Bob Jensen's New Bookmarks for August 1-31, 2015 

Bob Jensen at Trinity University 


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

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

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

 

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

 

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

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




Jean Louise's second impulse was to blame it on the minister. He was a young man, a Mr. Stone by name, with what Dr. Finch called the greatest talent for dullness he had ever seen in a man on the near side of fifty. There was nothing whatsoever wrong with Mr Stone, except that he possessed all the necessary qualifications for a certified public accountant: he did not like people, he was quick with numbers, he had no sense of humor, and he was butt-headed.
Harper Lee, author of To Kill a Mockingbird, in her newly released book, Go Set a Watchman, Chapter 7 ---
https://mail.google.com/mail/u/1/#inbox/14f370e95e1cd3ab
Thank you Denny Beresford for the heads up. When you employ or marry Mr. Stone you've hit rock bottom.


From the Chronicle of Higher Education
Search for Job Openings in Higher Education ---
https://chroniclevitae.com/job_search/new


"The Economic Guide To Picking A College Major," by Ben Casselman, Nate Silver's 5:38 Blog, September 12, 2014 (slightly dated) ---
http://fivethirtyeight.com/features/the-economic-guide-to-picking-a-college-major/

Jensen Comment
This is a better-than-most article article on this topic, although virtually all such articles are misleading in terms of long-term versus short term reasons for choosing a major. For example, some of the highest paying careers at the point of graduation are not great careers in terms of long-term opportunities for professional growth or lifetime income. Accounting and finance, for example, are typically ranked low in terms of average starting salaries but rank high in terms of economic opportunities. In part this is because accounting and finance graduates are neophytes who have minimal expertise that comes with experience and post-graduate learning (usually on the job). They have a lot of learning to do before they can earn their keep.

One strong point of the article is that it lists number of majors in each discipline broken down into quartiles. This is important because numbers reflect the fact that there are both opportunities and job competition due to high versus few numbers of majors. For example, there are over 200,000 nursing majors and nearly 200,000 accounting majors. This suggests that demand for these majors must be relatively widespread with considerable  choices of location both in urban and rural settings across the USA. Those disciplines having less than 1,000 majors perhaps have much less choice with respect to number of employers and geographic locations.

The article is weak in terms of showing the incremental advantages of getting advanced degrees. For example, the physical sciences are not usually great undergraduate majors without going into some type of graduate study. Some majors require at least masters degrees for taking the licensing examinations for a career. Thus comparing these majors with majors that only require undergraduate degrees is a little like comparing apples and oranges.

Also some majors that used to be great in terms of income and opportunity have fallen onto hard times. Law schools, for example, are now graduating twice and many majors relative to career opportunities in law.

Also some majors are much less specific in terms of job skills. For example, graduates in business management have wide ranging skills (or lack thereof) relative to accounting, pharmacy, and engineering majors that require many more specialized courses in a curriculum --- partly due to the way certification examinations dominate curricula for some majors like accounting, pharmacy, and engineering but not business management. My point is that the subset of business management majors is such a heterogeneous subset I'm not certain what starting salary averages really mean in this diverse population.

My main recommendation is that starting salaries should be given much less consideration than other factors going into a career. For example, I personally would never have considered physical therapy as a major, because I think physical therapy over the course of 50 years on the job must be terribly boring and generally lacks growth opportunity. Some careers like K-12 teaching lack growth opportunities buy offer considerable independence in terms of free time with summer vacations and holidays that add up to a lot of free time in a lifetime career. free time for example to raise children.

For me, being a professor in a university turned into what I think has to be the best of all careers as long as becoming wealthy is not a priority in life. The main advantage is independence choosing how to spend your time on and off the job. There are of course other types of non-monetary rewards in helping students learn and develop their own lives. My research and scholarship had great variety over the years and was not nearly as dull as you might think when the word "accountancy" is mentioned as an academic discipline.

The 10 Best and Worst Undergraduate Majors for Getting Jobs (without getting additional credentials) ---
http://www.businessinsider.com/worst-college-majors-2014-6

Top students in the "worst majors" in the past often went on to law school. They are still doing so but in fewer numbers and greatly dampened prospects for working in law firms after law school graduation. Law school losses of students are often MBA program gains. Options in accounting, engineering, nursing, pharmacy are not so great due to all the undergraduate prerequisites that must be satisfied before going to graduate school in those specialties.

Because there are so many graduates in business, neither an undergraduate degree nor an MBA degree is a very good path to a career without extremely high grades or specialties in demand like accounting. Sometimes a combination of degrees greatly improves job prospects such as an undergraduate engineering or computer science degree topped off with an MBA from a top school.

Students planning to get MD or science Ph.D. degrees need to carefully plan their undergraduate studies in advance of going to graduate school. Unfortunately, graduate studies in those fields, especially medicine, can be quite long and expensive. For example, most MD or science Ph.D. graduates must also plan for low-paying post-graduate residency or post-doc years before they can make significant progress in paying down their student loans.

From the Chronicle of Higher Education
Search for the Latest Job Openings in any Discipline of Interest ---
https://chroniclevitae.com/job_search/new?cid=VTECHNJOBSL1

Jensen Comment
When I search for "Accounting" and "Faculty & Research" today there are 256 jobs posted in the past 30 days. However, not all of these jobs seem property classified as both "Accounting" and "Faculty & Research." Also I know of some job openings for accounting professors that are not listed for major universities.

For persons seeking jobs as accounting faculty in the USA perhaps a better place to look might be the American Accounting Association Career Center ---
http://aaahq.org/Career-Center
Job seekers may also post their resumes at this center.

Since there are so many faculty vacancies in accountancy, job seekers with Ph.D. degrees from AACSB-accredited universities are advised to contact colleges and universities where they would most like to be employed.

Bob Jensen's threads on careers ---
http://www.trinity.edu/rjensen/Bookbob1.htm#careers

Bob Jensen's threads on the higher education faculty job market ---
http://www.trinity.edu/rjensen/Bookbob1.htm#AccountingFaculty


Researchers at Harvard University and the Massachusetts Institute of Technology have discovered a new form of cheating for MOOC credits
"Multiple Personalities, Disorder," by Carl Straumsheim, Inside Higher Ed, August 26, 2015 ---
https://www.insidehighered.com/news/2015/08/26/harvard-mit-researchers-find-mooc-learners-using-multiple-accounts-cheat?utm_source=Inside+Higher+Ed&utm_campaign=e257aae0b9-DNU20150826&utm_medium=email&utm_term=0_1fcbc04421-e257aae0b9-197565045

Bob Jensen's threads on MOOCs, SMOCS, Future Learn, iversity, and OKI Free Learning Alternatives Around the World ---
http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI 


"How internal audit can make better use of technology," by Ken Tysiac, Journal of Accountancy, August 18, 2015 ---
http://www.journalofaccountancy.com/news/2015/aug/internal-audit-technology-201512855.html


From the CPA Newsletter on August 26, 2015

US tax implications of alimony payments to US nonresidents
http://www.thetaxadviser.com/issues/2015/aug/us-tax-implications-of-alimony-payments-to-us-nonresidents.html
The tax treatment of alimony payments can get complicated when the spouses are from different countries. Here is a look, from both spouses’ perspectives, at how U.S. tax law treats payments from U.S. citizens to foreign ex-spouses.
The Tax Adviser

Flipping the Classroom --- https://en.wikipedia.org/wiki/Flipped_classroom

"Flipping the Managerial Accounting Principles Course: Effects on Student Performance, Evaluation, and Attendance," by Tom Downen and Becky Hyde, SSRN, July 29, 2015 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2637609 

Abstract:
Considerable research and attention has been focused lately on the concept of “flipping the classroom.” Much of the focus has been on secondary education. However, opportunities to flip the classroom also exist in university education, and certain business disciplines (such as accounting) are particularly appealing targets given the practical/applied nature of many of the topics covered. This study examines a simplified flipping approach (without videos), using a within-participants experimental design, in a managerial accounting principles course. The results of the study show significant improvement in student performance under a flipped approach (as compared to a traditional approach), controlling for individual student differences. Quantile regression suggests that those performance improvements were most substantial for lower-performing students. No effect on student evaluations of the course/instructor is found. Student attendance, at least on the initial class days when the instructional format was manipulated, was better for the flipped approach. These results suggest a need to consider further the increased use of a flipped classroom in business and accounting education; in application-oriented courses like managerial accounting principles, and in particular for more remedial course sections, the flipped classroom could be especially effective.

Bob Jensen's threads on flipped classrooms ---
http://www.trinity.edu/rjensen/000aaa/thetools.htm#Ideas

Bob Jensen's threads on managerial accounting ---
http://www.trinity.edu/rjensen/Theory02.htm#ManagementAccounting


"Hiring and enrollments reached record highs last year," by Courtney L. Vien, Journal of Accountancy, August 10, 2015 ---
http://www.journalofaccountancy.com/news/2015/aug/public-accounting-firm-jobs-hiring-201512792.html#sthash.0OtpJ7X4.dpuf

Unlike many in their Millennial cohort who face continued underemployment, accounting graduates find themselves in high demand from employers. Top students are often recruited, offered jobs during or after their internships, and enticed with signing bonuses.

According to the AICPA report Trends in the Supply of Accounting Graduates and the Demand for Public Accounting Recruits, hiring at public accounting firms jumped 7% to reach record levels in 2013–14. Ninety-one percent of all firms said they expect to hire accounting graduates at the same or higher levels in 2015.

- See more at: http://www.journalofaccountancy.com/news/2015/aug/public-accounting-firm-jobs-hiring-201512792.html#sthash.0OtpJ7X4.dpuf

Unlike many in their Millennial cohort who face continued underemployment, accounting graduates find themselves in high demand from employers. Top students are often recruited, offered jobs during or after their internships, and enticed with signing bonuses.

According to the AICPA report Trends in the Supply of Accounting Graduates and the Demand for Public Accounting Recruits, hiring at public accounting firms jumped 7% to reach record levels in 2013–14. Ninety-one percent of all firms said they expect to hire accounting graduates at the same or higher levels in 2015.

Continued in article

America’s Best Companies to Work For ---
http://247wallst.com/special-report/2015/08/10/the-best-companies-to-work-for/?utm_source=247WallStDailyNewsletter&utm_medium=email&utm_content=AUG102015A&utm_campaign=DailyNewsletter

The best companies to work for were concentrated in particular industries. For example, technology companies are well represented among the highest-rated employers, as are consulting firms. Of the 54 best companies, only nine received an average rating of 4.0 or higher on a scale of 1.0 to 5.0. Of these, five are in the technology space — Facebook (NASDAQ: FB), Google (NASDAQ: GOOG), LinkedIn (NYSE: LNKD), Adobe (NASDAQ: ADBE), and Apple (NASDAQ: AAPL). Several consulting firms also made the list. Seven out of the 54 best companies provided consulting services, including the Big Four auditing firms — EY, Deloitte, PwC, and KPMG.

Read more: America’s Best Companies to Work For - Facebook (NASDAQ:FB) - 24/7 Wall St.
http://247wallst.com/special-report/2015/08/10/the-best-companies-to-work-for/#ixzz3iQeOHu6W
 

Bob Jensen's threads on careers  ---
http://www.trinity.edu/rjensen/Bookbob1.htm#careers


Alice Goffman --- https://en.wikipedia.org/wiki/Alice_Goffman

Controversy About Alice's Academic Integrity --- https://en.wikipedia.org/wiki/Alice_Goffman#Controversy

But again, to focus exclusively on Goffman’s individual conduct misses the larger point. Alice Goffman is a product of system that uncritically rewards the kind of things she was doing, even when those things may have included engaging in serious crimes, or serious academic misconduct.
"Alice Goffman's Implausible Ethnography," by Paul Campos, Chronicle of Higher Education, August 21, 2015 ---
http://chronicle.com/article/Alice-Goffmans-Implausible-/232491/?cid=at

'On the Run’ reveals the flaws in how sociology is sometimes produced, evaluated, and rewarded.

. . .

Those words make a moving statement, spoken as they are by a man who has worked hard all his life to overcome the racism that blights American society, and who has seen his daughter and his grandchildren fall victim to drug addiction, chronic unemployment, and a criminal-justice system that imprisons an astonishingly high percentage of African-American men.

Unfortunately, it’s difficult to know if George Taylor actually said those things. Indeed, Taylor’s speech raises the possibility that Goffman embellished or conflated some of the most compelling material in her book.

Attentive readers will have noticed that Taylor’s remarks appear to have been made after Barack Obama became president. Yet Goffman dates her interview with Taylor to the fall of 2007, when Obama was just emerging as a serious candidate for the Democratic nomination, and did not yet herald the coming of "a new era" to anyone.

Even more inexplicably, readers will discover two pages later that Chuck, whom Goffman says she has just visited in the county jail before meeting his grandfather, was no longer alive in the fall of 2007, since, as the book recounts, he was murdered in the summer of that year. As far as I’ve been able to determine, none of the book’s many enthusiastic reviewers — not to mention its editors or the academic referees who vetted the manuscript for the University of Chicago Press — seem to have noticed this incongruity. (Douglas Mitchell, an executive editor at the press, declined to answer questions about On the Run.)

Standing alone, this kind of mistake might not be particularly significant. Perhaps Goffman misread her field notes, and the interview with Taylor took place in 2008 or 2009. Perhaps the reference to visiting Chuck several months after his murder can be explained in similar terms, although that seems improbable; Goffman describes Chuck’s death as a shattering emotional event for her personally, so it’s hard to imagine how she could have made such an error.

But this incident is just one of numerous and significant incongruities, contradictions, inaccuracies, and improbable incidents scattered throughout On the Run. (Goffman declined interview requests, and decided not to answer most questions by email. The Chronicle Review has invited Goffman to respond to this article.).

Continued in a very long article

Bob Jensen's threads on professors who cheat ---
http://www.trinity.edu/rjensen/Plagiarism.htm#ProfessorsWhoPlagiarize


Parkinson's Disease --- https://en.wikipedia.org/wiki/Parkinson's_disease
Jensen Comment
We all know or knew somebody with Parkinson's disease. For me it was my Uncle Linus and several faculty colleagues over the years, most notably Roland Salmonson at Michigan State. It was such a tragedy to watch the vigorous Professor Salmonson go downhill in baby steps over more than a decade.. It could have been worse I suppose since there are diseases that cause more suffering and faster downward spirals.

But the slowness of the deterioration is in many ways a form of torture. Now of course doctors can do more for Parkinson's disease, especially with deep brain surgery to ease or eliminate tremors. But I think the steady weakening continues over the years of affliction. Rolly studied under Boll Paton and co-authored several accounting textbooks with James Don Edwards and Roger Hermanson before he passed on.

A few weeks ago I attended the funeral of a close friend in these mountains who had a long bought with Parkinson's disease. Jack was a retired state trooper. His form of the disease entailed no tremors. However, he slowly became weaker and weaker over the years and was eventually bed ridden.

The slowness of the deterioration is in many ways a form of torture. Now of course doctors can do more for Parkinson's disease, especially with deep brain surgery to ease or eliminate tremors. But I think the steady weakening continues over the years of affliction. Rolly Salmonson studied under Boll Paton and co-authored several accounting textbooks with James Don Edwards and Roger Hermanson before he passed on.

Up in Canada, our well-known accountics scientist Jerry Feltham has had lingering Parkinson's for years. Jerry published quite often with Joel Demski. Both were pioneers of accountics science. I admired both Joel and Jerry because, unlike some accountics scientists today,  they were scholarly accountants as well as mathematicians ---
https://en.wikipedia.org/wiki/Gerald_A._Feltham

Sergey Brin’s Search for a Parkinson’s Cure ---
http://www.wired.com/2010/06/ff_sergeys_search/


From The Wall Street Journal on August 28, 2015

FASB Issues ASU on Employee Benefit Plan Accounting
http://deloitte.wsj.com/cfo/2015/08/28/fasb-issues-asu-on-employee-benefit-plan-accounting/
The FASB issued ASU 2015-12 a three-part standard that provides guidance on certain aspects of the accounting by employee benefit plans. The ASU, issued on July 31, and released in response to consensuses reached by the EITF, requires an employee benefit plan to use contract value as the only measurement amount for fully benefit-responsive investment contracts (FBRICs); simplifies and increases the effectiveness of plan investment disclosure requirements for employee benefit plans; and provides employee benefit plans with a measurement-date practical expedient similar to the practical expedient provided to employers in ASU 2015-04.


From EY on August 28, 2015

FASB adds SEC staff guidance on debt issuance costs for lines of credit 

The FASB issued ASU 2015-15 to add to the Codification SEC staff guidance that the SEC staff will not object to an entity presenting the costs of securing line-of-credit arrangements as an asset, regardless of whether there are any outstanding borrowings. The SEC Observer to the Emerging Issues Task Force announced the staff guidance in response to questions that arose after the FASB issued ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30) - Simplifying the Presentation of Debt Issuance Costs, in April 2015.


IASB staff introduce proposed Conceptual Framework with series of web presentations ---
http://www.ifrs.org/Features/Pages/Conceptual-Framework-webcasts.aspx
Thank you Ross Stevenson for the heads up.


"Ashley Madison Faces $578 Million clAss Action Lawsuit," by Tanya Basu, Time Magazine, August 23, 2015 ---
http://time.com/4007374/ashley-madison-578-million-lawsuit-canada

Two Canadian firms filed the suit on Thursday

Two Canadian law firms filed a $578 million class-action lawsuit against the companies that run extramarital-affairs website Ashley Madison over a recent hack that exposed the personal information of about 39 million users.

Charney Lawyers and Sutts, Strosberg LLP—two Canadian law firms—filed the suit on Thursday on behalf of Canadians whose personal information was breached in a company hack. The Toronto-based Avid Dating Life and Avid Life Media, which run the company, are named in the suit.

The lawsuit’s class-action status remains to be certified by the court.

“Numerous former users of AshleyMadison.com have approached the law firms to inquire about their privacy rights under Canadian law,” the firms said in a statement. “They are outraged that AshleyMadison.com failed to protect its users’ information. In many cases, the users paid an additional fee for the website to remove all of their user data, only to discover that the information was left intact and exposed.”

The statement went on to say that the class action lawsuit will not seek damages from the hackers who leaked the information.

Continued in article


This is a list of articles that appeared in the January-August 2015 issues of the Journal of Accountancy. ---
Jim Martin, MAAW's Blog, August 15, 2015 --- http://maaw.blogspot.com/2015/08/journal-of-accountancy-2015-update.html


Update on Francine and the Changed Archive for Her Blog ---
http://retheauditors.com/2015/05/31/re-the-auditors-is-now-at-marketwatch/

May 18, 2015 was my first day on the job as a reporter for MarketWatch in Washington, DC, the sister online publication to the Wall Street Journal and Barrons that focuses on retail investors.

Yes, I have taken a full-time journalism job and I have moved.

I found out about the job via Twitter. (Twitter has been berry berry good to me!) Steve Goldstein, the DC Bureau Chief of MarketWatch, and I have been following each other there for a while and have had some back and forth on the issues. He knows my work. I saw his tweet for the job— it was a perfect fit—and asked him if I could apply.  He was as excited as I was about the possibilities and within a few weeks I was signed up and ready to go.

Here’s the job description as it was written:

MarketWatch is seeking a ‘transparency’ reporter to uncover the hurdles being placed on the individual investor and what, if anything, is being done to resolve them.  The ideal candidate, based in Washington, will not just be on top of the latest developments at the Securities and Exchange Commission, Commodity Futures Trading Commission and more from the regulatory alphabet soup but will be able to explain clearly and concisely how those issues impact the investor.  Topics for examination will include the fracturing stock market, high frequency trading, insider trading and corporate accounting.

I’ve already written several stories, long and short, and I also capture breaking news on my beat and write up a few sentences to summarize and get it on the scrolling headline thingy across the top.

3:24 p.m. May 29, 2015 | By Francine McKenna
 
2:39 p.m. May 29, 2015 | By Francine McKenna
 
5:48 p.m. May 28, 2015 | By Francine McKenna
 
4:50 p.m. May 27, 2015 | By Francine McKenna
 
2:19 p.m. May 21, 2015 | By Francine McKenna
 
2:52 p.m. May 19, 2015 | By Francine McKenna

 

I am very excited and so is Rosie my Rottweiler.  She and I are getting used to our new digs, hanging our art and trying out all the restaurants that allow big black dogs on their patios. (They are very dog-friendly where I live now!)

I love to write and I am grateful for all of those, especially the editors, who helped me become a better writer along the way.

And finally Andrew Baker of Clovis Inc, my friend of twenty-five years, my first editor and still my best editor.

It was time to join a team, join a newsroom, accept deadlines other than my own and expand my gaze beyond the accounting/audit industry.

I will still put longer, focused, more technical articles here about accounting and audit, especially the litigation. But I’m expected to devote my time and energy to my new employer so please indulge me and read what I write there about other subjects, too.  I don’t plan to stray too far from the subject of accountability, even if it’s not just the Big Four I will be holding accountable now.

Continued in article

Jensen Comment
I've always had mixed feelings about Francine's blog postings. She's more like a MSNBC left-leaning commentator than an academic writer for The Economist. Firstly, Francine is not and has never pretended to be an academic accountant. Her interest has always been in being a media commentator/reporter on the public accounting profession, especially on the Big Four. Secondly, she admittedly only posts negative things about the Big Four. She once told me that she figures Big Four will always blow their own horns about anything positive. She viewed her job as blowing the sour notes about public accounting. She's not technically trained in the complexities of accounting and auditing. As a commentator/reporter she depends upon interviews with those who are technically trained.

Evaluating the Big Four is always very complicated. For example, consider my own blog module on the "Two Faces of KPMG" at
http://www.trinity.edu/rjensen/Fraud001.htm#KPMG
I make an effort to comment on the positives and well as the negatives.

Francine does write well and tries to make her articles interesting. She always provides quotations, Web links, and references. Until she became a reporter she was more of a commentator on what reporters previously reported.

Now that she's a reporter her duties are changed somewhat. She must now dig up the news rather than merely make comments on the news that's been reported.

As to her tendency to focus on the negative of the Big Four I will refer you to when she in her own words was "barred" as a speaker because of her negative reputation ---
http://america.aljazeera.com/opinions/2014/1/conferences-ethicsconflictsinterestauditingaccounting.html
 
Personally, I'm on her side in terms of the way she was allegedly treated as reported in the above article. In this case it appears she was shamefully treated. This is one of those situations where the accusers make themselves look bad.
 

There are times, however, that I think Francine has been unfair to the Big Four in allegations that she truly did not adequately support in my opinion.

"Bigger, Stronger, Faster: The PCAOB After The Supreme Court Ruling," by Francine McKenna, re: TheAuditors, June 9, 2010 ---
http://retheauditors.com/2010/06/09/bigger-stronger-faster-the-pcaob-after-the-supreme-court-ruling/

Jensen Comment
Although I love the intensity and investigative effort that Francine pours into her blog, she does have a tendency to make conjectures that are unsupported hypotheses that she considers "truth." These hardly satisfy this old academic.

Example of an unsupported conjecture in the above blog post:

This is not the way to treat a regulator. Although the inspection process is intense, time consuming and very expensive for the audit firms to comply with, they are clearly paying it only lip service. They view it as a necessary evil rather than a constructive or a deterrent force. This must change if the PCAOB is ever going to be an effective tool for protecting the investor public

She has not convinced me that the inspections are failures to a degree that she repeatedly alleges in her posts. We need much more intensive research into how the audit firms are reacting to the inspection process before inspections take place and after inspection reports are released to the public ---
http://pcaobus.org/Inspections/Pages/default.aspx


 

From: Jim Fuehrmeyer [mailto:jfuehrme@nd.edu]
Sent: Tuesday, March 23, 2010 9:21 AM
To: Jensen, Robert
Subject: FW: Deloitte

Bob,

I was the “Professional Practice Director”, that’s the audit quality control guy, for Deloitte’s Chicago office for the six years prior to my retirement in May 2007.  I got to experience first-hand everything from the absorption of AA’s people in Chicago to the advent of the PCAOB and its annual inspection process the first few years.  I don’t think most folks have any appreciation for the very real impact the PCAOB has had on the profession.  The quality of documentation, the increased amount of partner involvement, the added quality control processes, the expansion of detail testing – the PCAOB has had a huge impact.  Most folks also don’t have an appreciation for the impact of 404 not only on the audit process but on corporate cultures as well.  As you pointed out a few messages ago, we do see all the failings in the press, but what we don’t see is all the positives and all the improvements.

Hope your wife is doing OK.

Jim

 

JAMES L. FUEHRMEYER, JR.
Associate Professional Specialist
Department of Accountancy

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

MENDOZA COLLEGE OF BUSINESS
UNIVERSITY OF NOTRE DAME

384 Mendoza College of Business
Notre Dame, IN 46556
office: (574) 631-1752 | fax: (574) 631-5255
e: jfuehrme@nd.edu | w:
http://business.nd.edu


Jensen Comment
Before I retired I lived for 24 years in one of the Top 10 property tax states (Texas). It also had a relatively high sales tax but no state income tax. After retirement I live in one of the Top 10 property tax states (New Hampshire). It does not have an income tax although is does have a cash interest and dividends tax with a $5,000 exemption. New Hampshire does not have a sales tax with some exceptions for restaurant tabs, hotel bills, and real estate sales.

Most of the other Top 10 property tax states also hit residents with income taxes.

The 10 states with the highest property taxes ---
http://www.businessinsider.com/10-states-with-highest-property-taxes-2015-8#ixzz3isbyYdLo
Sadly some of those states squeezing the most everything-possibley tax blood out of taxpayers also are in the worst shape in terms of unfunded state worker and school teacher pensions, especially Illinois and New York. California would probably be near the top in terms of property taxes if Proposition 13 had not greatly limited the revenues that California can raise in property taxes. California and Illinois are in the worst shape in terms of unfunded (in many cases criminal) public worker and teacher pensions.


"IBM seeks to transform image-based diagnostics by combining its cognitive computing technology with a massive collection of medical images," by Mike Orcutt, MIT's Technology Review, August 11, 2015 --- Click Here
http://www.technologyreview.com/news/540141/why-ibm-just-bought-billions-of-medical-images-for-watson-to-look-at/?utm_campaign=newsletters&utm_source=newsletter-daily-all&utm_medium=email&utm_content=20150812

Jensen Comment
You might consider asking your students to ponder why medical diagnostics and prediction is expected, in my opinion, to be more successful in medicine than finance and investing. My skepticism regarding financial diagnostics of data mining in finance is the same as my skepticism about statistical analysis in finance and investing.

It all boils down to when the assumptions of stationary states fail us.

From Two Former Presidents of the AAA
"Some Methodological Deficiencies in Empirical Research Articles in Accounting." by Thomas R. Dyckman and Stephen A. Zeff , Accounting Horizons: September 2014, Vol. 28, No. 3, pp. 695-712 ---
http://aaajournals.org/doi/full/10.2308/acch-50818   (not free)

This paper uses a sample of the regression and behavioral papers published in The Accounting Review and the Journal of Accounting Research from September 2012 through May 2013. We argue first that the current research results reported in empirical regression papers fail adequately to justify the time period adopted for the study. Second, we maintain that the statistical analyses used in these papers as well as in the behavioral papers have produced flawed results. We further maintain that their tests of statistical significance are not appropriate and, more importantly, that these studies do not�and cannot�properly address the economic significance of the work. In other words, significance tests are not tests of the economic meaningfulness of the results. We suggest ways to avoid some but not all of these problems. We also argue that replication studies, which have been essentially abandoned by accounting researchers, can contribute to our search for truth, but few will be forthcoming unless the academic reward system is modified.

The free SSRN version of this paper is at
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2324266

Can the 2008 investment banking failure be traced to a math error?
Recipe for Disaster:  The Formula That Killed Wall Street --- http://www.wired.com/techbiz/it/magazine/17-03/wp_quant?currentPage=all
Link forwarded by Jim Mahar ---
http://financeprofessorblog.blogspot.com/2009/03/recipe-for-disaster-formula-that-killed.html 

Some highlights:

"For five years, Li's formula, known as a Gaussian copula function, looked like an unambiguously positive breakthrough, a piece of financial technology that allowed hugely complex risks to be modeled with more ease and accuracy than ever before. With his brilliant spark of mathematical legerdemain, Li made it possible for traders to sell vast quantities of new securities, expanding financial markets to unimaginable levels.

His method was adopted by everybody from bond investors and Wall Street banks to ratings agencies and regulators. And it became so deeply entrenched—and was making people so much money—that warnings about its limitations were largely ignored.

Then the model fell apart." The article goes on to show that correlations are at the heart of the problem.

"The reason that ratings agencies and investors felt so safe with the triple-A tranches was that they believed there was no way hundreds of homeowners would all default on their loans at the same time. One person might lose his job, another might fall ill. But those are individual calamities that don't affect the mortgage pool much as a whole: Everybody else is still making their payments on time.

But not all calamities are individual, and tranching still hadn't solved all the problems of mortgage-pool risk. Some things, like falling house prices, affect a large number of people at once. If home values in your neighborhood decline and you lose some of your equity, there's a good chance your neighbors will lose theirs as well. If, as a result, you default on your mortgage, there's a higher probability they will default, too. That's called correlation—the degree to which one variable moves in line with another—and measuring it is an important part of determining how risky mortgage bonds are."

I would highly recommend reading the entire thing that gets much more involved with the actual formula etc.

The “math error” might truly be have been an error or it might have simply been a gamble with what was perceived as miniscule odds of total market failure. Something similar happened in the case of the trillion-dollar disastrous 1993 collapse of Long Term Capital Management formed by Nobel Prize winning economists and their doctoral students who took similar gambles that ignored the “miniscule odds” of world market collapse -- -
http://www.trinity.edu/rjensen/FraudRotten.htm#LTCM  

The rhetorical question is whether the failure is ignorance in model building or risk taking using the model?

Also see
"In Plato's Cave:  Mathematical models are a powerful way of predicting financial markets. But they are fallible" The Economist, January 24, 2009, pp. 10-14 --- http://www.trinity.edu/rjensen/2008Bailout.htm#Bailout

Wall Street’s Math Wizards Forgot a Few Variables
What wasn’t recognized was the importance of a different species of risk — liquidity risk,” Stephen Figlewski, a professor of finance at the Leonard N. Stern School of Business at New York University, told The Times. “When trust in counterparties is lost, and markets freeze up so there are no prices,” he said, it “really showed how different the real world was from our models.
DealBook, The New York Times, September 14, 2009 ---
http://dealbook.blogs.nytimes.com/2009/09/14/wall-streets-math-wizards-forgot-a-few-variables/

Bob Jensen's threads on CDOs ---
http://www.trinity.edu/rjensen/2008Bailout.htm

Bob Jensen's threads on common statistical analysis mistakes in accountics science ---
http://www.cs.trinity.edu/~rjensen/temp/AccounticsScienceStatisticalMistakes.htm


"Greece has a new bailout, but there's a 'Catch 22' ," by Alastair Macdonald, Business Insider, August 14, 2015 ---
http://www.businessinsider.com/greece-bailout-imf-still-balking-2015-8

. . .

"There's a bit of a Catch 22 that we need to solve," said Finnish Finance Minister Alexander Stubb, whose government was among those most ready to favor a Greek exit from the euro before a last-minute deal struck by EU leaders a month ago.

"The IMF wants to be involved only if there is debt relief; we want the IMF to be involved but we don't want debt relief. Some kind of solution will have to be found."

"The IMF is on board as concerns program conditionality," said Valdis Dombrovskis, the European Commission's vice president for the euro. "We know that IMF has its own program, but we do not expect a formal decision on this today."

Read ,more at  http://www.businessinsider.com/greece-bailout-imf-still-balking-2015-8#ixzz3ishC5hZg


"Hoogervorst Hokum Re Historic Cost," by Tom Selling, The Accounting Onion, August 27, 2015 ---
http://accountingonion.com/2015/08/hoogervorst-hokum-re-historic-cost.html

After years of trying to work with the FASB on a revised conceptual framework, the IASB finally decided to abandon the goal of a fully converged framework and to finish a document for its own use. A draft is imminent, and on June 29th, IASB Chair Hans Hoogervorst’s spoke to a conference in Paris about his board’s thinking on key decisions — in particular, the status of historic cost and current value measurements.

Let’s just say for now that I don’t think very much of Mr. Hoogervorst’s speech. To get started, we should step back and consider why the IASB and FASB have conceptual frameworks, and projects to revise them.

. . .

Fair value as straw man — Fair value (i.e., exit prices) as an accounting concept has many flaws. Three in particular are: (1) profits on manufactured inventory would be recognized before a sale actually takes place; (2) costs of acquiring a financial asset* must be expensed instead of capitalized; and (3) is the problem of illiquid markets. With respect to (3), some assets (financial and non-financial) have economic value despite the fact that they are unsellable during economic downturns or periods of high uncertainty.

Other valuation concepts do not share these limitations. Yet Mr. Hoogervorst has declined to explain why fair value is the scapegoat that taints all concepts of current value. In particular, measuring an asset’s current cost of replacement (as opposed to its cash value in a hypothetical sale) is free from the aforementioned flaws.

Continued in article

Jensen Comment
Let me say that there is much in the above posting by Tom with which I agree, and I selectively cherry picked only one part of the posting with which to quibble. I think it is very misleading for Tom to suggest that: "Other valuation concepts do not share these limitations."

The implication is that those "other valuation concepts" are superior to both exit value and historical cost accounting. That's BS and I'm certain Tom is aware of this and should have pointed this out. There are advantages and limitations to the various alternatives of accounting measurement that I summarize at
http://www.trinity.edu/rjensen/Theory02.htm#BasesAccounting

Tom's preferred accounting measurement is replacement cost over both exit value and historical cost measurement. Tom and I have gone round and round over this one before such that I will not burden the AECM once again with our debate that is partly summarized in the following links:

The Controversy Over Fair Value (Mark-to-Market) Financial Reporting ---
http://www.trinity.edu/rjensen/Theory02.htm#FairValue 

Loan Losses and Bad Debts ---
http://www.trinity.edu/rjensen/Theory02.htm#LoanLosses

Multi-Column Earnings and OCI Reporting ---
http://www.trinity.edu/rjensen/Theory02.htm#OCIMulticolumn

Where Fair Value Market Accounting Fails: Unique Items Not Traded (e.g., bank loans, Bad Debts)  ---
http://www.trinity.edu/rjensen/Theory02.htm#FairValueFails

Underlying Bases of Balance Sheet Valuation ---
http://www.trinity.edu/rjensen/Theory02.htm#BasesAccounting

Online Resources for Business Valuations ---
http://www.trinity.edu/rjensen/roi.htm 

Jensen Comment
I have to note that neither historical cost nor replacement cost accounting are "valuation" approaches. Both entail the arbitrary non-valuation adjustments for depreciation and depletion that take out current market settlements as valuation approaches. True valuation approaches are either equity valuation such as market capitalization of existing outstanding equity shares (a macro approach) or exit valuation of asset and liability balance sheet items (a micro approach that entails aggregation of perhaps a billion items in the case of large companies like Exxon and Wal-Mart).

Market capitalization valuation essentially does away with the accounting division of a company for valuation purposes. The main drawback is that marginal trades of less than one percent of a company's voting shares is highly misleading if total value is to be based on aggregation of such small marginal trading prices. Such valuations are also subject to managerial manipulation such as when a company impacts share trading markets with buybacks and dividend decisions.

Exit value valuation of a going concern is usually based upon individual asset and liability liquidation and does not capture synergy valuations of all the balance sheet components in a going concern. Similar problems arise with entry value (replacement cost) measurements that do not capture synergies.

But mostly the problem with both historical cost and replacement cost accounting is that neither of these approaches entails valuation accounting. Historical cost and replacement cost accounting does not capture all those valuation items that accountants cannot measure like intangibles and contingencies that affect valuation of the firm..

We can rehash all of the advantages and limitations of historical cost and replacement cost accounting, but I will refer you instead to
http://www.trinity.edu/rjensen/Theory02.htm#BasesAccounting

The bottom line is that I basically like many parts of Tom's posting but if he's trying to sneak in another plug for replacement cost accounting I'm leaving the room. My best analogy for exit value or replacement cost accounting would be to try to measure the value of Tom Selling by adding up the exit values or the replacement costs of his body parts (all six feet, six inches of him). Doing so would be an absurd way to find the value of the man, although I sometimes tease my wife that to me she's worth more dead than alive. The titanium in her back is worth more than a Mercedes and would cost hundreds of thousands of dollars to have "replaced."

My main quibble with the IASB and FASB conceptual frameworks is that they cannot and probably will never be able to operationally conceptualize the most important accounting variable used continuously on Wall Street --- net earnings or ratios derived from net earnings.

However, thanks for the total posting Tom.

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

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

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

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


"Should CPAs Consider a PhD?" by Paul Gillis, Going Concern, August 27, 2015 ---
http://goingconcern.com/post/should-cpas-consider-phd
Some of the comments following the article are stupid efforts to be funny. The article itself, however, is very interesting.

Jensen Comment
Paul does not mention how old he was when he finished a Ph.D. program. My guess is that he was somewhere between 53 and 55 depending upon both the rigors of the program and how full-time he was in the program. I could not find him in my edition of the Hasselback accounting faculty directory. He also does not point out whether he obtained a tenure track appointment that typically pays more with higher benefits such as research funding and travel expenses. However, being a retired CPA firm partner makes the higher income less important, and tenure does not mean as much if you obtain it when you are over 60 years of age.

I did find the following on LinkedIn:
https://cn.linkedin.com/in/profgillis

Paul Gillis

Accounting Professor

Chaoyang District, Beijing, China
Education Management
Current
  1. Guanghua School of Management at Peking University
Previous
  1. PCAOB,
  2. Pansoft Co. Ltd.,
  3. Peking Unversity

Apparently the Grumpy Old Accountants Blog expired with a whimper rather than a bang ---
http://grumpyoldaccountants.com/

This was a good blog commenced by accounting Professor Ed Ketz at Penn State University. I liked this blog because it tended to use financial statement analysis in a critical style that reminded me of the old Barron's articles by Accounting Hall of Famer Abe Briloff ---
http://www.trinity.edu/rjensen/Theory01.htm#Briloff
In other words Ed, like Abe,  created new news in this blog that usually focused on bad accounting (in his opinion). Ed was later joined by Professor Tony Catanach (Villanova), and the volume of those wonderfully grumpy postings increased somewhat after there were two "grumpy old accounting professors."

Without any explanation Ed stopped blogging (although if I were guessing there may have been some eye trouble with Ed, which would be ironic in that Abe Briloff became blind after all those years of pouring over financial statements). Tony formed a new blog and carried on by himself with a blog called by the same name ---  Grumpy Old Accountants. Tony carried on in the original Brilloff-Ketz style of critical financial statement analysis.

To my knowledge there is no longer an archive of all those wonderful Ketz-Catanach blog postings. That's the bad news. The good news is that a lot of the postings are quoted extensively at the following three sites:
http://www.trinity.edu/rjensen/Theory01.htm
http://www.trinity.edu/rjensen/Theory02.htm
http://www.trinity.edu/rjensen/Fraud001.htm
Simply search under the names Ketz or Catanach. Use Ketz to catch the earlier Ketz postings. Use Catanach to catch Tony's  later postings to this blog site.

When a Villanova professor visited me last summer he informed me that Tony Catanach was scheduled for retirement. This surprised me since Tony always seemed like a young professor to me. He may indeed have retired early at Villanova. That's just a guess on my part.

I want to pay tribute to the long hours and many postings of Professors Ketz and Catanach to the wonderful Grumpy Old Accountants Blog. All things come to an end, and it appears that this great blog is now terminated. It would be nice if somebody at Penn State or Villanova posted the archives of this blog to a Web server that could be searched via the Web crawlers like Google and Yahoo. If you know a professor at those universities please suggest this to your friend. These were good blog postings about real-world accounting flaws.

Update
Subsequent communications from Ed Ketz reveal that he will soon have the former Grumpy Old Accountants blogs archived on a Penn State Server.


Scientific Replication Woes of Psychology
Accountics scientists in accountancy avoid such woes by rarely even trying to replicate behavioral experiements

"The Results of the Reproducibility Project Are In. They’re Not Good," by Tom Bartlett, Chronicle of Higher Education, August 28, 2015 ---
http://chronicle.com/article/The-Results-of-the/232695/?cid=at

A decade ago, John P.A. Ioannidis published a provocative and much-discussed paper arguing that most published research findings are false. It’s starting to look like he was right.

The results of the Reproducibility Project are in, and the news is not good. The goal of the project was to attempt to replicate findings in 100 studies from three leading psychology journals published in the year 2008. The very ambitious endeavor, led by Brian Nosek, a professor of psychology at the University of Virginia and executive director of the Center for Open Science, brought together more than 270 researchers who tried to follow the same methods as the original researchers — in essence, double-checking their work by painstakingly re-creating it.

Turns out, only 39 percent of the studies withstood that scrutiny.

Even Mr. Nosek, a self-described congenital optimist, doesn’t try to put a happy spin on that number. He’s pleased that the replicators were able to pull off the project, which began in 2011 and involved innumerable software issues, language differences, logistical challenges, and other assorted headaches. Now it’s done! That’s the upside.

Continued in article

574 Shields Against Validity Testing in Accounting Research---
http://www.trinity.edu/rjensen/TheoryTAR.htm

 


A Blast posted to SSRN on August 21, 2015
"Is There Any Scientific Basis for Accounting? Implications for Practice, Research and Education,"
SSRN, August 21, 2015
Authors

Sudipta Basu,  Temple University - Department of Accounting

Link
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2649263

Abstract:

This essay is based on a keynote speech at the 2014 Journal of International Accounting Research (JIAR) Conference. That talk was built upon a 2009 American Accounting Association (AAA) annual meeting panel presentation titled “Is there any scientific legitimacy to what we teach in Accounting 101?” I evaluate whether accounting practice, regulation, research and teaching have a strong underlying scientific basis. I argue that recent accounting research, regulation and teaching are often based on unscientific ideology but that evolved accounting practice embeds scientific laws even if accountants are largely unaware of them. Accounting researchers have an opportunity to expand scientific inquiry in accounting by improving their research designs and exploring uses of accounting outside formal capital markets using field studies and experiments.

Related literature, including an earlier essay by Sudipta Basu ---
Scroll down at http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm#Essays

"Introduction for Essays on the State of Accounting Scholarship," Gregory B. Waymire, Accounting Horizons, December 2012, Vol. 26, No. 4, pp. 817-819 ---
 

"Framing the Issue of Research Quality in a Context of Research Diversity," by Christopher S. Chapman, Accounting Horizons, December 2012, Vol. 26, No. 4, pp. 821-831
 

"Accounting Craftspeople versus Accounting Seers: Exploring the Relevance and Innovation Gaps in Academic Accounting Research," by William E. McCarthy, Accounting Horizons, December 2012, Vol. 26, No. 4, pp. 833-843
 

"Is Accounting Research Stagnant?" by Donald V. Moser, Accounting Horizons, December 2012, Vol. 26, No. 4, pp. 845-850
 

"How Can Accounting Researchers Become More Innovative? by Sudipta Basu, Accounting Horizons, December 2012, Vol. 26, No. 4, pp. 851-87


A Blast from the Past from 1997
"A Comparison of Dividend, Cash Flow, and Earnings Approaches to Equity Valuation,"
SSRN, March 31, 1997
Authors

Stephen H. Penman, Columbia Business School - Department of Accounting
Theodore Sougiannis, University of Illinois at Urbana-Champaign - Department of Accountancy

Abstract:

Standard formulas for valuing the equity of going concerns require prediction of payoffs "to infinity" but practical analysis requires that they be predicted over finite horizons. This truncation inevitably involves (often troublesome) "terminal value" calculations. This paper contrasts dividend discount techniques, discounted cash flow analysis, and techniques based on accrual earnings when applied to a finite-horizon valuation. Valuations based on average ex-post payoffs over various horizons, with and without terminal value calculations, are compared with (ex-ante) market prices to give an indication of the error introduced by each technique in truncating the horizon. Comparisons of these errors show that accrual earnings techniques dominate free cash flow and dividend discounting approaches. Further, the relevant accounting features of techniques that make them less than ideal for finite horizon analysis are discovered. Conditions where a given technique requires particularly long forecasting horizons are identified and the performance of the alternative techniques under those conditions is examined.

Link
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=15043

Jensen Comment
It's good to teach accounting and finance students at all levels some of the prize-winning literature (accountics scientists are always giving themselves awards) in this type of valuation along with the reasons why these accountics science models deriving equity valuation estimates from financial statements have very little validity.

The main reason of course is that so many variables contributing to equity valuation are not quantified  in the financial statements, particularly intangibles and contingencies.

"Don’t Over-Rely on Historical Data to Forecast Future Returns," by Charles Rotblut and William Sharpe, AAII Journal, October 2014 ---
http://www.aaii.com/journal/article/dont-over-rely-on-historical-data-to-forecast-future-returns?adv=yes

Jensen Comment
The same applies to not over-relying on historical data in valuation. My favorite case study that I used for this in teaching is the following:
Questrom vs. Federated Department Stores, Inc.:  A Question of Equity Value," by University of Alabama faculty members by Gary Taylor, William Sampson, and Benton Gup, May 2001 edition of Issues in Accounting Education ---
http://www.trinity.edu/rjensen/roi.htm

Jensen Comment
I want to especially thank David Stout, Editor of the May 2001 edition of Issues in Accounting Education.  There has been something special in all the editions edited by David, but the May edition is very special to me.  All the articles in that edition are helpful, but I want to call attention to three articles that I will use intently in my graduate Accounting Theory course.

"There Are Many Stock Market Valuation Models, And Most Of Them Stink," by Ed Yardeni, Dr. Ed's Blog via Business Insider, December 4, 2014 ---
http://www.businessinsider.com/low-rates-high-valuation-2014-12

Does low inflation justify higher valuation multiples? There are many valuation models for stocks. They mostly don’t work very well, or at least not consistently well. Over the years, I’ve come to conclude that valuation, like beauty, is in the eye of the beholder. 

For many investors, stocks look increasingly attractive the lower that inflation and interest rates go. However, when they go too low, that suggests that the economy is weak, which wouldn’t be good for profits. Widespread deflation would almost certainly be bad for profits. It would also pose a risk to corporations with lots of debt, even if they could refinance it at lower interest rates. Let’s review some of the current valuation metrics, which we monitor in our Stock Market Valuation Metrics & Models

(1) Reversion to the mean. On Tuesday, the forward P/E of the S&P 500 was 16.1. That’s above its historical average of 13.7 since 1978. 

(2) Rule of 20. One rule of thumb is that the forward P/E of the S&P 500 should be close to 20 minus the y/y CPI inflation rate. On this basis, the rule’s P/E was 18.3 during October. 

(3) Misery Index. There has been an inverse relationship between the S&P 500’s forward P/E and the Misery Index, which is just the sum of the inflation rate and the unemployment rate. The index fell to 7.4% during October. That’s the lowest reading since April 2008, and arguably justifies the market’s current lofty multiple. 

(4) Market-cap ratios. The ratio of the S&P 500 market cap to revenues rose to 1.7 during Q3, the highest since Q1-2002. That’s identical to the reading for the ratio of the market cap of all US equities to nominal GDP.

Today's Morning Briefing: Inflating Inflation. (1) Dudley expects Fed to hit inflation target next year. (2) It all depends on resource utilization. (3) What if demand-side models are flawed? (4) Supply-side models explain persistence of deflationary pressures. (5) Inflationary expectations falling in TIPS market. (6) Bond market has gone global. (7) Valuation and beauty contests. (8) Rule of 20 says stocks still cheap. (9) Other valuation models find no bargains. (10) Cheaper stocks abroad, but for lots of good reasons. (11) US economy humming along. (More for subscribers.)

Accountics Scientists Failing to Communicate on the AAA Commons 
"Frankly, Scarlett, after I get a hit for my resume in The Accounting Review I just don't give a damn ."
www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm

574 Shields Against Validity Challenges in Plato's Cave
http://www.trinity.edu/rjensen/TheoryTAR.htm
 


"Gender and Accounting in Historical Perspective,"

SSRN, August 31, 2015

Author

Amah Kalu Ogbonnaya. Michael Okpara University of Agriculture

Link
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2649066

Abstract:

The work looks at Gender and Accounting in Historical perspective, it to identifies the women that have made impact in accounting profession in the World such as Jennie M. Palen and Lene E Mandelnolin and many others. It also talks about the importance of gender in accounting both in the lower level of management and higher level. Conclusively, there is evidence that issues of gender may be embedded in the functions, practices and process of accounting. It would seem that an organizational practice, accounting could well be impacted by gender effect and that gender research in accounting has a potential role in identifying and investigating those gender affect that influence accounting.

Bob Jensen's historical threads about women in accounting ---
http://www.trinity.edu/rjensen/bookbob2.htm#Women


Enterprise Resource Planning (ERP) --- https://en.wikipedia.org/wiki/Enterprise_resource_planning

An ERP MBA Program at the University of Scranton --- http://elearning.scranton.edu/mba/enterprise-resource-planning-specialization

Jensen Comment
This program surprises me somewhat. Most business schools do not have an ERP specialist on the faculty and have to scramble for an adjunct when they want to seriously cover ERP in the curriculum. It is thus surprising that a university has an entire ERP degree program, especially one that teaches students how to use the complicated software.

Bob Jensen's sadly neglected threads on ERP in academe are at
http://www.trinity.edu/rjensen/245glosap.htm


I'll Put Your Name on Mine if You Put My Name on Yours (and the risks in doing so)
"More Scientific Papers Have Dozens of Authors," Inside Higher Ed, August 11, 20158 ---
https://www.insidehighered.com/quicktakes/2015/08/11/more-scientific-papers-have-dozens-authors?utm_source=Inside+Higher+Ed&utm_campaign=0cac71a7a2-DNU20150811&utm_medium=email&utm_term=0_1fcbc04421-0cac71a7a2-197565045

Jensen Comment
Years ago Cooley, Heck, and Jensen noted the rise in co-authoring in accounting research journals. One of the main reasons is an effort to increase the number of hits in this era where promotion and tenure committees mainly count the number of hits in research journals irrespective of the number of authors on a paper. Also division of labor came about with the popularity of shaking the piñata of purchased databases with econometric models. Some co-authors of accounting research papers are experts in data mining who know almost nothing about accounting. My point is that the rise of computer analysis is one of the causes of the rise in co-authoring.

"An Analysis of Contributors to Accounting Journals Part II: The Individual Academic Journals," by Philip Cooley, Louis Heck, and Bob Jensen, The International Journal of Accounting, Vol.26, 1991, pp. 1-17.

"An Analysis of Contributors to Accounting Journals. Part I: The Aggregate Perfformances," by Philip Cooley, Louis Heck, and Bob Jensen, The International Journal of Accounting, Vol.25, 1990, pp. 202-217. Released in 1991.

One risk of being a co-author is that if one of your co-authors cheats (e.g., faked data or plagiarism) your name gets dragged down in the retraction process. Exhibit A are the 30+ accounting research papers that had Jim Hunton as a co-author ---
http://www.trinity.edu/rjensen/Plagiarism.htm#ProfessorsWhoPlagiarize

Retraction Watch (cheating in research) --- http://retractionwatch.com

Bob Jensen's threads on the rise of cheating in academe ---
http://www.trinity.edu/rjensen/Plagiarism.htm


"7 incredibly useful lessons I learned from Harvard Business School's new online course," by Richard Feloni, Business Insider, August 7, 2015 --- 
http://www.businessinsider.com/lessons-from-harvard-business-school-hbx-core-2015-8#ixzz3iDeO1VK8

Jensen Comment
One thing research teaches you is to beware of absolute declaratives in teaching and writing. Surely the Harvard professor noted exceptions to what Feloni apparently accepts as absolutes. For example, the demand curve and variable costs are critical considerations for setting prices.

Fixed costs can be misleading when making short-term pricing decisions, but ignoring fixed costs over the long-term can be a disaster. A lot depends upon the competition. For example, there's a lot of competition among lawn care service providers up in these mountains, many of whom are young people with little experience in  business management. Suppose Joe borrows heavily to buy mowing machines  and other equipment for a total of $25,000 plus the $20,000 he pays for a used truck and an equipment-hauling trailer.

Joe estimates his variable costs (e.g., for fuel and his minimum-wage helper) on a Job 101 to be $$3,000 for next year. His competitors are bidding $5,000 or more for Job 101 for the year. Joe decides to bid $4,000 for Job 101. If he gets this and other jobs under the same price-cutting strategy that ignores recovering his fixed costs he may find that his ignoring of fixed cost recovery eventually drives him out of business.

You may shake your head at the naïveté of Joe. But I found that owners of a nearby hotel were totally ignoring depreciation in calculating their prices and profits. The asked me why their tax preparer said they were actually operating at a loss By the time they talked to me it was too late. They recently declared bankruptcy, and their hotel was sold by their bank.

Also in the article, Feloni praises the Central Limit Theorem ---
https://en.wikipedia.org/wiki/Central_limit_theorem
Did his professor overlook a few limitations?
http://www.ma.utexas.edu/users/mks/statmistakes/modelcheckby%20factortheory.html


How to Mislead With Statistics and Visualization

"I'm Business Insider's math reporter, and these 10 everyday things drive me insane, by Andy Kiersz, Business Insider, August 2, 2015 ---
http://www.businessinsider.com/things-annoying-for-a-quant-reporter-2015-4 

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

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


From Econometrics Beat by David Giles on August 4, 2015 ---
http://davegiles.blogspot.com/2015/08/august-reading.html

August reading

 
Here's my (slightly delayed) August reading list:
  • Ahelegbey, A. F., 2015. The econometrics of networks: A review. Working Paper  2015/13, Department of Economics, University of Venice.
  • Clemens, M. A., 2015. The meaning of failed replications: A review and proposal. IZA Discussion Paper No.9000.
  • Fair, R. C., 2015. Information limits of aggregate data. Discussion Paper No. 2011, Cowles Foundation, Yale University.
  • Phillips, P. C. B., 2015. Inference in near singular regression. Discussion Paper No. 2009, Cowles Foundation, Yale University.
  • Stock, J. H. and M. W. Watson, 2015. Core inflation and trend inflation. NBER Working Paper 21282.
  • Ullah, A. and X. Zhang, 2015. Grouped model averaging for finite sample size. Working paper, Department of Economics, University of California, Riverside.

 


"Public Accounting And the Myth of the Public Interest," by Wm. Dennis Huber Capella University. SSRN, August 5, 2015
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2640375
Also at Journal of Accounting, Ethics and Public Policy, Vol. 16, No. 2, 2015

Abstract:     
For decades it has been drummed into the conscience, the consciousness, and the subconscious of accounting students, researchers, and practitioners alike that the public interest is the sine qua non of the public accounting profession. Accounting researchers have attempted to explore the multi-faceted nature of what is referred to as the public interest based on the assumption that the public interest actually exists in the public accounting profession (including professional accounting organizations, government and quasi-government regulatory agencies, and auditing and accounting standard setting bodies). This paper questions that assumption by conducting an exegesis of the texts of the legislative findings, statutes, and purposes and missions of professional accounting organizations, government and quasi-government regulatory agencies, and auditing and accounting standard-setting bodies. It concludes that the assumption that the public interest exists in the public accounting profession is a myth that disguises what interest the public accounting profession actually serves and blinds the public from understanding what is meant by serving and protecting the public interest.

Jensen Comment

This strikes me as an illustrative  study where the researcher(s) cannot see the forest due to being lost among the trees. It seems to me that broader research questions should be asked.

For example, how long before investors will no longer put their savings in capital markets where the companies do not have "public interest" auditing and accounting standards?

It only takes a few rotten apples in the barrel before investors will shun the entire barrel unless the remaining apples are inspected and certified under accepted testing standards. For example, after Bernie Madoff scammed over a billion dollars from his hedge fund customers now are insisting that funds be audited by reputable audit firms.

Auditing firms that thumb their noses a public interest standards will eventually implode much like Andersen. It was discovered that Andersen's auditing reputation deteriorated to a point where having Andersen as an auditor raised a firm's cost of capital.

The day Arthur Andersen loses the public's trust is the day we are out of business.  
Steve Samek, Country Managing Partner, United States, on Andersen's Independence and Ethical Standards CD-Rom, 1999.

It turns out that Steve Samek was correct beyond his worst nightmares ---
http://www.trinity.edu/rjensen/fraudEnron.htm

One might argue that deep pockets auditors do not need accounting and auditing public interest standards as long as they "insure" investment returns of public investors. This would be a foolhardy business model that cannot be sustained since so many factors affecting investment returns and bonds cannot be measured in actuary science.

I admire your effort, Dennis, to study legislative and regulatory texts --- the leaves and limbs on the trees. However, I do not buy into your conclusions about the forests themselves. I also question whether your subjective conclusions will standup to independent validity tests by replication.

Hi Dennis,

First let me quote an example of your subjective reasoning below:

It is not the public interest that is protected, but the market interest . It is not that the public interest is synonymous with the market interest but that t he use of the term public interest deflects the public’s attention away from understanding that the purpose of the SEC and the securities laws is to protect the market interest.

You seem to think that all academics in finance and accounting will agree with your implication that "market interest" is not and cannot be in the "public interest." Firstly, you have not defined your terms to a point where "market interest" always is or  is not in the "public interest."

Certainly if the public is participating in capital markets the public interest under my perception of public interest  is is highly correlated with market interest in many ways. For one, thing it's in the market's interest that there are participants. It's in the public interest that markets are efficient in the strong form --- where insiders are most certainly discouraged, usually by regulators, from using inside information to exploit investors not privileged to the profitable inside information. If markets are not efficient in the strong form capital markets are not sustainable since investors will soon grow weary of being exploited by insiders.

If I were looking for counter arguments to your reasoning I would find texts in regulations that discourage insider trading. For example, the SEC now rewards whistleblowers that blow the whistle in insiders exploiting inside information. That it seems to me is intended to be in the public interest and the market interest.

Secondly, you make what I think is an absurd statement that you do and cannot support to the satisfaction of anybody who has ever studied logic:

But t he FASB makes no claim to serve or protect the public interest.

Academics can counter this by only having to find one example where the FASB has made a claim to protect the public interest. My first example would be in the FASB's own statement of its mission as an agent of the SEC in most respects:

Mission (of the FASB)

The mission of the FASB is to establish and improve standards of financial accounting and reporting that foster financial reporting by nongovernmental entities that provides decision-useful information to investors and other users of financial reports.

That mission is accomplished through a comprehensive and independent process that encourages broad participation, objectively considers all stakeholder views, and is subject to oversight by the Financial Accounting Foundation’s Board of Trustees.

My point is that without using the term "public interest" there can be no other conclusion that the FASB believes it's providing  decision-useful information to public investors who are not insiders, thereby providing useful information in the public interest. We can dispute the success of the FASB, but I hardly think it's intent is an absolute  lie.

For other illustrations I recommend that you read the following history article:
"The Trueblood Study Group on the Objectives of Financial Statements (1971-73): A Historical Study," by Stephen A. Zeff, SSRN, August 23, 2014 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2485887

. . .

Reed Parker may have bee n the member who most championed this objective. He said, ‘As a professional investment analyst, I am especially proud of this Trueblood Committee finding because it recognizes the public interest in broad capital markets and the related desire to avoid enlarging the inherent advantage of the professional investor over the non-professional’ (1974: 138). Oscar Gellein also seemed to be a support ...

You also claim the following:

“And the public interest” is less easily understood since the public does not use audit reports no matter how informative, accurate, or independent they may be.

Where is your support?
I can counter this claim by finding one investor who has studied one audit report. I found one --- me!

Secondly, it's in the public interest even if audit reports are used indirectly through media disclosures. For example, if the WSJ reports that Audit Firm A reported a going-concern exception for Client  A an investor who learned of this from the WSJ nevertheless benefitted from the report of Audit Firm A.

I could go on, but one of the tests of replication is finding a researcher who will agree with both your implicit assumptions and  logic. I don't think there are many academic researchers in accounting and finance who would not find exceptions to your implicit assumptions and your logic throughout this paper.

Just because journal referees agree to recommend publication does not mean that they agree fully with the methodology or the conclusions. Sometimes they prefer to publish thought-provoking articles. Your article is thought-provoking. It is, however, highly vulnerable to academic dispute of the implicit and subjective assumptions, definitions, logic, and conclusions.

Bob Jensen


"Criminals are manipulating the stock market and regulators can't seem to stop it," by Jonathan Marino, Business Insider, August 8, 2015 --- 
http://www.businessinsider.com/criminals-are-manipulating-the-stock-market-and-regulators-cant-seem-to-stop-it-2015-8#ixzz3iJf3JLg3

On May 14 a Bulgarian stock schemer is alleged to have moved the share price of consumer company Avon Products by making a false filing to the Securities and Exchange Commission. 

Three months later, nothing is stopping someone else from doing the very same thing. 

The Securities and Exchange Commission says it's not making changes to its Edgar filing system.

A spokeswoman for the SEC told Business Insider: "Filers are responsible for the accuracy of their filings and as demonstrated face enforcement actions for false filings." 

The SEC didn't answer questions about taking further steps to prevent fraudulent filings. 

The false Avon filing, which was widely disseminated by the Edgar system, is alleged to have been created by a Bulgarian man called Nedko NedevThe filing said that a fictitious private equity firm called PTG Capital would submit a bid to buy the very real and publicly-listed cosmetics company Avon.

Nedev allegedly made only $5,000, according to the SEC, which also procured a court order to freeze his assets. But the company’s market cap exploded by $600 million that day, stunning traders. 

It's a difficult situation for the SEC, which lacks the resources to have a person visually monitor every filing it processes before sharing it with the public. The volume of paperwork the agency otherwise would have to manually confront would also overwhelm its staff and budget.

Read more:
 http://www.businessinsider.com/criminals-are-manipulating-the-stock-market-and-regulators-cant-seem-to-stop-it-2015-8#ixzz3iJfdSVbe

Stock Market Quotations
by Sophronia Tibbs
Published by John Day Company
1926
Blogged by Barry Ritholtz on August 6, 2015 ---
http://www.ritholtz.com/blog/2015/08/stock-market-quotations-by-sophronia-tibbs/


The End of Banking
by Jonathon McMillan
ZeroOne Economics ZMBH
2014
http://www.endofbanking.org/the-author/

 

What is it about? --- http://www.endofbanking.org/book/

 

The End of Banking explains why a financial system without banking is both desirable and possible in the digital age.

Table of contents

List of Illustrations

List of Acronyms

Preface

Introduction

 

PART ONE – BANKING IN THE INDUSTRIAL AGE

1. The Need for Banking

2. The Mechanics of Traditional Banking

3. The Problems with Banking

 

PART TWO – BANKING IN THE DIGITAL AGE

4. Banking Is Not Limited to Banks

5. The Mechanics of Shadow Banking

6. The Financial Crisis of 2007–08

7. The Financial System after 2008

 

PART THREE – A FINANCIAL SYSTEM FOR THE DIGITAL AGE

8. Banking Is No Longer Needed

9. Accounting for the Future: End Banking

10. The Role of the Public Sector

11. The Big Picture

Quotation from http://www.endofbanking.org/the-author/

. . .

What happened in the financial services industry is the opposite of what happened in many other service industries, for example, accommodation, catering, or transportation. Just think of how simple renting a room, choosing a restaurant or taking a taxi ride have become with innovative companies such as AirBnB, Yelp or Uber. Innovation has made life much easier and services much more transparent.

Not so in the financial sector: Innovation made the financial system much more complex, opaque, inefficient, and fragile.

Continued in article

Bob Jensen's Rotten to the Core threads ---
http://www.trinity.edu/rjensen/FraudRotten.htm


The Trouble with Lawyers
by Deborah L. Rhode
Oxford University Press
2015 --- Click Here
http://www.amazon.com/gp/product/0190217227/ref=as_li_qf_sp_asin_il_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=0190217227&linkCode=as2&tag=lawproblo-20&linkId=QMAEC7UH2BRGV4B7

Reviewed by Paul Caron, TaxProf Blog, August 6, 2015 ---
http://taxprof.typepad.com/taxprof_blog/2015/08/rhode-the-trouble-with-lawyersstrong.html

. . .

Deborah Rhode's The Trouble with Lawyers is a comprehensive account of the challenges facing the American bar. She examines how the problems have affected (and originated within) law schools, firms, and governance institutions like bar associations; the impact on the justice system and access to lawyers for the poor; and the profession's underlying difficulties with diversity. She uncovers the structural problems, from the tyranny of law school rankings and billable hours to the lack of accountability and innovation built into legal governance-all of which do a disservice to lawyers, their clients, and the public.

The Trouble with Lawyers is a clear call to fix a profession that has gone badly off the rails, and a source of innovative responses.

 

Brian Leiter (University of Chicago) : American Legal Education: The First 150 Years ---
http://www.huffingtonpost.com/brian-leiter/american-legal-education-_b_4581672.html


"Law Students Sue Their Law Schools for Deceptive Employment Reporting Practices," by Paul Caron, TaxProf Blog, March 11, 2014 ---
http://taxprof.typepad.com/taxprof_blog/2014/03/law-students-.html


The Law School Bubble Bursts
"Pop Goes the Law," by Steven J. Harper, Chronicle of Higher Education's Chronicle Review, March 11, 2013 ---
http://chronicle.com/article/Pop-Goes-the-Law/137717/?cid=cr&utm_source=cr&utm_medium=en

The Law School Admission Council recently reported that applications were heading toward a 30-year low, reflecting, as a New York Times article put it, "increased concern over soaring tuition, crushing student debt, and diminishing prospects of lucrative employment upon graduation." Since 2004 the number of law-school applicants has dropped from almost 100,000 to 54,000.

Good thing, too. That loud pop you're hearing is the bursting of the law bubble—firms, schools, and disillusioned lawyers paying for decades of greed and grandiosity. The bubble grew from a combination of U.S. News-driven ranking mania, law schools' insatiable hunger for growth, and huge law firms' obsession with profit above all else. Like the dot-com, real-estate, and financial bubbles that preceded it, the law bubble is bursting painfully. But now is the time to consider the causes, take steps to soften the impact, and figure out how to keep it from happening again.

The popular explanation for the recent application plummet is that information about the profession's darker side, including the recession's exacerbation of the attorney glut, has finally started reaching prospective law students. Let's hope so. Marginal candidates and those choosing law school by default might be opting out, and the law-school market may finally be heading toward self-correction.

Still, the bubble has been huge, and the correction will need to be, too. There were 68,000 applicants to the fall of 2012 entering class, while the total number of new, full-time jobs requiring a law degree is 25,000 a year and falling. The onset of the recession drove more students to consider law school as a place to wait out the economic collapse. The number of June 2009 and 2010 admissions tests had surged to almost 33,000. To put that in historical perspective, the June 1987 testing session drew just under 19,000 students. The reduction in the number of LSAT takers in the summer of 2011 to 27,000 merely brought it back to 2008 levels.

Continued in article

Bob Jensen's threads on law schools ---
http://www.trinity.edu/rjensen/HigherEdControversies.htm#OverstuffedLawSchools


"Using Sales Revenue as a Performance Measure," by Rong Huang, Carol A. Marquardt , and Bo Zhang, SSRN, July 28, 2015 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2636950 

Abstract:
This study provides the first systematic examination of the compensation contracting relevance of sales revenue. We document an increasing temporal trend in the explicit use of sales revenue as a performance measure in CEO annual bonus contracts, which is mirrored by a similar increase in the relative pay-sensitivity of revenues versus earnings over time. We also predict and find that sales revenue is more likely to be used as an explicit performance measure in annual bonus contracts when sales revenue is relatively more informative about firm value than accounting earnings and when firms follow a growth-focused organizational strategy. In addition, we find that the pay-sensitivity of revenue is significantly more positive for firms that explicitly reward revenue performance, as expected, but also that earnings pay-sensitivity is not significantly different from zero for these firms. This paper extends our current understanding of the selection of performance measures in compensation contract design and raises new questions about the validity of the traditional implicit tests in examining questions related to executive pay.

Jensen Comment
In the tech era it has been extremely common for companies to focus revenue trends when they have nothing to brag about in terms of earnings. This leads to all sorts of game playing in terms of trying to inflate reported earnings and standard setter discouragements of some of the games ---
http://www.trinity.edu/rjensen/ecommerce/eitf01.htm 


"Goodwill Impairment Test Disclosures Under IAS 36: Disclosure Quality and its Determinants in Europe," by Marius Gros and Sebastian Koch, SSRN, Updated  July 20, 2015 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2636792

Abstract:
The European Securities and Markets Authority (EMSA) criticizes the low disclosure quality and boilerplate disclosures in the accounting for goodwill among European listed companies, but it does not identify possible causes. Prior research also finds generally low compliance with disclosure requirements but usually does not consider disclosure quality or systematically examine the drivers of the observed levels of either compliance or disclosure quality. In this study, we analyze compliance and disclosure quality among European listed companies. We find low levels of compliance and disclosure quality and both are positively associated with firm size, goodwill intensity, enforcement and free float. In addition, disclosure quality is positively affected by board skills and company growth but negatively affected by proprietary cost. Our findings are of interest to regulators and enforcers who intend to increase the quality of disclosures. Moreover, we direct the attention of capital market participants to large differences in disclosure quality and the associated firm and governance characteristics.

"Determinants of Goodwill Impairment: International Evidence," by Martin Glaum, Wayne R. Landsman, and Sven Wyrwa, SSRN, May 20, 2015 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2608425

Abstract:     
This study investigates the determinants of firms’ decision to impair goodwill under IFRS. Our empirical analysis is based on data for the years 2005 to 2011 for 8,110 non-financial firm-years and 1,358 financial firm-years from 21 countries where firms apply IFRS. We specifically investigate which role national enforcement systems play for firms’ decisions whether or not to impair goodwill. We find that firms’ decisions are related to measures of performance, but also to proxies for managerial and firm-level incentives. We also find that goodwill impairment is associated with lagged stock-market return, suggesting that firms tend to delay necessary impairment. Further investigations reveal that the timeliness of goodwill impairment depends on the strength of national accounting and auditing enforcement systems: in countries with weak enforcement systems firms tend to delay necessary goodwill impairments, while firms in countries with strong enforcement systems tend to write off goodwill in a timely fashion, both before and after the Financial Crisis. However, even in countries with strict enforcement impairment decisions appear to be influenced by managerial and firm-level incentives, such as CEO reputation concerns and by management’s preferences for smooth earnings.

Bob Jensen's threads on goodwill impairment ---
http://www.trinity.edu/rjensen/Theory02.htm#Impairment


10 Keys to Evaluating Budgeting Software --- Click Here
http://ww2.cfo.com/sponsored/10-keys-evaluating-budgeting-software/?utm_source=google&utm_medium=email&utm_campaign=Centage%20Native%20Ad%20on%2010%20Keys%20Budgeting&mkt_tok=3RkMMJWWfF9wsRokv6rOeu%2FhmjTEU5z14uwvX6WxlMI%2F0ER3fOvrPUfGjI4DTsVrN6%2BTFAwTG5toziV8R7XBLM1s0t4QXxPg


Accounting Faculty Blogs on Managerial Accounting

MAAW is a great reference site in general.  Jim Martin's blog postings are infrequent, but many of them are postings about managerial and cost accounting --- his academic specialty.
http://maaw.blogspot.com/

AccountingEducation.com is covers the waterfront on accounting topics, one of which is managerial accounting ---
http://www.accountingeducation.com/
This was a pioneer blogging site and is perhaps the best site on international accounting news.

Martin's Accounting Blog --- http://martinjquinn.com/

Accounting Coach --- http://www.accountingcoach.com/blog/what-is-cost-accounting
This does not change much over time.

Bob Jensen's Additions to New Bookmarks arguably has the most postings over time on managerial and cost accounting, but they are mixed in with tens of thousands of other postings ---
http://www.trinity.edu/rjensen/Bookurl.htm
Many of New Bookmarks blog  postings on managerial accounting are archived at
http://www.trinity.edu/rjensen/Theory02.htm#ManagementAccounting

You might also note Bob Jensen's threads that cover various managerial accounting topics mixed in with other topics ---
http://www.trinity.edu/rjensen/Threads.htm


Thank you Jim McKinney for the heads up on August 5, 2015

. . .

Broadcast This Fall on www.sechistorical.org 

All broadcasts are free and accessible worldwide without prior registration.

 

September 29th at 5:00 pm ET Morgan Lewis Presents 2015: Burning Issues at the SEC.  Moderated by Professor Jill Fisch, University of Pennsylvania  Law School, with Timothy Burke, Morgan Lewis & Bockius LLP; Andrew Calamari, Director, SEC New York Regional Office; and Merri Jo Gillette, Morgan Lewis & Bockius LLP.  Made possible through the generous support of Morgan Lewis & Bockius LLP.

 

October 22nd at 2:00 pm ET Deloitte Fireside Chat XI: Disclosure Effectiveness.  Moderated by Dr. James McKinney, University of Maryland, with Jan Hauser, General Electric Company; James Kroeker, Financial Accounting Standards Board; and Thomas Omberg, Deloitte LLP.  Made possible through the generous support of Deloitte LLP.

 

November 12 at 2:00 pm ET The Experts Forum: The Impact of Falling Oil Prices on Financial Reporting.  Moderated by Dr. Craig Lewis, Vanderbilt University; with Christopher Champion, Anadarko Petroleum Corporation; Gary Goolsby, FTI Consulting; and David Woodcock, Jones Day.  Made possible through the generous support of FTI Consulting and Compass Lexecon.


RANKED Based On Default Swap Market: The world's national debts, from safest to most Risky ---
http://uk.businessinsider.com/the-riskiest-sovereign-bonds-ranked-2015-8#ixzz3imnTxc63


PwC:  Fair value measurements - 2015 global edition ---
http://www.pwc.com/us/en/cfodirect/publications/accounting-guides/fair-value-measurements-asc-820.jhtml?display=/us/en/cfodirect/issues/accounting-reporting

Business Segment --- https://en.wikipedia.org/wiki/Multidimensional_organization

PwC 2015 Video:  Segment reporting: determining operating segments ---
http://www.pwc.com/us/en/cfodirect/multimedia/videos/segment-reporting-determining-operating-segments.jhtml


EY:  A comprehensive guide to Lease accounting,  Revised August 201 5 --- Click Here
http://www.ey.com/Publication/vwLUAssetsAL/FinancialReportingDevelopments_BB1793_LeaseAccounting_14August2015/$FILE/FinancialReportingDevelopments_BB1793_LeaseAccounting_14August2015.pdf

Bob Jensen's threads on lease accounting controversies ---
http://www.trinity.edu/rjensen/Theory02.htm#Leases


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

EY:  FASB proposes allowing hedge accounting relationships to continue after novations ---
http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB3029_Novations_6August2015/$FILE/TothePoint_BB3029_Novations_6August2015.pdf

What you need to know

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

 

• The proposal would allow a hedge accounting relationship to continue uninterrupted as long as all of the other hedge accounting criteria are met, including the expectation that the hedge will be highly effective considering the creditworthiness of the new counterparty to the derivative contract .

• Comments are due by 5 October 2015

From Bob Jensen's Glossary on Hedge Accounting ---
http://www.trinity.edu/rjensen/acct5341/speakers/133glosf.htm

Dedesignation =

a change in status of a designated hedge such that all or a portion of the hedged amounts must be taken into current earnings rather being deferred.  Dedesignation for cash flow hedges is discussed in Paragraph 30 on Page 21 of FAS 133.  If a cash forecasted transaction becomes a firm commitment, its corresponding cash flow hedge must be dedesignated.  Controversies between the FASB's distinction between forecasted transactions versus firm commitments are discussed in Paragraphs 324-325 on Page 157 of FAS 133.

An illustration of dedesignation. is given in Example 9 in Paragraphs 165-172 on Pages 87-90 of FAS 133.  Example 9 illustrates a forward contract cash flow hedge of a forecasted series of transactions in a foreign currency.  When the forecasted transactions become accounts receivable, a portion of the value changes in the futures contract must be taken into current earnings rather than other comprehensive income.  Another illustration of dedesignation. is in Example 7 of FAS 133, pp. 79-80, Paragraphs 144-152.  See derecognition and  hedge.

Paul Pacter states the following at http://www.iasc.org.uk/news/cen8_142.htm 

IAS 39
A financial asset is derecognised if

  • the transferee has the right to sell or pledge the asset; and

  • the transferor does not have the right to reacquire the transferred assets. (However, such a right does not prevent derecognition if either the asset is readily obtainable in the market or the reacquisition price is fair value at the time of reacquisition.)

FAS 133
In addition to those criteria, FASB requires that the transferred assets be legally isolated from the transferor even in the event of the transferor’s bankruptcy.

 


EY:  FASB simplifies financial reporting by employee benefit plans ---
http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB3026_EBPSimplifications_31July2015/$FILE/TothePoint_BB3026_EBPSimplifications_31July2015.pdf

What you need to know

• T he FASB eliminated requirement s that employee benefit plan s measure the fair value of fully benefit - responsive investment contracts and provide the related fair value disclosures .

• The guidance require s plan s to disaggregate their investments measured using fair value by general type , either on the face of the financial statements or in the notes , and self - directed brokerage accounts are one general type.

• Plans are no longer required to disclose the net appreciation/depreciation in fair value of investments by general type or individual investments equal to or greater than 5% of net assets available for benefits.

• A plan with a fiscal year end that doesn’t coincide with the end of a calendar month is allowed to measure its investments and investment - related accounts using the month end closest to its fiscal year end.

• The guidance is effective for fiscal years beginning after 15 December 2015. Earlier application is permitted.


Liar Loans:  Canadians Taking Cheating Lessons from USA Mortgage Lenders
"Liar loans' are popping up in Canada's housing bubble," by Wolf Richter, Business Insider, July 31, 2015 ---
http://www.businessinsider.com/liar-loans-pop-up-canada-housing-bubble-2015-7

For a long time, the conservative mortgage lending standards in Canada, including a slew of new ones since 2008, have been touted as one of the reasons why Canada’s magnificent housing bubble, when it implodes, will not take down the financial system, unlike the US housing bubble, which terminated in the Financial Crisis.

Canada is different. Regulators are on top of it. There are strict down payment requirements. Mortgages are full-recourse, so strung-out borrowers couldn’t just mail in their keys and walk away, as they did in the US. And yada-yada-yada.

But Wednesday afterhours, Home Capital Group, Canada’s largest non-bank mortgage lender, threw a monkey wrench into this theory.

Through its subsidiary, Home Trust, the company focuses on “alternative” mortgages: high-profit mortgages to risky borrowers with dented credit or unreliable incomes who don’t qualify for mortgage insurance and were turned down by the banks. They include subprime borrowers.

So it disclosed, upon the urging of the Ontario Securities Commission, the results of an investigation that had been going on secretly since September: “falsification of income information.” Liar loans.

Liar loans had been the scourge of the US housing bust. Lenders were either actively involved or blissfully closed their eyes. And everyone made a ton of money.


Read more:
http://wolfstreet.com/2015/07/30/canadas-highly-touted-conservative-mortgage-standards-sink-into-liar-loan-scandal/#ixzz3hYmb4Jr6
 

Subprime: Borne of Greed, Sleaze, Bribery, and Lies (including the credit rating agencies) ---
http://www.trinity.edu/rjensen/2008Bailout.htm#Sleaze

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


What good is the study of ethics if it doesn't make us more ethical? It breaks down strictures and transports us to wild, unpredictable places.
"Cheeseburger Ethics," by Eric Schwitzgebel, AEON, 2015 ---
http://aeon.co/magazine/philosophy/how-often-do-ethics-professors-call-their-mothers/

. . .

What’s more, abstract doctrines lack specific content if they aren’t tacked down in a range of concrete examples. Consider the doctrine ‘treat everyone as moral equals who are worthy of respect’. What counts as adhering to this norm, and what constitutes a violation of it? Only when we understand how norms play out across examples do we really understand them. Living our norms, or trying to live them, forces a maximally concrete confrontation with examples. Does your ethical vision really require that you free the slaves on which your lifestyle crucially depends? Does it require giving away your salary and never again enjoying an expensive dessert? Does it require drinking the hemlock if your fellow citizens unjustly demand that you do so?

Few professional ethicists really are cheeseburger ethicists, I think, when they stop to consider it. We do want our ethical reflections to improve us morally, a little bit. But here’s the catch: we aim only to become a little morally better. We cut ourselves slack when we look at others around us. We grade ourselves on a curve and aim for B+ rather than A. And at the same time, we excel at rationalisation and excuse-making – maybe more so, the more ethical theories we have ready to hand. So we end, on average, about where we began, behaving more or less the same as others of our social group.

Continued in article


"Miller Energy executives charged with accounting fraud," by Jordan Blum, FuelFix, August 6, 2015 ---
http://fuelfix.com/blog/2015/08/06/miller-energy-executives-charged-with-accounting-fraud/#31744101=0&31510103=0 

The U.S. Securities and Exchange Commission is charging a small Houston-based oil company with accounting fraud and falsely inflating the values of its assets.

The SEC is levying the charges at current Miller Energy’s Chief Operating Officer David M. Hall and former Chief Financial Officer Paul W. Boyd, who left the company in 2011. The audit team leader at the company’s former independent auditor also was charged.

The financially struggling company, which focuses its exploration and production in Alaska, was delisted from the New York Stock Exchange after July 30 because its stock was trading under $1 a share since April 22. Miller Energy relocated from Tennessee to Houston earlier this year.

The SEC’s Division of Enforcement alleges that, after acquiring assets in Alaska’s Cook Inlet area in late 2009, Miller Energy overstated their value by more than $400 million, boosting the company’s net income and total assets. The allegedly inflated valuation turned a penny-stock company into one that reached a 2013 high of nearly $9 per share, the SEC stated.

Continued in article

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


A former HP executive assistant charged her $100,000 spa vacation to the company ... and will go to prison ---
http://www.businessinsider.com/a-former-hp-executive-assistant-charged-her-100000-spa-vacation-and-apple-shopping-spree-to-the-company-and-is-now-going-to-jail-2015-8

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


Brazil's President could be brought down by a massive accounting scandal ---
http://www.businessinsider.com/r-fiscal-probe-for-brazils-rousseff-poses-impeachment-threat-2015-8#ixzz3iWwU1D2H

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


Nine charged in U.S. insider trading scheme involving hackers ---
http://www.reuters.com/article/2015/08/11/us-cybercybersecurity-hacking-stocks-arr-idUSKCN0QG1EY20150811

An alliance of U.S.-based stock traders and computer hackers in Ukraine made as much as $100 million in illegal profits over five years after stealing confidential corporate press releases, U.S. authorities said on Tuesday.

The charges mark the first time that U.S. prosecutors have brought criminal charges for a securities fraud scheme that involved hacked inside information, in this case 150,000 press releases from distributors Business Wire, MarketWired and PR Newswire.

"This is the story of a traditional securities fraud scheme with a twist - one that employed a contemporary approach to a conventional crime," FBI Assistant Director-in-Charge Diego Rodriguez said in a statement.

Prosecutors said that hackers based in Ukraine infiltrated press releases before they were due to be released by the distributors. They included those that traders had put on "shopping lists" of releases that they wanted, prosecutors said.

The hackers created a "video tutorial" to help traders view the stolen releases, and were paid a portion of the profits from trades based on information contained there, prosecutors said.

Continued in article

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


"Public Audit Oversight and Reporting Credibility: Evidence from the PCAOB Inspection Regime,"
SSRN
August 7, 2015

Authors

Brandon Gipper University of Chicago - Booth School of Business

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

Mark G. Maffett University of Chicago - Booth School of Business

Link
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2641211

Abstract

This paper examines how audit oversight by a public-sector regulator affects investors’ assessments of reporting credibility. We analyze whether the introduction of the Public Company Accounting Oversight Board (PCAOB) and its inspection regime have strengthened capital-market responses to unexpected earnings releases, as theory predicts when reporting credibility increases. To identify the effects, we use a difference-in-differences design that exploits the staggered introduction of the inspection regime, which affects firms at different points in time depending on their fiscal year-ends, auditors, and the timing of PCAOB inspections. We find that capital-market responses to unexpected earnings increase significantly following the introduction of the PCAOB inspection regime. Corroborating these findings, we also find an increase in abnormal volume responses to firms’ 10-K filings after the new regime. Overall, our results are consistent with public audit oversight increasing the credibility of financial reporting.

Bob Jensen's threads on audit firm professionalism ---
http://www.trinity.edu/rjensen/Fraud001c.htm


"Accounting for Universities’ Impact: Using Augmented Data to Measure Academic Engagement and Commercialization by Academic Scientists,"
SSRN
August 3, 2015

Authors

Markus Perkmann Imperial College London

Riccardo Fini University of Bologna - Department of Management ; Imperial College London

Jan-Michael Ross Imperial College London

Ammon Salter University of Bath - School of Management

Cleo Silvestri Imperial College London

Valentina Tartari Copenhagen Business School - Department of Innovation and Organizational Economics

Link
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2639125

Abstract

We present an approach that aims to comprehensively account for scientists’ academic engagement and commercialization activities. While previous research has pointed to the economic and social impact of these activities, it has also been hampered by the difficulties of accurately quantifying them. Our approach complements university administrative records with data retrieved from external sources and surveys to quantify academic consulting, patenting and academic entrepreneurship. This allows us to more accurately account for ‘independent’ activity, i.e. academic engagement and commercialization outside the formal university channels and often not recorded by universities. We illustrate this approach with data for 10,000 scientists at Imperial College London. Results indicate that conventional approaches systematically underestimate the extent of academic scientists’ impact-relevant activities by not accounting for independent activities. We find a larger proportion of scientists to be externally active, yet with the exception of consulting we find no significant difference between individuals involved in supported (university-recorded) and independent activity, respectively. Our study contributes to work concerned with developing appropriate and accurate research metrics for demonstrating the public value of science.

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


New and Forthcoming Paperback Titles from Routledge Accounting

Coming Soon:

 


Ernst & Young trying to figure out how it's auditors missed  a multi-year $1+ billion accounting fraud in Toshiba's financial statements
"E&Y Japan arm launches internal probe of Toshiba audit," Reuters Technology, July 31, 2015 ---
http://www.reuters.com/article/2015/08/01/us-toshiba-accounting-e-y-idUSKCN0Q62UD20150801

The Japanese affiliate of Ernst & Young LLC has launched an in-house investigation (using over 150 investigators) into its audit of Toshiba Corp in the wake of the electronics maker's $1.2 billion accounting scandal, a person with knowledge of the matter said.

Ernst & Young ShinNihon LLC has established a team of about 20 executives to investigate whether there were any problems with how it conducted its audits of Toshiba, the person said.

The person spoke on condition of anonymity. No one could be reached at the company's offices in Tokyo on Saturday.

Continued in article

Jensen Comment
Audit firms traditionally defend themselves that they're not hired to be fraud detectors unless the frauds materially affect financial statements. The Toshiba accounting fraud had a monumental impact on financial statements.

From the CFO Journal's Morning Ledger on July 15, 2015

Toshiba executives likely to step down over accounting scandal
http://www.wsj.com/articles/toshiba-executives-expected-to-step-down-over-accounting-scandal-1436870307?mod=djemCFO_h
Toshiba Corp.
President Hisao Tanaka and several other executives are likely to step down soon over an accounting scandal at the Japanese company involving profit inflated by more than $1 billion. The other executives that people familiar with the situation expect to leave Toshiba include Norio Sasaki, a former president who is currently vice chairman. The board is also likely to undergo significant membership changes.

. . .

Toshiba has detailed a number of cases in which business units failed to book adequate costs for executing contracts, causing the company to overstate profit. Toshiba said in June that it would need to reduce operating profit for the 2009 through 2013 fiscal years by a total of ¥54.8 billion. People familiar with the matter said the figure has now ballooned to at least ¥150 billion ($1.2 billion). Toshiba declined to comment.

During those years, the company’s combined operating profit totaled ¥1.05 trillion, so even at the higher level, the reduction would amount to less than 15% of the company’s operating profit over the five years.

Continued in WSJ article

Bob Jensen's threads on creative accounting ---
http://www.trinity.edu/rjensen/Theory02.htm#Manipulation

Bob Jensen's threads on EY ---
http://www.trinity.edu/rjensen/Fraud001.htm

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


"What Law Schools Can Learn From Medical Schools," by Paul Caron, TaxProf Blog, August 18. 2015 ---
http://taxprof.typepad.com/taxprof_blog/2015/08/what-law-schools-can-learn-from-medical-schools.html

Jensen Comment
What schools of accountancy could learn from both medical and law schools is that becoming a good starting professional takes more years of graduate study than what accountancy masters degree students are getting before they graduate and take the CPA examination. Firstly there are 3-5 years of full-time graduate study in law and medicine. And then in medicine there are 1-5 years of low-paid residency when learning specialties like neurosurgery and psychiatry. In the article above, however, Professor Caron focuses more on studies of ethics rather than study of professional specialites.


From the CPA Newsletter on August 21, 2015

How the Affordable Care Act changed Medicare taxes
http://www.thetaxadviser.com/issues/2015/aug/navigating-murky-medicare-tax-waters-for-small-business-owners.html
The health care law added an additional Medicare tax on wages above a certain threshold for high-income taxpayers and the net investment income tax, which applies to unearned income. This article explains how these new taxes affect high-income individuals and small-business owners. The Tax Adviser (8


Most of the trillions of fiat dollars the Federal Reserve Bank has pumped into the U.S. economy as part of its Quantitative Easing (QE) strategy since 2009 have gone directly into the stock market, inflating the value of stocks to unsustainable levels.
Greg Lewis --- http://www.americanthinker.com/articles/2015/08/_the_china_syndrome.html

For the past quarter of a century, China’s economy has been rising to what many analysts have claimed is a level that will challenge the U.S. for the title of largest economy in the world. In fact, the Chinese economy, fueled by state-funded credit and money-printing, has enabled the size of the Chinese stock market to rise to dangerously overblown levels more than 50 times higher than they were only two decades ago.
Greg Lewis --- http://www.americanthinker.com/articles/2015/08/_the_china_syndrome.html

From the CFO Journal's Morning Ledger on August 26, 2015

The late-day selloff in U.S. stock markets Tuesday shattered the veneer of stability that had settled over global markets after China’s central bank moved to stanch the stock-market rout. The Dow industrials have now shed 11% after six straight days of losses, and Tuesday’s drop underscored that the pain sparked by China’s surprise devaluation of its currency earlier this month has yet to come to an end. Wall Street traders are betting that the adjustment isn’t over with increasing bets against the yuan.

China is in the midst of a tectonic shift in its giant economy that is rattling markets world-wide. The country is transitioning from an era when smokestack industries, huge exports and massive infrastructure spending—underpinned by trillions in state-backed debt—powered China’s seemingly unstoppable rise. Instead of them, China is pushing services, consumer spending and private entrepreneurship as new drivers of growth that rely less on debt and more on the stock market for funding.

The market tumult has exposed flaws in the new architecture of Wall Street, where stock-linked funds, as much as the shares themselves, trade en masse. For instance, circuit breakers, which are designed to pause trading in single stocks and ETFs during big moves, were triggered nearly 1,300 times Monday. The circuit breakers were added to make markets more orderly after the May 2010 “flash crash,” but Monday, they sometimes exacerbated problems by preventing prices from returning to normal levels quickly.

Jensen Comment
 Shifts from public debt to private equity mean a greater need for integrity of financial reporting and market regulation/enforcement that underlie trust of investors in capital markets. This rarely happens in highly corrupt economies.


From the CFO Journal's Morning Ledger on August 28, 2015

The Silo Effect. Stories about companies tearing down walls—literally and figuratively—to encourage accidental collisions between departments and encourage collaboration have become common enough to be deserve mockery. Yet even HBO satires can’t compete with Facebook Inc.’s efforts. In the book “The Silo Effect,” Gillian Tett looks at the many ways—from a Bootcamp program for new hires to inspirational posters to CEO Mark Zuckerberg’s “goldfish bowl” office—the company has tried to prevent teams from ossifying into competitive silos. A British anthropologist, who in the 1990s mapped the ideal size of a functioning social group according to the size of the human brain, gets credit for Facebook’s philosophy. But there appears to be something deeper driving management. “We want to be the anti-Sony, the anti-Microsoft—we look at companies like that and see what we don’t want to become,” says one senior manager.


From the CFO Journal's Morning Ledger on August 26, 2015

More than a quarter of employers expected to face “Cadillac tax.”
http://blogs.wsj.com/cfo/2015/08/25/more-than-a-quarter-of-employers-expected-to-face-cadillac-tax/?mod=djemCFO_h
One in four companies are likely to be impacted by the “Cadillac tax” on high-cost health plans when it begins in 2018—and that could almost double in 10 years, CFO Journal’s Emily Chasan reports.

Finding and Using Health Statistics --- http://www.nlm.nih.gov/nichsr/usestats/index.htm

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


From the CFO Journal's Morning Ledger on August 25, 2015

Rattled by currency shake-ups, more companies turn to hedging
http://blogs.wsj.com/cfo/2015/08/24/rattled-by-currency-shake-ups-more-companies-turn-to-hedging/?mod=djemCFO_h
Global market and political shocks are pushing more companies to hedge their exposure to volatile currencies, CFO Journal’s Emily Chasan reports. According to a new survey, about 89% of corporate executives at small and medium-size companies expect to hedge their currency risk this year by at least as actively as they did last year, up from 50% last year.

Jensen Comment
This greatly increases the need for company leaders and our accounting majors to learn more about the accounting requirements for currency speculation versus hedging under FAS 33 and IFRS 9. For example, do your students understand why FAS 138 was issued in part to allow for cross-currency hedging that originally was not allowed in FAS 133. Scroll down the "C-terms" to "Cross-currency" at
http://www.trinity.edu/rjensen/acct5341/speakers/133glosf.htm


From the CFO Journal's Morning Ledger on August 25, 2015

Corporate finance departments are increasingly tasked with helping to develop business strategy, but at the same time, the core accounting and compliance responsibilities are only becoming larger and more complex. Those combined factors are turning chief accounting officers into the rising stars of corporate finance, CFO Journal’s Kimberly S. Johnson reports. Since 2009, there’s been nearly a 40% rise in the number of chief accounting officer titles, according to findings from Russell Reynolds Associates.

These senior-level accountants have long been a fixture at large multinational companies. But, thanks to the cost and intricacies of today’s regulatory and accounting requirements, their numbers have multiplied and their duties have expanded beyond managing their company’s books and preparing financial statements. At many companies, the accounting chief’s job has broadened to include multiple types of accounting. And as the cost of regulatory compliance and the consequences of a slip-up mount, many companies are willing to pay six to seven figures a year for a top-notch accountant in exchange for peace of mind.


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

Authors group seeks DOJ probe of Amazon
http://www.wsj.com/articles/authors-group-seeks-doj-probe-of-amazon-1440090438?mod=djemCFO_h
Hundreds of authors asked the Justice Department for an antitrust investigation of Amazon.com Inc. for having created a “monopoly” with “unprecedented power over America’s market for books.” The group, Authors United, formed last year in response to Amazon’s bruising negotiations with publisher Hachette Book Group, primarily over pricing. Led by author Douglas Preston, the group sent a letter to the DOJ that said Amazon has repeatedly blocked or limited the sale of thousands of books on its website, sold some books below cost to gain market share, and attempted to compel customers to buy books from its own imprints rather than from other companies.

August 21, 2015 reply from Gadal Damian

Two sides to every story:

https://davidgaughran.wordpress.com/2014/10/22/whats-next-for-authors-united/

 


From the CFO Journal's Morning Ledger on August 20, 2015

Audits of broker-dealers remain troubling to government watchdog
http://blogs.wsj.com/cfo/2015/08/19/audits-of-broker-dealers-remain-troubling-to-government-watchdog/?mod=djemCFO_h

Audits of broker-dealers continue to have an “unacceptably high” level of deficiencies and are rife with conflicts of interest, the government’s audit regulator said in a report late Tuesday. CFO Journal’s Emily Chasan reports that inspectors at the PCAOB found deficiencies in 87% of broker-dealer audits reviewed in 2014.


From the CFO Journal's Morning Ledger on August 19, 2015

Most U.S. companies could pass new EU auditor-fees sniff test
http://blogs.wsj.com/cfo/2015/08/18/most-u-s-companies-could-pass-new-eu-auditor-fees-sniff-test/?mod=djemCFO_h
 The majority of U.S. companies would breeze through recent European rules limiting the amount of money a company’s auditor can collect on additional client services, were the policy to be imposed over here, writes CFO Journal’s Maxwell Murphy. Fewer than 200 companies in the Russell 3000 Index spent more than 70% of their average audit fee on additional services with those same firms, according to data and research provider Audit Analytics.


From the CFO Journal's Morning Ledger on August 19, 2015

Court decision could affect conflict minerals audits
http://blogs.wsj.com/cfo/2015/08/18/court-decision-could-affect-conflict-minerals-audits/?mod=djemCFO_h
 A federal appeals court upheld an earlier decision Tuesday on part of a Dodd-Frank Act regulation requiring public companies to disclose whether their products contain conflict minerals. The court previously said requiring the labeling violates free speech under the First Amendment, writes CFO Journal’s Emily Chasan. The Securities and Exchange Commission is reviewing the decision, which could affect how companies prepare for audits of their conflict mineral reports next year. Companies are struggling to get results in their efforts to find “conflict minerals” – tin, tungsten, tantalum and gold– blamed for fueling violence in the Democratic Republic of the Congo in their supply chain.


From the CFO Journal's Morning Ledger on August 19, 2015

J.P. Morgan expected to settle with SEC on investment-steering case
http://www.wsj.com/articles/j-p-morgan-expected-to-settle-with-sec-on-investment-steering-case-1439924418?mod=djemCFO_h
 J.P. Morgan Chase & Co. is in advanced talks with the Securities and Exchange Commission to pay more than $150 million to resolve allegations it inappropriately steered private-banking clients to its own investment products without proper disclosures. The WSJ’s Emily Glazer and Jean Eaglesham report that the settlement could be announced within the next few weeks, according to people familiar with the matter
.

From the CFO Journal's Morning Ledger on August 19, 2015

Citigroup to return $4.5 million more in fee overcharges
http://www.reuters.com/article/2015/08/19/us-citigroup-nyag-fees-idUSKCN0QO04320150819?mod=djemCFO_h
 Citigroup Global Markets Inc (CGMI), a unit of Citigroup Inc. struck an agreement with the New York attorney general to return $4.5 million in account management fees charged on some 15,000 frozen accounts, Reuters reports. More than $20 million will be refunded to Citi customers for overcharges in an investigation initiated by New York Attorney General Eric Schneiderman. In October, CGMI agreed return some $16 million to more than 31,000 customers who paid higher advisory fees than negotiated.

Bigger Than Enron
"Libor Lies Revealed in Rigging of $300 Trillion Benchmark," by Liam Vaughan & Gavin Finch, Bloomberg News, January 28, 2013 ---
http://www.bloomberg.com/news/2013-01-28/libor-lies-revealed-in-rigging-of-300-trillion-benchmark.html

"The LIBOR Mess: How Did It Happen -- and What Lies Ahead?" Knowledge@Wharton, July 18, 2012 ---
http://knowledge.wharton.upenn.edu/article.cfm?articleid=3056

"Lies, Damn Lies and Libor:  Call it one more improvisation in 'too big to fail' crisis management," by Holman W. Jenkins Jr., The Wall Street Journal, July 6, 2012 ---
 http://professional.wsj.com/article/SB10001424052702304141204577510490732163260.html?mod=djemEditorialPage_t&mg=reno64-wsj

Jensen Comment
Crime Pays:  The good news for banksters is that they rarely, rarely, rarely get sent to prison ---
http://www.trinity.edu/rjensen/FraudConclusion.htm#CrimePays

Paying fines for unethical or illegal acts is now just a cost of doing business for big banks. Nothing is shocking about bank bad behavior these days.

Bob Jensen's Rotten to the Core threads ---
http://www.trinity.edu/rjensen/FraudRotten.htm


From the CFO Journal's Morning Ledger on August 18, 2015

U.S. Steel to close Alabama blast furnace, cut 1,100 jobs
http://www.wsj.com/articles/u-s-steel-to-close-some-alabama-steel-ops-cut-1-100-jobs-1439825105?mod=djemCFO_h
U.S. Steel Corp. said Monday it would shut its blast furnace and some steel finishing operations in Alabama, as it tries to survive a weak market and competition from inexpensive imports. After losing money in five of the past six years, U.S. Steel, under Chief Executive Mario Longhi, is trying to remake itself by downsizing, cutting costs, and becoming more nimble and responsive to the market.


From the CFO Journal's Morning Ledger on August 18, 2015

IRS says ID theft more extensive than previously reported.
http://www.wsj.com/articles/irs-says-cyberattacks-more-extensive-than-previously-reported-1439834639?mod=djemCFO_h
The Internal Revenue Service said Monday that more than twice as many taxpayer accounts were hit by identity thieves as the agency first reported.  Hackers gained access to as many as 330,000 accounts and attempting to break into an additional 280,000.


The bottom line is that unions want you to have to join a union to get a minimum-wage job
From the CFO Journal's Morning Ledger on August 18, 2015

Minimum-wage waivers for union members stir standoff
Unions have been a driving force behind the wave of municipal minimum-wage increases sweeping the country. But some unions want their own members exempt from coverage under those laws. More than 20 U.S. cities and counties, recently including Los Angeles and Kansas City, Mo., have set minimum wages above state and federal levels.


From the CFO Journal's Morning Ledger on August 15, 2015

Broker settles over pricing on muni bonds
http://www.wsj.com/articles/edward-jones-to-pay-20-million-to-settle-sec-muncipal-bond-charges-1439474284?mod=djemCFO_h
Brokerage firm Edward Jones has agreed to pay $20 million to settle charges that it overcharged clients in new municipal-bond sales, the SEC said. The agency said the firm’s practice cost customers at least $4.6 million. It is the SEC’s first pricing-related case against an underwriter selling new municipal securities.


Jensen Comment
One of the most unethical things stock brokers and investment advisors can do is to steer naive customers into mutual funds that pay the brokers kickbacks rather than suitable funds for the investors.  The well known and widespread brokerage firm of Edward Jones & Co. to pay $75 million to settle charges that it steered investors to funds without disclosing it received payments.

The sad part is that many people who want mutual funds can get straight forward information from reputable mutual funds like Vanguard and avoid having to pay a financial advisor anything and avoid the risk of unethical advice from that advisor.
Blast from the Past
"Edward Jones Agrees to Settle Host of Charges," by Laura Johannes and John Hechinger, and Deborah Solomon, The Wall Street Journal, December 21, 2004, Page C1 --- http://online.wsj.com/article/0,,SB110356207980304862,00.html?mod=home_whats_news_us

Edward D. Jones & Co. agreed to pay $75 million to settle regulatory charges that it steered investors to seven "preferred" mutual-fund groups, without telling the investors that the firm received hundreds of millions of dollars in compensation from those funds.

The settlement, tentatively agreed to by the Securities and Exchange Commission, the National Association of Securities Dealers and the New York Stock Exchange, represents the largest regulatory settlement to date involving revenue sharing at a brokerage house, an industry practice in which mutual-fund companies pay brokerage houses to induce them to push their products.

Even so, California Attorney General Bill Lockyer called the settlement "inadequate" given payments from the funds that he said totaled about $300 million since January 2000, and declined to join it and filed a civil lawsuit against Edward D. Jones yesterday in Sacramento County Superior Court.

Mr. Lockyer called Edward D. Jones "the most egregious example we have reviewed so far" of secret revenue-sharing arrangements. California's suit, if it reaches trial, could seek repayment of the entire amount the brokerage house received, plus the "hundreds of millions" lost by investors who were sold inferior funds, Mr. Lockyer said.

Edward D. Jones, of St. Louis, has nearly 10,000 sales offices nationally, comprising the largest network of brokerage outlets in the U.S. Its revenue-sharing practices were the subject of a page-one article in The Wall Street Journal in January. In a statement yesterday, the company said it will "take immediate steps to revise customer communications and disclosures." Edward D. Jones said it has neither admitted nor denied the regulators' claims. The company added it "intends to vigorously defend itself" against the charges brought by the California attorney general.

Continued in article

Rotten to the Core Frauds ---
http://www.trinity.edu/rjensen/FraudRotten.htm

 


From the CFO Journal's Morning Ledger on July 15, 2015

PCAOB continues to sharpen focus on internal controls
http://blogs.wsj.com/cfo/2015/08/13/pcaob-continues-to-sharpen-focus-on-internal-controls/?mod=djemCFO_h
Companies with significant accounting problems seem to have a looser grip on their internal controls over financial reporting, even after they attest to their adequacy, CFO Journal’s Maxwell Murphy reports. More than 80% of restatements for 2014 came from companies that said their controls were effective, up from 74% in 2010.


From the CFO Journal's Morning Ledger on August 13, 2015

Google’s multi-class stock structure made Alphabet move unique
http://blogs.wsj.com/cfo/2015/08/12/googles-multi-class-stock-structure-made-alphabet-move-unique/?mod=djemCFO_h
 Google Inc.’s restructuring into Alphabet Inc. may be uniquely possible because of the company’s rare stock-holding structure, where its founders control the direction of the business without majority economic ownership of the company’s stock, CFO Journal’s Emily Chasan reports
.

Jensen Comment
You may want to have your students dig into how multi-class stock complicates equity accounting in financial statements.


Tax Inversion --- https://en.wikipedia.org/wiki/Tax_inversion

From the CFO Journal's Morning Ledger on August 7, 2015

New Treasury Department rules enacted last year, intended to slow down the rush of U.S. companies aiming to merge with foreign firms to gain an overseas residence and a lower tax rate, appeared to have their intended effect. The new guidelines made it harder for companies to access overseas cash without having it taxed at U.S. rates, and they tightened the standards for a merger to qualify as an inversion. But those rules were hardly air tight, as evidenced by the continuing trickle of tax inversion deals, the WSJ reports. Two U.S. companies Thursday announced plans to move overseas through inversions, bringing the year’s tally of proposed inversions to six.

CF Industries Holdings Inc., a Deerfield, Ill.-based fertilizer maker, said it would merge with parts of Netherlands-based OCI NV in a deal valued at $6 billion as well as the assumption of $2 billion in debt. Atlanta-based Coca-Cola Enterprises Inc., meanwhile, announced a three-way merger of European bottling operations to create a company with $12 billion in sales.

The Treasury Department’s assault on inversions last September largely ended a deal-making wave that featured high-profile U.S. companies such as pharmaceutical giant Mylan NV and fast-food chain Burger King Corp. Yet a number of companies have quietly continued to reach smaller inversion deals in industries less likely to attract attention from lawmakers or the U.S. public. And even some U.S. corporate giants haven’t completely abandoned the inversion. Monsanto Co., the St. Louis-based agricultural firm, is pursuing a $45 billion takeover of Swiss rival Syngenta AG.


Jet.com --- https://en.wikipedia.org/wiki/Marc_Lore#Jet.com

In 2014, Marc Lore co-founded an e-commerce company, Jet, with Nate Faust and Mike Hanrahan. The company raised a total of $80 million in Series A funding, which closed in November 2014 Investors include NEA, Accel Partners, and Bain Capital Ventures. In November 2014, Jet launched a campaign offering stock options to users generating word-of-mouth for the company in advance of launch.[11] In January 2015, Jet was featured in a cover story in Bloomberg Businessweek, in which it was revealed that Jet will be a shopping club in which members will pay an annual fee of $49.99 to access the lowest prices on millions of items] In February 2015 Jet raised an additional $140 million in pre-launch funding from investors including Bain Capital Ventures, Accel Partners, Alibaba Group, New Enterprise Associates, and others.[13] Beta testers in May 2015 reported cheaper prices than Amazon but longer, and more expensive, delivery times.[14] On 21 July 2015, Jet.com opened to the public.[15]

Jensen Comment
Jet.com hopes to combine the shopping club concept (think Costco and Sam's Club) with the Amazon business model It's stated goal is to make money on the club membership fees and not the markups on sales prices. However, to date it is widely criticized for many reasons, notably lack of selection. It's certainly no Amazon. I also think it chose a poor name for itself. It should be called something like Lowest Price Least  Selection Online Club.

From the CFO Journal's Morning Ledger on August 7, 2015

Jet.com runs into turbulence with retailers
http://www.wsj.com/articles/jet-com-runs-into-turbulence-with-retailers-1438899476?mod=djemCFO_h
Dozens of the nation’s largest retailers, including Macy’s Inc., Amazon.com Inc. and Home Depot Inc., have quickly moved to disassociate themselves from new discount retail website Jet.com. The retailers complained to Jet after discovering it had placed links to their sites without permission, promising its own members cash back for making purchases after clicking the links.


New Study: Immersing Yourself in Art, Music & Nature Might Reduce Inflammation & Increase Life Expectancy ---
http://www.openculture.com/2015/08/new-study-immersing-yourself-in-art-music-nature-might-reduce-inflammation-increase-life-expectancy.html

Jensen Comment
Life expectancy in the small (e.g., one person) is complicated by the many random factors in life that make it impossible to predict that a given person will live longer by composing music, painting pictures, or listening to classical recordings each and every day. For example, Mozart died at age 35.

There are very few absolutes in life. For example, teaching and preaching ethics in college may increase ethical behavior expectancy but will not eliminate fraud and unethical behaviors that are impacted in a complicated way by the tone-at-the-top, follow-the-herd mentality, opportunitird, and dire financial needs.


From the CFO Journal's Morning Ledger on August 5, 2015

New rule to lift veil on tax breaks
http://www.wsj.com/articles/new-rule-to-lift-veil-on-tax-breaks-1438725046?mod=djemCFO_h
The Governmental Accounting Standards Board will require government officials to show the value of property, sales and income taxes that have been waived under agreements with companies or other taxpayers. It kicks in next year. Cities and states have plied companies with tax breaks for decades hoping to attract jobs and commerce.

Bob Jensen's threads on the sad state of governmental accounting ---
http://www.trinity.edu/rjensen/Theory02.htm#GovernmentalAccounting


Delaware no longer so friendly to corporations in court
From the CFO Journal's Morning Ledger on August 3, 2015

Delaware’s business-friendly reputation, in part a result of its system of sophisticated business courts, has long made the state a favorite domicile for U.S. corporations. But a recent wave of shareholder lawsuits has some companies complaining that Delaware’s reputation is no longer justified, the WSJ’s Liz Hoffman reports. Critics contend the state has failed to do enough to curb the suits, and point to a new pro-plaintiff measure that bars companies from shifting their legal fees to shareholders who sue and lose.

Take the case of Dole Food Co. The purveyor of bananas and pineapples shifted its legal home to Delaware from Hawaii in 2001, but now it finds itself facing potentially costly litigation from shareholders who sued after it was sold to its chief executive, David Murdock, in 2013. The lawsuits, filed in Delaware’s Chancery Court, argue that the company was sold too cheaply and seek damages that could stretch into the hundreds of millions of dollars. “We moved to Delaware because of what we felt was a balanced corporate environment. We’re now seeing that trending the wrong way,” said Michael Carter, Dole’s former chief operating officer who retired in April.

Executives of Dole, DuPont Co., Ancestry.com Inc. and other Delaware companies have publicly and privately appealed to state officials to find ways to curb lawsuits. Tensions brewed over a recent bill that could encourage shareholder suits and limit companies’ ability to weed out weaker ones. Its passage last month renewed grumbling among some general counsels, who talk of leaving the state for more management-friendly pastures. But attorneys on the other side of the fence see things differently. “Corporate America is playing the boy who cried wolf,” said Mark Lebovitch, a lawyer who sues companies on behalf of investors. He said pro-shareholder rulings are still rare in Delaware and that the threat of lawsuits keeps corporate managers honest.


From the CFO Journal's Morning Ledger on August 3, 2015

Ruth Porat was right about U.S. banking regulations
http://blogs.wsj.com/cfo/2015/07/31/ruth-porat-was-right-about-u-s-banking-regulations/?mod=djemCFO_h
Ruth Porat, Google Inc.’s finance chief, made a vociferous defense of U.S. banking regulations during her last earnings call as Morgan Stanley’s CFO in April, CFO Journal’s Vipal Monga reports. In light of the most recent bank earnings reports, her spring remarks seem dead on.


"The Sugar Scandal:  Congress takes a run at an egregious business welfare scheme," The Wall Street Journal, July 29, 2015 ---
.http://www.wsj.com/articles/the-sugar-scandal-1438212128?tesla=y

Americans pay nearly twice as much per pound as foreigners do for sugar, thanks to U.S. import restrictions and subsidies. We’ve tilted at this corporate welfare for decades, but new political forces are aligning to take another run.

The absurdity of the federal sugar program is legendary. Every year the government grants sugar processors nonrecourse loans linked to the amount of sugar the government says they can produce at a set price per pound: 18.75 cents for raw cane sugar and 24.09 cents for refined beet sugar. If the market price is below the loan price when it’s time to sell, the processors simply forfeit their crop to the U.S. Department of Agriculture in lieu of repaying the loan. They can still make a profit thanks to the price guaranteed by the loan.

To ensure that imported sugar doesn’t drive down U.S. prices, provoking a sugar dump on Uncle Sam, there are also import quotas. Anything above the quotas gets hit with a hefty tariff—16 cents a pound on refined sugar.

Yet all of this central planning is harder than it sounds. According to a January 2014 USDA report, for the 2013 crop year the government’s net cost “to remove” sugar from the marketplace was $258 million. But sometimes there’s not enough sugar, as in 2010, and prices skyrocket. If the secretary of agriculture decides that shortages will drive prices too high, he can increase the quota. But he has to make sure that more imports won’t mean lower prices and thus sugar forfeitures to the feds. All the risk lies with consumers or taxpayers—not producers.

Continued in article

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



FBI accused San Francisco mayor of taking bribes
---
http://news.yahoo.com/attorney-fbi-accused-san-francisco-mayor-taking-bribes-013415678.html


The EPA is Waving Goodbye to Every Mine in the USA, not just coal mines
From the CFO Journal's Morning Ledger on August 3, 2015

Coal miner Alpha to seek chapter 11.
http://www.wsj.com/articles/alpha-natural-resources-to-seek-chapter-11-1438557901?mod=djemCFO_h
Alpha Natural Resources Inc
. is expected to file for chapter 11 bankruptcy protection early Monday to cut its more than $3 billion debt load. The Bristol, Va., company, one of the largest U.S. coal producers, hasn’t completed the terms of a restructuring plan but will likely sell some of its best mines or turn them over to creditors and close others during its trip through bankruptcy court, according to people familiar with the matter.

The EPA is creating rules that defeat even environmentalists ---
http://reason.com/archives/2015/07/29/zealots-at-the-epa
EPA zealots want to close every mine in the USA, including those essential to the economy


Texas Tech Is Investigating Business Professor’s Grade-Tampering Claim ---
http://chronicle.com/blogs/ticker/texas-tech-is-investigating-professors-grade-tampering-claim/102621?cid=at&utm_source=at&utm_medium=en


Employee Stock Options (ESOs) --- https://en.wikipedia.org/wiki/Employee_stock_option
The popularity of ESOs plummeted when FAS 123 was revised to FAS 123R despised especially by tech industries (see below)

From the CFO Journal's Morning Ledger on August 27, 2015

Companies continue to tilt away from options in comp packages
http://blogs.wsj.com/cfo/2015/08/26/companies-continue-to-tilt-away-from-options-in-comp-packages/?mod=djemCFO_h
Stock options are disappearing from executive compensation packages, according to a new report. The median number of restricted stock awards granted by S&P 1500 companies has risen almost 21% between 2010 and 2014, according to compensation-research firm Equilar Inc.

Some companies are bucking the trend of staying out of ESO compensation
"GM Grants First Executive Stock Options Since Emerging From Bankruptcy:  CEO Mary Barra is awarded 2.6 million options with a $31.32 strike price," by Gautham Nagesh, The Wall Street Journal, August 3, 2015 ---
http://www.wsj.com/articles/gm-grants-first-executive-stock-options-since-emerging-from-bankruptcy-1438367710?mod=djemCFO_h

General Motors Co. handed out its first stock options since emerging from bankruptcy in 2009, awarding grants to about 300 top executives based on their ability to deliver shareholder returns in line with industry peers and other factors.

Part of the company’s long-term incentive plan, the options were granted this week. The stock awards are designed to retain top executives through noncompete clauses and tie compensation to company performance, a spokesman said, and were awarded as quickly as possible following shareholder approval last year.

Chief Executive Mary Barra was awarded 2.6 million options with a $31.32 strike price, gradually vesting over a four-year period beginning in 2017. She earned $16.4 million in her first year at the helm, during which she steered the company through a costly ignition-switch recall crisis and set lofty margin targets for the 107-year-old company.

GM President Dan Ammann received 976,139 options with the same conditions, according to a regulatory filing. GM’s head of global product development Mark Reuss received 829,719 options, Chief Financial Officer Chuck Stevens received 623,645; and GM Europe President Karl-Thomas Neumann received 585,684.

The size of other awards for GM’s top 300 executives wasn’t disclosed.

The $31.32 price is based on the value of GM’s shares as of Tuesday, and is in the lower end of the $28.82 to $38.99 range the stock has set over the past 52 weeks. The company filed bankruptcy in 2009 following a long financial decline, and went public again in 2010 with shares valued at $33.

Continued in article

Jensen Comment
Until now the death knell was sounded for employee stock options when the FASB changed FAS 123 to FAS 123R in 2005 ---
http://www.trinity.edu/rjensen/theory/sfas123/jensen01.htm
Stock options were the darlings of cash-strapped tech companies since, before FAS 123R, they were a way of compensating employees without using cash or lowering reported earnings. FAS 123R forced them to be deducted in earnings calculations. This virtually put an end to stock option compensation in favor of other forms of issuing stock to employees.

I do not anticipate employee stock option compensation  to soar after this revival by General Motors. GM is strapped somewhat for cash since tens of millions of its cars are being recalled for various reasons, especially the faulty ignition switches. GM does have a lot of cash parked overseas that it does not want to pay taxes on by returning it to the USA. Presumably GM is now willing to take an earnings hit from executive stock option awards under FAS 123R accounting.

What amazed me is that under  all the corporate lobbying pressure in favor of not expensing ESOs that Congress did not override FAS 123R and show the FASB who is really the boss of accounting standard setting. That was attempted and failed in Congress.


"Denmark’s tax authority has revealed it was the victim of an €800m (£584m) fraud," Economia, August 27, 2015 ---
http://economia.icaew.com/news/august-2015/denmark-victim-of-800m-euro-tax-fraud

Jensen Comment
€800m is pocket change to tens of billions the USA's IRS loses to ID theft, fraudulent earned income tax credits, fraudulent health insurance subsidies, and so many other frauds that make the bungling IRS a giant cash piñata for criminals.


"IRS Reveals Lois Lerner's Secret Email Account Named For Her Dog," by Robert W. Wood, Forbes, August 25, 2015 ---
http://www.forbes.com/sites/robertwood/2015/08/25/irs-reveals-lois-lerners-secret-email-account-named-for-her-dog/

The IRS dropped a bombshell in federal court, admitting that firebrand Lois Lerner also used a personal email account for IRS business. She used her dog’s name, Toby Miles. The Washington Times broke the story from the Judicial Watch lawsuit that is still seeking IRS targeting emails. It puts the IRS in another awkward spot. Why wasn’t this revealed by the IRS sooner, you might ask?

Good question. Since there have been multiple probes for several years now, one might assume that American taxpayers would know about this by now. IRS documents previously revealed a Lois Lerner email that warned IRS staffers about revealing too much information to Congress. Forget email, Ms. Lerner had warned. Instead, use instant messaging that automatically deletes office communications. House Oversight Committee documentation suggested that this ruse was used deliberately by IRS officials to evade public scrutiny.

Continued in article

Jensen Comment
I'm still looking for revelations that her dog Toby pooped on Tea Party parades. So far there's only evidence that Lois Lerner  pooped on Tea Party parades while she was an executive with the IRS.


Treasury Stock --- https://en.wikipedia.org/wiki/Treasury_stock

"Pushback on Buybacks A closer look at the numbers indicates buybacks aren’t as good for the companies, the market, or investors as previously though," by By Ben Levisohn, Barron's, August 22, 2015 ---
http://www.barrons.com/articles/pushback-on-buybacks-1440227496


Lawmakers eager to stem the tide of U.S. corporate intellectual property flowing to lower-tax shores

From the CFO Journal's Morning Ledger on July 30, 2015

Lawmakers eager to stem the tide of U.S. corporate intellectual property flowing to lower-tax shores are borrowing a strategy that has already been employed by European nations to lure valuable patents into their jurisdictions, the WSJ’s John D. McKinnon reports. The legislation would create what is known as a “patent box.” Similar legislation already has been adopted in several European countries and the trend threatens to attract even more U.S. intellectual property in coming months.

The proposal for a U.S. patent box was officially unveiled on Wednesday by Reps. Charles Boustany (R., La.) and Richard Neal (D., Mass.). House Ways and Means Committee Chairman Rep. Paul Ryan (R., Wis.) has made it clear he is backing the plan and intends to incorporate a version of it into his own corporate-tax overhaul proposal. The legislation would give companies an ultralow 10% tax rate on income they generate from patents and other intellectual property.

upporters hope the move will halt a trend that has seen many American multinational firms locate more of their valuable intellectual property in lower-tax countries, even when it is developed in the U.S. That has allowed them to avoid the relatively high U.S. corporate tax on the resulting profits, which often accumulate offshore. Prior measures to limit the practice have been ineffective. Would this new proposal lead you to keep your company’s IP in the U.S.?


"Financial Reporting Implications: Greece, Puerto Rico and Other Regions Facing Economic Concerns," Deloitte, CFO Journal, July 2015 ---
http://deloitte.wsj.com/cfo/2015/07/31/financial-reporting-implications-greece-puerto-rico-and-other-regions-facing-economic-concerns/

Economic conditions, particularly in Europe and Puerto Rico, continue to be volatile. A vote by Greece’s parliament on July 15 to accept new austerity measures, as well as other recent actions by eurozone leaders, may have allayed some fears and reduced the risk that Greece will exit from the eurozone (i.e., discontinue using the euro* as the country’s currency). However, the situation remains uncertain for the time being.

Outside the eurozone, Puerto Rico, a commonwealth of the United States, is also suffering from a combination of a large debt burden, weak economic growth and population declines. On July 15, the Public Finance Corporation of Puerto Rico advised investors that the commonwealth has failed to transfer cash to the trustee of certain of its bond obligations within the period required to cover an August 1 debt payment because its legislature did not appropriate funds with which to do so. In addition, the Puerto Rican government has requested that the U.S. Congress pass a law allowing Puerto Rico to seek bankruptcy protection from creditors. This measure is meant to avoid a disruptive default process.

Deloitte’s Financial Reporting Alert discusses certain key accounting and financial reporting considerations related to the current economic conditions in the eurozone and Puerto Rico. It is divided into four sections: broad financial reporting considerations; financial instruments; SEC reporting and disclosure considerations; income tax considerations.

Continued in article

Financial Reporting Alert --- http://www.iasplus.com/en-us/publications/us/financial-reporting-alerts/2015/15-2/file




Teaching Case
From The Wall Street Journal Accounting Weekly Review on July 31, 2015

Three Mergers, But One Isn't Tax Free
by: Laura Saunders
Jul 25, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Corporate Taxation, Tax Deferrals

SUMMARY: This is a tale of three similar mergers with very different tax consequences for shareholders. The three deals are Cigna Corp. purchase by Anthem Inc., the combination of two health-care giants, Aetna Inc. and Humana Inc., and the merger of ACE Ltd. and Chubb Corp. Humana and Cigna shareholders won't owe tax on their receipt of Aetna and Anthem shares, while Chubb shareholders will owe tax on their receipt of ACE shares. Why? The big difference between the deals is the Humana and Cigna deals contain an extra provision that allows the exchange of shares to be a tax-free swap.

CLASSROOM APPLICATION: This is a great article to show the value of tax planning and use of tax professionals in planning all transactions. IT also offers an illustration of tax deferral.

QUESTIONS: 
1. (Introductory) What insurance companies are currently involved in deals? What are the details of each of those deals?

2. (Advanced) What are the different tax results among the three deals? What is the cause of the difference?

3. (Advanced) What are the difference in the tax liabilities for investors in each of these deals? What burdens or opportunities does each of the outcomes present to investors?

4. (Advanced) Why did the drafters of the Chubb deal structure it so that it results in a different tax treatment? Do you think it was intentional? Which outcome is better for investors?

5. (Advanced) What are the tax rules for stock owned at death? What would be the difference in tax treatment among these deals if an investor keeps the stock until death?

6. (Advanced) How can investors avoid taxes triggered by these deals? How could an investor reduce the tax liability in each deal?
 

Reviewed By: Linda Christiansen, Indiana University Southeast

"Three Mergers, But One Isn't Tax Free," by Laura Saunders, The Wall Street Journal, July 25, 2015 ---
http://www.wsj.com/articles/two-mergers-one-tax-free-swap-1437741274?mod=djem_jiewr_AC_domainid

In Cigna and Humana deals, a small detail makes all the difference for shareholders.

This is a tale of three similar mergers with very different tax consequences for shareholders.

One is the $48.4 billion Cigna Corp. purchase by Anthem Inc. announced Friday. Another is the $34.1 billion combination of two health-care giants, Aetna Inc. and Humana Inc., announced July 3. And the final deal is the $28.3 billion merger of two insurance giants, ACE Ltd. and Chubb Corp. , announced July 1.

At first glance, the deals look alike—and like several other mergers this year. In all three, the shareholders of the acquired firms, Cigna, Humana and Chubb, will turn in their current holdings in exchange for about half cash and half shares, assuming regulators approve the deals. The cash payments will generally be taxable as capital gains if the investor’s holdings are in taxable accounts, rather than in tax-sheltered retirement plans such as IRAs or 401(k)s.

There is a big difference between the deals, however. Humana and Cigna shareholders won’t owe tax on their receipt of Aetna and Anthem shares, while Chubb shareholders will owe tax on their receipt of ACE shares.

Why is this? According to Robert Willens, an independent tax expert in New York, the two deals contain an extra provision that allows the exchange of shares to be a tax-free swap. “This small detail makes all the difference,” he says.

Here’s what could happen in practice, says Mr. Willens:

Say an investor bought a share of Chubb for $45 in 2005 (adjusted for a 2006 split). In the merger, this investor is slated to receive about $64 worth of ACE stock (at recent prices) and $63 of cash in return for each share of Chubb. He or she will have a taxable long-term capital gain of $82—the difference between the investor’s starting point of $45 and the total value of $127 a share offered by ACE.

Continued in article

Jensen Comment
I don't think the government will object to lack of competition resulting from mergers of health insurance giants. I think the government will find it easy to take over the merged giants when the time comes to nationalize health insurance in the USA.


Teaching Case on Companies Whose Share Values Are Below Book Value
From The Wall Street Journal Accounting Weekly Review on July 31, 2015

A Book BofA and Citi Can't Pick Up
by: David Reilly
Jul 26, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Book Value, Financial Accounting, Financial Statement Analysis

SUMMARY: It has been almost seven years since Bank of America and Citigroup shares traded above book value. That neither banks' shares have traded above book value - or net worth - is a stunning verdict from markets. In short, it means investors believe assets on their books aren't worth their stated values, or liabilities are greater than stated, or that the firms will destroy value. There may also be something simpler in the mix: that investors don't believe the value of intangible assets on the banks' balance sheets, namely goodwill that arose from deals mostly struck before the crisis.

CLASSROOM APPLICATION: This is an interesting discussion of financial reporting vs. market value that could used for a financial accounting class or for coverage of financial statement analysis.

QUESTIONS: 
1. (Introductory) What is book value? How is it calculated? What does it show? What is the value of calculating book value?

2. (Advanced) How is the market value of a stock determined by investors? Is market value related to book value? Why or why not?

3. (Advanced) What is that status of Bank of America's and Citigroup's market value and book value? What are some possible reasons for this status?

4. (Advanced) What is goodwill? What type of asset is it? How could goodwill have affected the situation with Bank of America and Citigroup?

5. (Advanced) What are tax-deferred assets? How do they influence the book values and market values of these companies?

6. (Advanced) What can each of these companies do to achieve higher stock prices?
 

Reviewed By: Linda Christiansen, Indiana University Southeast
 

RELATED ARTICLES: 
Unlocking Citi's Trapped Tax Asset
by David Reilly
Mar 14, 2012
Online Exclusive

"A Book BofA and Citi Can't Pick Up," by David Reilly, The Wall Street Journal, July 26, 2015 ---
http://www.wsj.com/articles/a-book-bofa-and-citi-cant-pick-up-1437934709?mod=djem_jiewr_AC_domainid

It has been nearly seven years since shares of Bank of America or Citigroup traded above book value.

Bank of America and Citigroup should be getting the seven-year itch.

In about two months, the two banks will face a dubious milestone: It will have been seven years since shares in either traded above book value. That is something for BofA’s newly named finance chief, Paul Donofrio, to contemplate as he takes the reins from Bruce Thompson , who the bank just said would depart after four years in the role.

That neither banks’ shares have traded above book value—or net worth—is a stunning verdict from markets. In short, it means investors believe assets on their books aren’t worth their stated values, or liabilities are greater than stated, or that the firms will destroy value.

It could, of course, reflect a combination of all three, given the trials and tribulations that big banks have faced since the financial crisis. These have ranged from supersize legal charges to stricter regulatory and capital requirements to superlow interest rates and questions about the viability of universal-bank business models.

There may also be something simpler in the mix: that investors don’t believe the value of intangible assets on the banks’ balance sheets, namely goodwill that arose from deals mostly struck before the crisis.

Back then, banks were bulking up. But many of those deals proved to be of dubious value, and the mantra today from regulators and investors is for the banks to slim down.

BofA, for example, had $69.7 billion of goodwill at the end of the second quarter, equal to 30% of common equity, and Citi had $23 billion, equal to 11%. Goodwill represents the difference between the fair market value of an acquired asset and what a company paid for it.

Companies are required to test regularly the value of goodwill to see if expected future cash flows justify values on the books. But this is in many ways a subjective exercise.

At some point, though, the banks, and their auditors, should face up to reality. And today, the reality is that investors have effectively been saying for nearly seven years that they don’t think the banks are worth what they say they are.

Of course, it is impossible to say how much of this is linked to goodwill versus other factors. There is the fact, for example, that both BofA and Citi, especially the latter, have large deferred-tax assets. Given uncertainty over the ability of the firms to realize these, this too may weigh on share prices in relation to book value. And the banks would be hesitant anyway to impair the value of goodwill since this would result in big hits to profit and some capital measures.

Continued in article


Teaching Case
From The Wall Street Journal Accounting Weekly Review on July 31, 2015

What Would Clinton's (Proposed) Capital Gains Tax Mean for You?
by: Laura Saunders
Jul 25, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Capital Gains Tax, Individual Taxation

SUMMARY: Hillary Clinton has proposed major changes to current capital-gains tax rates and holding periods. The proposal calls for taxes on gains from investments held for less than two years to nearly double to the standard income-tax rate of 39.6%. The rate would gradually drop, reaching 20% for investments held at least six years. Under current law, the 20% rate is available for top earners if they hold investments for at least one year. These figures don't count an extra 3.8% tax on net investment income for upper-income earners included as part of the health-care law. Experts say most investors wouldn't be affected, for two reasons. One is that Mrs. Clinton's proposed changes would affect only people in the top income-tax bracket, which in 2015 begins above $464,850 of taxable income for married couples filing jointly and $411,500 for single filers. Taxpayers with lower incomes would continue to pay a top rate of zero or 15% on their capital gains, plus in some cases a 3.8% surtax. In addition, many investors have most or all of their holdings within tax-sheltered retirement plans such as IRAs or 401(k) plans. Assets within these accounts typically grow tax-free until withdrawal. At that point, the payouts are often taxable as ordinary income so they aren't eligible for favorable capital-gains rates.

CLASSROOM APPLICATION: This is a good article to use when discussing current capital gains law. It is also important to share with students to show that tax law can change at any time, making tax planning more challenging.

QUESTIONS: 
1. (Introductory) What tax law changes has Hillary Clinton proposed? What reasons does she give for this proposal?

2. (Advanced) What is the current law regarding capital gains taxes? How does Mrs. Clinton's proposal differ from current law?

3. (Advanced) Who will be impacted by these changes if enacted? Who would not be affected?

4. (Advanced) What could be some potential ripple effects of this proposal if it becomes law? How might different types of investors react? How could companies change? Which of these possible ripple effects are positive and which could negative?
 

Reviewed By: Linda Christiansen, Indiana University Southeast
 

RELATED ARTICLES: 
Hillary Clinton Proposes Sharp Rise in Some Capital-Gains Tax Rates
by Laura Meckler
Jul 25, 2015
Online Exclusive

"What Would Clinton's Capital Gains Tax Mean for You?" by Laura Saunders, The Wall Street Journal, July 25, 2015 ---
http://www.wsj.com/articles/what-would-clintons-capital-gains-tax-mean-for-you-1437761670?mod=djem_jiewr_AC_domainid

Experts say most investors wouldn’t be affected.

Hillary Clinton has proposed major changes to current capital-gains tax rates and holding periods in hopes of encouraging corporate managers to focus on long-term growth.

But what exactly would the changes mean for individual investors?

Experts say most investors wouldn’t be affected, for two reasons. One is that Mrs. Clinton’s proposed changes would affect only people in the top income-tax bracket, which in 2015 begins above $464,850 of taxable income for married couples filing jointly and $411,500 for single filers. Taxpayers with lower incomes would continue to pay a top rate of zero or 15% on their capital gains, plus in some cases a 3.8% surtax.

In addition, many investors have most or all of their holdings within tax-sheltered retirement plans such as IRAs or 401(k) plans. Assets within these accounts typically grow tax-free until withdrawal. At that point, the payouts are often taxable as ordinary income so they aren’t eligible for favorable capital-gains rates.

According to Len Burman, an economist who heads the nonpartisan Tax Policy Center in Washington, less than half of equity investments are now held in taxable accounts.

Under Mrs. Clinton’s proposal, top-bracket taxpayers would have to hold an investment for six years instead of the current term of one year to qualify for the lowest rate of 23.8% on capital gains. It isn’t clear whether the changes would apply to all assets, or just to stock, but a Clinton campaign adviser said they wouldn’t apply to collectibles, such as art, which are currently taxed at a 28% rate.

Continued in article


Teaching Case on Channel Stuffing
From The Wall Street Journal Accounting Weekly Review on July 31, 2015

SEC Investigating Smirnoff Maker Diageo
by: Tripp Mickle and Saabira Chaudhuri
Jul 24, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Revenue Recognition

SUMMARY: The Securities and Exchange Commission is investigating whether Diageo PLC has been shipping excess inventory to distributors in an effort to boost the liquor company's results. By sending more cases to distributors than wanted, the British-based owner of Smirnoff and Johnnie Walker would be able to report increased sales and shipments. That allows Diageo to report shipments as sales, leaving distributors with a bitter taste as sales of the company's brands have waned. The company has already changed the way it accounts for those shipments, and that will almost certainly lead to lower inventory levels even as Diageo responds to securities investigators. In the U.S., liquor producers follow a three-tier system to market. Producers like Diageo ship to wholesalers, who then ship to retailers. Liquor companies can record shipments as sales when they ship them to the wholesaler.

CLASSROOM APPLICATION: This is a great article for a discussion regarding when to recognize sales. The Securities and Exchange Commission probe raises important questions over not only who owns inventory as it moves through distribution channels but who makes decisions about supply.

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

2. (Advanced) Why is the SEC investigating Diageo PLC? How does this investigation relate to the SEC's responsibilities?

3. (Advanced) What are the accounting rules regarding revenue recognition? What are possible times sales can be recognized in the business transaction described in the article? When should the sales be recognized?

4. (Advanced) What is cash basis accounting? What is accrual basis accounting? How does revenue recognition differ when a company is cash basis vs. accrual basis?
 

Reviewed By: Linda Christiansen, Indiana University Southeast

"SEC Investigating Smirnoff Maker Diageo." by Tripp Mickle and Saabira Chaudhuri, The Wall Street Journal, July 24, 2015 ---
http://www.wsj.com/articles/sec-investigating-smirnoff-maker-diageo-1437678975?mod=djem_jiewr_AC_domainid

Agency probing whether Diageo has shipped excess inventories to distributors.

The Securities and Exchange Commission is investigating whether Diageo PLC has been shipping excess inventory to distributors in an effort to boost the liquor company’s results, according to people familiar with the inquiry.

By sending more cases to distributors than wanted, the British-based owner of Smirnoff and Johnnie Walker would be able to report increased sales and shipments, according to these people.

Diageo confirmed Thursday to The Wall Street Journal that it received an inquiry from the SEC regarding its distribution in the U.S.

“Diageo is working to respond fully to the SEC’s requests for information in this matter,” a company spokeswoman said.

Diageo’s American depositary receipts fell 5% Thursday afternoon, following the Journal’s report on the inquiry, and ended the day down $4.99, or 4.2%, to $114.67.

The inquiry coincides with a period of tumult in Diageo’s executive ranks. The company announced in June that North American President Larry Schwartz would be retiring by the end of the year. Since then, the company has also announced the departures of its chief marketing officer for North America and a president of national accounts in the U.S.

Continued in article

Bob Jensen's threads on channel stuffing scandals ---
http://www.trinity.edu/rjensen/ecommerce/eitf01.htm#ChannelStuffing


Teaching Case
From The Wall Street Journal Accounting Weekly Review on July 31, 2015

Amazon Posts Surprising Profit
by: Greg Bensinger
Jul 23, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Financial Accounting, Financial Statement Analysis

SUMMARY: Amazon.com Inc., typically known for sacrificing short-term profit so it could spend its money on long-term investments, created an investor frenzy with results that put it narrowly in the black. While Amazon has long plowed nearly every dollar it makes back into product development, services rollouts and warehouse construction, it now appears to be pursuing a more conservative path. Particularly impressive is the sales growth of the cloud-computing unit and Amazon's North American sales results. The company is set to see those grow, as it recently announced an expansion into Mexico, where it previously had no consumer retail site. Still, Amazon warned there may be more red ink in its future. Despite the apparent success of its highly touted "Prime Day" sales event this month, Amazon said its third-quarter operating results could wind up between a loss of $480 million and a profit of $70 million.

CLASSROOM APPLICATION: Amazon has an unusual business model and strategy. This article offers information regarding how that strategy impacts financial reporting.

QUESTIONS: 
1. (Introductory) Why is Amazon's profit report surprising? What is more typical for the company?

2. (Advanced) What is the company's strategy for growth? How does that strategy impact the financial statements? What accounts are affected? What types of journal entries do the accountants make to reflect these actions?

3. (Advanced) What did the company report regarding changes in revenues and operating expenses for the most recent quarter? How did that affect the company's overall profitability?

4. (Advanced) What is trend analysis? If you were doing a trend analysis for the company, how would it look? What has been changing?

5. (Advanced) How was Amazon's stock price affected by these financial reports? Why does the market often react to financial reporting?

6. (Advanced) How are Amazon's business segments performing? What segments are doing well; which are not? Should Amazon make changes? What segment analysis should the company be doing?
 

Reviewed By: Linda Christiansen, Indiana University Southeast
 

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How 20 Years of Amazon Changed Retail
by Marcelo Prince and Sarah Slobin
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"Amazon Posts Surprising Profit," by Greg Bensinger, The Wall Street Journal, July 23, 2015 ---
http://www.wsj.com/articles/amazon-posts-surprising-profit-1437682791?mod=djem_jiewr_AC_domainid

Shares hit new high as conservative spending and growth in cloud computing lift results.

Amazon.com Inc., typically known for sacrificing short-term profit so it could spend its money on long-term investments, created an investor frenzy Thursday with results that put it narrowly in the black.

Shares of the Seattle online retailer surged by more than 17% to over $566 in after-hours trading, pushing its market value well past that of Wal-Mart Stores Inc., to about $264 billion.

The company’s $92 million profit in the second quarter, on sales of $23.18 billion, stands as a reminder of the typically modest income expectations for the Web giant, which for years has operated at a spitting distance from break-even. Analysts had forecast a loss this time around and a more modest sales gain than the 19.9% Amazon posted.

Continued in article

From the CFO Journal's Morning Ledger on July 24, 2015

Amazon posts surprising profit
http://www.wsj.com/articles/amazon-posts-surprising-profit-1437682791?mod=djemCFO_h
For just the second time, Amazon.com Inc. shared sales figures Thursday for its cloud-computing division Thursday. Amazon Web Services sales rose to $1.82 billion from $1 billion a year earlier, and operating profit increased to $391 million from $77 million. Some believe the unit could operate on a stand-alone basis and, because of its growth, is a primary reason to invest in Amazon. Amazon posted a profit of $92 million for the third quarter, helped by sales which rose a better-than-expected 20% to $23.18 billion.

United, Southwest post record profits
http://www.wsj.com/articles/united-southwest-post-record-profits-1437689970?mod=djemCFO_h 
Two of the biggest U.S. airlines reported record profits for the second quarter but said they planned to reduce expansion plans for later this year, as demand has weakened.

Jensen Comment
"Surprising profits" and "record profits" make us wish that someday the accounting standard setters (think FASB and IASB) would someday be able to operationally define "profit" and make "profit" measures more comparable between business firms.

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

. . .

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

Investors change their portfolios based on earnings, eps, EBITDA, and P/E ratios when in fact those metrics are not defined and may have a lot of misleading noise and secret manipulation

Bob Jensen's threads on the differences between IASB versus FASB standards ---
http://www.trinity.edu/rjensen/Theory01.htm#MethodsForSetting

Bob Jensen's threads on accounting theory can be found at
http://www.trinity.edu/rjensen/Theory01.htm


Teaching Case
From The Wall Street Journal Accounting Weekly Review on August 7, 2015

UPS Earnings Surge, Gives Optimistic Guidance
by: Laura Stevens
Jul 29, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Cost Accounting, Financial Reporting, Managerial Accounting

SUMMARY: United Parcel Service Inc. reported strong earnings, delivered optimistic rest-of-the-year guidance and outlined its plans for controlling costs during 2015's peak holiday season. The delivery company said all three of its major business segments contributed to a near tripling in profit to $1.23 billion. The rise also reflected an after-tax charge of $665 million in last year's second quarter that was related to employee health care. The latest results led UPS executives to raise their full-year outlook to the high range of their previous guidance of between 6% and 12% growth in earnings per share.

CLASSROOM APPLICATION: This article offers a good, small case study of how UPS is reining in costs and approaching its next holiday busy season.

QUESTIONS: 
1. (Introductory) What financial results did UPS recently report? Were these results favorable or unfavorable?

2. (Advanced) What challenges has UPS faced in the past two holiday seasons? What is UPS doing to manage those issues for future busy seasons?

3. (Advanced) What managerial accounting tools could UPS use to manage the holiday volume more successfully? How could the company adjust pricing to manage volume surges and maintain or increase profitability?

4. (Advanced) What changes has UPS made? Which of these changes involve variable costs? Which involve fixed costs? How flexible are the company's plans? Does the company need flexibility or are volumes steady?
 

Reviewed By: Linda Christiansen, Indiana University Southeast
 

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UPS, FedEx Got Back On Time This Holiday
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by Laura Stevens and Suzanne Kapner
Dec 23, 2014
Online Exclusive

"UPS Earnings Surge, Gives Optimistic Guidance," by Laura Stevens, The Wall Street Journal, July 29, 2015 ---
http://www.wsj.com/articles/ups-earnings-surge-led-by-growth-in-international-segment-1438085242?mod=djem_jiewr_AC_domainid

Chief executive says shipping company looking at reining in costs during holiday season.

United Parcel Service Inc. on Tuesday reported strong earnings, delivered optimistic rest-of-the-year guidance and outlined its plans for controlling costs during this year’s peak holiday season.

Despite a slight dip in second-quarter revenue, the news sent UPS shares up 5.1% to $99.94 in 4 p.m. composite trading on the New York Stock Exchange.

The delivery company said all three of its major business segments contributed to a near tripling in profit to $1.23 billion.

The rise also reflected an after-tax charge of $665 million in last year’s second quarter that was related to employee health care.

The latest results led UPS executives to raise their full-year outlook to the high range of their previous guidance of between 6% and 12% growth in earnings per share.

Executives said the stronger dollar has driven more import traffic to the U.S., boosting the company’s international segment and its bottom line.

Continued in article


Teaching Case
From The Wall Street Journal Accounting Weekly Review on August 7, 2015

Hackers Trick Email Systems Into Wiring Them Large Sums
by: Ruth Simon
Jul 30, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Cybercrime, Internal Controls

SUMMARY: Cybercriminals are exploiting publicly available information and weaknesses in corporate email systems to trick small businesses into transferring large sums of money into fraudulent bank accounts, in schemes known as "corporate account takeover" or "business email fraud." Companies across the globe lost more than $1 billion from October 2013 through June 2015 as a result of such schemes, according to the Federal Bureau of Investigation. The estimates include complaints from businesses in 64 countries, though most come from U.S. firms. Both "organized crime groups from overseas and domestic-based actors" are typical perpetrators.

CLASSROOM APPLICATION: This is a great example to show students the dangers of cyber and other crime, as well as showing the importance of having internal controls or prevent or reduce losses.

QUESTIONS: 
1. (Introductory) What are the facts of the Mega Metals Inc. situation? Was the company able to recover any of the funds?

2. (Advanced) What are internal controls? Please give some examples of several internal controls commonly used in businesses.

3. (Advanced) How could a good internal control system prevent or reduce losses from schemes like the ones discussed in the article? What specific internal controls could have prevented the Mega Metal loss?

4. (Advanced) In what situations can missing funds be recovered? How are they recovered?
 

Reviewed By: Linda Christiansen, Indiana University Southeast

"Hackers Trick Email Systems Into Wiring Them Large Sums," by Ruth Simon, The Wall Street Journal, July 30, 2015 ---
http://www.wsj.com/articles/hackers-trick-email-systems-into-wiring-them-large-sums-1438209816?mod=djem_jiewr_AC_domainid

Scrap processor thought it paid $100,000 to its vendor: ‘We in fact had sent a wire to who knows where.’

Cybercriminals are exploiting publicly available information and weaknesses in corporate email systems to trick small businesses into transferring large sums of money into fraudulent bank accounts, in schemes known as “corporate account takeover” or “business email fraud.”

Companies across the globe lost more than $1 billion from October 2013 through June 2015 as a result of such schemes, according to the Federal Bureau of Investigation. The estimates include complaints from businesses in 64 countries, though most come from U.S. firms. Both “organized crime groups from overseas and domestic-based actors” are typical perpetrators, said Patrick Fallon, a section chief in the FBI’s Criminal Investigative Division.

Their targets are businesses such as Mega Metals Inc., a 30-year-old scrap processor. In April, the company wired $100,000 to a German vendor to pay for a 40,000-pound container load of titanium shavings. Mega Metals typically buys three to four loads of titanium a week from suppliers in Europe and Asia, for anywhere from $50,000 to $5 million or more per transaction. Mega Metals crushes and washes the titanium scrap before selling it to mills that remelt the scrap into new products.

But following the recent transaction, the vendor complained that it hadn’t received payment. A third party had infected the email account used by a broker working for Mega Metals, the company said. “We got tricked,” said David Megdal, vice president of the family-owned business in Phoenix, which has 30 employees. “We, in fact, had sent a wire to who knows where.”

George Kurtz, chief executive of CrowdStrike Inc., an Irvine, Calif., cybersecurity firm that investigated the loss, said it appears that malicious software implanted on the broker’s computer allowed the crooks to collect passwords that provided access to the broker’s email system, and then to falsify wire-transfer instructions for a legitimate purchase. “Given that the money has been moved out several times, there is no hope of recovering it,” said Mr. Kurtz.

Continued in article

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


Teaching Case
From The Wall Street Journal Accounting Weekly Review on August 7, 2015

New Rule to Lift Veil on Tax Breaks
by: Theo Francis
Aug 05, 2015
Click here to view the full article on WSJ.com
 

TOPICS: GASB, Governmental Accounting

SUMMARY: Cities and states have plied companies with tax breaks for decades hoping to attract jobs and commerce. A new accounting standard will force many to disclose the total annual cost. The rule approved by the Governmental Accounting Standards Board, the municipal equivalent of the board that sets the standards for corporate reporting, will require government officials to show the value of property, sales and income taxes that have been waived under agreements with companies or other taxpayers.

CLASSROOM APPLICATION: This is a great update to use for governmental accounting.

QUESTIONS: 
1. (Introductory) What is GASB? What is its purpose and its area of authority?

2. (Advanced) What are the details of GASB's new accounting standard? What does require? When was it adopted and when will it go into effect?

3. (Advanced) Who will benefit from these new standards? Who could be adversely affected by them?

4. (Advanced) Why did GASB think these new standards are necessary? What have state and local governments been doing? How did those activities impact information reported by the financial statements and the users of the financial statements?
 

Reviewed By: Linda Christiansen, Indiana University Southeast

"New Rule to Lift Veil on Tax Breaks," by Theo Francis, The Wall Street Journal, August 5, 2015 ---
http://www.wsj.com/articles/new-rule-to-lift-veil-on-tax-breaks-1438725046?mod=djem_jiewr_AC_domainid

Accounting standard will require government officials to disclose value of property, sales and income taxes that have been waived.

Cities and states have plied companies with tax breaks for decades hoping to attract jobs and commerce. A new accounting standard will force many to disclose the total annual cost.

The rule approved Monday by the Governmental Accounting Standards Board, the municipal equivalent of the board that sets the standards for corporate reporting, will require government officials to show the value of property, sales and income taxes that have been waived under agreements with companies or other taxpayers. It kicks in starting next year.

Shelby County, Tenn., which includes the city of Memphis, waived about $48.7 million in property taxes last year, equivalent to 6.5% of its property tax receipts. Chicago channeled $372 million to nearly 150 special taxing districts in 2014, or $1 for every $13 of property taxes billed in the city, according to figures from the Cook County clerk’s office, which collects city taxes. Before it was shut down in 2012, a major California tax-incentive program sent about 12% of statewide property taxes to redevelopment agencies—and more than 25% in some counties—often benefiting private industry.

Small towns can make big tax commitments as well. Belleville, Ill., with just 43,000 people about 20 miles east of St. Louis, sent $15.6 million of property- and sales-tax receipts—a big part of the city’s nearly $97 million in total revenue—to its 19 special taxing districts last year, where the beneficiaries include developers that built shopping centers and residential homes. Special tax districts typically are created for private or public entities to finance, build or operate infrastructure or facilities.

The numbers show how the costs of discounted tax bills, special tax zones or outright waivers are piling up for local governments that in some cases have pressing problems with pensions and other budgetary issues. Deals like Nevada’s promise last fall to give Tesla Motors Inc. up to $1.3 billion in tax breaks for building a battery plant there and the $8.7 billion of incentives Washington offered Boeing Co. and its suppliers to expand jetliner production in the state have long been subject to complaints that they increase the burden on existing businesses and individual taxpayers while creating too few jobs.

Continued in article

Bob Jensen's threads on the sad state of governmental accounting ---
http://www.trinity.edu/rjensen/Theory02.htm#GovernmentalAccounting


Teaching Case
From The Wall Street Journal Accounting Weekly Review on August 7, 2015

U.S. Beer Maker Says Tax Code Encourages Foreign Takeovers
by: John D. McKinnon
Jul 31, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Corporate Taxation, International Business

SUMMARY: Lawmakers say the beer industry is a high-profile example of a trend that has helped accelerate foreign takeovers of U.S. companies in recent years. The trend should be worrisome, particularly because of the U.S. job losses that often follow foreign takeovers. Because of the differential between the higher U.S. corporate rate and lower taxes offered by other countries, a dollar of pretax earnings in the U.S. is worth 62 cents under American ownership, but 72 cents under foreign ownership. That has accelerated the takeover of U.S. beer makers by foreign firms.

CLASSROOM APPLICATION: This article is appropriate for a corporate tax class and offers an example of an industry affected by relatively high corporate taxes.

QUESTIONS: 
1. (Introductory) Who is Jim Koch and why did he testify before a Senate subcommittee? What did he report?

2. (Advanced) How has the beer industry been affected by foreign takeovers? How does the U.S. tax code encourage these activities?

3. (Advanced) What tax law changes is Congress considering? How could these changes address the issues presented in this article?

4. (Advanced) What are some ripple effects resulting from the current tax law? How is employment and the U.S. economy affected?

5. (Advanced) How can businesses incorporate tax planning into managing operations and transactions given the information included in this article?
 

Reviewed By: Linda Christiansen, Indiana University Southeast
 

RELATED ARTICLES: 
Lawmakers, White House Explore Tax Revamp for U.S. Firms Overseas
by John D. McKinnon
Jul 22, 2015
Online Exclusive

"U.S. Beer Maker Says Tax Code Encourages Foreign Takeovers," by  John D. McKinnon, The Wall Street Journal, July 31, 2015 ---
http://www.wsj.com/articles/u-s-beer-maker-says-tax-code-encourages-foreign-takeovers-1438269148?mod=djem_jiewr_AC_domainid

Jim Koch of Boston Beer Co. says 90% of U.S.-brewed beer is made by foreign companies.

Almost 90% of the beer made in America now is produced by foreign-owned firms, and the U.S. tax code is one big reason, the founder of the Boston Beer Co. —one of the largest remaining American-headquartered beer makers—told a Senate subcommittee.

Jim Koch, who says his company is significantly disadvantaged by the high U.S. tax rate, told a Senate subcommittee that the tax code has led to increased takeovers of American beer makers—including many leading craft producers—by foreign firms.

Lawmakers say the beer industry is a high-profile example of a trend that has helped accelerate foreign takeovers of U.S. companies in recent years. The trend should be worrisome, particularly because of the U.S. job losses that often follow foreign takeovers, lawmakers added.

Because of the differential between the higher U.S. corporate rate and lower taxes offered by other countries, a dollar of pretax earnings in the U.S. is worth 62 cents under American ownership, but 72 cents under foreign ownership, Mr. Koch said. That has accelerated the takeover of U.S. beer makers by foreign firms, he said.

Sen. Rob Portman (R., Ohio) said companies aren't to blame for taking advantage of the opportunities created by the tax math. “If there’s villain in this story it’s the U.S. tax code, and frankly it’s Washington,” Mr. Portman, the subcommittee’s chairman, said in his opening statement.

Continued in article


Teaching Case
From The Wall Street Journal Accounting Weekly Review on August 7, 2015

Lawmakers Unveil Tax Plan on Intellectual Property
by: John D. McKinnon
Jul 30, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Corporate Taxation, Patent Box

SUMMARY: House Republicans' quest to overhaul the tax code took a step forward, as top members of the Ways and Means Committee rolled out a plan to stop the worrisome migration of U.S. intellectual property to other countries. The plan - designed to be broadly appealing to many businesses - is expected to become one of the cornerstones of a broader overhaul of U.S. corporate tax rules that Republicans on the Ways and Means Committee are expected to construct in coming weeks. The legislation would give companies an ultralow 10% tax rate on income they generate from patents and other intellectual property. Supporters hope the move will halt a trend that has seen many American multinational firms locate more of their valuable intellectual property in lower-tax countries, even when it is developed in the U.S. That has allowed them to avoid the relatively high U.S. corporate tax on the resulting profits, which often accumulate offshore. Measures to stem the practice have been ineffective. The legislation would create what is known as a "patent box." Similar legislation already has been adopted in several European countries and the trend threatens to attract even more U.S. intellectual property in coming months.

CLASSROOM APPLICATION: This is an interesting update for a corporate taxation class.

QUESTIONS: 
1. (Introductory) What is a patent box? What are the proposed changes for tax treatment of patent boxes?

2. (Advanced) What issues would the patent box tax treatment address? How does the tax treatment of patent boxes differ in the U.S. vs. other countries? Why is the U.S. law different?

3. (Advanced) What threats and problems is the legislation addressing? What enticements does the legislation offer to U.S. companies? Would those enticements be sufficient to meet the goal?

4. (Advanced) How does the current U.S. tax law affect how U.S. companies do business? If the tax laws regarding patent boxes were changed, how would that affect business in the U.S.? What would be the difference in tax revenues paid to the government? What are the benefits of the proposed legislation? What are the potential problems?

5. (Advanced) Please explain how the U.S. taxes multinational companies. What activities and problems is this tax treatment causing?
 

Reviewed By: Linda Christiansen, Indiana University Southeast
 

RELATED ARTICLES: 
Lawmakers Embrace Patent Tax Breaks
by John D. McKinnon
May 05, 2015
Online Exclusive

"Lawmakers Unveil Tax Plan on Intellectual Property," by John D. McKinnon, The Wall Street Journal, July 30, 2015 ---
http://www.wsj.com/articles/lawmakers-unveil-new-tax-plan-on-intellectual-property-1438195972?mod=djem_jiewr_AC_domainid

Plan aims to stop migration of U.S. intellectual property to other countries.

House Republicans’ quest to overhaul the tax code took a step forward Wednesday, as top members of the Ways and Means Committee rolled out a plan to stop the worrisome migration of U.S. intellectual property to other countries.

The plan—designed to be broadly appealing to many businesses—is expected to become one of the cornerstones of a broader overhaul of U.S. corporate tax rules that Republicans on the Ways and Means Committee are expected to construct in coming weeks.

Members of the panel, led by its influential chairman Paul Ryan (R., Wis.), are hoping to use the overhaul to make American businesses more competitive compared with foreign rivals, and make the U.S. itself more attractive as a place to do business. With the help of some Democrats, they hope the overhaul can generate enough tax revenue in the short run to take care of another problem—shoring up the troubled federal highway program.

The legislation floated on Wednesday would give companies an ultralow 10% tax rate on income they generate from patents and other intellectual property. Supporters hope the move will halt a trend that has seen many American multinational firms locate more of their valuable intellectual property in lower-tax countries, even when it is developed in the U.S. That has allowed them to avoid the relatively high U.S. corporate tax on the resulting profits, which often accumulate offshore. Measures to stem the practice have been ineffective.

The problem is about to get worse unless Congress acts soon, many lawmakers and businesspeople fear.

The legislation would create what is known as a “patent box.” Similar legislation already has been adopted in several European countries and the trend threatens to attract even more U.S. intellectual property in coming months. Worse, European countries are expected to start requiring U.S. and other firms to move research jobs to qualify for their patent boxes.

Continued in article


Teaching Case
From The Wall Street Journal Accounting Weekly Review on August 14, 2015

Companies Lament Missing R&D Tax Credit Again
by: Emily Chasen
Aug 11, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Corporate Taxation, R&D, R&D Tax Credit

SUMMARY: The tax credit companies use to offset some of their research and development costs has lapsed again, but companies are forecasting the boost it could have on results this year, should lawmakers extend it. The R&D tax credit, first enacted in 1981 on a temporary basis, is typically renewed every few years. The most recent provision for the credit expired at the end of last year. The Senate Finance Committee voted to advance a bill aimed at extending the tax break through the end of 2016. Some legislators, and the White House proposed making the credit permanent. Companies are reporting tax rates with and without the credit.

CLASSROOM APPLICATION: This article would be a good addition to a discussion of the R&D tax credit, providing an update of the current status.

QUESTIONS: 
1. (Introductory) What is R&D? How is it recorded for financial accounting purposes?

2. (Advanced) What is the R&D tax credit? When was it enacted? Why was it enacted? What are the requirements to take that credit? What are the benefits of the tax credit?

3. (Advanced) What is the current status of the R&D tax credit? What is Congress considering? How does the current status of the credit impact companies' financial reporting?

4. (Introductory) Why might Congress be delayed in making this decision? How does that uncertainty impact corporate planning and strategies?
 

Reviewed By: Linda Christiansen, Indiana University Southeast
 

RELATED ARTICLES: 
Tax Extenders Approved By Senate Finance Committee
by Kristin Lin
Jul 21, 2015
Online Exclusive

"Companies Lament Missing R&D Tax Credit Again," by Emily Chasen, The Wall Street Journal, August 11, 2015 ---
http://blogs.wsj.com/cfo/2015/08/11/companies-lament-missing-rd-tax-credit-again/?mod=djem_jiewr_AC_domainid

The tax credit companies use to offset some of their research and development costs is missing again, but companies are forecasting the boost it could have on results this year, should lawmakers extend it.

The R&D tax credit, first enacted in 1981 on a temporary basis, is typically renewed every few years. The most recent provision for the credit expired at the end of last year.

The Senate Finance Committee voted last month to advance a bill aimed at extending the tax break through the end of 2016. Some legislators, and the White House proposed making the credit permanent.

Companies are reporting tax rates with and without the credit.

Generic drugmaker Impax Laboratories Inc.IPXL +1.51% said on its second-quarter conference call Monday that its 37.6% adjusted effective tax rate for this year would have been 1.5% lower if the tax credit was still in effect.

It expects it could record the impact of the credit on the full year in the fourth quarter if Congress decides to renew it then.

Computing solutions company Super Micro Computer Inc.SMCI +0.99% said on a conference call last week that it expects its effective tax rate to be 34% for the upcoming quarter, but its tax rate could decline by 7% in the final quarter if Congress reinstates the tax credit.

Continued in article


Teaching Case
From The Wall Street Journal Accounting Weekly Review on August 14, 2015

SEC, PCAOB Move to Enhance Audit Committee and Auditor Disclosures
by: Deloitte Risk Journal Editor
Aug 07, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Audit Committee, Auditing

SUMMARY: Recently, the SEC published a concept release on possible revisions to audit committee disclosures, and the PCAOB issued (1) a supplemental request for comment on rules to require disclosures about the audit partner and certain other audit participants, and (2) a concept release on audit quality indicators (AQIs). These three releases contemplate expanding disclosures about an audit and how the audit committee oversees the auditor.

CLASSROOM APPLICATION: This article is a good update for an auditing class.

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

2. (Advanced) What did the SEC release regarding audit committees? What is the reason for this release? What the release discuss? What would be the value of any revisions?

3. (Advanced) What did the PCAOB issue? What information is the PCAOB requesting? What is the board's intention with this request? What is the value of this information? How could it be used?
 

Reviewed By: Linda Christiansen, Indiana University Southeast

"SEC, PCAOB Move to Enhance Audit Committee and Auditor Disclosures," by Deloitte Risk Journal Editor, The Wall Street Journal, August 7, 2015 ---
http://deloitte.wsj.com/riskandcompliance/2015/08/07/sec-pcaob-move-to-enhance-audit-committee-and-auditor-disclosures/?mod=djem_jiewr_AC_domainid

Recently, the SEC published a concept release¹ on possible revisions to audit committee disclosures, and the PCAOB issued (1) a supplemental request for comment² on rules to require disclosures about the audit partner and certain other audit participants and (2) a concept release³ on audit quality indicators (AQIs). These three releases contemplate expanding disclosures about an audit and how the audit committee oversees the auditor. Following is an excerpt from Deloitte’s Heads Up newsletter that provides an overview of the releases and focuses on those of the PCAOB.

SEC’s Concept Release on Audit Committee Disclosures

The responsibilities of audit committees have changed significantly since the SEC’s adoption of audit committee disclosure requirements in 1999.⁴ Accordingly, the commission recently decided to publish a concept release on possible revisions to audit committee disclosures and seek feedback on those revisions, particularly those pertaining to disclosures about audit committees’ oversight of independent auditors. As explained in an SEC press release, “the concept release invites comment on whether commission disclosure requirements should be refined to provide more insight into the information the audit committee used and the factors it considered in overseeing the independent auditor.”

The SEC’s concept release discusses specific potential changes to audit committee disclosure requirements, including those related to the audit committee’s oversight of the auditor; its process for appointing or retaining the auditor; and the qualifications of the audit firm and certain members of the engagement team selected by the audit committee.

In addition, the concept release explores options for the location of such potential disclosures and solicits feedback on the impact that related rules may have on smaller reporting companies and emerging growth companies (EGCs).

For more information on the SEC’s concept release, including details about submitting comments on the release to the SEC, see Deloitte LLP’s July 2015 Audit Committee Brief.


Teaching Case
From The Wall Street Journal Accounting Weekly Review on August 14, 2015

The Smart Way for an Executive to Exit
by: Veronica Dagher
Aug 08, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Individual Taxation, Retirement Plans, Stock Options

SUMMARY: Merger and acquisition activity is booming and some executives may soon find themselves unemployed as companies unite and adjust their top ranks. When job losses hit, quick action and professional assistance may help high earners maximize the value of certain work-related benefits and avoid costly errors. This article discusses potential mistakes and useful strategies in three areas: stock-options, company stock in 401(k)s, and life insurance conversion.

CLASSROOM APPLICATION: This article offers tax planning ideas for executives leaving a company. It can be used in an individual income tax class to show students examples of how to attract and help clients.

QUESTIONS: 
1. (Introductory) What are stock options? What are incentive stock options and nonqualified options? How do they differ?

2. (Advanced) What are the choices for departing executives who have stock options? How do the departing executive's choices differ for each type? What rules apply? How does this help the executive minimize taxes?

3. (Advanced) What is a 401(k)? What is net unrealized appreciation? To what does it apply? What options does a departing executive have? What are the benefits of each of the options? How can an executive in this position minimize taxes?
 

Reviewed By: Linda Christiansen, Indiana University Southeast

"The Smart Way for an Executive to Exit," by Veronica Dagher, The Wall Street Journal, August 8, 2015 ---
http://www.wsj.com/articles/the-smart-way-for-an-executive-to-exit-1438966440?mod=djem_jiewr_AC_domainid

Merger and acquisition activity is booming and some executives may soon find themselves unemployed as companies unite and adjust their top ranks.

For example, private-equity owner 3G Capital Partners LP replaced several top executives of Kraft Foods Group Inc. in recent months ahead of the July combination of Kraft and H.J. Heinz Co. to form Kraft Heinz Co.

When job losses hit, quick action and professional assistance may help high earners maximize the value of certain work-related benefits and avoid costly errors.

Here are potential mistakes and useful strategies in three areas: Stock-option smarts

Under the tax code, there is a critical deadline for incentive stock options: They must be exercised within three months of leaving employment to retain favorable tax treatment. There can be a big payoff for departing executives in negotiating the terms of any nonqualified stock options and also the mix of incentive and nonqualified options.

Jay Messing, senior director of planning for Wells Fargo Private Bank in New York, recently worked with a departing executive who had ISOs and also nonqualified options that would expire at the earlier of their original expiration date or one year after his termination. Several of the nonqualified-option grants were “underwater,” meaning that they were currently worthless because the price at which they would enable the holder to buy shares was above the current market price.

The client “didn’t realize that unlike ISOs, which are subject to strict statutes, companies have flexibility to alter the terms” of nonqualified options, Mr. Messing says.

On Mr. Messing’s advice, the executive was able to negotiate an extension of the nonqualified options’ expiration date, providing more time for the stock to potentially recover and be “in the money.”

In addition, the company board agreed to exchange some of his ISOs for nonqualified options. That effectively extended the expiration date of those grants, although the potential tax benefits inherent in the ISOs were lost. Mr. Messing says that is a trade-off to discuss with one’s tax and financial advisers.

Executives should also realize that they may be able to negotiate the acceleration of the vesting of unvested grants that might have otherwise been forfeited, Mr. Messing says.

Continued in article


Teaching Case
From The Wall Street Journal Accounting Weekly Review on August 14, 2015

Sale/Lease-Back Deals Catch On
by: Robyn A. Friedman
Aug 12, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Financial Accounting, Lease Accounting, Sale/Lease-Backs

SUMMARY: One of the fastest-growing trends among big retail and restaurant chains in recent years has been a practice called sale/lease-backs, where retailers sell their stores, pocket the profits and then lease the stores back from the buyer. The transactions allow companies to cash out the value of their real-estate holdings, which have risen sharply in recent years. But they can also saddle companies with large lease expenses that can become burdensome over time. Still, a number of companies are taking the sale/lease-back plunge. But now the sale/lease-back trend is starting to catch on with smaller entities, including health-care facilities and medical office buildings.

CLASSROOM APPLICATION: This is a good article to show student the business relevance of what we are teaching. 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? What are the business reasons for entering into such a transaction?

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

3. (Advanced) How should the seller handle the gain or loss on the sale transaction? 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 should the lessor record the lease?

6. (Advanced) How could a sale/lease-back hurt the financial results of a business? In what situations should this transaction be avoided?
 

Reviewed By: Linda Christiansen, Indiana University Southeast

"Sale/Lease-Back Deals Catch On," by Robyn A. Friedman, The Wall Street Journal, August 12, 2015 ---
http://www.wsj.com/articles/sale-lease-back-deals-catch-on-1439300184?mod=djem_jiewr_AC_domainid

One of the fastest-growing trends among big retail and restaurant chains in recent years has been a practice called sale/lease-backs, where retailers sell their stores, pocket the profits and then lease the stores back from the buyer.

The transactions allow companies to cash out the value of their real-estate holdings, which have risen sharply in recent years. But they can also saddle companies with large lease expenses that can become burdensome over time.

Still, a number of companies are taking the sale/lease-back plunge. Last month, Sears Holdings Corp. sold 235 properties to Seritage Growth Properties, a real-estate investment trust, for $2.7 billion. Sears, which spun off Seritage, will lease back a majority of the acquired properties. In June, Darden Restaurants Inc., the owner of Olive Garden and LongHorn Steakhouse, said it was jettisoning 430 of its more than 1,500 restaurants to a publicly traded REIT and leasing them back.

But now the sale/lease-back trend is starting to catch on with smaller entities, including health-care facilities and medical office buildings.

Consider DEC Property LLC, the owner of a 13,000-square-foot medical office building in Tempe, Ariz. In June, DEC, which is owned by seven physicians, sold the 10-year-old single-story building to Nashville, Tenn.-based Community Healthcare Trust Inc. for $2.8 million. An endoscopy practice, of which several of the sellers are a part, then leased back 10,400 square feet of the space to continue their practice. A school occupies the remaining space.

Before the sale, the endoscopy practice locked in its lease with the sellers for five years, with two five-year options. That made the property more marketable.

“When you buy a medical office building, you’re not buying the bricks and mortar—you’re buying the practice,” said Colleen McPherson, vice president of the Healthcare Services Group at Colliers International. “This building increased in value substantially because of the lease that was put in place with the practice/tenant.”

Due to favorable demographics—the rising demand for medical care by both aging baby boomers and maturing millennials—the vacancy rate for medical office buildings is dropping, from 10.3% in 2010 to 9.6% in the second quarter of 2015, according to commercial real-estate firm Marcus & Millichap Inc.

At the same time, due to a flow of cash into the sector, prices are rising, from $208.11 a square foot in June 2010 to $239.94 a square foot in June 2015, according to New York-based data firm Real Capital Analytics Inc., with average capitalization rates dropping from 8.3% to 7% over the same period. The cap rate, a valuation measure, is equal to a property’s annual income divided by its purchase price.

Facilities deemed to be less risky because they are anchored by medical practices are worth even more. According to Marcus & Millichap, brand-new medical facilities with leases extending 10 years or more in strong urban locations are trading at cap rates in the low-6% range.

Medical office buildings are also perceived as somewhat recession-resistant, since demand for medical care is strong in both good economic times and bad. According to the National Association of Real Estate Investment Trusts, at the height of the recession and financial crisis in 2008, health-care REITs fared better than other sectors, with a negative return of 11.98% for the year. In comparison, the FTSE NAREIT All Equity REIT Index, which tracks all REITs, was down 37.7% that year.

Continued in article


Teaching Case
From The Wall Street Journal Accounting Weekly Review on August 14, 2015

SEC Approval of Pay-Gap Rule Sparks Concerns
by: Victoria McGrane and Joann S. Lublin
Aug 05, 2015
Click here to view the full article on WSJ.com
 

TOPICS: CEO Pay-Gap Disclosure, Dodd-Frank, SEC

SUMMARY: Companies must start disclosing the pay gap between their top boss and rank-and-file employees under one of the most significant postcrisis rules addressing executive pay, launching a period of uncertainty for companies over whether the disclosure will rile up shareholders, employees and the broader public. The Securities and Exchange Commission voted 3-2 to approve the measure. Required by the 2010 Dodd-Frank financial law, the CEO pay-ratio rule emerged as a major flash point because it tied corporate disclosure policy to divisive political debates about income inequality and executive pay, although it could have the opposite effect. High median compensation of the rank and file (which will tend to produce lower CEO pay ratios) could attract activist investors like flies to honey if they believe a company is failing to adequately control costs.

CLASSROOM APPLICATION: This article discusses the new financial reporting requirement. A related article presents an interesting idea, considering whether the new rule could produce negative and/or unintended consequences and hurt lower-paid workers.

QUESTIONS: 
1. (Introductory) What are the details of the new SEC rule discussed in this article? Why was the SEC required to propose and pass a rule like this?

2. (Advanced) What is the reasoning behind this rule? What does the SEC and other parties hope to achieve?

3. (Advanced) What information must companies report? What various parties will be interested in this information? How might these parties react?

4. (Advanced) What are some of the negative or unintended consequences that could result from implementation of this rule? How could companies react? How could investors react?

5. (Advanced) What is the rule regarding the compensation of non-U.S. workers? Why is this permitted? Is that a good policy?
 

Reviewed By: Linda Christiansen, Indiana University Southeast
 

RELATED ARTICLES: 
SEC Set to Approve CEO Pay-Gap Disclosure Rule
by Victoria McGrane and Joann S. Lublin
Aug 04, 2015
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Dealpolitik: Unintended Consequences of CEO Pay Ratio Rule?
by Ronald Barusch
Aug 10, 2015
Online Exclusive

CFOs Prep for Pay-Ratio Rules
by Kimberly S. Johnson and Maxwell Murphy
Jul 21, 2015
Online Exclusive

Companies Disclose Pay Ratio Before SEC's Final Rule
by Kristin Lin
Jul 20, 2015
Online Exclusive

"SEC Approval of Pay-Gap Rule Sparks Concerns," by Victoria McGrane and Joann S. Lublin, The Wall Street Journal, August 5, 2015 ---
http://www.wsj.com/articles/sec-set-to-approve-final-ceo-pay-ratio-rule-1438783961?mod=djem_jiewr_AC_domainid

Companies must start disclosing the pay gap between their top boss and rank-and-file employees under one of the most significant postcrisis rules addressing executive pay, launching a period of uncertainty for companies over whether the disclosure will rile up shareholders, employees and the broader public.

The Securities and Exchange Commission on Wednesday voted 3-2 to approve the measure, with the panel’s two Republican members opposing it.

Required by the 2010 Dodd-Frank financial law, the CEO pay-ratio rule emerged as a major flash point because it tied corporate disclosure policy to divisive political debates about income inequality and executive pay.

Companies will have to explain large pay gaps to investors, and face new challenges explaining to workers why they make so much less than the boss and, possibly, why they are less richly rewarded than their peers or competitors.

Steven Seelig, a senior regulatory adviser for Towers Watson & Co., a human-resources consultancy, said the SEC rule means rank-and-file workers will be able to see how they stack up against the median employee at their firm and at other firms. “This is going to raise all sorts of questions as to whether that person believes they’re paid fairly both internally…and [compared] to competitors,” he said.

The pay-ratio measure is one of several Dodd-Frank provisions that aim to empower shareholders to better understand and challenge executive-pay practices at major U.S. companies. The SEC earlier this year unveiled another proposal designed to make it easier for investors to judge whether top executives’ compensation is in line with the company’s financial performance. The commission previously greenlighted new “say on pay” rules directing firms to submit executive-compensation packages regularly to a nonbinding shareholder vote.

Continued in article


Teaching Case
From The Wall Street Journal Accounting Weekly Review on August 21, 2015

PCAOB Continues to Sharpen Focus on Internal Controls
by: Maxwell Murphy
Aug 13, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Audit, COSO, Internal Controls, PCAOB, Treadway Commission

SUMMARY: Companies with significant accounting problems seem to have a looser grip on their internal controls over financial reporting, even after they attest to their adequacy. Audit-oversight inspections indicate 36% of company audits had internal-control deficiencies in 2013, up from 16% five years ago. Since 2010, there's been an increased focus from the PCAOB on internal controls. The Committee of Sponsoring Organizations of the Treadway Commission, or COSO, in 2013 updated its internal-controls safeguards for the first time in more than two decades. COSO abandoned the 1992 framework in December, creating a soft deadline, but there is no set Securities and Exchange Commission penalty for foot dragging.

CLASSROOM APPLICATION: This article offers a good opportunity to discuss COSO, the Treadway Commission, and internal controls.

QUESTIONS: 
1. (Introductory) What is the SEC? What is its area of authority? What is COSO? How is COSO involved with internal controls?

2. (Advanced) What are internal controls? What purpose do they serve? Why are they important?

3. (Advanced) What is the PCAOB? What is its purpose and area of authority? How is it involved with auditing in general, and more specifically with auditing of internal controls?

4. (Advanced) Please give at least one example of internal controls integrated into accounting and other examples of internal controls involving more than just financial records and accounting.

5. (Advanced) What did the PCAOB report regarding internal controls? Why is this information concerning? Who should be concerned about it?

6. (Advanced) How can businesses benefit from following the COSO standards? How could businesses be disadvantaged if they do not implement the standards?

7. (Advanced) What are the penalties for not following the COSO standards? What authority does COSO have over companies? Could any other parties impose sanctions or other negative ramifications?

8. (Advanced) How should these issues be addressed? What are some possible remedies?
 

Reviewed By: Linda Christiansen, Indiana University Southeast
 

RELATED ARTICLES: 
Companies Drag Feet on Updating Fraud Safeguards
by Maxwell Murphy
Mar 03, 2015
Online Exclusive

"PCAOB Continues to Sharpen Focus on Internal Controls," by Maxwell Murphy, The Wall Street Journal, August 11, 2015 ---
http://blogs.wsj.com/cfo/2015/08/13/pcaob-continues-to-sharpen-focus-on-internal-controls/

Companies with significant accounting problems seem to have a looser grip on their internal controls over financial reporting, even after they attest to their adequacy.

Audit-oversight inspections indicate 36% of company audits had internal-control deficiencies in 2013, up from 16% five years ago, according to Jeanette Franzel, a board member of the Public Company Accounting Oversight Board. Since 2010, there’s been an increased focus from the PCAOB on internal controls, according to a Thursday blog post by data and research provider Audit Analytics.

The Committee of Sponsoring Organizations of the Treadway Commission, or COSO, in 2013 updated its internal-controls safeguards for the first time in more than two decades. COSO abandoned the 1992 framework in December, creating a soft deadline, but there is no set Securities and Exchange Commission penalty for foot dragging.

As CFO Journal reported in March, several companies still hadn’t adopted the 2013 COSO standards, but those companies that responded to requests for comment said they planned to make the switch this year. SEC officials say companies that don’t move to the current framework may be more likely to face questions from both the agency and their investors.

Ms. Franzel on Saturday spoke at the American Accounting Association’s annual meeting, and said weak controls continue to be the most frequent problems, “which is a concern.”  She said, however, that the number of severity of such weaknesses is on the decline.

Continued in article


Teaching Case
From The Wall Street Journal Accounting Weekly Review on August 21, 2015

How Etsy Crafted a Tax Strategy in Ireland
by: Suzanne Kapner
Aug 17, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Corporate Taxation, IPO, Tax Planning, Tax Strategy

SUMMARY: As Etsy geared up for its initial public offering, the company adopted some ideas from rival technology companies that have been aggressive about routing their inventions and earnings through low-tax jurisdictions overseas to minimize what they might owe to Uncle Sam. The company relocated some of its intellectual property to Dublin earlier this year to avoid U.S. taxes by setting up a subsidiary in Ireland, the location of its European headquarters, then lent the unit money to be used to buy intellectual property from the U.S. company. Etsy's U.S. tax bill will increase initially, because the U.S. company made money on the sale of the intellectual property. But the structure is expected to eventually reduce Etsy's U.S. tax bill because the income associated with the intellectual property held in Dublin will be taxed at the Irish rate of 12.5%, much lower than the U.S. rate.

CLASSROOM APPLICATION: This article provides a good explanation of the international corporate tax strategy adopted by Etsy.

QUESTIONS: 
1. (Introductory) What is Etsy? What is its business model? Where is it located and from where does it derive its revenues?

2. (Advanced) Please describe the tax strategy the corporation had adopted. How will it help the company avoid U.S. taxes? Will the savings be minor or significant?

3. (Advanced) Are there business purposes, other than tax avoidance, for these actions? Are the actions legal?

4. (Advanced) What is an IPO? Was this tax planning done in anticipation of the IPO? How can a plan like this affect an IPO?
 

Reviewed By: Linda Christiansen, Indiana University Southeast
 

RELATED ARTICLES: 
Etsy Shares Surge in Market Debut
by Corrie Driebusch
Apr 17, 2015
Online Exclusive

"How Etsy Crafted a Tax Strategy in Ireland," by Suzanne Kapner, The Wall Street Journal, August 21, 2015 ---
http://www.wsj.com/articles/how-etsy-crafted-a-tax-strategy-in-ireland-1439765858?mod=djem_jiewr_AC_domainid

Etsy Inc., the online marketplace for artisans, works to keep its business “mindful, transparent and humane,” but that became tricky when it crafted a new tax strategy.

The startup, which built its eBay -like marketplace in Brooklyn, has been so serious about authenticity that its founder made his own underwear. But as it geared up for its initial public offering, the company adopted some ideas from rival technology companies that have been aggressive about routing their inventions and earnings through low-tax jurisdictions overseas to minimize what they might owe to Uncle Sam.

Its advisers proposed a number of more-complex options, but the company passed on structures known by nicknames like the “Double Irish” or “Dutch Sandwich” that have become flash points in the broader debate about gaps in the corporate tax code, according to people familiar with the company.

What it did agree to, though, was to relocate some of its intellectual property to Dublin earlier this year. While that approach ranks as relatively straightforward in the business of tax avoidance, it has taken Etsy into the realm of legalistic corporate-speak and vague disclosure that its founders long railed against. Etsy briefly described the moves this way in a May earnings release: “Etsy’s revised corporate structure was implemented to more closely align with its global operations and future expansion plans outside the U.S.”

The questions Etsy grappled with as it planned its tax strategy show the difficulty of staying true to values proclaimed on its website that include running a “mindful, transparent and humane business” while maturing into a publicly traded company that must compete globally with rivals that are often less idealistic.

Continued in article


Teaching Case
From The Wall Street Journal Accounting Weekly Review on August 21, 2015

U.S. Postal Service Tries Hand as Fishmonger, Grocer
by: Laura Stevens
Aug 18, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Business Segments, Cost Behavior, Managerial Accounting, Pricing

SUMMARY: The U.S. Postal Service is ramping up same-day delivery of everything from bottled water to fresh fish as its new postmaster general tries to better compete with FedEx, UPS and even Amazon.com. In New York City, letter carriers in the early morning hours load boxes of fresh and frozen seafood from Fulton Fish Market onto mail trucks and deliver them to local restaurants by 11 a.m. They collect packages from Internet electronics retailer Newegg Inc. for fast, local afternoon delivery. They're also doing daily water delivery to businesses for Nestlé in Manhattan and Brooklyn. Same-day delivery is part of a big push by Megan Brennan, the new postmaster general, to make the postal service more competitive.

CLASSROOM APPLICATION: This article provides a case study of the USPS business model and how the agency is attempting to expand it business and profitability. The article would be good for managerial and cost accounting classes.

QUESTIONS: 
1. (Introductory) What is the U.S. Postal Service's main line of business? What other business areas and product lines is it attempting to add?

2. (Advanced) Why is the USPS entering new areas of business? What has been its financial history?

3. (Advanced) What were the USPS's traditional business segments? What new business segments has it added or plans to add? How is management using segment analysis to improve overall profitability?

4. (Introductory) What is cost behavior? What is a fixed cost, a variable cost, and a mixed cost?

5. (Advanced) How is the USPS using some of its fixed costs to add additional revenues? What variable costs are associated with these new ventures? How do the incremental revenues compare to the incremental costs for each new business segment?

6. (Advanced) The article mentions some pricing issues. How does the USPS set prices? Who is the agency's competition? How does that compare to the competition's pricing? What are the various ways a business can set prices? Which would be appropriate for the USPS?

7. (Advanced) What do you think the USPS's future prospects are? Are you optimistic about its future, or do you have concerns? Please explain the reasoning for your answer.
 

Reviewed By: Linda Christiansen, Indiana University Southeast
 

RELATED ARTICLES: 
U.S. Postal Service Narrows Its Loss
by Lindsay Ellis
Aug 11, 2015
Online Exclusive

U.S. Mail Delivers Amazon Groceries in San Francisco
by Greg Bensinger and Laura Stevens
Sep 05, 2015
Online Exclusive

U.S. Mail Cuts Prices, Chafing UPS and FedEx
by Laura Stevens
Sep 15, 2014
Online Exclusive

For FedEx and UPS, a Cheaper Route: the Post Office
by Laura Stevens
Aug 05, 2014
Online Exclusive

"U.S. Postal Service Tries Hand as Fishmonger, Grocer," by Laura Stevens, The Wall Street Journal, August 18, 2015 ---
http://www.wsj.com/articles/u-s-postal-service-tries-hand-as-fishmonger-grocer-1439855940?mod=djem_jiewr_AC_domainid

The U.S. Postal Service is ramping up same-day delivery of everything from bottled water to fresh fish as its new postmaster general tries to better compete with FedEx, UPS and even Amazon.com.

In New York City, letter carriers in the early morning hours load boxes of fresh and frozen seafood from Fulton Fish Market onto mail trucks and deliver them to local restaurants by 11 a.m. They collect packages from Internet electronics retailer Newegg Inc. for fast, local afternoon delivery. They’re also doing daily water delivery to businesses for Nestlé SA in Manhattan and Brooklyn.

Same-day delivery is part of a big push by Megan Brennan, the new postmaster general, to make the postal service more competitive.

“Clearly, the consumer demand is such that we all want the package today,” said Ms. Brennan in an interview. “So we’re being responsive to that.”

About six months after taking the top job at the quasigovernmental agency, Ms. Brennan said she’s pushing Congress to green light the shipping of alcoholic beverages. She also wants to expand grocery delivery and offer more Sunday delivery.

The postal service must grow. Volumes of first-class mail, its most profitable product, fell 2.2% through the first three quarters of the year. It has fallen about 20% over the past decade. While the agency’s package business is growing in double digits, it’s still only about a fifth of total revenue. For fiscal 2014, the agency’s revenue was $67.85 billion.

Continued in article


Teaching Case
From The Wall Street Journal Accounting Weekly Review on August 21, 2015

Macy's Cuts Guidance as Sales, Profit Slide
by: Suzanne Kapner
Aug 13, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Activist Investor, Business Segments, Corporate Taxation, Financial Reporting

SUMMARY: Macy's Inc. cut its forecast for sales growth this year to zero after posting declines in quarterly revenue and earnings, intensifying pressure on the retailer to find new ways to grow beyond its core department-store business. Macy's is also contending with activist investor Starboard Value LP, which has accumulated a stake in the retailer and is pushing it to spin off its real-estate holdings.

CLASSROOM APPLICATION: This article offers an overview of Macy's and its current condition, as well as challenges it is facing. It would be good for coverage of a variety of accounting topics.

QUESTIONS: 
1. (Introductory) What is Macy's and what is its business model? What are the company's financial trends in recent years?

2. (Advanced) What is the company's current financial condition? What challenges is the industry facing? More specifically, what challenges is Macy's facing? How is the company addressing and managing those challenges?

3. (Advanced) What is an activist investor? What do they do? What impact is Macy's activist investor having on the company?

4. (Advanced) What are the details of Macy's decision to sell some of its real estate? What is the impact of that sale on the financial statements?

5. (Advanced) How will the real estate sale affect the company's tax liability? Macy's chief executive commented on the tax issue. What did he mean by his comment?

6. (Advanced) What are Macy's various business segments? How are each of those segments performing? How could the company use segment analysis to improve overall profitability?
 

Reviewed By: Linda Christiansen, Indiana University Southeast
 

RELATED ARTICLES: 
Activist Knocks on Macy's Door
by David Benoit and Suzanne Kapner
Jul 16, 2015
Online Exclusive

"Macy's Cuts Guidance as Sales, Profit Slide," by Suzanne Kapner, The Wall Street Journal, August 13, 2015 ---
http://www.wsj.com/articles/macys-cuts-guidance-as-sales-profit-slide-1439383072?mod=djem_jiewr_AC_domainid

Macy’s Inc. cut its forecast for sales growth this year to zero after posting declines in quarterly revenue and earnings, intensifying pressure on the retailer to find new ways to grow beyond its core department-store business.

On Wednesday Macy’s reported a 2.6% drop in sales to $6.1 billion for the three months to Aug. 1. Sales at existing stores fell 2.1%. When licensed departments are included, sales declined 1.5%.

“Our performance in the first half of the year was not as strong as we had hoped,” Chief Financial Officer Karen Hoguet said on a conference call.

Shares of the retailer fell 5% to $64.11 in Wednesday trading, making it the worst performer in the S&P 500. The drop was the largest for Macy’s on a percentage basis since Aug. 13, 2014.

The results extend a rough patch for a chain that dominates the department-store landscape but is having trouble posting solid growth as shopper habits change.

It also doesn’t bode well for other department stores such as J.C. Penney Co. and Kohl’s Corp. , which are due to report earnings later this week. Sears Holdings Corp. already reported an 11% decline in sales at existing stores in the second quarter.

Macy’s is also contending with activist investor Starboard Value LP, which has accumulated a stake in the retailer and is pushing it to spin off its real-estate holdings.

To that end, the retailer on Wednesday said it had agreed to sell property in Brooklyn to real-estate developer Tishman Speyer for $170 million in cash upon closing in the fourth quarter. Macy’s will continue to own the first five floors of the store, or about 310,000 square feet. Tishman will own the remaining five floors and a parking garage across the street that it will convert to office space.

Continued in article


Teaching Case
Keurig Green Mountain, formerly Green Mountain Coffee Roasters --- https://en.wikipedia.org/wiki/Keurig_Green_Mountain

"SEC Investigating Green Mountain Coffee - Are Revenue Recognition Disclosures to Blame?" AccountingWeb, October 10, 2010 ---
http://www.accountingweb.com/community-voice/blogs/admin/sec-investigating-green-mountain-coffee-are-revenue-recognition

MarketWatch posted an article titled Green Mountain's accounting creates a stirThe article strongly suggests that Green Mountain (NASDAQ:GMCR) "has a history of changing the way it reports revenue..." It goes on to say ..."its bookkeeping is being investigated by the Securities and Exchange Commission."

Another article I found quotes the following from today's Form 8-K filing (which I haven't found yet):

On September 20, 2010, the staff of the SEC's Division of Enforcement informed the Company that it was conducting an inquiry and made a . . .

Continued in article

"Tempest in a K-Cup: Red Flags on Green Mountain"

SSRN, August 25, 2015

Authors

Dennis Caplan, State University of New York (SUNY) at Albany

Saurav K. Dutta, State University of New York (SUNY) at Albany

David Marcinko, Skidmore College

Link
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2648493

Abstract:

“Tempest in a K-Cup” discusses financial accounting and financial statement analysis in the context of Green Mountain Coffee Roasters. The case begins with background on the evolution of Keurig and Green Mountain. Next it discusses the rapid growth of Green Mountain and its step-wise acquisition of Keurig. The case focuses on events in 2011-2012, a period in which Green Mountain experienced significant stock price volatility, was challenged by the SEC about its financial disclosures and business relationships, and endured a public bashing by a well-known hedge-fund manager, David Einhorn of Greenlight Capital.

Students completing the case gain a better appreciation for the level of scrutiny that financial statements receive from regulators, investors, and journalists. Specific topics include the use of trend analysis, ratio analysis, and free cash flows in analyzing a company’s prospects, the risk of channel-stuffing, and the role of short-sellers in capital markets. The case requires students to critically read, analyze and apply accounting guidance with respect to sales returns, related party transactions, and segment reporting. The case also requires students to read and analyze communications between the Securities and Exchange Commission (SEC) and Green Mountain.

Bob Jensen's threads on Revenue Accounting Controversies ---
http://www.trinity.edu/rjensen/ecommerce/eitf01.htm 

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

 




Humor for August 1-31, 2015

Here’s How 5 Legendary Talk Show Hosts Said Goodbye ---
http://time.com/3982859/tv-hosts-last-shows/?xid=newsletter-brief

Mystery pooper targeting holes of Norwegian golf course ---
http://www.upi.com/Odd_News/2015/07/24/Mystery-pooper-targeting-holes-of-Norwegian-golf-course/2881437763634/

Hump-Day Humor ---
http://www.thefiscaltimes.com/Columns/2015/07/29/Joe-Biden-Looming-Threat-Republican-Presidency


Forwarded by Paula

John was sitting outside his local pub one day, enjoying a quiet pint and generally feeling good about himself, when a nun suddenly appears at his table and starts decrying the evils of drink.
"You should be ashamed of yourself young man! Drinking is a Sin! Alcohol is the blood of the devil!"
Now John gets pretty annoyed about this, and goes on the offensive.
"How do you know this, Sister?"
"My Mother Superior told me so."
"But have you ever had a drink yourself? How can you be sure that what you are saying is right?"
"Don't be ridiculous--of course I have never taken alcohol myself"
"Then let me buy you a drink - if you still believe afterwards that it is evil I will give up drink for life"
"How could I, a Nun, sit outside this public house drinking?!"
"I'll get the barman to put it in a teacup for you, then no one will ever know."
The Nun reluctantly agrees, so John goes inside to the bar.
"Another pint for me, and a triple vodka on the rocks", then he lowers his voice and says to the barman "and could you put the vodka in a teacup?"
"Oh no! It's not that Nun again is it?"

 


Jean Louise's second impulse was to blame it on the minister. He was a young man, a Mr. Stone by name, with what Dr. Finch called the greatest talent for dullness he had ever seen in a man on the near side of fifty. There was nothing whatsoever wrong with Mr Stone, except that he possessed all the necessary qualifications for a certified public accountant: he did not like people, he was quick with numbers, he had no sense of humor, and he was butt-headed.
Harper Lee, author of To Kill a Mockingbird, in her newly released book, Go Set a Watchman, Chapter 7 ---
https://mail.google.com/mail/u/1/#inbox/14f370e95e1cd3ab
Thank you Denny Beresford for the heads up. When you employ or marry Mr. Stone you've hit rock bottom.


Forwarded by Paula

Sarah was in the fertilized egg business.

She had several hundred young pullets' and ten roosters to fertilize the eggs. She kept records and any rooster not performing went into the soup pot and was replaced. This took a lot of time, so she bought some tiny bells and attached them to her roosters. Each bell had a different tone, so she could tell from a distance which rooster was performing.

Now, she could sit on the porch and fill out an efficiency report by just listening to the bells. Sarah's favorite rooster, old Butch, was a very fine specimen but, this morning she noticed old Butch's bell hadn't rung at all! When she went to investigate, she saw the other roosters were busy chasing pullets, bells-a-ringing, but the pullets hearing the roosters coming, would run for cover.

To Sarah's amazement, old Butch had his bell in his beak, so it couldn't ring. He'd sneak up on a pullet, do his job, and walk on to the next one. Sarah was so proud of old Butch, she entered him in the Dowerin Show and he became an overnight sensation among the judges.

The result was the judges not only awarded old Butch the "No Bell Peace Prize" they also awarded him the "Pulletsurprise" as well. Clearly old Butch was a politician in the making.

Who else but a politician could figure out how to win two of the most coveted awards on our planet by being the best at sneaking up on the unsuspecting populace and screwing them when they weren't paying attention? Vote carefully in the next election. You can't always hear the bells.


Forwarded by Paula

An Englishman, a Scotsman, an Irishman, a Welshman, a Gurkha, a Latvian, a Turk, an Aussie, a German, a Yank, an Egyptian, a Korean, a Mexican, a Spaniard, a Russian, a Pole, a Lithuanian, a Jordanian, a Kiwi, a Swede, a Finn, a Canadian, an Israeli, a Romanian, a Bulgarian, a Serb, a Swiss, a Greek, a Singaporean, an Italian, a Norwegian, an Argentinian, a Libyan and an African go to a night club. The bouncer says, "Sorry, I can't let you in without a Thai."


17 Lies Parents Told Their Kids --- http://www.teamjimmyjoe.com/2015/01/17-funniest-lies-parents-told-their-kids/


Air Sickness Bag  (read that barf bag) Virtual Museum --- http://www.airsicknessbags.com/


Philosophy Explained With Donuts --- http://www.openculture.com/2015/08/philosophy-explained-with-donuts.html




Humor August 1-31,  2015 --- http://www.trinity.edu/rjensen/book15q3.htm#Humor083115

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

Humor December 1-31, 2014 --- http://www.trinity.edu/rjensen/book14q4.htm#Humor123114

Humor November 1-30, 2014 --- http://www.trinity.edu/rjensen/book14q4.htm#Humor113014

Humor October 1-31, 2014 --- http://www.trinity.edu/rjensen/book14q4.htm#Humor103114

Humor September 1-30, 2014 --- http://www.trinity.edu/rjensen/book14q3.htm#Humor093014

Humor August 1-31, 2014 --- http://www.trinity.edu/rjensen/book14q3.htm#Humor083114

Humor July 1-31, 2014--- http://www.trinity.edu/rjensen/book14q3.htm#Humor073114

 




And that's the way it was on August  31, 2015 with a little help from my friends.

 

Bob Jensen's gateway to millions of other blogs and social/professional networks ---
http://www.trinity.edu/rjensen/ListservRoles.htm

Bob Jensen's Threads --- http://www.trinity.edu/rjensen/threads.htm

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

Free Online Textbooks, Videos, and Tutorials --- http://www.trinity.edu/rjensen/ElectronicLiterature.htm#Textbooks
Free Tutorials in Various Disciplines --- http://www.trinity.edu/rjensen/Bookbob2.htm#Tutorials
Edutainment and Learning Games --- http://www.trinity.edu/rjensen/000aaa/thetools.htm#Edutainment
Open Sharing Courses --- http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI

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

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

Accounting Historians Journal --- http://www.libraries.olemiss.edu/uml/aicpa-library  and http://clio.lib.olemiss.edu/cdm/landingpage/collection/aah
Accounting Historians Journal
Archives--- http://www.olemiss.edu/depts/general_library/dac/files/ahj.html
Accounting History Photographs --- http://www.olemiss.edu/depts/general_library/dac/files/photos.html


 

For an elaboration on the reasons you should join a ListServ (usually for free) go to   http://www.trinity.edu/rjensen/ListServRoles.htm

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

Roles of a ListServ --- http://www.trinity.edu/rjensen/ListServRoles.htm
 

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

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

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

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

 


 

Concerns That Academic Accounting Research is Out of Touch With Reality

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

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

 

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

 

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

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

 

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

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

 

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

 

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

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

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

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

 

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

 

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

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

 

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

 

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

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

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

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

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


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

 

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