investors About Advanced Technology Engine ---
    http://www.sec.gov/news/pressrelease/2016-62.html

     

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

     


    Caspersen Fraud --- https://en.wikipedia.org/wiki/Andrew_Caspersen

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

    In alleged scheme, Caspersen targeted a Princeton classmate
    When Andrew W.W. Caspersen was looking to raise millions of dollars last year in what prosecutors now describe as an elaborate fraud, the Wall Street executive allegedly targeted an old college classmate with whom he had family ties.

     


    From the CFO Journal's Morning Ledger on March 30, 2016

    Hedge-fund manager’s charity was victim of alleged Caspersen fraud
    Hedge-fund manager Louis Bacon’s charitable foundation said it was the victim in a scheme allegedly orchestrated by former private-equity executive Andrew W.W. Caspersen to defraud investors out of $95 million. Mr. Bacon is the founder of hedge-fund firm Moore Capital Management.

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


    SEC CHARGES COMPANY AND EXECUTIVES FOR FAULTY EVALUATIONS OF INTERNAL CONTROLS ---
    http://www.accountingeducation.com/index.cfm?page=newsdetails&id=153867&utm_source=MailerMailer&utm_medium=email&utm_content=SEC+CHARGES+COMPANY+AND+EXECUTIVES+FOR+FAULTY+EVALUATIONS+OF+INT&utm_campaign=Double+Entries+22(06)

    Jensen Comment
    Texas-based oil company Magnum Hunter Resources Corporation appears to use KPMG. SOX legislation was intended to prevent this from happening via added internal control testing by the auditors


    How to Mislead With Statistics Such as Counting Part-Time Jobs as Being Equal to Full-Time Jobs
    This is why Gallup’s CEO calls BLS reporting a “big lie”

    "University Professor Asks: How Accurate and at What Cost is BLS Data?" by Mike Shedlock, Townhall, April 7, 2016 ---
    http://finance.townhall.com/columnists/mikeshedlock/2016/04/07/university-professor-asks-how-accurate-and-at-what-cost-is-bls-data-n2144503?utm_source=thdaily&utm_medium=email&utm_campaign=nl


    "Japanese Elderly Commit Crimes Hoping to Get into Prison! Retail Spending Plunges; About that Deflation!," by Mike Shedlock, Townhall, March 30, 2016 ---
    http://finance.townhall.com/columnists/mikeshedlock/2016/03/30/japanese-elderly-commit-crimes-hoping-to-get-into-prison-retail-spending-plunges-about-that-deflation-n2140536?utm_source=thdaily&utm_medium=email&utm_campaign=nl

    Despite overwhelming fears of deflation in Japan by economists, by the Bank of Japan, and by prime minister Shinzo Abe, all of the preceding forgot to get the opinion of consumers.

    Here’s the real deal on alleged deflation: An increasing number of Japanese elderly are repeat shoplifters, trying to get caught, hoping to be rewarded with a two year prison sentence because they cannot get by on government pensions.

    Life of Crime

    Please consider Japan’s Elderly Turn to Life of Crime to Ease Cost of Living.

    Continued in article

    Jensen Comment
    Remind's me a bit of Mayberry where Otis gets stoned and then enjoy's Aunt Bee's good cooking before leaving jail ---
    https://en.wikipedia.org/wiki/Andy_Griffith


    They Want Your IRA:  The White House pushes investors toward government accounts," The Wall Street Journal, April 6, 2016 ---
    http://www.wsj.com/articles/they-want-your-ira-1459985170?mod=djemMER

    President Obama’s regulators aren’t slowing down, alas. And on Wednesday they unveiled another part of their plan to push Americans out of private investment accounts and into government-run plans.

    The Department of Labor says its so-called fiduciary rule will make financial advisers act in the best interests of clients. What Labor doesn’t say is that the rule carries such enormous potential legal liability and demands such a high standard of care that many advisers will shun non-affluent accounts. Middle-income investors may be forced to look elsewhere for financial advice even as Team Obama is enabling a raft of new government-run competitors for retirement savings. This is no coincidence.

    Labor’s new rule will start biting in January as the President is leaving office. Under the rule, financial firms advising workers moving money out of company 401(k) plans into Individual Retirement Accounts will have to follow the new higher standards. But Labor has already proposed waivers from the federal Erisa law so new state-run retirement plans don’t have the same regulatory burden as private employers do.

    This competitive advantage could be significant. Last month the board of California’s new “Secure Choice” retirement plan wrote to state legislators about their “exciting win” in Washington. They reported that employers enrolling workers in the new government-run plan “would have no liability or fiduciary duty for the plan.” Score! The California bureaucrats added that “we have been given the green light to auto-enroll workers into an Individual Retirement Account (IRA).”

    Meanwhile, there are only losses for private competitors. The final rule Labor Secretary Tom Perez unveiled Wednesday is being marketed as less onerous than an earlier draft. Thus much of the financial industry is going to take a few weeks to decide on its response. But the main question is exactly how many billions of dollars in costs and lost opportunities will be visited upon investors. And how big the incentive will be to seek government options.

    The White House claims it is solving a $17 billion problem for consumers who suffer from “conflicted advice,” but the investment advisory industry is already among the most regulated. The $17 billion figure was assembled from a variety of data sets, many of which weren’t measuring the alleged problem that Team Obama says it can solve, and some of which were generated by people who don’t endorse the White House analysis. In any case government-run plans will have their own conflicts of interest—politicians want the money—and will be expensive.

    Mr. Perez claims his agency “worked closely” with the government’s actual IRA and investing experts at Treasury and the Securities and Exchange Commission. But when Wisconsin Sen. Ron Johnson’s Government Affairs Committee dug into the interagency email traffic, he found Labor telling an SEC staffer, “we have now gone far beyond the point where your input was helpful to me.” Senator Johnson’s report says emails show that Treasury officials also criticized Labor’s proposal.

    Still, Labor’s one-two punch on private savings has something for everyone in the progressive coalition. Senator Elizabeth Warren can check off another item on her wish list of anti-business initiatives. Mr. Perez gets to burnish his credentials as a candidate for Vice President. And Mr. Obama gets to say he helped government control more of the private economy.

    What average investors get out of this deal is much less certain. But judging by the pending California plan, one answer is: low returns. The initial investment allocation, even for young workers, is likely to be heavy on government bonds. Naturally.

    California and other states are still working out the details of their new foray into investment management. Depending on how the plans are structured, they may be headed back to Washington to seek exemptions from the SEC. They won’t want to live with the rules that the commission places on private brokerages or mutual funds, but the SEC’s mandate is to protect investors, not politicians who want government to manage workers’ financial assets.

    Charging young investors for the privilege of loaning money to government, while handicapping private competitors and denying choices to middle-income consumers. Another perfect progressive innovation

     
    Teaching Case
    From The Wall Street Journal Weekly Accounting Review on June 19, 2015

    Tech Startups Woo Investors With Unconventional Financial Terms - but Do Numbers Add Up?
    by: Telis Demos, Shira Ovide, and Susan Pulliam
    Jun 10, 2015
    Click here to view the full article on WSJ.com
     

    TOPICS: Financial Reporting, GAAP

    SUMMARY: As young technology companies jostle for investors who will pour money into the firms as they try to make it big and strike it rich, some companies are using unconventional financial terms. Instead of revenue, these privately held firms tout "bookings," "annual recurring revenue" or other numbers that often far exceed actual revenue. The practice is perfectly legal and doesn't violate securities rules because the companies haven't sold shares in an initial public offering. Public companies can use "non-GAAP" financial terms but must explain them and disclose how they differ from measurements that follow strict accounting rules.

    CLASSROOM APPLICATION: This is a very interesting article about the use of nontraditional - "non-GAAP" - information by startups when they report to investors.

    QUESTIONS: 
    1. (Introductory) What is GAAP? What purpose does it serve? Why do companies and outside parties use it?

    2. (Advanced) What is the trend regarding providing "non-GAAP" financial information? Who is doing this? To whom are they providing it? What is their reasoning for doing this?

    3. (Advanced) In what situations would non-GAAP be acceptable reporting? In what situations would it not be allowed?

    4. (Advanced) What additional value does non-GAAP reporting add to other parties' decision-making processes? Would these parties also want GAAP information, or is the non-GAAP information sufficient?
     

    Reviewed By: Linda Christiansen, Indiana University Southeast
     

    RELATED ARTICLES: 
    Blowing the Froth Off Tech Earnings
    by Miriam Gottfried
    May 19, 2015
    Online Exclusive

     

    "Tech Startups Woo Investors With Unconventional Financial Terms - but Do Numbers Add Up?," by Telis Demos, Shira Ovide, and Susan Pulliam, The Wall Street Journal, June 10, 2015 ---
    http://www.wsj.com/articles/how-tech-startups-play-the-numbers-game-1433903883?mod=djem_jiewr_AC_domainid

     
    Hortonworks Inc. Chief Executive Rob Bearden forecast in March 2014 that the software firm would have a “strong $100 million run rate” by year-end. But the number looked a lot smaller after Hortonworks went public and then reported financial results: just $46 million in revenue last year.
     
     
    It turns out that Mr. Bearden wasn’t talking about revenue, though he didn’t say so at the time. The Santa Clara, Calif., company now says the $100 million target was for “billings,” a gauge of future business that isn’t part of generally accepted accounting principles. Mr. Bearden declines to comment.
     
     
    As young technology companies jostle for investors who will pour money into the firms as they try to make it big and strike it rich, some companies are using unconventional financial terms.
     
     
    Instead of revenue, these privately held firms tout “bookings,” “annual recurring revenue” or other numbers that often far exceed actual revenue.
     
     
    The practice is perfectly legal and doesn’t violate securities rules because the companies haven’t sold shares in an initial public offering. Public companies can use “non-GAAP” financial terms but must explain them and disclose how they differ from measurements that follow strict accounting rules.
     

    Continued in article


     
    "Tech Companies Fly High on Fantasy Accounting," The New York Times, June 18, 2015 ---
    http://www.nytimes.com/2015/06/21/business/high-tech-fantasy-accounting.html?mwrsm=Email&_r=0

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

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

    Investing Red Flag: Pro Forma Results and Share-Price Performance
    by: Justin Lahart
    Mar 25, 2016
    Click here to view the full article on WSJ.com

    TOPICS: Financial Reporting, GAAP, Pro Forma Reporting
    SUMMARY: Companies that provide adjusted earnings like to say they are providing investors with a better view into their underlying business. For companies in the S&P 500 in the fourth quarter, pro forma earnings - that is, earnings excluding items such as restructuring charges or stock-based compensation - were 59% above earnings under generally accepted accounting principles. That marked the widest so-called GAAP gap since the crisis-struck first quarter of 2009. Companies using pro forma are required to display GAAP figures in their quarterly releases as well, and they argue that pro forma results count as additional information that is helpful to investors. The worry is that by placing too much emphasis on pro forma figures, companies are drawing investors' attention away from GAAP.
    CLASSROOM APPLICATION: This article is appropriate to use when discussion pro forma reporting.
    QUESTIONS: 
    1. (Introductory) What is pro forma reporting? What does it usually include and not include?

    2. (Advanced) What is GAAP? How can pro forma reporting differ from GAAP? Why does it differ? Why do some companies prefer pro forma reporting?


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

    4. (Advanced) How similar are the pro forma reports to GAAP reports? How have the differences increased or decreased over time?

    5. Advanced) What is the value of pro forma reporting? Should companies be allowed to do pro forma reporting? Why or why not?
     
    Reviewed By: Linda Christiansen, Indiana University Southeast

     
    RELATED ARTICLES: 
    Blowing the Froth Off Tech Earnings
    by Miriram Gottfried
    May 20, 2015
    Online Exclusive

    S&P 500 Earnings: Far Worse Than Advertised
    by Justin Lahart
    Feb 24, 2016
    Online Exclusive

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

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

    "Investing Red Flag: Pro Forma Results and Share-Price Performance," by Justin Lahart, The Wall Street Journal, March 25, 2016 ---
    http://www.wsj.com/articles/investing-red-flag-pro-forma-results-and-share-price-performance-1458837868?mod=djem_jiewr_AC_domainid

     
    The bad news that companies ignore in pro forma results shows up in their stock performance—eventually
     
    Companies that provide adjusted earnings like to say they are providing investors with a better view into their underlying business. What they may really be doing is waving a red flag. Investors should pay close attention to it.
     
    Sugarcoating results is hardly new for U.S. companies. Lately, though, they have been ladling on the glaze extra thick.
     
    For companies in the S&P 500 in the fourth quarter, pro forma earnings—that is, earnings excluding items such as restructuring charges or stock-based compensation—were 59% above earnings under generally accepted accounting principles. That marked the widest so-called GAAP gap since the crisis-struck first quarter of 2009.
     
    Companies using pro forma are required to display GAAP figures in their quarterly releases as well, and they argue that pro forma results count as additional information that is helpful to investors. The worry is that by placing too much emphasis on pro forma figures, companies are drawing investors’ attention away from GAAP. Securities and Exchange Commission Chairman Mary Jo White recently suggested the practice might need to be reined in a bit “even by regulation.”

     
    But are investors really overlooking GAAP? New research from quantitative analysts at Evercore ISI suggest this may indeed be the case.
     
    The analysts looked at the stock-market performance of companies with unusually large differences between GAAP and pro forma results. A big portion of these lately have come from the hard-hit energy and basic-material sectors, but also draws heavily from other areas, such as health-care and tech.

    Continued in article


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

    Novartis Settles with SEC Over Accounting Failures
    by: Samule Rubinfeld
    Mar 24, 2016
    Click here to view the full article on WSJ.com

    TOPICS: Bribery, FCPA, Internal Controls, SEC

    SUMMARY: Novartis AG agreed to pay about $25 million in a settlement with the Securities and Exchange Commission over accounting and bookkeeping failures relating to illicit payments made in China. An SEC investigation found that employees of two China-based Novartis subsidiaries gave money, gifts and other things of value to health-care professionals, leading to several million dollars in sales of pharmaceutical products to Chinese state health institutions. The company failed to devise and maintain a sufficient system of internal accounting controls and lacked an effective anti-corruption compliance program to detect the payments, and as a result, they weren't reflected in Novartis' books and records.

    CLASSROOM APPLICATION: U.S. companies and employees can face legal ramifications for illegal activities taking place in other countries. This article can be used to show student how the Foreign Corrupt Practices Act applies to financial accounting and internal controls.

    QUESTIONS: 
    1. (Introductory) What is the Foreign Corrupt Practices Act? To what and to whom does it apply?

    2. (Introductory) What is the SEC? What are its areas of authority?

    3. (Introductory) What are the facts of this case? Why is the SEC involved?

    4. (Advanced) What are the terms of the settlement between the parties? Why did the parties settle? What benefits does the settlement offer to each side?

    5. (Advanced) What are internal controls? Why are they important? How is the FCPA connected to internal controls? Why is the FCPA concerned with internal controls?

    6. (Advanced) What can businesses do to prevent these kinds of issues from occurring?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    "Novartis Settles with SEC Over Accounting Failures," Samule Rubinfeld, The Wall Street Journal, March 24, 2016 ---
    http://blogs.wsj.com/riskandcompliance/2016/03/23/novartis-settles-with-sec-over-accounting-failures/?mod=djem_jiewr_AC_domainid

    Novartis AG agreed to pay about $25 million in a settlement with the Securities and Exchange Commission over accounting and bookkeeping failures relating to illicit payments made in China.

    An SEC investigation found that employees of two China-based Novartis subsidiaries gave money, gifts and other things of value to health-care professionals, leading to several million dollars in sales of pharmaceutical products to Chinese state health institutions. Among the gifts, according to an administrative order filed by the SEC, was travel for the health-care professionals and their spouses to a conference in Chicago, along with walking-around money and coverage of strip-club charges on the side.

    The company failed to devise and maintain a sufficient system of internal accounting controls and lacked an effective anti-corruption compliance program to detect the payments, and as a result, they weren’t reflected in Novartis’ books and records, the SEC said in a summary of the administrative order. The schemes, which lasted from 2009 to 2013, involved complicit managers within the units, the SEC said.

    The SEC’s order found that Novartis violated the internal controls and books-and-records provisions of the Foreign Corrupt Practices Act. Without admitting or denying the findings, Novartis agreed to pay $21.5 million in disgorgement, along with a $2 million civil penalty and $1.5 million in interest. It also agreed to provide the SEC with status reports on implementation of anti-corruption compliance measures.

    A company spokesman said the issues raised in the case “largely pre-date many of the compliance measures introduced by Novartis” across the company in recent years.

    Continued in article


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

    Popular IRS Charitable Tax Break Can Be Valuable-for Those Who Know How to Use It
    by: Tom Herman
    Mar 28, 2016
    Click here to view the full article on WSJ.com

    TOPICS: Individual Taxation, Charitable Contributions, IRAs

    SUMMARY: This article discusses a law that generally allows IRA owners who are 70½ or older to transfer as much as $100,000 a year to qualified charities directly from their IRAs, tax-free. That transfer is excluded from your income. If done properly, the transfer counts toward an IRA owner's required minimum distribution for the year. Although this provision expired at the end of 2014, Congress resurrected it late last year, making it retroactive to the start of 2015-and making it permanent. The article also discusses the statute of limitations for recovery of income-tax refunds.

    CLASSROOM APPLICATION: This article offers detailed information and examples for IRA qualified charitable transfers. It is appropriate for an individual taxation class.

    QUESTIONS: 
    1. (Introductory) What are the requirements for an IRA charitable transfer? What is its current status of this deduction in tax law?

    2. (Advanced) Do the IRA charitable transfer benefits apply to donor-advised funds? Do the benefits apply to all types of retirement plans?

    3. (Advanced) What is the maximum contribution? Is that an annual or a lifetime exclusion? How does the limitation apply to married couples?

    4. (Advanced) Why aren't these charitable contributions deductible? What is the benefit of the contributions if they are not deductible?

    5. (Advanced) What are the rules regarding the time limits on tax refunds? Why does the IRS impose limits?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    "Popular IRS Charitable Tax Break Can Be Valuable-for Those Who Know How to Use It." by Tom Herman, The Accounting Review, March 20, 2016 ---
    http://www.wsj.com/articles/popular-irs-charitable-tax-break-can-be-valuablefor-those-who-know-how-to-use-it-1459130770?mod=djem_jiewr_AC_domainid

    A popular tax break that died at the end of 2014 has returned from the dead.

    That’s welcome news for many older people thinking about making gifts to their favorite charities directly from their individual retirement accounts. It’s joyous news for many charities, too.

    But, as with too many of our nation’s tax laws, this seemingly simple break can be tricky, as readers have pointed out with several excellent questions.

    At issue is a law that generally allows IRA owners who are 70½ or older to transfer as much as $100,000 a year to qualified charities directly from their IRAs, tax-free. That transfer is excluded from your income. If done properly, the transfer counts toward an IRA owner’s required minimum distribution for the year.

    Although this provision expired at the end of 2014, Congress resurrected it late last year, making it retroactive to the start of 2015—and making it permanent, says Greg Rosica, a tax partner at Ernst & Young LLP.

    If you are thinking of taking advantage of this provision, make sure you understand the fine print. For example, you have to transfer assets directly from the IRA to qualified charities to qualify.

    Among those keenly interested in this subject is my friend Steve Treadgold, a lawyer who lives in La Jolla, Calif. Steve raises an interesting question about the age limit.

    Steve recently turned 70. He wants to make a donation now directly from his IRA to charity because it would qualify for a generous matching contribution from another organization. Steve will be 70½ in August. If he waits until then, the matching offer won’t be available.

    Steve asks: Can he make the transfer from his IRA now and qualify for this tax provision since this is the year in which he will turn 70½? Or does he have to wait to make the transfer at least until the day in August when he actually reaches the official milestone of 70½?

    Continued in article


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

    Art Collectors Discover Irrevocable Trusts
    by: Daniel Grant
    Mar 28, 2016
    Click here to view the full article on WSJ.com

    TOPICS: Estate Tax, Taxation, Trusts

    SUMMARY: A common estate-planning tool, the irrevocable trust, is increasingly being used for an uncommon purpose: It allows art owners to reap tax savings by transferring ownership of their paintings or other collectible objects, but keep possession so they can still enjoy them. First, the tax savings. Property placed in an irrevocable trust, in this case the art, no longer is legally part of an estate, which reduces the value of the estate for tax purposes. Additionally, the art, which legally is gifted to the trust, will be appraised for tax purposes at the time of the gift. The amount of the appraised value above the $14,000 annual exemption from gift taxes will be deducted from the owner's lifetime combined federal gift-tax and estate-tax exemption (currently $5.45 million). The result is sheltering any future appreciation.

    CLASSROOM APPLICATION: This article is appropriate for tax classes, including individual taxation planning and estate and trust tax classes.

    QUESTIONS: 
    1. (Introductory) What is a irrevocable trust? What are its requirements? What are its benefits?

    2. (Advanced) How are irrevocable trusts used to reduce taxes? What taxes can the taxpayer minimize? What is the time frame for the tax savings?

    3. (Advanced) What are heirs? What are the responsibilities and benefits of irrevocable trusts for heirs?

    4. (Advanced) What is a safe harbor? Why are safe harbors valuable? For what part of the irrevocable trust is there no safe harbor?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    "Art Collectors Discover Irrevocable Trusts," by Daniel Grant, The Wall Street Journal, March 28, 2016 ---
    http://www.wsj.com/articles/art-collectors-discover-irrevocable-trusts-1459130776?mod=djem_jiewr_AC_domainid

    A common estate-planning tool, the irrevocable trust, is increasingly being used for an uncommon purpose: It allows art owners to reap tax savings by transferring ownership of their paintings or other collectible objects, but keep possession so they can still enjoy them.

    First, the tax savings. Property placed in an irrevocable trust, in this case the art, no longer is legally part of an estate, which reduces the value of the estate for tax purposes.

    But the tax benefits potentially go far beyond removing the art’s current value from the estate. The art, which legally is gifted to the trust, will be appraised for tax purposes at the time of the gift. The amount of the appraised value above the $14,000 annual exemption from gift taxes will be deducted from the owner’s lifetime combined federal gift-tax and estate-tax exemption (currently $5.45 million). Or if that exemption has already been used up, the owner will pay tax on the gift. But in either case, if the owner holds on to the art instead, there is a chance it will be appraised at a much higher amount when he or she dies, resulting in a much bigger tax liability for the estate.

    “Basically, you are sheltering the appreciation,” says Michael Kosnitzky, a partner in charge of the tax and middle market practice group at the law firm of Boies, Schiller & Flexner. The cost of setting up a trust varies, generally not exceeding $15,000, depending on the trust’s complexity and the jurisdiction of the trust, but the potential tax savings outweigh the setup costs, Mr. Kosnitzky says.

    Renting Renoir

    The trust will take responsibility for storage and care of the art, with money provided by the benefactor to cover the cost. But what if you don’t want to give up your art? You don’t have to.

    “With art prices increasing, there is interest in the idea of putting your art in a trust to shelter the appreciation, and then renting it back, so that you can hang it on your walls,” says Diana Wierbicki, partner and global head of art law at the law firm Withers Bergman. “People say, you can do it with a house, why not with art?” (People more commonly place their home in an irrevocable trust and then continue to live in the home and pay market-value rent to the trust.)

    Continued in article


    From The Wall Street Journal Weekly Accounting Review on April 7, 2015

    FASB Updates Stock-Award Accounting Rules
    by: Tatyana Shumsky
    Mar 30, 2016
    Click here to view the full article on WSJ.com

    TOPICS: Compensation, Equity Compensation, FASB, Stock Awards

    SUMMARY: The Financial Accounting Standards Board simplified U.S. accounting rules on how companies account for employee stock awards. Under the amended rules, businesses must record discrepancies between tax accounting and financial reporting related to equity compensation on the income statement. Currently this information only appears on balance sheets, and is shifted to income statements in specific situations.

    CLASSROOM APPLICATION: This article is appropriate for a financial accounting class, providing updates on equity compensation.

    QUESTIONS: 
    1. (Introductory) What is equity compensation? Why is it awarded? What benefits does it offer in contrast to other types of compensation?

    2. (Introductory) What is FASB? What is its area of authority?

    3. (Advanced) What are the new rules regarding equity compensation? How do the new rules differ from the current rules? Why were the rules changed?

    4. (Advanced) What is the practical expedient formula? What does "practical expedient" mean? Why is it an option?

    5. (Advanced) How is equity compensation entered into the accounting system? How are each of the financial statements affected by equity compensation?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    "FASB Updates Stock-Award Accounting Rules," by Tatyana Shumsky, The Wall Street Journal, March 30, 2016 ---
    http://blogs.wsj.com/cfo/2016/03/30/fasb-updates-stock-award-accounting-rules/?mod=djem_jiewr_AC_domainid

    Finance chiefs will soon have an easier time accounting for stock-based employee compensation.

    The Financial Accounting Standards Board on Wednesday simplified U.S. accounting rules on how companies account for employee stock awards.

    Under the amended rules, businesses must record discrepancies between tax accounting and financial reporting related to equity compensation on the income statement. Currently this information only appears on balance sheets, and is shifted to income statements in specific situations.

    For public companies, the amended rule goes into effect for fiscal years beginning after Dec. 15. For private companies, the rule must be followed after Dec. 15, 2017.

    Recommendations for the rule change came from both public and private company stakeholders, stating that the current rules are too complex.

    “Based on input from those stakeholders—including the Private Company Council—the FASB has issued a standard that we believe will simplify the accounting while maintaining the usefulness of information provided to investors,” said FASB chairman Russell Golden, in a written statement.

    Equity awards exercised or vested should be treated as discrete items during the reporting period in which they occur. Businesses should also recognize tax benefits regardless of whether the benefit reduces taxes payable in the current period, according to details released by FASB.

    In addition, private companies can apply a “practical expedient” formula for estimating the expected term of a greater range of equity awards linked to performance or service. In the past the rule applied solely to stock options.

    FASB also said some private companies were unaware they could choose to measure liability-classified awards using either the fair value or intrinsic value approach. The U.S. accounting standard setter said firms can now make a one-time change to their accounting policy.


    From The Wall Street Journal Weekly Accounting Review on April 7, 2015

    The Big Number: 56%
    by: Vipal Monga
    Apr 05, 2016
    Click here to view the full article on WSJ.com

    TOPICS: Auditing, Internal Audit, Sarbanes-Oxley

    SUMMARY: In 2014, 56% of North American companies hired outside firms to conduct at least part of their internal audits. Most companies have departments that audit their finances and operations that assess their risks. Even though regulation has prompted them to step up their scrutiny, staffing hasn't always kept up. As a result, more companies are calling in outside help. There is more emphasis placed on audits in the U.S. because of the Sarbanes-Oxley corporate-governance law.

    CLASSROOM APPLICATION: This article is appropriate for auditing classes or in any classes covering the internal audit function.

    QUESTIONS: 
    1. (Introductory) What is Sarbanes Oxley? Why was it enacted? What does it address?

    2. (Advanced) What are internal audits? What is the purpose of an internal audit?

    3. (Advanced) Why would a company use a third party for internal audits? In what situations is outsourcing a good idea? In what situations should outsourcing be unnecessary? Why?

    4. (Advanced) What are the differences in percentages in between companies in North America and companies in Europe? Why is there such a difference?

    5. (Advanced) What are the benefits of outsourcing audits? What are possible problems?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    "The Big Number: 56%," by Vipal Monga, The Wall Street Journal, April 5, 2016 ---
    http://www.wsj.com/articles/the-big-number-1459820110?mod=djem_jiewr_AC_domainid

    56%

    Share of North American companies that used a third party for internal audits in 2014

    Most companies have departments that audit their finances and operations that assess their risks. Even though regulation has prompted them to step up their scrutiny, staffing hasn’t always kept up. So, more companies are calling in outside help.

    In 2014, 56% of North American companies hired outside firms to conduct at least part of their internal audits, according to a survey by the Institute of Internal Auditors.

    The group polled 611 companies in North America with revenue ranging between $1 million and $10 billion. Globally, the group surveyed 3,125 organizations.

    In Europe, 38% of companies used external auditors for internal audits. The percentage was lower partly because European companies don’t have as many regulatory requirements, said Dereck Barr-Pulliam, an assistant professor of accounting at the University of Wisconsin-Madison’s Wisconsin School of Business.

    There is more emphasis placed on audits in the U.S. because of the Sarbanes-Oxley corporate-governance law. Congress passed the law—which requires company executives to certify that their company’s financial reports are accurate—in reaction to accounting scandals at companies including Enron Corp.

    Although it can be efficient for companies to outsource audits, it can also be risky, said Dr. Barr-Pulliam. “You’re giving a third party access to your information, so there’s danger of a data breach,” he said.


    From The Wall Street Journal Weekly Accounting Review on April 7, 2015

    Selling Your S Corporation: A Focus on Alternative Tax Structures
    by: Deloitte CFO Jounral Editor
    Mar 30, 2016
    Click here to view the full article on WSJ.com

    TOPICS: Corporate Taxation, S Corporations

    SUMMARY: Over 20 key tax provisions were made permanent as a result of the recent Protecting Americans from Tax Hikes Act of 2015 (PATH Act). Importantly for S corporation owners, one of the newly permanent tax provisions includes a favorable five-year recognition period for built-in gains following a conversion from a C to S corporation. Generally, the built-in gains tax imposes a corporate level tax, at the highest marginal rate applicable to corporations, on the portion of gain that existed as of the C to S conversion date. Making this provision permanent eliminates the uncertainty that the prior temporary provisions would be extended and allows S corporations to properly and timely consider their options with sale transactions. Additionally, several S corporation disposition alternatives are available that should be considered when planning for the sale of the S corporation.

    CLASSROOM APPLICATION: This article offers a good update to tax law regarding S corporations.

    QUESTIONS: 
    1. (Introductory) What is an S Corporation? How do they differ from other types of corporations? How do they differ from other forms of doing businesses?

    2. (Advanced) What is the PATH Act? What part of it applied to S corporations?

    3. (Advanced) What is a built-in gains tax? In what situations is the tax triggered?

    4. (Advanced) How was the built-in gains tax changed by the PATH Act? How does that change affect taxpayer strategies and planning?

    5. (Advanced) Why do changes in tax rates affect the decisions and planning of S corporation shareholders? How does it affect the strategies of those selecting the form of a new business?

    6. (Advanced) What is a section 338(h)(10) election? What part of S corporation ownership does it affect? How does it affect tax planning and decisions?

    7. (Advanced) What are the alternatives to a section 338(h)(10) election? What are the pros and cons of each?

    8. (Advanced) What is scenario analysis? For what reasons would a taxpayer use it? What factors could be used in the analysis?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    "Selling Your S Corporation: A Focus on Alternative Tax Structures," by Deloitte CFO Jounral Editor, The Wall Street Journal, March 30, 2016 ---
    http://deloitte.wsj.com/cfo/2016/03/30/selling-your-s-corporation-a-focus-on-alternative-tax-structures/?mod=djem_jiewr_AC_domainid

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

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

    Continued in article


    From The Wall Street Journal Weekly Accounting Review on April 7, 2015

    Is Your Tax Return Audit Bait?
    by: Laura Saunders
    Apr 02, 2016
    Click here to view the full article on WSJ.com

    TOPICS: Tax Audits, Taxation

    SUMMARY: What triggers an IRS audit? It often takes more than it has in the past. In fiscal 2015, which ended Sept. 30, the Internal Revenue Service audited less than 1% of nearly 147 million individual returns, the lowest rate in a decade. In recent years, the IRS has increased its focus on high earners, and in 2015 it audited nearly 10% of returns with $1 million or more of income. In 2006, just 5.3% of taxpayers reporting at least $1 million of income were audited. To identify returns for exam, the agency often turns to its top-secret computer program known as DIF, for Discriminant Inventory Function system. Its formulas are closely guarded, but tax specialists said DIF seems to compare various numbers on the return with one another and with norms, looking for aberrations. The article discusses some areas known for attracting IRS attention.

    CLASSROOM APPLICATION: This article is useful for individual taxation classes.

    QUESTIONS: 
    1. (Introductory) How many tax returns are audited by the IRS every year? What are recent trends? What are the reasons behind those trends?

    2. (Advanced) According to the article, what are the main factors that trigger an IRS audit?

    3. (Advanced) Which taxpayers' returns are more likely to be audited by the IRS? Why?

    4. (Advanced) What is the DIF? Why does the IRS use it? Why does the IRS wish to keep the formulas secret?

    5. (Advanced) What is a Form 1099? How can 1099s trigger audits?

    6. (Advanced) What law has gotten stricter regarding charitable contribution deductions? Why was the rule changed? What problems can that cause taxpayers?

    7. (Advanced) What tools does the IRS use to detect the underreporting of income in cash businesses? How effective are the tools? What other tax fraud tools could the IRS use for cash businesses?

    8. (Advanced) Why does tax law require taxpayers to report foreign financial accounts?

    9. (Advanced) Why would the IRS target manually-prepared returns?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    "Is Your Tax Return Audit Bait?" by Laura Saunders, The Accounting Review, April 2, 2016 ---
    http://www.wsj.com/articles/is-your-tax-return-audit-bait-1459503182?mod=djem_jiewr_AC_domainid

    IRS uses a closely guarded computer program to compare various numbers on a return, looking for aberrations

    With tax day nearing, you may be wondering what triggers an IRS audit.

    The short answer: It often takes more than it has in the past. In fiscal 2015, which ended Sept. 30, the Internal Revenue Service audited less than 1% of nearly 147 million individual returns, the lowest rate in a decade.

    The drop in the audit rate stems from budget cuts, according to IRS Commissioner John Koskinen. Last year, the agency had $900 million less in funding and 25% fewer enforcement officers and agents than it did in 2010. Revenue from audits and other enforcement also dropped last year, to $54.2 billion, from about $57 billion in 2014.

    In a November speech, Mr. Koskinen cited an IRS estimate that every dollar invested in the agency produces $4 in revenue.

    The overall numbers don’t tell the whole story. In recent years, the IRS has increased its focus on high earners, and in 2015 it audited nearly 10% of returns with $1 million or more of income. In 2006, just 5.3% of taxpayers reporting at least $1 million of income were audited.

    Continued in article


    From The Wall Street Journal Weekly Accounting Review on April 7, 2015

    Moore's Law Meets GAAP Accounting at Intel
    by: Maxwell Murphy
    Apr 05, 2016
    Click here to view the full article on WSJ.com

    TOPICS: 10-K, Depreciation, Financial Reporting, Useful Life

    SUMMARY: In its recent 10-K annual filing, Intel said slower product cycles mean it will depreciate its machinery and equipment more slowly, giving them a useful life of five years instead of four years. This new accounting treatment means Intel will book $1.5 billion less in depreciation expense this year, or roughly 10% of the pre-tax income it reported for all of last year. Not only is this the largest depreciation related change with a positive impact since at least 2006, Audit Analytics called the change a "powerful example of how a seemingly positive change in estimate...could actually signal trouble for the company" and the semiconductor industry. It's also a sign of slowing innovation for the entire chip industry, with at least 11 other semiconductor firms making similar moves over the past five years.

    CLASSROOM APPLICATION: This article is useful for financial accounting classes for the topic of depreciation.

    QUESTIONS: 
    1. (Introductory) What is Moore's Law? How does it impact technology? Why did the reporter use the concept of Moore's Law in this accounting article?

    2. (Advanced) What is a 10-K? Who must file 10-Ks? What changes is Intel making in its financial statements that impacts its 10-K?

    3. (Advanced) What changes is Intel making in its depreciation calculation? Why must it make those changes? What is causing the changes in its business that affect its financial statements?

    4. (Advanced) How will each of the company's financial statements be impacted by the changes?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    "Moore's Law Meets GAAP Accounting at Intel," by Maxwell Murphy, The Wall Street Journal, April 5, 2016 ---
    http://blogs.wsj.com/cfo/2016/04/04/moores-law-meets-gaap-accounting-at-intel/?mod=djem_jiewr_AC_domainid

    Intel Corp. co-founder Gordon Moore famously said that semiconductors would get more powerful, and cheaper, at an exponential pace. That pace has slowed, which are good for profits in the near term, but have negative repercussions over time.

    In its recent 10-K annual filing, released Feb. 12, Intel said slower product cycles mean it will depreciate its machinery and equipment more slowly, giving them a useful life of five years instead of four years. This new accounting treatment means Intel will book $1.5 billion less in depreciation expense this year, or roughly 10% of the pre-tax income it reported for all of last year, research firm Audit Analytics said Monday in a blog post.

    “One immediate takeaway is that comparability between 2016 and previous years is affected,” Audit Analytics wrote, “but the consequences might be more significant.”

    Not only is this the largest depreciation related change with a positive impact since at least 2006, Audit Analytics called the change a “powerful example of how a seemingly positive change in estimate…could actually signal trouble for the company” and the semiconductor industry.

    It’s also a sign of slowing innovation for the entire chip industry, with at least 11 other semiconductor firms making similar moves over the past five years, according to Audit Analytics.

    An Intel spokeswoman couldn’t immediately provide additional comment. The company first noted a delay in new technological advancements last July.

    Some equity analysts found the 10-K disclosure “disconcerting,” said Craig Ellis of B. Riley & Co., but he wasn’t particularly worried. Intel “has some of the best disclosure,” he said, and some may worry that the company noted the cycle slowdown in July, but didn’t flag the related non-cash gain until January.

    Intel in its 10-K said it didn’t finish its accounting analysis until after it met with investors in November, which is why it didn’t mention it earlier, a spokeswoman said.

    “The cadence of Moore’s law” is slowing, but Mr. Ellis said “it’s a very logical thing” and doesn’t sour the outlook for Intel.

     


    From The Wall Street Journal Weekly Accounting Review on April 15, 2015

    Marvell Fires CEO, President After Probe
    by: Don Clark
    Apr 06, 2016
    Click here to view the full article on WSJ.com

    TOPICS: Audit Committee, Auditing, Financial Reporting

    SUMMARY: Marvell Technology Group Ltd. directors fired the husband-and-wife management team that founded and led the chip maker for two decades, responding to a series of reverses including accounting issues that prompted investigations by the company's board and government agencies. The firing comes one month after an investigation by a board audit committee identified "tone at the top" problems, including significant management pressure on sales and finance personnel to meet revenue targets. The chip maker first disclosed the possibility of accounting irregularities last fall, along with the audit committee investigation, which focused primarily on revenue recognition practices for three quarters. Marvell later disclosed that the Securities and Exchange Commission and U.S. attorney's office had also inquired about its accounting practices. The company's external accounting firm, PricewaterhouseCoopers LLP, resigned in October. Marvell since has hired Deloitte & Touche LLP. Marvell disclosed results of the committee's probe in early March, saying it found no evidence of fraud. But it cited several issues, including a dispute over Mr. Sutardja's claim to ownership of a chip technology considered important to Marvell's future. He later agreed to assign intellectual property associated with the invention to the company.

    CLASSROOM APPLICATION: This article is appropriate for coverage of audit committee duties, internal controls, and financial management of a business.

    QUESTIONS: 
    1. (Introductory) What are the facts of this situation? Who was fired and why?

    2. (Advanced) What is tone at the top? To whom does it apply? Why is it important? What are the some problems that could result from tone at the top?

    3. (Advanced) What is an audit committee? What do they do? What was Marvell's audit committee doing? Why was the audit committee involved?

    4. (Advanced) Marvell said it would miss a financial reporting deadline. What deadline is at issue and what filing is required? What problems can this cause the company and also the users of those financial reports?

    5. (Advanced) What are external accounting firms? What do they do for their clients?

    6. (Advanced) What firm is the Marvell's external accounting firm? Why has the company had turnover with accounting firms in recent years? What can turnover in accounting firms mean?

    Reviewed By: Linda Christiansen, Indiana University Southeast

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    Marvell to Pay $750 Million in Settlement With Carnegie Mellon
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    "Marvell Fires CEO, President After Probe," Don Clark,The Wall Street Journal, April 6, 2016 ---
    http://www.wsj.com/articles/husband-and-wife-team-leading-marvell-technology-resigns-1459862758?mod=djem_jiewr_AC_domainid

    Marvell Technology Group Ltd. directors fired the husband-and-wife management team that founded and led the chip maker for two decades, responding to a series of reverses including accounting issues that prompted investigations by the company’s board and government agencies.

    The termination of Chief Executive Sehat Sutardja and President Weili Dai, announced in a company filing Tuesday, comes one month after an investigation by a board audit committee identified “tone at the top” problems, including significant management pressure on sales and finance personnel to meet revenue targets.

    It also follows the disclosure in February that activist investor Starboard Value LP had taken a 6.7% stake in Marvell.

    Analysts applauded the change, which some predicted would improve Marvell’s financial performance and could lead to a sale of some or all of the company. Marvell shares rose 13% on the news.

    “We see these changes as a long time coming and hugely positive for investors,” Timothy Arcuri, an analyst at Cowen & Co., wrote in a research note.

    Mr. Sutardja will remain Marvell’s chairman and Ms. Dai also will stay on the company’s board, the company said. But the board said it assigned management responsibilities to a new six-member office of the chief executive, led by executive vice presidents Maya Strelar-Migotti and Pantelis Alexopoulos, until a search for a permanent CEO is completed.

    “The board believes that the time has come to move in a new leadership direction,” said Arturo Krueger, Marvell’s lead outside director.

    A spokeswoman representing Marvell declined to comment on behalf of Mr. Sutardja, Ms. Dai and Mr. Krueger. Marvell, which is incorporated in Bermuda but managed in Santa Clara, Calif., is best known for chips used in disk drives and networking.

    It was founded in 1995 by the couple, who met while they were students at the University of California at Berkeley. Both were immigrants; Mr. Sutardja was born in Jakarta, Indonesia, while Ms. Dai was born in Shanghai.The company over the years moved into other businesses, including chips for mobile devices through an acquisition of operations from Intel Corp.

    Former employees say the couple maintained unusually tight control over key decisions. Their management style, these people say, contributed to a revolving door of midlevel executives who would leave after short stints at the company.

    “You just can’t run a big company like that and be successful,” said Linley Gwennap, an industry analyst at Linley Group, a semiconductor industry consulting firm.

    Marvell, like many other Silicon Valley companies, got caught up in a government crackdown on backdating stock options to illegally reward executives.

    In 2008 it agreed to pay a $10 million fine for a pattern of backdating that the Securities and Exchange Commission said allowed the company to overstate its income by $362 million from its fiscal years 2000 through 2006.

    Ms. Dai agreed to pay a $500,000 fine and was barred from serving as an officer at Marvell for five years. Neither she or the company admitted or denied the allegations.

    Problems, however, multiplied in recent years. Marvell became embroiled in a long-running legal battle with Carnegie Mellon University, which accused the chip maker of infringing patents related to disk drives. The company in February agreed to pay $750 million to settle the case.

    Continued in article


    From The Wall Street Journal Weekly Accounting Review on April 15, 2015

    U.S. Crackdown on Inversions Renews Calls for Tax Code Overhaul
    by: Richard Rubin
    Apr 07, 2016
    Click here to view the full article on WSJ.com

    TOPICS: Corporate Taxation, Inversions

    SUMMARY: The Obama administration's crackdown on corporate inversions has highlighted a fact both parties find disturbing: Companies benefit by having their tax addresses outside the U.S. Lawmakers on both sides agree the U.S. corporate tax code is broken and in desperate need of an overhaul. Neither side expects change any time soon. At the heart of the fight is the U.S.'s world-high 35% marginal corporate tax rate and rules that encourage U.S. companies to load up their profits in low-tax foreign countries and leave them there.

    CLASSROOM APPLICATION: This article offers an excellent discussion of the issues associated with corporate tax law and inversions.

    QUESTIONS: 
    1. (Introductory) What is a tax inversion? Who chooses to participate in inversions? Why would a party make this choice?

    2. (Advanced) Why do tax inversions highlight the problems with current U.S. tax law? How do corporate tax rates affect or encourage inversions? Why are the U.S. tax rates set as they are?

    3. (Advanced) What tax-planning options do corporations have to reduce taxes, other than use of the type of inversions that have become popular recently?

    4. (Advanced) What are the details of each of the proposals to change corporate tax law? Which of these, if any, is more likely to pass? Why?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    RELATED ARTICLES: 
    New Inversion Rules Test Pending Deals
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    Pfizer to Walk Away From Allergan Deal
    by Jonathan D. Rockoff, Liz Hoffman, and Richard Rubin
    Apr 06, 2016
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    Allergan's Inversion Problem: There Is a Plan B
    by Charley Grant
    Apr 06, 2016
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    New Tax Rules on Inversion Deals Are Met With Protest
    by Richard Rubin and Jonathan D. Rockoff
    Apr 07, 2016
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    New Inversion Rules Draw Concerns Outside U.S.
    by Saabira Chaudhuri and Ted Mann
    Apr 07, 2016
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    Treasury Has Outsize Legal Leverage on Inversions
    by Richard Rubin
    Apr 07, 2016
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    U.S. Unveils Rules to Make Corporate Inversions More Difficult
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    "U.S. Crackdown on Inversions Renews Calls for Tax Code Overhaul," by Richard Rubin,The Wall Street Journal, April 7, 2016 ---
    http://www.wsj.com/articles/u-s-crackdown-on-inversions-renews-calls-for-tax-code-overhaul-1459982348?mod=djem_jiewr_AC_domainid

    The administration and congressional Republicans agree rate should be cut; the agreement ends there

    The Obama administration’s crackdown on corporate inversions has highlighted a fact both parties find disturbing: Companies benefit by having their tax addresses outside the U.S.

    Lawmakers on both sides agree the U.S. corporate tax code is broken and in desperate need of an overhaul. Neither side expects change any time soon.

    At the heart of the fight is the U.S.’s world-high 35% marginal corporate tax rate and rules that encourage U.S. companies to load up their profits in low-tax foreign countries and leave them there.

    The Obama administration and congressional Republicans actually agree—and have for years now—that the U.S. should cut that tax rate, make it harder to push profits out of the U.S. and remove the incentives to stockpile profits abroad.

    The agreement ends there, and there are few signs that the parade of companies attempting to flee the U.S. tax net or the administration’s increasingly ambitious regulatory attempts to stop them will prompt Congress to act. Major legislation looks especially unlikely in an election year when both sides think they might get more of what they want in 2017.

    “The further you drill down, the more difficult it becomes to keep everyone on the same page,” said Dorothy Coleman, vice president of domestic economic policy at the National Association of Manufacturers. “People recognize that we have a dysfunctional tax system and something needs to be done about it.”

    Advertisement

    Ms. Coleman and others in the business world spent the week criticizing the administration’s third round of rules against inversions, which led Pfizer Inc. to scuttle its planned merger with Allergan PLC. They called for “tax reform.” Mr. Obama, in his remarks at the White House on Tuesday, called for “tax reform.”

    They don’t mean the same thing. Mr. Obama wants to focus on business taxes only, and he would address U.S. companies’ foreign income by making them pay a 14% one-time tax on their stockpiled offshore profits and a 19% minimum tax on future foreign profits. The corporate tax rate on U.S. income would drop to 28%. Under his approach, tax changes would neither be a net tax cut nor a tax increase.

    Republicans have some very different ideas. They want to address individual and business taxes together, because the two systems are so closely linked. They want lighter taxes on U.S. companies’ foreign income. Rep. Kevin Brady (R., Texas), the chairman of the House Ways and Means Committee, has said he would like to take the corporate tax rate below 20%.

    “This is a competitive disadvantage that we have vis-à-vis” other major countries, said Sen. David Perdue (R., Ga.), a former chief executive of Reebok and Dollar General Corp. “These aren’t companies that are led by mean, greedy CEOs. These are people making good decisions based on our current tax law.”

    Continued in article


    From The Wall Street Journal Weekly Accounting Review on April 15, 2015

    Sprint to Raise $2.2 Billion in Asset Sale, Leaseback Transaction
    by: Ryan Knutson
    Apr 07, 2016
    Click here to view the full article on WSJ.com

    TOPICS: Debt, Financial Accounting, Lease Accounting, Sale/Leaseback

    SUMMARY: Sprint said it agreed to sell $3 billion of network gear to specially created entities, which will pay Sprint $2.2 billion for the equipment and immediately lease the gear back to the carrier. Sprint's controlling shareholder, SoftBank Group Corp., is among the companies providing funds for the transaction. Sprint will repay the entities, referred to as Network LeaseCo, in less than two years. In essence, the carrier has borrowed $2.2 billion and used its network as collateral.

    CLASSROOM APPLICATION: This article is appropriate for use in a financial accounting class when covering leaves and sale/lease-backs.

    QUESTIONS: 
    1. (Introductory) What is a sale/lease-back? In general, what are the business reasons for entering into such a transaction?

    2. (Advanced) For financial reporting purposes, what are the various types of leases? How do they differ? What are the rules for each type?

    3. (Advanced) What factors must the seller consider when determining how to record the sale?

    4. (Advanced) How should the seller/lessee record the lease? What factors could affect how it is recorded?

    5. (Advanced) How should the purchaser/lessor record the transaction? How does this affect its financial statements?

    6. (Advanced) How could a sale/leaseback hurt the financial results of a business? How could it help a business? In what situations should this transaction be done? When should it be avoided?

    7. (Advanced) Why is Sprint doing this deal? Is this a good move? Why or why not? How does this deal help the company?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    RELATED ARTICLES: 
    Sprint to Get Cash Infusion With Deal to Sell and Lease Back Devices
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    "Sprint to Raise $2.2 Billion in Asset Sale, Leaseback Transaction," Ryan Knutson,The Wall Street Journal, April 7, 2016 ---
    http://www.wsj.com/articles/sprint-to-get-cash-infusion-by-selling-leasing-back-some-network-assets-1459981363?mod=djem_jiewr_AC_domainid

    Sprint Corp. on Wednesday announced another unusual financial arrangement to raise cash as the telecommunications company lurches through a multiyear turnaround effort.

    Sprint said it agreed to sell $3 billion of network gear to specially created entities, which will pay Sprint $2.2 billion for the equipment and immediately lease the gear back to the carrier. Sprint’s controlling shareholder, SoftBank Group Corp., is among the companies providing funds for the transaction.

    Sprint will repay the entities, referred to as Network LeaseCo, in less than two years. In essence, the carrier has borrowed $2.2 billion and used its network as collateral. The deal is expected to close next week.

    The complicated structure of the transaction allows Sprint, the nation’s fourth-largest carrier by subscribers, to get a better financing terms than it may otherwise have been offered in the high-yield debt market, said a person familiar with the matter. It follows a similar deal last year in which Sprint created an entity that bought its handset leases, raising $1.1 billion. Analysts expect the carrier will do additional deals in the coming months.

    The transaction is “one of many tools that Sprint can use to remain solvent for at least the next two-plus years while it works to stabilize the company and try to return to growth,” Philip Cusick, a telecom analyst at J.P. Morgan, wrote in a research note.

    Sprint hasn’t turned an annual profit since 2006, and has been burning through cash to fund operations. For the past few months, it has been offering wireless service at half the price of rivals. It has more than $30 billion in total debt and is facing a $2.3 billion debt payment coming due in December.

    The carrier says it aims to cut as much as $2.5 billion in costs by the end of the year, savings it will put toward the coming debt payment.

    “This transaction is an important first step in addressing upcoming debt maturities and allows us to stay focused on our corporate transformation, which involves growing topline revenues and aggressively taking costs out of the business to improve operating cash flows,” Sprint CFO Tarek Robbiati said in a statement.

    Sprint said it would repay the funds in staggered, unequal payments through January 2018. The assets will return to Sprint after it pays back the amount.

    Sprint’s new lenders will effectively have higher standing than existing bondholders in the event the carrier files for bankruptcy.

    Continued in article


    From The Wall Street Journal Weekly Accounting Review on April 15, 2015

    FASB Simplifies Accounting for Share-based Payments
    by: Deloitte Risk Journal Editor
    Apr 08, 2016
    Click here to view the full article on WSJ.com

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

    SUMMARY: Several aspects of the accounting treatment for share-based payments should become less complex once an update known as ASU 2016-09 goes into effect. The aim of the update, released by the Financial Accounting Standards Board (FASB) and which applies to public and nonpublic entities, is to significantly reduce the complexity and cost of accounting for excess tax benefits and tax deficiencies related to employee share-based payment transactions, which include restricted stock and stock options. Under current guidance, when a share-based payment award is granted to an employee, the fair value of the award is generally recognized over the vesting period, and a corresponding deferred tax asset is recognized to the extent that the award is tax-deductible. Under the ASU, an entity recognizes all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement.

    CLASSROOM APPLICATION: This article provides information regarding FASB's changes to accounting for share-based payments. It is appropriate for use in financial accounting courses when covering that topic.

    QUESTIONS: 
    1. (Introductory) What are share-based payments? In what situations might companies use them?

    2. (Advanced) What is the current accounting treatment for share-based payments? Why did the FASB want to changing the accounting treatment?

    3. (Advanced) What is the new accounting treatment for share-based payments as outlined in FASB's new ASU? How do these changes affect the company's financial statements? How do the changes affect those parties who receive these payments?

    Reviewed By: Linda Christiansen, Indiana University Southeast

     

    "FASB Simplifies Accounting for Share-based Payments by: Deloitte Risk Journal Editor,The Wall Street Journal, April 8, 2016 ---
    http://deloitte.wsj.com/riskandcompliance/2016/04/08/fasb-simplifies-accounting-for-share-based-payments/?mod=djem_jiewr_AC_domainid

    Several aspects of the accounting treatment for share-based payments should become less complex once an update known as ASU 2016-09¹ goes into effect. The aim of the update, released by the Financial Accounting Standards Board (FASB) and which applies to public and nonpublic entities, is to significantly reduce the complexity and cost of accounting for excess tax benefits and tax deficiencies related to employee share-based payment transactions, which include restricted stock and stock options. Among other changes, the update requires an entity to run excess tax benefits and deficiencies through its income statement, which in effect eliminates the concept of additional paid-in capital (APIC).

    The aspects simplified by the updated standard include the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. The new guidance, which is part of the Board’s simplification initiative,² also contains two practical expedients under which nonpublic entities can use the simplified method³ to estimate the expected term of an award and make a one-time election to switch from fair value measurement to intrinsic value measurement for liability-classified awards.

    Key Provisions of the ASU

    Accounting for Income Taxes

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

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

    The ASU’s guidance on recording excess tax benefits and tax deficiencies in the income statement also has a corresponding effect on the computation of diluted earnings per share (EPS) when an entity applies the treasury stock method.⁵ An entity that applies such method under current guidance estimates the excess tax benefits and tax deficiencies to be recognized in APIC in determining the assumed proceeds available to repurchase shares. However, under the ASU, excess tax benefits and tax deficiencies are excluded from the calculation of assumed proceeds since such amounts are recognized in the income statement. In addition, the new guidance affects the accounting for tax benefits of dividends on share-based payment awards, which will now be reflected as income tax expense or benefit in the income statement rather than as an increase to APIC.

    Continued in article

     


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

    Three Stubborn Types of Mistakes Dog Financial Reporting
    by: Tatyana Shumsky
    Apr 12, 2016
    Click here to view the full article on WSJ.com

    TOPICS: Accounting Errors, Financial Accounting, Financial Reporting, Restatements, Sarbanes-Oxley

    SUMMARY: While the number of U.S. companies that filed financial revisions or restatements is down 60% from a decade ago, three types of accounting missteps remain stubbornly common, a trend some auditors say suggests that finance chiefs are struggling with complex rules, rather than trying to mislead. Over half of last year's 663 corrections involved debt and equity, cash flows or taxes. The frequency of these errors has more than doubled since 2002, when the Sarbanes-Oxley corporate-governance law was enacted, partly to increase managerial accountability.

    CLASSROOM APPLICATION: This article is appropriate for coverage of financial reporting and restatements. It includes a good update regarding the number of financial restatements and the impact of those restatements in recent years.

    QUESTIONS: 
    1. (Introductory) What is a restatement? Why must companies sometime file restatements?

    2. (Advanced) What are the facts regarding recent financial restatements? Are the number who filed a substantial percentage of public companies? How have the number of restatements changed in recent years? Why have the numbers changed?

    3. (Advanced) What are internal controls? How are internal controls helping to improve financial reporting and reduce restatements?

    4. (Advanced) Are there ways to reduce the restatements further? Could restatements be reduced to very few or none? Why or why not?

    Reviewed By: Linda Christiansen, Indiana University Southeast

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    "Three Stubborn Types of Mistakes Dog Financial Reporting," by Tatyana Shumsky,The Wall Street Journal, April 12, 2016
    http://www.wsj.com/articles/three-stubborn-types-of-mistakes-dog-financial-reporting-1460422057?mod=djem_jiewr_AC_domainid

    An internal auditor at Bank of America Corp. , routinely sifting through the bank’s financial reports last summer, noticed something awry with its cash-flow statement.

    More checking confirmed that the bank had misclassified $3.4 billion in noncash transactions as investments, rather than funds from day-to-day activities over the previous six quarters, said a person familiar with the matter.

    As a result, Bank of America joined Nike Inc. and Alphabet Inc. as one the 663 U.S. companies that filed financial revisions or restatements last year, according to research firm Audit Analytics.

    While that number is down 60% from a decade ago, three types of accounting missteps remain stubbornly common, ​a trend some auditors say suggests that finance chiefs are struggling with complex rules, rather than trying to mislead.

    Over half of last year’s corrections involved debt and equity, cash flows or taxes. The frequency of these errors has more than doubled since 2002, when the Sarbanes-Oxley corporate-governance law was enacted, partly to increase managerial accountability.

    “These areas are complex, and they happen late in the financial-reporting process, late in the audit process, so it actually makes sense that there are mistakes in these areas,” said Trent Gazzaway, a national managing partner at Grant Thornton LLP. “I think that you were always going to see these three issues very high up.”

    In last year’s third-quarter earnings statement, Bank of America reported that correcting its mistake had no impact on its income or balance sheet, an example of how the severity of accounting errors has declined in recent years.

    Restatements—which correct mistakes serious enough to make a company’s previous financial reports unreliable—accounted for just 24% of last year’s corrections, down from 68% in 2005. By contrast, a revision involves a small correction to financial statements that passes the regulatory tests for having no material impact on the company’s account of its performance.

    The decline in restatements at least partly reflects tougher regulations and enforcement, which encourage more vigilance. “Better internal controls mean you will have fewer mistakes,” said Don Whalen, director of research at Audit Analytics. “When they do a make a mistake, they seem to find it faster.”

    Errors in accounting for debt and equity often crop up because companies are increasingly dealing with complicated financial contracts and instruments. Two months before private-equity firm KKR & Co. took it public, payment- technology company First Data Corp. received a letter from the Securities and Exchange Commission asking questions about the company’s treatment of certain debt.

    First Data said that when it refinanced debt with borrowings of similar maturities, it had long classified the debt as modified, rather than extinguished. But company executives decided that approach was wrong. The reversal resulted in a $56 million loss from the debt extinguishment for 2013. And it led to a further $79 million loss in 2014. The changes were treated as immaterial, warranting only a revision, and not a restatement.

    “There are many estimates made in accounting, which are vetted throughout a reasonable range of expectations,” said Thomas Gibson, former chief accounting officer of Accretive Health Inc., a Chicago-based provider of support services for physicians. The company restated its 2011 figures at the end of 2014, and filed its 2012 and 2013 financials late. Mr. Gibson said he spent eight months on that effort.

    Accountants have a leg-up in compiling cash-flow statements because they know from the outset a company’s cash position at the start and the end of a reporting period. Still, cash-flow errors are the No. 2 source of financial revisions and restatements.

    Nike said it miscategorized $312 million in foreign-currency balances held by some of its foreign subsidiaries for the six months ended Nov. 30, 2014. Nike erroneously recorded these figures as the results of swings in foreign-exchange rates, rather than cash from operations.

    Nike revised its fiscal 2013 and 2014 financial statements, but said the error had no bearing on its net income.

    “The company has well-established internal review procedures that identified these immaterial misclassifications and corrected them,” a Nike spokesman said.

    Tax errors are the third-most-common cause of financial restatements. Experts say complex tax codes are to blame.

    Taxes contributed to a $711 million revision by Alphabet in 2015—the year’s biggest. In last year’s second quarter the tech giant found it had for years incorrectly apportioned sales to its business entities outside the U.S. That meant it booked lower taxes than it should have.

    Alphabet, then known as Google, retroactively raised its income-tax expense for 2008 through the first quarter of 2015. It also reclassified certain revenues by attributing them to its U.S. business, and not its “rest of world” operations.

    Despite the overall size of the revision, the mistake wasn’t considered material because its impact was diluted when spread out over the period, the company said. The error didn’t affect the company’s consolidated revenue.

    But dollar amounts aren’t everything. Valeant Pharmaceuticals International Inc. has been dogged by revenue-recognition troubles that appear to center on just $58 million, a sum it erroneously booked in 2014.​ Some investors and short sellers have questioned Valeant’s business model and accounting practices, driving down the company’s share price.

    Continued in article


    From The Wall Street Journal Weekly Accounting Review on April 22, 2015

    U.S. Clarifies Role of Lead Auditors in Corporate Financial Reports
    by: Tatyana Shumsky
    Apr 13, 2016
    Click here to view the full article on WSJ.com

    TOPICS: Auditing, Lead Auditor, PCAOB

    SUMMARY: Auditors who contract other accountants or accounting firms to review a company's financial reports would need to increase supervision of the work they delegate under a proposal issued by the Public Company Accounting Oversight Board. The proposal clarifies the lead auditor's responsibilities for planning, supervising and evaluating the work of other auditors. The new rules also would require the lead auditor to disclose which portion of the financial statement was audited by other parties and identify those auditors.

    CLASSROOM APPLICATION: This article is appropriate for use in an auditing class. These group audits have become more common in recent years, as companies with international operations require accounting audits that span the globe.

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

    2. (Advanced) What new rules has the PCAOB proposed? What are the reasons for this proposal? What conditions have changed?

    3. (Advanced) If these new rules are not adopted, what issues and problems could occur?

    4. (Advanced) What changes in this audit process would accounting firms have to make if the new rules are adopted?

    5. (Advanced) What are some reasons the PCAOB should not adopt this proposal?

    Reviewed By: Linda Christiansen, Indiana University Southeast

     

    "U.S. Clarifies Role of Lead Auditors in Corporate Financial Reports," by Tatyana Shumsky,The Wall Street Journal, April 13, 2016 ---
    http://www.wsj.com/articles/u-s-clarifies-role-of-lead-auditors-in-corporate-financial-reports-1460488761?mod=djem_jiewr_AC_domainid

    Auditors who contract other accountants or accounting firms to review a company’s financial reports would need to increase supervision of the work they delegate under a proposal from the government’s audit-industry regulator.

    The proposal, issued on Tuesday by the Public Company Accounting Oversight Board, clarifies the lead auditor’s responsibilities for planning, supervising and evaluating the work of other auditors. The new rules also would require the lead auditor to disclose which portion of the financial statement was audited by other parties and identify those auditors.

    “Investors depend on the lead auditor to provide assurance that there are no material misstatements in audited financial statements or material weaknesses in internal control, no matter where those misstatements or weaknesses may reside,” PCAOB Chairman James R. Doty said.

    These group audits have become more common in recent years, as companies with international operations require accounting audits that span the globe. About 80% of Fortune 500 audits performed by so-called U.S. global network firms, which have affiliates around the world, involved other auditors, according to a PCAOB analysis of data from Audit Analytics and Standard & Poor’s.

    PCAOB inspections show that the other contracted auditors on average reviewed financial information covering between a third and half of the total assets and revenue of the audited company.

    The proposed rule aims to buttress the lead auditor’s ability to detect or prevent flaws in the work of other auditors.

    It will require greater communication between the lead auditor and other auditors, access to other auditors’ work papers and calls for the lead auditor to supervise the areas of greatest risk.

    “It just makes sense for the lead auditor to take responsibility for the areas that pose higher risks,” said Ken Bertsch, executive director of the Council of Institutional Investors, an organization of pension funds and other asset owners that focuses on corporate governance. Mr. Bertsch said his organization is still reviewing the proposal, but is broadly supportive of the PCAOB’s effort.

    PricewaterhouseCoopers LLP, one of the Big Four accounting firms, “is supportive of the PCAOB in undertaking their project to strengthen the supervision of other auditors,” said Mike Gallagher, managing partner audit quality at the firm.

    The PCAOB move comes in response to regulator and investor concerns about material misstatements in such audits, particularly those in jurisdictions with less stringent financial reporting standards.

    “These are large, complicated audits that span the globe and our oversight activities have shown that we really do need better oversight of auditors in this area,” said Jeanette M. Franzel, a PCAOB member, at the board’s meeting on Tuesday.

    Continued in article


    From The Wall Street Journal Weekly Accounting Review on April 22, 2015

    Tax-Rule Changes Ripple Widely
    by: Richard Rubin
    Apr 13, 2016
    Click here to view the full article on WSJ.com

    TOPICS: Corporate Taxation, International Business, Regulation, Tax Inversions

    SUMMARY: The Treasury Department's new corporate rules will reach far beyond the few companies that moved their legal addresses to low-tax countries, forcing many firms based in the U.S. to change their internal financing strategies and tax planning. Corporate tax lawyers, who are trying to understand one of the Obama administration's most far-reaching tax regulations, say the rules cast aside decades of precedents and force corporations to alter routine cash-management techniques. Tax lawyers were surprised at how many transactions may be affected by the rules, which address the line between internal company debt and equity.

    CLASSROOM APPLICATION: This article discusses new Treasure Department rules regarding tax inversions and is a great update for a corporate taxation course.

    QUESTIONS: 
    1. (Introductory) What is a tax inversion? Who chooses to participate in inversions? Why would a party make this choice?

    2. (Advanced) What are the details of the Treasury Department's new corporate rules? How do they address tax inversions?

    3. (Advanced) What are the reactions and comments of corporate tax attorneys? What is the extent of the changes? How many businesses are likely to be affected?

    4. (Advanced) How will corporations be affected by the new rules? How will these changes affect management, accounting, and tax-planning strategies of corporations involved in international business?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    RELATED ARTICLES: 
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    "Tax-Rule Changes Ripple Widely," by Richard Rubin, The Wall Street Journal, April 13, 2016 ---
    http://www.wsj.com/articles/tax-rule-changes-ripple-widely-1460505777?mod=djem_jiewr_AC_domainid

    The Treasury Department’s new corporate rules will reach far beyond the few companies that moved their legal addresses to low-tax countries, forcing many firms based in the U.S. to change their internal financing strategies and tax planning.

    Corporate tax lawyers, who have spent the past week trying to understand one of the Obama administration’s most far-reaching tax regulations, say the rules cast aside decades of precedents and force corporations to alter routine cash-management techniques. The rules would also end a strategy used by companies such as Illinois Tool Works Inc. to repatriate foreign profits without paying U.S. taxes.

    Tax lawyers were surprised at how many transactions may be affected by the rules, which address the line between internal company debt and equity.

    “The breadth and scope of the regs are quite a bit beyond what anyone expected,” said Jason Bazar, a partner at Mayer Brown LLP in New York, who advises companies on cross-border transactions. “They’ve assumed the worst in certain transactions and not considered the commercial considerations.”

    Treasury released two sets of rules April 4. The first put into regulatory language the anti-inversion notices the government issued in 2014 and 2015 and added a crackdown on “serial inverters” like Allergan PLC that are the product of multiple inversions. In an inversion, a U.S. company takes a foreign address, typically through a merger with a smaller firm. The serial-inverter provision helped doom Pfizer Inc. ’s attempt to merge with Allergan, a deal that would have put the combined company’s address in Ireland.

    The second package would have longer-lasting effects. It limits earnings stripping, the post-inversion technique used to load up U.S. subsidiaries with debt and push profits to low-tax countries. But it is much bigger than that.

    The rules are of particular interest to foreign companies with significant U.S. operations, such as Nestlé SA, which expressed concerns about the regulations last week. Nestlé, which said it doesn’t engage in earnings stripping, said Tuesday it will monitor the regulations. It said it worries the rules could affect foreign-based groups’ investments and jobs in the U.S.

    When final, the regulations will affect any debt issued on or after April 4, so tax lawyers are urging clients to examine all existing transactions among subsidiaries, including cases where current loans must be renewed or undergo minor changes that could cause the government to treat them as newly issued.

    The rules require documentation of loans, describe transactions that would be considered equity investments, establish principles for assessing debt instruments and let the Internal Revenue Service bifurcate financial instruments into part-debt and part-equity. They generally apply only to debt among the legal entities inside a single company, not bank loans or other borrowing, but even that limited change will transform multinational tax planning.

    The rules were written under the 47-year-old Section 385 of the tax code, which gives Treasury wide authority to distinguish debt and equity. That is often a tricky distinction to make, and companies exploit it to extract all the benefits of debt, including interest deductions in the U.S. and tax-free repatriation of foreign profits.

    “We’re not really focused on cash management here,” a senior Treasury official said Tuesday. “We’re really focused on extraordinary amounts of debt being loaded onto companies in a short period of time.”

    The government, which says it plans to issue a final rule “swiftly,” is accepting comments through July 7. Considering the magnitude of the issue and the likely complexity of the comments, a final rule could take still longer.

    Tax lawyers are preparing to pepper the Treasury with their concerns, setting up a fight in the administration’s waning months as the government tries to finish the rules before a new president takes over.

    “There will be a lot of gnashing of the teeth by practitioners. This approach of Treasury’s is completely novel,” said Steve Rosenthal, a senior fellow at the Tax Policy Center who urged the government to curb earnings stripping.

    The Treasury official said the rules are designed to avoid “inadvertent side effects.” Treasury invited comments on whether special cash rules are needed.

    Continued in article


    From The Wall Street Journal Weekly Accounting Review on April 22, 2015

    SunEdison Internal Investigation Finds No Material Misstatements or Fraud
    by: Lisa Beilfuss
    Apr 15, 2016
    Click here to view the full article on WSJ.com

    TOPICS: Material Misstatements, Materiality, Internal Controls

    SUMMARY: SunEdison in March disclosed an investigation by the U.S. Justice Department and said it had received an inquiry from the Securities and Exchange Commission over disclosures to investors about cash on hand. SunEdison in February delayed filing its annual financial statements, citing concerns about the accuracy of its financial condition, and said that it had launched an internal investigation. The company announced it had completed an internal investigation. In a regulatory filing, SunEdison said "certain assumptions underlying the cash forecasts...were overly optimistic," and that it lacked sufficient controls over its management of cash flow, "including extensions of accounts payable and the use of cash committed for projects." Despite the findings, SunEdison said it identified no material misstatement in historical financial statements, as well as "no substantial evidence to support a finding of fraud or willful misconduct of management."

    CLASSROOM APPLICATION: This article is appropriate for a financial accounting course when covering misstatements, internal controls, and investigations.

    QUESTIONS: 
    1. (Introductory) What are the facts of the SunEdison Inc. situation?

    2. (Advanced) What is a misstatement? How are misstatements reported and corrected?

    3. (Advanced) What are internal controls? What is the purpose of internal controls? Why are they important? What did the investigations discover about SunEdison's internal controls?

    4. (Advanced) What is materiality? What is a material amount? How is it determined? What did the investigation find regarding materiality?

    5. (Advanced) How was SunEdison's stock price affected by the results of the investigation? Why was it affected in this way?

    6. (Advanced) What is the outlook for SunEdison? What are its next steps?

    Reviewed By: Linda Christiansen, Indiana University Southeast

    RELATED ARTICLES: 
    SEC Investigating SunEdison's Disclosures to Investors About Its Liquidity
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    "SunEdison Internal Investigation Finds No Material Misstatements or Fraud," by Lisa Beilfuss,The Wall Street Journal, April 15, 2016 ---
    http://www.wsjsmartkit.com/wsj_redirect.asp?key=AC20160421-04&mod=djem_jiewr_AC_domainid

    Probe finds solar-energy company lacked certain accounting controls

    SunEdison Inc. on Thursday said an internal investigation found the solar-energy company lacked certain accounting controls, but it uncovered no material misstatements or evidence of fraud.

    Shares in the company, which had lost 93% of their value since the start of the year, rose to 59 cents in premarket trading, a jump from its Wednesday close of 37 cents.

    SunEdison in March disclosed an investigation by the U.S. Justice Department and said it had received an inquiry from the Securities and Exchange Commission over disclosures to investors about cash on hand. SunEdison in February delayed filing its annual financial statements, citing concerns about the accuracy of its financial condition, and said that it had launched an internal investigation.

    On Thursday, the company said it had completed the internal probe. In a regulatory filing, SunEdison said “certain assumptions underlying the cash forecasts…were overly optimistic,” and that it lacked sufficient controls over its management of cash flow, “including extensions of accounts payable and the use of cash committed for projects.”

    Despite the findings, SunEdison said it identified no material misstatement in historical financial statements, as well as “no substantial evidence to support a finding of fraud or willful misconduct of management.”

    The company found one instance of wrongdoing by a former nonexecutive employee, in connection with negotiations to terminate its acquisition of Vivint Solar Inc. SunEdison said it terminated the employee, whom it didn’t name, “promptly after the company became aware of the wrongdoing.”

    SunEdison said it would implement improved cash-forecasting systems “with the requisite controls to manage, monitor and fully communicate changes in outlook directly to the board.” Management will also provide the board with more transparency over cash flow, the company said, adding that “the recent hiring of a chief financial officer designee will act as a remedy.”

    The Wall Street reported earlier this month that SunEdison was likely headed for bankruptcy. The Maryland Heights, Mo., company had grown to a market value of $10 billion last year, using a combination of financial engineering and cheap debt to become one of the country’s biggest developers of renewable-power plants. Its value as of Wednesday’s close was about $120 million.

    SunEdison’s aggressive borrowing and the swift deterioration of its “yieldco” financing strategy caught it in a financial squeeze. SunEdison’s two yieldcos, TerraForm Global Inc. and TerraForm Power Inc., raise money from public investors to buy power projects from developers, then sell power to utilities under long-term contracts.

    Investors initially rewarded the yieldco structure, attracted by high dividend payouts during a time of ultralow interest rates, but expectations of rising rates damped their enthusiasm. Meanwhile, tumbling oil prices pushed energy stocks broadly lower, and capital-market turbulence stoked concerns about SunEdison’s ability to continue financing acquisitions.

    Continued in article

     


    From The Wall Street Journal Weekly Accounting Review on April 22, 2015

    Driving Innovation in Audit: Joseph Ucuzoglu, Chairman and CEO, Deloitte & Touche LLP
    by: Deloitte Risk Journal Editor
    Apr 18, 2016
    Click here to view the full article on WSJ.com

    TOPICS: Auditing, Technology

    SUMMARY: Greater expectations of regulators, investors and financial statement issuers are helping to reshape the audit profession, as are a number of technology breakthroughs, such as artificial intelligence and analytics, which are being incorporated into audit services. In this article, Joe Ucuzoglu, who leads Deloitte's audit practice as chairman and CEO of Deloitte & Touche LLP, discusses how the audit profession is evolving to keep pace with demands of businesses and the capital markets.

    CLASSROOM APPLICATION: This is a very interesting article to use in auditing classes to show our students the changes in the audit industry as a result of technological advances.

    QUESTIONS: 
    1. (Introductory) Who is Joseph Ucuzoglu? What is his position in business? Why is he in a good position to talk about innovation in the audit industry?

    2. (Advanced) What is Deloitte & Touche? How does it compare with the sizes and business models of others in the industry?

    3. (Advanced) What are Mr. Ucuzoglu's observations regarding the incorporation of technology into audit practices? What tools and technologies is the industry adopting?

    4. (Advanced) How are the changes in technology affecting auditor job requirements and responsibilities? How does this change the way a student should prepare for such a career?

    Reviewed By: Linda Christiansen, Indiana University Southeast

     

    "Driving Innovation in Audit: Joseph Ucuzoglu, Chairman and CEO, Deloitte & Touche LLP,"  by  Deloitte Risk Journal Editor, The Wall Street Journal, April 18, 2016 ---
    http://deloitte.wsj.com/riskandcompliance/2016/04/18/driving-innovation-in-audit-joseph-ucuzoglu-chairman-and-ceo-deloitte-touche-llp/?mod=djem_jiewr_AC_domainid

    Greater expectations of regulators, investors and financial statement issuers are helping to reshape the audit profession, as are a number of technology breakthroughs, such as artificial intelligence and analytics, which are being incorporated into audit services. Joe Ucuzoglu, who leads Deloitte’s audit practice as chairman and CEO of Deloitte & Touche LLP, discusses how the audit profession is evolving to keep pace with demands of businesses and the capital markets.

    Q: How have expectations of external auditors changed in recent years?

    Joe Ucuzoglu: The core financial statement audit and internal control work remain the foundation, but expectations have clearly increased. The expectations on the part of regulators and the investing community are, appropriately, high in terms of auditor performance, given the important public interest role that external auditors serve. There is a desire for external auditors to accelerate the introduction of new and innovative technologies that will ultimately enhance quality, make the audit process more efficient and allow for greater insights and value.

    There’s also a desire for auditors to continue to become more transparent about their work and share more information with the investing public about how an audit is conducted and the specific areas that are focused on during an audit. The Public Company Accounting Oversight Board [PCAOB] has a project underway to expand the auditor’s reporting model to be responsive to these information needs, an effort Deloitte supports.

    Q: How are audit practices evolving to incorporate technology and why?

    Joe Ucuzoglu: Companies have made big investments in their own IT platforms. Rightfully, companies expect their audit firm to make similar investments to better leverage technologies and systems, and to execute the audit more effectively. For example, at Deloitte, we have invested several hundred-million dollars in advanced technologies, including data analytics and artificial intelligence platforms that are transforming how we approach the audit. Instead of employing the historical approach and looking at samples, we’re often able to upload large volumes of data, profile entire populations and focus on the areas that are most likely to give rise to audit risks. In turn, this enhances quality, reduces the burden on the company and allows us to deliver deeper, more meaningful insights and value. This is well beyond the R&D phase, we’re using these advanced technologies in our audits today.

    Q: What tools and technologies are being added to the auditor’s toolkit?

    Joe Ucuzoglu: Artificial intelligence is a major addition. At Deloitte, we’ve designed an advanced artificial intelligence application called Argus that’s able to upload a company’s contracts, such as leases, derivatives and revenue contracts. It’s programmed with algorithms to surface the contract terms that are most likely to be important, and it contributed to Deloitte recently being recognized with International Accounting Bulletin’s “Audit Innovation of the Year” award. It’s tremendously powerful at being able to make comparisons across the entire population, to identify outliers and to identify terms that are generally important from an audit standpoint. This tool equips our professionals with better information upon which to make decisions. The application is not replacing people, but empowering them so they don’t have to spend their time on routine tasks. They can take the wealth of information that’s generated by the advanced intelligence tools and use it to make professional judgments and share more robust insights.

    We are also using analytics tools that leverage the disclosures made by public companies about financial accounting matters; our tools put all of this information at the fingertips of our people, allowing them to see industry trends and leading practices and incorporate that information into their work. We’ve also pioneered advanced risk analytics techniques that take advantage of the volume of publicly disclosed information to highlight risk areas and outliers using sophisticated algorithms.

    Q: What new or different types of information, or presentation of information, is the investor community seeking to gain insight into an organization’s financial standing?

    Joe Ucuzoglu: The amount of information that investors now rely on is expanding well beyond the basic financial statements. The information that moves markets often encompasses non-GAAP industry metrics that are reported in press releases and other periodic communications to investors, and much of this information is outside the realm of a financial statement audit. We need to be asking the question: would investors value independent assurance on certain elements of this information to promote quality and comparability of market-moving information that is driving investment decisions?

    Examples of the types of information we are talking about that are not currently captured in the core financial statements could include monthly sales figures, subscriber growth and same-store sales growth. And then there are metrics and benchmarks used to capture the value of intellectual property that often does not make its way into historical financial statements – for example, technologies, human capital, and the outcomes of research and development efforts or new patents obtained.

    Overall, investors today are looking more at information sources beyond the financial statements to understand the value drivers of a business, and the external audit profession can play an important role in helping make that information more reliable for investors.

    Q: What skills are becoming more important for the audit profession, and how can the profession attract top talent?

    Continued in article

     




     

    April 2016 Humor

    227 Hilarious People in Wal-Marts ---
    http://www.mindpause.co/300-hilarious-people-of-walmart/?utm_source=revcontent&utm_medium=75092&utm_term=conservative news&utm_content=23227&utm_campaign=walmart_photos_desktop_necklace_US

    Time Magazine:  The best April Fools pranks of 2016 ---
    http://time.com/4277152/best-april-fools-day-pranks-jokes-2016/?xid=newsletter-brief

    Puppy Prays Before Dinner ---
    http://townhall.com/tipsheet/katiepavlich/2016/03/31/watch-this-adorable-puppy-pray-before-dinner-n2141501?utm_source=thdaily&utm_medium=email&utm_campaign=nl&newsletterad=

    'Saturday Night Live' took on Sanders and Clinton's feisty exchange in Brooklyn ---
    http://www.businessinsider.com/saturday-night-live-debate-clinton-sanders-larry-david-brooklyn-2016-4

    Big Geek Daddy --- http://biggeekdad.com/

    A Beautiful Poem from Paula About Growing Older

    . . .

    . . .

    . . .

    . . .

    Oops, she forgot the words.


    Forwarded by Paula

    An Engineer dies and goes to Hell. Dissatisfied with the level of comfort, he starts designing and building improvements. After a while, Hell has air conditioning, flush toilets and escalators. The engineer is a pretty popular guy. 


    One day God calls and asks Satan, "So, how's it going down there?" Satan says, "Hey things are going great. We've got air conditioning and flush toilets and escalators, and there's no telling what this engineer is going to come up with next."

    God is horrified. "What? You've got an engineer? That's a mistake - he should never have gone down there! You know all engineers go to Heaven. Send him up here! "

    Satan says, "No way. I like having an engineer on the staff. I'm keeping him."

    God says, "Send him back up here or I'll sue."

    "Yeah, right," Satan laughs, "and where are you going to get a lawyer?"

     


    Forwarded by Paula

    Murphy drops some buttered toast on the kitchen floor and it lands butter-side-up.

    He looks down in astonishment, for he knows it's a law of the universe that buttered toast always falls butter-down. So he rushes round to the parish to fetch Father Flanagan.

    He tells the priest that a miracle has occurred in his kitchen. He won't say what it is, but asks Flanagan to come and see it with his own eyes.

    He leads Flanagan into the kitchen and asks him what he sees on the floor.

    "Well," the priest says, "it's pretty obvious. Someone has dropped some buttered toast on the floor and then, for some reason, they flipped it over so that the butter was on top."

    "No, I dropped it and it landed like that!" Murphy exclaims.

    "Oh my Lord," Flanagan says. "Dropped toast never falls with the butter side up. It's a miracle …. but wait ... it's not for me to say it's a miracle. I'll have to report this matter to the bishop, and, he'll have to deal with it. He'll send some people round to interview you, take photos, etc."

    A thorough investigation is conducted, not only by the archdiocese but by scientists sent over from the Curia in Rome. No expense is spared. There is great excitement in the town as everyone knows that a miracle will bring in much needed tourism revenue.

    Then, after eight long weeks and with great fanfare, the bishop announces the final ruling.

    "It is certain that some kind of an extraordinary event took place in Murphy's kitchen, quite outside the natural laws of the universe," he says. "Yet the Holy See must be very cautious before ruling a miracle. All other explanations must be ruled out.

    "Unfortunately, in this case, it has been declared 'No Miracle,' because they think ... Murphy may have buttered the toast on the wrong side!"

     

     

     


    Humor April  2016 --- http://www.trinity.edu/rjensen/book16q2.htm#Humor043016.htm

    Humor March  2016 --- http://www.trinity.edu/rjensen/book16q1.htm#Humor033116.htm

    Humor February  2016 --- http://www.trinity.edu/rjensen/book16q1.htm#Humor022916.htm

    Humor January  2016 --- http://www.trinity.edu/rjensen/book16q1.htm#Humor013116.htm

    Humor December 1-31,  2015 --- http://www.trinity.edu/rjensen/book15q4.htm#Humor123115.htm.htm

    Humor November 1-30,  2015 --- http://www.trinity.edu/rjensen/book15q4.htm#Humor113015.htm

    Humor October 1-31,  2015 --- http://www.trinity.edu/rjensen/book15q4.htm#Humor103115

    Humor September 1-30,  2015 --- http://www.trinity.edu/rjensen/book15q3.htm#Humor093015

    Humor August 1-31,  2015 --- http://www.trinity.edu/rjensen/book15q3.htm#Humor081115

    Humor July 1-31,  2015 --- http://www.trinity.edu/rjensen/book15q3.htm#Humor073115

    Humor June 1-30,  2015 --- http://www.trinity.edu/rjensen/book15q2.htm#Humor043015

    Humor May 1-31,  2015 --- http://www.trinity.edu/rjensen/book15q2.htm#Humor043015

    Humor April 1-30, 2015 --- http://www.trinity.edu/rjensen/book15q2.htm#Humor043015

    Humor March 1-31, 2015 --- http://www.trinity.edu/rjensen/book15q1.htm#Humor033115

    Humor February 1-28, 2015 --- http://www.trinity.edu/rjensen/book15q1.htm#Humor022815

    Humor January 1-31, 2015 --- http://www.trinity.edu/rjensen/book15q1.htm#Humor013115

     

     




     

    And that's the way it was on March 31, 2016 with a little help from my friends.

     

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    AECM (Accounting Educators)  http://listserv.aaahq.org/cgi-bin/wa.exe?HOME
    The AECM is an email Listserv list which started out as an accounting education technology Listserv. It has mushroomed into the largest global Listserv of accounting education topics of all types, including accounting theory, learning, assessment, cheating, and education topics in general. At the same time it provides a forum for discussions of all hardware and software which can be useful in any way for accounting education at the college/university level. Hardware includes all platforms and peripherals. Software includes spreadsheets, practice sets, multimedia authoring and presentation packages, data base programs, tax packages, World Wide Web applications, etc

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    CPAS-L provides a forum for discussions of all aspects of the practice of accounting. It provides an unmoderated environment where issues, questions, comments, ideas, etc. related to accounting can be freely discussed. Members are welcome to take an active role by posting to CPAS-L or an inactive role by just monitoring the list. You qualify for a free subscription if you are either a CPA or a professional accountant in public accounting, private industry, government or education. Others will be denied access.

    Yahoo (Practitioners)  http://groups.yahoo.com/group/xyztalk
    This forum is for CPAs to discuss the activities of the AICPA. This can be anything  from the CPA2BIZ portal to the XYZ initiative or anything else that relates to the AICPA.

    AccountantsWorld  http://accountantsworld.com/forums/default.asp?scope=1 
    This site hosts various discussion groups on such topics as accounting software, consulting, financial planning, fixed assets, payroll, human resources, profit on the Internet, and taxation.

    Business Valuation Group BusValGroup-subscribe@topica.com 
    This discussion group is headed by Randy Schostag [RSchostag@BUSVALGROUP.COM

     


     

    Concerns That Academic Accounting Research is Out of Touch With Reality

    I think leading academic researchers avoid applied research for the profession because making seminal and creative discoveries that practitioners have not already discovered is enormously difficult. Accounting academe is threatened by the twin dangers of fossilization and scholasticism (of three types: tedium, high tech, and radical chic)
    From http://www.trinity.edu/rjensen/395wpTAR/Web/TAR395wp.htm
     

    “Knowledge and competence increasingly developed out of the internal dynamics of esoteric disciplines rather than within the context of shared perceptions of public needs,” writes Bender. “This is not to say that professionalized disciplines or the modern service professions that imitated them became socially irresponsible. But their contributions to society began to flow from their own self-definitions rather than from a reciprocal engagement with general public discourse.”

     

    Now, there is a definite note of sadness in Bender’s narrative – as there always tends to be in accounts of the shift from Gemeinschaft to Gesellschaft. Yet it is also clear that the transformation from civic to disciplinary professionalism was necessary.

     

    “The new disciplines offered relatively precise subject matter and procedures,” Bender concedes, “at a time when both were greatly confused. The new professionalism also promised guarantees of competence — certification — in an era when criteria of intellectual authority were vague and professional performance was unreliable.”

    But in the epilogue to Intellect and Public Life, Bender suggests that the process eventually went too far. “The risk now is precisely the opposite,” he writes. “Academe is threatened by the twin dangers of fossilization and scholasticism (of three types: tedium, high tech, and radical chic). The agenda for the next decade, at least as I see it, ought to be the opening up of the disciplines, the ventilating of professional communities that have come to share too much and that have become too self-referential.”

     

    What went wrong in accounting/accountics research? 
    How did academic accounting research become a pseudo science?
    http://www.trinity.edu/rjensen/theory01.htm#WhatWentWrong

    Avoiding applied research for practitioners and failure to attract practitioner interest in academic research journals ---
    "Why business ignores the business schools," by Michael Skapinker
    Some ideas for applied research ---
    http://www.trinity.edu/rjensen/theory01.htm#AcademicsVersusProfession

     

    Clinging to Myths in Academe and Failure to Replicate and Authenticate Research Findings
    http://www.trinity.edu/rjensen/theory01.htm#Myths

     

    Poorly designed and executed experiments that are rarely, I mean very, very rarely, authenticated
    http://www.trinity.edu/rjensen/theory01.htm#PoorDesigns
     

    Discouragement of case method research by leading journals (TAR, JAR, JAE, etc.) by turning back most submitted cases --- http://www.trinity.edu/rjensen/000aaa/thetools.htm#Cases
     

    Economic Theory Errors
    Where analytical mathematics in accountics research made a huge mistake relying on flawed economic theory and interval/ratio scaling

    http://www.trinity.edu/rjensen/theory01.htm#EconomicTheoryErrors

     

    Accentuate the Obvious and Avoid the Tough Problems (like fraud) for Which Data and Models are Lacking
    http://www.trinity.edu/rjensen/theory01.htm#AccentuateTheObvious

     

    Financial Theory Errors
    Where capital market research in accounting made a huge mistake by relying on CAPM

    http://www.trinity.edu/rjensen/theory01.htm#AccentuateTheObvious

     

    Philosophy of Science is a Dying Discipline
    Most scientific papers are probably wrong
    http://www.trinity.edu/rjensen/theory01.htm#PhilosophyScienceDying

     

    Accountancy, Tax, IFRS, XBRL, and Accounting History News Sites  --- http://www.trinity.edu/rjensen/AccountingNews.htm

    Accounting Professors Who Blog --- http://www.trinity.edu/rjensen/ListservRoles.htm

    Cool Search Engines That Are Not Google --- http://www.wired.com/epicenter/2009/06/coolsearchengines

    Free (updated) Basic Accounting Textbook --- search for Hoyle at
    http://www.trinity.edu/rjensen/ElectronicLiterature.htm#Textbooks

    CPA Examination --- http://en.wikipedia.org/wiki/Cpa_examination
    Free CPA Examination Review Course Courtesy of Joe Hoyle --- http://cpareviewforfree.com/
     


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

     

    Bob Jensen's Homepage --- http://www.trinity.edu/rjensen/