Bob Jensen's New Bookmarks for November 1-30, 2014

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 

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 





"What Book Changed Your Mind?" Chronicle of Higher Education's Chronicle Review, November 7, 2014 ---
http://chronicle.com/article/What-Book-Changed-Your-Mind-/149839/?cid=wb&utm_source=wb&utm_medium=en

The Chronicle Review asked 12 scholars what nonfiction book published in the last 30 years has most changed their minds—not merely inspired or influenced their thinking, but profoundly altered the way they regard themselves, their work, the world.

Continued in article
Click of the listing of scholars on the left side of the screen.

Jensen Comment

As usual when asked to name one thing such as my favorite book, my favorite movie, my favorite teacher, favorite cocktail, favorite wine, or my favorite whatever I cannot answer such a question out of context. Context means everything in terms of "favorites."

The same applies when asked to name a thing or event that changed my life because there are so many things that changed my life in certain contexts.  For example the thing that first changed my mind to major in accounting was a notice on the a bulletin board in the Placement Center at Iowa State University. I was only in my first year of college and not really seeking a job, but I went to the Placement Center out of some curiosity that I cannot recall. What I noticed was that if I were (hypothetically) a graduating senior one of the best things to be was an accounting major. The prompted me to sign up for an accounting course in my second year of college even though I was currently a General Science major. That course led me to take a second course in accounting and to discuss accountancy as a career with my professor. The rest is is a history of my life that led ultimately to a Ph.D. and academic career in accountancy. There were other events that changed by aspirations to be a professor instead of a practicing accountant, but I won't go into that here. It had to do with skiing!

Hence if I'm asked to name a book that "changed my life" I have to put it into context --- religion, love life, career, research, etc.

I will put my choice of a book that "changed my life" in the context of my research while I was an accounting faculty member at four different universities. Although I got a Ph.D. in accountancy at Stanford University in the late 1960s, this was a great transition period for accountancy and business schools in general. I entered Stanford's doctoral program as an MBA and CPA and was told focus over 90% of my time and effort learning outside the business school in such areas as mathematics, economics, statistics, and operations research.  The idea was to be on the vanguard of accounting professors who brought more science and mathematics and statistics into academic accounting research.

While at Stanford I stumbled upon a book in the campus library that changed my research life after graduation. The book is not well known but led me to years of conducting research and publishing papers in the area of "cluster analysis."

Cluster Analysis --- http://en.wikipedia.org/wiki/Cluster_analysis

The book is as follows:

Cluster analysis : correlation profile and orthometric (factor) analysis for the isolation of unities in mind and personality
by Robert Choate Tryon
Ann Arbor, Michigan : Edwards brothers, inc., 1939

I never had my own copy of this book, and the book itself was not nearly so important in my research as related books and academic papers on the topics of cluster analysis, numerical taxonomy, factor analysis, and related technical materials.

My point is that the book that changed my life was not necessarily the most important reference work in my changed life. There were far more important references and exposures to other researchers at academic conferences and workshops. But Robert Tryon changed my research life for years to come.

Later my research moved on from cluster analysis, but it was my publishing in cluster analysis that got me promotions, tenure, two years in a think tank at Stanford University, and three endowed chairs before I moved into other topical areas and research methodologies.

Bob Jensen
Retired
 


Video:  A Scenario of Higher Education in 2020

November 14, 2014 message from Denny Beresford

Bob,

The link below is to a very interesting video on the future of higher education – if you haven’t seen it already. I think it’s very consistent with much of what you’ve been saying.

Denny

http://www.youtube.com/watch?v=5gU3FjxY2uQ

November 15, 2014 reply from Bob Jensen

Hi Denny,

Thank you for this link. I agree with many parts of this possible scenario, and viewers should patiently watch it through the Google Epic in 2020.

But this is only one of many possible scenarios, and I definitely do not agree with the predicted timings. None of the predictions for the future will happen in such a short time frame.

It takes a long time for this video to mention the role of colleges as a buffer between living as a protected kid at home and working full time on the mean streets of life. And I don't think campus living and learning in the future will just be for the "wealthy." We're moving toward a time when campus living will be available more and more to gifted non-wealthy students. But we're also moving toward a time when campus living and learning may be available to a smaller percentage of students --- more like Germany where campus education is free, but only the top 25% of the high school graduates are allowed to go to college. The other 75% will rely more and more on distance education and apprenticeship training alternatives.

Last night (November 14) there was a fascinating module on CBS News about a former top NFL lineman (center) for the Rams who in the prime of his career just quit and bought a 1,000 acre farm in North Carolina using the millions of dollars he'd saved until then by playing football.

What was remarkable is that he knew zero about farming until he started learning about it on YouTube. Now he's a successful farmer who gives over 20% of his harvest to food banks for the poor.

This morning I did a brief search and discovered that there are tons of free videos on the technical aspect of farming just as there are tons of videos that I already knew about on how to be a financial analyst trading in derivative financial instruments.

My point is that there will be more and more people who are being educated and trained along the lines of the video in your email message to me.
 http://www.youtube.com/watch?v=5gU3FjxY2uQ 
The education and training will be a lifelong process because there is so much that will be available totally free of charge. We will become more and more like Boy-Girl Scouts earning our badges.

College degrees will be less and less important as the certification badges (competency achievements) mentioned in the video take over as chevrons of expertise and accomplishment. Some badges will be for hobbies, and some badges will be for career advancement.

These are exciting times for education and training. We will become more and more like the Phantom of the Library at Texas A&M without having to live inside a library. This "Phantom" Aggie was a former student who started secretly living and learning in the campus library. Now the world's free "library" is only a few clicks away --- starting with Wikipedia and YouTube and moving on to the thousands of MOOCs now available from prestigious universities ---
http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI 

Also see the new-world library alternatives at
http://www.trinity.edu/rjensen/bookbob2.htm

Thanks Denny

Bob


Question
What are the mysterious (secret?) Validity Concerns of TAR referees that led to rejection of 46% of all submissions to The Accounting Review (TAR) in 2014?

"2014 Annual Report and Editorial Commentary for The Accounting Review," by Editor John Harry Evans III, The Accounting Review, Volume 89, Issue 6 (November 2014) ---
http://aaajournals.org/doi/full/10.2308/accr-10410


 
I. INTRODUCTION

This annual report describes the operations of The Accounting Review during the final year (6/1/2013–5/31/2014) of my three-year term as senior editor, with Stacy Hoffman as editorial assistant. The report represents the sixth edition of a reporting format adopted by the AAA in 2009. Along with summary statistics on The Accounting Review (TAR) operations, I will continue the tradition that Steve Kachelmeier started of providing a commentary for our constituents, particularly the AAA Publications Committee and Board of Directors, the new editorial team headed by Mark DeFond, with Elizabeth Garrett as Editorial Assistant, as well as co-editors, authors, reviewers, and readers of TAR and AAA members. Your comments and questions are welcome.


 
II. THE ACCOUNTING REVIEW EDITORIAL PROCESS

Our third year continued the increasing reliance on the online AllenTrack system, which is evolving further under Mark and Elizabeth. For additional details on our operational processes during our regime, please see the 2013 TAR annual report (Evans 2013). That report also discusses the integrity of the academic research process and the integrity of peer-reviewed journals in that process. In my opinion, these issues become more important each year as more reports of fraudulent research in academic journals become public.


 
III. EDITORIAL AND PUBLICATION STATISTICS
Table 1: Annual Activity Summary

To facilitate comparisons over time, the 2014 report follows the structure of the 2009–2013 reports. The annual TAR workflow has remained relatively consistent during the 2010–2014 period, after an initial adjustment in Steve Kachelmeier's first year in 2009.

Table 1, Panel A reports TAR's comparative workflow statistics for the six years 2009–2014, with the data on a journal-year basis of June 1 through May 31 of the following year. Panel A shows that in 2014 the volume of new submissions increased by 7.3 percent from 543 in 2013 to 583 in 2014. During the first year of the Kachelmeier term, TAR experienced a surge of new submissions, followed by a slight decline in Steve's final two years. Our regime experienced a similar surge in our first year of 2012 relative to 2011, but even further growth in the final year of 2014. The year-over-year growth rates in new submissions versus the corresponding years in the preceding regime have been 2.0 percent, 8.2 percent, and 17.8 percent, respectively. This pattern of increases suggests a generally healthy position of the journal, in terms of this single measure of attracting new submissions. The other columns of Table 1, Panel A show that 2014 achieved new highs in the activity measures of total manuscripts available for evaluation (column (d)), decision letters sent (column (e)) and ending inventory of manuscripts (column (f)).

Next, to permit comparability to years before 2009, Table 1, Panel B provides data on a calendar year (CY) basis beginning in 1998. Panel B indicates that the total of 561 new manuscripts submitted to The Accounting Review in CY2013 is exceeded only by the 582 new submissions in CY2011. The third and fourth columns of Table 1, Panel B track how the increased submissions prompted corresponding increases from four TAR issues annually in 2005 to six issues annually starting in 2008, and associated growth in the total annual published pages.

Table 2: Annual Outcome Summary

Table 2, Panel A reports the editorial outcomes communicated in the total decision letters (column (a)) generated during each of the fiscal or journal years 2009–2014. The final two columns of Panel A of Table 2 use the data in columns (a) to (d) to generate two estimated annual “acceptance rates” for each of the last six fiscal years. For 2014, Acceptance Rate 1 in column (e) divides the 81 acceptances and conditional acceptances in 2014 by the 81 (column (d)) + 466 (column (b)) = 547 “final outcome” decisions, yielding the Acceptance Rate 1 of 14.8 percent. Acceptance Rate 2 in column (f) retains the same 81 acceptances in 2014 in the numerator but now adds to the denominator the 239 “Revise and ‘Uncertain' Decisions” in 2014, which yields an Acceptance Rate 2 of 10.3 percent (81/786). Acceptance Rate 1 can be viewed as an upward-biased measure of the 2014 acceptance rate, whereas Rate 2 is downward-biased, such that the “true” acceptance rate falls somewhere in between—roughly in the 12–13 percent range for 2014. The overall results for 2014 in Table 2, Panel A are largely similar to those for 2011–2013, consistent with the current editorial team's decision to generally retain policies from the preceding regime, together with a generally similar experience in the submission and review process in 2014 as in the previous five years.

Table 2, Panel B presents a slightly different “annual cohort” perspective on acceptance rates. Whereas Panel A focuses on the annual flow of manuscripts and editorial decisions in a given year independent of when those manuscripts were initially submitted, Panel B treats each year's set of new submissions as a unique “cohort” and tracks the eventual outcomes for that cohort over the next several years. Thus, the first two lines of Table 2, Panel B shows that for the journal years ending May 31, 2009 and 2010, TAR received 557 and 502 new submissions, respectively (column (a)), all of which, as column (d) shows, were either accepted or rejected as of five years later on May 31, 2014, yielding acceptance rates of 17.4 percent and 13.7 percent, respectively, for these two cohorts of 2009 and 2010 submissions.

The final three rows of Table 2, Panel B report the corresponding figures for the status of the 2011, 2012, and 2013 submission cohorts. The final two columns present lower and upper bounds on the annual acceptance rates for these three cohorts of new submissions based on different assumptions concerning how many of the manuscripts that remained in process as of 5/31/2014 will ultimately be accepted. The results show that the final acceptance rate for the 2011 cohort of new submissions will fall in the 14.3 percent to 16.3 percent range versus 15.3 percent to 18.8 percent and 5.2 percent to 19.5 percent for the 2012 and 2013 cohorts, respectively. The wider range for the 2013 cohort reflects the fact that a larger percentage of these manuscripts remained in process as of 5/31/2014.

One final observation concerns the relation between TAR acceptance rates, publication rates, and the resulting backlog of accepted but not-yet-published manuscripts. Steve Kachelmeier's regime accepted a sufficient number of articles to build an approximately six-month backlog by the end of his term. Therefore, Stacy and I inherited an inventory of accepted articles to fill the three issues published in our first six months. Throughout the Harry/Stacy term this backlog grew to approximately ten months, which represents five issues. Based on the data in column (d) of Table 2, Panel A, TAR editors have accepted an average of 75.7 articles per year over the last six years. Given that TAR has published 72 articles per year over this period, an additional 3.7 articles per year have been added to the backlog, consistent with the general description above.

Having a sufficient backlog ensures a consistent publication rate and a consistent number of articles per issue in contrast to some earlier years in which TAR published relatively “thin” issues comprised of fewer articles, where “thin” issues can hurt a journal's visibility. On the other hand, having too long of a backlog can result in published articles that are less timely, although the online publication process addresses this concern to some degree. In net, the current backlog seems at least sufficient, and my understanding is that Mark and Elizabeth plan to take action to reduce the backlog, a policy that I endorse.

Exhibit 1: Histogram of Editorial Rounds and Outcomes

Exhibit 1 provides further details on the 786 editorial decisions reported in Table 2, Panel A for the journal year ending May 31, 2014. Exhibit 1 shows that 574 of the 786 decisions (73 percent) were first-round decisions, while 123 (16 percent) were second-round decisions (first revisions) and the remaining 89 (11 percent) were third-round or later. Of the 574 first-round decisions, Panel A of Exhibit 1 shows that rejection was the most common outcome, accounting for approximately 73 percent (227 + 192 = 419 of 574) of the first-round decisions, while the remaining 27 percent of first-round decisions were revisions if we exclude the 2012 Presidential Scholar Address.1 Panel A also shows that of the 419 first-round rejections, we attributed 227 (54 percent) to insufficient contribution, and the other 192 (46 percent) primarily to validity concerns.

Next, Exhibit 1, Panel A shows that of the 154 first-round decisions in 2014 that permitted the authors to submit a revised manuscript, 74 were standard “revise and resubmit” decisions, while the other 80 were more qualified “uncertain” decisions. Both “revise and resubmit” and “uncertain” have outcome risk, but the degree of that risk is substantially higher for an “uncertain” decision. Specifically, an “uncertain” letter informs the author that neither the reviewers nor the editor can envision a viable revision path that would address the identified concerns, but that the editor recognizes that the author might be able to construct such a path. Accordingly, such a letter gives the author an option to revise and resubmit, but without explicitly encouraging the author to do so. The intent is to communicate clearly to the author that withdrawing the manuscript might be in the author's best interest if the author's candid assessment is that the concerns raised cannot feasibly be addressed. Experience indicates that almost all recipients of “uncertain” letters choose to revise and resubmit in spite of the cautions, but the rejection rate on “uncertain” revisions is substantially higher than that for standard invitations to revise and resubmit.

Moving to the second-round or “first revision” decisions, Exhibit 1, Panel B shows that of the 123 total second-round outcomes, 12 received conditional acceptances and 68 received invitations for further revision, with seven of these in the more qualified “uncertain” category. The remaining 43 (13 + 30) second-round letters were rejections, which are always painful. Nevertheless, a third-round rejection is even worse. This consideration encourages editors to make difficult decisions on manuscripts that appear to have potential but achieved only limited progress in the first revision.

By the time a manuscript gets to the third round or beyond, the odds of success increase dramatically. Exhibit 1, Panel C shows that for these manuscripts 68 of the 89 fiscal 2014 decisions were acceptance or conditional acceptance, a rate of 76 percent. Seventeen manuscripts received a further revise and resubmit during the third or later round, and four manuscripts were rejected at this advanced stage of the process. Although we seek to minimize such late-round rejections by making the tough decisions sooner whenever possible, in some cases further rounds appear to be the most appropriate decision despite the risk. Finally, we note that Panel C includes 70 third-round decisions, 18 fourth-round decisions, and one fifth-round decision. Of the 19 fourth- and fifth-round decisions, 18 were conditional acceptances.

Table 3: Submissions and Acceptances by Subject Area and Research Method

Panels A–D in Table 3 compare submissions to acceptances by subject area, research method, and the combination of the two. The results offer important insight concerning patterns and trends, including whether submissions in certain subject areas or using certain methods were more or less likely than others to be published in TAR over the fiscal years 2009–2014. These tables are helpful in responding to conjectures that TAR systematically favors or disfavors particular areas or methods of research, where the conjecture could stem simply from comparing the number of publications across topic areas or research methods. Table 3 provides systematic data by relating acceptance rates to corresponding submission rates. Table 3 counts each study only once, even though many studies go through several rounds of revision before eventually being published or rejected. This approach means that the figures in Table 3 will generally differ from those in Tables 1 and 2, which treat each submitted version of a study as a distinct manuscript.

The general pattern in Table 3 indicates that The Accounting Review accepts articles at rates that are very similar to the corresponding submission rates, whether by topic, by method, or by topic crossed with method.2 The overall similarity in submission and acceptance rates is consistent with the journal's policy of not emphasizing one area or method over another, but rather seeking to reflect the broad interests of AAA members. In turn, this general similarity between submission and acceptance rates is consistent with our process of selecting editors and reviewers. By choosing reviewers for each submission who are experts in the area of that submission, we seek to subject each submission to a comparable review process.

Authors obviously exhibit self-selection preferences in determining the journals to which they direct their submissions. These decisions by authors are one fundamental determinant of ultimate TAR publication rates. For example, although TAR publishes far fewer manuscripts in the accounting systems area or manuscripts employing field study methods as compared to the number of financial archival manuscripts, this difference in publication rates is driven primarily by differences in submission rates rather than by differences in acceptance rates. To see this, compare the two percentages in each cell of Table 3, Panel D. The first (second) percentage indicates that cell's percentage of all submissions (acceptances).

In this way, Table 3, Panel D compares the percentage of all submissions and acceptances by area and method over the last six years, 2009–2014. For example, the two percentages in the cell in Table 3, Panel D for the combination of the financial accounting area and the archival research method are “43.5%” and “(37.5%),” indicating that over the last six years financial archival studies have comprised 43.5 percent of all TAR submissions and 37.5 percent of all TAR acceptances. The resulting [Acceptance Rate − Submission Rate] differential is −6.0 percent, which is the least favorable differential of any cell in Panel D. This pattern is consistent with the observation above that financial archival was the least-favored category by this measure over the 2009–2014 period.

In contrast to the preceding example, the overall pattern of submission and acceptance rates in Table 3, Panel D shows a generally close correspondence between the submission and acceptance percentages. Other than the −6.0 percent difference noted above, none of the individual cells (as opposed to “Total” cells in the bottom row and the far right column) in Table 3, Panel D have [Acceptance Rate − Submission Rate] differentials with absolute values greater than 2.1 percent. The only other distinctive pattern in Table 3, Panel D is that managerial accounting studies have greater acceptance rates than submission rates across all four research method categories, resulting in the bottom “Total” row in Panel D showing that managerial studies for all research methods represent 12.6 percent of TAR submissions, but 17.0 percent of acceptances over the last six years. In my view, the rate differentials documented here are worth noting and tracking in the future. Differences between submission and acceptance rates of −6.0 percent for financial archival studies and +4.4 percent for all managerial accounting studies over a six-year period could potentially represent more than temporary random fluctuations.

The preceding comparison of submissions and acceptances across areas is related to the general TAR policy of openness with respect to a variety of research areas and methods within accounting. One of the important signals that the TAR senior editor can send with respect to openness to research in particular areas or using particular methods is through the make-up of the team of TAR co-editors. For example, I continued the prior regime's approach of signaling TAR's openness to research in the accounting systems area and to studies using field-based methods by inviting Vern Richardson and Ken Merchant, respectively, to serve as TAR editors to handle submissions in accounting systems and field-based studies. Table 3, Panel A shows one acceptance in the systems area in 2014, and the same is true in Table 3, Panel B with one field and case study acceptance in 2014.

More broadly, the process of recruiting an ideal team of TAR editors is an interesting challenge. The challenge comes from attempting to balance the desire to have an editorial team that has subject matter and method expertise across a wide range of areas and methods, while at the same time keeping the total number of editors manageable and balancing the workload equitably across editors. Almost all authors would prefer that one or more of the TAR co-editors have considerable expertise and enthusiasm for the author's research area and method, and further would prefer that one of these editors handle the author's submission. To increase our odds of achieving this matching, I recruited an additional co-editor to bring the total to 14 co-editors, while adjusting the mix of editors' expertise. Specifically, I adjusted the mix of editors slightly away from the experimental/behavioral area and toward the financial archival area because of the prior regime's experience of having to request that editors in the financial archival area handle more than the targeted maximum of 40 new manuscripts per year. Based on our three years of experience, I am confident that these were good decisions. Each of our co-editors has worked very hard during these three years, and we have generally been able to handle all submissions while respecting the agreed maximum workload of 40 new manuscripts (not including revisions) per co-editor per year, in addition to resubmissions. The primary exception has been in the empirical auditing area, where Mike Ettredge has generously handled an average of more than 40 new manuscripts annually over our three-year term.

Continued in article

Jensen Comment
Firstly, I might note that this report has an interesting statistic regarding "Validity Rejections:"

Panel A also shows that of the 419 first-round rejections, we attributed 227 (54 percent) to insufficient contribution, and the other 192 (46 percent) primarily to validity concerns.

I find this frustrating in that there is no elaboration on the things that constitute "Validity Rejections." In virtually all instances these are the concerns of referees and editors. Unlike science journals, the main validity issues often arise due to inability to independently replicate the research and published commentaries of readers of the articles. Since TAR will not publish replications that do not extend the research and does not publish commentaries on published papers, the "Validity Rejections" do not come from the readers ---
http://www.trinity.edu/rjensen/TheoryTAR.htm

Since the "Validity Rejections" come only from TAR referees and editors, it's not at all likely that the scholars who rejected the papers did so on the basis of replication attempts. And the referees and editors did not publish the basis of their "Validity Rejections" it is of zero help to the TAR readership to know what constitutes a "Validity Rejection." I suspect many of the concerns are statistical analysis mistakes or serious concerns ---
http://www.cs.trinity.edu/~rjensen/temp/AccounticsScienceStatisticalMistakes.htm

Even more frustrating, is that unlike real science journals TAR does not encourage validity tests and commentaries of the papers that are published in TAR ---
http://www.trinity.edu/rjensen/TheoryTAR.htm

The implication is that if TAR publishes it the research is valid. I say baloney!
http://www.trinity.edu/rjensen/TheoryTAR.htm

 

Secondly, I might note that once again in 2014 TAR only published accountics science papers in that they had to have equations and/or statistical inference tables. Previous editors of TAR argue this is heavily due to self-selection on the part of authors submitting papers to TAR. However, since editors for four decades of TAR have done zero to encourage submissions of articles without mathematics and statistics, accounting researchers by now conclude that it's hopeless to submit a research paper to TAR that does not have mathematics and/or statistical analysis.

A notable exception is Gregory B. Waymire's very short conference summary paper in the November 2014 issue of TAR. However, this us a summary of papers that do have mathematics and statistical analysis such that I do not consider this to be a true exception to TAR's defacto editorial policy of the past four decades.

My main point of this posting, however, is that it would be terrific in referees who rejected 192 (46%) of the 2014 submissions to TAR on the basis of "Validity Concerns" would soon give us an analysis of what constituted those "Validity Concerns."


"R2 and Idiosyncratic Risk Are Not Interchangeable." by Bin Li, The Accounting Review, November 2014 ---
http://aaajournals.org/doi/full/10.2308/accr-50826

 

A growing literature exists in both finance and accounting on the association between firm-specific variation in stock returns and several aspects of the firm's information or governance environment. Appendix A, Part 1 lists 21 published papers in top-tier finance and accounting journals and the Social Sciences Research Network (SSRN) reports at least 75 working papers. These studies rely on one of two proxies for firm-specific return variation as the dependent variable: 

 

Continued in article

 

Common Statistical Mistakes in Accountics Science ---
http://www.cs.trinity.edu/~rjensen/temp/AccounticsScienceStatisticalMistakes.htm

 


These are the books reviewed in the November 2014 issue of TAR:

http://aaajournals.org/doi/full/10.2308/accr-10404
Unlike articles, TAR's book reviews are free.

Bob Jensen's threads on accounting standard setting controversies ---
http://www.trinity.edu/rjensen/Theory01.htm#MethodsForSetting

 


American Accounting Association
2014 Annual Meeting Videos are Now Posted Online (not free to non-AAA members) --- Click Here
http://commons.aaahq.org/hives/8d320fc4aa/summary

 

Featured videos include speakers Jimmy Wales, William Beaver, Condoleezza Rice, Duane Still, and Christine Botosan, as well as a host of workshop and session videos. 


At the 2014 AAA Annual Meeting, two distinguished  researchers graciously agreed to create short videos to convey aspects of their research to share across the academy. The first of these videos is of Professor Ron Dye, of Northwestern University. Stay tuned for the next video to be posted and for others in the future!

 

"An Overview of Accounting Theory from the 1970s to today"
Click HERE to view the video of Professor Ron Dye ---
http://r20.rs6.net/tn.jsp?f=001NHUpVVP3qv5OTc5BrXaKc_WPaseuEioYFFYBIa4k2qUeqRo2Iec3vBh6c-10rdifhdWUm5U_GZDdh-H2u3cYtaKN2CEB4efcEUdZlIWjNi5xfXHv2aN4JssbbMIh_lfMFlORsAe-m2QTpCmi9uajg8h0XYqlO4dIuj3nTIbSSlhnZ_w_opoIqz55VvB_6s_Y7pRFDV1DprBF9DewaDyh7w==&c=0zHDjdss5-KbtLcp3dcDhicPt2RbZGG3vTTM2ZE1pTtE9IYmAIhGXg==&ch=mqOD4t8pspqb50AWkrzB9SjSzaosdGUdvPlbbx3fRe1QMPkhoWr4_A==

Jensen Comment
This is only an overview of a small slice of accounting theory since the 1970s, an accountics science analytical slice as it affected Ron Dye's research. For example if the theory of accounting for derivatives contracts an hedge accounting are completely overlooked. However, he's been teaching accounting theory for years in the framework of analytical models. The theories discussed in this video are pretty well detached from the complexities of the real world of accounting and business decisions.

Ron is a good speaker who uses examples a lot to make his points in this video. He's easy to follow even for viewers without mathematical expertise. However, his presentation lacks the warnings that the research contributions he praises make many underlying assumptions that are seldom met in the real world --- such as the assumptions of equilibrium and rational economic decision making. Often the definition of "information" is quite simplistic (such as number of cars in a container) or overly generalized in terms of real-world uncertainties.

At one time Ron was not overly impressed with the state of accounting research and innovation. Here's an exchange on the AECM in 2008:

January 2, 2008 reply from Bob Jensen

Hi David,

CEOs rise up from many walks of life, especially engineering, economics, law, and the specialties of an industry such as chemistry, medicine, agriculture, etc. CFOs and CAOs are another matter entirely.

As far as research impacts are determined, subjective judgment is certainly a huge factor but there are other indicators. Can executives recall a single article published in The Accounting Review or other leading academic accounting journal upon which academic reputations are built? Can executives name one author who received the AAA Seminal Contributions Award or any other academic award of major academic associations?

One indicator in accounting is practitioner membership in the American Accounting Association. The AAA started out as primarily an association for accounting practitioners and teachers of accounting. For four decades practitioners were heavily involved in the AAA and the longest-running editor of The Accounting Review was a practitioner (Kohler) --- http://snipurl.com/aohkohler 

All this changed with what Jean Heck and I call the "perfect storm" of the 1960s. Since then, practitioner membership steadily declined in the AAA and readership of academic accounting research journals plummeted to virtually zero. Practitioners still send us their money and their recruiters, but leading academic researchers like Joel Demski warn against accounting researchers catching a "vocational virus" and cringe at aiming our research talent toward practical problems of the profession for which we seemingly have no comparative advantage due to our rather useless accountics skills.

You can read much of the history of this schism at http://www.trinity.edu/rjensen/Theory01.htm#AcademicsVersusProfession 

The schism is probably greatest in accounting and the smallest in finance where there practitioners have relied more on research findings and fads in economics and finance journals.

Some universities are more focused on industry than others. Harvard certainly has tried very hard in this regard, but Harvard's case method research just cannot pass the hurdles of the journal referees of our leading accounting research journals.

And even accounting academics are bored with the (yawn) articles appearing in our academic research journals. Ron Dye is probably one of our most esoteric accountics researchers (his degrees are in mathematics and economics even though he's an "accounting professor"). Ron stated the following at http://www.trinity.edu/rjensen/Theory01.htm#AcademicsVersusProfession 

Begin Quote from Ron Dye***************

About the question: by and large, I think it is a mistake for someone interested in pursuing an academic career in accounting not to get a phd in accounting. If you look at the "success" stories, there aren't many: most of the people who make a post-phd transition fail. I think that happens for a couple reasons. 1. I think some of the people that transfer late do it for the money, and aren't really all that interested in accounting. While the $ are nice, it is impossible to think about $ when you are trying to come up with an idea, and anyway, you're unlikely to come up with an idea unless you're really interested in the subject. 2. I think, almost independent of the field, unless you get involved in the field at an early age, for some reason it becomes very hard to develop good intuition for the area - which is a second reason good problems are often not generated by "crossovers."

The bigger thing - not related to the question you raise - but maybe you could add to the discussion is that there are, as far as I can tell, not a lot of new ideas being put forth by anyone in accounting nowadays (with the possible exception of John Dickhaut's neuro stuff). In most fields, the youngsters are supposed to come up with the new problems, techniques, etc., but I see a lot more mimicry than innovation among newly minted phds now.

Anyway, for what it's worth....

Ron
End Quote from Ron Dye****************

_________________

Perhaps the AACSB can make some progress toward bridging the schism. But I leave you with a forthcoming quote in the January 6 edition of Tidbits:

Question "How many professors does it take to change a light bulb?"

Answer "Whadaya mean, "change"?" Bob Zemsky, Chronicle of Higher Education's Chronicle Review, December 2007

How Accountics Scientists Should Change: 
"Frankly, Scarlett, after I get a hit for my resume in The Accounting Review I just don't give a damn"
http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm
One more mission in what's left of my life will be to try to change this
http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm


The conflict between "never up never in" versus "just trying too hard."

Kobe Bryant is currently ranked Number 4 in terms of NBA points scored. However, he's now Number 1 in terms of missed shots in a single game ---
http://time.com/3580708/kobe-bryant-breaks-nba-record-for-missed-shots/?xid=newsletter-brief

Jensen Comment
Years ago a well-known accounting professor named Williard Stone made the following comment about an assistant professor seeking tenure at the University of Florida. Professor Stone observed that if this candidate would have slowed down in publishing he might have had a better chance of getting tenure. Read that as meaning that Stone thought most of the candidate's publications were crap surrounding some more quality hits ---
http://clio.lib.olemiss.edu/cdm/ref/collection/aah/id/27297


McLaren Applied Technologies --- http://en.wikipedia.org/wiki/McLaren_Applied_Technologies

"KPMG laps up McLaren’s F1-style analytics," by Harriet Agnew, Financial Times, November 20, 2014 ---
http://www.ft.com/intl/cms/s/0/262d0ffe-6fdf-11e4-90af-00144feabdc0.html#axzz3Jo3UdIEO

McLaren Group has signed an alliance with KPMG to apply the same predictive analytics and technology it does to its Formula One team to KPMG’s audit and consulting clients....

Continued in article (that is not free)


"U.S. Audit Regulator Scrutinizing PwC Over Caterpillar Tax Advice:  PCAOB Reviewing Whether Tax Advice Creates Conflict With Audit of Company," by Michael Rapoport, The Wall Street Journal, November 18, 2014 ---
http://online.wsj.com/articles/u-s-audit-regulator-scrutinizing-pwc-over-caterpillar-tax-advice-1416350375

The government’s audit regulator is scrutinizing PricewaterhouseCoopers LLP over tax-saving strategies it provided to audit client Caterpillar Inc., according to people familiar with the matter.

The Public Company Accounting Oversight Board is looking at whether the practice might create a conflict of interest that could compromise PwC’s ability to perform a tough audit of the manufacturer, the people said.

The regulator’s review dates back several months and follows an April request from Sen. Carl Levin (D., Mich.) for the PCAOB to look at the matter after he alleged earlier this year that Caterpillar had deferred or avoided $2.4 billion in taxes under strategies devised by PwC.

Neither PwC nor Caterpillar have been charged with any wrongdoing. PwC and Caterpillar have said that PwC’s advice and Caterpillar’s actions complied with all tax laws.

In April, Sen. Levin sent a letter to the PCAOB requesting that it “conduct a formal review” of the services that PwC provided to Caterpillar.

The letter, a copy of which has been reviewed by The Wall Street Journal, also asks the PCAOB to review whether its rules should be strengthened to prohibit an auditor from auditing a company’s tax obligations when those obligations rely on a tax strategy developed by the same firm.

Accounting firms are required to avoid conflicts of interest that could raise questions about their objectivity and impartiality in conducting an audit of a company.

If a firm provides tax strategies to a company for which it also serves as independent auditor, it could end up auditing its own work.

Colleen Brennan, a PCAOB spokeswoman, said in the wake of Sen. Levin’s concerns, the board “is looking further at the nature of tax services that auditors are performing for their audit clients.” The PCAOB monitors audit firms’ compliance with independence rules through its inspections, and those rules “prohibit auditors from marketing aggressive tax positions to their audit clients,” she said. She didn’t mention PwC or Caterpillar specifically.

The review came to light Tuesday when Jay Hanson, a PCAOB member, mentioned it at an accounting conference in New York. He also didn’t mention PwC or Caterpillar but said members of Congress had asked the PCAOB to review audit firms’ provision of tax strategies to their clients and whether that could affect the auditors’ independence.

News of the PCAOB’s review comes less than two weeks after the release of documents regarding other PwC tax strategies that reportedly helped hundreds of the world’s largest companies avoid billions of dollars in taxes by channeling money through the low-tax country of Luxembourg, according to the International Consortium of Investigative Journalists.

The PCAOB review predates and is unrelated to the Luxembourg matter, Mr. Hanson said. PwC has said the Luxembourg documents were stolen and that its tax advice had complied with applicable laws

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


"Who gets the best return on stock-market investments? Not finance professionals," by Siri Srinivas, The Guardian, November 17, 2014 ---
http://www.theguardian.com/money/us-money-blog/2014/nov/17/who-gets-best-return-on-investments-not-finance-professionals 

. . .

The researchers conclude that fund managers fared better only when their workplace exposed them to additional information. “This is not about skill, this is about access to superior information,” says Bodnaruk.

This mass rejection of financial expertise may be a deeper generational trend. Lambur observes that millennial investors would rather look to the wisdom of friends and their extended network than go to a financial adviser – especially so after the financial crisis they have lived through. “The younger generation has a deeper distrust of expertise,” he says. Go figure.

 

Jensen Comment
The above paper has some especially interesting quotations from finance professors at leading universities.


Question
What did Galileo Galilei claim was the language of the universe?

Hint
Pacioli wrote a book on this language and claimed it was the language of accounting ---
http://en.wikipedia.org/wiki/Luca_Pacioli

Fra Luca Bartolomeo de Pacioli (sometimes Paccioli or Paciolo; 1445–1517) was an Italian mathematician, Franciscan friar, collaborator with Leonardo da Vinci, and seminal contributor to the field now known as accounting.

Answer from Khan Academy
https://www.khanacademy.org/math/algebra/introduction-to-algebra/overview_hist_alg/v/the-beauty-of-algebra?utm_source=Sailthru&utm_medium=email&utm_term=Stuff You Might Like Test Cohort&utm_campaign=Highlighted Content 110914&utm_content=Final


Download State Sales Tax Rates ---
http://www.taxrates.com/download-tax-tables/?CampaignID=70140000000VMrA&_kk=sales tax&utm_medium=display&_bt=51227303064&_bm=&gclid=CKHYw7CVisICFfLm7AodoHIACg

"Critics: Cuomo's 'Tax-Free' Plan for NY Is Not So Tax-Free," by Cheryl K. Chumley, Newsmax, February 4, 2014 ---
http://www.newsmax.com/Newsfront/Cuomo-New-York-tax-free/2014/02/04/id/550910/ 
Jensen Comment
In part the complicated rules are intended to prevent devious taxpayers from using this "tax-free" plan as a tax haven, especially NYC residents who might try to escape Mayor de Blasio's moves the opposite direction for milking high income residents in NYC. For them, Cuomo's "Tax-Free" Plan could become very complicated if they try to shelter income from Bill de Blasio.

In any case the State of New York still has the least friendly business climate aside from New Jersey. However, governors in virtually all the 50 states have ways of selectively exempting businesses from state taxes in order to either attract new businesses or to keep businesses that threaten to leave from moving to states with more favorable "tax climates."

From the Tax Foundation
"2015 Business Tax Climate: Chilliest in Blue States," by Paul Caron, TaxProf Blog, October 29, 2014 ---
http://taxprof.typepad.com/taxprof_blog/2014/10/2015-business-tax-climate.html

The Tax Foundation yesterday released the 2015 State Business Tax Climate Index, which ranks the fifty states according to five indices: corporate tax, individual income tax, sales tax, unemployment insurance tax, and property tax. Here are the ten states with the best and worst business tax climates:

1

Wyoming

41

Iowa

2

South Dakota

42

Connecticut

3

Nevada

43

Wisconsin

4

Alaska

44

Ohio

5

Florida

45

Rhode Island

6

Montana

46

Vermont

7

New Hampshire

47

Minnesota

8

Indiana

48

California

9

Utah

49

New York

10

Texas

50

New Jersey

Continued in article

Jensen Comment
There are two kinds of tax "climates" in terms of individuals versus businesses. These two climates are highly correlated but there are some instances where a state having a high taxation business climate will give tremendous subsidies and/or tax deferrals to attract businesses and then clobber the individuals who move into the state. New York, for example, has tremendous deals exempting business income and sales taxes for new businesses locating near universities. But the deals do not extend to workers in those businesses.

Washington State did not make the Top 10 in terms of business climate taxation whereas Washington State has no income tax on individuals.

Taxachusetts taxes individuals in every which way and yet comes in at the middle at Rank 24 in terms of business taxes. This may be the reason some wealthy people who work at places like Harvard University commute from New Hampshire. They have to pay a Massachusetts tax on their in-state salaries but they can shield their portfolio capital gains taxes and royalty incomes by living in New Hampshire. Harvard's accounting professor Bob Anthony shielded his huge book revenues from state taxation by commuting in this way for years.

We keep hearing horror stories about Illinois business taxes relative to surrounding states of Indiana and Wisconsin. And yet Illinois did not make the Bottom 10 in the table above. Illinois is instead ranked near the middle at Rank 31. Go figure!


"Audit reveals half of people enrolled in Illinois Medicaid program not eligible," by Craig Cheatham, KMOV Television, November 4, 2013 ---
http://www.kmov.com/news/just-posted/Audit-reveals-half-of-people-enrolled-in-IL-Medicaid-program-not-eligible-230586321.html?utm_content=buffer824ba&utm_source=buffer&utm_medium=twitter&utm_campaign=Buffer

"Medicaid Spending Has Exploded, And It Will Keep Rising Faster Than Expected

"Medicaid Spending Has Exploded, And It Will Keep Rising Faster Than Expected," by John R. Graham, Daily Caller, November 12. 2014 ---
http://dailycaller.com/2014/11/12/medicaid-spending-has-exploded-and-it-will-keep-rising-faster-than-expected/

According to the Centers for Medicare & Medicaid Services (CMS), spending on Medicaid, the jointly funded state-federal welfare program that provides health benefits to low-income people, increased 6.7 percent in 2013 to $449.5 billion. And it will keep growing at a fast rate.

In 2014, total Medicaid spending is projected to grow 12.8 percent because Obamacare has added about 8 million dependents. A large minority of states have chosen to increase residents’ eligibility for Medicaid by expanding coverage to adults making up to 138 percent of the federal poverty level.

Unfortunately, more states are likely to expand this welfare program. This is expected to result in a massive increase in the number of Medicaid dependents: From 73 million in 2013 to 93 million in 2024. Medicaid spending is expected to grow by 6.7 percent in 2015, and 8.6 percent in 2016. For 2016 to 2023, spending growth is projected to be 6.8 percent per year on average.

This comprises a massive increase in welfare dependency and burden on taxpayers. Further, official estimates often low-ball actual experience. This is because it is hard to grapple with how clever states are at leveraging federal dollars.

The Office of the Inspector General of the U.S. Department of Health & Human Services has just released a report that summarizes a decade of research on how states game the system to increase spending beyond that which the federal government anticipated.

The incentive lies in Medicaid’s perverse financing merry-go-round. In a rich state like California, for example, the federal government (pre-Obamacare) spent 50 cents on the dollar for adult dependents. So, if California spent 50 cents, it automatically drew 50 cents from the U.S. Treasury. And most states had a bigger multiplier. Which state politician can resist a deal like that?

Continued in article


"Social Security Administration announces 2015 wage base," by Sally P. Schreiber, Journal of Accountancy, October 23, 2014 ---
http://www.journalofaccountancy.com/News/201411177.htm

On Wednesday, the Social Security Administration (SSA) announced that the wage base above which taxes for old age, survivors, and disability insurance (OASDI) are not due will increase from $117,000 to $118,500 in 2015. The new rate means employees will pay a maximum of $7,347 of OASDI in 2015, with employers paying an equal amount. According to the SSA, 10 million of the estimated 168 million workers who will pay OASDI tax in 2015 will exceed the higher wage base.

The SSA reminded taxpayers that the Medicare hospital insurance (HI) portion of the tax, which is also paid by employers and employees, has no wage limit. It applies to all wages at a rate of 1.45%—unchanged from 2014. The additional Medicare tax of 0.9% also applies to wages in excess of $200,000 for single taxpayers and $250,000 for married taxpayers filing jointly, but there is no employer portion for this tax, although employers must withhold the employee portion.

The SSA also announced a 1.7% cost-of-living increase for Social Security benefits that will take effect in 2015.


"Stanford (Graduate School of Business) Bets Big on Virtual (online) Education," by Natalie Kitroeff and Akane Otani, Bloomberg Businessweek, November 6, 2014 ---
http://www.businessweek.com/articles/2014-11-05/stanford-gsb-offers-executive-certificate-program-completely-online 

Stanford’s Graduate School of Business took its relationship with online education to the next level on Wednesday, when it announced that a new program for company executives will be delivered entirely by way of the Internet.

“I don’t know of anything else like this,” says Audrey Witters, managing director of online executive education at Stanford GSB. “We’ve put together something for a very targeted audience, people who are trying to be corporate innovators, with courses where they all work together. That’s a lot different from taking a MOOC [massive open online course].”

Stanford said it will admit up to 100 people to the LEAD Certificate program, which will begin in May 2015 and deliver the “intimate and academically rigorous on-campus Stanford experience” to students from the comfort of their computer screens. In an effort to make students “really feel connected to each other, to Stanford, and to the faculty,” the eight-course program will encourage students to interact through message boards, online chats, Google Hangouts, and phone calls over the course of its yearlong duration, Witters says.

“We really want to create the high-engagement, community aspect that everyone who comes to Stanford’s campus feels,” she says.

The classes will be offered on a platform supplied by Novoed, a virtual education company started by former Stanford professor Amin Saberi and Stanford Ph.D. student Farnaz Ronaghi. The B-school has invested a significant chunk of its resources in launching the program: About 10 to 15 faculty members are slated to teach the courses. In addition to building a studio where it will film course videos, the school has hired a growing pool of educational technology experts and motion graphic designers to work on the courses, according to Witters.

“This is by far the most serious and most significant initiative by GSB in the online realm,” Saberi says.

People go to business school for more than just lectures, Saberi says, and online programs should be as good at teaching the numbers of business as the art of it. “What we are planning to do is to create a very similar environment online where they can acquire softer skills and build a network of peers.”

The program’s $16,000 price tag dwarfs the online offerings of Stanford’s competitors, including Harvard Business Schools $1,500 nine-week online program and the Wharton School’s entirely free first-year MBA classes, which it put on the virtual platform Coursera last fall.

The program may seem less pricey, though, to the company executives it’s intended for. Business schools have traditionally sold certificates to working professionals for tens, if not hundreds, of thousands of dollars. Stanford’s own six-week, on-campus program costs executives $62,500.

To Novoed, which also provides technology to Wharton, the Haas School of Business, and the Darden School of Business, the Internet is an obvious place for business schools to expand their lucrative executive education programs.

Saberi says companies are interested in elite training programs that don’t require employees to leave their desks. “We expect that programs like this are going to grow.”

100 MOOCs in November 2014 ---
http://www.openculture.com/free_certificate_courses

Accountants might note the following:

Forensic Accounting and Fraud Examination (VC$) – West Virginia University on Coursera – November 3 (5 weeks)

Introduction to financial and management accounting (NI) – Politecnico di Milano on Polimi OPEN KNOWLEDGE – November 10 (3 weeks)

An Introduction to Financial Accounting (VC/SA) – Penn on Coursera – September 5 (10 weeks)
An Introduction to Financial Accounting (SA) – Penn on Coursera – September 16 (10 weeks)

Intro to Accounting (NI) – BYU Hawaii on Canvas – January 13

Introduction to Business in Asia (SA) – Griffith University on Open2study – January 13 (4 weeks)

Accounting Cycle: The Foundation of Business Measurement and Reporting (NI) – Utah State on Canvas – August 5 (4 weeks)

Bob Jensen's threads on MOOCs and free learning resources from prestigious universities ---
http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI

"Disruption Ahead: What MOOCs Will Mean for MBA Programs," Knowledge@wharton Blog, July 16, 2014 ---
http://knowledge.wharton.upenn.edu/article/moocs-mba-programs-opportunities-threats/

In a new research paper, Christian Terwiesch, professor of operations and information management at Wharton, and Karl Ulrich, vice dean of innovation at the school, examine the impact that massive open online courses (MOOCs) will have on business schools and MBA programs. In their study — titled, “Will Video Kill the Classroom Star? The Threat and Opportunity of MOOCs for Full-time MBA Programs” — they identify three possible scenarios that business schools face not just as a result of MOOCs, but also because of the technology embedded in them. In an interview with Knowledge@Wharton, Terwiesch and Ulrich discuss their findings.

An edited transcript of the interview appears below.

Knowledge@Wharton: Christian, perhaps you could start us off by describing the main findings or takeaways from your research?

Terwiesch: Let me preface what we’re going to discuss about business schools by saying that Karl and I have been in the business school world for many, many years. We love this institution, and we really want to make sure that we find a sustainable path forward for business schools.

Continued in article


From FAF:  USA GAAP Education Helper Site
November 19, 2014 message from Terry Warfield

This week the FAF launched a new web page focused on the benefits of Generally Accepted Accounting Principles—GAAP—to public companies, private companies, not-for-profit organizations, and state and local governments in the U.S.  The web page is available at www.accountingfoundation.org/gaap.

This educational portal is part of a broader FAF initiative to highlight the benefits of preparing financial reports according to GAAP.

While many regard GAAP as the “gold standard” of financial reporting for public companies and state governments, there are many private companies, not-for-profits, local governments, and others that may not be familiar with the benefits of using GAAP.

This initiative explores those benefits and also seeks to educate and inform all stakeholders—including preparers, investors, lenders, auditors, taxpayers, and other users—on how GAAP is essential to the efficient functioning of our capital markets and the strengthening of our economy and governments.

We encourage you to visit the new page; take a look around; and experience the new educational material, thought leadership, and videos on the importance of GAAP for public companies, private companies, not-for-profit organizations, and state and local governments. We also have a section dedicated to how the FASB and the GASB are simplifying and improving GAAP.

You are encouraged to share the FAF’s new GAAP web page with others and the FAF welcomes your feedback and input. 

Jensen Comment
Also note
Relaunched FASB Technical Agenda Web Page Brings Online Visitors Up-To-Speed At a Glance  
http://www.fasb.org/technicalagenda

Bob Jensen's threads on accounting standard setting controversies ---
http://www.trinity.edu/rjensen/Theory01.htm#MethodsForSetting

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


November 19, 2014 message from Dennis Huber

Huber, W.D., & DiGabriele, J.A. (2014). Research in forensic accounting – what matters? Journal of Theoretical Accounting Research, 10(1), 40-70.

The purpose of this paper is to build on and expand Stone and Miller's (2013) (henceforth, Stone and Miller) propositions concerning "what matters" in forensic accounting research. Forensic accounting research that matters is a function of the purpose(s) of forensic accounting research. Stone and Miller's work serves as a prelude for more mature forensic accounting research, a starting point for a debate about what constitutes forensic accounting research that matters. We critique their work and extend the debate by further developing their propositions.

http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=371197

 
 
Dennis

 


"Dissenting From an SEC Windfall For Lawyers:  A $600 million ‘fair fund’ is likely to benefit only class-action attorneys and the fund’s administrators," by SEC Commissioners Daniel M. Gallagher And Michael S. Piwowar, The Wall Street Journal, November 10, 2014 ---
http://online.wsj.com/articles/daniel-m-gallagher-and-michael-s-piwowar-dissenting-from-an-sec-windfall-for-lawyers-1415665948?tesla=y&mod=djemMER_h&mg=reno64-wsj

Earlier this month reports circulated that the Securities and Exchange Commission may set up a $600 million “fair fund” to distribute money collected from defendants to purportedly harmed investors in the insider-trading case SEC v. CR Intrinsic Investors.

In 2012 the SEC charged the Connecticut-based hedge-fund advisory firm CR Intrinsic Investors and former portfolio manager Matthew Martoma in connection with a $276 million insider-trading scheme involving the development of an Alzheimer’s drug by two pharmaceutical companies. The SEC’s complaint alleged that Martoma illegally obtained confidential details about negative results of a clinical trial and that, based on this information, several hedge funds sold more than $960 million in securities, avoiding hundreds of millions of dollars in losses.

In June the federal district court in the Southern District of New York approved a settlement between the SEC and CR Intrinsic. The court then ordered interested parties—including allegedly harmed investors—to make submissions to the SEC as to whether a fair fund should be established to distribute the money collected in the settlement. The court also directed the SEC to make a recommendation on setting up a fair fund.

We strongly object to the SEC’s reported recommendation to set up a fair fund, for a number of reasons. Fair funds can play an important role in returning money to defrauded investors, but in this case it will be incredibly difficult and expensive to identify and compensate the victims. In fact, it may not be possible to know who was harmed.

The only guaranteed winners will be administrators who distribute the fair fund and class-action lawyers who will take a significant cut of any funds paid to their clients. Indeed, plaintiffs lawyers mounted an unprecedented lobbying campaign after the court directed the SEC to make a recommendation about whether to establish a fair fund. Before the vote, our offices received dozens of letters from purported victims urging the commission to petition for a fair fund.

The strikingly similar tone and content of the letters that came cascading into our offices made it clear that they had been sent at the behest of class-action lawyers in a parallel civil action. It was all part of a coordinated campaign by the plaintiffs bar to gain access to the pot of gold at the end of the government investigations rainbow. These lawyers played no part in the commission’s successful enforcement action, yet they may now receive tens of millions of dollars as a result of the majority’s vote.

We refuse to be a part of any commission decision that will create a cottage industry for class-action lawyers, piggybacking on government investigations and targeting the disgorgement—and, even worse, government-ordered penalties—collected from defendants in SEC enforcement actions.

This decision sets a dangerous precedent. Class-action lawyers now have an incentive to round up potential victims in SEC insider trading cases and arrange a substantial contingency fee, then lead a fair-fund campaign under the guise of a grass-roots movement by harmed investors. Class-action lawyers could reap a third of the fair fund payouts thanks to the efforts of hard-working SEC staffers and the taxpayers who pay them.

The most galling aspect of the majority’s decision to seek a fair fund is that it will, in the long run, harm the investors the SEC is supposed to protect. Rather than receiving the maximum possible compensation for their losses under a fair fund, harmed investors are now at greater risk of suffering the additional loss of a significant amount of their potential recovery at the hands of opportunistic trial attorneys. The creation of a fair fund in this case is simply a misguided, massive wealth transfer to plaintiffs lawyers.

Beyond the corrupting influence this fair fund will have on internal SEC processes and the risk of further harm to victims, the majority’s action ignores questions of whether identifying harmed investors and calculating the amount of damages is practical, or even possible. The minuscule chance that some harmed investors might be identified cannot justify the resources that would be expended on a fruitless search.

The majority’s decision is all the more worrisome because it signals that the SEC may seek a fair fund in every insider trading case hereafter. Such a road would lead to pure folly—or in the case of class-action plaintiffs lawyers, to the bank.

Messrs. Gallagher and Piwowar are commissioners at the Securities and Exchange Commission.

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


"Defining roles in prevention of financial reporting fraud," by Ken Tysiac, Journal of Accountancy, November 17, 2014 ---
http://www.journalofaccountancy.com/News/201411371.htm

There is no way to guarantee that an organization will not experience financial reporting fraud.

But research shows that fraud-resistant organizations share three traits:


That’s according to
The Fraud-Resistant Organization, a report released Monday by the Anti-Fraud Collaboration, whose members include the Center for Audit Quality (CAQ), Financial Executives International, The Institute of Internal Auditors, and the National Association of Corporate Directors.

Continued in article

Jensen Comment
One of the problems is that the first trait may make the organization complacent about the other two traits. Exhibit A is Brigham Young University that certainly gets an A+ on the "encouraging an ethical culture" trait. But this made BYU complacent about skepticism and engaging employees in internal controls. Who would have guessed that a financial officer at BYU would pilfer hundreds of thousands of dollars (2002)?
http://www.deseretnews.com/article/948838/Ex-BYU-official-is-charged-with-stealing-fees.html?pg=all

PROVO — Prosecutors say that a former BYU finance officer and his wife used a defunct corporation as a shell to steal hundreds of thousands of dollars in collection fees from the university over several years.

In a preliminary hearing Friday in 4th District Court, deputy Utah County Attorney David Wayment charged that John Davis and his wife, Carol, used an expired corporate name as a front to skim thousands in inflated student fees that were supposed to go to collection agencies.

By the end of the four-hour hearing, Judge James Taylor found probable cause to bind John Davis over on seven counts of theft and one count of racketeering, all second-degree felonies. Taylor, however, found the state lacked enough evidence to prove that Carol Davis knew that potential criminal activity was going on, despite having her name on several bank accounts related to the crime.

Taylor ordered that four counts of theft and one count of racketeering be dropped against Carol Davis.

During the hearing, finance officials with Brigham Young University testified finding strange financial activity involving John Davis, who worked as BYU's supervisor of collections.

Mark Madsen, assistant treasurer over student financial services at BYU, testified of finding several checks requested by John Davis made payable to a company called RCM (Regional Credit Management). Madsen assumed that the company was a collection agency contracted with BYU to collect on outstanding debts from students who had failed to pay their tuition, library fees or parking tickets.

Continued in article

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


Using 1.700 Stolen IDs
"Virginia woman admits $7.2 million child-credit tax scam," by Kenrick Ward, Fox News, November 25, 2014 ---
http://www.foxnews.com/politics/2014/11/25/virginia-woman-admits-72-million-child-credit-tax-scam/?intcmp=latestnews

More than a year after Watchdog reported the IRS sent thousands refunds to the tiny town of Parksley, Va., a woman has pleaded guilty to conspiracy and mail fraud.

Linda Avila admitted to obtaining more than $7.2 million in refunds by exploiting the federal government’s child tax credit program.

Avila filed more than 1,700 tax returns with stolen identifications used by illegal immigrants, mainly from Mexico.

The Virginian-Pilot reported that Avila, 50, operated a landscaping and cleaning business in Parksley.

Investigators found copies of refund checks in amounts from $4,000 to more than $7,000. The tax returns frequently cited foreign dependents, which increased the refund amounts.

Click for more from Watchdog.org ---
http://watchdog.org/184589/child-credit-tax-scam/

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


"What Georgia Tech’s Online Degree in Computer Science Means for Low-Cost Programs," by Steve Kolowich, Chronicle of Higher Education, November 6, 2014 ---
http://chronicle.com/article/What-Georgia-Tech-s-Online/149857/?cid=wc

Among all recent inventions that have to do with MOOCs, the Georgia Institute of Technology’s online master’s program in computer science may have the best chance of changing how much students pay for a traditional degree.

The program, which started last winter, pairs MOOC-like course videos and assessments with a support system of course assistants who work directly with students. The goal is to create a low-cost master’s degree that is nonetheless "just as rigorous" as the on-campus equivalent—producing graduates who are "just as good," to quote one of the new program’s cheerleaders, President Obama. The price: less than $7,000 for the three-year program, a small fraction of the cost of the traditional program.

It’s too early yet for a graduating class. But researchers at Georgia Tech and Harvard University have studied the students who have enrolled in the program, in an effort to figure out "where the demand is coming from and what it’s substituting for educationally," says Joshua S. Goodman, an assistant professor of public policy at Harvard.

By understanding what kinds of students are drawn to the new program, Mr. Goodman and his fellow researchers think they can begin to understand what competitors it might threaten.

Here is what they found out about those students:

How They Are Different

The enrollees are numerous. The online program this year got as many applications as Georgia Tech’s traditional program did during two recent semesters. But while the traditional program accepted only about 15 percent of its applicants, the online program accepted 50 percent, enrolling about 1,800 in its first year. That might not qualify as large in light of the 50,000-students-per-course figures often quoted in reference to MOOCs, but it does make the online program three times as large as the largest traditional master’s programs in computer science, according to the researchers.

They’re older (and they already have jobs). The people enrolling in the online program are 35 years old, on average, and are far more likely to report that they are working rather than studying full time. (The average age of the students in Georgia Tech’s traditional program is 24, with only half indicating that they are employed.) That should not surprise anyone who has even a passing familiarity with online education. Online programs have pitched themselves to adults who are tethered to work and family, and who want to earn degrees without rearranging their lives around a course schedule.

They’re from the United States. Online education is supposed to make geographic borders matter less. But this online master’s program has drawn 80 percent of its students from within the country. By contrast, in the traditional program, 75 percent of the students are foreign, mostly from India and China.

Most of them did not study computer science in college. In the traditional graduate program, 62 percent of students have completed an undergraduate major in computer science. That is true of only 40 percent of the online students. The percentage of undergraduate engineering majors, 27 percent, remained constant.

How They Are Similar

They’re good at school. Unlike San Jose State University’s MOOC-related pilot program, which tried and failed to help underperforming students, Georgia Tech’s online program appeals to students with a proven academic track record, specifically those who earned bachelor’s degrees with a grade-point average of 3.0 or higher. (The university told The Chronicle last year that its first group of applicants averaged a 3.58 GPA—about the same as the students in the traditional program.) They seem to be doing well so far: Courses held last spring and summer saw pass rates of about 88 percent, according to the university.

They’re mostly men. The online program had a lower rate of female applicants than the traditional program did, but there were precious few in either pool: 14 percent and 25 percent, respectively. Among American applicants, the rates were similar: 13 percent and 16 percent.

Over all, the first enrollees in Georgia Tech’s MOOC-like master’s program fit the profile of students who are applying to online graduate programs at institutions across the country.

Continued in article


"The 25 Best Universities In The World For Computer Science," by Melia Robinson, Business Insider, October 30, 2014 ---
http://www.businessinsider.com/best-universities-for-computer-science-2014-10 

Ranking Criteria ---
http://www.topuniversities.com/university-rankings-articles/world-university-rankings/qs-world-university-rankings-methodology


Pushdown Accounting --- http://www.readyratios.com/reference/accounting/push_down_accounting.html

From EY on November 19, 2014

To the Point: FASB makes pushdown accounting optional

 https://americas.ey-vx.com/email_handler.aspx?sid=6fed1484-c411-4260-bf88-75f85e5aca62&redirect=http%3a%2f%2fwww.ey.com%2fPublication%2fvwLUAssetsAL%2fTothePoint_BB2882_Pushdown_19November2014%2f%24FILE%2fTothePoint_BB2882_Pushdown_19November2014.pdf

The FASB issued final guidance that allows all acquired entities to choose to apply pushdown accounting (i.e., reflect the acquirer’s basis of accounting for the acquired entity’s assets and liabilities) when an acquirer obtains control of them. The SEC staff responded by rescinding its guidance on pushdown accounting, meaning SEC registrants and non-registrants will now follow the new US GAAP guidance.

 

For further information on related topics, see our AccountingLink site.

 


How to Mislead With Charts
"How to Lie with Charts," Harvard Business Review, December 2014 ---
https://hbr.org/2014/12/vision-statement-how-to-lie-with-charts
The above link is only a teaser. You have to pay to see the rest of the article.

"BP Misleads You With Charts," by Andrew Price, Good Blog, May 27, 2010 --- Click Here
http://www.good.is/post/bp-misleads-you-with-charts/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+good%2Flbvp+%28GOOD+Main+RSS+Feed%29

"Correlation or Causation? Need to prove something you already believe? Statistics are easy: All you need are two graphs and a leading question," by Vali Chandrasekaran, Business Week, December 1, 2011 ---
http://www.businessweek.com/magazine/correlation-or-causation-12012011-gfx.html

How to Mislead With Statistics
"Reminder: The FBI’s ‘Police Homicide’ Count Is Wrong," by Reuben Fischer-Baum, Nate Silver's 5:38 Blog, November 12, 2014 ---
http://fivethirtyeight.com/datalab/reminder-the-fbis-police-homicide-count-is-wrong/ 

How to Mislead With Statistics
"Some Stats Are Just Nonsense
," by Cullen Roche, Pragmatic Capitalism via Business Insider, November 15, 2014 ---
http://www.businessinsider.com/historical-statistical-and-nonsensical-2014-11

How to Mislead With Statistics
Common Accountics Science and Econometric Science Statistical Mistakes ---
http://www.cs.trinity.edu/~rjensen/temp/AccounticsScienceStatisticalMistakes.htm


Resistance if Futile:  It's Just a Matter of When IFRS Replace USA GAAP?

From the CPA Newsletter on November 11, 2014

SEC official: IFRS recommendation is coming soon
http://r.smartbrief.com/resp/gjizBYbWhBCKBgtACidKtxCicNpBrC?format=standard
James Schnurr, chief accountant of the Securities and Exchange Commission, said Thursday he could recommend soon whether the agency should adopt International Financial Reporting Standards. "I would hope that within the next few months there would be movement on this," he said. The Wall Street Journal (tiered subscription model) (11/6)

Jensen Comment
IFRS takeover of USA GAAP is just a matter of time. Resistance is futile.
http://www.trinity.edu/rjensen/Theory01.htm#MethodsForSetting


From the CPA Newsletter on November 21, 2014

U.K. regulator advises companies against publishing audit-inspection grades
 http://r.smartbrief.com/resp/gmwnBYbWhBCLkxqICidKtxCicNxMUo?format=standard
The U.K. Financial Reporting Council (FRC) guidance contradicts recommendations made by the U.K.'s competition authority that companies publish the results of audit-quality reviews in their annual reports and accounts. The FRC stated that doing so could lead to misunderstanding of the scope or significance of the review, as well as its relevance to the quality of the financial statements. CGMA Magazine online (11/20)

Jensen Comment
This is somewhat analogous to requiring a university accompany each student's transcript with that university's Department of Education Scorecard Review ---
http://www.whitehouse.gov/issues/education/higher-education/college-score-card
The overall Scorecard Review for the university may be misleading in terms of a selected student's performance.


From the CPA Newsletter on November 11, 2014

Fiscal 2014 a record for SEC whistleblower tips ---
http://r.smartbrief.com/resp/gmmABYbWhBCLiLdvCidKtxCicNBmrb?format=standard 
Tips from whistleblowers to the Securities and Exchange Commission exceeded 3,500 in fiscal 2014, the highest annual level since the program started three years ago. Fiscal 2014 also set a record for money awarded to tipsters. Reuters (11/18)


"Here's How the Government Is Wasting Your Tax Dollars," by Barton Hinkle, Reason Magazine, November 5, 2014 ---
http://reason.com/archives/2014/11/05/heres-how-the-government-is-wasting-your

You think the federal government wastes money? You don’t know the half of it. During the past year alone, Washington has shelled out billions to give bureaucrats paid vacations in lieu of discipline; to ship coal to Germany for no reason; to design better golf clubs; and to give bunny rabbits massages — among many other things.

According to received wisdom, Americans ought to be clear about three things: (1) You can’t balance the federal budget by targeting waste, fraud and abuse. (2) The spending cuts imposed by sequestration have been devastating. (3) We might have an Ebola vaccine by now if federal agencies had received adequate funding.

Each of these propositions contains some truth. No amount of pork-trimming can offset the huge outlays for entitlements, which (along with interest on the debt) will soon consume every dollar Washington collects. Sequestration’s cuts do indeed apply equally to crucial government outlays, such as military flight training, as well as foolish ones. And while there’s no guarantee more spending would have produced an Ebola vaccine by now, there’s no guarantee it wouldn’t, either.

But arguments like those offer cold comfort when you page through the latest issue of Sen. Tom Coburn’s Wastebook, which relates just some of the myriad ways the federal government squanders your hard-earned pay.

It begins by noting that many federal workers are placed on paid administrative leave for offenses that, in the private sector, would result in summary dismissal. Such as? Such as buying liquor with government charge cards, watching porn at work or not doing their jobs. At the Department of Homeland Security, 237 employees were put on paid leave for more than 10 days this past year — more than 200 of them for misconduct.

Last year DHS Secretary Janet Napolitano said the sequester would put “our nation at risk” by “significantly negatively affecting . . . operations.” (That’s bureaucrat-speak for harming them.) Yet this year, DHS was able to find enough change in the seat cushions to pay for night-vision goggles, a robot and chemical suits for Ithaca, N.Y. — which already boasts the distinction of being named one of America’s safest small towns by Farmers Insurance.

The House Armed Services Committee has warned that sequestration “put our military and national security at risk.” But Congress can be only so alarmed — given that it continues forcing the Air Force to heat military bases in Germany with anthracite coal mined in Pennsylvania. The Defense Department has pleaded to no avail “to end this earmark because it wasted hundreds of millions of dollars annually,” the Wastebook reports.

The litany of lunacy runs on and on, and includes expenditures such as. . .

A special word ought to be said about the National Science Foundation, which seems to have a fetish for funding ridiculous research projects, to the tune of . . .

Then there’s the National Center for Complementary and Alternative Medicine, an arm of the National Institutes of Health. In the past two years, it has spent $387,000 on a study testing the effects of Swedish massage on the muscle recovery of rabbits that had recently been exercised.

That should come in real handy in the fight against Ebola.

Jensen Comment
These remind me of the famous Golden Fleece Awards issued by Wisconsin's Senator Proxmire years ago ---
http://en.wikipedia.org/wiki/Golden_Fleece_Award


From the American Library Association
Advocacy: Online Learning --- http://www.ala.org/onlinelearning/issues/advocacy
Also see the following links from Bob Jensen

Growth Worldwide --- http://www.trinity.edu/rjensen/HigherEdControversies.htm#DistanceEducation

Alternatives Worldwide --- http://www.trinity.edu/rjensen/CrossBorder.htm

Free online tutorials, videos, and courses from prestigious universities ---
http://www.trinity.edu/rjensen/000aaa/updateee.htm#OKI


Jensen Comment:  This blog posting by Joe "puzzles" me.
"HOW TO WRITE A TEST," by Joe Hoyle, Teaching Blog, October 28, 2014 ---
http://joehoyle-teaching.blogspot.com/2014/10/how-to-write-test.html

This posting is indirectly related to my threads on
"Edutainment, Learning Games, and Gamification"
http://www.trinity.edu/rjensen/000aaa/thetools.htm#Edutainment


"Editors needed to promote sets of articles based on debatable issues," by Jim Martin, MAAW's Blog, October 31, 2014 ---
http://maaw.blogspot.com/2014/10/editors-needed-to-promote-sets-of.html

Jensen Comment
I've been saying this for years for accountics science journals, but accountics scientists do not seem to want to debate controversial issues by refusing to publish commentaries and even replications ---
http://www.trinity.edu/rjensen/TheoryTAR.htm

For years Accounting Horizons lost sight of its original mission and became just another accountics science journal according to accounting historian Steve Zeff. But then something happened that illustrates what can happen when AAA journals appoint editors who are not paranoid accountics scientists. This happened with the appointment of Dana Hermanson as editor of Accounting Horizons. Among other things, Dana encouraged submissions of commentaries on controversial issues.
http://www.trinity.edu/rjensen/TheoryTAR.htm#AH

The highlight of the promoting "sets of articles on debatable issues" is illustrated by invitations to publish four essays in the December 2012 issue of AH:
"Introduction for Essays on the State of Accounting Scholarship," Gregory B. Waymire, Accounting Horizons, December 2012, Vol. 26, No. 4, pp. 817-819 ---
 http://aaajournals.org/doi/full/10.2308/acch-50236

The four essays in this bundle are summarized and extensively quoted at http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm#Essays 

You can read excerpts of these four essays at
http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm#Essays
I especially encourage a detailed reading of the "Cargo Cult Science" article by Sudipta Basu that seems to be despised by most accountics scientists that have communicated with me about this controversial article. Bravo Sudipta!

My point to Jim Martin is that Accounting Horizons seems to have turned the corner on publishing of controversial articles and commentaries. I'm still waiting for the day when TAR publishes a controversial article without equations and/or statistical inference tables. Just one is all I ask for for starters.

November 2, 2014 reply from Jim Martin

Bob,
I would like to see debates in the Journal of Accountancy since that is the largest potential audience (more than half a million according to the JOA) and perhaps followed by debates in the academic journals.

However, I think AAA panel discussions on certain issues at the annual meeting would be a good place to start. The 1990 debate by Kaplan, Shank, Boer and Horngren published in the Journal of Management Accounting Research was the edited version of an AAA panel discussion.

An example topic for a panel discussion might be something like, "Models for management accounting related decisions that avoid the dysfunctional behavior of the traditional accounting model." I believe someone on the theory of constraints side would be interested. Lean accounting advocates might want to be represented. Perhaps the activity based management, and the balanced scorecard advocates as well. The panel or group of debaters needs to include people with backgrounds other than accounting. The probability that accountants will ever solve the flaws associated with accounting is pretty low since accountants have a built-in bias to protect traditional accounting. Rather than reengineering the entire information system they tweak the system with activity accounting, target costing, value stream accounting, resource consumption accounting etc., but the underlying accounting system stays the same. People with engineering, production, operations research, and other backgrounds need to get involved. Unfortunately, these groups don't talk to each other very often or read each others publications. Goldratt's publications seems to be an exception.

 


Customer Loyalty Versus Free Cash Flow
"
Amazon’s Future: Looking Beyond the Balance Sheet," by Peter Fader and Daniel Raff," Knowledge@wharton, October 28, 2014 ---
http://knowledge.wharton.upenn.edu/article/kw-radio-faderraff-amazon/

Jensen Comment
There are many good things contributing to Amazon's extreme customer loyalty, and I've experienced nearly all the good things. For me the biggest thing is the ease of using the software such as tracking orders and obtaining a complete history of orders going back years. For example, rather than look up a product I sometimes go to my archived orders and look up when I last ordered the item. Then with one click I order it once again.

I've not found an online company with easier return software that includes free shipping cost for returning merchandise (even if you did not pay for shipping in the first place).

I like the guarantee that you will be happy with used items (like books) that you buy from other vendors like individuals who are simply putting some of their library on sale through Amazon. I like being able to pay for such items at Amazon so I don't have to give my credit card number to vendors who sell through Amazon.

Lastly I like the enormous selection of size as well as style. For example, in stores I'm lucky to find a pair of trousers I like in terms of style and color, but I'm not likely to be lucky in also finding the correct size such as the correct leg length. At Amazon I can find the preferred style, color, and size with the easiest possible search software and one-click ordering.

For a guy who does not like to "waste" a whole lot of time and fuel on shopping, give me Amazon whenever I need almost anything except for items where there are local dealer advantages or at-home service contracts. For example, I prefer to buy TV sets, freezers, computers, and most anything with a gasoline or diesel engine from a vendor who will conveniently service the item at my home, e.g., especially the Sears at-home service contracts. The Sears at-home service contract on heavy items is fantastic --- things like snow throwers, washing machines, kitchen appliances, sewing machines, etc. Amazon cannot compete with Sears on such items.

By the way, Sears will now sell service contracts on some products that you bought elsewhere --- like our walking machine. To date, Sears has put in two new motors and three new belts on a walking machine that I did not buy from Sears. The parts and labor cost me zero after paying $140 for a five-year service contract. More importantly, there's no charge for a service call even when the repair guy has to travel almost 200 miles round trip to get to our house in the White Mountains.

I'm really, really worried that Sears is now having serious cash flow problems. I don't worry two hoots about Amazon's cash flow problem, because Amazon does not have a survival problem. I do worry about the survival of Sears.


"Evernote and Markdown: Two Tools that Work Great Together," by Amy Cavender, Chronicle of Higher Education, November 10, 2014 ---
http://chronicle.com/blogs/profhacker/evernote-and-markdown-two-tools-that-work-great-together/58457?cid=wc&utm_source=wc&utm_medium=en

Sometimes, I come across ideas for posts quite by accident.

Early this afternoon (November 6), for instance, I was looking at the wiki that we use for scheduling our posts, trying to figure out my posting schedule for the next few weeks. I was also wondering whether I’d be able to post something for the week of November 10. We try to have our posts in by midnight on Thursday of the week before the post runs, and I was, quite frankly, drawing a blank on post ideas.

I’d pretty much concluded I’d have to put posting anything off for a week, and I turned to other concerns. I’ve been frustrated with my writing (or lack thereof) lately, and I’ve been thinking I need to restart a daily writing practice — something along the lines of using 750words.com, but without relying on that service

Readers may recall that I recently wrote about using Evernote in the classroom. In that post, I noted that I use Evernote for storing all kinds of information, not just for keeping track of my class notes. Since everything in my Evernote account is searchable, it seemed a good place to start keeping that daily writing.

The catch is that I’ve started doing most of my writing in Markdown, for a number of reasons. (I won’t go into them here, but if you’d like some good reasons and a quick introduction to Markdown, check out Lincoln’s post from a few years back.)
So far as I’m aware, Evernote doesn’t handle Markdown natively. Still, I was sure there had to be a way to get them working together, and that more than likely some clever person had already figured something out. So off to Google I went, and I found this:
Evernote for Sublime Text. I’ve been using Sublime Text for most of my writing for some months now. A Sublime Text package that integrates with my Evernote account is ideal. I can do my writing in the application and markup language I’ve become most accustomed to using, and can send daily work to my Evernote account with just a few keystrokes, and without having to leave Sublime Text. The note shows up in Evernote formatted in rich text, but I can easily open it (or any other note in my account) again in Sublime Text to continue editing in Markdown. This may turn out to be just the tool I was looking for.

It turned out to be a fine post idea, too.

Bob Jensen's threads on Evernote and other tricks and tools of the trade ---
http://www.trinity.edu/rjensen/000aaa/thetools.htm


Historical Research on Accountants’ Salaries ---
http://accountingonion.com/2014/11/research-on-accountants-salaries.html

Hi Tom,

A complicating factor in this survey is overtime. One of the reasons I left Ernst and Ernst to become an accounting professor was too much overtime at E&E Denver. Actually I mean too much overtime in ski season.

When I started out with E&E tax accountants were tax experts who did not have computer software making all the complicated legal decisions. After New Years Day we started spending upwards of 60 hours per week in the back room trying to figure out how clients should report their taxes.

On Saturday and Sunday mornings I would ride the elevator up the the 17th floor of Denver's First National Bank Building recalling that when I was still a student at Denver University. I would instead be riding three successive chair lifts to the top of the mountain at Aspen.

My DU accounting professors seemingly only worked 12-16 hours per week. That was when I decided that being an accounting professor was the way to go for a ski bum.

Eventually, after I graduated from Stanford, and I moved to my first faculty job at Michigan State University I never skied again. Instead I worked 60+ hours a week trying to get tenure. And there was no overtime pay for research and writing.

My point is that Notre Dame in this survey will probably have a difficult time factoring overtime for me back in the E&E office. Overtime was a highly variable thing with almost none in the summers and tons of it in the winters.

Now I suspect overtime is not such a big deal in the EY office in Denver in 2015. Staff accountants will pretty much feed the accounting data into highly sophisticated tax computers and watch the return copies get printed. The hard copy is not even mailed to the IRS. The IRS wants eFiling in 2015.

I wonder what percentage of EY staff accountants in Denver these days will be wearing casts on their legs and arms during the 2015 ski season? Sigh!

Respectfully,
Bob Jensen

 


November 17, 2014 message from Richard Campbell

See attached for my first "newsletter" - which features active links to 18 videos on the time value of money. I also have an interactive quiz on the 18 videos. Feel free to use it in your intermediate accounting classes.
If any individual faculty member wants to be on my mailing list, email me at
campbell@virtualpublishing.net

I think you will see how klutzy both the Kieso and Spiceland intermediate texts are in respect to their coverage of the time value of money.
I will next move on to coverage of managerial accounting and illustrate how trivial some of the problems are in the major textbooks.
Richard Campbell
www.VirtualPublishing.NET

Hi Richard,

Thank you for sharing the videos on computing bond prices and yields using the PV and RATE Excel functions. These should be useful when introducing time value of money ---
http://virtualpublishing.net/wordpress1/

However, in my AIS and Accounting Theory courses I thought it was important for students to learn why bond prices and yields computed in this elementary manner rarely equal, or in many cases even come close, to bond prices and yields in the real-world such as those in The Wall Street Journal and FINRA. For real world derivations Excel's specialized bond pricing and yield formulas work better.

A huge complication is that you assume finding bonds of "comparable risk." In the real world it's usually impossible to find bonds having the same default risk, the same number of time periods to maturity, the same coupon dates, etc. Sadly, virtually all accounting textbooks overlook this enormous problem.

I made my students learn how to look up real-world bond prices and yields for real companies in FINRA ---
http://www.finra.org/

A video that illustrates deriving FINRA's bond price and yield of a McDonald's debenture can be found at ---
https://www.youtube.com/watch?v=XkZ_diws6Hg

Excel's specialized bond functions are as follows:

Bond Prices

Bond Yields

I made Camtasia videos showing when and how to use all the above Excel functions using the FINRA database. Sadly, my videos no longer work due to a tragic decision of Microsoft to drop an audio codec in Windows 7 and beyond --- a codec that was used by Camtasia until then.

If I were still teaching I would divide my students into teams and have them make their own Camtasia videos showing how to use the above Excel bond functions and the FINRA database (or the Dow Jones database).

I had similar problems when teaching FAS 133 in Accounting Theory. It's one thing to teach derivatives using hypothetical examples and quite another to teach derivatives using real-world databases. In my Accounting Theory course students I made students learn how to use the CBOT and CBOE databases. The Websites for those trading exchanges have some wonderful tutorials that I assigned to my students.

Beyond pricing bonds is the more complicated problem of valuing interest rate swaps in bonds. I have a tutorial and video on how to do that at
http://www.trinity.edu/rjensen/acct5341/speakers/133swapvalue.htm


"Are Business Majors Harder to Love?" by Akane Otani, Bloomberg Businessweek, November 7, 2014 ---
http://www.businessweek.com/articles/2014-11-07/college-business-majors-dont-get-emotional-support-from-teachers

Jensen Comment
I always thought I was pretty easy to love, but my students most likely did not think the same way.

This begs the question about loving accounting majors apart from the general population of business majors. Accounting majors are probably even harder to love since they go to work as auditors, IRS agents, and FBI probers --- only one poet in a million.


How to Mislead With Statistics
"The 10 Best Jobs For 2015," by Jacquelyn Smith, Business Insider, November 20, 2014 ---
http://www.businessinsider.com/best-jobs-for-2015-2014-11?op=1

. . .

Marketing Executive

Software Developer, Applications

Registered Nurse

Industrial Engineer

Network and Computer System Administrator

Web Developer

Medical and Health Services Manager

Physical Therapist

Speech-Language Pathologist

Continued in article

Jensen Comment
The above article is terrible in many respects.

  1. The biggest failing is that it does not define "best jobs." There are many criteria for "best jobs." Best can be defined in terms of starting compensation packages, demand versus supply, mobility (e.g., are the jobs only available in larger urban centers or are they available in rural areas across the USA), amount of overnight travel required, promotion opportunities and career paths, nature of the compensation (fixed salary versus bonuses versus sales commissions) etc.
     
  2. The article does list "growth potential" as an annual percentage growth in compensation, but this is highly misleading. In some careers the inflation-adjusted compensation is asymptotic. The growth in compensation for a Registered Nurse or a Physical Therapist may be 5% per year for the first few years, but the after adjusting for inflation the growth potential is likely to be asymptotic as it approaches the high end in that career. A CPA or computer program may work for a firm for five years and then go to work for a client at double or triple compensation rates.
     
  3. The article mixes executive jobs like Marketing Executive, Network and Computer System Administrator, and Medical and Health Services Manager with non-executive jobs like Registered Nurse, Physical Therapist, and Speech-Language Pathologist. There are usually entry jobs available for Registered Nurse, Physical Therapist, and Speech-Language Pathologist, but nobody graduates after four years expecting to get job offers as a Marketing Executive or a "Manager" of anything.
     
  4. Some job categories are too vague in terms of a high degree of variance in opportunity and compensation. For example, Web Developers are a dime a dozen with extremely high variance in opportunity and compensation.
     
  5. In my opinion, the "best jobs" at the time of graduation are those with high demand, on-the-job-training, and client/customer exposures that will lead to huge opportunities down the road. The starting salary is very low in importance if a job offers tremendous opportunity for training and career advancement. For example, a new CPA in a large accounting firm usually receives very extensive training and exposure to clients that will offer tremendous job offers down the road. A Registered Nurse, Physical Therapist, and Speech-Language Pathologist may end up doing pretty much the same thing for 40+ years.
     
  6. For men or women with family responsibilities some jobs can be performed heavily without leaving the home or children. For example, many CPA firms now let workers work from home computers a very large share of the work week. This is usually not the case for a all of the above supposed "best jobs" other than possibly a "Web Developer."
     
  7. I'm confused why "Industrial Engineer" beats out other types of engineers in the above ranking. Most rankings that I have seen before list the Chemical Engineers and Electrical Engineers well above Industrial Engineers. Civil Engineers don't fare as well.
     

I could go on and on lambasting the above article. but perhaps you get the idea by now.


How to Mislead With Statistics:  Ignore the Variance and Ignore the Outliers (in this case graduates without law jobs)
"Why Huge Salaries Don't Necessarily Make Law Grads Rich," bv Akane Otani, Bloomberg Businessweek, October 22, 2014 ---
http://www.businessweek.com/articles/2014-10-22/law-school-grads-make-good-salaries-but-have-high-debt-and-few-jobs

Graduates of Harvard Law School, among all the graduate schools in the U.S., make the most money, earning a median salary of $201,000 once they are 10 years out of school, according to a new report. Law schools rank higher than other graduate programs when it comes to salaries, yet skyrocketing debt and a thinning job market for law graduates may dampen the appeal of a J.D.

Harvard Law School, Emory University School of Law, and Santa Clara University School of Law topped salary rankings for graduate and professional programs in a study released Wednesday by compensation-tracking company PayScale. Of the top 20 schools, 12 were law schools. The rest were business schools.

Despite a few law schools dominating the rankings, law school graduates did not hold claim to the most lucrative degree on the market. The median midcareer salary for a law school graduate was $139,300—a far smaller sum than the figures boasted by the schools that topped PayScale’s rankings. Considering that the median debt load for law school graduates rose to $140,616 in 2012, even a six-figure salary doesn’t sound as glamorous.

What’s more, Payscale’s data didn’t factor in law school grads who don’t have jobs—and jobs are scarcer for lawyers now than they have been in years. The employment rate for law school graduates has dropped six years in a row. “Since 1985, there have only been two classes with an overall employment rate below [84.5 percent], and both of those occurred in the aftermath of the 1990-91 recession,” the National Association for Law Placement said in a report this summer. Over the past decade, at least 12 firms, accounting for more than 1,000 lawyers, have shut their doors. Others are eyeing cuts among partners.

One reason why a J.D. isn’t a get-rich-quick guarantee is the wide range of salaries within the field of law. A new graduate working as a public interest lawyer or for local government will make an average of $60,000 or less a year, according to the NALP.

“If you want to be a public defender vs. a corporate attorney, there is going to be a big difference in terms of ability to pay off your loans,” says Lydia Frank, editorial and marketing director for PayScale. “Because there’s such a wide variety in earnings potential, you can’t assume that any job you’re going to pursue with a J.D. is going to be equal.”

While the salary rankings may provide a good benchmark for what’s possible with an elite law degree, great job connections, and a lucrative specialty, the average would-be lawyer should think carefully about the return on an investment in legal education.

“If you’re going to take out ‘X’ amount in student loans, you really want to have a good understanding of the likelihood of being able to repay that loan in a timely fashion,” Frank says. “I think it still behooves everybody to really examine things other than salary potential, such as employment potential for JDs.”

Jensen Comment
Traditionally, accounting graduates who go to work for large CPA firms get great training and great client exposure. The bad news is that probabilities of attaining partnerships after 6-10 years are very low. The good news is that prospects of going to work for clients are high, and new graduates never wanted the pressures, travel, and time commitments of partnerships in CPA firms in the first place.

Among the least-wanted pressures are the pressures to obtain new clients via lots of night and weekend community volunteer work, golf outings that aren't all that much fun, and selling the firms' services over and over and over year after year Some of the things that discourage faculty from striving to be college presidents also discourage staff accountants and lawyers from seeking partnerships.

My point is that winnings of the  highest salaries as partners in both law and accounting firms are not all they're cracked up to be in terms of job stress, long hours, frequent travel, glad-handing, broken marriages, neglected children, etc. Most of the very good lawyers and accountants want no part of this partnership lifestyle even at much higher compensation. Men and women partners who are also parents are advised to have spouses who will take on the chores of child rearing and keeping the home fires burning.

A bummer for finance and marketing graduates is performance-based compensation. For example, landing that job on Wall Street sounds great until you realize that your pay is really based upon sales commissions. It's not a great life unless you really like to spend your days wooing customers to buy what you're selling (like bonds and derivatives) year after year after year.


"Where the Jobs Are," Inside Higher Ed, April 23, 2014 ---
http://www.insidehighered.com/quicktakes/2014/04/23/where-jobs-are#sthash.NKe4NhNO.dpbs

A new analysis of available jobs finds that the highest demand (among openings for college graduates) is for white-collar professional occupations (33 percent) and science and technology occupations (28 percent). The analysis -- by the Georgetown University Center on Education and the Workforce -- is consistent with that center's past research, in finding many more opportunities for those with a bachelor's degree than for those without a college degree.

The new study is based on online job advertisements. The most in-demand professional jobs are accountants/auditors and medical/health service managers. In STEM, the most in-demand jobs are for applications software developers and computer systems analysts.

Jensen Comment
There's a bit of mixing of apples and oranges here. The study says it looks at bachelor's degrees. But in in order to take the CPA exam accountants and auditors mush have 150 credits which for most graduates translates to a masters degree. Also many medical/health service programs are graduates of masters of health care administration programs such as the graduate health care administration program at Trinity University.

In some cases like chemistry and biology the job prospects with a bachelor's degree are mostly lousy McJobs. But those majors have an edge for being admitted to graduate programs, especially medical schools, where opportunities abound upon graduation.

For those rejected for graduate schools or who cannot afford graduate schools, career opportunities are probably better in the skilled trades such as those $150,000 - $200,000 welding jobs.

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


"When Stock Buybacks Are Not a Waste of Money," by Justin Fox, Harvard Business Review Blog, November  4, 2014 --- Click Here
https://hbr.org/2014/11/when-stock-buybacks-are-not-a-waste-of-money/?utm_source=newsletter_finance&utm_medium=email&utm_campaign=finance050611&cm_ite=finance-111914+%281%29&cm_lm=rjensen%40trinity.edu&referral=00209&cm_ven=spop-email&cm_mmc=email-_-newsletter-_-finance-_-finance050611

Buying back stock, pretty much corporate America’s favorite thing to do with its money over the past decade, has come in for a lot of criticism this fall. In an epic September 2014 HBR article, Profits Without Prosperity,” economist William Lazonick blamed buybacks for much of what ails the U.S. economy. His arguments have begun to catch on, in the media at least.

Two years ago, though, HBR Press published a book that cast buybacks in a much different light. In The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success, Will Thorndike described how share buybacks had helped drive several of the most remarkable corporate successes of the past half century. The Outsiders has been described by The Wall Street Journal as the “playbook” for many of the activist investors currently pushing companies to buy back more shares.

So I asked Thorndike, a managing director at the private equity firm Housatonic Partners, what gives: Are buybacks a travesty, or smart capital allocation? What follows is an edited and condensed version of our conversation. But first, I should probably define a few things that come up: A tender offer is when a company publicly offers to buy a large number of shares, at a set price, over a limited time period. P/E means price-to-earnings ratio. And John Malone is a cable-TV billionaire who figures prominently in Thorndike’s book.

I guess I’ll start where your book starts, with Henry Singleton, who is really the father of the modern stock buyback. What did he do?

The way to think about Henry Singleton is that he demonstrated kind of unique range as a capital allocator. He built Teledyne [in the 1960s] largely by using his very high P/E  to acquire a wide range of businesses. He bought 130 companies, all but two of them in stock deals. Throughout that decade his stock traded at an average P/E north of 20, and he was buying businesses at a typical P/E of 12. So it was a highly accretive activity for his shareholders.

That was Phase One. Then he abruptly stops acquiring when the P/E on his stock falls at the very end of the decade, 1969, and focuses on optimizing operations. He pokes his head up in the early ‘70s and all of a sudden his stock is trading in the mid single digits on a P/E basis, and he begins a series of significant stock repurchases. Starting in ‘72, going to ’84, across eight significant tender offers, he buys in 90% of his shares. So he’s sort of the unparalleled repurchase champion.

When he started doing that in ‘72, and across that entire period, buybacks were very unconventional. They were viewed by Wall Street as a sign of weakness. Singleton sort of resolutely ignored the conventional wisdom and the related noise from the media and the sell side. He was an aggressive issuer when his stock was highly priced, and an aggressive purchaser when it was priced at a discount to the market.

The other seven companies in the book, buybacks were a big part of their success too, right?

Yes, that’s correct. Of the eight companies in the book, all but Berkshire Hathaway — kind of a special case, Warren Buffett’s company — bought in 30% or more of shares outstanding over the course of the CEO’s tenure.

Is part of it the era? Most of these stories you tell, the bear market of the ‘70s and early ‘80s is right in the middle of them.

There’s definitely some meaningful overlap across that group in terms of their tenures. But John Malone’s buyback activity is just extraordinary over the last five to eight years. And Buffett has signaled for the first time ever that he’s a buyer. He’s gone from a non-active buyback CEO to one who has changed his approach and gotten very specific about it for the first time, which is interesting.

So in the 1970s, when Henry Singleton and some of these others were getting into buybacks, it was seen as weird, a sign of weakness. Now I think we’re going through the greatest buyback wave ever. Is that good news for investors?Corporate America’s track record buying in stock is just horrendous. It’s terrible. We are now again approaching a peak of buyback activity, no matter how you measure it. The prior peak occurred in the second half of 2007, the last market peak. The trough in corporate buyback activity? Early ’09. So, kind of a perfect contra-indicator for the stock market.

Not surprisingly, many studies have shown that buybacks don’t produce great returns. But there are very different approaches to buybacks, and they produce very different outcomes. The typical way that corporate America implements a buyback is the board announces an authorization, which is usually equal to a relatively small percentage of market cap — low to mid single digits — and they then proceed to implement that authorization by buying in a specific amount of stock every quarter. Sort of a metronome-like pattern. And generally the amount of stock they repurchase is designed to offset options grants.

The approach of the CEOs in the book was entirely different. It was pioneered by Singleton, and it involved very sporadic, sizable repurchases. I mentioned that Singleton bought in those 90% of shares over eight tender offers. The largest was the last one, which he did in 1984. He bought in 40% of shares outstanding. He tendered for 20-25% and there was excess demand, so he bought in all the shares [that were offered to him].

It’s very different mindset. You’re looking at a stock repurchase as an investment decision with a return and you’re comparing that return to other alternatives, and when it’s attractive you’re aggressive in implementing it.

With Carl Icahn and Apple, Icahn’s argument is, “Do a tender offer, because the stock is relatively cheap compared to where I think it’s headed.”

That’s exactly right. It’s very interesting to see, [because] tenders are rare these days. Even Malone, he’s used tenders occasionally, but he’s generally doing open-market purchases. But you can still implement that sporadic, large-purchase approach in the open market. It’s just you don’t see it that often.

I think the world divides into people who are serious about repurchases and those who are doing it for more cosmetic reasons. You could look at a list of companies who’ve bought in some minimum threshold of shares over the last 24 months, and that’s a group who’s going to have a very different philosophy in this area than the broader market.

Continued in article

Jensen Comment
I'm a cynic on this issue. I think all too many buybacks are motivated by executives seeking more compensation based upon earnings-per-share increases. These fall under what Professor Fox calls "cosmetic." I think all too often the buybacks are motivated for cosmetic reasons that lead to higher executive compensation.


From the CFO Journal's Morning Ledger on  November 25, 2014

The death of a family farm
What do Wal-Mart, Mars and Cargill have in common? Apart from being three of America’s most high-profile corporate success stories – they are all family run businesses. As the very foundations of the American corporate landscape, almost a third of all U.S businesses are family owned. But transfer of power and influence within a company –big or small – from generation to generation is also often fraught with jealousy, suspicion and divergent ideas about the way things should run.
This piece by Kristina Johnson for Fast Company presents the anatomy of the demise one such business – a family run dairy farm. Factors akin to the aforementioned played out between father and son – coupled with externalities such as drought and unrelenting competition from bigger operations – all conspire to bring this family business to a bitter end.

Jensen Comment
One of the major factors killing the family farm is the price of quality farm land. Decades ago, when a farmer died the children, let's say four children, could often come to an agreement that one of the siblings buy the farm with the proceeds being divided among the other heirs. Often the buyer was the one running the farm at the time the retired farmer (usually the father) died. One of the heirs may well have been the spouse in addition to her children.

The problem in the 21st Century is that quality farms are so valuable that one of the heirs cannot afford to buy out the other heirs. A section of land in Iowa is one square mile. A section of good farm land in Iowa these days sells for upwards of $5 million. They typical heir farming the land often has well over $1 million invested in machinery plus owes the bank tens of thousands of dollars for investments in crops, investments like seed, fertilizer, and herbicide sprays. That heir is just unable to raise the money needed to pay out the other heirs. And so the farm is sold off to wealthy investors, sometimes to corporations from other nations like China. The heir who farms the land may even continue to farm the land as a renter. But then it's no longer a "family farm."

Decades ago a section of land in Iowa was a huge farm. It was also possible in some instances to divide the farm estate into quarter sections where each heir then had a quarter-section (160 acre farm). It was possible in those days to support a family on a quarter section. These days that is no longer realistic because of the price of machinery. Machinery in the 21st Century is made for efficient farming on very large farms. It just does not pay to invest in machinery to farm only 160 acres or possibly even 240 acres of land. I inherited a 160-acre farm that was rented to Farmer X. Farmer X owned 240 acres plus rented two quarter sections of land. When the two rental farms were sold to other investors he went out of business by selling his own land.


From the CFO Journal's Morning Ledger on  November 25, 2014

Advisory work may cloud audit integrity, PCAOB member says ---
http://blogs.wsj.com/cfo/2014/11/24/advisory-work-may-cloud-audit-integrity-pcaob-chair-says/?mod=djemCFO_h
A prominent member of the Public Company Accounting Oversight Board has warned that the rise of non-audit services offered by accounting firms could threaten the quality and integrity of independent audits. Steven Harris, chair of the watchdog’s investor advisory board, said that services such as tax consulting tread the thin regulatory line established by the SEC that dictates the kinds of consulting and advisory work audit firms can perform for clients. “Investors are concerned that the firms may not maintain their public watchdog, total independence and complete fidelity to the public trust responsibilities,” he said Monday. The rise of advisory services has essentially changed the culture and tone at the top of audit firms. Revenue from non-audit services at the “Big 4” audit firms rose $14 billion to $65 billion between 2009 and 2013. Revenues from audit services rose $3 billion during the same period, Mr. Harris said.

U.S. Audit Regulator Scrutinizing PwC Over Caterpillar Tax Advice:  PCAOB Reviewing Whether Tax Advice Creates Conflict With Audit of Company," by Michael Rapoport, The Wall Street Journal, November 18, 2014 ---
http://online.wsj.com/articles/u-s-audit-regulator-scrutinizing-pwc-over-caterpillar-tax-advice-1416350375

The government’s audit regulator is scrutinizing PricewaterhouseCoopers LLP over tax-saving strategies it provided to audit client Caterpillar Inc., according to people familiar with the matter.

The Public Company Accounting Oversight Board is looking at whether the practice might create a conflict of interest that could compromise PwC’s ability to perform a tough audit of the manufacturer, the people said.

The regulator’s review dates back several months and follows an April request from Sen. Carl Levin (D., Mich.) for the PCAOB to look at the matter after he alleged earlier this year that Caterpillar had deferred or avoided $2.4 billion in taxes under strategies devised by PwC.

Neither PwC nor Caterpillar have been charged with any wrongdoing. PwC and Caterpillar have said that PwC’s advice and Caterpillar’s actions complied with all tax laws.

In April, Sen. Levin sent a letter to the PCAOB requesting that it “conduct a formal review” of the services that PwC provided to Caterpillar.

The letter, a copy of which has been reviewed by The Wall Street Journal, also asks the PCAOB to review whether its rules should be strengthened to prohibit an auditor from auditing a company’s tax obligations when those obligations rely on a tax strategy developed by the same firm.

Accounting firms are required to avoid conflicts of interest that could raise questions about their objectivity and impartiality in conducting an audit of a company.

If a firm provides tax strategies to a company for which it also serves as independent auditor, it could end up auditing its own work.

Colleen Brennan, a PCAOB spokeswoman, said in the wake of Sen. Levin’s concerns, the board “is looking further at the nature of tax services that auditors are performing for their audit clients.” The PCAOB monitors audit firms’ compliance with independence rules through its inspections, and those rules “prohibit auditors from marketing aggressive tax positions to their audit clients,” she said. She didn’t mention PwC or Caterpillar specifically.

The review came to light Tuesday when Jay Hanson, a PCAOB member, mentioned it at an accounting conference in New York. He also didn’t mention PwC or Caterpillar but said members of Congress had asked the PCAOB to review audit firms’ provision of tax strategies to their clients and whether that could affect the auditors’ independence.

News of the PCAOB’s review comes less than two weeks after the release of documents regarding other PwC tax strategies that reportedly helped hundreds of the world’s largest companies avoid billions of dollars in taxes by channeling money through the low-tax country of Luxembourg, according to the International Consortium of Investigative Journalists.

The PCAOB review predates and is unrelated to the Luxembourg matter, Mr. Hanson said. PwC has said the Luxembourg documents were stolen and that its tax advice had complied with applicable laws

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

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


From the CFO Journal's Morning Ledger on  November 20, 2014

Inside Apple’s broken sapphire deal ---
http://online.wsj.com/articles/inside-apples-broken-sapphire-factory-1416436043?mod=djemCFO_h
The relationship between Apple Inc. and GT Advanced Technologies Inc., the sapphire-screen manufacturer that declared bankruptcy last month, was a troubled one from the get-go. For one, GT hadn’t mass-produced sapphire before the Apple deal last year. GT’s meltdown underscores the promise and peril for Apple suppliers. An Apple deal can generate billions in revenue. But it also means adapting to huge fluctuations in demand, at razor-thin profit margins and with little room for error.


From the CFO Journal's Morning Ledger on  November 19, 2014

Smaller companies slow to adopt new rules for internal controls ---
http://blogs.wsj.com/cfo/2014/11/19/smaller-companies-slow-to-adopt-new-rules-for-internal-controls/?mod=djemCFO_h
Smaller firms aren’t keeping up with their larger brethren in adopting new internal controls as the Dec. 15 deadline approaches, CFO Journal’s John Kester reports. While businesses aren’t legally required to adopt the new framework, known as COSO 2013, those that cling to the old edition that hasn’t changed since 1992 could face questions from the SEC and investors.


Africa:  Contract sanctity and enforcement are necessary conditions of capitalism
From the CFO Journal's Morning Ledger on  November 18, 2014

Businesses in African nations are making strides in keeping better books and becoming more transparent to investors, with more recently adopting International Financial Reporting Standards, CFO Journal’s Kimberly S. Johnson reports. Sub-Saharan Africa has long lagged the developed world in governance practices, but on several fronts that is improving, and that positions the continent for growth.

Still, Africa is hardly a monolith, with varying struggles from region to region. Ghana, Kenya and Rwanda have enjoyed relative political stability, and that has had a halo effect on the region. “Many people paint Africa with one brush, but it’s 54 different countries,” said James Newlands, a partner at Ernst & Young LLP’s Africa practice.

The experience of Nigeria’s stock exchange highlights spots of progress. Two weeks ago, the CEO of the Nigerian Stock Exchange launched a corporate-governance rating system that puts its 190 major companies—including Unilever Nigeria PLC, Total Nigeria PLC and Oando PLC—through a rigorous assessment that requires them to answer questions about business ethics, internal and external audit and control, transparency and disclosure. Is your business challenged to expand in Africa due to limited financial expertise there? Send us a note or let us know in the comments.

 


From the CFO Journal's Morning Ledger on  November 17, 2014

The Web is dying, and apps are killing it
http://online.wsj.com/articles/the-web-is-dying-apps-are-killing-it-1416169934?mod=djemCFO_h
The Web—that thin veneer of human-readable design on top of the machine babble that constitutes the Internet—is dying. And the way it’s dying has farther-reaching implications than almost anything else in technology, writes the WSJ’s Christopher Mims. The advances that apps provide feel like a win for users, but they also signal the end of the openness that allowed Internet companies to grow. App stores are walled gardens where the likes of Apple Inc., Google Inc. and Amazon.com Inc. get to set the rules, and they routinely take huge fees on transactions and ban apps that offend their sensibilities.


From the CFO Journal's Morning Ledger on  November 17, 2014

Actavis PLC’s potential deal with Allergan Inc. is a backdoor to tax savings that have become harder to come by since the U.S. Treasury Department cracked down this fall on tax-friendly merger deals known as inversions, the WSJ’s Dana Mattioli reports. Actavis got the lower rate for itself when it relocated to Ireland in 2013 through a $5 billion deal it struck with Warner Chilcott PLC.

As a result of that deal, Actavis was able to strip out tax when it bought Forest Laboratories Inc., based in New York. And now with Allergan, Actavis is coming back for seconds. Estimates vary, but analysts say Actavis, whose tax rate is about 16%, could shave $240 million to $370 million off Allergan’s tax bill in 2015.

In addition to the tax benefits, a deal with Actavis could shield Allergan from hostile suitor Valeant Pharmaceuticals International Inc. But closing a deal is still a big if, as Valeant may sweeten its offer. A deal for Allergan would also be a big bite for Actavis, whose market cap barely exceeds that of its deal target.


From the CFO Journal's Morning Ledger on  November 11, 2014

Four Tips for Complying with Regulations in Health Care
http://deloitte.wsj.com/cfo/2014/11/13/four-tips-for-complying-with-regulations-in-health-care/

Health care providers face the challenge of having to manage the often competing demands of adopting health information technologies, securing patient data and complying with myriad regulations while reducing the cost and increasing the quality of care. To address security and compliance risks in such a complex environment, executives can focus on activities that take a risk-based approach to prioritizing security investments and implement controls aimed at preventing breaches, while helping to shore up funding for new investments.

Continue Reading Today's Article »

Read more Deloitte Insights »


Mobile-Game Makers:  Roller-coaster accounting and revenue shifts
From the CFO Journal's Morning Ledger on  November 11, 2014

It may be bad for a mobile-game maker’s business if players don’t stick with its games for long, but, because of accounting rules for virtual goods, it can drive revenue higher in the short term, CFO Journal reports. Anticipating when players will lose interest is an essential part of recording revenue in the industry, where the sale of “virtual durable goods,” such as cows and tractors in “FarmVille” or cannons and dark barracks in “Clash of Clans,” is a major source of income. (Just ask this Slate columnist, who was shocked to find himself spending “real money” in one.)

When game companies like Zynga Inc. or King Digital Entertainment PLC change their assumptions, it can skew their short-term results. Some virtual goods, like potions or spells, are good for a single use so accounted for as a one-time sale, but virtual durable goods that are continuously available to a player, like a tractor, are accounted for like services or club memberships. Companies book part of the payment upfront, but defer the rest until the average period in which the item will be used.

The Securities and Exchange Commission has sent more than two dozen letters to the companies since 2010, asking them to explain how they come up with their estimates on length of use of the virtual durable goods. Game makers say they base their estimates on historical data, but that the playing periods can change substantially each year. That could make for some roller-coaster accounting—and revenue shifts to go with it.

Bob Jensen's threads on revenue accounting controversies ---
http://www.trinity.edu/rjensen/ecommerce/eitf01.htm


From the CPA Newsletter on November 17, 2014

How to calculate gain or loss in an identified mixed straddle
 http://r.smartbrief.com/resp/gmdeBYbWhBCLgHoGCidKtxCicNIGih?format=standard
New regulations require unrealized gain or loss on a straddle to be recognized when the taxpayer establishes an identified mixed straddle. This article discusses how taxpayers can elect to offset these gains and losses from positions that are part of a mixed straddle. The Tax Adviser (11/2014)

Bob Jensen's Excel workbook on Hedging and Speculating Strategies With Derivatives ---
www.cs.trinity.edu/~rjensen/Calgary/CD/Graphing.xls 
Note the tabs at the bottom of the workbook.
Students need to learn about hedging and speculating strategies before attempting to learn the accounting rules in FAS 133, IAS 39, and now IFRS 9.


From the CPA Newsletter on November 6, 2014

FASB issues hedge-accounting guidance, seeks feedback on fair value measurement rule ---
http://r.smartbrief.com/resp/gjagBYbWhBCKzchwCidKtxCicNqthI?format=standard

The Financial Accounting Standards Board has issued a derivatives and hedge-accounting standard to decide whether a hybrid instrument issued as a share should be treated like debt or equity. Separately, FASB is seeking feedback on a proposal to change how companies apply fair value measurement regulations to some investments.
Compliance Week/Accounting & Auditing Update blog (11/5)

From the IFRS Report Newsletter on the AICPA on February 6, 2014

IASB completes hedge-accounting model
The International Accounting Standards Board has completed its hedge-accounting model to be added to IFRS 9 Financial Instruments. The principles-based standard is intended to reflect risk-management activities more closely in financial statements. Key areas of change include more identifiable risk components, a reduced burden of proving the efficacy of a hedge and changes in accounting for the time value of an option. Financial Director (U.K.) (1/16)

From the CFO Journal's Morning Ledger on February 12, 2014

Companies unclear on EU derivatives rules
New reporting requirements for over-the-counter derivatives trades in Europe take effect today, but companies are still uncertain about whether the regulation applies to them, according to a survey by Chatham Financial. The European Market Infrastructure Regulation, known as EMIR, requires European and multinational companies to report over-the-counter and listed derivatives transactions with an EU-recognized trade repository. To comply, CFOs will need to report more than 60 data points for each transaction, and will also need to choose a repository,
Saranya Kapur notes. They may also decide to contract with a third party or delegate reporting responsibility to their bank counterparties, if all of their trade counterparties agree to take on the operational responsibility.

Jensen Comment
The bottom line is that the forthcoming IAS 9 is replete with "principles-based" subjectivity ---
http://www.trinity.edu/rjensen/Theory01.htm#BrightLines

Put another way the IASB yielded to pressures to go soft on rules to allow hedge accounting. If you are looking for differences between IFRS versus FASB standards, this is one of the biggest differences in accounting standards. If it intended to disclose more about risk management activities dropping the previous IAS 39 requirement to identify and possibly bifurcating embedded derivatives is a loser. Reduced standards on testing for hedge effectiveness is another huge loser.

Jensen Comment
Hedge accounting is one of the areas where the IASB departed dramatically from the very complicated FAS 133 and its subsequent amendments ---

PwC:  IFRS and US GAAP: similarities and differences - 2014 edition (224 pages) --- Click Here
http://www.pwc.com/us/en/cfodirect/issues/ifrs-adoption-convergence/ifrs-and-us-gaap-similarities-and-differences.jhtml?display=/us/en/cfodirect/issues/accounting-reporting

Table of contents
Importance of being financially bilingual 4
IFRS first-time adoption 7
Revenue recognition 11
Expense recognition—share-based payments 30
Expense recognition—employee benefits 41
Assets—nonfinancial assets 54
Assets—financial assets 80
Liabilities—taxes 102
Liabilities—other 114
Financial liabilities and equity 123
Derivatives and hedging 139
Consolidation 157
Business combinations 177
Other accounting and reporting topics 185
IFRS for small and medium-sized entities 205
FASB/IASB project summary exhibit 209 Noteworthy updates 211
 Index 215

Similarities and Differences - A comparison of IFRS for SMEs and 'full IFRS' ---
http://www.pwc.com/en_GX/gx/ifrs-reporting/pdf/Sims_diffs_IFRS_SMEs.pdf

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


From the CPA Newsletter on November 5, 2014

Internal controls help drive down financial restatements ---
http://r.smartbrief.com/resp/giwSBYbWhBCKxJiUCidKtxCicNKDyH?format=standard

Close to one-quarter of restatements this year included a notice that questioned the validity of previous financial statements, Audit Analytics reports. That figure is down from two-thirds in 2005. Reasons for the drop include better internal controls and improved financial-reporting software and information technology. 
The Wall Street Journal (tiered subscription model)/CFO Journal blog (11/4)


Committee of Sponsoring Organizations of the Treadway Commission (COSO) ---
http://en.wikipedia.org/wiki/Committee_of_Sponsoring_Organizations_of_the_Treadway_Commission

"COSO’s ERM framework to undergo update," by Ken Tysiac, Journal of Accountancy, October 21, 2014 ---
http://www.journalofaccountancy.com/News/201411173.htm

A well-known framework for risk management is scheduled for another update.

The Committee of Sponsoring Organizations of the Treadway Commission (COSO) announced Tuesday that it is undertaking a project to update its Enterprise Risk Management—Integrated Framework, which debuted in 2004.

Organizations use the framework to help them manage uncertainty, consider how much risk to accept, and improve understanding of their opportunities to increase and preserve value.

The update is being undertaken to improve the framework’s content and relevance in the context of an increasingly complex business environment. The update is intended to:

  • Reflect the evolution of risk management thinking and practices, as well as stakeholder expectations.
  • Develop tools to help management report risk information, and review and assess the application of enterprise risk management.


PwC has been engaged to update the framework under the direction of COSO’s board. PwC will seek input and feedback on the project, and will conduct a survey seeking opinions on the current framework and suggestions for improvements.

More information is available at coso.org.

COSO is a committee of five sponsoring organizations, including the AICPA, that come together periodically to provide thought leadership on enterprise risk management, internal control, and fraud deterrence.

In 2013, COSO completed an update of its internal control framework to reflect changes in technology and the business environment that have taken place since that framework’s origination in 1992.

 

What's New with COSO?

From the CFO Journal's Morning Ledger on September 24, 2014

Implementing COSO's Internal Control-Integrated Framework ---
http://deloitte.wsj.com/cfo/2014/09/26/implementing-cosos-internal-control-integrated-framework/

To unlock the value that can be achieved by adopting COSO's 2013 Internal Control-Integrated Framework, management should take a step back and evaluate how it is addressing the risks to its organization in light of its size, complexity, global reach and risk profile. Learn about leading internal control practices that may help address common challenges related to implementing the 2013 Framework, as well as perspectives on applying the framework for operational and regulatory compliance purposes.

Continue Reading Today's Article --- http://deloitte.wsj.com/cfo/2014/09/26/implementing-cosos-internal-control-integrated-framework/

Read More --- Deloitte Insights »http://deloitte.wsj.com/cfo/

 

May 14, 2013

2013 Internal Control-Integrated Framework Released

COSO has issued the 2013 Internal Control–Integrated Framework (Framework). The Framework published in 1992 is recognized as the leading guidance for designing, implementing and conducting internal control and assessing its effectiveness. The 2013 Framework is expected to help organizations design and implement internal control in light of many changes in business and operating environments since the issuance of the original Framework, broaden the application of internal control in addressing operations and reporting objectives, and clarify the requirements for determining what constitutes effective internal control.

COSO has also issued Illustrative Tools for Assessing Effectiveness of a System of Internal Control and the Internal Control over External Financial Reporting (ICEFR): A Compendium of Approaches and Examples. The Illustrative Tools are expected to assist users when assessing whether a system of internal control meets the requirements set forth in the updated Framework. The ICEFR Compendium is particularly relevant to those who prepare financial statements for external purposes based upon requirements set forth in the updated Framework.

Read Press Release
Download Executive Summary
Read FAQs
Download PowerPoint Slides
Purchase Framework and Tools

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


"Competency, Texas-Style November 6, 2014," By Paul Fain, Inside Higher Ed, November 6, 2014 ---
https://www.insidehighered.com/news/2014/11/06/competency-based-health-profession-credentials-university-texas-system

The University of Texas System plans to make its first foray into competency-based education fittingly far-reaching.

The system’s forthcoming “personalized” credentials will be limited to the medical sciences, for now. But the new, competency-based curriculum will involve multiple institutions around the state, system officials said, with a track that eventually will stretch from high school, or even middle school, all the way to medical school.

Many details still need to be hashed out about the project, which the system announced this week. But several key elements are in place.

Continued in article

Jensen Comment
Competency-based college credits are now widely available from both non-profit and for-profit universities. However, the programs are very restricted to certain disciplines, often graduate studies. In Western Canada, for example, the Chartered Accountancy School of Business (CASB) has offered a competency-based masters degree for years. However, students do enroll in courses and have extensive internships on the job ---
http://www.casb.com/

Bob Jensen's threads on competency-based college credits ---
http://www.trinity.edu/rjensen/Assess.htm#ConceptKnowledge


Question
Since the PwC auditors gave a warning, was Tesco’s Audit Committee asleep at the wheel?

Answer
Snore

"The unanswered questions in Tesco’s accounting scandal:  Tesco wants to draw a line under accounting scandal, but questions remain about size of the blackhole and what was behind it," Graham Ruddick, The Telegraph, November 6, 2014 ---
http://www.telegraph.co.uk/finance/comment/11214948/Unanswered-questions-in-Tescos-accounting-scandal.html

Despite the best efforts of Dave Lewis, the accounting scandal facing Tesco will not go away. Two weeks ago Lewis, the chief executive, pledged to draw a line under the crisis when the retailer published interim results. Since then the scandal has gone nowhere, a bit like Tesco’s share price.

The Serious Fraud Office announced days after Lewis’s first presentation to the City that it would launch a criminal investigation into events at Tesco.

This inquiry could drag on for up to seven years, according to City lawyers, so the roots of the inflated profit shortfall and the perpetrators, if it was created deliberately, will not be confirmed for some time.

But, aside from the matter of who and how, there are a collection of key questions about the scandal at Britain’s biggest retailer that remain unanswered.

How big is the black hole?

When Tesco originally alerted the City to the potential shortfall in its profits, the company estimated that profits for the past six months had been overstated by £250m. It said this was primarily a “timing issue” – meaning that profits could eventually be booked in a later period – and related to the recognition of revenue and costs on deals with suppliers.

However, when the company published its half-year results last month, Tesco completely wrote off £263m of profits. Not only that, but only £118m actually related to the previous six months, with the rest from previous financial years. Tesco’s new finance director, Alan Stewart, also said the majority of this related to the recognition of revenues, not costs.

The plot thickens with the £382m collection of impairment charges that Tesco booked in the results. This includes £27m for the mis-selling of payment protection insurance by Tesco Bank, but also a £41m retrospective charge relating to a Valuation Office ruling on the payment of business rates on cash machines, £63m in stock write-downs, and £136m of impairment charges on assets in the UK and Europe.

The timing of the charge for cash machines is slightly odd because Sainsbury’s booked its £13m hit last year. Meanwhile, industry sources say the stock write-down stands out for its size – Tesco did not book any stock write-downs in the previous financial year and it takes a lot of products to add up to £63m.

Finally, it is unusual for a retailer to book impairment charges at a half-year. Usually these charges – some of which are on the value of supermarkets – are taken in the annual results when the financial performance of the company is fully audited. Did life change so dramatically for Tesco in the six months that it was forced to book an extra £136m of write-downs? Perhaps. But in the three years that Philip Clarke was chief executive, no impairment charges were ever booked at the half-year on the value of the company’s assets.

These charges highlight that the health of Tesco was even worse than feared, and worse than just £263m of missing profits. Why did Tesco and PwC sign off last year’s accounts when they included a warning about a “risk of manipulation” in commercial revenues?

Much has been made of the fact that Tesco’s auditors, PwC, warned in last year’s annual report that the company’s commercial revenues was at “risk of manipulation”, which effectively flagged up that this could be a problem for Tesco.

Sources in the audit world with a knowledge of how the British boardroom works claim that most audit committees would have refused to sign off a report that included that wording. They claim that it is likely the committee would have ordered PwC to go back and ensure that there had been no manipulation.

This, therefore, raises a few questions – was Tesco’s audit committee asleep at the wheel? Or was PwC concerned that there had been manipulation and that was the only wording the auditors were prepared to use in their report?

A public company cannot risk its auditors refusing to sign off accounts – it would set off serious alarm bells – so some sort of agreement between both parties must always be reached.

What prompted the SFO to launch its investigation?

The Financial Conduct Authority, the City regulator, was already investigating Tesco when the SFO announced it would launch a probe into the accounting regularities. Also, the SFO is already stretched to breaking point with investigations into the banking industry, Rolls-Royce and GlaxoSmithKline. It has been regularly forced to go cap in hand to the Government in search of fresh cash and Theresa May, the Home Secretary, appears to want to close it down.

Put simply, the SFO had little reason to want to get involved with Tesco. Sceptics will say that Britain’s biggest retailer could be a trophy victory for SFO, but equally it is a political hot potato given that the company employs more than 320,000 people.

Continued in article

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


"2 in 5 Young Americans Don’t Have Jobs and Aren’t Looking," Time Magazine, November 14, 2014 ---
http://time.com/3585786/young-americans-work/?xid=newsletter-brief

93% of Americans who aren't looking for work say they don't want a job

Nearly 40% of people in the United States ages 16 to 24 don’t have a job, and are fine with it. They say they’re happy not to be employed and don’t plan to find a job anytime soon, according to a Pew Research Center analysis of Bureau of Labor Statistics data.

The figures do not include young people who aren’t working, but are actively seeking employment. About 10% of Americans aged 20 to 24 and 19% of those aged 16 to 19 are considered unemployed, which means they are actively seeking work.

However, most Americans who are of working age and don’t have jobs are not actively seeking employment. Overall, 93% of the 86 million Americans 16 and older who aren’t looking for work say they don’t want a job. The total figure is up from a decade ago, and the change is most stark for young people. Around 30% of young Americans of working age in 2000 said they weren’t looking for work, compared to nearly 40% today. People over 55 are much more likely not to look for work, the data shows.

Individuals who aren’t looking for work do not count as unemployed for statistical purposes. The U.S. unemployment hit 5.8% last month, the lowest number since 2008

Jensen Comment
I guess they either live on welfare or somebody who loves them to a point where they don't have to contribute to their own room and board. Most of the time it's probably parents for the young people who are not yet parents themselves and qualify for welfare.

To be honest, I don't really trust these statistics due to the $2+ trillion underground economy. The nerd who fixes computers for cash probably does not report the income to the IRS and is not truly "unemployed." The same goes for many of the people who clean houses, work on construction, farms, and ranches for cash, load and unload furniture trucks for cash, tutor in math and music for cash, etc. Sadly, tens of thousands are also drug pushers, prostitutes, stealing cars, or otherwise starting life as career criminals.

Case Studies in Gaming the Income Tax Laws
http://www.cs.trinity.edu/~rjensen/temp/TaxNoTax.htm


Hybrid Instrument --- see "Background" below

From EY
"A ‘whole-istic’ approach to defining host contracts in hybrid instruments issued as shares," --- Click Here
https://americas.ey-vx.com/email_handler.aspx?sid=b4e53e9e-497e-4bfa-93be-05e9273fe37f&redirect=http%3a%2f%2fwww.ey.com%2fPublication%2fvwLUAssetsAL%2fTothePoint_BB2873_HostContracts_4November2014%2f%24FILE%2fTothePoint_BB2873_HostContracts_4November2014.pdf

What you need to know

Overview and scope

The Financial Accounting Standards Board (FASB) issued final guidance that requires all entities to use what is called the whole instrument approach to determine whether the nature of the host contract in a hybrid instrument issued in the form of a share is more akin to debt or to equity.

 Under this approach, an issuer or investor considersall stated and implied substantive terms and features of a hybrid instrument when determining the nature of the host contract. The Accounting Standards Update (ASU) clarifies that the existence or omission of any single feature does not determine the economic characteristics and risks of the host contract and  that the presence of an investor-held, fixed-price, noncontingent redemption option is not determinative.

However, an individual term or feature may be weighted more heavily in the  evaluation  based  on the facts and circumstances.

The  guidance, which is based on a consensus of  the Emerging Issues Task Force (EITF), is  intended to reduce diversity in practice.

Many entities already use the whole instrument approach and won’t have to change practice. The guidance applies to both public and nonpublic entities that issue or invest in hybrid instruments issued in the form of share

Background

A hybrid instrument consists of a host contract and one or more embedded features that may need to be bifurcated and accounted for separately.

This may be the case for embedded features that meet the definition of a derivative in US GAAP and have economic characteristics and risks that are not clearly and closely  related to those of the host contract. To assess whether an embedded feature is clearly and closely related to the host, an entity must determine whether the hostcontract is more akin to debt or to equity.

 Determining the nature of the host contract can be challenging with preferred shares, which may have both debt-like and equity-like terms and features.

 These often include conversion options, redemption features (e.g.,mandatory or contingent redemption, elective calls or puts), voting rights (e.g.,fullvoting on an “as-converted” basis, no voting), dividends (e.g.,cumulative, fixed-rate, participating) and liquidation preferences.

Continued in article

Jensen Comment
Unlike the FASB, I think the IASB made a terrible mistake caving in to EU business firms who no longer wanted to have to search out embedded derivatives in hybrid contracts having different financial risks. Sometimes accounting can be made too simple.


EY:  FASB proposes eliminating certain investments from the fair value hierarchy --- Click Here
https://americas.ey-vx.com/email_handler.aspx?sid=b4e53e9e-497e-4bfa-93be-05e9273fe37f&redirect=http%3a%2f%2fwww.ey.com%2fPublication%2fvwLUAssetsAL%2fTothePoint_BB2871_NAVPracticalExpedient_31October2014%2f%24FILE%2fTothePoint_BB2871_NAVPracticalExpedient_31October2014.pdf

The FASB proposed eliminating the requirement that entities that measure investments using the net asset value practical expedient categorize them in the fair value hierarchy table. Under the proposal, certain disclosures about these investments would still be required.

Bob Jensen's threads on fair value accounting ---
http://www.trinity.edu/rjensen/theory02.htm#FairValue


"The Impact of Enterprise Resource Planning (ERP) Systems on the Audit Report," by Lag Jongkyum Kim, Andreas I. Nicolaou, and Miklos A. Vasarhelyi,
Journal of Emerging Technologies in Accounting, American Accounting Association, Volume 10, Issue 1 (December 2013) ---
http://aaajournals.org/doi/full/10.2308/jeta-50712  (not free)

Abstract
Prior research has shown that the implementation of ERP systems can significantly affect a firm's business operations and processes. However, scant research has been conducted on the relationship between ERP implementation and the timeliness of external audits, such as audit report lags. While some of the alleged benefits of ERP are closely related to removing impediments contributing to audit report lags, others argue that the complex mechanisms of ERP systems create greater complexity for control and audit. In this paper, we examine the relationship between ERP implementations and audit report lags. The test results indicate that overall, a firm's ERP implementation is negatively associated with audit report lag. However, this negative association is significant only at the fourth and fifth years after initial ERP implementation. These results imply that the use of ERP systems by client firms may help decrease the audit report lag, but it takes time for the full impact of the firms' accounting systems to be realized.


"Developing a Conceptual Framework to Appraise the Corporate Social Responsibility Performance of Islamic Banking and Finance Institutions," by M. Mansoor Khan, Accounting and the Public Interest, American Accounting Association, Volume 13, Issue 1 (December 2013) ---
http://aaajournals.org/doi/abs/10.2308/apin-10375

Abstract
This paper fills some of the theoretical and empirical deficiencies regarding Corporate Social Responsibility (CSR) dimensions in Islamic Banking and Financial Institutions (IBFIs). The firms' CSR initiatives are the key to secure success in modern business and society, and there is a scope to develop a broader understanding of CSR in globally integrated business and financial markets. This paper provides the Islamic perspective of CSR, which is etho-religious based and, thus, more meaningful and intensified. It proposes a CSR framework for IBFIs based on principles of Islamic economics and society. The proposed framework urges IBFIs to engage in community-based banking, work toward the betterment of the poor, ensure the most efficient and socially desirable utilization of financial resources, develop their institutional frameworks, infrastructures, and innovative products to facilitate the wider circulation of wealth and sustainable development in the world. This paper observes that IBFIs have failed to deal with underlying CSR challenges due to lack of commitment and expertise in the field. The CSR-based outlook of IBFIs can only ensure their legitimacy, sustainability, and long-term success
.

Bob Jensen's Threads on Islamic Accounting ---
http://www.trinity.edu/rjensen/Theory01.htm#IslamicAccounting


From the CFO Journal's Morning Ledger on November 10, 2014

Symptoms of ill business health including weak sales are turning up in third-quarter earnings reports, the WSJ reports, and that’s raising concerns about the outlook for U.S. share prices. Profit gains have been solid, but built on weak sales growth or outright year-over-year declines.

Amplifying that anxiety is a softening global economic outlook. Key markets like Europe and China are showing weak growth, and a strong dollar is making American products more expensive around the world as well as reducing the value of payments collected in foreign currencies.

Traders and analysts fear future growth at U.S. firms won’t be strong enough to meet the high expectations set by the above-average valuations on blue-chip shares. Friday’s employment report for October, which showed another month of modest job gains tempered by only slight increases in wages, underscored those concerns.

Jensen Comment

Countless journalists bemoan that wages remain stagnant while USA unemployment dropped below 6.0%. This really isn't hard to explain when you consider that over half of the adult workers in the USA only have part-time jobs, in part a sad tribute to Obamacare.

"The Full-Time Scandal of Part-Time America Fewer than half of U.S. adults are working full time. Why? Slow growth and the perverse incentives of ObamaCare," by Mortimer Zuckerman, The Wall Street Journal,  July 13, 2014 ---
http://online.wsj.com/articles/mortimer-zuckerman-the-full-time-scandal-of-part-time-america-1405291652?tesla=y&mod=djemMER_h&mg=reno64-wsj

There has been a distinctive odor of hype lately about the national jobs report for June. Most people will have the impression that the 288,000 jobs created last month were full-time. Not so.

The Obama administration and much of the media trumpeting the figure overlooked that the government numbers didn't distinguish between new part-time and full-time jobs. Full-time jobs last month plunged by 523,000, according to the Bureau of Labor Statistics. What has increased are part-time jobs. They soared by about 800,000 to more than 28 million. Just think of all those Americans working part time, no doubt glad to have the work but also contending with lower pay, diminished benefits and little job security.

On July 2 President Obama boasted that the jobs report "showed the sixth straight month of job growth" in the private economy. "Make no mistake," he said. "We are headed in the right direction." What he failed to mention is that only 47.7% of adults in the U.S. are working full time. Yes, the percentage of unemployed has fallen, but that's worth barely a Bronx cheer. It reflects the bleak fact that 2.4 million Americans have become discouraged and dropped out of the workforce. You might as well say that the unemployment rate would be zero if everyone quit looking for work.

Last month involuntary part-timers swelled to 7.5 million, compared with 4.4 million in 2007. Way too many adults now depend on the low-wage, part-time jobs that teenagers would normally fill. Federal Reserve Chair Janet Yellen had it right in March when she said: "The existence of such a large pool of partly unemployed workers is a sign that labor conditions are worse than indicated by the unemployment rate."

There are a number of reasons for our predicament, most importantly a historically low growth rate for an economic "recovery." Gross domestic product growth in 2013 was a feeble 1.9%, and it fell at a seasonally adjusted annual rate of 2.9% in the first quarter of 2014.

But there is one clear political contribution to the dismal jobs trend. Many employers cut workers' hours to avoid the Affordable Care Act's mandate to provide health insurance to anyone working 30 hours a week or more. The unintended consequence of President Obama's "signature legislation"? Fewer full-time workers. In many cases two people are working the same number of hours that one had previously worked.

Since mid-2007 the U.S. population has grown by 17.2 million, according to the Census Bureau, but we have 374,000 fewer jobs since a November 2007 peak and are 10 million jobs shy of where we should be. It is particularly upsetting that our current high unemployment is concentrated in the oldest and youngest workers. Older workers have been phased out as new technologies improve productivity, and young adults who lack skills are struggling to find entry-level jobs with advancement opportunities. In the process, they are losing critical time to develop workplace habits, contacts and new skills.

Most Americans wouldn't call this an economic recovery. Yes, we're not technically in a recession as the recovery began in mid-2009, but high-wage industries have lost a million positions since 2007. Low-paying jobs are gaining and now account for 44% of all employment growth since employment hit bottom in February 2010, with by far the most growth—3.8 million jobs—in low-wage industries. The number of long-term unemployed remains at historically high levels, standing at more than three million in June. The proportion of Americans in the labor force is at a 36-year low, 62.8%, down from 66% in 2008.

Part-time jobs are no longer the domain of the young. Many are taken by adults in their prime working years—25 to 54 years of age—and many are single men and women without high-school diplomas. Why is this happening? It can't all be attributed to the unforeseen consequences of the Affordable Care Act. The longer workers have been out of a job, the more likely they are to take a part-time job to make ends meet.

The result: Faith in the American dream is eroding fast. The feeling is that the rules aren't fair and the system has been rigged in favor of business and against the average person. The share of financial compensation and outputs going to labor has dropped to less than 60% today from about 65% before 1980.

Why haven't increases in labor productivity translated into higher household income in private employment? In part because of very low rates of capital spending on new plant and equipment over the past five years. In the 1960s, only one in 20 American men between the ages of 25 and 54 was not working. According to former Treasury Secretary Larry Summers, in 10 years that number will be one in seven.

The lack of breadwinners working full time is a burgeoning disaster. There are 48 million people in the U.S. in low-wage jobs. Those workers won't be able to spend what is necessary in an economy that is mostly based on consumer spending, and this will put further pressure on growth. What we have is a very high unemployment rate, a slow recovery and across-the-board wage stagnation (except for the top few percent). According to the Bureau of Labor Statistics, almost 91 million people over age 16 aren't working, a record high. When Barack Obama became president, that figure was nearly 10 million lower.

The great American job machine is spluttering. We are going through the weakest post-recession recovery the U.S. has ever experienced, with growth half of what it was after four previous recessions. And that's despite the most expansive monetary policy in history and the largest fiscal stimulus since World War II.

Continued in article


The release of confidential corporate-tax documents from Luxembourg
From the CFO Journal's Morning Ledger on November 7, 2014

The release of confidential corporate-tax documents from Luxembourg is raising new questions about the role European Commission President Jean-Claude Juncker played in helping companies reduce their tax bills, the WSJ’s Matthew Karnitschnig reports. The documents expose the details on how hundreds of multinationals, including PepsiCo Inc., FedEx Corp. and Amazon.com Inc. have funneled profit through Luxembourg subsidiaries, avoiding billions in taxes in other jurisdictions.

The corporate tax breaks are confidential under Luxembourg law, but allowed the country to build a strong financial sector and helped make it one of the world’s richest on a per capita basis. Luxembourg has long been known as a favorite corporate tax haven, but the magnitude of the tax relief sparked a furor across the continent.

European Commission President Jean-Claude Juncker has demanded belt tightening in troubled European countries such as Greece and Portugal. But for the years that he was prime minister of Luxembourg, the documents suggest he may have held his own country to a different standard. All of the tax deals described in the documents were granted during his tenure as Luxembourg’s leader.


From the CFO Journal's Morning Ledger on November 5, 2014

Ireland widens intellectual-property tax break ---
http://online.wsj.com/articles/ireland-closes-one-tax-break-and-opens-another-1415149644?mod=djemCFO_h
Tucked into legislation to eliminate a much-criticized tax structure known as the “Double Irish” is a provision that would allow companies to pay no corporate tax on profits earned from intellectual property. The tax break could in theory benefit technology companies like Google Inc. or pharmaceutical firms like Gilead Sciences Inc.
, which have moved IP into Irish corporate structures.

Jensen Comment
I think Ireland still has no tax on artists and writers who are residents. I don't know what the criteria are to qualify for the tax exemption, but I assume that the exemption applies to income from sales of art and manuscripts. What I'm not certain about is whether other types of income are exempt such as pensions and portfolio income.


From the CFO Journal's Morning Ledger on November 6, 2014

Fresh off a resounding election-night victory, Republican leaders began to etch out an ambitious plan to press a GOP agenda centered on taxes, trade, energy, health care and financial regulation through a divided government, the WSJ’s Kristina Peterson reports. The shift in government control also dealt a harsh blow to organized labor, which failed to help the Democratic Party fend off deep losses in the second straight midterm election.

But some businesses had at least one reason to worry after the elections. Along with giving Republicans control of the Senate, voters sent another clear message Tuesday: They support higher wages, the WSJ’s Angus Loten reports. Five states on Tuesday approved ballot measures to gradually raise the minimum wage.

Small-business owners recently have shown an increasing recognition of the need to raise base wage rates—whether to attract new talent or ease concerns about pay equity. Still, the National Federation of Independent Business, a small-business lobby group, has long opposed efforts to raise minimum wages. Is your balance sheet ready for higher labor costs? Drop us a line and let us know.


From the CFO Journal's Morning Ledger on November 6, 2014

Health insurers woo consumers in crowded market
http://online.wsj.com/articles/health-insurance-deadline-prompts-marketing-blitz-to-drum-up-business-1415202655?mod=djemCFO_h
Health insurers are unleashing a blizzard of ads, letters, live events and other efforts to reach consumers, as the industry ramps up for the reopening of the health law’s marketplaces on Nov. 15. Meanwhile, small-business owners test-driving the federal government’s new online health-insurance exchange report a mixed experience with the site ahead of its planned opening in 10 days.

Jensen Comment
Health insurance is currently a very good business for companies, because bad debts from people who do not pay contracted premiums are passed on to the doctors and hospitals after 30 days. In any case Obamacare promises guaranteed profits for insurance companies at taxpayer expense if necessary. This is not capitalism since one of the tenants of capitalism is that businesses take risks risks of losses and failure.

It's the doctors and hospitals that take the financial risks. In New Hampshire nearly half the hospitals refuse to admit patients with ACA insurance except in dire emergencies. Many doctors are turning patients away unless they have something other than ACA medical insurance.

Another good thing for insurers is that the deductibles have become so huge (40% to 60%) that insured people put off getting medical care until absolutely necessary --- thereby greatly reducing the number of claims to be processed and paid.

My point is that just to say that more people now have ACA health insurance is not saying a whole lot about the quality of health care that this insurance is buying. There will probably be gridlock for years in Washington DC for any attempts to bring quality health care to all citizens of the USA. I favor national health insurance, although national health insurance plans in most non-OPEC nations like Sweden, Denmark, and the UK are doing badly these days. I consider Canada to be an OPEC nation. Germany is doing better because it allows people to take on supplemental health insurance using their own savings.

The USA is now an one of the world's largest oil producers, but gridlock politics have all but destroyed possibilities for great health care for all citizens. It's one of the best nations for health care for people who can afford to pay for the services, including those lucky enough to be on Medicaid or Medicare.

Bob Jensen's references for the above summary are at
http://www.trinity.edu/rjensen/Health.htm


From the CFO Journal's Morning Ledger on November 3, 2014

Returns on Muni bonds soar ---
http://online.wsj.com/articles/returns-on-muni-bonds-soar-1414971120?mod=djemCFO_h
Investors seeking higher returns are finding them in an unexpected place: the market for debt sold by states, cities and government-related entities. Municipal bonds have posted their longest string of monthly gains in more than two decades, outpacing gains this year in blue-chip U.S. stocks and corporate debt.


What is the incentive to manage pensions responsibly in Illinois or California?

"Illinois’s Pension Absurdity:  A judge rules that all benefits are forever, no matter the public cost," The Wall Street Journal, November 28, 2014 ---
http://online.wsj.com/articles/illinoiss-pension-absurdity-1417219755?tesla=y&mod=djemMER_h&mg=reno64-wsj

Republican Bruce Rauner has his work cut out rehabilitating Illinois from years of liberal-public union misrule, but now he may also have to cope with a willful state judiciary. Consider a lower court judge’s slipshod ruling last week striking down de minimis pension reforms.

The fiscally delinquent state has accrued a $111 billion unfunded pension liability—a 75% increase from five years ago—in addition to $56 billion in debt for retiree health benefits. Incredibly, the state is spending more of its general fund on pensions than on K-12 education. One in four tax dollars pays for retirement benefits. Last year the state had to defer $7 billion in bills to contractors. This is after Democrats in 2011 raised income and corporate taxes by 67% and 30%, respectively. Little wonder that Illinois has the nation’s worst credit rating.

Democrats last year passed modest pension fixes conceived with the fainthearted judiciary in mind. The retirement age for younger workers increased on a graduated scale. Workers now in their 20s could still retire with pensions approximating 75% of their salaries at age 60.

Salaries used for pension calculations were also capped at an inflation-adjusted $110,600 with a gaping carve-out for workers who collectively-bargained higher pay. Cost-of-living adjustments were tied to years of service and inflation instead of annually compounding at 3%. As a political salve, the state even cut worker pension contributions by 1%.

Yet Sangamon County Circuit Court Judge John Belz last week rejected all pension trims as a violation of the state Constitution, which holds that “[m]embership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.” According to Judge Belz, there is “no legally cognizable affirmative defense” for impairing pensions benefit.

Except, well, 80 years of U.S. Supreme Court precedent. Federal courts have established that states may invoke their police powers to impair contracts. In the 1934 case Home Building & Loan Association v. Blaisdell, the U.S. Supreme Court ruled that emergencies “may justify the exercise of [the State’s] continuing and dominant protective power notwithstanding interference with contracts,” which the U.S. Constitution otherwise prohibits.

The Supreme Court has since developed a balancing test that allows states to impair contracts when it is reasonable and necessary to serve an important public purpose. The level of legal scrutiny increases with the severity of the impairment.

Yet Judge Belz refused even to consider the state’s argument that it must tweak pensions to maintain vital public services (e.g., police, schools). The court “need not and does not reach the issue of whether the facts would justify the exercise of such a power if it existed,” the judge asserted. If the police power existed?

Perhaps the judge assumes that the Illinois Supreme Court, based on its 6-1 decision this summer that extended constitutional protections to retiree health benefits, will strike down the pension reforms. Judge Belz teed up the high court by quoting copiously from that opinion.

Even if they lose at the Illinois Supreme Court, Mr. Rauner and the legislature will still have options for fixing their pension mess including moving new workers to defined-contribution plans and putting a constitutional amendment before voters that affirms the ability to prospectively modify retirement benefits. Option C would be to petition Illinois’s more prudent neighbors for annexation.

Pension Benefit Guaranty Corporation (PBGC) --- http://en.wikipedia.org/wiki/Pension_Benefit_Guaranty_Corporation

The Pension Benefit Guaranty Corporation (PBGC) is an independent agency of the United States government that was created by the Employee Retirement Income Security Act of 1974 (ERISA) to encourage the continuation and maintenance of voluntary private defined benefit pension plans, provide timely and uninterrupted payment of pension benefits, and keep pension insurance premiums at the lowest level necessary to carry out its operations. Subject to other statutory limitations, the PBGC insurance program pays pension benefits up to the maximum guaranteed benefit set by law to participants who retire at age 65 ($54,000 a year as of 2011).[2] The benefits payable to insured retirees who start their benefits at ages other than 65, or who elect survivor coverage, are adjusted to be equivalent in value.

During fiscal year 2010, the PBGC paid $5.6 billion in benefits to participants of failed pension plans. That year, 147 pension plans failed, and the PBGC's deficit increased 4.5 percent to $23 billion. The PBGC has a total of $102.5 billion in obligations and $79.5 billion in assets.

"A Federal Guarantee Is Sure to Go Broke:  Initially a union idea, the 40-year-old Pension Benefit Guaranty Corp. has a mission impossible," by Alex J. Pollock, The Wall Street Journal, November 30, 2014 ---
http://online.wsj.com/articles/alex-j-pollock-a-federal-guarantee-is-sure-to-go-broke-1417387173?tesla=y&mod=djemMER_h&mg=reno64-wsj

Nat Weinberg, for many years the chief economist of the United Automobile Workers, invented the idea of government insurance of private pensions in 1961. If we are going to negotiate for bigger pensions, which the auto companies may not be able to pay, he reasoned, let’s get the government to guarantee them. His idea resulted in the creation of the U.S. government’s Pension Benefit Guaranty Corp. in 1974. Viewed from the UAW’s interests, this was a brilliant political strategy.

How is the PBGC insurance program doing on its 40th anniversary? Well, it is dead broke. Its net worth is negative $62 billion as of the end of September. That is even more broke than it was a year ago, when its net worth was negative $36 billion.

So, inspired by Weinberg, who left the UAW in 1974 and died in 1985, the U.S. government is the owner of a deeply insolvent insurance company. A private insurance company with this financial condition would have been closed down long ago. Is the taxpayer on the hook for the $62 billion deficit? The PBGC’s annual report earnestly assures that “the U.S. Government is not liable for any obligation or liability incurred by PBGC.” Of course not! Just like it wasn’t for mortgage-finance giants Fannie Mae and Freddie Mac .

We are further assured on its website that “PBGC receives no taxpayer dollars and never has.” Not yet. But it could not exist for one minute as an independent company, without leaning on the U.S. Treasury’s credit.

The PBGC has total assets of $90 billion but total liabilities of $152 billion. So its assets are a mere 59% of its liabilities. Put another way, its capital-to-asset ratio is negative 69%.

There are two basic parts of the PBGC—the “single employer” and “multiemployer” programs. The first guarantees the pensions of individual companies, which are managed by the company; the second guarantees union-sponsored pensions involving multiple companies. The PBGC discloses in Footnote 1 of its financial statements that “neither program at present has the resources to fully satisfy PBGC’s long-term obligations.” Not by a long shot.

The multiemployer portion is in worse shape. It has total assets of $1.8 billion and total liabilities of $44 billion. Its assets are 4% of its liabilities, and its capital-to-asset ratio is negative 2,300%. The PBGC tells us this program is likely to run out of money “in as little as five years.” The single-employer program is also deeply insolvent, but less so. It has total assets of $88 billion and total liabilities of $107 billion. Its assets are thus 82% of its liabilities and its capital ratio negative 22%.

One of the PBGC’s problems is a conflicting double mission. It has to try—so far without success—to run a financially sound insurance company, but it is also designed to promote, or in its own words, “to encourage the continuation and maintenance of private-sector defined benefit plans.”

Experience has demonstrated that these plans are extremely risky financial commitments. But when you exist to encourage them, the tendency is to undercharge for the risk, supposing that you know even what the risk is. Such risk includes future increases in the longevity of pensioners, or of low interest rates, or both. This undercharging is inevitable since the insurance premiums are set by Congress and reflect political rather than economic imperatives.

Another government venture with a conflicting double mission, in this case to promote mortgages while guaranteeing deposits in savings and loans, was the old Federal Home Loan Bank Board (abolished in 1989). When its Federal Savings and Loan Insurance Corp. went under during the S&L crisis of the 1980s, it cost taxpayers $150 billion.

Why does the government have such a pathetic record at guaranteeing other people’s debts? It isn’t that Washington wasn’t warned. “My son, if you have become surety for your neighbor, have given your pledge for a stranger, you are snared in the utterance of your lips,” reads Proverbs 6: 1-2. Or in the case of the PBGC, snared in the utterance of the Congress of 40 years ago.

Mr. Pollock, a resident fellow at the American Enterprise Institute, was president and CEO of the Federal Home Loan Bank of Chicago from 1991 to 2004.

Jensen Comment
Private sector companies can pay premiums to insure employee pension benefits will carry on when companies carrying this insurance go bankrupt. But at least those benefits are capped. For example, here on Sunset Hill Road I have a friend who is a retired United Airlines Captain. When United Airlines went bankrupt his pension benefits were cut in half because the insured benefits are capped for high-salaried employees. In terms of the public sector such caps are no longer allowed unless this court ruling is overturned by a higher court.

Because of their skills, airline Captains are understandably paid very well with large pension benefits tied to their high salaries before retirement, pensions that they themselves contributed to out of their salaries over the years. In the public sector, salaries are generally not so high, and sometimes the high pension benefits are outright frauds such as the $500,000 annual pension of the former City Manager of tiny Bell, California. Illinois public pension plans were similarly wracked with frauds promising enormous pensions and early retirements.

One can argue that pension contracts should not be broken, but pension contracts are commonly broken in the private sector. Employees of companies that did not pay for PGBC insurance may lose all their pensions depending upon the outcomes of the bankruptcy courts. Employees of companies that are insured by PGBC may still lose part of their pensions like my friend nearby lost half of his United Airlines pension. Then why is it that public sector pension contracts cannot be broken somewhat similar to private sector pensions?

The main problem with this ruling is that there is moral hazard. It encourages fraud and mismanagement of pensions in the public sector. The main problem with public sector pensions in Illinois that they were enormously mismanaged and underfunded. What is the incentive to manage pensions responsibly in Illinois?


Vernon's former city manager, for example, was receiving more than $500,000 in annual pension payments. Most public safety workers can retire as early as 50. And some public employees had cashed out unused vacation and other perks to unjustly spike their retirement pay.
"California pension funds are running dry," by Marc Lifsher, Los Angeles Times, November 13, 2014 ---
http://www.latimes.com/business/la-fi-controller-pension-website-20141114-story.html

A decade ago, many of California's public pension plans had plenty of money to pay for workers' retirements.

All that has changed, according to a far-reaching package of data from the state controller. Taxpayers are now on the hook for billions of dollars more to cover the future retirements of public workers, with the bill widely varying depending on where they live.

The City of Los Angeles Fire and Police Pension System, for instance, had more than enough funds in 2003 to cover its estimated future bill for workers' retirement checks. A decade later, it is short $3 billion.

The state's pension goliath, the California Public Employees' Retirement System, had $281 billion to cover the benefits promised to 1.3 million workers and retirees in 2013. Yet it needed an additional $57 billion to meet future obligations.

The bill at the state teachers' pension fund is even higher: It has an estimated shortfall of $70 billion.

The new data from a website created by state Controller John Chiang come at a time of growing anger from taxpayers over the skyrocketing cost of public workers' retirements.

Until now, the bill for those government pensions was buried deep in the funds' financial reports. By making this data available, Chiang is bound to stir debate about how taxpayers can afford to make retirement more comfortable for public workers when private-sector employees' own financial futures have become less secure. For most non-government workers, fixed monthly pensions are increasingly rare. lRelated Stockton bankruptcy ruling preserves city pensions

Business Stockton bankruptcy ruling preserves city pensions

"Somebody, who is knowledgeable and interested, is several clicks away from the ugly mess that will define California's financial future," said Dan Pellissier, president of California Pension Reform, a Sacramento-area group seeking to stem rising statewide retirement costs.

Chiang has assembled reams of data from 130 public pension plans run by the state, cities and other government agencies. It's now accessible at his website, ByTheNumbers.sco.ca.gov.

In nearly eight years as controller, essentially the state's paymaster, Chiang has made good on a commitment to make government financial records more transparent and accessible.

. . .

The pension debate in recent years has been fueled by controversy.

Vernon's former city manager, for example, was receiving more than $500,000 in annual pension payments. Most public safety workers can retire as early as 50. And some public employees had cashed out unused vacation and other perks to unjustly spike their retirement pay.

Meanwhile, cash-strapped cities are facing escalating bills. Rising pension costs contributed to bankruptcies in Stockton, San Bernardino and Vallejo.

Why should private-sector taxpayers give California's public workers more money to retire than most of them will ever make? jumped2 at 11:33 AM November 14, 2014

Critics contend that governments can no longer afford to pay generous pensions to retirees that aren't available to most private-sector workers. Unions, meanwhile, have vehemently defended the status quo, saying these benefits were promised to workers for years of serving the public.

"In the months ahead, California and its local communities will continue to wrestle with how to responsibly manage the unfunded liabilities associated with providing retirement security to police, firefighters, teachers and other providers of public services," Chiang said.

"Those debates and the actions that flow from them ought to be informed by reliable data that is free of political spin or ideological bias," said Chiang.

Continued in article

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

"Measuring Pension Liabilities under GASB Statement No. 68," by John W. Mortimer and Linda R. Henderson, Accounting Horizons, September 2014, Vol. 28, No. 3, pp. 421-454 ---
http://aaajournals.org/doi/full/10.2308/acch-50710

While retired government employees clearly depend on public sector defined benefit pension funds, these plans also contribute significantly to U.S. state and national economies. Growing public concern about the funding adequacy of these plans, hard hit by the great recession, raises questions about their future viability. After several years of study, the Governmental Accounting Standards Board (GASB) approved two new standards, GASB 67 and 68, with the goal of substantially improving the accounting for and transparency of financial reporting of state/municipal public employee defined benefit pension plans. GASB 68, the focus of this paper, requires state/municipal governments to calculate and report a net pension liability based on a single discount rate that combines the rate of return on funded plan assets with a low-risk index rate on the unfunded portion of the liability. This paper illustrates the calculation of estimates for GASB 68 reportable net pension liabilities, funded ratios, and single discount rates for 48 fiscal year state employee defined benefit plans by using an innovative valuation model and readily available data. The results show statistically significant increases in reportable net pension liabilities and decreases in the estimated hypothetical GASB 68 funded ratios and single discount rates. Our sensitivity analyses examine the effect of changes in the low-risk rate and time period on these results. We find that reported discount rates of weaker plans approach the low-risk rate, resulting in higher pension liabilities and creating policy incentives to increase risky assets in pension portfolios.

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


Testimony by Sylvia Manning President, Higher Learning Commission , North Central Association of Colleges and Schools
Senate Committee o n Health, Education, Labor and Pensions
March 10, 2011
http://www.help.senate.gov/imo/media/doc/Manning.pdf

"No Surprise: Accrediting Agency Opts To Stunt Innovation," by Michael Horn, Forbes, August 8, 2013 ---
http://www.forbes.com/sites/michaelhorn/2013/08/08/no-surprise-accrediting-agency-opts-to-stunt-innovation/

"Innovation vs. Gatekeeping," by Doug Lederman, Inside Higher Ed, November 11, 2014 ---
https://www.insidehighered.com/news/2014/11/11/one-way-permit-federal-funding-new-postsecondary-institutions

The tension between promoting innovation and new approaches on the one hand and protecting academic quality and federal financial aid funds on the other is at the core of many major issues in higher education -- not the least of which is the accreditation system. The system of peer-reviewed quality assurance is frequently attacked as a brake on progress and competition in American higher education, even as others criticize it for going too soft on institutions in ways that cost taxpayers money.

Sylvia Manning does not pretend to have all the answers to all of the issues, and she took her share of guff when caught in the vise between the two competing pressures. But as the former head of the nation's largest regional accrediting body, Manning believes she has a possible answer to one of the dilemmas: how to get new degree-granting institutions off the ground without undermining the accreditors' traditional "gatekeeping" role.

In a paper published last week by the American Enterprise Institute, Manning begins (in ways that some critics might find predictable) by challenging assertions that accreditation, in and of itself, is a barrier to innovation.

Yes, Manning writes, accreditors depend heavily on "inputs" (credentials of the faculty, services provided to students, etc.) as proxies to judge whether an institution is likely to "continue to offer an acceptable level of quality in the education it provides."

But ultimately, an accrediting agency can't accurately assess an institution based only on its plans, she argues. "Accreditation demands evidence, and evidence must be based in accomplishment, not plans," she writes. Since the evidence revolves around how students perform and "what the institution does with students," the evidence can be developed only after students are enrolled.

So yes, she concedes, "the barrier to innovative new institutions is accreditation." But that is not, she quickly adds, "because accreditation cannot deal with innovation, but because it wants and needs time to assess innovation, if the innovation is actually new." But the institution needs accreditation -- or at least one of the key benefits to accreditation -- the ability to enroll students who receive federal financial aid -- right away.

That creates what Manning calls the "chicken or egg problem": fledgling degree-granting institutions needing accreditation so they can enroll students with federal funding, and accreditors not wanting to approve institutions until they've enrolled students and proven their performance with them.

What Happens Now

Most of the ways that accreditors and institutions have worked around this problem in recent years have, in one way or another, "perverted" the process, Manning said in an interview.

Throughout much of the decade of the 2000s, entrepreneurs purchased already-accredited institutions and essentially turned them into a different institution altogether. The Higher Learning Commission was at the forefront of such an approach before Manning became its president, and under her the accreditor largely shut off that pathway. (That didn't stop her from getting raked over the coals at a 2011 Senate hearing that focused on the exploits of the poster child for that type of transformation, Bridgepoint Education's 2005 purchase of a struggling Iowa college that became Ashford University.)

More recently, those trying to create new institutions have turned to what Manning calls "accreditation by association," in which an existing institution teams up with a new entity (often a for-profit company) to create a joint venture. Manning and the Higher Learning Commission were in the middle of that trend, too, with the much-contested 2013 implosion of Tiffin University's partnership with Altius Education, known as Ivy Bridge College. (Supporters of Ivy Bridge criticized her and AEI for the limitations of Manning's proposal and for failing, they said, to fully acknowledge her role in its demise.)

Essentially, Manning argues, there have not yet been good ways for the accreditation system to "handle these kinds of [new] institutions while remaining true to itself."

That disconnect has many policy makers calling for major changes in how accreditation works, although those discussions have largely revealed how little agreement there seems to be on what those changes might be. Manning is skeptical that shortening the time before an institution is accredited, as some have suggested, would work: "[I]t is not possible to both preserve the time test of accreditation and hurry up accreditation for new institutions. To drop the time test would be to drop the elements of an accreditation review that add up to some sort of proof," she writes.

Her alternative is creating something else entirely: a provisional approval to award federal financial aid that would act something like a building permit in facilities construction. This process would involve close study of the would-be new institution's plans (with, yes, a focus on "inputs"), and then once a prospective institution is given permission to recruit students who are eligible for federal aid, annual reviews (not unlike inspections for construction of a new building) to keep that approval. The institution would then need to earn regular accreditation within a specific period of time, say seven years. Students who chose to attend these institutions in the meantime -- and the federal government, to the extent it backed them with financial aid -- would still take on risk, since the students' credits might not transfer.

Some key elements of Manning's vision remain less than fully sketched. She offers several possibilities, for instance, for who might grant this provisional approval -- the Education Department, recognized accreditors, or new nongovernmental agencies.

And she acknowledges the problems that her solution does not deal with at all, most notably whether and how the federal government might recognize the growing number of institutions that do not have any intention of granting degrees. (The Council for Higher Education Accreditation and the Presidents' Forum released a paper last month exploring potential ways to ensure the quality of "non-institutional" providers of higher education.)

Continued in article

Jensen Comment
The issues of innovation and elitism versus accreditation has been even more controversial in the AACSB International that accredits business schools worldwide ---
http://www.aacsb.edu/

First came the reluctance/stubbornness of the AACSB to accredit graduate programs in some large corporations and elite consulting firms. These were often intended to be advanced-degree programs of employees, often extremely talented employees. To date I don't think any of these corporate business education programs have received the AACSB seal of approval in North America, thereby forcing firms like PwC and EY to partner with AACSB-accredited universities like Notre Dame, the University of Virginia, and the University of Georgia where the universities set up dedicated courses and degree programs for employees of the firms. Debates still rage over whether this is a quality issue or merely protectionism by deans of non-profit universities who virtually control the AACSB. There now are "universities" such as Deloitte University, but these are not accredited by the AACSB and are mainly for advanced technical and leadership training.

Second came the reluctance/stubbornness of the AACSB to accredit business schools in for-profit universities like the massive University of Phoenix.  To date I don't think the AACSB has accredited any business program in a for-profit universities in North America. Here the issue is more of a quality concern. For example, for-profit universities, even those with academic respect, tend to have virtually no admission standards.

Third came the reluctance/stubbornness of the AACSB to accredit stand-alone distance education programs. To date there are many AACSB-accredited distance education programs in North America, but all are part of traditional onsite business education programs that had prior AACSB accreditation.

Recently the AACSB was about to be put to a test that is common in regional accreditation programs. To obtain regional accreditation for-profit universities commonly purchased marginal, often bankrupt, colleges that still had their regional accreditations. Thereby the for-profit universities essentially bought their regional accreditations. This same ploy almost happened recently with the financially struggling Thunderbird School of Global Management, a nonprofit university with AACSB Accreditation. A deal was nearly completed for the international for-profit Laureate International Universities to purchase Thunderbird in a complicated leaseback agreement ---
http://en.wikipedia.org/wiki/Thunderbird_School_of_Global_Management

I'm not certain how the AACSB would have handled the Thunderbird leaseback deal, but a horrific fight between Thunderbird and its alumni put an end to the deal before it was consummated.

One thing is certain. The issues of innovation and quality are not going away in the arena of accreditation. In an effort to obtain a foothold in Europe the AACSB made some concessions to corporate universities that it probably would not yet make in North America. For example, some AACSB-accredited corporate programs probably would not meet AACSB standards in North America. For example, in Europe it is common to have doctoral programs that do not have the research rigor and admission standards of North American business school doctoral programs.

Bob Jensen's threads on accreditation issues are at
http://www.trinity.edu/rjensen/Assess.htm#AccreditationIssues


Melee between self-published authors talking about how great self-published works are and librarians talking about how awful they are.

"Self-Published Winners @ the Library," by Annoyed Librarian, Library Journal, November 26, 2014 ---
http://lj.libraryjournal.com/blogs/annoyedlibrarian/

Whenever I write about self-published authors, the comment section seems to erupt into a melee between self-published authors talking about how great self-published works are and librarians talking about how awful they are. One solution to the problem would be for the ALA to create an award for self-published books to go along with popular awards like the Newbery Award and all the other awards I can’t remember right now. Then the librarians in the trenches would know what books to buy and wouldn't have to read any of them. The only problem is that the committee might be overwhelmed by thousands of self-published titles to choose from, but that can be solved by increasing the size of the committee to a few hundred people if necessary. That might even be possible. I met some Newbery people once, or members of some committee like that, and the people on awards committees seem to love the work. How hard could it be to get librarians to read through thousands of self-published works to ...

Continued in article

Jensen Comment
I don't think there are cheap and easy solutions to this since it is increasingly and overwhelmingly popular to self-publish books and media recordings in general. The powerful roles that publishing company editors perform in choosing both what to publish and how to improve what is accepted for publication is slipping away. A profession might even emerge that, for a fee, gives "independent ratings" to books and other media recordings. This will succeed, however, only if highly reputable reviewers put their reputations on the line.

Authors, in turn, desperately want systems where their works be compared with the competition and publicized independently as outstanding. Paid advertising of a self-published work is almost never trusted even if the work is outstanding. It becomes too much like those dreaded infomercials.

Probably the largest vendor of self-published books is Amazon. However, I tend not to trust the positive reviews of self-published books at the Amazon site. The authors often have a lot of friends.

People will soon grow weary of so many things trying to "go viral" on YouTube. That may become self-defeating as millions of things compete to "go viral."

I think something similar happens with faculty blogs. As more and more faculty start blogging it becomes increasingly difficult for actives like me to cover the waterfront even in the somewhat narrow field of accounting faculty blogging. How many accounting faculty blogs have become inactive or no longer existent? And how many of those that remain have almost no following?
http://profalbrecht.wordpress.com/links/

I am now contacted daily by individuals (not just accounting professors) and companies wanting me to publicize their Websites. Only rarely do I do this, because my own academic reputation is at stake. The other day I had site that cataloged Christian college distance education programs. However, I found so many errors that I would not give it any publicity. Countless times I receive sites that mix in selected for-profit universities with the top-ranking nonprofit universities in the USA or the world in general. Any for-profit university that ends up in the Top 25 universities of the USA is probably paying for the ranking outcome.

 


Question
Some leading graduate business schools have new one-year masters degrees in big data and business analytics.
So why don't schools of accountancy offer one-year masters degrees in accounting analytics?
So why don't law schools have new one-year masters degrees in big data and law analytics?

"Big Data Gets Master Treatment at B-Schools; One-Year Analytics Programs Cater to Shift in Students’ Ambitions," by Lindsay Gellman, The Wall Street Journal, November 5, 2014 ---
http://online.wsj.com/articles/big-data-gets-master-treatment-at-b-schools-1415226291

B-school students can’t get enough of big data. Neither can recruiters.

Interest in specialized, one-year master’s programs in business analytics, the discipline of using data to explore and solve business problems, has increased lately, prompting at least five business schools to roll out stand-alone programs in the past two years.

The growing interest in analytics comes amid a broader shift in students’ ambitions. No longer content with jobs at big financial and consulting firms, the most plum jobs for B-school grads are now in technology or in roles that combine business skills with data acumen, say school administrators.

But some faculty and school administrators remain unconvinced that the programs properly prepare students to work with analytics.

The University of Southern California’s Marshall School of Business began its Master of Business Analytics program this fall with 30 students. About 50 to 60 students are expected to enroll in the $47,000 program next year, the school said.

The program was the brainchild of Marshall’s corporate advisory board-executives at blue-chip firms like General Electric Co. , Boeing Co. and Walt Disney Co. who say they need more hires with analytics talent, said James Ellis, the school’s dean. The board also recommended that undergraduate students at Marshall be required to take a course in the subject.

“We find it invaluable to have people who can synthesize data” and suggest changes based on those insights, said Melissa Lora, president of Yum Brands Inc. ’s Taco Bell International, who serves on the school’s corporate-advisory board.

Business-analytics professionals, for instance, are needed at Taco Bell to sort data on restaurants’ service speed and product quality, as well as social-media metrics, Ms. Lora said.

Amy Hillman, dean at Arizona State University’s W.P. Carey School of Business, said interest in a year-old master’s program in business analytics has spread “like wildfire.” More than 300 people applied for 87 spots in this year’s class, according to the school.

Ayushi Agrawal, a current Carey student, said she left her job as a senior business analyst at a Bangalore, India, branch of a Chicago-based analytics firm to enroll in the program. As data become central to more business decisions, “I want to be at the forefront” of the emerging field, the 24-year-old student said.

The Massachusetts Institute of Technology also has a new program in the works. Professors and administrators at its Sloan School of Management are developing a tentatively titled Masters in Analytics program to be offered jointly with the university’s Operations Research Center beginning in 2016, said Dimitris Bertsimas, co-director of the center. The program will enroll about 50 students, he said.

At General Motors Co. , business-analytics professionals “make sense of big data, mine vast quantities of information, and look for trends in customer and dealer behavior,” said Nate Bruin-Slot, a customer-experience manager at GM who has recruited students from analytics programs.

Starting salaries for 2013 grads of the M.S. Business Analytics program at Michigan State University’s Eli Broad College of Business averaged $75,000, according to the school, while salaries for graduates of the two-year M.B.A. program averaged $90,000. Generally, the analytics students tend to have a strong background in computer programming and statistics, school officials say.

Yet others say it is smarter to deliver analytics training to all students, rather than a select few.

Northwestern University’s Kellogg School of Management offers several courses in analytics, some of which are required for M.B.A.s. The school has no plans to offer a stand-alone business-analytics degree, said Florian Zettelmeyer, director of Kellogg’s Program on Data Analytics.

“These one-year masters programs are creating a type of person who is neither fish nor fowl,” Dr. Zettelmeyer said. “We fear they’re neither as competent with data as real data scientists, nor have the leadership skills that you really need to drive change in analytics,” he said.

Michael Rappa, founding director of the Institute for Advanced Analytics at North Carolina State University, said analytics is best studied in an interdisciplinary context, rather than only through a university’s business school.

“Analytics programs in a business school will always be in the shadow of the M.B.A. program,” said Dr. Rappa, architect of the Institute’s popular Master of Science in Analytics program, launched in 2007. “That’s how the school is ranked.”

 

"Should Law Schools Offer Degrees in Legal Analytics?" by Paul Caron, TaxProf Blog, November 11, 2014
http://taxprof.typepad.com/taxprof_blog/2014/11/should-law-schools-offer-degrees-in-legal-analytics.html 

Jensen Comment
Business schools are a great place to experiment in these new masters degrees in analytics.

Schools of accountancy and law are probably not good places to experiment in these new masters degrees in analytics. Students entering accounting masters programs and law school JD programs are mainly focused on becoming licensed as CPAs and attorneys. Students expect these graduate programs to help them prepare for the tough licensure examinations, e.g., the Uniform CPA examination. Programs that focus on analytics rather than licensure exam preparation probably won't have much demand in accountancy and law. The same goes for nursing, pharmacy, medicine. etc.

The same does not go for general business where MBA prospects may instead give serious consideration to masters degrees in business analytics.


Hollywood Follows the Tax Incentives
From the CFO Journal's Morning Ledger on November 3, 2014

Add Hollywood to the list of industries looking to take advantage of tax breaks offered in far-flung locales, the WSJ’s Erich Schwartzel reports. But there are risks—mostly in the form of fickle legislators and the court of public option.

Some companies recently saw their plans to engage in inversion deals to get better tax treatment abroad unwind after the U.S. Treasury Department announced new rules to stem the tide of such transactions. And now a movie production-facility company with soundstages around the world is also finding that foreign tax breaks can be taken away just as easily as they can be granted.

Pinewood Shepperton PLC is building movie production facilities in six countries that offer generous tax breaks and incentives for producers. Recently it landed one of Hollywood’s most high-profile projects in Walt Disney Co.’s coming installment of the Star Wars franchise at its facility in England. But similar tax deals have been known to unwind under the skeptical glare of lawmakers. North Carolina, Kansas and Wisconsin have reduced or eliminated their tax incentives for filmmakers, and in Germany, where Pinewood has one of its operations, the amount allocated to the country’s film fund has shrunk on the whims of the current crop of legislators.

Jensen Comment
Actually, for some of the best tax deals Hollywood pulls Governor Brown's strings in California by demanding payback for political fund raising and political support.
Film producers demand taxpayer paybacks.

"California triples tax breaks for film production," by Sharon Bernstein, Reuters, September 18, 2014 ---
http://www.reuters.com/article/2014/09/18/us-usa-film-california-idUSKBN0HD2DO20140918


From the CFO Journal's Morning Ledger on October 31, 2014

SEC Staff Suggests Ingredients for Effective Disclosures ---
http://deloitte.wsj.com/cfo/2014/10/31/sec-staff-suggests-ingredients-for-effective-disclosures/

Over the past 18 months, the SEC and accounting standard setters have frequently questioned whether registrants' compliance with disclosure requirements and their disclosures of material and relevant information are optimally balanced. The SEC has embarked on a disclosure effectiveness project to address such issues. Deloitte's Heads Up discusses the SEC staff's views and recommendations regarding steps registrants can take to improve the effectiveness of their disclosures.


Scary Halloween for Big Banks:  I know I've been bad mommy!
From the CFO Journal's Morning Ledger on October 31, 2014

Big banks brace for penalties in probes ---
http://online.wsj.com/articles/citigroup-cuts-third-quarter-earnings-by-600-million-1414700742?mod=djemCFO_h

Big banks in the U.S. and Europe are stashing away billions of dollars in anticipation that they may have to pay out settlements against allegations of foreign-exchange rates manipulation. People familiar with the situation said U.S. regulators including the Fed, the Office of the Comptroller of the Currency and the Commodity Futures Trading Commission are speaking to Citigroup , Barclays PLC, and J.P. Morgan Chase & Co. about the settlement. Those banks and HSBC Holdings PLC, UBS AG, Deutsche Bank AG and Royal Bank of Scotland Group PLC, are also in talks with U.K. watchdogs, they said.


From the CFO Journal's Morning Ledger on October 29, 2014

Fast traders are getting data from SEC seconds early ---
http://online.wsj.com/articles/fast-traders-are-getting-data-from-sec-seconds-early-1414539997?mod=djemCFO_h
Hedge funds and other rapid-fire investors can get access to market-moving documents ahead of other users of the Securities and Exchange Commission’s system for distributing company filings, giving them a potential edge on the rest of the market.


From PwC on October 31, 2014

The inaugural edition of our accounting and financial reporting guide, Financial statement presentation , describes in detail the financial statement presentation and disclosure requirements of common balance sheet and income statement accounts. It also discusses appropriate classification of cash flows in the statement of cash flows, and addresses requirements and considerations with regard to the statements of stockholders' equity and other comprehensive income. In addition, the guide covers:
 
Download our new accounting and financial reporting guide for Financial statement presentation - 2014 edition to learn more.

Download Link
http://www.pwc.com/en_US/us/cfodirect/assets/pdf/accounting-guides/pwc-guide-financial-statement-presentation-2014.pdf


EY:  Boards reaffirm the definition of a lease but continue to work on its application ---
https://americas.ey-vx.com/email_handler.aspx?sid=acfef61e-7e4d-4ac8-8ca7-d2ba414ced06&redirect=http%3a%2f%2fwww.ey.com%2fPublication%2fvwLUAssetsAL%2fTothePoint_BB2866_Leases_24October2014%2f%24FILE%2fTothePoint_BB2866_Leases_24October2014.pdf

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

PwC:  Status of FASB standard-setting projects in October 2014 --- Click Here
http://www.pwc.com/us/en/cfodirect/issues/accounting-reporting/fasb-standard-setting-projects.jhtml?display=/us/en/cfodirect/issues/accounting-reporting

PwC:  IFRS and US GAAP: similarities and differences - 2014 edition (224 pages) --- Click Here
http://www.pwc.com/us/en/cfodirect/issues/ifrs-adoption-convergence/ifrs-and-us-gaap-similarities-and-differences.jhtml?display=/us/en/cfodirect/issues/accounting-reporting

Table of contents
Importance of being financially bilingual 4
IFRS first-time adoption 7
Revenue recognition 11
Expense recognition—share-based payments 30
Expense recognition—employee benefits 41
Assets—nonfinancial assets 54
Assets—financial assets 80
Liabilities—taxes 102
Liabilities—other 114
Financial liabilities and equity 123
Derivatives and hedging 139
Consolidation 157
Business combinations 177
Other accounting and reporting topics 185
IFRS for small and medium-sized entities 205
FASB/IASB project summary exhibit 209 Noteworthy updates 211
 Index 215

Jensen Comment
Many of the newer differences will come about with the forthcoming implementation of IFRS 9 (Financial Instruments). There are important differences in the inventory accounting rules that are still pending.

Note that some of the IFRS standards are now summarized in Wikipedia ---
http://en.wikipedia.org/wiki/International_Financial_Reporting_Standards
Look up IFRS with respect to particular numbers such as IFRS 9.

Some FASB standards are also summarized ---
http://en.wikipedia.org/wiki/Generally_Accepted_Accounting_Principles_%28United_States%29
Look up particular numbers such as SFAS 157.


Jensen Question
Managerial accounting textbooks are stuffed with cases and problems on such things as "make versus buy" decisions.

It may be a bit early for textbooks to be updated for the ACA law, but have any cases emerged in courses on decisions to drop or keep employee health insurance coverage?

 

ACA Health Insurance Mandate for Employers in 2015 Causes New Obstacles and Challenges

From the CFO Journal's Morning Ledger on October 15, 2014

With the health law’s insurance mandate for employers set to kick in next year, companies are trying to avoid the law’s penalties while holding down costs, using strategies like enrolling employees in Medicaid, the WSJ reports. The law’s penalties, which can amount to about $2,000 per employee, take effect next year for firms that employ at least 100 people.

Insurance brokers and benefits administrators are pitching companies on strategies to keep a lid on expenses that exploit wrinkles in the law. The Medicaid option is drawing particular interest from companies with low-wage workers, brokers say.

Locals 8 Restaurant Group LLC, with about 1,000 workers, already offers health coverage, and next year plans to reduce some employees’ premiums so as to avoid running afoul of the law’s standard for affordability. It will also help eligible employees enroll in Medicaid, using a contractor called BeneStream Inc. Such maneuvers could fuel controversy as costs are shifted to taxpayers, but BeneStream said its business is growing rapidly.


From the CFO Journal's Morning Ledger on October 31, 2014

Small firms (under 50 employees) drop health plans ---
http://online.wsj.com/articles/small-firms-drop-health-plans-1414628013?mod=djemCFO_h
Small companies are starting to turn away from offering health plans, with many viewing the health law’s marketplace as an inviting and affordable option. Wellpoint Inc. said its small-business-plan membership is shrinking faster than expected and it has lost about 300,000 people since the start of the year, leaving a total of 1.56 million in small-group coverage. Other insurers have flagged a similar trend.

Modestly larger firms are moving more employees to part-time in order to drop coverage. Larger firms have a much more difficult time avoiding high penalties for dropping health plans.

From the CPA Newsletter on May 27, 2014

IRS sets high penalties for (large) companies that send employees to ACA health exchanges
According to an Internal Revenue Service ruling, employers that move employees to health insurance exchanges by reimbursing them for their premiums do not satisfy the requirements of the Affordable Care Act. Companies that send workers to the exchanges face a tax penalty of $100 a day, or $36,500 a year, per employee. The New York Times (tiered subscription model) (5/

Eventually, large employers may opt to pay the fine for not providing health insurance and leave their workers to get coverage in the exchanges. Doing so might even save them money.
"Obamacare Increases Large Employers' Health Costs," by Sally Pipes, Forbes, May 19, 2014 ---
http://www.forbes.com/sites/sallypipes/2014/05/19/obamacare-increases-large-employers-health-costs/

Employer-provided health insurance may not be long for this world. According to a new report from S&P Capital IQ, 90 percent of American workers who receive health insurance from large companies will instead get coverage through Obamacare’s exchanges by 2020.

For that, patients — many of whom no doubt like the insurance they currently have — can blame Obamacare. The law’s many mandates, fees, and taxes will increase health costs for large employers to the point that providing health benefits at work is financially unsustainable.

Consider some of Obamacare’s most burdensome new levies. For instance, one fee on group plan sponsors is intended to fund the Patient Centered Outcomes Research Institute (PCORI), a government-sponsored organization charged with investigating the relative effectiveness of various medical treatments. Medicare may consider the Institute’s research in the determining what sorts of therapies it will cover.

Set aside the fact that the government — as paymaster for half of the health care delivered in this country — will have a significant incentive to twist the findings of such research so that older, cheaper therapies seem just as effective as more expensive, cutting-edge ones.

Making matters worse, the federal government is forcing private firms to underwrite its dirty work. For plan years ending after September 30, 2013, and before October 1, 2014, employer sponsors must pay the feds a PCORI fee of $2 per covered life. And for plan years between October 1, 2014, and October 1, 2019, they’ll have to pay an amount adjusted for national health inflation.

Large employers also have to pay a Temporary Reinsurance Fee to help “stabilize” premiums in the individual insurance market. In an American Health Policy Institute (AHPI) survey of businesses with more than 10,000 employees, one company estimated that this fee could cost it $15.3 million from 2014 to 2016.

Then there’s the 40 percent excise tax on expensive insurance plans — those with premiums greater than $10,200 for individuals and $27,500 for families — which goes into effect in 2018. One company in the same survey said that this tax could cost it $378 million over five years.

Large employers like these cover 59 percent of private-sector workers, according to the Employee Benefit Research Institute. So many firms will likely face the same tax-motivated cost increases as these two.

Obamacare doesn’t just tax employers directly. Its many coverage mandates also raise the cost of benefits indirectly.

Effective 2015, the law’s employer mandate requires employers with 100 or more full-time employees to provide health insurance to full-timers or pay a fine. In 2016, those with 50 to 99 employees will have to follow suit. The law originally intended for both groups to comply with the mandate in 2014.

Obamacare also orders plans to cover adult children on their parents’ policies until they’re 26 years of age. This “slacker mandate” has already raised employer health insurance costs by 1 to 3 percent. One firm told AHPI that the mandate could cost it almost $69 million over ten years.

Obamacare also requires employer-sponsored health plans to cover 100 percent of preventive care services, such as immunizations, contraceptive care, and depression screening. One large employer reported that full coverage of contraceptive care on its own could cost $25.6 million over ten years.

It’s no wonder that large employers expect their health bills to escalate in the years to come. The AHPI survey revealed that Obamacare could increase their health costs by 4.3 percent in 2016, 5.1 percent in 2018, and 8.4 percent in 2023.

Those percentages equate to real dollars. Over the next ten years, Obamacare could cost large employers $151 billion to $186 billion. That’s about $163 million to $200 million in additional cost per employer — or $4,800 to $5,900 per employee — solely attributable to the health reform law.

Employers will likely pass along these costs to their workers. According to a recent Mercer survey, 80 percent of employers are considering raising deductibles — or have already done so.

Eventually, large employers may opt to pay the fine for not providing health insurance and leave their workers to get coverage in the exchanges. Doing so might even save them money.

The care for an employee with hemophilia, for example, can cost a company $300,000. That could end up being a lot more expensive than the $2,000 per-employee fine for not offering insurance.

Firms could also continue furnishing insurance to most of their workers — but nudge their costliest ones onto the exchanges by making the company insurance plan unattractive to them. A company could shrink its network of doctors, raise co-payments, or even offer a chronically ill employee a raise to opt out of the employer plan.

In so doing, the company would save money. The employee would be able to secure better coverage through the exchange. And if a raise covered the cost of the exchange policy, both parties would benefit.

Others in the exchange pool — and the taxpayers subsidizing them — won’t be so lucky. Exchange enrollees are already sicker than their counterparts outside the government insurance portals. Indeed, the exchange pool fills prescriptions for the sorts of specialty drugs associated with chronic disease at a rate that’s 47 percent higher than for folks outside the exchanges.

Adding even more high-cost individuals to the exchanges could cause insurers to hike premiums. And higher premiums require greater taxpayer subsidies. Already, the Congressional Budget Office projects that the federal government will spend $1.03 trillion on exchange subsidies and related spending from 2015 to 2024.

If employers dump their sickest employees into the exchanges, that number could go spiral even further upward.

Continued in article

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


Here Are The 10 Worst States To Retire (possibly) --- http://www.businessinsider.com/here-are-the-10-worst-states-to-retire-2014-11

Jensen Comment
The above article mostly ignores taxation. For example, California is not listed as one of the worst retirement states even though it is one of the worst states in terms of taxation, especially if you're moving into the state and cannot enjoy the property tax relief of Proposition 13 ---
http://en.wikipedia.org/wiki/California_Proposition_13_%281978%29
Nevada is one of the best states for tax relief, but is listed as being one of the worst states in terms of crime. I think California is worse for crime, although a lot depends upon where your retire in California. Don't count of crime relief in rural areas in some states, especially California, Texas, New Mexico, and Arizona. For example, in and around Stockton is now one of the most dangerous places to live in the USA.

There is a great deal of variation in terms of personal factors that often affect retirement preferences, possibly the most important being where your family is concentrated --- or at least the family that you most want to live near or family that needs you the most for such things as moral support, child care, etc. Some retirees really enjoy being near other retirees in the same age group. Others don't like living in the midst of a whole lot of other old folks.

As the saying goes, home is where the heart is --- although sometimes it takes a strong heart to do the shoveling. In some northern states there are high traditional migration rates for retirement. For example, New York has a very high migration rate --- especially to Florida.

In the Midwest it's common to retire in two places --- up north for the summer months and down south for the winter months such as in Texas, Arizona, and California. Typically the most time is spent in the north such that those Midwestern states still get most of your state income tax. In the Southeast some people spend more than six months in places like New Hampshire and move back south for the winter. New Hampshire is popular for the summer months because of having no state taxes on sales (think of costly new automobiles, boats, and motor homes) and retirement fund income taxes. Spend less retirement time in other New England states like Vermont and Maine to avoid their high taxes on retirees deemed to be residents.

Two of our friends sold their mountain-top home in New Hampshire and retired to Amelia Island in Florida thinking that the summer months would be tolerable if they lived beside the Atlantic Ocean (which they could well afford) ---
http://en.wikipedia.org/wiki/Amelia_Island
They were so miserable the first summer on Amelia Island that they now spend the summer months back in New Hampshire and only the winter months on Amelia Island. The very sultry months of July, August, and September in the deep south are unpopularly known as the Dog Days ---
http://en.wikipedia.org/wiki/Dog_days

I once spent two weeks in Hawaii that were equally sultry relative to my four summers in northern Florida (Tallahassee) and 24 summers in San Antonio. "Paradise" is a relative term. I really don't like humidity in hot weather. I like our mountain home in all seasons in spite of the shoveling. A diesel tractor helps, but there is still quite a lot of shoveling.


"Bradley U Meets Student Demand with 5 New Online Grad Programs," by Joshua Bolkan, Campus Technology, October 28, 2014 ---
http://campustechnology.com/articles/2014/10/28/bradley-u-meets-student-demand-with-5-new-online-grad-programs.aspx

Other Distance Education Programs at Bradley --- http://www.bradley.edu/sitesearch/?q=Distance+Education&image.x=0&image.y=0

Jensen Comment
Bradley benefits heavily by having Caterpillar's world headquarters nearby.


"How the Market Ruined Twitter:  Now it’s just a company trying to make money," by Justin Fox, Harvard Business Review Blog, October 31, 2014 --- Click Here
http://blogs.hbr.org/2014/10/how-the-market-ruined-twitter/?utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date&cm_ite=DailyAlert-110314+%281%29&cm_lm=rjensen%40trinity.edu&referral=00563&cm_ven=Spop-Email&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date

. . .

As Johnson had described it in much more depth in a Time cover story a few months before, what made Twitter so promising and interesting and important was “the fact that many of its core features and applications have been developed by people who are not on the Twitter payroll.” Most of its conventions (the hashtag, for example) had been developed by users. And “the vast majority of its users interact with the service via software created by third parties.” It was basically an open-source enterprise, and seemed to owe most of its remarkable success to that openness.

Of course, that “success” didn’t come with a lot of revenue. For its first four years, Twitter was able to keep the servers running thanks to mainly to $150 million in funding from venture capitalists and angel investors. Then, after a few of those investors ousted co-founder and CEO Ev Williams in a boardroom coup late in 2010, Twitter raised another $1.2 billion in less than a year. Not surprisingly, the company stopped glorying in the openness of its ecosystem not long after that. Spooked by investor/entrepreneur Bill Gross’s attempt to build a sort of shadow Twitter by buying up the most popular third-party apps, Twitter began cracking down on those third-party software purveyors and taking control of its relationship with users (in order to better “monetize” them). It’s still the users whose creating and sharing gives Twitter its value as a business, but their activities are now mostly channeled and managed by the company itself. And while Twitter has taken some limited steps lately to win back outside app developers, the bigger news has been its apparent intent to move away from its simple chronological timeline to use algorithmic methods to determine what users see, as rival Facebook has done for years.

Continued in article


Well er ...  Just Sort of Anyway
"Spread the Word: Ninite is the Only Safe Place to Get Windows Freeware," by Chris Hoffman, How-To-Geek, November 11, 2014 ---
http://www.howtogeek.com/201354/ninite-is-the-only-safe-place-to-get-windows-freeware/

Ninite is a free tool that automatically downloads, installs, and updates various Windows programs for you, skipping past the evil toolbar offers. For Windows users, Ninite is arguably the only really safe place to get freeware.

This application is far more than a tool for tech support people to easily set up PCs. It’s a place you can get safe Windows freeware without trawling the usual download sites full of harmful garbage.

The Only Safe Place, Really?

Of course, safe freeware is available elsewhere online. But there’s no real trustworthy, centralized source of the stuff. Download sites are uniformly terrible these days — even good old SourceForge is now bundling junkware.

f you want a safe place to get freeware without worrying about toolbars and other junkware, Ninite is the program to use. If you have parents or relatives that use a computer, you can tell them just to use Ninite to get and update the free programs they need — the software on Ninite is guaranteed to be safe. Even programs that come with toolbars (like Java) won’t have a toolbar when you install them via Ninite. We can’t think of a single rule of thumb that will help a typical user get useful free Windows applications while avoiding all the junkware and malware beyond “just use Ninite.”

This doesn’t mean you should avoid other websites entirely — sure, if you use Microsoft Office, download it from Microsoft. But, if you need a free application to do something, head to Ninite’s website and find one there instead of attempting to hunt down an application on the freeware sites.

Continued in article


From the CPA Newsletter on November 14, 2014

FASB delays final release of consolidation standard ---
http://r.smartbrief.com/resp/gjAFBYbWhBCLelaTCidKtxCicNfznL?format=standard
The Financial Accounting Standards Board will not issue a final consolidation standard at the end of this year because its staff discovered during a final review that a large number of issues still needed to be analyzed. It is possible FASB could reopen discussion on some of the technical issues. At the earliest, the final standard could come in February. Compliance Week/Accounting & Auditing Update blog (11/13)


From the CPA Newsletter on October 31, 2014

SEC presses advisers to protect clients from scammers ---
 http://r.smartbrief.com/resp/gifaBYbWhBCKsTjSCidKtxCicNhxjB?format=standard
The Securities and Exchange Commission is moving ahead with requiring financial advisers to adopt policies to protect clients' data from cybercriminals. Professionals with authority to direct client funds to third parties are responsible for complying with rules aimed at preventing identity theft, said Jennifer Porter of the Division of Investment Management.
Financial-Planning.com (10/29)


"The Newest Employees at Lowe’s Hardware Store: Robots," by Mae Anderson, Yahoo Tech, October 28, 2014 ---
https://www.yahoo.com/tech/the-newest-employees-at-lowes-hardware-store-robots-101180704939.html

No More Jobs on the Farms or Most Anywhere Else
"Get Ready for Robot Farmers,"  by Jodi Helmer, CNNMoney via Yahoo Tech, October 24, 2014 ---
https://www.yahoo.com/tech/get-ready-for-robot-farmers-100613764059.html

"Patented Book Writing System Creates, Sells Hundreds Of Thousands Of Books On Amazon," by David J. Hull, Security Hub, December 13, 2012 ---
http://singularityhub.com/2012/12/13/patented-book-writing-system-lets-one-professor-create-hundreds-of-thousands-of-amazon-books-and-counting/

Philip M. Parker, Professor of Marketing at INSEAD Business School, has had a side project for over 10 years. He’s created a computer system that can write books about specific subjects in about 20 minutes. The patented algorithm has so far generated hundreds of thousands of books. In fact, Amazon lists over 100,000 books attributed to Parker, and over 700,000 works listed for his company, ICON Group International, Inc. This doesn’t include the private works, such as internal reports, created for companies or licensing of the system itself through a separate entity called EdgeMaven Media.

Parker is not so much an author as a compiler, but the end result is the same: boatloads of written works.

"Raytheon's Missiles Are Now Made by Robots," by Ashlee Vance, Bloomberg Business Week, December 11, 2012 ---
http://www.businessweek.com/articles/2012-12-11/raytheons-missiles-now-made-by-robots

A World Without Work," by Dana Rousmaniere, Harvard Business Review Blog, January 27, 2013 --- Click Here
http://blogs.hbr.org/morning-advantage/2013/01/morning-advantage-a-world-with.html?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date

Jensen Comment
There's hope until robots are reading, comprehending, and writing reviews of books written by robots. 

Jensen Question
How many years will it take for cost accountants to stop teaching how to allocate overhead on the basis of direct labor hours or costs?

My reply to Scott Bonacker on October 31, 2014

Hi Scott,

One of my first tax returns when I was a neophyte for Ernst & Ernst in Denver was a restaurant that brought me the monthly cash register tapes in shoe boxes along with checkbook stubs. The technology of the day was a paper worksheet and a 10-key adding machine and secretary who typed up my tax return drafts. I think the only technology we added to the office before I went on to become an accounting professor were electric pencil sharpeners.

In 40 years we went from paper worksheets and stubby pencils to point-of-sale accounting software that feeds into tax software where about the only role of a tax professional is now, possibly, to review the returns printed out by the tax software and to provide tax planning recommendations to the client.

The IRS prefers electronic return filings that aren't even printed on paper. Much or even all of the IRS review is by computer and may not even entail human intervention when notifying the taxpayer of errors such as unreported income --- computers talking to computers so to speak.

If we had to do tax returns in the 21st Century like we did in the 1960s the E&E office would have hundreds more tax return specialists in the Denver Office alone.

Writers who contend that technology, especially robotics, does not replace workers are nuts.

Respectfully,
Bob Jensen


"New At Forbes Online: The Precarious Financial Position Of The New York Times," by Francine McKenna, re:TheAuditors, November 11, 2014 ---
http://retheauditors.com/2014/11/11/new-at-forbes-online-the-precarious-financial-position-of-the-new-york-times/

Update: The New York Times Public Editor Margaret Sullivan published a column, Shaky Times, Strong Journalism”, shortly after the 3rd Quarter earnings announcement with several critiques of the results and commentary.  My column in Forbes was cited. She said I provided a provided “a tough, and rather dire, analysis of the issues.”

This post was originally published on October 29,2014.

I published some New York Times numbers over at Forbes.com, Time Is Running Short For The New York Times”, in anticipation of the company’s 3Q earnings announcement on October 30. I plan to write a followup when we know if the company’s own predictions about its third quarter have come true.

The Times telegraphed its expected 3Q results to the market on October 1 when it filed a notice with the SEC regarding upcoming staff voluntary buyouts that may convert to involuntary layoffs later. Anything can happen. More important than the third quarter is how the company will end the year and move forward. Even its own predictions are less than encouraging, regardless of how much Paid Post-type storytelling they can put on the books.

I did put a nice link to PwC thought leadership in the piece.

To say the trend for print advertising is very negative would be an understatement. In a just published essay for the Brookings Institution, “The Bad News about the News,” veteran Washington Post reporter and editor Robert Kaiser says nearly 20 percent of advertising dollars still go to print media but “Americans only spend about 5 percent of the time they devote to media of all kinds to magazines and newspapers.” Revenue from print ads will nearly disappear when advertisers catch on.

Circulation revenues rose globally in 2013 after years of decline, but advertising revenue continued to crater, says PricewaterhouseCoopers in its latest Global and Media Entertainment Outlook. By 2018, circulation or subscription revenue will likely match advertising revenue. Consumers will have to become news media’s biggest source of revenue.

Read the rest at Forbes.com, “Time Is Running Short For The New York Times”.


"Sheriff's department files held for ransom by malware: The "Cryptowall" malware demanded more than $500 from the Dickson County Sheriff's Office to unlock its case files.," by Ben Hooper, UPI, November 13, 2014 ---
http://www.upi.com/Odd_News/2014/11/13/Sheriffs-department-files-held-for-ransom-by-malware/4061415904893/?spt=sec&or=on

A Tennessee sheriff's department said it paid more than $500 ransom to release files locked away by malicious software accidentally downloaded into the system.

Detective Jeff McCliss, IT director for the Dickson County Sheriff's Office, said the "Cryptowall" program was installed into the department's computer system in late October when someone streaming local radio station WDKN accidentally clicked on a rotating ad that had been infected with the malware.

McCliss and Sheriff Jeff Bledsoe said Cryptowall put a lock on the department's case folder and demanded $572 worth of anonymous online currency Bitcoins to unlock the files.

"Every sort of document that you could develop in an investigation was in that folder. There was a total of 72,000 files," McCliss told WTVF-TV.

McCliss said he consulted with experts including those affiliated with the FBI and the military, but the consensus was the only way to unlock the files was to pay.

The payment was made to a person identified only as "Nimrod Gruber."

"Although a substantial portion of the data encrypted on the report management server was able to be restored from backups, there were still approximately 72,000 files affected on the host computer, which introduced the malware to the network and the report management system and the attached drives," Bledsoe told the Dickson Herald.

Luke Vincent, information technology director for the town of Durham, N.H., said police in his town were targeted by a similar "ransomware" scheme, but officials decided not to pay. He said the affected files were "administrative" rather than "critical."

"We knew we were never going to pay that ransom," Vincent said. "We were able to restore all the files...so there was never a thought of paying the ransom in that case."

However, he said the town did end up spending about $3,000 to a contractor to help with "cleanup" following the breach.

Read more:
http://www.upi.com/Odd_News/2014/11/13/Sheriffs-department-files-held-for-ransom-by-malware/4061415904893/#ixzz3J3hwPkp0

Jensen Comment
Beware if advertisements to detect and/or remove malware free. These are often ploys to infect your computer. It's best to get expert advice before trying to remove malware yourself --- other than the following the instructions in pup-ups from the trusted security software that you already have installed on your system. I now get a pop-up about every ten minutes from my trusted F-Secure system. Malware detected by F-Secure can be easily deleted with one click. This does not mean the F-Secure is the best protection available. I just happens to be the protection that I installed.


AICPA Recognizes Educators with Three Accounting Curriculum Awards, October 7, 2014 ---
http://www.aicpa.org/press/pressreleases/2013/pages/aicpa-recognizes-educators-with-three-accounting-curriculum-awards.aspx

The American Institute of CPAs today announced the 2013 recipients of three accounting curriculum awards. The annual awards are bestowed upon educators who demonstrate innovative teaching practices in one of three distinct educational levels: in the first sequence of accounting, junior- and senior-level accounting courses and at the graduate level.

“It is critical that the education University accounting students receive prepares them to enter a profession which serves the needs of individuals, small businesses, and large companies in a dynamic marketplace,” said Jeannie Patton, Vice President, Academics, Professional Pathways and Inclusion. “These award winning entries showcase the kind of teaching needed to instill students with the competencies they need to serve the public interest, both domestically and globally.”

The recipient of the 2013 Bea Sanders/AICPA Innovation in Teaching Award for innovative teaching practices in the first sequence of accounting is Markus Ahrens, Professor of Accounting at St. Louis Community College. Aherns was recognized for his work implementing greater teamwork and student collaboration within the classroom, resulting in increased attendance, improvement in student grades and higher overall student success rates.

Marion E. McHugh Assistant Professor in the Business and Accounting Department,  Furman University and Paul Polinski, Lecturer of Accountancy, University of Illinois at Urbana-Champaign have been honored with the 2013 George Krull/Grant Thornton Teaching Innovation Award in recognition of their innovative teaching of  junior- and senior-level accounting courses. Their curriculum centered around a project which provides students with an opportunity to engage in critical thinking about the appropriate separation of duties in the purchases and disbursements transaction cycles.

The winners of the 2013 Mark Chain/FSA Teaching Innovation Award for innovative graduate-level accounting teaching practices are Jennifer Butler Ellis, Mark E. Riley and Rebecca Toppe Shortridge from Northern Illinois University. Their Master of Accounting Science program incorporated a workshop to ensure graduates had not only technical accounting knowledge, but also leadership and communications skills.

The winners’ curricula, along with those of past winners, are included as part of the Accounting Professors' Curriculum Resource, AICPA’s curriculum tool. The Curriculum Resource offers accounting curricula specifically designed to encourage faculty and engage accounting students while furthering their knowledge of the profession. Access to the tool is limited to AICPA members.

AICPAThe Federation of Schools of Accountancy and Grant Thornton will cover the winners’ travel expenses to the 2014 American Accounting Association annual meeting, which will provide them with the opportunity to present their curriculum in person and receive their awards.

“The AICPA would like to thank the AAA for providing the winners an opportunity to present their curriculum and FSA and Grant Thornton for their contributions to make those presentations possible,” added Patton.

The following individuals received honorable mention recognition for their submissions:

Bea Sanders/AICPA Innovation in Teaching Award:

·         Edward Bysiek, St. Bonaventure University

·         Curtis M. Nicholls and Stacy A. Mastrolia, Bucknell University

 

George Krull/Grant Thornton Teaching Innovation Award:

·         Kelly Richmond Pope, DePaul University

·         Rita Grant, Grand Valley State University

·         Carol M. Jessup, University of Illinois-Springfield

 

Mark Chain/FSA Teaching Innovation Award:

·         Mark Holtzblatt and John Geekie, Cleveland State University, Norbert Tschakert, Salem State University

·         Rosemary Fullerton, Utah State University

The award winners are selected by the Pre-certification Education Executive Committee of AICPA, which assists the academic community in preparing students with the core competencies needed for entry into the profession.

More information about the AICPA educator awards, including submission criteria, can be found online.

Bob Jensen's threads on Tools and Tricks of the Trade are at
http://www.trinity.edu/rjensen/000aaa/thetools.htm


How to Mislead With Statistics
"Reminder: The FBI’s ‘Police Homicide’ Count Is Wrong," by Reuben Fischer-Baum, Nate Silver's 5:38 Blog, November 12, 2014 ---
http://fivethirtyeight.com/datalab/reminder-the-fbis-police-homicide-count-is-wrong/ 

How to Mislead With Statistics
"Some Stats Are Just Nonsense
," by Cullen Roche, Pragmatic Capitalism via Business Insider, November 15, 2014 ---
http://www.businessinsider.com/historical-statistical-and-nonsensical-2014-11

How to Mislead With Statistics
Common Accountics Science and Econometric Science Statistical Mistakes ---
http://www.cs.trinity.edu/~rjensen/temp/AccounticsScienceStatisticalMistakes.htm


How to Mislead With Statistics:  Ignore the Variance and Ignore the Outliers (in this case graduates without law jobs)
"Why Huge Salaries Don't Necessarily Make Law Grads Rich," bv Akane Otani, Bloomberg Businessweek, October 22, 2014 ---
http://www.businessweek.com/articles/2014-10-22/law-school-grads-make-good-salaries-but-have-high-debt-and-few-jobs

Graduates of Harvard Law School, among all the graduate schools in the U.S., make the most money, earning a median salary of $201,000 once they are 10 years out of school, according to a new report. Law schools rank higher than other graduate programs when it comes to salaries, yet skyrocketing debt and a thinning job market for law graduates may dampen the appeal of a J.D.

Harvard Law School, Emory University School of Law, and Santa Clara University School of Law topped salary rankings for graduate and professional programs in a study released Wednesday by compensation-tracking company PayScale. Of the top 20 schools, 12 were law schools. The rest were business schools.

Despite a few law schools dominating the rankings, law school graduates did not hold claim to the most lucrative degree on the market. The median midcareer salary for a law school graduate was $139,300—a far smaller sum than the figures boasted by the schools that topped PayScale’s rankings. Considering that the median debt load for law school graduates rose to $140,616 in 2012, even a six-figure salary doesn’t sound as glamorous.

What’s more, Payscale’s data didn’t factor in law school grads who don’t have jobs—and jobs are scarcer for lawyers now than they have been in years. The employment rate for law school graduates has dropped six years in a row. “Since 1985, there have only been two classes with an overall employment rate below [84.5 percent], and both of those occurred in the aftermath of the 1990-91 recession,” the National Association for Law Placement said in a report this summer. Over the past decade, at least 12 firms, accounting for more than 1,000 lawyers, have shut their doors. Others are eyeing cuts among partners.

One reason why a J.D. isn’t a get-rich-quick guarantee is the wide range of salaries within the field of law. A new graduate working as a public interest lawyer or for local government will make an average of $60,000 or less a year, according to the NALP.

“If you want to be a public defender vs. a corporate attorney, there is going to be a big difference in terms of ability to pay off your loans,” says Lydia Frank, editorial and marketing director for PayScale. “Because there’s such a wide variety in earnings potential, you can’t assume that any job you’re going to pursue with a J.D. is going to be equal.”

While the salary rankings may provide a good benchmark for what’s possible with an elite law degree, great job connections, and a lucrative specialty, the average would-be lawyer should think carefully about the return on an investment in legal education.

“If you’re going to take out ‘X’ amount in student loans, you really want to have a good understanding of the likelihood of being able to repay that loan in a timely fashion,” Frank says. “I think it still behooves everybody to really examine things other than salary potential, such as employment potential for JDs.”

Jensen Comment
Traditionally, accounting graduates who go to work for large CPA firms get great training and great client exposure. The bad news is that probabilities of attaining partnerships after 6-10 years are very low. The good news is that prospects of going to work for clients are high, and new graduates never wanted the pressures, travel, and time commitments of partnerships in CPA firms in the first place.

Among the least-wanted pressures are the pressures to obtain new clients via lots of night and weekend community volunteer work, golf outings that aren't all that much fun, and selling the firms' services over and over and over year after year Some of the things that discourage faculty from striving to be college presidents also discourage staff accountants and lawyers from seeking partnerships.

My point is that winnings of the  highest salaries as partners in both law and accounting firms are not all they're cracked up to be in terms of job stress, long hours, frequent travel, glad-handing, broken marriages, neglected children, etc. Most of the very good lawyers and accountants want no part of this partnership lifestyle even at much higher compensation. Men and women partners who are also parents are advised to have spouses who will take on the chores of child rearing and keeping the home fires burning.

A bummer for finance and marketing graduates is performance-based compensation. For example, landing that job on Wall Street sounds great until you realize that your pay is really based upon sales commissions. It's not a great life unless you really like to spend your days wooing customers to buy what you're selling (like bonds and derivatives) year after year after year.

Probabilities of becoming partners in the Big Four vary with domestic and international location where, in my viewpoint, it's sometimes easier to make partner in some foreign offices. For example, one of my students who had a low probability of becoming partner in a Texas office of a Big Four firm became a partners rather quickly in Moscow.

"The qualities of a Big Four partner:  Chris Carter, Crawford Spence and Claire Dambrin studied Big Four firms in three countries to find out what qualities make a partner," Economia, July 16, 2014 ---
http://economia.icaew.com/finance/july-2014/essay-the-qualities-of-a-big-four-partner 

The Big Four are quintessentially global organisations, their logos adorn major commercial centres and they are prominent players in most western economies. Unlike their corporate counterparts, their governance structures are more opaque. This is a consequence of the partnership model which gives a high degree of independence to each country in which the Big Four operates. Global organisations –in general – and the Big Four in particular invite the following question: to what extent is there convergence or divergence between their operations in different countries?

We set out to answer this question by researching partners in Canada, France and the UK. We were particularly interested in the types of people that became partner and the process of them actually getting there. Was this similar across the three countries or were there striking differences?

The broad career structure is much the same across the three contexts: following qualification, employees move into the manager position – during which time many tend to leave the firm – before proceeding to senior manager, director and ultimately partner. Only 2-3% of members of the Big Four will ever make partner; ascension to this position is to enter the elite of the accounting profession. In provincial cities, Big Four partners are well known “business celebrities”, while in capital cities they are players within their service lines. Partners are the pinnacle of the accounting profession for those that remain in private practice.

We started by looking at British and Canadian partners. What we found was remarkably similar: it takes most partners 15-17 years to become a partner after joining; 60 to 70 hour weeks are the norm; partners are more likely to be white and male; the process of becoming a partner has become far more formalised than it was in the past; most people who make partnership highlight the importance of “having a good mentor” to help them navigate the complex, Byzantine politics of a Big Four firm.

To add to this picture, interviewees emphasised the importance of trust: does the firm trust a candidate enough to make them a part-owner? All of this takes place against a broader economic backdrop which will determine whether a particular service is deemed worthy of supporting a further partner. The economic conditions can in boom times create more partnerships in a firm; recessionary times can preclude gifted candidates from making partner.

We talked to over 50 partners, ex-partners and people who didn’t make partner in Britain and Canada. The similarities far overshadowed any differences. Partners were very much “self-made men” and, save for a few exceptions, were drawn from modest social backgrounds. This meritocratic quality was deeply infused within the firms we visited, with a notable ‘can do’ ethos. The driven quality of the partners often extended to their leisure pursuits. Whereas the stereotype is of a partner playing a good deal of golf, they were much more likely to be competing in endurance cycle races or long distance running events. The participation in endurance sports is a fitting metaphor. Partners are driven, high energy people who exude self-confidence.

By midway through our research we were accustomed to partners recounting that “their career was different”. This statement surprised us as most of the partners spent most of their careers in one firm, something that is very unusual in the contemporary workplace, and we imagined that there was a distinct career path. The expression, however, spoke to the different ways in which the partners had proved themselves.

In every case, the accountant “proved themselves” through completing a difficult piece of work that gained praise from the firm. This demonstrated that the accountant had ability and could be trusted by the organisation. This building of reputation brought the accountant into new networks in the firm where more opportunities arose. Proving oneself as being very good at a complex job is generally enough to get a promotion to director. Beyond that, wannabe partners need to demonstrate that they can move effortlessly with senior executives in client firms and that they can generate revenue. It’s a cliché, but cash is king. The Big Four are packed full of extremely competent technical specialists – what makes someone stand out is their ability to generate fee income. Entrepreneurialism is a prime quality.

The similarities between British and Canadian partners were striking regarding this topic, in fact the only compelling difference was that British partners went for football and rugby metaphors, while their Canadian counterparts used ice hockey and NFL.

We travelled to France to find out about the French experience. Our intuition was that the capacity to generate new business would be crucial there too but that leverages to increase turnover might be of a different nature. In particular we expected that belonging to a cultural or social elite would be essential for partners to bring in new business in France. The Big Four are similarly prominent in France, although there are different rules around audit rotation. What became immediately clear was the Big Four are structured differently in France.

First, it was incredibly important where an employee had studied. In France, there are a number of Grandes Ecoles that are, in effect, elite Business Schools. The Big Four strive to recruit a quota from each of these schools. Unlike in Britain, where the Big Four recruit from a wide range of universities and where partners are pretty diverse in terms of their educational backgrounds, in France attending one of these Grande Ecoles will vastly increase your chances of getting recruited in the first instance, and is even more important in rising to partner grade in the second instance. One of our French partners explained: “We are worried when we don’t have enough ‘parisiennes’ [graduates of top Grandes Ecoles]. I find that daft but in this firm we always have the illusion that if you haven’t been to a ‘parisienne’ then you can’t be a partner. That said, given that the clients of tomorrow will have studied at the same place, it is better to have them.”

The quote reveals a great deal about how educational background is a determinant of future success in the Big Four in France. Simply put, having graduated from a top school (a parisienne) marks out an employee as special and puts them onto a different career trajectory from those who had attended more routine universities. In France Big Four firms agree with each other on starting salary grids depending on the school category of their recruits. High expectations are placed very early on their recruits from Grandes Ecoles and this has a very basic economic rationale.

It is through the process of offering parisiennes more varied and exciting work – projects that add value and generally “pampering” them – that their “specialness” becomes a reality in the French Big Four. Contrary to what we expected, educational pedigree actually becomes more important at the partner level: it is easier for graduates of the Grandes Ecoles to interact with each other and so future sources of revenue will come through the conversion of their educational background into social skills and new business for the firm. It is a fascinating contrast to the British and Canadian experiences where the treatment of recruits is much more homogeneous. More broadly, the French experience is suggestive of the grip that Grandes Ecoles have on elite careers within the French corporate sector.

The Grandes Ecoles cast a long shadow over the Big Four in France; this raises questions as to whether a different set of qualities are required to become partner. A key insight from our research study is that the pressures that French partners and aspirant partners face are much the same as in Britain and Canada: clients need to be kept happy; new business needs to be generated and delivered; new service lines need to be developed; for personal career strategies, aspirant partners need to be seen as less technical and more strategic.

In short, the descriptions of the Big Four in France were remarkably similar to their counterparts in Britain and Canada. What was particularly striking was the creed of commercialism that underpins the Big Four across the three countries. One partner in France explained: “The first thing we look at is [the candidate’s] commercial skills. Dilution [of profit-per-partner] is a real concern for us. If partners don’t bring in revenue, the partners’ committee will lose money because there is less to share in the end. So the capacity to make business grow obviously matters a lot.”

This quote could have come from any of the firms in any of the three countries. The ability to generate business and ‘grow the cake’ is an absolutely central skill for someone who wants to make partner. The central difference between Britain, Canada and France is that in the French case the assumption is that being a graduate of a Grandes Ecoles will help generate new business. In Britain and Canada it is demonstrably not the case that an elite degree will lead to these outcomes. In France, attendance at one of these schools has a huge bearing on an alumnus’s future career in the Big Four.

Our research emphasises that people skills – the ability to get on with people and build durable networks – are crucial to success in a Big Four career. These skills need to be converted into revenues. To put this in some sort of context, the following revenues were quoted to us. In Canada, one interviewee suggested that a partner needed to generate around $3m (Canadian) per annum (£1.63m), in France this figure was estimated at €3m (£2.4m), whereas in Britain, a figure of £2m was frequently cited. Partners are clearly under pressure to generate vast sums of fee income for the Big Four; the prospect of being able to generate such fees is crucial to ascending to a partnership.

Continued in article

See more at: http://economia.icaew.com/finance/july-2014/essay-the-qualities-of-a-big-four-partner#sthash.BukvhkPO.dpuf

 

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


Eight Econometrics Multiple-Choice Quiz Sets from David Giles
You might have to go to his site to get the quizzes to work.
Note that there are multiple questions for each quiz set.
Click on the arrow button to go to a subsequent question.

Would You Like Some Hot Potatoes?
http://davegiles.blogspot.com/2014/10/would-you-like-some-hot-potatoes.html

 
O.K., I know - that was a really cheap way of getting your attention.

 
However, it worked, and this post really is about Hot Potatoes - not the edible variety, but some teaching apps. from "Half-Baked Software" here at the University of Victoria.

 
To quote: 
"The Hot Potatoes suite includes six applications, enabling you to create interactive multiple-choice, short-answer, jumbled-sentence, crossword, matching/ordering and gap-fill exercises for the World Wide Web. Hot Potatoes is freeware, and you may use it for any purpose or project you like."
I've included some Hot Potatoes multiple choice exercises on the web pages for several of my courses for some years now. Recently, some of the students in my introductory graduate econometrics course mentioned that these exercises were quite helpful. So, I thought I'd share the Hot Potatoes apps. for that course with readers of this blog.

 
There are eight multiple-choice exercise sets in total, and you can run  them from here:

 
Quiz 1 ; Quiz 2 ; Quiz 3 ; Quiz 4; Quiz 5 ; Quiz 6Quiz  7 ; Quiz 8 .

 
I've also put the HTML and associated PDF files on the code page for this blog. If you're going to download them and use them on your own computer or website, just make sure that the PDF files are located in the same folder (directory) as the HTML files.
 
I plan to extend and update these Hot Potatoes exercises in the near future, but hopefully some readers will find them useful in the meantime.
 
From my "Recently Read" list:

"Statistical Inference: The Big Picture," by Robert E. Kass, Statistical Science 2011, Vol. 26, No. 1, 1–9 DOI: 10.1214/10-STS337 © Institute of Mathematical Statistics ---
http://www.stat.cmu.edu/~kass/papers/bigpic.pdf

Abstract.
Statistics has moved beyond the frequentist-Bayesian controversies of the past. Where does this leave our ability to interpret results? I suggest that a philosophy compatible with statistical practice, labeled here statistical pragmatism , serves as a foundation for inference. Statistical pragmatism is inclusive and emphasizes the assumptions that connect statistical models with observed data. I argue that introductory courses often mischaracterize the process of statistical inference and I propose an alternative “big picture” depiction.

Common Accountics Science and Econometric Science Statistical Mistakes ---
http://www.cs.trinity.edu/~rjensen/temp/AccounticsScienceStatisticalMistakes.htm

Statistical Science Reading List for June 2014 Compiled by David Giles in Canada ---
http://davegiles.blogspot.com/2014/05/june-reading-list.html

Put away that novel! Here's some really fun June reading:

The Cult of Statistical Significance: How Standard Error Costs Us Jobs, Justice, and Lives ---
http://www.cs.trinity.edu/~rjensen/temp/DeirdreMcCloskey/StatisticalSignificance01.htm

Common Accountics Science and Econometric Science Statistical Mistakes ---
http://www.cs.trinity.edu/~rjensen/temp/AccounticsScienceStatisticalMistakes.htm


November 7, 2014 posting by David Giles in his Econometrics Beat blog.

The Econometrics of Temporal Aggregation V - Testing for Normality

 
This post is one of a sequence of posts, the earlier members of which can be found here, here, here, and here. These posts are based on Giles (2014).

Some of the standard tests that we perform in econometrics can be affected by the level of aggregation of the data. Here, I'm concerned only with time-series data, and with temporal aggregation. I'm going to show you some preliminary results from work that I have in progress with
Ryan Godwin. Although these results relate to just one test, our work covers a range of testing problems.

I'm not supplying the EViews program code that was used to obtain the results below - at least, not for now. That's because what I'm reporting is based on work in progress. Sorry!

 
As in the earlier posts, let's suppose that the aggregation is over "m" high-frequency periods. A lower case symbol will represent a high-frequency observation on a variable of interest; and an upper-case symbol will denote the aggregated series.

So,
               Yt = yt + yt - 1 + ......+ yt - m + 1 .

If we're aggregating monthly (flow) data to quarterly data, then m = 3. In the case of aggregation from quarterly to annual data, m = 4, etc.

Now, let's investigate how such aggregation affects the performance of the well-known Jarque-Bera (1987) (J-B) test for the normality of the errors in a regression model. I've discussed some of the limitations of this test in an
earlier post, and you might find it helpful to look at that post (and this oneat this point. However, the J-B test is very widely used by econometricians, and it warrants some further consideration.

Consider the following a small Monte Carlo experiment.

Continued at
http://davegiles.blogspot.com/2014/11/the-econometrics-of-temporal.html#more

Jensen Comment
Perhaps an even bigger problem in aggregation is the assumption of stationarity.

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

This Dyckman and Zeff paper is indirectly related to the following technical econometrics research:
"The Econometrics of Temporal Aggregation - IV - Cointegration," by David Giles, Econometrics Blog, September 13, 2014 ---
http://davegiles.blogspot.com/2014/09/the-econometrics-of-temporal.html 

Common Accountics Science and Econometric Science Statistical Mistakes ---
http://www.cs.trinity.edu/~rjensen/temp/AccounticsScienceStatisticalMistakes.htm

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

 

The Cult of Statistical Significance: How Standard Error Costs Us Jobs, Justice, and Lives ---
http://www.cs.trinity.edu/~rjensen/temp/DeirdreMcCloskey/StatisticalSignificance01.htm

Common Accountics Science and Econometric Science Statistical Mistakes ---
http://www.cs.trinity.edu/~rjensen/temp/AccounticsScienceStatisticalMistakes.htm


Some 148,283 of those 350,000 fraudsters ineligible for Medicaid in Illinois have been removed from the rolls as of November 2014

"Audit reveals half of people enrolled in Illinois Medicaid program not eligible," by Craig Cheatham, KMOV Television, November 4, 2013 ---
http://www.kmov.com/news/just-posted/Audit-reveals-half-of-people-enrolled-in-IL-Medicaid-program-not-eligible-230586321.html?utm_content=buffer824ba&utm_source=buffer&utm_medium=twitter&utm_campaign=Buffer

The early findings of an ongoing review of the Illinois Medicaid program revealed that half the people enrolled weren’t even eligible.

The state insisted it’s not that bad but Medicaid is on the federal government’s own list of programs at high risk of waste and abuse.

Now, a review of the Illinois Medicaid program confirms massive waste and fraud.

A review was ordered more than a year ago-- because of concerns about waste and abuse. So far, the state says reviewers have examined roughly 712-thousand people enrolled in Medicaid, and found that 357-thousand, or about half of them shouldn't have received benefits. After further review, the state decided that the percentage of people who didn't qualify was actually about one out of four.

"It says that we've had a system that is dysfunctional. Once people got on the rolls, there wasn't the will or the means to get them off,” said Senator Bill Haines of Alton.

A state spokesman insists that the percentage of unqualified recipients will continue to drop dramatically as the review continues because the beginning of the process focused on the people that were most likely to be unqualified for those benefits. But regardless of how it ends, critics say it's proof that Illinois has done a poor job of protecting tax payers money.

“Illinois one of the most miss-managed states in country-- lists of reasons-- findings shouldn't surprise anyone,” said Ted Dabrowski.

Dabrowski, a Vice-President of The Illinois Policy Institute think tank, spoke with News 4 via SKYPE. He said the Medicaid review found two out of three people recipients either got the wrong benefits, or didn't deserve any at all.

We added so many people to medicaid rolls so quickly, we've lost control of who belongs there,” said Dabrowski.

Continued in article

Some 148,283 of those 350,000 fraudsters ineligible for Medicaid in Illinois have been removed from the rolls as of November 2014
"Reversing the Medicaid Tidal Wave in Illinois," by Merrill Matthews, The Wall Street Journal, November 7, 2014 ---
http://online.wsj.com/articles/merrill-mathews-reversing-the-medicaid-tidal-wave-in-illinois-1415405459?tesla=y&mod=djemMER_h&mg=reno64-wsj

Every state is struggling with the explosive growth and cost of its Medicaid program. Illinois, however, found a way to reduce Medicaid spending significantly, freeing up money for other important projects—or better yet, tax cuts.

Medicaid, the government health-insurance program for the poor and disabled, covered 72.2 million people for at least one month in 2012, according to estimates from the Department of Health and Human Services.

But enrollment is growing quickly. The Centers for Medicare and Medicaid Services reports that Medicaid and the Children’s Health Insurance Program (CHIP) enrollment is up by about 8.7 million people—nearly 15%—since the Affordable Care Act’s October 2013 rollout. Total Medicaid spending was about $432 billion in 2012. The federal government provided $250 billion, or a bit more than half, but states paid the rest.

For many states, Medicaid is already their single largest expenditure, and now it is demanding more, forcing state governments to limit or reduce spending in other important areas like education and welfare.

Enter the Illinois solution. In 2013, the state faced a Medicaid budget shortfall of $2.7 billion. Springfield had begun implementing some reforms, such as shifting more Medicaid recipients into private managed-care organizations, but that wasn’t enough.

So Illinois state Rep. Patti Bellock garnered bipartisan support to pass legislation in 2012 that included several Medicaid reforms. One of the most important was a provision to establish the Illinois Medicaid Redetermination Program to “redetermine” if Medicaid enrollees were still eligible to participate.

Continued in article

Jensen Comment
States that added residents to Medicaid under Obamacare don't have high incentives to pay for fraud audits since under the ACA the money is coming from the Federal government and not state revenues.

Furthermore, the fraudsters who got new knees, hips, kidneys, livers, and other organs who are finally being taken off the Medicaid rolls got away with their frauds and most likely will not have to pay since suing them would overwhelm the courts. There is high incentive and low risk in cheating to become eligible for Medicaid. Medicaid is totally free for medical services and medications, unlike those high deductible medical plans from the ACA exchanges.

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

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


From PwC on November 10, 2014

PwC has launched a new publication series - In transition - designed to provide practical insights around the implementation of new accounting standards. Initially, this publication will focus on implementation issues around the new revenue standard, though it may be used in future for other standards as well.

Our first issue, Transition Resource Group debates revenue recognition implementation issues-Boards to consider clarifying guidance in the new standard, covers implementation issues discussed at the October 31, 2014 Transition Resource Group meeting.


Click here to download Transition Resource Group debates revenue recognition implementation issues-Boards to consider clarifying guidance in the new standard.
http://click.edistribution.pwc.com/?qs=a5320bc13dbc68a74f257bbe28905a9222541675f07725dd24a77819581b65c15ccebc792dc78cee

 


"Cornell's Free Online Tax Code Now Offers Links to IRS Letter Rulings," by Paul Caron, TaxProf Blog, October 30, 2014 ---
http://taxprof.typepad.com/taxprof_blog/2014/10/cornells-free-online-tax-code-.html

The wonderful, free online Internal Revenue Code from Cornell's Legal Information Institute ("LII") now contains links to private letter rulings for each Code section (just click on the "IRS Rulings" tab above the statutory language (e.g., here)). Over 58,000 rulings are linked to across the Code's 850 section. From LII Director Tom Bruce:

A few caveats:  the feature is still in beta test, and we're going to need a month or so to be completely sure that updates are running smoothly. According to the IRS, updates run "every Friday morning" at their end, so we're running ours early on Saturday morning (it appears from this week's events that they don't actually appear on the site until late Friday night). They take about an hour to process once they're available.  As you will see in the explanatory text that comes along with the listing inside the tab,  there are some problems in the data as we receive it, mostly in the date fields.

At some point in the future, we'll be adding full-text search that will cover the PLRs for any particular section.  This will be particularly useful in sections like 501, where there are well over 10,000 applicable PLRs.  Not sure when that will happen, but it's on the list.

By the way, we'd love to talk with anyone out there who is familiar with the IRS Uniform Issue List Code system.  We infer from what they say on the site that the issue codes are assigned in order to issues within a particular section; they seem to function almost like "accession numbers" for issues, rather than as a cross-cutting indexing system where the numbers relate to the same thing in each section.  Which is kind of too bad if it's true.


"IRS Releases 2015 Inflation Adjustments," by Paul Caron, TaxProf Blog, October 30, 2014 ---
http://taxprof.typepad.com/taxprof_blog/2014/10/irs-releases.html

The IRS has released various inflation-adjustments for 2015 (IR 2014-104 & Rev. Proc. 2014-61; IR 2014-99), including:


Teaching Case from The Wall Street Journal Weekly Accounting Review on October 31, 2014

The New Rules of Estate Planning
by: Laura Saunders
Oct 25, 2014
Click here to view the full article on WSJ.com
 

TOPICS: Estate Tax, Tax Planning, Taxation

SUMMARY: The federal estate tax is no longer the biggest concern for most affluent people who want to avoid taxes on wealth they leave to heirs. Last year, Congress set the top estate-and-gift-tax rate at 40% and raised the exemption to $5 million per person, adjusted for inflation. It now stands at $5.34 million and is expected to rise to $5.43 million in 2015. Lawmakers also changed the rules so that couples don't need trusts to get their full break from Uncle Sam. These changes have freed hundreds of thousands of affluent Americans from worrying about federal estate tax, and they may never have to. The new rules present tax-saving opportunities that many people planning estates remain unaware of - and that could contradict past advice.

CLASSROOM APPLICATION: You can use this article when covering estate taxation and planning.

QUESTIONS: 
1. (Introductory) What are the details of the current estate tax law? How does it differ from the previous law?

2. (Advanced) The article states that taxpayers had extreme uncertainty. What was the cause of that uncertainty? What estate planning ideas were taxpayers utilizing at that time?

3. (Advanced) What is the "step-up" discussed in the article? How can it be used for effective tax planning?

4. (Advanced) What is a trust? How can trusts be used in estate planning? What are some limitations of using trusts? Please explain which taxpayers would benefit from the use of trusts, and which would not benefit.

5. (Advanced) How does gifting relate to the estate tax? How can gifting be used in estate planning?

6. (Advanced) How do state tax laws impact estate planning? How does state law vary?
 

Reviewed By: Linda Christiansen, Indiana University Southeast

 

"The New Rules of Estate Planning," by Laura Saunders, The Wall Street Journal,October 25, 2014 --- 
http://online.wsj.com/articles/the-new-rules-of-estate-planning-1414167302?mod=djem_jiewr_AC_domainid

The federal estate tax is no longer the biggest concern for most affluent people who want to avoid taxes on wealth they leave to heirs.

For much of the past decade, it was. In 2004, for example, the estates of people who died owning assets worth more than $1.5 million—or who made gifts above that limit while alive—were subject to federal tax at top rates approaching 50%, and married couples had to set up trusts to benefit from their full $3 million estate exemption.

In addition, there was extreme uncertainty as the tax bounced around from year to year and even disappeared entirely in 2010—making effective planning exceedingly difficult.

Finally, last year, Congress set the top estate-and-gift-tax rate at 40% and raised the exemption to $5 million per person, adjusted for inflation. It now stands at $5.34 million and is expected to rise to $5.43 million next year. Lawmakers also changed the rules so that couples don’t need trusts to get their full break from Uncle Sam.

These changes have freed hundreds of thousands of affluent Americans from worrying about federal estate tax, and they may never have to.

Many experts think that Congress, scarred by years of turmoil over the estate levy, is averse to making more big changes. Michael Graetz, a former Treasury Department official who teaches at Columbia University’s law school, says lawmakers would sooner repeal the tax than lower the exemption.

The new rules present tax-saving opportunities that many people planning estates remain unaware of—and that could contradict past advice. “The conventional wisdom has been turned on its head because of changes in both the income tax and the estate tax,” says Suzanne Shier, chief tax strategist at Northern Trust in Chicago.

In the past, for example, avoiding the estate tax often meant forgoing efforts to minimize long-term capital-gains taxes, which had a much-lower top rate of 15%, Ms. Shier says.

But now many people who won’t owe estate tax can reap substantial tax savings on capital gains by choosing carefully which assets to hold until death. This strategy is especially useful now that the top federal rate on long-term gains is nearly 24%, two-thirds higher than in 2012.

The high exemption also is prompting changes in gift strategies and trusts, says John O. McManus, an estate lawyer in New York. In other cases, say experts, state estate and inheritance taxes are looming larger because the federal estate tax now affects so few people.

The upshot: People covered by the federal estate-tax exemption should review the plans they have in place to look for more tax savings. Here are important factors to consider.

Reset Capital Gains The federal code has long had a provision, known as the “step-up,” that cancels the long-term capital-gains tax on assets that a taxpayer holds until death. The step-up automatically raises the owner’s cost basis for such assets—the starting point for measuring a taxable gain—to its full market value as of the date of death.

For example, say an investor bought a piece of land or stock shares many years ago for $20,000, and the value has grown to $200,000. If the investor sells the asset before his death, he will owe capital-gains tax on the $180,000 profit, at a rate as high as 23.8%—the 20% top rate on long-term gains, plus a surtax of 3.8% levied on higher-income taxpayers.

If the investor holds the same asset until death, however, the capital-gains tax vanishes. The asset will be included in the owner’s estate at full market value, where the exemption of more than $5 million per person could shelter it from federal estate tax as well.

The new focus on the step-up prompted Ren Grevatt, now 94 years old, to do an about-face in his estate plan. For years, says his son Jonathan, who helps his father with his affairs, planners suggested that the father give his children the family’s beloved seven-bedroom Vermont farmhouse to avoid estate taxes that could have forced a sale.

Now Mr. Grevatt plans to keep the house until he dies. He and his 87-year-old wife, who live in New Jersey, bought it for less than $100,000 in the 1960s, shortly before he became a publicist for such rock groups as the Beatles, the Rolling Stones, Led Zeppelin and the Who. The house, which is in prime ski country with views of two lakes, has appreciated greatly.

As the parents’ estates will total less than $10 million together, no federal estate tax will be due. By holding on to the house, however, the parents will enable their children to inherit the property at its current market value—and skip capital-gains tax of up to 23.8% on decades of appreciation.

“I’m glad my father didn’t get around to giving us the house,” says the younger Mr. Grevatt.

Experts recommend scrutinizing which assets to hold until death to maximize the step-up. This move is especially important in high-tax states such as California, where the top combined federal and state capital-gains rate exceeds 35%.

Tap the Right Assets To meet cash needs, some advisers say, it may even make sense to take out a loan rather than selling appreciated investments in taxable accounts, especially with interest rates low.

Another strategy: making withdrawals from traditional individual retirement accounts or other retirement plans. Because such assets are in tax-deferred accounts, they don’t get a step-up in basis.

“Income taxes on a traditional IRA are largely unavoidable unless the assets are donated to charity, while the capital-gains tax can be optional,” says Eric Lewis, chief investment officer at Bedrock Capital Management in Los Altos, Calif. Still, he says, investors should be careful not to take on excessive risk—or abandon their overall strategy—to minimize taxes.

What about assets held jointly by a married couple? In nine states with community-property laws, including California and Texas, the survivor typically gets a full step-up on joint assets after the first spouse dies.

In most other states, the step-up resets half the value of a joint asset after the first death. So if a couple jointly owns the asset described above, which had a cost of $20,000 and current value of $200,000, then at the wife’s death the husband’s cost basis in the asset would rise to $110,000—$10,000 for the husband’s portion and $100,000 for the current value of his wife’s share.

At that point, his taxable gain would be $90,000, although no tax is due unless he sells it.

Many planners are advising couples to review their assets with the step-up in mind. For this reason, says Joe McDonald, a lawyer with McDonald & Kanyuk in Concord, N.H., one of his clients gave her husband half of a highly appreciated portfolio of stocks that she inherited years before from her family.

“She always felt she shouldn’t share ownership because the gift came from her family, but she decided to after learning about the taxes,” he says. (Under federal law, the recipient often has to survive the transfer for a year, or the recipient’s estate doesn’t get the step-up.)

Rethink Your Trusts The growing prominence of the step-up also affects tax-saving trusts. Until the advent of a provision known as “portability” in 2011, spouses often needed trusts to provide their estates with the full value of two federal estate-tax exemptions.

Continued in article


Teaching Case from The Wall Street Journal Weekly Accounting Review on October 31, 2014

Buybacks Can Juice Per-Share Profit, Pad Executive Pay
by: Maxwell Murphy and John Kester
Oct 28, 2014
Click here to view the full article on WSJ.com
 

TOPICS: Earnings Per Share, Stock Buybacks

SUMMARY: In the most recent quarter, one in four companies in the S&P 500 index is expected to have juiced its earnings per share by 4% or more by snapping up its own stock. That is up from one in five at the beginning of 2014. Corporations have long bought their own shares as a way of returning excess cash to shareholders. Reducing the number of shares outstanding gives the remaining investors a larger stake in the company. Buybacks also are often a sign of a company's confidence in its future. The other side of the blade: Some shareholders and analysts are questioning why companies aren't instead plowing more money back into their business, and they say that buybacks may serve the interests of top management more than those of average shareholders.

CLASSROOM APPLICATION: This article is appropriate to use when covering stock buybacks and the effect they have on the financial statements.

QUESTIONS: 
1. (Introductory) What is a stock buyback? What companies have participated in this activity in recent months?

2. (Advanced) Why would a company do a stock buyback? What are the advantages of a stock buyback? What are the potential problems with a stock buyback?

3. (Advanced) What is the impact of a stock buyback on the financial statements? How would the transaction be recorded? What account balances are impacted?

4. (Advanced) What is earnings per share? How is EPS used in financial statement analysis? How would a stock buyback affect EPS?

5. (Advanced) What areas of financial statement analysis, other than EPS, are impacted by a stock buyback? For each of those aspects, would the impact be positive, negative, or could be either, depending on the situation?

6. (Advanced) When are conditions positive for a company to consider a stock buyback? What conditions make a buyback a poor idea?

7. (Advanced) How should investors view buybacks? What factors should investors consider when evaluating the value of the buyback?
 

Reviewed By: Linda Christiansen, Indiana University Southeast
 

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"Buybacks Can Juice Per-Share Profit, Pad Executive Pay," by Maxwell Murphy and John Kester, The Wall Street Journal, October 28, 2014 ---
http://blogs.wsj.com/cfo/2014/10/28/buybacks-can-juice-per-share-profit-pad-executive-pay/?mod=djem_jiewr_AC_domainid

Buying earnings growth cuts both ways.

In the most recent quarter, one in four companies in the S&P 500 index is expected to have juiced its earnings per share by 4% or more by snapping up its own stock, according to S&P Dow Jones Indices. That is up from one in five at the beginning of the year.

Corporations have long bought their own shares as a way of returning excess cash to shareholders. Reducing the number of shares outstanding gives the remaining investors a larger stake in the company. Buybacks also are often a sign of a company’s confidence in its future.

The other side of the blade: Some shareholders and analysts are questioning why companies aren’t instead plowing more money back into their business, and they say that buybacks may serve the interests of top management more than those of average shareholders.

“Executives are compensated [based] on EPS,” said Warren Chiang, a managing director at investment firm Mellon Capital Management Corp. EPS growth, he added, is “the primary reason they do buybacks.”

After a dip in the second quarter, companies have been buying back their shares at the quickest clip since the recession, and the pace is expected to accelerate through year-end.

Among those that have invested most aggressively in their own stock are Ingersoll-Rand PLC, Illinois Tool Works Inc., and FedEx Corp. , which all have reported year-to-year EPS growth in the latest quarter at least 13 percentage points higher than their gains in overall profit.

Ingersoll-Rand and Illinois Tool spokeswomen said one-time events were partially responsible for the discrepancy between net income and EPS growth.

FedEx Corp. said its board recently authorized a new stock-repurchase program that will be used primarily to offset dilution from employee stock grants. Separately, after the article’s publication, FedEx said that long-term incentive compensation calculations exclude earnings per share as a result of share buybacks.

While the economy has crawled back to life, many businesses remain reluctant to buy new equipment, build factories or hire workers. They blame the uneven recovery that has left many Americans behind and foreign markets that are stumbling.

Repurchases, meanwhile, can boost a company’s curb appeal. Illinois Tool Works used buybacks to post an EPS surge of 33%, nearly twice the latest quarter’s bottom-line profit growth. Bed Bath & Beyond Inc. ’s stock purchases turned a 10% drop from a year earlier in overall profit into a penny improvement in EPS. The housewares retailer didn’t provide comment.

Flouting Wall Street’s conventional wisdom of “buy low, sell high,” companies tend to vacuum up their stock as prices rise, and dial back purchases when prices swoon, said Gregory Milano, chief executive of business consulting firm Fortuna Advisors LLC. Plus, he said, companies that avoid buybacks usually outperform those that embrace them over the long term.

“It’s kind of like a kid in school. A lot of kids are motivated by getting the best grades they can; other kids are focused on learning as much as they can,” he said. While the child with better marks might have a leg up entering the workforce, “the kid who understands it better has a better career.”

Of course, there are times when companies are awash in cash. Home Depot Inc. has bought back almost $50 billion of its shares since 2002. And CFO Carol Tomé says she is content to pursue this strategy as long as the home-improvement retailer’s stock price is below what she believes is its intrinsic value.

“If you’re cash rich, and you have no better place to put it,” she said. “We’re such a cash cow. The last thing we’re going to do is sit on cash. That is value-destroying to our shareholders.”

In addition, a well-executed buyback can charm money managers. Northrop Grumman Corp. has “done an A-plus job in our mind,” because it has been buying shares at an attractive valuation, and Lockheed Martin Corp. has “done a similarly good job,” said Matt Lamphier, a portfolio manager at First Eagle Investment Management, a major shareholder in both defense companies.

Finance chiefs bristle at the idea that buybacks are just a mechanism to burnish EPS numbers or pad their bonuses.

“If you’re doing the top-line growth, buying back stock is just a means of returning capital to shareholders,” said John Geller Jr., CFO of Marriott Vacations Worldwide Corp. , which announced this month it would buy back 10% of its shares. Plus, he added, “most investors are fairly sophisticated,” and can tell the difference between real and fabricated growth.

Still, investors should expect a year-end spending spree. While about 8% of a year’s buybacks historically take place October, the peak is in November, with 14% of repurchases, and another 10% come in December, according to David Kostin, senior U.S. equity strategist at Goldman Sachs Group Inc.GS -0.29%

Late last year, Stanley Black & Decker Inc. said it would buy back as much as $1 billion of its stock, or 7% of its current market value, by the end of 2015. But, CFO Donald Allan Jr. acknowledges that the tonic effects of such deals are temporary.

Buybacks alone “might help your stock price performance and your company’s performance for a two- to three-year period,” he said, “but it’s not going to help the performance of the company over a decade.”

Correction: The original version of this blog incorrectly stated that FedEx Corp. didn’t provide a comment. The blog post was prematurely updated Wednesday and then restored to its original form. Above is the corrected version.

"When Stock Buybacks Are Not a Waste of Money," by Justin Fox, Harvard Business Review Blog, November 4, 2014 --- Click Here
http://blogs.hbr.org/2014/11/when-stock-buybacks-are-not-a-waste-of-money/?utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date&cm_ite=DailyAlert-110514+%281%29&cm_lm=rjensen%40trinity.edu&referral=00563&cm_ven=Spop-Email&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date

Buying back stock, pretty much corporate America’s favorite thing to do with its money over the past decade, has come in for a lot of criticism this fall. In an epic September 2014 HBR article, “Profits Without Prosperity,” economist William Lazonick blamed buybacks for much of what ails the U.S. economy. His arguments have begun to catch on, in the media at least.

Two years ago, though, HBR Press published a book that cast buybacks in a much different light. In The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success, Will Thorndike described how share buybacks had helped drive several of the most remarkable corporate successes of the past half century. The Outsiders has been described by The Wall Street Journal as the “playbook” for many of the activist investors currently pushing companies to buy back more shares.

So I asked Thorndike, a managing director at the private equity firm Housatonic Partners, what gives: Are buybacks a travesty, or smart capital allocation? What follows is an edited and condensed version of our conversation. But first, I should probably define a few things that come up: A tender offer is when a company publicly offers to buy a large number of shares, at a set price, over a limited time period. P/E means price-to-earnings ratio. And John Malone is a cable-TV billionaire who figures prominently in Thorndike’s book.

I guess I’ll start where your book starts, with Henry Singleton, who is really the father of the modern stock buyback. What did he do?

The way to think about Henry Singleton is that he demonstrated kind of unique range as a capital allocator. He built Teledyne [in the 1960s] largely by using his very high P/E  to acquire a wide range of businesses. He bought 130 companies, all but two of them in stock deals. Throughout that decade his stock traded at an average P/E north of 20, and he was buying businesses at a typical P/E of 12. So it was a highly accretive activity for his shareholders.

That was Phase One. Then he abruptly stops acquiring when the P/E on his stock falls at the very end of the decade, 1969, and focuses on optimizing operations. He pokes his head up in the early ‘70s and all of a sudden his stock is trading in the mid single digits on a P/E basis, and he begins a series of significant stock repurchases. Starting in ‘72, going to ’84, across eight significant tender offers, he buys in 90% of his shares. So he’s sort of the unparalleled repurchase champion.

When he started doing that in ‘72, and across that entire period, buybacks were very unconventional. They were viewed by Wall Street as a sign of weakness. Singleton sort of resolutely ignored the conventional wisdom and the related noise from the media and the sell side. He was an aggressive issuer when his stock was highly priced, and an aggressive purchaser when it was priced at a discount to the market.

The other seven companies in the book, buybacks were a big part of their success too, right?

Yes, that’s correct. Of the eight companies in the book, all but Berkshire Hathaway — kind of a special case, Warren Buffett’s company — bought in 30% or more of shares outstanding over the course of the CEO’s tenure.

Is part of it the era? Most of these stories you tell, the bear market of the ‘70s and early ‘80s is right in the middle of them.

Continued in article

Bob Jensen's threads on earnings management are at
http://www.trinity.edu/rjensen/Theory02.htm#Manipulation


Anat R. Admati --- https://www.gsb.stanford.edu/faculty-research/faculty/anat-r-admati

"When She Talks, Banks Shudder," by Binyamin Appelbaum, The New York Times,  August 9, 2014 ---
http://www.nytimes.com/2014/08/10/business/when-she-talks-banks-shudder.html?_r=0

Bankers are nearly unanimous on the subject of Anat R. Admati, the Stanford finance professor and persistent industry gadfly: Her ideas are wildly impractical, bad for the American economy and not to be taken seriously.

But after years of quixotic advocacy, Ms. Admati is reaching some very prominent ears. Last month, President Obama invited her and five other economists to a private lunch to discuss their ideas. She left him with a copy of The Bankers’ New Clothes: What’s Wrong With Banking and What to Do About It,” a 2013 book she co-authored. A few weeks later, she testified for the first time before the Senate Banking Committee. And, in a recent speech, Stanley Fischer, vice chairman of the Federal Reserve, praised her “vigorous campaign.”

Dennis Kelleher, chief executive of Better Markets, a nonprofit that advocates stronger financial regulation, said Ms. Admati has emerged as one of the most effective advocates of the view that regulatory changes since the 2008 crisis remain insufficient. “She has been, as one must be,” Mr. Kelleher said, “dogged from the West Coast to the East Coast to Europe and back again and over again.”

Ms. Admati’s simple message is that the government is overlooking the best way to strengthen the financial system. Regulators, she says, need to worry less about what banks do with their money, and more about where the money comes from.

Companies other than banks get money mostly by selling shares to investors or by reinvesting profits. Banks, by contrast, can rely almost entirely on borrowed funds, including the money they get from depositors. Ms. Admati argues that banks are taking larger risks than other kinds of companies because they use other people’s money, and the results are that they keep crashing the economy.

Her solution is to make banks behave more like other companies by forcing them to reduce sharply their reliance on borrowed money. That would likely make the banking industry more stodgy and less profitable — reducing the economic risks, the executive bonuses and, for shareholders, both the risks and the profits.

“My comparison is to speed limits,” Ms. Admati said in an interview near the Stanford campus. “Basically what we have here is the market has decided nobody else should be driving faster than 70 miles an hour and these are the biggest trucks with the most explosive cargo and they are driving at almost 100 miles an hour.”

For all her success in stimulating debate, however, Ms. Admati and like-minded critics face long odds. Since the financial crisis, the government has already required banks to reduce their reliance on borrowed money by increasing capital standards, which dictate the share of funding that must come from equity. Mr. Obama recently described that increase as massive, and officials are considering further increases for the largest banks. But the net effect is tiny in comparison to the change sought by Ms. Admati. Officials worry that larger changes would hamstring American banks, driving business both to other kinds of domestic financial firms and to foreign rivals. Continue reading the main story

In his speech, Mr. Fischer said Ms. Admati’s arguments made sense in principle. “At one level, the story on capital and liquidity ratios is very simple: From the viewpoint of the stability of the financial system, more of each is better,” he said. But the United States, he said, was constrained by practicality. If other countries aren’t willing to impose stricter capital requirements on their own banks — and they don’t appear to be — then unilateral increases would hurt the American banking industry and the broader economy.

Andrew Metrick, a Yale finance professor, said that such rules could also push activity into the less regulated corners of the domestic financial system.

He compared the situation to a pair of parallel highways, echoing Ms. Admati’s metaphor. “If you lower the speed limit on one highway, you’ll have fewer accidents on that highway,” he said. “But the other road will just get more crowded.”

Ms. Admati compares this logic to letting American manufacturers pollute so that they can compete more effectively with companies in China. And she says she is looking for new ways to press her fight. In January, she debated bankers at the World Economic Forum in Davos, Switzerland. In May, she delivered a 15-minute TED talk to an audience at Stanford. Next year, she is planning a conference in Washington. She says it’s hard to imagine a return to the kind of theoretical work that absorbed her before the crisis.

“This is not fun,” she said of her campaign. “But I know that this is a bad system. There is no justification for this — zero. The only reason we are staying where we are is that the status quo has staying power. And if we are stuck with the status quo, then we are going to have to suffer the consequences.”

‘Something Is Very Wrong’

Before the financial crisis in 2008, Ms. Admati spent most of her time working with complicated financial models. She had never paid much attention to banking or to public policy. But as the crisis unfolded, she began reading and talking with colleagues — “like a doctor from another field of medicine visiting the emergency room,” she said — and grew increasingly disconcerted by what she learned.

Even after the crisis, banks continue to rely on debt financing far more than other kinds of corporations. Last year, the eight largest American banks together derived less than 5 percent of their funding from shareholders, according to Thomas M. Hoenig, vice chairman of the Federal Deposit Insurance Corporation. The average equity financing for nonfinancial corporations was about 60 percent.

Ms. Admati said she started asking one question repeatedly: Why were banks behaving so differently? Companies with more debt are more vulnerable to financial setbacks. Banks were in the danger zone, so why not raise more equity?

Four years later, she says she’s still waiting to hear a good answer. She recalled the explanation in one prominent banking textbook, which she read in 2010, as a particular spur to action. “It was shocking,” she remembered. She said she went to the office of a Stanford colleague, her frequent collaborator Paul Pfleiderer, and told him: “Something is very wrong. I’ve never heard so much nonsense in all of my life.” She still becomes visibly angry as she recalls the conversation. “They are denying what we know about financial markets. It’s like they are saying gravity is not a force in nature.”Ms. Admati decided to enter the public square because she felt that academics and policy makers weren’t listening. “The Bankers’ New Clothes,” which she wrote with Martin Hellwig, an economics professor at the University of Bonn, proved a turning point in her campaign. But the first step was much smaller. She was not sure how to reach a popular audience, so in 2010 she enrolled in a program that teaches prominent women to write opinion articles. Her first, published in The Financial Times in the fall of 2010, was a letter co-signed by 19 other academics that criticized an international agreement on minimum bank capital standards as “far from sufficient to protect the system from recurring crises.”

Banking is the only industry subject to systematic capital regulation. Borrowing by most companies is effectively regulated by the caution of lenders. But the largest lenders to banks are depositors, who generally have no reason to be cautious because federal deposit insurance guarantees repayment of up to $250,000 even if the bank fails. This means the government, which takes the risk, must also impose the discipline.

In the decades before the financial crisis, banks gradually convinced regulators to reduce capital requirements to very low levels. In the aftermath, banks acknowledged that some increases were necessary — they had just needed enormous bailouts, after all — but they fought to minimize those increases. The day after Ms. Admati’s article ran, the same paper ran one by Vikram S. Pandit, then the chief executive of Citigroup, arguing that the proposed standards were excessive. “The last thing the global economy needs is another economic dampener,” Mr. Pandit wrote.

‘Add a Digit’

The industry has benefited from, and sometimes encouraged, public confusion. Banks are often described as “holding” capital, and capital is often described as a cushion or a rainy-day fund. “Every dollar of capital is one less dollar working in the economy,” the Financial Services Roundtable, a trade association representing big banks and financial firms, said in 2011. But capital, like debt, is just a kind of funding. It does the same work as borrowed money. The special value of capital is that companies are under no obligation to repay their shareholders, whereas a company that cannot repay its creditors is out of business.

The industry’s more serious argument is that equity is more expensive than debt. If governments require banks to raise more equity, the industry warns, the results would be higher interest rates, less lending and slower economic growth.

A 2010 analysis funded by the Clearing House Association, a trade group, concluded that an increase of 10 percentage points in capital requirements would raise interest rates by 0.25 to 0.45 percentage points.

Jensen Comment
I think this is a great subject for debate in economics and finance courses. It's important to note how banks differ from other types of business. Probably the main difference is that commercial banks create the money in the money supply. Naive people think the government prints the money supply. The government prints money for the money supply created by the banks. Printed cash money is only one type of "money." For example, if you borrow $10,000 from a bank and put it into your checking account, $10,000 has been created for the USA money supply. If you write a check you can spend this money without ever converting it into cash money.

A central government can also create money by spending without taxing or borrowing (or equivalently borrowing from itself). States in the USA cannot create money, but the criminals in Washington DC and Zimbabwe get away with it. However, in the USA most of the money supply is created by the banks.

The gray zone is bartering. For example, if panned gold nuggets are bartered for a log cabin in Alaska the transaction bypasses the money supply.

Bitcoins and other forms of digital currency are extended forms of bartering that bypass the money supply ---
http://en.wikipedia.org/wiki/Bitcoin

Money Supply --- http://en.wikipedia.org/wiki/Money_supply


"The Future of Money Four surprising ways we might pay for stuff in the next 15 years," by Heather Schlegel, Reason Magazine, December 2014 ---
http://reason.com/archives/2014/11/18/the-future-of-money


"Toyota Is Bringing In The Future With A New Fuel Cell Car," by Stefano Pozzebon, Business Insider,  November 18, 2014 ---
http://www.businessinsider.com/toyota-launches-mirai-hydrogen-car-2014-11

Toyota is launching a new hydrogen-powered car that will first be available in Japan in mid-December this year. 

The Mirai — a Japanese words that means future — uses a hydrogen fuel cell generate electricity instead of batteries, as in Toyota's Prius. 

The car is powered by an electric engine of 113 KW (152 bhp) and has a maximum speed of 110 mph (almost 180 km/h), the company said in a statement. It has a recharging time of three minutes. The benefit of this car is that it emits no carbon dioxide pollutants as its being driven. 

The Mirai will be available in the UK, Germany, and Denmark in September 2015.

The Guardian reports that that the new energy-efficient car will retail in Japan for about 6.7 million yen (£37,000 or $57,000).


Read more: http://www.businessinsider.com/toyota-launches-mirai-hydrogen-car-2014-11#ixzz3JQdbklLj
 

Electrolysis for Splitting Water into Oxygen and Hydrogen --- http://en.wikipedia.org/wiki/Electrolysis#Electrolysis_of_water

"Stanford scientists develop water splitter that runs on ordinary AAA battery," Stanford News, August 22, 2014 ---
http://news.stanford.edu/news/2014/august/splitter-clean-fuel-082014.html

Jensen Comment
Unlike Tesla, Japanese and South Korean automobile manufacturers are betting on electric cars powered by hydrogen fuel cells. This makes me wonder about the sensibility of Tesla's forthcoming investment in a $1.3 billion dollar battery plant in Nevada ---
http://www.foxbusiness.com/technology/2014/09/10/nevada-governor-orders-extra-session-for-13b-deal-to-land-tesla-electric-car/?intcmp=us_topics


"The Real Cost of “High-Priced” Drugs," by Michael Rosenblatt, Harvard Business Review Blog, November 17, 2014 --- Click Here
https://hbr.org/2014/11/the-real-cost-of-high-priced-drugs?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date

Jensen Comment
This still does not explain why the USA has to pay so much more for medications than other nations pay for the exact same products, which is why so many of my neighbors make a run for Canada to re-fill their prescriptions.

This still does not explain why the big pharmaceutical companies lobbied our whores in Washington DC to ban negotiating lower prices for Medicare D prescriptions.


Teaching Case on Revenue Recognition
From The Wall Street Journal Weekly Accounting Review on November 14, 2014

How Mobile-Game Makers Account for Magic-Wand Sales
by: Emily Chasen, Noelle Knox, and Tiziana Barghini
Nov 11, 2014
Click here to view the full article on WSJ.com
 

TOPICS: Revenue Recognition

SUMMARY: Anticipating when players will move on from a purchase of a virtual durable good is an essential part of recording revenue in the mobile-game industry, where the sale of "virtual durable goods," such as cows and tractors in "FarmVille" or cannons and dark barracks in "Clash of Clans" is a major source of income. When game companies change their assumptions it can skew their short-term results. Some virtual goods, like potions and spells, are good for a single use, and are accounted for as a one-time sale. Virtual durable goods are those that are continually available to the player. They might include a superhero character or a tractor, depending on the game. These goods are accounted for like services or club memberships. Companies book part of the player's payment upfront, but defer the rest until the end of the average period in which the item will be used-whether four days or 14 months.

CLASSROOM APPLICATION: This is an excellent example of a specialize situation for revenue recognition. Virtual durable goods in video games are a now-common, but unusual product for which revenue must be recognized. Students will enjoy this interesting and different example.

QUESTIONS: 
1. (Introductory) What is revenue recognition? What are the general accounting rules for revenue recognition? Why is the timing of revenue recognition so important?

2. (Advanced) How do the products of the video game industry differ from many other products? How does that affect revenue recognition? How do the various video game companies differ in the way they recognize revenue? What factors can affect how and when the revenue is recorded?

3. (Advanced) What are the potential problems associated with how the game companies book sales and costs? Who could be affected?

4. (Advanced) What is the SEC and FASB? Why are they concerned about revenue recognition? How have the SEC and FASB been involved in this issue?
 

Reviewed By: Linda Christiansen, Indiana University Southeast

"How Mobile-Game Makers Account for Magic-Wand Sales," by Emily Chasen, Noelle Knox, and Tiziana Barghini, The Wall Street Journal, November 11, 2014 ---
http://online.wsj.com/articles/how-mobile-games-makers-account-for-magic-wand-sales-1415670273?mod=djem_jiewr_AC_domainid

Lucia Rubin was an avid player of “Candy Crush Saga” for a few months last year. She spent about $5 buying extra life candies and more playing time for the mobile videogame.

Then, she switched to “Virtual Families 2,” a game that lets players build their dream home and adopt children. She accidentally bought $50 in virtual coins—oops, instead of $5—to spend on food, furniture, gardeners and maids.

Again she lost interest after a couple of months.

“I don’t play anymore because it’s kind of boring if you don’t have that much money,” in the game, said the 9-year-old New Yorker.

Anticipating when players like Lucia will move on is an essential part of recording revenue in the mobile-game industry, where the sale of “virtual durable goods,” such as cows and tractors in “FarmVille” or cannons and dark barracks in “Clash of Clans” is a major source of income.

When game companies change their assumptions it can skew their short-term results.

Some virtual goods, like potions and spells, are good for a single use, and are accounted for as a one-time sale.

Virtual durable goods are those that are continually available to the player. They might include a superhero character or a tractor, depending on the game.

These goods are accounted for like services or club memberships. Companies book part of the player’s payment upfront, but defer the rest until the end of the average period in which the item will be used—whether four days or 14 months.

“The thing that’s so weird is if people lose interest, and start playing for a shorter period, it drives faster revenue recognition. The shorter playing period is a negative for the business, but it is going to drive higher revenue,” said Jill Lehman, head of technology, media and telecom research for forensic-accounting analysis firm CFRA.

Game makers say they base their estimates on historical data, but that the playing periods can change substantially each year, especially for the newest and more popular games.

The Securities and Exchange Commission has sent more than two dozen letters to the companies since 2010, asking them to explain more about how they come up with these estimates.

Earlier this year, the SEC asked Zynga Inc., the maker of “FarmVille” and other games, to reveal more about how its estimates of the average life of durable virtual goods affect its financial data.

The agency noted that changes Zynga made in its average-life assumptions boosted revenue by $12.3 million and $14.1 million in 2013 and 2012, respectively.

When it went public in 2011, Zynga said its virtual durable goods had an estimated average life of 15 months, down from 19 months in 2009. In its latest annual report, the company said it expects paying players to stick with its games for between six and 18 months.

In June, Zynga told the SEC that it had “carefully considered the disclosure requirements,” and would note in future regulatory filings how changes in its assumptions affected net income, per-share earnings and income from continuing operations.

Zynga declined requests to be interviewed for this article. The SEC declined to comment beyond its letters.

Companies that make similar games might make different choices in booking sales and costs, which can make it tough for investors to make comparisons.

“Candy Crush” maker King Digital Entertainment PLC, which went public in February, used to sell virtual durable goods and spread its revenue over the estimated life of its games, which it put at between two and nine months. The company stopped selling durable goods more than a year ago.

“We have no more durables in our games today” said Melissa Nussbaum, King’s senior director, finance.

In March, the SEC asked King Digital to explain why it was recognizing sales from packs of nondurable virtual items at the time the final item in the pack was consumed, rather than as each item was consumed.

King Digital responded that it waits because the average time between a player using the first and last item in a pack is four days, but that it reassesses that estimate periodically.

The U.S. Financial Accounting Standards Board is considering whether to issue further guidance to “reduce the potential diversity” in revenue recognition for virtual goods in electronic games, said FASB Chairman Russell Golden.

Mr. Golden added that “to be fully honest, I had to consult with my 10-year old son to be better informed about these types of transactions—and then I consulted with my wife on how we control the spending on his iPhone.”

Gamers are expected to spend more than $20 billion on mobile games this year, about a third more than last year, according to research firm Gartner Inc.

But players are fickle. Six of the games among the industry’s top 10 revenue generators in September weren’t on last year’s list, according to data tracker App Annie. And a small percentage of players account for the bulk of purchases.

Continued in article

Mobile-Game Makers:  Roller-coaster accounting and revenue shifts
From the CFO Journal's Morning Ledger on  November 11, 2014

It may be bad for a mobile-game maker’s business if players don’t stick with its games for long, but, because of accounting rules for virtual goods, it can drive revenue higher in the short term, CFO Journal reports. Anticipating when players will lose interest is an essential part of recording revenue in the industry, where the sale of “virtual durable goods,” such as cows and tractors in “FarmVille” or cannons and dark barracks in “Clash of Clans,” is a major source of income. (Just ask this Slate columnist, who was shocked to find himself spending “real money” in one.)

When game companies like Zynga Inc. or King Digital Entertainment PLC change their assumptions, it can skew their short-term results. Some virtual goods, like potions or spells, are good for a single use so accounted for as a one-time sale, but virtual durable goods that are continuously available to a player, like a tractor, are accounted for like services or club memberships. Companies book part of the payment upfront, but defer the rest until the average period in which the item will be used.

The Securities and Exchange Commission has sent more than two dozen letters to the companies since 2010, asking them to explain how they come up with their estimates on length of use of the virtual durable goods. Game makers say they base their estimates on historical data, but that the playing periods can change substantially each year. That could make for some roller-coaster accounting—and revenue shifts to go with it.

Bob Jensen's threads on revenue recognition ---
http://www.trinity.edu/rjensen/ecommerce/eitf01.htm 


Teaching Case on Lease Accounting
From The Wall Street Journal Weekly Accounting Review on November 17, 2014

A Sure-Fire Way to Harm The Economy
by: Brad Sherman and Peter King
Nov 10, 2014
Click here to view the full article on WSJ.com
 

TOPICS: Lease Accounting

SUMMARY: For hundreds of years companies have treated most lease payments as operating expenses, like rent, and not put them on their balance sheets. Under new accounting standards they would report the leases they hold on their balance sheets as liabilities-equal to the net present value of all future lease payments, which in some cases run for 20 or 30 years. That little-known and seemingly benign change in accounting rules could cost millions of jobs and billions in lost economic growth. Most business owners and their employees have no idea what may be coming. The agencies that establish accounting standards in the U.S., Europe and Asia have a proposal, now gaining momentum, to change how companies present leased property and equipment on their financial statements. If it is implemented, the effect would be dramatic.

CLASSROOM APPLICATION: This opinion piece provides good information regarding current and proposed accounting rules for leases, as well as the problems that could result from the proposed changes.

QUESTIONS: 
1. (Introductory) What are the current accounting rules for leases? What are the proposed changes to those rules?

2. (Advanced) What are the benefits of the proposed rules? What are the potential problems associated with those changes?

3. (Advanced) Who is proposing the changes to lease accounting rules? Why does this group have authority?

4. (Advanced) Who wrote this article? Is it a news story or an opinion piece? How do these writers have knowledge to comment on this issue? Do you respect or trust what they are saying?
 

Reviewed By: Linda Christiansen, Indiana University Southeast

"A Sure-Fire Way to Harm The Economy," by Brad Sherman and Peter King, The Wall Street Journal, November 10, 2014 ---
http://online.wsj.com/articles/brad-sherman-and-peter-king-a-sure-fire-way-to-harm-the-economy-1415574014?mod=djem_jiewr_AC_domainid

Just as it seems the U.S. economy might be turning a corner, a little-known and seemingly benign change in accounting rules could cost millions of jobs and billions in lost economic growth. Most business owners and their employees have no idea what may be coming.

The agencies that establish accounting standards in the U.S., Europe and Asia have a proposal, now gaining momentum, to change how companies present leased property and equipment on their financial statements. If it is implemented, the effect would be dramatic.

For hundreds of years companies have treated most lease payments as operating expenses, like rent, and not put them on their balance sheets. Under new accounting standards they would report the leases they hold on their balance sheets as liabilities—equal to the net present value of all future lease payments, which in some cases run for 20 or 30 years.

IHS Global Insight has estimated that the new rule would add $2 trillion to the liabilities on companies’ balance sheets, while also adding $2 trillion in “assets” (the right to use the property or equipment). The U.S. Financial Accounting Standards Board (FASB) says this will “provide users of financial statements with a complete and understandable picture of an entity’s leasing activities.” That’s the supposed benefit. But the costs are extraordinary.

An economic analysis by Chang and Adams Consulting for several leading nonprofit and commercial organizations found that the changes—first proposed in 2010 by the FASB and the London-based International Accounting Standards Board (IASB)—would raise the cost of capital for lessees, in the process destroying 190,000 U.S. jobs and shrinking the economy by $27.5 billion annually. And that was the best-case scenario. At worst, the cost would be 3.3 million lost jobs and an economic hit of over $400 billion a year, indefinitely.

Businesses of all sizes have long-term loans from banks and other financial institutions. Those loans typically contain covenants allowing the bank to demand immediate repayment when liabilities grow unusually quickly, upsetting, for instance, the ratio of the company’s debt-to-equity agreed upon at the time of the loan. Because the new accounting rules would fabricate trillions in new debt, they would trigger widespread violations of these covenants. Banks could then pull the loan, demand higher interest, or require new collateral and guarantees.

Some have proposed a five-year transition to the new rules. But this won’t solve the problem, because many business loans are for much longer terms. Pushing the effective date of the rules into the future merely delays the impact.

The additional burdens associated with constantly tracking and remeasuring the “fair value” of leases of every kind, from a business’s office space to the photocopier down the hall, will hit businesses, and their employees and consumers, directly in the pocketbook. According to some critics, the accounting-rule change would distort the financial condition of businesses by accelerating expenses over a short timeline rather than reflect expenses over the life of a lease.

Many private parties have sent public comment letters to the FASB urging it and the IASB to conduct field tests to see how much it would really cost lessees and tenants to do all the work the new leasing rules would require. Congress has asked the FASB for a rigorous cost-benefit analysis and field testing to objectively assess the risks of the accounting changes. Neither has been undertaken. Yet all indications are that the U.S. and international accounting-standards boards are going ahead with only minor revisions to their proposal, which may be finalized next year.

In 1973 the Securities and Exchange Commission formally outsourced the job of writing accounting rules to the FASB. While the SEC is authorized to seek help from private standard-setting bodies on this issue, the Sarbanes-Oxley Act of 2002 explicitly reminded the SEC that these quasi-government agencies can only “assist the Commission” in fulfilling the SEC’s own responsibility to establish accounting standards for publicly held companies.

Continued in article


Teaching Case on Pending Lease Accounting Rule Changes
From The Wall Street Journal Accounting Weekly Review on September 5, 2014

The Big Number: Changes in Lease Accounting Rules Draw Closer
by: Emily Chasan
Sep 01, 2014
Click here to view the full article on WSJ.com
 

TOPICS: Debt Covenants, Financial Accounting, Lease Accounting

SUMMARY: U.S. and international accounting-rule makers are edging closer to completing a decade-long effort to overhaul lease accounting rules. The rules, which could be issued in 2015, threaten to bring roughly $2 trillion of off-balance-sheet leases onto corporate books. But adding assets and liabilities for store leases, airplanes and the like could force companies to renegotiate the terms of their loans with lenders. Banks and lenders often require companies to maintain covenants, such as a specific debt-to-equity ratio, fixed-asset ratio or earnings metric, which could all be thrown out of whack by such a significant accounting change.

CLASSROOM APPLICATION: This is an interesting article about the changes to lease accounting because it highlights an important ripple effect: calculations for debt covenants will be affected. This is important to note for students that any change to accounting rules can change the financial statements and any corresponding financial statement analysis calculations. These ripple effects can cause problems for the firms and should be anticipated and addressed.

QUESTIONS: 
1. (Introductory) What changes have been proposed for accounting for leases? Why are rule-makers working on these changes?

2. (Advanced) What are some of the ripple effects resulting from the changes to the lease rules? More specifically, what is the impact on calculations for debt covenants?

3. (Advanced) How should lenders react? Should they adjust their calculations? How should they approach enforcing existing contract requirements?
 

Reviewed By: Linda Christiansen, Indiana University Southeast

"The Big Number: Changes in Lease Accounting Rules Draw Closer," by Emily Chasan, The Wall Street Journal, September 1, 2014 ---
http://online.wsj.com/articles/the-big-number-changes-in-lease-accounting-rules-draw-closer-1409613447?mod=djem_jiewr_AC_domainid

50%

Percentage of global companies with bank-debt covenants potentially affected by lease accounting changes

U.S. and international accounting-rule makers are edging closer to completing a decadelong effort to overhaul lease accounting rules. The rules, which could be issued next year, threaten to bring roughly $2 trillion of off-balance-sheet leases onto corporate books.

But adding assets and liabilities for store leases, airplanes and the like could force companies to renegotiate the terms of their loans with lenders. Banks and lenders often require companies to maintain covenants, such as a specific debt-to-equity ratio, fixed-asset ratio or earnings metric, which could all be thrown out of whack by such a significant accounting change.

Some 50% of global companies have business loans with debt covenants that could require them to repay a loan if they break any covenants, according to a survey of more than 2,000 directors and C-level executives by accounting firm Grant Thornton International Ltd. But only about 8% of those companies currently believe that putting leases on their balance sheet will affect their compliance with bank covenants.

"Many companies are in for a big surprise when this comes out and they have to go to the bank," said Ed Nusbaum, chief executive of Grant Thornton International. "They need to start talking to their bankers."

In North America, about 75% of the executives polled said their loans could be recalled if they break this type of covenant, but less than 5% of executives thought the lease accounting change would affect them.

The American Bankers Association has been pushing rule makers to build a long transition period into the new rules, so that they wouldn't take effect until at least 2018.

"There has to be a huge amount of education for loan officers, who have to start figuring out what the right ratios are and what they will have to adjust," said Michael Gullette, vice president of accounting and financial management at the ABA.

From EY:  FASB addresses sale and leasebacks, US GAAP topics in leases project
http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2822_Leases_3September2014/$FILE/TothePoint_BB2822_Leases_3September2014.pdf
What you need to know

• The FASB decided that repurchase options exercisable at fair value would not preclude sale accounting for sale and leaseback transaction s involving non - specialized underlying assets that are readily available in the marketplace .

• The FASB decided that l essees that are not public business entities could make an accounting policy election to use the risk - free rate for the initial and subsequent measurement of lease liabilities. This is consistent with the Board’s 2013 proposal.

• The Board affirmed its 2013 proposal to eliminate today’s accounting model for leveraged leases but decided that leveraged leases that exist at transition would be grandfathered.

 • The Board also affirmed its 2013 proposal for lessees and lessors to account for related party leases on the basis of the legally enforceable terms and conditions of the lease .

Overview

The Financial Accounting Standards Board (FASB or Board ) continued to redeliberate its 2013 joint proposal 1 t o put most leases on lessees’ balance sheets . At last week’s FASB - only meeting, the Board made more decisions to clarify the proposed guidance on the accounting for sale and leaseback transactions. The Board also affirmed its 2013 proposed decisions about the discount rate for lessee entities that are not public business entities (PBE) , the accounting for leveraged leases and the accounting for related party leasing transactions. The Board’s latest decisions, like all decisions to date, are tentative. No. 201 4 - 333 September 2014 To the Point FASB — proposed guidance

Continued in article

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

 


Teaching Case on Audit Inspections
From The Wall Street Journal Weekly Accounting Review on October 31, 2014

KPMG Audits Had 46% Deficiency Rate in PCAOB Inspection

by: Michael Rapoport
Oct 24, 2014
Click here to view the full article on WSJ.com
 

TOPICS: Accounting Firms, Auditing, Deficiencies, PCAOB

SUMMARY: The 23 deficient audits the Public Company Accounting Oversight Board found in its 2013 inspection of the firm, were out of 50 audits or partial audits conducted by KPMG that the PCAOB evaluated - a deficiency rate of 46%. In the previous year's inspection, the PCAOB found deficiencies in 17 of 50 KPMG audits inspected, or 34%. The report spotlights the PCAOB's continuing concerns about audit quality. Overall, 39% of audits inspected in the latest evaluations of the Big Four firms - KPMG, PricewaterhouseCoopers LLP, Deloitte & Touche LLP and Ernst & Young LLP - were found to have deficiencies, compared with 37% the previous year.

CLASSROOM APPLICATION: This is useful for an auditing class to present recent results of PCAOB inspections.

QUESTIONS: 
1. (Introductory) What is the PCAOB? What is its function?

2. (Advanced) What are the "Big Four" accounting firms? What are the results of the annual inspections of the Big Four accounting firms? Did one firm perform better than others?

3. (Advanced) What is the purpose of these inspections? What do the inspectors do? What is a deficiency? What do the firms do with the inspection results?

4. (Advanced) What happens once these results are determined? Are the financial statements changed as a result of these inspections? Are the firms sanctioned?

5. (Advanced) The article notes that the PCAOB has made public what was previously secret criticism of the firms. Why were those previous results secret? Should this information be secret? Why or why not?

6. (Advanced) Should these results impact the reputations of the Big Four firms? Why or why not? How should the firms handle these public revelations?
 

Reviewed By: Linda Christiansen, Indiana University Southeast
 

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Ernst & Young 2013 Audit Deficiency Rate 49%, Regulators Say
by Michael Rapoport
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"KPMG Audits Had 46% Deficiency Rate in PCAOB Inspection," Michael Rapoport, The Wall Street Journal, October 24, 2014 ---
http://online.wsj.com/articles/kpmg-audits-had-46-deficiency-rate-in-pcaob-inspection-1414093002?mod=djem_jiewr_AC_domainid

Audit regulators found deficiencies in 23 of the KPMG LLP audits they evaluated in their latest annual inspection of the Big Four accounting firm’s work.

The 23 deficient audits the Public Company Accounting Oversight Board found in its 2013 inspection of the firm, released Thursday, were out of 50 audits or partial audits conducted by KPMG that the PCAOB evaluated—a deficiency rate of 46%. In the previous year’s inspection, the PCAOB found deficiencies in 17 of 50 KPMG audits inspected, or 34%.

In a statement responding to the PCAOB inspection, KPMG said, “We are always mindful of our responsibility to the capital markets, and we are committed to continually improving our firm and to working constructively with the PCAOB to improve audit quality.”

The 23 deficiencies were significant enough that it appeared KPMG hadn’t obtained sufficient evidence to support its audit opinions that a company’s financial statements were accurate or that it had effective internal controls, the PCAOB said. A deficiency in the audit doesn’t mean a company’s financial statements were wrong, however, or that the problems found haven’t since been addressed.

Still, the report spotlights the PCAOB’s continuing concerns about audit quality. Overall, 39% of audits inspected in the latest evaluations of the Big Four firms—KPMG, PricewaterhouseCoopers LLP, Deloitte & Touche LLP and Ernst & Young LLP—were found to have deficiencies, compared with 37% the previous year.

In addition, all of the Big Four have now seen the PCAOB make public some of its previously secret criticisms of the firms. Separately from the latest report, the PCAOB on Thursday unsealed previously confidential criticisms of KPMG’s quality controls it had made in 2011 and 2012, mirroring previous moves the board had made with regard to PwC, E&Y and Deloitte. The unsealing amounts to a public rebuke to KPMG for not acting quickly enough to fix quality-control problems, in the regulator’s view.

In the unsealed passages, the board said some of the firm’s personnel had failed to sufficiently evaluate “contrary evidence” that seemed to contradict its audit conclusions.

In the latest inspection report, among the areas in which the PCAOB found audit deficiencies at KPMG were failure to sufficiently test companies’ loan-loss reserves, testing of companies’ valuations of hard-to-value securities, and audits of certain kinds of derivatives transactions.

The PCAOB didn’t identify the clients involved in the deficient audits, in accordance with its usual practice.

PCAOB inspectors evaluate a sample of audits every year at each of the major accounting firms—focused on those the board believes are at highest risk for problems. Because of that focus, the PCAOB says the inspection results may not reflect how frequently a firm’s overall audit work is deficient. The inspections are intended only to evaluate the firms’ performance and highlight areas for potential improvement, so the firms aren’t subject to any penalties.

Only part of the inspection reports typically becomes public. A separate portion, with the PCAOB’s criticisms of the firm’s quality controls, is kept confidential to give the firm an opportunity to address any concerns. If the firm does so, that portion of the report stays sealed permanently.

If the firm doesn’t do enough to satisfy the PCAOB within a year, however, the board makes the concerns public. Again, though, the unsealing doesn’t carry any formal penalties for the firms.

Bob Jensen's threads on the two faces of KPMG ---
http://www.trinity.edu/rjensen/Fraud001.htm

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


Teaching Case from The Wall Street Journal Weekly Accounting Review on October 31, 2014

SEC Staff Suggests Ingredients for Effective Disclosures

by: Tim Kolber and Joe DiLeo
Oct 24, 2014
Click here to view the full article on WSJ.com
 

TOPICS: Disclosures, Materiality, Relevance, SEC

SUMMARY: Over the past 18 months, the SEC and accounting standard setters have frequently questioned whether registrants are using the "right recipe" for effective disclosures - that is, whether their compliance with disclosure requirements and their disclosures of material and relevant information are optimally balanced. To help registrants refine their recipes, the SEC has embarked on a disclosure effectiveness project. While the SEC seeks to reduce or eliminate outdated, redundant, and overlapping disclosures, reducing the volume of disclosure is not the objective - the SEC wants to put better disclosure into the hands of investors. Although it believe that these efforts can reduce the costs and burdens on companies, updating the requirements may very well result in additional disclosures.

CLASSROOM APPLICATION: This article updates students on the current SEC rules regarding disclosure requirements.

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

2. (Introductory) What set of rules is the SEC updating? Why does the SEC have concerns? What areas is the SEC addressing? What is the current status of the project?

3. (Advanced) What is materiality? How is it determined? Why is it important in accounting? How is materiality reported in SEC disclosures? Why?

4. (Advanced) What are redundant disclosures? What are the potential problems caused by redundant disclosures? What guidance does the SEC offer on this topic?

5. (Advanced) What is a "boilerplate" disclosure? Why is the SEC concerned about it? Why would corporations use them? What guidance is the SEC offering?

6. (Advanced) What is "relevance" in financial reporting? Why is it important? What is ongoing relevance? What is the SEC guidance regarding ongoing relevance?
 

Reviewed By: Linda Christiansen, Indiana University Southeast

 

"SEC Staff Suggests Ingredients for Effective Disclosures," by Tim Kolber and Joe DiLeo, The Wall Street Journal, October 24, 2014 ---
http://deloitte.wsj.com/riskandcompliance/2014/10/24/sec-staff-suggests-ingredients-for-effective-disclosures/?mod=djem_jiewr_AC_domainid

Over the past 18 months, the SEC and accounting standard setters have frequently questioned whether registrants are using the “right recipe” for effective disclosures—that is, whether their compliance with disclosure requirements and their disclosures of material and relevant information are optimally balanced.

To help registrants refine their recipes, the SEC has embarked on a disclosure effectiveness project.¹ While the SEC seeks to reduce or eliminate outdated, redundant, and overlapping disclosures, Keith Higgins, director of the Division of Corporation Finance, recently emphasized that “reducing the volume of disclosure is not our objective—we want to put better disclosure into the hands of investors. Although we believe that these efforts can reduce the costs and burdens on companies, updating the requirements may very well result in additional disclosures.”²

The project is in its initial stages, and amendments to rules may ultimately be required. However, the SEC staff has emphasized that rather than waiting for changes in rules or interpretive guidance, registrants can take steps now to improve the effectiveness of their disclosures. For example, in his April 2014 “call to action,” Mr. Higgins informed registrants that “[t]here is a lot that you . . . can do to improve the focus and navigability of disclosure documents in the absence of rule changes. You can step up your game right now.”

This Heads Up discusses the SEC staff’s views and recommendations about steps registrants can take today to improve their disclosures. The appendix outlines various types of disclosures and the SEC’s suggestions for improving them.

Elements of Effective Disclosure

The SEC staff has stated that effective disclosures are those that are clear and concise and focus on matters that are both material and specific to the registrant. Appropriate emphasis is also critical. Effective disclosures emphasize matters the registrant believes to be the most relevant and material, and they deemphasize—or exclude entirely—matters that are not. Consequently, registrants are encouraged to continually reevaluate their disclosures and modify them when the nature or relevance of information has changed.

Mr. Higgins suggested that in their reevaluation of current disclosures, registrants focus on:

Materiality

In recent speeches, SEC staff members have questioned whether registrants are truly concentrating on disclosing material matters. Acknowledging that “materiality is not an easily applied litmus test,” Mr. Higgins stated in his April 2014 speech, “If there are any gray areas . . . the company is likely to include the disclosure in its filing” and asked whether registrants are therefore including “too many items in the obviously immaterial category.” In an October 2013 speech, SEC Chair Mary Jo White reminded registrants that the Supreme Court addressed the problem of disclosure overload and materiality approximately 35 years ago. She noted that the Court rejected the notion that “a fact is ‘material’ if an investor ‘might’ find it important” and instead “held that a fact is ‘material’ if ‘there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote.’”

Eliminating or Reducing Redundant Disclosures

The SEC staff is also encouraging registrants to improve the quality and overall effectiveness of their disclosures by reducing or eliminating redundancies in their filings. For example, in his April 2014 speech, Mr. Higgins noted that registrants often repeat the significant accounting policy disclosures from their financial statement footnotes verbatim in their MD&A discussions of critical accounting estimates. He stated that “if there were ever a place in a report that cried out for a cross reference — and there are likely plenty of them — this is near the top of the list.” While the SEC’s call to action does not relieve registrants from complying with disclosure requirements under U.S. GAAP and SEC rules and regulations (e.g., Regulations S-K and S-X), Mr. Higgins encourages them to “[t]hink twice before repeating something.”

Tailoring Disclosures

The SEC staff often objects to “boilerplate” or general disclosures that could apply to any registrant. Disclosures about risk factors are a prime example. Whether the result of Congressional actions or, as Ms. White noted in her October 2013 speech, the “safe harbors [that] encouraged companies to share more ‘soft’ information with investors,” there has been a marked increase in the amount of non-registrant-specific risk-factor disclosures, which often span several pages in registrants’ filings. Mr. Higgins suggested that rather than viewing risk-factor disclosures as “insurance policies,” registrants could work to limit such disclosures to those that are the most relevant to their operations and be specific in detailing how the risk factors “would affect the company if they came to pass.”

Ongoing Relevance

Effective disclosures are not static but change over time. Registrants are encouraged to continually reevaluate their facts and circumstances to determine whether the information they are disclosing is material and relevant, including information originally disclosed as a result of an SEC staff comment. For example, a registrant may no longer need to disclose a material risk or an uncertainty related to a contingency that was subsequently resolved or became immaterial. Conversely, a registrant would need to disclose any additional information it has gained about a material contingency.

Editor’s Note: In speeches, Mr. Higgins and other SEC staff members have asked registrants to carefully consider whether their decisions to disclose information are based solely on industry-specific or other SEC comment trends that are identified as “hot button” issues. Moreover, an SEC comment letter can be viewed as the “beginning of . . . a dialogue” rather than as an indication that the staff has “concluded the requested information is material” and should therefore be disclosed. Mr. Higgins reminded registrants to consider relevance, applicability, and materiality before adding (or agreeing to add) disclosures to their filings.

Next Steps

Instead of waiting for the SEC’s comprehensive list of ingredients for effective disclosures, registrants are encouraged to start testing their own recipes. In his October 3, 2014, speech, Mr. Higgins noted that the SEC staff wants “to encourage companies to . . . experiment with the presentation [in their periodic reports], reduce duplication and eliminate stale information that is both outdated and not required.” He stated that if “companies have ideas to improve their disclosures and want to talk with us about them, although we won’t pre-clear specific disclosures we are certainly happy to discuss potential changes.”

Bob Jensen's threads on disclosure issues ---
http://www.trinity.edu/rjensen/Theory02.htm#CreditDisclosures


Teaching Case on Going Concern Accounting
From The Wall Street Journal Accounting Weekly Review on September 5, 2014

Executive Responsibility For 'Going Concern' Disclosures Increases
by: Emily Chasan and Maxwell Murphy
Aug 28, 2014
Click here to view the full article on WSJ.com
 

TOPICS: Accounting Deficiency

SUMMARY: Corporate managers will have to make more uniform disclosures when there is substantial doubt about their business' ability to survive, according to the Financial Accounting Standards Board. The FASB updated U.S. accounting rules, effective by the end of 2016, to define management's responsibility to evaluate whether their business will be able to continue operating as a "going concern," and make relevant disclosures in financial statement footnotes. Previously, there were no specific rules under U.S. Generally Accepted Accounting Principles and disclosures were largely up to auditors. Corporate executives had the option to make any voluntary disclosures they felt relevant.

CLASSROOM APPLICATION: This is a good article to discuss going concern, notes to the financial statements, and FASB, as well as management's responsibility in financial reporting.

QUESTIONS: 
1. (Introductory) What is FASB? What is its function? What is GAAP? Why is GAAP used in accounting?

2. (Advanced) What does the concept "going concern" mean? Why is it important? What kind of disclosures is FASB requiring? Who is required to make the disclosures? Why are these parties included in the requirement?

3. (Advanced) In general, what is included in the notes to financial statements? Why are notes required? Who uses the notes and how are they used? Please give some examples of information regularly included in the notes.

4. (Advanced) What is the benefit of this new rule? How can this information be used? Are there other ways besides a note that someone could access this information?
 

Reviewed By: Linda Christiansen, Indiana University Southeast
 

RELATED ARTICLES: 
Going Concern Opinions on Life Support With Investors
by Emily Chasan
Sep 12, 2014
Online Exclusive

"Executive Responsibility For 'Going Concern' Disclosures Increases," by Emily Chasan and Maxwell Murphy, The Wall Street Journal, August 27, 2014 ---
http://blogs.wsj.com/cfo/2014/08/27/executive-responsibility-for-going-concern-disclosures-increases/?mod=djem_jiewr_AC_domainid

Corporate managers will have to make more uniform disclosures when there is substantial doubt about their business’ ability to survive, the Financial Accounting Standards Board said Wednesday.

The FASB updated U.S. accounting rules, effective by the end of 2016, to define management’s responsibility to evaluate whether their business will be able to continue operating as a “going concern,” and make relevant disclosures in financial statement footnotes. Previously, there were no specific rules under U.S. Generally Accepted Accounting Principles and disclosures were largely up to auditors. Corporate executives had the option to make any voluntary disclosures they felt relevant.

Investors, however, have grown frustrated with a lack of going concern opinions during the financial crisis that failed to warn them of impending bankruptcies.

The FASB first issued a proposal at the peak of the financial crisis in 2008, but debate and revisions delayed the final standard, which didn’t go up for a vote until May.

Supporters of the changes have argued that corporate managers have better information about a company’s ability to continue financing their operations than auditors. The updated rule will force executives to disclose serious risks even if management has a credible plan to alleviate them, for example.

Information currently disclosed by companies can vary significantly. Only about 40% of companies that filed for bankruptcy in the past two decades have explicitly disclosed the possibility that they could cease to operate before running into trouble, according to a study this month from Duke University’s Fuqua School of Business.


Teaching Case on Roth IRAs
From The Wall Street Journal Accounting Weekly Review on November 7, 2014

How to Pump Up a Roth IRA
by: Liz Moyer
Nov 01, 2014
Click here to view the full article on WSJ.com
 

TOPICS: Individual Taxation, Roth IRA, Tax Planning

SUMMARY: High-income earners have a new incentive to make after-tax contributions to a 401(k) plan: They can later shift those contributions into a Roth individual retirement account, tax-free. Thanks to a recent Internal Revenue Service ruling, eligible employees can now move after-tax contributions directly from their employer-sponsored retirement plan to a Roth account. The potential tax savings are huge, depending on an investor's tax rate in retirement. Money in a Roth IRA grows tax-free and isn't taxed when it is withdrawn, and Roth IRA withdrawals don't raise an investor's adjusted gross income. That, in turn, can help lower Medicare premiums or the 3.8% surtax on net investment income.

CLASSROOM APPLICATION: This article would be appropriate to include in an individual income tax class. I also selected this article because it is so important for all of our students to understand retirement saving and to be familiar with Roth IRAs.

QUESTIONS: 
1. (Introductory) What is an IRA? What is a Roth IRA? How does it differ from other types of IRAs?

2. (Advanced) What did the IRS recently rule? How does that decision impact tax planning? What advantages and opportunities does it add?

3. (Advanced) What are the benefits of Roth IRAs? Why might some taxpayers decide against Roth IRAs and choose another option? How do the options differ while the taxpayer is working? How do the options differ when the taxpayer is retired?

4. (Advanced) What are the requirements a taxpayer must follow to take advantage of this new announcement by the IRS? Why did the IRS make those restrictions?
 

Reviewed By: Linda Christiansen, Indiana University Southeast

"How to Pump Up a Roth IRA," by Liz Moyer, The Wall Street Journal, November 1, 2014 ---
http://online.wsj.com/articles/how-to-pump-up-a-roth-ira-1414762378?mod=djem_jiewr_AC_domainid

High-income earners have a new incentive to make after-tax contributions to a 401(k) plan: They can later shift those contributions into a Roth individual retirement account, tax-free.

Thanks to a recent Internal Revenue Service ruling, eligible employees can now move after-tax contributions directly from their employer-sponsored retirement plan to a Roth account.

The potential tax savings are huge, depending on an investor’s tax rate in retirement.

Money in a Roth IRA grows tax-free and isn’t taxed when it is withdrawn, and Roth IRA withdrawals don’t raise an investor’s adjusted gross income. That, in turn, can help lower Medicare premiums or the 3.8% surtax on net investment income.

The IRS’s decision helps high-income people funnel potentially significant amounts of money directly into a Roth. Normally, couples with adjusted gross incomes of $191,000 or more and individuals with incomes of $129,000 or more can’t directly contribute to a Roth IRA.

Most contributions to a company-sponsored plan are made with pretax money. That reduces a worker’s current tax bill, but withdrawals in retirement are taxed as ordinary income, at rates up to 39.6%. Such withdrawals could push an IRA owner into a higher tax bracket.

Once a retiree hits age 70½, when required minimum distributions from retirement savings kick in, the advantages of Roth IRAs become even more clear. Roths don’t have required minimum distributions, while other savings do, and Roth withdrawals don’t run the risk of pushing a person into a higher tax bracket because they don’t count as income.

“Once you have money in a Roth, it’s like money that’s home-free from taxes,” says Mitch Tuchman, the managing director of Rebalance IRA, an investment-advisory firm based in Palo Alto, Calif.

The new rules—which also apply to nonprofit-sponsored 403(b) plans—are supposed to go into effect next year, but the IRS said in September that investors could start making the transfers now.

The IRS’s announcement means that savers no longer have to follow complicated strategies to reduce their tax hit when moving money from a company plan to a Roth IRA. It also means that people whose incomes are too high for them to fund a Roth IRA now have a way to do just that.

Such transfers have to be made at the same time savers roll their existing 401(k) pretax savings into a traditional IRA.

The annual limit on pretax contributions to 401(k) plans is $17,500 for individuals under 50, and $23,000 for those 50 and older. Those limits will rise to $18,000 and $24,000, respectively, next year.

Savers who want to take advantage of the new rule must first contribute the maximum pretax amount to their 401(k) or similar plan. In addition, the plan must allow contributions of after-tax funds.

The total amount a worker can save annually in such accounts—including pretax contributions, pretax employer matches and after-tax contributions—is $52,000 ($57,500 for workers 50 and over).

The added after-tax dollars allow them to accumulate far greater savings that can be eligible for Roth conversion at retirement.

“If you have a high income and you’re looking for a place to shelter more dollars and you’ve already maxed out everything, this is a great option,” says Michael Kitces , the director of research at Pinnacle Advisory Group in Columbia, Md.

After-tax contributions to company retirement plans were more common in the 1980s and 1990s, when annual 401(k) pretax contribution limits were lower, Mr. Kitces says.

Employees who contributed after-tax funds and are reaching retirement age now could have large accumulated sums of after-tax contributions sitting in their accounts, he adds.

Even now, after-tax contributions—if allowed by the plan—could make sense for people who have extra cash they won’t need until they are 59½ or those who have unique or low-cost investment options in their company plans, experts say.

Continued in article


Teaching Case on Internal Controls
From The Wall Street Journal Accounting Weekly Review on November 7, 2014

Restatements Fall on Improved Internal Controls
by: Maxwell Murphy
Nov 04, 2014
Click here to view the full article on WSJ.com
 

TOPICS: Internal Controls, Restatements

SUMMARY: Companies and their auditors appear to have a better handle on how to avoid major financial restatements. Still, almost 1 in 4 restatements this year came with the warning that prior financial statements might not be valid. While striking, that's down from more than two-thirds in 2005, the first full year that companies were required to make such disclosures under the Sarbanes-Oxley financial overhaul. Companies have put more focus on their internal controls, plus they have better financial-reporting software and information technology.

CLASSROOM APPLICATION: This article is useful for discussions on internal controls and financial statement restatements.

QUESTIONS: 
1. (Introductory) What is a restatement? Why must some companies do them?

2. (Introductory) What is the current data regarding restatements and trends over recent years? What could be the reasons for any changes?

3. (Advanced) What are internal controls? How can good internal controls and enforcement of those controls impact the occurrence or need for restatements?

4. (Advanced) What are reasons for having and enforcing internal controls? How can they help a company besides restatement situations? Are internal controls required or just an option for companies?

5. (Advanced) Please read the "related article" entitled "The Big Number." What additional disclosure does the SEC require? Under what circumstances? What is the reason for that disclosure? How many companies include that disclosure?

6. (Advanced) Please read the "related articles" regarding American Realty Capital Properties. What are the facts of that situation? What did the company report? What was the impact of the announcement on the company's stock price? Why?
 

Reviewed By: Linda Christiansen, Indiana University Southeast
 

RELATED ARTICLES: 
The Big Number: 24%
by Maxwell Murphy
Nov 04, 2014
Online Exclusive

SEC to Open Inquiry Into American Realty Capital Properties' Accounting
by Robbie Whelan, Craig Karmin, and Jean Eaglesham
Oct 30, 2014
Online Exclusive

American Realty Stock Drops on Personnel News and Restatement Warning
by Craig Karmin
Oct 30, 2014
Online Exclusive

"Restatements Fall on Improved Internal Controls," by Maxwell Murphy, The Wall Street Journal, October 4, 2014 ---
http://blogs.wsj.com/cfo/2014/11/04/restatements-fall-on-improved-internal-controls/?mod=djem_jiewr_AC_domainid

Companies and their auditors appear to have a better handle on how to avoid major financial restatements.

Still, almost 1 in 4 restatements this year came with the warning that prior financial statements might not be valid, according to data and research firm Audit Analytics. While striking, that’s down from more than two-thirds in 2005, the first full year that companies were required to make such disclosures under the Sarbanes-Oxley financial overhaul.

The Securities and Exchange Commission in late 2004 began to require companies that file 10-K annual reports to file a separate disclosure to alert investors whenever previously reported results were in doubt.

Of 650 companies that restated results this year, 153 included that caveat. One was American Realty Capital Properties Inc. The real-estate investment trust last week disclosed errors that were “intentionally not corrected…[and others] intentionally made,” which resulted in an overstatement of adjusted funds from operations from the start of last year. American Realty’s shares have plunged by nearly 37% since the news.

But companies have put more focus on their internal controls, plus they have better financial-reporting software and information technology. “We’re seeing people finding mistakes more quickly,” said Don Whalen, director of research at Audit Analytics. So, the errors have less repercussion on prior financial results, he added.

Total restatements among companies reporting to the SEC have more than halved since a 2006 peak of nearly 1,850, but the number has plateaued over the past six years.

Chief executives and chief financial officers are required under Sarbanes-Oxley to attest to their oversight of internal financial controls, which forced a rush of restatements as they scrambled to insure such measures were properly in place.


Teaching Case on Tax Planning
From The Wall Street Journal Accounting Weekly Review on November 14, 2014

Act Now to Lower Your 2014 Taxes
by: Laura Saunders
Nov 08, 2014
Click here to view the full article on WSJ.com
 

TOPICS: Tax Planning, Taxation

SUMMARY: Congress hasn't enacted wrenching tax changes in 2014, unlike in 2013. In fact, lawmakers have yet to move on dozens of taxpayer-friendly provisions that expired as of Jan. 1, 2015. Given the complexity of the current code, with its numerous phase-outs, phase-ins, surtaxes and hidden marginal rates, many taxpayers should consider running their actual 2014 tax numbers before year-end to see how they could benefit from specific strategies. Planning topics include: AGI, Investment gains and losses, charitable giving, AMT, medical costs, health insurance, gifts, and tax-preparation fees related to certain investments.

CLASSROOM APPLICATION: This is an excellent tax-planning article for individual taxation.

QUESTIONS: 
1. (Introductory) From a tax perspective, how does 2014 differ from 2013? What issues should taxpayers consider?

2. (Advanced) What tax provisions have expired? What are the prospects for extensions of those tax provisions? How could they be extended?

3. (Advanced) What is adjusted gross income? Why should taxpayers focus on AGI for tax-planning purposes? What taxes and deduction limitations are tied to AGI?

4. (Advanced) What planning should taxpayers do regarding investment gains and losses? What are wash sales and why must a taxpayer be careful to avoid them?

5. (Advanced) What are good planning ideas for charitable giving? What are donor-advised funds? How can they be used in tax planning?

6. (Advanced) What is the alternative minimum tax? Why was it enacted? What triggers the tax?

7. (Advanced) What are the limitations regarding deductions for medical costs? What taxpayers are most likely to be able to take this deduction? How can planning help with this deduction?

8. (Advanced) What are the new tax rules regarding the health insurance tax? To whom does it apply?

9. (Advanced) What value does annual gift-giving provide? Why is this benefit less important now than it had been in the past?

10. (Introductory) How are tax-preparation fees affected by choices of investments? Should those costs be considered when making an investment? Why or why not?
 

Reviewed By: Linda Christiansen, Indiana University Southeast

"Act Now to Lower Your 2014 Taxes," by Laura Saunders, The Wall Street Journal, November 8, 2014 ---
http://online.wsj.com/articles/act-now-to-lower-your-2014-taxes-1415379734?mod=djem_jiewr_AC_domainid

If you want to lower your 2014 income taxes, you need to act now to limit Uncle Sam’s reach next April.

The number of tax-cutting opportunities shrinks significantly after Dec. 31. Too often taxpayers let this deadline slip, says Ellen Minkow, an accountant at the firm MS 1040 in New York. She often finds herself asking clients, “Where were you in November?”

Congress hasn’t enacted wrenching tax changes this year, unlike in 2013. In fact, lawmakers have yet to move on dozens of taxpayer-friendly provisions that expired as of Jan. 1.

Among the most popular: a provision that allows owners of individual retirement accounts who are 70½ and older to give up to $100,000 of their IRA assets directly to charity each year; a federal write-off for state sales taxes instead of state income taxes; and a deduction of up to $4,000 a year for qualified expenses for college or other post-high-school education.

As far as these go, taxpayers should sit tight, says Melissa Labant, a tax specialist at the American Institute of CPAs in Washington. She expects lawmakers will extend these provisions during this year’s lame-duck session—as they have after several similar expirations over the past decade. And as before, the renewals are likely to be retroactive to the beginning of the year, she says.

Internal Revenue Service Commissioner John Koskinen has warned publicly that if lawmakers don’t pass the extensions by early December, the delay will cause problems and could even hold up refunds during the spring tax-filing season.

There are plenty of other issues facing taxpayers. Given the complexity of the current code, with its numerous phase-outs, phase-ins, surtaxes and hidden marginal rates, many people should consider running their actual 2014 tax numbers before year-end to see how they could benefit from specific strategies.

This exercise could be crucial, Ms. Labant says, for taxpayers who have had a significant change in income or a major life event—such as a birth, death, marriage, divorce, retirement, the sale of a home or a job change. In particular, a temporary drop in income can present opportunities.

Here are key areas to focus on before year-end.

Adjusted gross income. AGI—the number at the bottom of the front page of the Form 1040—is now the most important number on the return for many affluent people. That is because a host of phase-outs and surtaxes are tied to different AGI thresholds.

For example, the 3.8% surtax on net investment income and the 0.9% Medicare surtax—which were enacted as part of the Affordable Care Act and took effect in 2013—usually don’t apply unless AGI exceeds $250,000 for a married couple or $200,000 for a single filer.

In addition, the phaseout of the $3,950 personal exemption and the phase-in of the so-called Pease limit on itemized deductions—which are, in effect, tax increases—both begin at $305,050 of AGI for couples and $254,200 for singles this year. The ability to make a direct contribution to a Roth IRA phases out above $181,000 of AGI for couples and $114,000 for singles.

One good way to avoid losing benefits or triggering surtaxes is to keep AGI as low as possible. Useful strategies include spreading income over more than one year, offsetting capital gains with capital losses and using up to $3,000 of capital losses against ordinary income each year.

Taxpayers also can drive down AGI by making pretax contributions to a 401(k), IRA or other retirement plan, or by contributing to a health savings account, flexible spending account or dependent-care account. In addition, they could take a deduction for moving expenses, among other tactics.

One move that won’t lower AGI is taking itemized deductions on Schedule A, such as those for mortgage interest and charitable donations, since such deductions are taken after AGI is calculated.

Investment gains and losses. Now is the time for taxpayers to scrutinize holdings in taxable accounts—as opposed to those in tax-sheltered retirement plans—in order to make smart adjustments.

What gains or losses have you taken, or will you take, given the market’s strong growth? Be sure to include mutual funds held in taxable accounts: Some, including the T. Rowe Price Blue Chip Growth Fund and the Putnam Voyager Fund , have announced they will be making capital-gains distributions before year-end for the first time in years.

Taxpayers can use realized capital losses to offset realized capital gains plus $3,000 of ordinary income, such as wages, every year. Unused losses carry forward for use in the future; some investors still have losses from 2008 and 2009.

In addition, beware of income spikes that could trigger the 3.8% surtax on net investment income. Perhaps it is possible to spread a gain over more than one year, or to sell losing investments to offset it.

At the same time, take care to avoid the “wash sale” rules if you plan to repurchase the losing asset. Use of the loss is postponed if the investor buys securities 30 days before or after taking losses in the same investment, even if the purchase is in a different tax year.

Charitable giving. There is a proposal in Congress to let taxpayers who make donations to charity in the first months of a new year deduct them for the prior one. But it hasn’t yet passed, and all contributions must still be made by year-end.

Before you write a check, though, think twice. Often a more tax-efficient move is to give the same value in appreciated assets, such as shares of stock. Donors often get a deduction for the full market value while avoiding capital-gains tax on the asset’s growth.

For example, say an affluent investor wants to give $5,000 to a qualified charity and has shares worth $5,000 that cost him $1,000 many years ago. If he sells the stock, he could owe federal capital-gains tax at a 25% rate, leaving him with about $4,000 to donate.

But if he gives the stock directly to the charity, he can usually deduct the full $5,000, as long as it is less than 30% of his AGI. Excess amounts usually can be carried forward up to five years.

For a large gift—especially if it needs to be made quickly because of a year-end bonus or other windfall—consider using a so-called donor-advised fund. These are arrangements sponsored by national nonprofits affiliated with firms such as Fidelity Investments and Vanguard Group, and by local nonprofits that focus their efforts on a particular city or region.

Donor-advised funds allow taxpayers to take a full deduction for a large gift in the year it is made and then decide later how to disburse the funds—at which point there is no deduction. Meanwhile, the money can be invested and grow tax-free.

Alternative minimum tax. The AMT, which affects about 4 million taxpayers, is a levy that rescinds valuable deductions and exemptions, as well as the benefit of lower tax brackets.

Many people who owe the AMT every year find it impossible to avoid, especially if they live in high-tax states. (Indeed, a large deduction for state and local taxes is often an AMT trigger.)

But some taxpayers who have unusual events—such as an outsize capital gain—may be able to avoid the AMT with careful multiyear planning, such as by deferring or accelerating state tax payments, experts say.

Medical costs. The hurdle for taking medical write-offs is higher than it once was. Unreimbursed medical expenses are only deductible to the extent that they exceed 10% of AGI, or, in some cases, 7.5% for people 65 and older.

However, a portion of assisted-living costs and most skilled-nursing home costs are typically deductible, as is tuition in special schools for students needing certain therapies.

If a taxpayer crosses this hurdle, be aware that a wide range of other health-care costs are deductible as well—such as contact-lens solution and acupuncture. For a full list, see IRS Publication 502. Note that unused deductions can’t be carried forward for use in future years.

Health insurance. New this year is a tax on people who don’t have health insurance meeting Affordable Care Act standards. This group is likely to include affluent and wealthy people who want to self-insure or who use nonconforming insurance policies, as well as “young invincibles”—healthy young adults who don’t want pay for coverage.

To avoid the new levy, people need to have been covered by an approved policy for nine months of 2014. The penalty is either a flat amount or 1% of income, whichever is greater, subject to certain limits.

This year, the penalty could come to more than $12,000 for a family of five with a seven-figure income, says Roberton Williams of the nonpartisan Tax Policy Center in Washington.

People who plan to opt out and pay can estimate how much they will owe by using a calculator on the Tax Policy Center website (taxpolicycenter.org). There are exemptions for members of certain religious groups, among others. The penalty also doesn’t apply to people covered by Medicare. For a list of exemptions, go to the IRS website (www.irs.gov).

Tax-free gifts for education or other purposes. Each giver can make tax-free transfers of up to $14,000 per recipient a year. Above that, the transfer counts against the giver’s lifetime gift- and estate-tax exemption, which is $5.34 million this year and rises to $5.43 million in 2015.

Givers can transfer assets other than cash, such as stock shares. Gifts of partial interests can be used for assets worth more than $14,000—such as a piece of real estate or art. If the gift isn’t in cash, the giver’s original “cost basis,” which is the starting point for determining a taxable gain, usually carries over to the recipient.

Now that the estate- and gift-tax exemption is large enough to exclude all but a tiny sliver of U.S. taxpayers, some experts say there is seldom a need to make gifts to avoid estate taxes, unless the giver’s state also imposes such taxes, as 19 do, along with the District of Columbia.

Some givers will want to make contributions directly to state-sponsored 529 education-savings accounts on behalf of relatives or friends. Funds in these accounts grow tax-free and withdrawals also are tax-free when used for qualified education expenses. There is no federal deduction, although some states allow a write-off for state taxes.

A special federal provision allows each giver to bundle five years of annual $14,000 gifts, or $70,000, to a 529 plan on behalf of a recipient. If the exemption rises in the future, the giver can put in the extra amount as well.

Tax-preparation costs. Was your tax-prep bill high last year because of investments in alternative assets? Now is the time to make sure your compliance costs don’t swamp your investment returns.

A frequent complaint among tax preparers is that advisers put clients into private-equity funds, hedge funds and other partnerships without understanding what the annual accounting costs will be.

“When we see someone with $20,000 invested in one hedge fund, we often shake our heads and say, ‘That doesn’t make sense,’” says Andy Mattson, a CPA at Moss Adams in Campbell, Calif. The tax preparation on one such investment could come to $500 a year, equal to 2.5% of the amount invested, he says.

The worst offenders in terms of compliance burden versus rate of return are foreign partnerships, experts say. Mr. Mattson recalls one such $200,000 investment that generated 55 separate forms for passive foreign-investment companies in one year, which cost more than $5,000 to prepare.

To protect yourself, press your adviser about an investment’s accounting costs before buying in.

Bob Jensen's tax helpers are at
http://www.trinity.edu/rjensen/Bookbob1.htm#010304Taxation


Teaching Case on the Investment Tax
From The Wall Street Journal Accounting Weekly Review on November 14, 2014

Some People Overpaid Investment Tax in 2013, Experts Say
by: Laura Saunders
Nov 08, 2014
Click here to view the full article on WSJ.com
 

TOPICS: Net Investment Income Tax, Taxation

SUMMARY: Some people may have overpaid the new 3.8% surtax on net investment income for 2013 and should consider filing amended returns. The tax first took effect 2013, but the Internal Revenue Service didn't issue final regulations for it until late in the year, and some issues were unresolved. As a result, developers struggled to incorporate nuances into the software used by professionals to prepare 2013 returns.

CLASSROOM APPLICATION: This article shows the challenges of interpreting tax law - in this case, the net investment income tax. It also shows the practical side of preparing tax returns with software.

QUESTIONS: 
1. (Advanced) What is the new investment income tax? How is it calculated?

2. (Introductory) Why should some taxpayers review their 2013 returns? What financial and tax situations are more likely to result in errors?

3. (Advanced) What are the "nuances" in the law that make these calculations difficult? Why does the law seem to be so challenging to apply?

4. (Advanced) What is involved with an amended return? What must the taxpayer do to file an amended return?
 

Reviewed By: Linda Christiansen, Indiana University Southeast

"Some People Overpaid Investment Tax in 2013, Experts," by Laura Saunders, The Wall Street Journal, November 8, 2014 ---
http://blogs.wsj.com/totalreturn/2014/11/08/some-people-overpaid-investment-tax-in-2013-experts-say/?mod=djem_jiewr_AC_domainid

Now is the time for taxpayers to be looking for ways to cut their 2014 taxes.

But in some cases, they should also be taking a look back at their 2013 returns: Some people may have overpaid the new 3.8% surtax on net investment income for 2013, experts say.

The tax first took effect last year, but the Internal Revenue Service didn’t issue final regulations for it until late in the year, and some issues were unresolved. As a result, developers struggled to incorporate nuances into the software used by professionals to prepare 2013 returns, says Jeffrey Schragg, a partner with accounting firm BDO, based in McLean, Va.

For example, he says, taxpayers might have overpaid if they were active participants in S corporations or partnerships and then either sold an interest or received a payout in excess of the investment’s cost basis, which is the starting point for determining a taxable gain.

While active partners wouldn’t have owed the 3.8% tax on such income, some software may have assumed they did. Mr. Schragg says he is aware of one such error that nearly caused a $15,000 overpayment to the IRS.

Mark Nash, a partner with PricewaterhouseCoopers in Dallas, says he also encountered many issues surrounding the 3.8% tax. For example, he says, royalty income is typically subject to the tax, but some people with large investments in oil and gas partnerships had enough active participation in the business that they didn’t owe the surtax. “We had a lot of discussion” about such nuances in the law, says Mr. Nash. In some cases he and his colleagues had to calculate the tax manually.

He adds that such issues arose mostly with complex tax returns that included results from entities such as S corporations and partnerships, rather than on simpler returns showing investment income such as capital gains, interest and dividends reported by brokers on 1099 forms.

If errors exist and a taxpayer wants a refund, he or she needs to file an amended return using Form 1040X.

Mr. Schragg expects fewer errors on tax returns for 2014: “With a new tax, it always takes a year or two to work out the bugs.

Bob Jensen's tax helpers are at
http://www.trinity.edu/rjensen/Bookbob1.htm#010304Taxation


Teaching Case on Home Mortgage Taxation and Planning
From The Wall Street Journal Accounting Weekly Review on November 7, 2014

Homeowners: Fall Planning Brings Spring Tax Savings
by: Anya Martin
Nov 30, 2014
Click here to view the full article on WSJ.com
 

TOPICS: Individual Taxation, Mortgage Deduction

SUMMARY: This article discusses the rules for homeowners to deduct mortgage interest and other expenses. Most homeowners who itemize their taxes can deduct the interest paid on their first and second mortgages of up to $1.1 million in debt. That total reflects up to $1 million for home loans and another $100,000 for home-equity loans. Some homeowners don't realize they can deduct the mortgage interest paid on second homes. That second home can even be a boat, mobile home or any structure, as long as it has plumbing, such as toilets and showers. There are other deductions and restrictions about which taxpayers should be knowledgeable.

CLASSROOM APPLICATION: This is a good article to use to flesh out the rules surrounding home mortgage deductions.

QUESTIONS: 
1. (Introductory) What is a home mortgage? What are the limits on deduction of mortgage interest?

2. (Advanced) What are the rules regarding deduction of mortgage interest for a second home? What are the limitations? What must taxpayers know about this type of deduction? What are the common mistakes?

3. (Advanced) What other home expenses are deductible? What are the rules shared in the article?

4. (Advanced) What are the tax laws regarding renting of a second home? How can taxpayers structure ownership, financing, and rental income of a second home in order to get the best tax advantages?

5. (Advanced) What is the Pease Limitation? What does it limit? Which taxpayers should be careful to plan for this limitation?
 

Reviewed By: Linda Christiansen, Indiana University Southeast

"Homeowners: Fall Planning Brings Spring Tax Savings," by Anya Martin, The Wall Street Journal, November 30, 2014 ---
http://online.wsj.com/articles/homeowners-fall-planning-brings-spring-tax-savings-1414597215?mod=djem_jiewr_AC_domainid

What homeowners can do now to prepare for tax time. Rules for deducting mortgage interest and itemizing other expenses to lower the tax bill.

Before the first snowflakes of winter, homeowners should think about spring savings. Steps taken today could reduce the tax hit on April 15.

Most homeowners who itemize their taxes can deduct the interest paid on their first and second mortgages of up to $1.1 million in debt. That total reflects up to $1 million for home loans and another $100,000 for home-equity loans.

The deductions add up for homeowners with jumbo mortgages—those above $417,000 in most places and $625,500 in high-price areas. A hypothetical example looks at a couple in the 30% tax bracket who files jointly. Assuming their income is under $300,000, the $24,000 they paid toward mortgage interest could see a benefit of up to $7,200 in tax savings, according to Mary Canning, dean emeritus and professor at Golden Gate University’s Braden School of Taxation and Accounting in San Francisco.

Some homeowners don’t realize they can deduct the mortgage interest paid on second homes, Ms. Canning says. Some of her clients, many of whom are approaching retirement age, have paid off the mortgage on their primary home and are buying a vacation home in nearby scenic towns like Sonoma or Carmel, she adds. With the deduction, “they are finding it’s quite affordable as opposed to putting up children and their families in hotels for a vacation,” Ms. Canning says.

That second home can even be a boat, mobile home or any structure, as long as it has plumbing, such as toilets and showers. However, an empty lot being held to build a future retirement home doesn't qualify.

One mistake Ms. Canning often sees: Homeowners who try to deduct mortgage interest on a second home that was purchased using a margin loan on their brokerage account. “Sometimes people are surprised that they cannot make the deduction,” she says. It isn’t allowed, however, because the loan “has to be secured against the home.”

Beyond mortgage interest, documenting other home-related expenses can help further reduce tax bills. For example, self-employed taxpayers and business owners can write off some expenses if part of their home qualifies as a home office, says Robert Winton, a partner at White Plains, N.Y.-based Citrin Cooperman & Co.

Qualified taxpayers with second homes can also rent out the property and deduct some of their expenses, Mr. Winton adds. Deductions can include “maintenance, insurance and property taxes,” he adds.

Because the IRS doesn't require reporting of rental income for 14 days or less a year, some business owners rent their home to their business for a meeting or retreat and then deduct the rental fee as a business expense on their company’s tax return, says Robert Walsh, founder and president of Red Bank, N.J.-based Lighthouse Financial Advisors.

Homeowners can take a few steps now to prepare for tax time. Diagram and measure home office space and total square footage, take pictures and save utility, security and real-estate tax bills, Mr. Walsh says. “If you paint your home office, it’s a 100% expense to office,” he adds.

Those who rent a second home regularly may wish to set up a separate bank account for rental earnings and keep a calendar for days of personal use, Mr. Walsh says.

Of course, with interest rates so low, tax savings may not be the highest priority for many high-end home buyers. “For people who are buying a big home and have a $1.5 million mortgage and it’s your dream home, you don’t mind not [being able to deduct] all of that interest,” Mr. Walsh adds.

Here are a few more tips to consider when looking for tax savings. Be sure to consult a tax professional or financial adviser for more specifics.

• Income limits. The Internal Revenue Service limits and phases out Schedule A itemized deductions if the taxpayer’s adjusted gross income exceeds $250,000 for a single individual or $300,000 for a married couple, says Mr. Walsh. Common Schedule A deductions include mortgage interest, state and local income taxes, sales taxes, and medical expenses and charitable donations.

The so-called “Pease Limitation,” named after former Rep. Donald Pease, was enacted by Congress in 1990. During the Bush tax cuts, the limits went away, but they kicked back in for 2013.

• Equity means everything. That $100,000 home-equity loan doesn't have to be used to improve the home.

• Status matters. Unmarried couples who file separate tax returns and own their own homes will each get up to $1.1 million. Conversely, married couples filing separate returns can only deduct mortgage interest on up to $500,000 of home debt.

Bob Jensen's personal finance helpers ---
http://www.trinity.edu/rjensen/Bookbob1.htm#InvestmentHelpers

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


From The Wall Street Journal Accounting Weekly Review on February 23, 2013

The New Capital-Gains Maze
by: Laura Saunders
Feb 16, 2013
Click here to view the full article on WSJ.com
 

TOPICS: Accounting, Capital Gains Tax, Investment Sales, Tax Law, Tax Planning, Taxation

SUMMARY: Amid the political drama surrounding the "fiscal cliff" negotiations, some investors overlooked significant tax changes kicking in this year. Most notable: those on long-term capital gains, or taxable income from the sale of investments held longer than a year. These are significant increases, and they raise the value of tax deferral and careful planning. Investors who have begun to consider these issues-and many haven't-admit to being confused. Fortunately for investors, there still are ways to minimize the hit-and even dodge it. Strategies include carefully timing investment sales, making charitable donations and family gifts with assets instead of cash, and minimizing certain income. With markets approaching record highs, investors need to know them. Topics include: lowering AGI, using "air pockets", giving appreciated assets to charity, strategizing family gifts, among others.

CLASSROOM APPLICATION: This article offers a nice update regarding the changes in the tax law and how taxpayers can plan to legally minimize taxes. You can use this article to discuss each of the individual topics discussed in the article, as well as to show students how valuable tax planning services are for many taxpayers.

QUESTIONS: 
1. (Introductory) What were the "fiscal cliff" negotiations? How was the law regarding the sale of investments impacted? What were the biggest changes noted in this article?

2. (Advanced) What is adjusted gross income? What are the suggestions offered in the article regarding AGI? Why is AGI an important number for taxpayers?

3. (Advanced) What is an "air pocket" for tax purposes? How can a taxpayer use a so-called air pocket to reduce tax liability?

4. (Advanced) Please choose and explain three of the other tax planning ideas featured in the article. How could these ideas reduce tax liability without changing the overall effect of the underlying transaction?

5. (Advanced) If you choose to be a tax professional, how would you market your services based on what you learned from reading this article?
 

Reviewed By: Linda Christiansen, Indiana University Southeast

 

"The New Capital-Gains Maze," by Laura Saunders, The Wall Street Journal, February 16, 2013 ---
http://professional.wsj.com/article/SB10001424127887324432004578302123138871136.html?mod=djem_jiewr_AC_domainid&mg=reno64-wsj

Chances are your capital-gains taxes are going up this year—and if you aren't careful, you could end up paying more than necessary.

Amid the political drama surrounding the "fiscal cliff" negotiations, some investors overlooked significant tax changes kicking in this year. Most notable: those on long-term capital gains, or taxable income from the sale of investments held longer than a year.

Under the old system, there were often only two rates: zero and 15%, depending on your income. Now, there are three tax tiers: zero, 15% and 20%. More Weekend Investor

Value Stocks Are Hot—But Most Investors Will Burn Out Cash Shouldn't Be the Only Apple of Your Eye Is It Time to Hock the Art? Beyond Long-Term Care Thinking of 'Shorting' Treasurys? Tread Lightly

And that isn't all. There also are three backdoor tax increases that can push your effective rate even higher—to nearly 25%.

Experts say many taxpayers whose rate still is 15% could well owe one-third more than they would have last year. And many top-bracket taxpayers will owe nearly two-thirds more, even if their income is that high only because of a once-in-a-lifetime sale.

"These are significant increases, and they raise the value of tax deferral and careful planning," says Vanguard Group tax expert Joel Dickson.

Investors who have begun to consider these issues—and many haven't—admit to being confused.

"I'm trying to figure out whether it's even worth it to have a taxable account," says Matt Reiland, a 32-year-old oil-industry financial analyst in Farmington, N.M., who now is putting away $1,000 a month.

Fortunately for investors, there still are ways to minimize the hit—and even dodge it. Strategies include carefully timing investment sales, making charitable donations and family gifts with assets instead of cash, and minimizing certain income. With markets approaching record highs, investors need to know them.

To be sure, long-term capital gains still retain many of the advantages investors have cherished for decades.

Unlike wages, capital gains often can be timed. Losses on one investment can be "harvested" and used to offset gains on other investments, even in different years. Up to $3,000 of capital losses still are deductible against "ordinary" income such as wages. And whatever an investor's top rate on gains, it often is far below the rate on ordinary income, which now can be more than 41%.

It isn't just capital gains that are affected by the tax changes. The new provisions also apply to many dividends, and some apply to other investment income, including interest. But these types of income often are more difficult to time than long-term gains.

Where You Stand

This year's changes divide taxpayers into three groups. For joint filers with more than $450,000 of taxable income or single filers with more than $400,000, the tax rate on long-term gains is fairly clear, if painful.

It starts with a flat tax of 20% above those thresholds. Add to that the new "Pease limit," a complex backdoor increase tied to itemized deductions that is named after Donald Pease, a former Ohio congressman. In effect, the Pease limit raises a taxpayer's rate by about 1%, according to experts at the Tax Policy Center, a nonpartisan research group in Washington.

Finally, there is a new 3.8% flat tax on net investment income—unless the investor has sold an actively managed business—for a total of about 25%.

Thus, for a taxpayer already in the top bracket, the tax on a $500,000 gain could rise to about $125,000 this year from $75,000 in 2012.

For taxpayers in the next income tier—couples with $72,500 to $450,000 of taxable income and single filers with $36,250 to $400,000—the effective rate on a gain is harder to predict.

It begins with a 15% flat rate, but taxpayers who cross certain income thresholds owe more because of the 3.8% net investment income tax, the Pease limit and the Personal Exemption Phaseout, or PEP, a backdoor increase that limits personal exemptions.

Here's how it could play out: Say a couple with two children in college and a third soon to go has an adjusted gross income of $220,000. They sell long-held investments to help pay tuition, realizing a $175,000 gain. Although they are in the 15% bracket for long-term gains, just as they were in 2012, they'll owe about $5,500 more than they would have last year due to the new 3.8% tax.

This is where planning can help. If the couple can lower their income by, say, raising retirement-plan contributions or spreading the gain over several years, or both, they might reduce or avoid the extra taxes.

"If they cut this year's gain to $50,000, the $5,500 would drop about $750," says Roberton Williams, a tax specialist at the Tax Policy Center.

The last group are investors who owe zero tax on their long-term gains. They often avoid the 3.8% tax, the Pease limit and the Personal Exemption Phaseout as well.

For couples filing jointly, the zero rate extends up to $72,500 ($36,250 for singles). That might sound like a low cutoff, says Silicon Valley tax strategist Stewart Karlinsky, an emeritus professor at San Jose State University, "but it includes more people than we used to think."

That's because these investors often have large amounts of tax-free income, thanks to municipal bonds or Roth individual retirement accounts. If so, they might be able to realize gains selectively to stay within the zero rate.

Sound complicated? It is—and the alternative minimum tax can make it worse. But careful planning is often worth the effort. Here is what to do to minimize your gains pain this year.

Lower your adjusted gross income. An especially confusing feature of the new capital-gains regime is that while rates are tied to taxable income, for most taxpayers the backdoor increases are tied to adjusted gross income.

That's the number at the bottom of the front page of the 1040. It doesn't include itemized deductions on Schedule A, such as mortgage interest and charitable gifts. Taxable income does.

To avoid the backdoor taxes, it is important to minimize your adjusted gross income. Itemized deductions won't help, but other tax benefits can. Among them: deductible contributions to retirement plans such as IRAs or 401(k)s; moving expenses; business deductions or losses; capital losses; rental-property expenses; alimony payments; and health insurance premiums or health-savings-account contributions, according to Mr. Karlinsky.

Tax-free income from municipal bonds or Roth IRAs won't swell adjusted gross income, either. Converting to a Roth IRA will, however, raise it in the year of the conversion.

Take advantage of "air pockets." The tax code stacks income, deductions and net long-term gains in a way that shrewd taxpayers can exploit.

Here's an example: A retired couple has $70,000 of adjusted gross income before capital gains and $30,000 of itemized deductions. (They might also have tax-free income from munis and Roth IRAs.) According to tax rules, the deductions reduce their income to about $40,000.

This leaves them with an "air pocket" of about $33,000 before they cross from the zero rate to the 15% rate on long-term gains.

If they take a $50,000 gain, nearly $33,000 of it won't be taxable, while the rest would be taxed at 15%. If their income remains constant for two years and they can split the gain between the two years (selling at the end of December and beginning of January, for example), the entire gain could be tax-free.

This is a great tax-code freebie. "People in the zero bracket can even harvest gains and raise their cost basis without owing federal taxes," says Mitch Marsden, a planner at Longview Financial Advisors in Huntsville, Ala. Unlike with assets sold at a loss, there's no waiting period to repurchase assets sold at a gain.

Of course, the value of multiyear strategies depends in part on Congress not changing the law again.

Give appreciated assets to charity. Higher taxes raise the value of making charitable donations with appreciated assets such as shares of stock instead of cash. Under current law and within certain limits, the donor gets to skip the tax and yet take a near-full deduction for the gift.

Strategize family gifts. Are you thinking of giving cash to relatives or friends in the same year that you plan to sell a long-held asset? If your recipient is in a lower capital-gains bracket, consider giving him all or part of the asset instead. Taxpayers can give presents of up to $14,000 per individual per year free of gift tax, and the move can save on capital-gains tax as well.

For example, say a woman wants to give $14,000 to her granddaughter, who is between jobs. If she gives $14,000 of stock shares she bought for $3,000, the granddaughter could sell the shares and pay no tax if her taxable income is below $36,250 this year. But if the grandmother sells the shares herself, the tax bite could range from $1,650 to more than $2,500.

Hold on for dear life. The tax code still forgives capital gains on assets held until death; at that point the asset's full market value becomes part of the taxpayer's estate. Now that the estate-tax exemption is a generous $5.25 million per individual (and indexed for inflation), some investors will find it makes sense to hold appreciated assets until death in order to avoid higher capital-gains taxes.

Consider installment sales. Assets such as land or a business can be hard to sell piecemeal. But an owner could sell the entire asset in an installment sale and spread out a gain over several years, assuming the deal makes overall sense.

Remember the home exemption. Couples who sell a principal residence after living in it at least two years get to skip paying tax on up to $500,000 of gains ($250,000 for singles); only above that does the gain become part of income.

Beware of lower limits for trusts. The new 3.8% tax on capital-gains and other investment income takes effect at $11,950 of adjusted gross income for trusts—far lower than the $250,000 threshold for individuals.

But there is an out: The lower limit applies to income that's retained by the trust, while income that's paid out to beneficiaries is taxed at their own rates.

"This puts pressure on trustees to make distributions," says Diana Zeydel, an estate lawyer at Greenberg Traurig in Miami. Yet the point of some trusts is to retain gains and accumulate assets, or at least to keep the beneficiary on a short tether. These issues require expert help.

Don't be driven by taxes. Don't sell—or hold—an asset just to beat Uncle Sam. Don't do an installment sale if you can't trust the buyer to pay up. And don't make charitable or personal gifts solely for tax reasons.

Continued in article

The Tax Policy Center has a good online tool for making before-and-after estimations ---
http://calculator2.taxpolicycenter.org/index.cfm

Bob Jensen's personal finance helpers ---
http://www.trinity.edu/rjensen/Bookbob1.htm#SmallBusiness

 




Humor November 1-30, 2014

Video:  Instead of Milk and Cookies Give Santa Air Freshener for XMAS ---
https://www.youtube.com/watch?v=wW0VYKtJisw

Blind Date --- http://www.youtube.com/embed/_CwHrJt8Oz8

I Love Lucy: An American Legend --- http://myloc.gov/exhibitions/ilovelucy/Pages/default.asp

Paula says:  "I'll bet no one goes to sleep in her class!"
Sister Strikes Again!: Late Nite Catechism 2 - YouTube
http://www.youtube.com/watch_popup?v=7Jrh_uuPmd0


Forwarded by Paula

With all the new technology regarding fertility recently, a 65-year-old friend of mine was able to give birth.

When she was discharged from the hospital and went home, I went to visit.

'May I see the new baby?' I asked.

'Not yet,' She said. 'I'll make coffee and we can visit for a while first.'

Thirty minutes had passed, and I asked, 'May I see the new baby now?'

'No, not yet,' she said.

After another few minutes had elapsed, I asked again, 'May I see the baby now?'

'No, not yet,' insisted my friend.

Growing very impatient, I asked, 'Well, when CAN I see the baby?'

'WHEN HE CRIES!' she told me.

'WHEN HE CRIES?' I demanded. 'Why do I have to wait until he CRIES?'

'BECAUSE I FORGOT WHERE I PUT HIM, O.K.?'

 


Forwarded by Paula

"I've got problems. Every time I go to bed I think there's somebody under it.  I'm scared. I think I'm going crazy."
 
"Just put yourself in my hands for one year", said the shrink. "Come talk to me three times a week and we should be able to get rid of those fears."

"How much do you charge?"

"Eighty dollars per visit, replied the doctor."

"I'll sleep on it", I said.

Six months later the doctor met me on the street. "Why didn't you come to see me about those fears you were having?" he asked.

"Well, eighty bucks a visit, three times a week for a year, is $12,480.00.  
A bartender cured me for $10.00. I was so happy to have saved all that money that I went and bought me a new pickup truck."
 

"Is that so?" with a bit of an attitude he said, "and how, may I ask,
did a Bartender cure you?"

"He told me to cut the legs off the bed. Ain't nobody under there now."
 
Moral:  FORGET THE SHRINKS. HAVE A DRINK & TALK TO A BARTENDER! 
IT'S ALWAYS BETTER TO GET A SECOND OPINION!

 

 


Forwarded by Gene and Joan

You know you are too old to Trick or Treat when:

10. You keep knocking on your own front door. 9. You remove your false teeth to change your appearance.

8. You ask for soft high fiber candy only.

7. When someone drops a candy bar in your bag, you lose your balance and fall over.

6. People say...'Great Boris Karloff Mask,' and you're not wearing a mask. . 5. When the door opens you yell, 'Trick or...' and you can't remember the rest.

4. By the end of the night, you have a bag full of restraining orders.

3. You have to carefully choose a costume that doesn't dislodge your hairpiece.

2. You're the only Power Ranger in the neighborhood with a walker. And the number 1 reason Seniors should not go Trick or Treating ... * * * 1. You keep having to go home to pee.


Forwarded by Paula

My wife found out that our dog (a Schnauzer) could hardly hear, so she took it to the veterinarian. The vet found that the problem was hair in the dog's ears. He cleaned both ears, and the dog could then hear fine. The vet then proceeded to tell Andrea that, if she wanted to keep this from recurring, she should go to the store and get some "Nair" hair remover and rub it in the dog's ears once a month.

Andrea went to the store and bought some "Nair" hair remover. At the register, the pharmacist told her, "If you're going to use this under your arms, don't use deodorant for a few days."

Andrea said, "I'm not using it under my arms."

The pharmacist said, "If you're using it on your legs, don't use body lotion for a couple of days."

Andrea replied, "I'm not using it on my legs either. If you must know, I'm using it on my Schnauzer."

The pharmacist says, "Well, stay off your bicycle for about a week."


Forwarded by Paula

The rain was pouring down and there was a big puddle in front of the pub just outside an Air Force base. An old man wearing a baseball cap with the Navy insignia on it was standing near the edge with a fishing rod, his line in the puddle.

A curious young Air Force pilot stopped and asked what he was doing. 'Fishing,' the old guy simply said.

'Poor old fool,' the Air Force officer thought, but out of respect he invited the ragged old sailor into the pub for a drink. He felt he should open up a conversation, so he asked 'How many have you caught? 'You're the eighth' the old sailor replied.


Forwarded by Paula

Capeeshe Italiano........ I'm sending this out to every person I know who is Italian, could be Italian, married an Italian, lived with Italians or wants to be Italian......!!!!!

Let's start at the beginning.

Come stai? Molto bene. Bongiorno. Ciao. Arrivederci.

Every Italian from Italy knows these words and every Italian-American should.

But ……… what about the goomba speech pattern? Those words and phrases that are a little Italian, a little American, and a lot of slang. Words every Paesano and Bacciagaloop we have heard, - words we hear throughout our Little Italy neighborhood of New York.

This form of language, the 'Goomba-Italiano ' has been used for generations. It's not gangster slang terms like 'whack' or 'vig', if that's what you are thinking---nope, this is real Guido talk!

The goomba says ciao when he arrives or leaves. He says Mama Mia anytime emotion is needed in any given situation.

Mannaggia, meengya, oofah, and of course, va fongool can also be used…. Capeesh?

He uses a moppeen to wipe his hands in the cuchina, gets agita from the gravy and will shkeevats meatballs unless they are homemade from the famiglia.

Always foonah your bread in the pot of gravy (sauce) or you will be considered a real googootz or Mezzo-finookio.

There are usually plenty of mamalukes and the girl from the neighborhood with the reputation is a facia-bruta, puttana or a schifosa.

If called cattivo, cabbadost, sfatcheem, stupido, or strunz, you are usually a pain in the ass. A crazy diavlo can give you the malokya (evil eye), but that red horn (contra malokya) will protect you if you use it right.

Don 't forget to always say per favore and grazia and prego.

If you are feeling mooshadda or stounad or mezzo-morto, always head to Nonna's and she will fix you up with a little homemade manicott', cavadell', or calamar ', or some ricotta cheesecake.

Mangia some zeppoles, canolis, torrone, struffoli, shfoolyadell', pignoli cookies, or a little nutella on pannetone. Delizioso!

I think I will fix myself a sangweech of cabacol' with some proshoot and mozarell' or maybe just a hot slice of peetza.

So salud' if you have any Italian blood in you and you understood anything written here! Then, you are numero uno and a professore of the goombas.

If you don't get any of this, then fa Nabola with the whole thing and you are a disgraziato. Scuzi, Mia dispiachay, I didn't mean that....... Just....... Fu-ghedda-boudit…

Bada Bing….. This is also so true. Enjoy!

Italians have a $40,000 kitchen, but use the $100, 35 year old stove from Sears in the basement to cook things on.

There is some sort of religious statue in the hallway, living room, bedroom, front porch and backyard. (A Mary on the half shell).

The outdoor table is linoleum covered with small, chrome metal trim along the edges.

The living room is filled with old wedding favors with bows and stale almonds (they are too pretty to open and eat).

All lampshades, stuffed chairs and stuffed couches are covered with stiff, clear plastic.

A portrait of the Pope and Frank Sinatra hang in the dining room.

God forbid if anyone EVER attempted to eat 'Chef Boy-ar-Dee', 'Franco American', 'Ragu', 'Prego', or anything else labeled as Italian in a jar or can.

Meatballs are made with pork, veal and beef, mixed together.

Turkey is served on Thanksgiving AFTER the manicotti, gnocchi, lasagna, and minestrone or shcarole soup.

If anyone EVER says ESCAROLE, slap 'em in the face -- it's SHCAROLE.

Sunday dinner was at 1:00 PM sharp. The meal went like this... The table was set with everyday dishes. It doesn't matter if they don't match. They're clean; what more do you want?

Wine, homemade, is served up in small water or old cheese glasses.

At the table all the utensils go on the right side of the plate and the napkin goes on the left.

A clean kitchen towel was put at Nonno's & Papa's plates because they won't use napkins.

Homemade wine, a pitcher of water and bottles of 7-UP are on the table.

First course, Antipasto... Change plates.

Second course, macaroni or ravioli.

All pasta was called macaroni...or `paste`. Change plates.

Third course was usually roast beef, some chicken with potatoes and vegetables... Change plates.

THEN, and only then - NEVER AT THE BEGINNING OF THE MEAL - would you eat the salad drenched in homemade oil & strong, red-vinegar dressing.. Change plates.

Next course, fruit & nuts - in the shell - on paper plates because you ran out of the real ones.

You pinched yourself on that damn nutcracker...how many times..?

Last was coffee with anisette, some espresso for Nonno, 'American' coffee for the rest - with hard cookies (biscottis) to dunk in the coffee with more fruit and some cheese.

The kids would go out to play.

The men would go lay down. They slept so soundly that you could do brain surgery on them without anesthesia.

The women cleaned the kitchen.

We got screamed at by Mama or Nonna, and half of the sentences were English, the other half in Italian.

Italian mothers never threw a baseball in their life, but could nail you in the head or back with their shoe thrown from the kitchen while you were in the living room.

Other things particular to Italians...

The prom dress that Zia Ceserina made for her kid, Carmella, cost only $20.00, which was for the material.

The prom hairdo was done free by Cousin Angelina.

Turning around at your prom to see your entire family, including your Godparents, standing in the back of the gym...was simply PRICELESS!

True Italians will love this.

Those of you who are married to Italians will understand this. And those who wish they were Italian, and those who are friends with Italians, will remember with a smile.

Then they'll forward this to their Italian friends with love or a reasonable facsimile.


Forwarded by Paula

Father Norton woke up one Sunday morning. It was an exceptionally beautiful and sunny early spring day, and he decided he just had to play golf. He called up his associate pastor and told him that he was feeling sick and asked him to hold Mass for him that day.

As soon as he hung up, Father Norton headed for a golf course about 40 miles away. He wanted to make sure that he didn't run into anyone he knew. After all, everyone else would be in church.

At the course, Father Norton asked to play alone, and as he strolled onto the first tee, St. Peter leaned over to the Lord while they were looking down from Heaven and exclaimed, “You're not going to let him get away with this, are you?" The Lord sighed and responded, “No, I guess not."

Father Norton teed his ball up and took a mighty swing. The ball came

off the face of his driver like a cannon shot, straight and true. His ball landed just short of the green, bounced on and rolled straight into the hole, a 420-yard hole-in-one! St. Peter was astonished. He looked at the Lord and asked, “How could you let that happen?

The Lord just smiled and replied, “Who's he going to tell?"





Humor Between November 1-30, 2014 --- http://www.trinity.edu/rjensen/book14q4.htm#Humor113014

Humor Between October 1-31, 2014 --- http://www.trinity.edu/rjensen/book14q4.htm#Humor103114

Humor Between September 1-30, 2014 --- http://www.trinity.edu/rjensen/book14q3.htm#Humor093014

Humor Between August 1-31, 2014 --- http://www.trinity.edu/rjensen/book14q3.htm#Humor083114

Humor Between July 1-31, 2014--- http://www.trinity.edu/rjensen/book14q3.htm#Humor073114

Humor Between June 1-31, 2014 --- http://www.trinity.edu/rjensen/book14q2.htm#Humor063014

Humor Between May 1-31, 2014, 2014 --- http://www.trinity.edu/rjensen/book14q2.htm#Humor053114

Humor Between April 1-30, 2014 --- http://www.trinity.edu/rjensen/book14q2.htm#Humor043014

Humor Between March 1-31, 2014 --- http://www.trinity.edu/rjensen/book14q1.htm#Humor033114

Humor Between February 1-28, 2014 --- http://www.trinity.edu/rjensen/book14q1.htm#Humor022814

Humor Between January 1-31, 2014 --- http://www.trinity.edu/rjensen/book14q1.htm#Humor013114

Humor Between December 1-31, 2013 --- http://www.trinity.edu/rjensen/book13q4.htm#Humor123113

Humor Between November 1-30, 2013 --- http://www.trinity.edu/rjensen/book13q4.htm#Humor113013,

Humor Between October 1-31, 2013 --- http://www.trinity.edu/rjensen/book13q4.htm#Humor103113

Humor Between September 1 and September 30, 2013 --- http://www.trinity.edu/rjensen/book13q3.htm#Humor093013

Humor Between July 1 and August 31, 2013 --- http://www.trinity.edu/rjensen/book13q3.htm#Humor083113

Humor Between June 1-30, 2013 --- http://www.trinity.edu/rjensen/book13q2.htm#Humor063013

Humor Between May 1-31, 2013 --- http://www.trinity.edu/rjensen/book13q2.htm#Humor053113

Humor Between April 1-30, 2013 --- http://www.trinity.edu/rjensen/book13q2.htm#Humor043013

 




And that's the way it was on November 30, 2014 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/