In 2017 my Website was migrated to
the clouds and reduced in size.
Hence some links below are broken.
One thing to try if a “www” link is broken is to substitute “faculty” for “www”
For example a broken link
http://faculty.trinity.edu/rjensen/Pictures.htm
can be changed to corrected link
http://faculty.trinity.edu/rjensen/Pictures.htm
However in some cases files had to be removed to reduce the size of my Website
Contact me atrjensen@trinity.eduif
you really need to file that is missing
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
Free of charge as the world turns
Real Time Economics (a Wall Street Journal blog on the changing world
of economics and finance) ---
http://blogs.wsj.com/economics/
I find this more news than opinion, although the comments on postings are often
more opinion than news
Jensen Comment
Like virtually all accounting theory books this one appears to be long on
history and short on accounting theory for complex contracts of the 21st
Century. For example, the Table of Contents does not even mention derivative
financial instruments accounting, lease accounting, or insurance accounitng. I
don't think I will pay $325 for yet another history of accounting book. History
to date is inadequate for providing guidance on accounting for modern financial
transacting such as financial structures and hedging and operating leases.
March 3, 2015 message from Linda Kidwell (University of Wyoming)
I'm happy to report to my AECM colleagues that I am
a Fulbright Scholar in Romania this spring, at the Bucharest University of
Economic Studies, a.k.a. Academia de Studii Economice din Bucuresti. I'm
hoping someone out there can give me a hand for my research.
I'm studying corporate governance in Romania as a
transitional economy. There's lots of information about the anti-corruption
commission's activities in the news (every night!), but this is focused on
high level corruption in politics (e.g. bid-rigging, conflicts of interest,
and undue pressure on judges). I am more interested in the governance issues
faced by businesses. If any of you happen to have business contacts over
here who might be willing to talk to me confidentially, please let me know
if you'd be willing to make an introduction. You can private message me at
lkidwell@uwyo.edu.
For almost two decades, this influential,
articulate and seasoned professional has been the leading voice for
transparency and accountability in government. With over 37 years of
experience in the private, public and not-for-profit sectors, his extensive
leadership experience spans numerous issues and organizations in all three
sectors, including issues in the international and inter-governmental
domains. He has been referred to as a modern day Paul Revere by Paul
Volcker, Pete Peterson, and many others.
He currently serves as President and Chief
Executive Officer of The Peter G. Peterson Foundation. The Peterson
Foundation's mission is to promote greater federal financial responsibility
and accountability today in order to create more opportunity tomorrow. This
includes taking actions designed to enhance public understanding regarding
the urgency of the fiscal and sustainability challenges that threaten
America's future and to build public support for achieving the necessary
changes.
In October 2010, he will leave his current position
to launch the Comeback America Initiative, a new non-profit
organization that will be supported by a three-year grant from the Peterson
Foundation. He will serve as Founder and Chief Executive Officer of the new
organization which will promote fiscal responsibility and sustainability by
engaging the public and assisting key policy makers on a non-partisan basis
in order to achieve solutions to the fiscal imbalances facing the federal,
state and local governments.
Prior to joining the Peterson Foundation, he served
as the seventh Comptroller General of the United States from 1998-2008. As
Comptroller General, he was head of the U.S. Government Accountability
Office (GAO) and the de-facto Chief Accountability Officer of the United
States Government. During this period he was a non-partisan and outspoken
advocate for fiscal responsibility and government transformation. While head
of GAO, he led reforms that dramatically improved the agency's performance,
productivity, credibility, visibility and reputation. He also led efforts to
help modernize the government accountability profession both domestically
and internationally.
Prior to his appointment as Comptroller General of
the United States, he served from 1989 to 1998 as a Partner and Global
Managing Director of the Human Capital Services Practice with Arthur
Andersen LLP. In this position, he had responsibility for the firm’s human
capital strategy, change management, compensation, pensions and health care
services. During this time, he also served from 1990-1995 as one of two
Public Trustees for the U.S. Social Security and Medicare programs.
He has received Presidential appointments from
Ronald Reagan, George Herbert Walker Bush, and William Jefferson Clinton. He
was confirmed unanimously all three times by the U.S. Senate. Prior to
Arthur Andersen, he served in several senior leadership positions within the
U.S. Government, including as Assistant Secretary of Labor for Pension and
Employee Benefit Programs and acting head of the Pension Benefit Guaranty
Corporation. His initial professional and private sector experience was
gained with Price Waterhouse, Coopers & Lybrand, and Source Services
Corporation.
In addition, he has experience with senior level
government, private and independent sector officials in many states and a
number of countries around the world. In November 2007, he was elected by
the United Nations General Assembly to serve a four-year term as a member of
the UN Independent Audit Advisory Committee (IAAC). He has also been elected
Chairman of the IAAC each year by his colleagues from Russia, India, Uganda
and Jamaica. He served as a member of the Board and Chair of the Strategic
Planning Task Force for the International Organization of Supreme Audit
Institutions. As Comptroller General, he also served as Chairman and the
National Intergovenmental Audit Forum in the United States. This forum is
comprised of leaders from federal, state and local audit and accountability
organizations throughout the U.S.
He is a frequent speaker, Congressional witness,
writer and media commentator. He has authored three books, including a
National Best Seller entitled "Comeback America: Turning the Country Around
and Restoring Fiscal Responsibility" (2010), as well as numerous articles
and opinion pieces. He is the subject of the critically acclaimed
documentary, I.O.U.S.A., and a 60 Minutes segment. He is
also a member of several not-for-profit boards, advisory groups and other
key organizations, including the PCAOB's Advisory Board and the Trilateral
Commission.
He has won many awards for his leadership,
accomplishments, writing and speaking, including Annual Financial Literacy
Award from Wealth Watchers International (2010), the Presidential Award of
Excellence from the President of Indonesia (2009), the Alexander Hamilton
Leadership Award from the Center for the Study of the Presidency and the
Congress (2009), the Gold Medal Award from the American Institute of
Certified Public Accountants (2008), the Strategic Vision Award from the
Center for Strategic and International Studies (2008), the Government
Communicator of the Year Award from the Association of Government
Communicators (2008), the Distinguished Service Award from the Secretary of
Defense (2008), the Economic Patriot of the Year Award from The Concord
Coalition (2007), the Presidential Achievement Award with Sash from the
President of Austria (2006), and the George Romney National Public
Administrator of the Year award (2006).
Born in 1951 in Birmingham, Alabama, he is a
Certified Public Accountant (CPA) and holds a Bachelors Degree in Accounting
from Jacksonville University (Florida), a Senior Managers in Government
Certificate from the John F. Kennedy School of Government at Harvard
University, and several honorary doctorate degrees from various
universities, including The American University and his undergraduate alma
mater.
He is married to the former Mary Etheredge of
Jacksonville, Florida. They have two grown children and three
grandchildren. They currently reside in the Black Rock section of
Bridgeport, CT.
Jensen Comment
The title of this article is
"Median Salaries of Tenured and Tenure-Track Professors at 4-Year Colleges,
2014-15"
But if you scroll down there are tables comparing median salaries at the
various faculty ranks in all universities, including R1 research institutions.
Keep in mind these are median salary comparisons where half the faculty in a
give category make more and half make less. There can also be considerable
variances. The data are skewed downward by thousands
of colleges operating at the financial margin that pay very low salaries.
The databases do not drill down into sub-disciplines such as accounting
versus finance versus marketing versus management under the category "Business."
For these comparisons it may be better to use AACSB databases. The AACSB
databases have the added advantage in that they exclude those colleges that are
not accredited by the AACSB, thousands of financially struggling colleges paying
low salaries.
That said,
the rating agencies and most other market participants still appear to be
light years away from understanding the true scope of Chicago’s financial
problems. The city has a very — well, let’s just call it
unconventional — approach to borrowing money and probably should not be
considered investment grade.
Some budget
history
In order for
you to follow my discussion of Chicago’s borrowing shenanigans, it is
necessary to understand the fiscal machinery behind its bond issues. Please
be patient with me here. This story will blow your mind shortly.
Chicago’s
budget is divided into seven different fund classifications, but only three
funds are relevant to our narrative: the Corporate Fund, Property Tax Fund,
and Reserve Funds.
The Corporate
Fund is Chicago’s general operating fund. This fund is used to pay for
essential government services and activities (e.g. public safety and trash
collection). Corporate Fund revenues are derived from a wide variety of
sources, including: (1) local tax revenue from utility, transaction,
transportation, recreation, and business taxes; (2) intergovernmental tax
revenue, which represents the city’s share of the state’s sales and use
taxes, income tax, and personal property replacement tax; and (3) non-tax
revenue from fees, fines, asset sales, and leases.
Chicago’s
property tax revenues do not go into its general operating fund. These
revenues go into a Property Tax Fund, which is used to make debt service
payments on the city’s general obligation bonds; make required employee
pension contributions; and (to a minor extent) fund the library system. The
fund also includes tax increment financing revenues that flow to projects in
designated TIF districts.
The city used
some of the proceeds from long-term leases of city assets to establish
Reserve Funds. The Chicago Skyway reserve funds were established in 2005 in
the amount of $975 million. The Metered Parking System reserve funds were
established in 2009 in the amount of $1.15 billion. Of these funds, $475
million of the Skyway reserves were designated for budgetary uses. What
remained was $500 million for the Skyway; $400 million for the Metered
Parking System; and $326 million for a budget stabilization fund.
There has
been a structural gap in Chicago’s Corporate Fund budget since at least
2003. Although most governments are required to balance their budgets on a
cash flow basis each fiscal year, a structural budget gap can arise when
recurring expenditures are greater than recurring revenues. Some of the
city’s offering documents suggest that this gap is a legacy of the last
economic downturn, but in reality the gap pre-dates the economic downturn by
several years. The impact of economic downturns on tax collections tends to
have a considerable lag anyway.
So, Chicago’s
structural budget gap is a political, not economic, creature. Rather than
cut expenditures to a level that could be supported by recurring revenues,
the city mostly used non-recurring resources to fill the gap from one fiscal
year to the next. This is not surprising. Most of Chicago’s Corporate Fund
budget goes to salaries and benefits for its employees, and 90% of the
city’s employees belong to around 40 different unions. Attempts to adjust
expenditures tend to have well organized opposition.
Between fund
transfers and drawing down its reserves, the city blew through its financial
cushioning quickly. The $326 million budget stabilization fund was exhausted
by 2010. From 2009 to 2011, the city used $320 million from the Metered
Parking Reserves. The city’s budget gap was at its widest in the wake of the
last economic downturn, at over $600 million.
Chicago’s
dysfunctional debt program
Now things
start to get interesting. Transfers from reserves and other funds have not
been the only means Chicago officials (across
administrations) have devised to subsidize the
city’s Corporate Fund. The city has effectively been using its general
obligation bond offerings and interest rate derivatives to accomplish the
same thing.
State and
local governments typically use the proceeds from their bond offerings to
construct or renovate public buildings and infrastructure. These are
projects that have long useful lives and will benefit residents for
generations.
Dating back
to at least 2003, however, Chicago has been issuing long-term tax-exempt and
taxable bonds to:
(1) Roll over
short-term debt used as working capital;
(2) Pay for
maintenance activities that would otherwise be paid from the Corporate Fund;
(3) Pay for
judgments and settlements that would otherwise be paid from the Corporate
Fund, including wage increases and retroactive pension contributions for its
employees; and
(4) Provide
discretionary funds to each of the city’s 50 aldermen to pay for activities
in their own districts.
In 2002, for example, the city used tax-exempt
bonds to pay an arbitration award involving the Fraternal Order of
Police. Rank-and-file officers rejected a city contract offer in 2001,
but an arbitrator ruled in favor of the city’s wage proposal a year
later.
The deal included raises of 2 to 4 percent a year,
to be applied retroactively. In bond documents, city officials deemed
the back pay the city owed an extraordinary expense and paid $164
million of it with tax-exempt bonds.
The city ultimately will need to pay bondholders
$280 million to cover the loan …
Bonds also ended up covering the $28 million a
jury awarded to Joseph Regaldo in 1999. The jury found that, years
earlier, a Chicago police officer had beaten him in the back of the head
and neck with a blunt object, which ripped apart an artery and cut off
the blood supply to his brain. The injuries left Regaldo unable to walk,
talk or care for himself.
The judgment won’t be paid off until 2019 at the
earliest; by then, the total cost will have grown to $53 million.
City officials eventually switched to paying
judgments with taxable bonds, which are even more costly in the long
run.
That is, until 2012:
About $54 million from a tax-exempt bond helped
cover a legal judgment awarded to African-Americans who were denied a
chance to become firefighters by a 1990s entrance exam that favored
white applicants. An additional $8 million in tax-exempt bond money went
to pay legal fees related to the case, records show.
By using bond money, the city created an irony for
many of those awarded damages, as their future property taxes will help
pay interest on the debt. In 2033, when the city starts paying down the
$54 million, interest will have more than doubled the total cost.
Stop and let
that sink in for a moment. That police brutality case? Wage increases
negotiated with labor unions? Not just financed, but financed with long-term
debt.
So why
haven’t the city’s 50 aldermen protested the use of bond proceeds for these
purposes? It probably has something to do with the “Aldermen’s Menu,” which
allows the aldermen to use a portion of the proceeds from the city’s general
obligation bond issues to pay for whatever they want for their district.
I've been debating how best to handle this news and
came to the conclusion it would be best to share this here. Here goes.
A little over 6 years ago, I started this humble
little site. At the time, I was working in CPA review, helping future
accountants get licensed. It just so happened that the economy was taking a
big fat steaming dump at the same time, and hence this site was born.
Shortly after that, the folks at Breaking Media who
run Above the Law, Dealbreaker, Fashionista and others thought an accounting
site along those lines would be a good idea. So Going Concern was born. Its
founding editor, my now colleague Caleb Newquist with whom I have happily
shared the last 5+ years of our lives, was a fan of JDA and decided he
wanted me on board as he assembled the GC team in those early days. A few
years later, the site was sold to Sift Media, and is still there to this
day.
It was August of 2009 when I wrote my very first
post for that then-fledging website. I stayed on as a contributor and
resident troll for years until late 2013, when I was brought on as Managing
Editor.
It was a good run. GC does good work, if I may say
so myself. No one else questions the status quo in accounting quite like
Going Concern, and to that end, it's been great being a part of that.
Alas, tomorrow is my final day with the company.
I'm not sure what happens from here or what will become of GC -- I suspect
it will be, as it always has, a place for the profession to have candid
conversations.
For all the crazy Big 4 farewell emails we shared
over the years, I always thought when this day came I'd write a crazy
farewell email myself, calling out my colleagues and stuffing in hashtags.
So it's a little weird that I'm not going that direction.
Working for Going Concern for the last 5+ years, in
whatever capacity, has been awesome. Most of all, I'll miss our loyal
trolls. But things change and that means me moving on.
I'm not sure what's next. Consulting? Magazine
work? I'm up for whatever.
Right now, I'm a free agent. The possibilities are
endless. I'm going to miss the Fourth Estate of accounting I've come to know
at Going Concern, but am pretty sure there's more to it than just trolling.
I plan to make the most of my last day as Managing
Editor tomorrow. And then I'm off. Here's to bigger and better. Thank you to
everyone who made GC what it was and made my time there so much fun. It
hardly felt like work.
You can always find me on the Internet.
Adriene Gonzalez
Junior Deputy Accountant
Jensen Comment
I think those of us who have tracked her posts regularly over the years both on
her original Junior Deputy Accountant Blog and on Going Concern will miss
Adriene's enthusiasm, dedication, and humor.
Example of Adriene's Humor
One year on April 1 she reported that her boss (Caleb Newquist) was leaving to become a partner
at KPMG. Now that was a funny April Fool's joke.
Sorry to see you go Adrience Set 'em up Joe --- here's to our Junior Deputy Accountant!
Question
What does a Boeing 787-10 cost and why is it such a high price?
Bob, When I used to teach management accounting,
which is now a long time ago, I used to begin the class discussion of cost
allocation with the following question to the class: How would you measure
the cost of the first Boeing 747 produced? (Attribution: John Shank used to
ask this question in class also, and I took the idea from him.)
Nowadays, I teach accounting theory, and I will
definitely use the article you have provided as the basis for a class
discussion. I think we’ll be able to have a lively discussion about "program
accounting.”
Thanks,
Tom
March 30m 2015 reply from Bob Jensen
Hi Tom,
An interesting point to build on with students is that this airliner is
made 50% "composites." Read that as meaning "rare earth composites." The US
Department of Energy claims demand for rare earth materials increased over
60% since 2003.
I really learned a lot from a recent CBS Sixty Minutes module on
rare earth elements and their composites. Most of all I learned that rare
earth elements in general are not all that rare. They can be found in
a lot of places all over the world.
The problem is that they are usually embedded in only small amounts among
other earth components such that it becomes both difficult and expensive to
extract them with a lot of mining costs and environmental externalities.
This has tended to give China a near-monopoly on their mining due to
relatively low labor costs and low environmental regulations.
An enormous problem is that the USA military and airline industry are now
highly dependent upon China --- a nation willing to exploit its monopolies
for economic and political purposes. In times of dire emergencies such as WW
III the USA could turn elsewhere for supply, but expanding mining operations
elsewhere is both costly and subject to very long delays. There is at least
on large mining operation in the USA but it is a drop in the bucket compared
to output needs for both the USA and the rest of the world.
A blog post by 60 Minutes' Kevin Livelli,
one of the producers who reported on
rare earth elements
this week:
Not long ago, if you had stopped me on the
street and told me there was an interesting 60 Minutes story to be told
about the lanthanide series of rare earth elements, I would have said
you're crazy.
To begin with, who's ever heard of them? And
even if you did manage to find them on that obscure bottom rung of the
Periodic Table, you'd hit another hurdle - how to pronounce them. They
have names only Dr. Seuss might have dreamt up. There's terbium,
dysprosium, ytterbium, and lutetium. Neodymium, europium, cerium, and
lanthanum. Not exactly the kind of thing that rolls off the tongue.
"...perhaps a little dose of pop culture might
spark the imagination. After all, China's hold on rare earth elements is
a running theme in 'House of Cards'..."
In this case, I stumbled on rare earths by
accident. While doing some other reporting, I found that they were on
the mind of the Director of National Intelligence, General James
Clapper. He mentioned them in congressional testimony, as part of an
annual "Worldwide Threat Assessment" -- a litany of threats to national
security.
Clapper told Congress that rare earths are
"essential" to the 21st century global economy, including the burgeoning
green tech industry, and he emphasized that they are "critical" to
advanced defense systems. That was intriguing, I thought. But there was
more. One country - China - has been holding a "commanding monopoly"
over world supply, at the time about 95 percent of the market, and
things weren't going to change soon.
The light bulb went off. Here was something
that touched people's lives not just in their everyday use (televisions,
smartphones, tablets, computers, stereos, cars), but also had
implications for U.S. energy security (hybrids, wind turbines, energy
efficient lighting) and national security as well (precision-guided
missiles, radar, night-vision goggles, lasers, satellites, fighter jets,
submarines).
A little more digging revealed that the U.S.
had actually once led the world in the rare earth industry and pioneered
many of its common applications before ceding that dominance to China. I
wanted to know how that happened and what it all meant. Here were good
questions for our 60 Minutes story. My colleague, Graham Messick, and I
set out to find the answers.
In doing so, we quickly found reporting on rare
earths to be especially challenging. To begin with, we had to learn how
rare earths are different from other metals and minerals - like iron or
copper. What makes them rare? Turns out, as Lesley Stahl explains in our
story, the name is a bit of a misnomer. Rare earths occur naturally in
lots of places, but only a few have concentrations high enough to mine.
You might think, then, that if the U.S. had more rare earth mines, the
problem would be solved. You'd be wrong.
Even if you were to luck out and find a mine
like the one owned by Molycorp out in Mountain Pass, California, and get
it up and running, your work isn't finished. Unlike other metals, rare
earths don't go to market in raw form. They have to be separated from
one another and many are turned into metals first, which means they must
be processed to exact specifications (sometimes up to several "9's" as
in 99.9999 percent purity) that take into consideration their intended
end use. And that is very hard to do. So to be successful in the rare
earth business, you need to have not just access to the right rocks, but
also access to the right know-how that will allow you to turn those
rocks into something useful. That complex combination is what makes them
"rare."
Another challenge in reporting on rare earths
is understanding the supply chain. Rare earths feed the high tech
industry around the world, and supply chains from mine to manufacturer
can include as many as 12 stops along the way. So, for example, if you
were to follow the dozen or so different rare earths metals that experts
say are in each iPhone all the way back to the mine, you'd have an
extremely hard time doing so. Same goes for the rare earths used in the
F-35. The lengthy supply chains get very complicated very quickly.
What's more, lasting success in the rare earth
industry, I learned, only comes when the supply chain companies choose
to operate close to the source of rare earths and cultivate a symbiotic
relationship. Today, China is on top not only because it has the biggest
mine and the most know-how, but also as a result of having drawn
manufacturers from around the world that use rare earths (i.e. supply
chain customers) to Asia.
To help us understand how rare earths impact
our lives and to show us where they can actually be found inside our
gadgets, we interviewed Ed Richardson, the president of the U.S.
Magnetic Materials Association, a trade group that represents American
rare earth magnet makers.
In the video player above, you'll see that
Richardson came to the interview with what looked at first to be a bunch
of electronic junk. It turns out it really was his old stuff - an old
cell phone, ear buds, and a toy helicopter -- but then we watched him
dissect each object to reveal the rare earth magnets inside.
Along the way, he taught us a few other cool
facts about rare earths. For instance, they can hold a thousand times
their own weight, and they are a key technology behind the
miniaturization of modern gadgets, enabling them to be smaller and
lighter.
If, after watching our 60 Minutes story, you
still think rare earths bring up too many bad high school chemistry
memories, perhaps a little dose of pop culture might spark the
imagination.
After all, China's hold on rare earth elements
is a running theme in "House of Cards" (think of Raymond Tusk's push for
"Samarium 149"). And defending the only U.S. rare earth mine is Jason
Bourne's mission in "The Bourne Dominion." There's even a way, if you
like to take matters into your own hands, to fight for global control of
the rare earth supply in the video game "Call of Duty: Black Ops II." I
guess the Periodic Table isn't so boring after all.
Jensen Comment
Rare earth minerals accounting presents wide-ranging research opportunities in
at least two dimensions. One is the dimension of financial risks to the buyers
and produces of rare earth minerals. The other dimension is environmental
accounting in general.
It would appear disclosure guidance to date leaves a lot to be desired.
From the CFO Journal's Morning Ledger on March 26, 2015
Zero-based budgeting, an austerity measure that forces
corporate managers to justify from scratch their spending plans every year,
is getting its moment in the spotlight. The tactic is a critical element to
3G Capital Partners LP’s plan for making good with its
roughly $49 billion deal to acquire Kraft Foods Group Inc.
through its H.J. Heinz Co. unit,
the WSJ reports. Zero-based budgeting has
triggered sweeping cost cuts at 3G-related companies, including Heinz,
ranging from the elimination of hundreds of management jobs to jettisoning
corporate jets—and even requiring employees to get permission to make color
photocopies.
And it isn’t just 3G adopting the cost-cutting
measure. The budget tool has
attracted a wide following among big food companies
and has been used by many public agencies. But it does
have its downsides. Employees may perceive it as harsh, especially when it
eliminates office perks and leads to layoffs, and it can require staff
training and sometimes painful discussions. Some experts also say that it
doesn’t make sense for high-growth companies or those expanding into new
regions.
Question
What government agencies art the biggest piñatas for millions of fraudster?
Government-wide, improper payment estimates totaled $124.7 billion in fiscal
year 2014, a significant increase of approximately $19 billion from the
prior year’s estimate of $105.8 billion. The estimated improper payments for
fiscal year 2014 were attributable to 124 programs spread among 22 agencies.
The increase in the 2014 estimate is attributed primarily to increased error
rates in three major programs: the Department of Health and Human Services’
(HHS) Medicare Fee-for-Service and Medicaid programs, and the Department of
the Treasury’s Earned Income Tax Credit program. These three programs
accounted for $80.9 billion in improper payment estimates, or approximately
65 percent of the government-wide total for fiscal year 2014. Further, the
increases in improper payment estimates for these three programs were
approximately $16 billion, or 85 percent of the increase in the
government-wide improper payment estimate for fiscal year 2014.
The EITC's 27.2% error rate
is far greater than any of the listed government programs.
Jensen Comment
At best these can be considered educated guesses subject to enormous margins of
error. One problem is that the GAO has deemed that auditing is impossible for
some agencies prone to fraudulent spending such as the Pentagon and the IRS.
Government agencies are enormous piñatas for millions of
fraudsters.
I watched a woman being interviewed by CBS News who spent (tax free) her
mother's Social Security payments that were automatically deposited into a
checking account. Her mother has been dead for over 30 years.
This document provides a summary of the activities
of the FASB, PCAOB , and SEC , and describes related international
developments that are of interest to audit committees, companies, and their
stakeholders.
Questions
Did the Fed really buy that old paper shredder in the Houston Office of
Andersen?
Has Lois Lerner really surfaced at the Fed showing them how to use that
shredder?
This is an appropriate juncture to be reviewing a
work on insights from accounting history, given the pressing need for
accounting academics in the U.S. and internationally to rediscover the
potential of history for gaining a fuller understanding of accounting
practice and the environment in which it operates and which it has helped to
shape. This was the view taken by the American Accounting Association
(1970), whose report acted as a clarion call for American educators, with
the support of the standard setter, to raise the profile of accounting
history. Forty years on, the promise of an educational and research agenda
informed by insights from accounting history has by and large faltered in
U.S. schools, where accounting research has become dominated by ahistorical
research methodologies (Mouck 1995; Lee 2006; Vangermeersch 2008). The
situation persists despite the commitment of American accounting historians
to rectifying the situation, but who find themselves obliged to seek
publication outlets outside the mainstream U.S. journals. This compilation
of historical writings by Stephen Zeff is unusual in that as many as six of
the 15 post-1980 articles included in the collection were originally
published in generalist American accounting journals, including two in The
Accounting Review—proportions which, although seemingly low, bear witness to
Zeff's high standing in the U.S. accounting academy.
The retreat from history by the mainstream is a
wasted opportunity that this book, and the Routledge series on Historical
Perspectives in Accounting of which it forms part, is attempting to address.
Among its benefits, accounting history can show us the roots of present
practice and help us to better understand human nature, better understand
present social, economic, and organizational structures, be aware that the
problems of the present are not unique, and finally give us a fuller
appreciation of the patterns of regulation and abuse, including the likely
reactions of the major players (Jones and Oldroyd 2009). All of these themes
are explored in the book, which, in keeping with the rest of the Routledge
series, focuses on the contemporary evolution of accounting thought,
practice, and standard setting. Zeff's work is therefore highly pertinent to
the challenges facing the modern world of accounting.
The book comprises a foreword by the distinguished
accounting historian, J. R. Edwards, an introduction by the author, and 18
papers that were originally published between 1962 and 2007. The foreword
places the work in its historiographical context, examines Zeff's research
methods, and comments on his academic career. As Edwards observes, the
collection does not fully reflect Zeff's historical research, as it
necessarily omits his books and monographs. These are listed in an appendix.
The introduction provides an overview of the collection, discusses the
genesis of the various papers, and reveals their motivation.
Zeff identifies three broad themes running through
the papers: “the historical development of the process of setting accounting
standards, the evolution of accounting thought, and the evolution of the
accountancy profession and of audit practice” (p. xxxii). Zeff's career-long
interest in the standard setting process, especially the political lobbying
involved, is signaled by the second paper in the collection, “The Rise of
‘Economic Consequences',” published in 1978 as part of the Stanford Lectures
in Accounting. Here Zeff is referring to a growing realization by interest
groups that accounting standards could produce economic consequences that
they in turn could attempt to influence through lobbying (p. 17). The paper
relates how such interventions affected the work of the Committee on
Accounting Procedure (CAP), the Accounting Principles Board (APB), and the
Financial Accounting Standards Board (FASB) in a number of instances between
1941and 1977. According to Zeff, an abridged version of the paper published
in the Journal of Accountancy is the most widely cited article of his career
(p. xxii).
The evolution of accounting thought is the theme of
the first paper in the book which discusses replacement cost theory in the
context of contemporary business practice and earlier 20th century writers
on price-level accounting. Other theoretical issues discussed in the
collection include Kenneth MacNeal's advocacy of market-based valuations and
the evolution of the conceptual framework in the U.S., which Zeff traces
back to Paton and Canning in the 1920s. The impact of Canning's magnum opus
on accounting theory, The Economics of Accountancy, is assessed in a
separate paper.
The evolution of the accountancy profession and
audit practice is the final theme identified in the introduction. The
establishment of accounting principles in the U.S. from 1917 to 1972 is
linked to the profession's fear of government interference (p. 126). The
decline in advocacy writing on standard setting and accounting principles by
the Big 8 firms in the 1970s is explained in terms of a number of factors,
including the loss of flexibility in the interpretation of GAAP that
occurred as regulation became more systematic (p. 143). The earlier
willingness of the profession to take a lead in matters of principle is
explored further in a study explaining Arthur Andersen & Co.'s decision in
1946 to decouple “present fairly” and “conformity with generally accepted
accounting principles” in the wording of their audit report (pp. 157–160).
Indeed, looking back over his life's work, one of Zeff's main conclusions is
the weakening in “the vitality and dedication to the public interest by the
U.S. accountancy profession” occurring since the 1970s (p. xxxiii). This
decline in professional values is explored in more detail in a two-part
article analyzing the roots of the U.S. accountancy profession's transition
from “professional firms that happened to be businesses” pre-1970 to
“businesses that happened to render professional services” in the Enron era.
Zeff recognizes a number of changes at work in the market for accountancy
services and the regulatory environment, and identifies “the root cause of
the questionable decisions attributable to audit firms in recent years” as
the incentives given to their partners (p. 437). This is a good illustration
of the value of history, as without a comprehension of the situation as it
once was, how could one appreciate that a change had taken place and when,
let alone understand the nature of the change and the causes? Studies
relating to particular organizations include an explanation of DuPont's
policy from 1910 to 1950 of rotating audit firms and an appraisal of the
reporting changes of Unilever in the 1940s and their impact on U.K.
regulation after the Second World War. In short, this is an interesting and
eclectic collection of papers that it is difficult to do full justice to in
a review.
Finally, if one of the lessons to be learned from
the book is that history can provide useful insights into the world of
accounting, another is of the value of engagement with professionals. A
division now exists between professional and academic accountants whereby
much of mainstream accounting research has come to be regarded as
incomprehensible and irrelevant by the former, in contrast to the “vibrant
dialogue” that once existed between the two communities (pp. 400, 402). The
level of disengagement is compounded at the “critical” end of the academic
research spectrum, where there is a tendency to disparage the profession as
representing the antithesis of social justice. By contrast, Zeff's Insights
from Accounting History is premised on the value of engagement, that the
best way to uncover the facts is to persuade the people in the know either
to speak to you or to make their papers available. Edwards comments on this
aspect of the work in the foreword (p. viii), an approach that has gained
Zeff access to privileged information relating to the AAA, CAP, APB, and
Securities and Exchange Commission, among others (pp. xviii, xxi, xxv).
There is a very valuable lesson for accounting researchers to learn here.
1The arrangements for this review were made by Professor Richard Macve,
of the London School of Economics.
REFERENCES
American Accounting Association (AAA).
1970.
Report of the committee on
accounting history. The Accounting Review 45
(Supplement): 52–64.
Jones, M. J ., and D. Oldroyd .
2009.
Financial accounting: Past,
present and future. Accounting Forum 33 (1):
1–10.
Lee, T. A . 2006.
The war of the sidewardly mobile
corporate financial report. Critical Perspectives on
Accounting 17: 419–455.
Mouck, T . 1995.
Irving Fisher and the
mechanistic character of twentieth century accounting thought.
Accounting
Historians Journal 22 (2): 44–83.
Vangermeersch, R . 2008.
The Academy of Accounting
Historians 1973-2008-2023. Accounting
Historians Notebook 31 (2): 1–8.
DAVID OLDROYD
Professor of Accounting
Newcastle University Business School
• The FASB and the IASB have substantially
completed redeliberations on new leases standards that would require
lessees to recognize assets and liabilities for most leases.
• Lessees and lessors applying US GAAP would
classify most leases using a principle generally consistent with that of
IAS 17, which is similar to current US GAAP but without the bright
lines.
• T he Boards have made different decisions
about lease classification and the recognition , measurement a nd
presentation of leases for lessees. In some cases, these differences
would result in similar transactions being accounted for differently
under US GAAP and IFRS
. • The Boards will set effective date s
before issuing the new standards . W e expect the Boards to issue the
standards in the second half of 2015.
Results from the IMA® (Institute of Management
Accountants) Global Salary Survey reveal that, in 2014, median total
compensation for management accounting and finance professionals in the U.S.
increased to $113,000 from $105,500 in the prior year – an increase of 7.1
percent. Globally, the data collected from IMA members in 81 countries
indicate a median total compensation of $66,000.
Approximately 70 percent of survey respondents reported a pay raise
following the 2013 Salary Survey. As the economic outlook continues to
strengthen, the prospects for future raises also appear bright, with more
than three-quarters of survey respondents anticipating a raise in the coming
year.
Compensation by Responsibility
According to the survey, salaries remained largely the same or declined for
professionals in traditional areas of responsibility such as corporate
accounting, taxation, general accounting and internal audit. However, the
need for budgeting, planning and cost-control skills has led to an increase
in salary for professionals with responsibilities in these and related
areas.
Based on median total compensation, the highest-paying areas of
responsibility are as follows:
1. Information systems
2. Education
3. Corporate accounting
4. General management
In the United States, an especially large pay increase occurred in the area
of risk management, reflecting greater corporate awareness of this issue.
Public accounting remains the lowest-paid area globally.
Global Trends
Globally, the Netherlands and Switzerland continue to have the highest
average salary and total compensation. Meanwhile Egypt holds the lowest rank
for compensation, presumably in large part due to economic and political
factors in the country. Asia continues as the region with the lowest average
compensation; however, compensation values in Asia and the Middle
East/Africa region are showing significant improvement.
“Overall, survey respondents in the Asia/Pacific region experienced gains in
earnings. For CMA-certified professionals, the earnings opportunity is most
pronounced,” said Raef Lawson, Ph.D., CMA, CPA, IMA vice president of
research and policy and co-author of the survey. “CMAs in the Asia/Pacific
region earn roughly 75 percent more than those without certification. Their
employers also benefit by having highly qualified accounting talent capable
of competing globally.”
The ROI of Education and Certification
The 2014 Global Salary Survey shows that while higher degrees are
predictably linked with significantly higher compensation, certification
leads to both increased pay and new career opportunities.
According to the survey, 83 percent of professionals holding the CMA®
(Certified Management Accountant) certification believe it strengthens their
ability to move across all areas of the business, and 80 percent are
confident that certification creates new career opportunities. Globally,
CMA-certified professionals earn 59 percent more in salary ($73,000) and 63
percent more in total compensation ($85,000) than the median rates for
non-CMAs.
Jensen Comment
These surveys can be misleading unless other things are considers, especially
cost of living. For example, the cost of living is very expensive in The
Netherlands such that a high salary is not such a great deal.
I also criticize the IMA for continually suggesting that a CMA credential
is a key to higher salary.
I think it is more likely that higher salaried accountants are more apt to get
added credentials like CMA, IIA, CFE, and other credentials. Salary is a
function of talent, education, training, motivation, and a lot of serendipity.
There are some certificates that are required for getting or retaining a job
such as when the CPA certificate is required to retain a job in most public
accounting firms. But when the credential is more optional, getting that
credential is not necessarily a major factor among more important factors
leading to career success. All those extra letters signifying credentials behind
a name sometimes are only indicative of good test takers rather than great
employees.
University of Syracuse: N.C.A.A. finds that university employees
completed coursework for athletes -- and questions why it took
8 years to complete investigation into such a
serious problem.
In 2005, following a season of poor academic
performance from his players, Syracuse University’s head basketball coach,
Jim Boeheim, hired a new director of basketball operations and gave him an
imperative: “fix” the academic problems of his athletes.
The director’s solution, according to the National
Collegiate Athletic Association, was for athletics staff members to access
and monitor the e-mail accounts of several players, communicate directly
with faculty members as if they were the athletes, and then complete
coursework for them. In one case, an athlete had his eligibility restored by
turning in a paper to raise a grade he had earned the previous year. The
paper was written by the director and a basketball facility receptionist.
This sort of fraud had lasted more than half a
decade at Syracuse, finally coming to light after a lengthy series of
investigations by the university and the N.C.A.A. On Friday, the N.C.A.A. announced
a number of sanctions against Syracuse, including
vacating more than 100 of Boeheim’s wins and suspending him for 9 conference
games next season. "Over the course of a decade, Syracuse University did not
control and monitor its athletics programs," the N.C.A.A. said in a
statement. "And its head men's basketball coach failed to monitor his
program."
The decision comes at a time when the N.C.A.A. is
under increasing pressure to improve the academic integrity of big-time
college sports. The association is currently investigating more than 20
institutions for academic misconduct,
including the University of North Carolina, where
some university employees knowingly steered about 1,500 athletes toward
no-show courses that never met and were not taught by any faculty members,
and where the only work required was a single research paper that received a
high grade no matter the content.
During a press call Friday, Britton Banowsky, chief
hearing officer and commissioner of Conference USA, said while the N.C.A.A.
is attempting to be proactive, it still believes the onus for investigating
cases of academic fraud should be on the institution. At the same time,
Banowsky said, the sheer length of Syracuse’s investigation -- eight years
-- does raise questions about how such probes are handled. The incident
could lead to new rules that would bar investigations from dragging on for
“an extremely excessive time," he said.
“As we have to sit back and wait for this to be
self-reported, it is unacceptable for our membership to have cases go on
this long,” Banowsky said. “Our first step is to be deferential to the
university system, but ultimately we had a situation where the desire to
achieve success on the basketball court overrides the academic integrity. It
really demonstrated some clearly misplaced priorities, and that’s where the
N.C.A.A. process comes in. I think you’ll see over the next several months a
more focused dialogue about where those lines are drawn.”
In a series of statements released by
administrators Friday, Syracuse
admitted the investigation was too lengthy, saying
it may in fact be the longest infractions investigation ever and that the
blame is on both the university and the N.C.A.A. The university, which
self-reported many of the violations, disagreed with several of the
association’s other assertions, however, in particular that Boeheim was
responsible for his staff’s actions, saying that their actions were "done in
secret."
Boeheim, a revered and larger-than-life figure at
Syracuse who has had a decades-long career coaching the university's storied
basketball team, is expected to appeal the sanctions. Boeheim skipped his
postgame press conference on Friday, what would have been the last of the
season, saying in a statement that he was considering his "options moving
forward."
Syracuse said that it would support the coach if he
chooses to appeal. “Coach Boeheim has demonstrated that he is a person of
character,” the university stated in a seven-page response
to the N.C.A.A.’s report. “He is a coach who
expects excellence and integrity, both on and off the basketball court. The
university believes the N.C.A.A. was wrong to find that he failed in his
responsibilities.”
During the press call Friday, Banowsky reiterated
that the N.C.A.A. views the coach -- and the university -- as culpable.
Boeheim hired the director of basketball operations to be his “academic
point man,” making him responsible for the director’s actions, Banowsky
said. The N.C.A.A. also faulted Boeheim and Syracuse for fostering an
environment in which staff members who were aware of the fraud were too
afraid to say anything.
The director of student-athlete support
services, who suspected the misconduct, told the N.C.A.A. that he did
nothing because he sensed that “men’s basketball might have a ‘little bit of
special treatment,’” the association wrote in its report. "He acknowledged
that he believed the director of basketball operations was behind the fact
that a former academic support employee had been 'pushed out' after 20 years
of service, and as a new employee, was mindful of that event.”
Continued in article
Jensen Comment
To be fair the NCAA should have given Syracuse 12 more years before taking
corrective action.
Jensen Comment
This is certainly the case in accountancy higher education programs. Women are
especially encouraged by 21st Century hiring of more women than men by CPA
firms. Women must, however, be willing to accept the negatives of public
accounting employment, including job stresses, overnight travel, and week ends
away from home and families. Accountancy is somewhat conducive to work at home
even when employed by the large firms, but this is not always an option for
career advancement when working at home year after year after year.
There's some evidence in education, nursing, and accountancy that men,
especially minority males, shy away from careers requiring licensing
examinations. However, there are exceptions in engineering and technology where
more males are still being licensed than females. Some of the real negatives of
certain types of consulting work are the months away from home and families.
Long-term absences from families are common in consulting engagements. Those
occasional weekends at home just aren't enough for some mothers.
Even elite institutions acknowledge that the
classroom experience is not all it should be. Harvard University and the
University of Michigan have dedicated tens of millions of dollars to support
experiments to improve teaching, particularly at the undergraduate level. "Teaching Revival Fresh attention to the classroom may actually
stick this time," by Dan Barrett, Chronicle of Higher Education,
March 9, 2015 ---
http://chronicle.com/article/Teaching-revival-Fresh/228203/?cid=at
We excel, in the research university, at preparing
our students to do world-class research — everywhere except the classrooms
in which they teach. From the beginning we insist that Ph.D. applicants
explain their research plans. When they arrive we put them through their
paces in methodology classes, carefully taking apart their ideas of what
they want to accomplish and introducing them to the hard work of gathering
data, performing analyses, testing and retesting hypotheses, and exploring
all possible outcomes.
We want students to understand that what they think
is true has to be questioned, repeatedly, and that their findings have to be
defended. It is an iterative process, and we expect them to be rather poor
at it when they begin — improving through honest critique and firm
mentorship over time.
When it comes to teaching, however, the message
they receive is very different. We don’t ask prospective students to address
their teaching experience or philosophy in graduate-school applications, and
we do not typically talk about teaching in coursework or qualifying
examinations. Often it is not until graduate students enter the classroom,
as teaching assistants responsible for their own sections, that they begin
to think about what it might require to teach successfully.
In the midst of papers to grade and sections to
prepare, conversations between even the best faculty instructors and
assistants lean more toward the pragmatic. There is little room or incentive
to see one’s time as a teaching assistant as an opportunity to
simultaneously teach and analyze classroom success.
Some of this is because of the importance placed on
graduate-student research. This makes a great deal of sense: Training the
next generation of Ph.D.s to be world-class researchers in their chosen
disciplines is a chief responsibility of modern universities. Time spent in
the classroom is often seen as time spent away from one’s archive or
laboratory, away from the process of inquiry and original analysis that
leads to cutting-edge findings and future academic employment. This makes it
all too easy to teach our graduate students that they must be skillful
researchers, and only adequate teachers.
The fault line between teaching and research,
however, is also created and maintained by our own misunderstanding, as
largely 20th-century faculty, of the place of teaching in the 21st-century
research university. With an increased national emphasis on graduation
rates, student persistence, and student learning, rising undergraduate
tuition costs, and the need to distinguish brick-and-mortar institutions
from online offerings, teaching has become a much higher priority for all
public institutions.
Merits and promotions are shifting to take teaching
into greater account, new faculty are being given increased resources and
encouragement to develop their pedagogy, and in some cases new positions are
being created for tenure-track faculty who undertake what a recent National
Research Council report has called “Discipline-Based
Education Research.”
Whether current graduate students ultimately apply
for traditional tenure-track research positions or in such new positions as
pedagogy experts, they will be well served if their time in the classroom is
time when they are encouraged to study how students learn in their field and
adapt their practices for greatest success. Studying how undergraduates
learn in a field actually also strengthens graduate students’ research
processes in their own work. Breaking down the barrier between
“discipline-based research” and “research into teaching” offers a win-win.
Continued in article
Jensen Comment
If there were enormous accounting teaching databases to be purchased accountics
scientists would jump on it with their GLM software. Sadly, accountics
scientists don't like to create their own databases (with a few noteworthy
exceptions like Zoe-Vonna Palmrose) --- http://faculty.trinity.edu/rjensen/AccounticsWorkingPaper450.pdf
March 10, 2015 reply from Richard Sansing
For a commentary by accounting academics on this
issue, I recommend the following.
Demski, J. and J. Zimmerman. 2000. On “Research vs.
Teaching”: A Long-Term Perspective. Accounting Horizons 14
(September): 343-352.
The gist of their commentary is that teaching and
research are complementary activities as opposed to substitutes.
Here is an excerpt from the first paragraph of their commentary.
In this commentary we argue that teaching and
research are strong complements, not substitutes. Doing more of one
increases the value of the other. Few important social- science research
findings have come from think tanks. Virtually all leading academics are
located at institutions dedicated to both teaching and research. To
preview our conclusion, we reject any notion of separating research and
teaching. Students demand relevant course content—questions and answers
that enhance their human capital. This helps guide our research and
helps prevent us from teaching irrelevant material. In parallel fashion,
we stress generation and consumption of research as essential to
understanding both the relevance of what we teach and what we research
and hence the impact of relevance on research.
Richard Sansing
March 10, 2015 reply from Bob Jensen
Hi Richard,
I agree in theory, but accountics scientists seem to be very limited in
their approach to education research. Interestingly, many top accountics
scientists like yourself teach from cases such a Harvard-style cases. But
their published articles in research journals, with the notable exception of
Bob Kaplan's articles, seem to be limited to research using equations. Try
getting a case without equations published in TAR, JAR, or JAE.
I can't find where TAR published a mainline research article in decades
that does not have equations. Teaching research submissions that do not have
equations are directed toward Issues in Accounting Education. This would be
fine with me if IAE was an equal partner with TAR in terms of attaining
tenure and promotions. But, in my opinion, hits in IAE just do not count as
dearly as TAR hits for faculty in R! universities.
I find little focus on teaching in accountics science dissertations from
R1 universities. Are there noteworthy accounting education and teaching
research research dissertations in the past two decades from Chicago,
Stanford, Wharton, MIT, Yale, University of Texas, University of Illinois,
Northwestern, Michigan, etc.?
Thanks,
Bob
Added Jensen Comment
What we find happening in undergraduate accounting programs is that it's
harder and harder to find North American accounting Ph.D. graduates who are
knowledgeable about financial accounting and auditing and tax. The doctoral
programs themselves teach a lot about the quantitative tools of research
(like the General Linear Model and its software) and virtually nothing about
accounting, auditing, tax, and teaching.
Teaching "professional: accounting increasingly is being transferred to
adjuncts who are also not trained in teaching..
Integrate accounting research, education
and practice for students, practitioners and educators by bringing
professionally oriented faculty more fully into education programs.
Promote accessibility of doctoral
education by allowing for flexible content and structure in doctoral
programs and developing multiple pathways for degrees. The
current path to an accounting Ph.D. includes lengthy, full-time
residential programs and research training that is for the most part
confined to quantitative rather than qualitative methods.
More flexible programs -- that might be part-time, focus on applied
research and emphasize training in teaching methods and curriculum
development -- would appeal to graduate students with professional
experience and candidates with families, according to the report.
Increase recognition and support for
high-quality teaching and connect faculty review, promotion and
tenure processes with teaching quality so that teaching is respected
as a critical component in achieving each institution's mission.
According to the report, accounting programs must balance
recognition for work and accomplishments -- fed by increasing
competition among institutions and programs -- along with
recognition for teaching excellence.
Develop curriculum models, engaging
learning resources and mechanisms to easily share them, as well as
enhancing faculty development opportunities to sustain a robust
curriculum that addresses a new generation of students who are more
at home with technology and less patient with traditional teaching
methods.
Improve the ability to attract
high-potential, diverse entrants into the profession.
Create mechanisms for collecting,
analyzing and disseminating information about the market needs by
establishing a national committee on information needs, projecting
future supply and demand for accounting professionals and faculty,
and enhancing the benefits of a high school accounting education.
Establish an implementation process to
address these and future recommendations by creating structures and
mechanisms to support a continuous, sustainable change process.
Demski and Zimmerman wrote the following in the article you cited:
Students demand relevant course content—questions
and answers that enhance their human capital. This helps guide our research
and helps prevent us from teaching irrelevant material. In parallel fashion,
we stress generation and consumption of research as essential to
understanding both the relevance of what we teach and what we research and
hence the impact of relevance on research.
I'm not sure most of our new accounting Ph.D. graduates know what is relevant
to teach in intermediate and advanced accounting, auditing, and tax. In their
accountics science research they pass over the hard professional and clinical
and teaching research questions where there are no databases to purchase ---
http://faculty.trinity.edu/rjensen/AccounticsWorkingPaper450.pdf
This paper attempts to document and chart the
trajectory of such a division by observing the extent to which academic
accountants possess the essential practice credentials. The absence of such
credentials suggests a gr owing departure in the training and values of the
two groups. The results show a considerable decline in the tendency for
accounting faculty to hold practice credentials such as the CPA. This trend
occurs in most segments of the professoriate, but is more pronounced for the
tenure track faculty or doctoral institutions, for more junior faculty and
for faculty employed by more prestigious academic organizations. The paper
shows this to be a problem experienced by individuals in the financial
accounting sub-field of the discipline.
At universities and colleges throughout the land,
undergraduates and their parents pay large sums of money for -- and federal
and state governments contribute sizeable tax exemptions to support --
"liberal" education. This despite administrators and faculty lacking, or
failing to honor, a coherent concept of what constitutes an educated human
being.
To be
sure, American higher education, or rather a part of it, is today
the envy of the world, producing and maintaining research scientists
of the highest caliber. But liberal education is another matter.
Indeed, many professors in the humanities and social sciences
proudly promulgate doctrines that mock the very idea of a standard
or measure defining an educated person, and so legitimate the
compassless curriculum over which they preside. In these
circumstances, why should we not conclude that universities are
betraying their mission?
Many
American colleges do adopt general distribution requirements.
Usually this means that students must take a course or two of their
choosing in the natural sciences, social sciences, and the
humanities, decorated perhaps with a dollop of fine arts,
rudimentary foreign-language exposure, and the acquisition of basic
writing and quantitative skills. And all students must choose a
major. But this veneer of structure provides students only
superficial guidance. Or, rather, it reinforces the lesson that our
universities have little of substance to say about the essential
knowledge possessed by an educated person.
Certainly this was true of the core curriculum at Harvard, where I
taught in the faculty of arts and sciences during the 1990s. And it
remains true even after Harvard's recent reforms.
Harvard's aims and aspirations are in many ways admirable. According
to this year's Report of the Task Force on General Education,
Harvard understands liberal education as "an education conducted in
a spirit of free inquiry undertaken without concern for topical
relevance or vocational utility." It prepares for the rest of life
by improving students' ability "to assess empirical claims,
interpret cultural expression, and confront ethical dilemmas in
their personal and professional lives." But instead of concentrating
on teaching substantive knowledge, the general education at Harvard
will focus on why what students learn is important. To
accomplish this, Harvard would require students to take
single-semester courses in eight categories: Aesthetic and
Interpretive Understanding, Culture and Belief, Empirical Reasoning,
Ethical Reasoning, Science of Living Systems, Science of the
Physical Universe, Societies of the World, and The United States in
the World.
Unfortunately, the new requirements add up to little more than an
attractively packaged evasion of the university's responsibility to
provide a coherent core for undergraduate education. For starters,
though apparently not part of the general education curriculum,
Harvard requires only a year of foreign language study or the
equivalent. Yet since it usually takes more than a year of college
study to achieve competence in a foreign language -- the ability to
hold a conversation and read a newspaper -- doesn't Harvard, by
requiring only a single year, denigrate foreign-language study, and
with it the serious study of other cultures and societies?
Furthermore, in the search for the immediate relevance it disavows,
Harvard's curriculum repeatedly puts the cart before the horse. For
example, instead of first requiring students to concentrate on the
study of novels, poetry, and plays, Harvard will ask them to choose
from a variety of courses on "literary or religious texts,
paintings, sculpture, architecture, music, film, dance, decorative
arts" that involve "exploring theoretical and philosophical issues
concerning the production and reception of meanings and the
formation of aesthetic judgment."
Instead of first requiring students to gain acquaintance with the
history of opinions about law, justice, government, duty and virtue,
Harvard will ask them to choose from a variety of courses on how to
bring ethical theories to bear on contemporary moral and political
dilemmas. Instead of first requiring students to survey U.S. history
or European history or classical history, Harvard will ask them to
choose from a variety of courses that examine the U.S and its
relation to the rest of the world. Instead of first teaching
students about the essential features of Judaism, Christianity, and
Islam, Harvard will ask them to choose from a variety of courses on
almost any aspect of foreign societies.
Harvard's general education reform will allow students to graduate
without ever having read the same book or studied the same material.
Students may take away much of interest, but it is the little in
common they learn that will be of lasting significance. For they
will absorb the implicit teaching of the new college curriculum --
same as the old one -- that there is nothing in particular that an
educated person need know.
Of
course, if parents, students, alumni donors, trustees, professors
and administrators are happy, why worry? A college degree remains a
hot commodity, a ticket of entry to valuable social networks, a
signal to employers that graduates have achieved a certain
proficiency in manipulating concepts, performing computations, and
getting along with peers.
The
reason to worry is that university education can cause lasting harm.
The mental habits that students form and the ideas they absorb in
college consolidate the framework through which as adults they
interpret experience, and judge matters to be true or false, fair or
inequitable, honorable or dishonorable. A university that fails to
teach students sound mental habits and to acquaint them with
enduring ideas handicaps its graduates for public and private life.
Moreover, properly conceived, a liberal education provides
invaluable benefits for students and the nation. For most students,
it offers the last chance, perhaps until retirement, to read widely
and deeply, to acquire knowledge of the opinions and events that
formed them and the nation in which they live, and to study other
peoples and cultures. A proper liberal education liberalizes in the
old-fashioned and still most relevant sense: It forms individuals
fit for freedom.
The
nation benefits as well, because a liberal democracy presupposes an
informed citizenry capable of distinguishing the public interest
from private interest, evaluating consequences, and discerning the
claims of justice and the opportunities for -- and limits to --
realizing it in politics. Indeed, a sprawling liberal democracy
whose citizens practice different religions and no religion at all,
in which individuals have family heritages that can be traced to
every continent, and in which the nation's foreign affairs are
increasingly bound up with local politics in countries around the
world is particularly dependent on citizens acquiring a liberal
education.
Crafting a core consistent with the imperatives of a liberal
education will involve both a substantial break with today's
university curriculum and a long overdue alignment of higher
education with common sense. Such a core would, for example, require
all students to take semester courses surveying Greek and Roman
history, European history, and American history. It would require
all students to take a semester course in classic works of European
literature, and one in classic works of American literature. It
would require all students to take a semester course in biology and
one in physics. It would require all students to take a semester
course in the principles of American government; one in economics;
and one in the history of political philosophy. It would require all
students to take a semester course comparing Judaism, Christianity,
and Islam. It would require all students to take a semester course
of their choice in the history, literature or religion of a
non-Western civilization. And it would require all students to
demonstrate proficiency in a foreign language of their choice by
carrying on a casual conversation and accurately reading a newspaper
in the language, a level of proficiency usually obtainable after two
years of college study, or four semester courses.
Such a
core is at best an introduction to liberal education. Still,
students who meet its requirements will acquire a common
intellectual foundation that enables them to debate morals and
politics responsibly, enhances their understanding of whatever
specialization they choose, and enriches their appreciation of the
multiple dimensions of the delightful and dangerous world in which
we live.
It is
a mark of the politicization and clutter of our current curriculum
that these elementary requirements will strike many faculty and
administrators as benighted and onerous. Yet the core I've outlined
reflects what all successful individuals outside of academia know:
Progress depends on mastering the basics.
Assuming four courses a semester and 32 to graduate, such a core
could be completed in the first two years of undergraduate study.
Students who met the foreign-language requirement through high
school study would have the opportunity as freshman and sophomores
to choose four elective courses. During their junior and senior
year, students could devote 10 courses to their major while taking
six additional elective courses. And students majoring in the
natural sciences, where it is necessary to take a substantial
sequence of courses, would enroll in introductory and lower-level
courses in their major during freshman and sophomore years and
complete the core during junior and senior years.
Admittedly, reform confronts formidable obstacles. The major one is
professors. Many will fight such a common core, because it requires
them to teach general interest classes outside their area of
expertise; it reduces opportunities to teach small boutique classes
on highly specialized topics; and it presupposes that knowledge is
cumulative and that some books and ideas are more essential than
others.
Meanwhile, students and parents are poorly positioned to affect
change. Students come and go, and, in any event, the understanding
they need to formulate the arguments for reform is acquired through
the very liberal education of which universities are currently
depriving them. Meanwhile, parents are too distant and dispersed,
and often they have too much money on the line to rock the boat.
But
there are opportunities. Change could be led by an intrepid
president, provost or dean of a major university who knows the value
of a liberal education, possesses the eloquence and courage to
defend it to his or her faculty, and has the skill to refashion
institutional incentives and hold faculty and administrators
accountable.
Reform
could also be led by trustees at private universities -- the
election in recent years of T.J. Rodgers, Todd Zywicki, Peter
Robinson and Stephen Smith to the Dartmouth Board of Trustees on
platforms supporting freedom of speech and high academic standards
is a start -- or by alumni determined to connect their donations, on
which universities depend, to reliable promises that their gifts
will be used in furtherance of liberal education, well understood.
And
some enterprising smaller colleges or public universities, taking
advantage of the nation's love of diversity and openness to
innovation, might discover a market niche for parents and students
eager for an education that serves students' best interests by
introducing them in a systematic manner to their own civilization,
to the moral and political principles on which their nation is
based, and to languages and civilizations that differ from their
own.
Citizens today are called on to analyze a formidable array of hard
questions concerning war and peace, liberty and security, markets
and morals, marriage and family, science and technology, poverty and
public responsibility, and much more. No citizen can be expected to
master all the issues. But liberal democracies count on more than a
small minority acquiring the ability to reason responsibly about the
many sides of these many-sided questions. For this reason, we must
teach our universities to appreciate the aims of a liberal
education. And we must impress upon our universities their
obligation to pursue them responsibly.
Mr. Berkowitz, a
senior fellow at Stanford University's Hoover Institution, teaches
at George Mason University School of Law. This commentary draws from
an essay that previously appeared in Policy Review.
Take a look at the new American Accounting Association Website and tell the
AAA what you think about the new site. I think it's an awful mess and much
preferred the old site. In fairness it is a work in progress. You can help by
sending your suggestions to
Ms Terry has been very understanding about the loss of any links to the AECM
listserv in the new AAA Home Page. She's fully aware of that problem so you no
longer need to complain about not having a link to the AECM. You
cannot even find the AECM on the Home Page search engine.
The new AAA Home Page is too busy and cluttered.
The search engine is lousy and does not crawl over enough detail in
the documents at the site. For example, search for "AECC." The Accounting
Education Change Commission was a big deal in the history of the AAA, and the
AAA still sells traditional publications (not digitized) of the AECC. But
try finding and ordering those publications. The new Website needs a greatly
expanded search engine.
When you dramatically change your site and links to the documents at that
site, it's a great courtesy to either forward old links automatically to
the new documents or to have a message pop up giving you the new URL. For
example, one of the venerable links to the AECC documents was http://aaahq.org/AECC/history/cover.htm
Go ahead. Click on the above link.
Yeah! Nearly all the old links are dead now.
At my own Website I have thousands of links to the AAA site that became dead
overnight. I'm certain that those of you with Website links to AAA sites will
now have dead links to AAA Websites.
I liked the old AAA Home Page. It was short, sweet, and uncluttered. About
all that was really needed was a better search engine. Rather than redesign the
Home Page I would have poured the resources into a fantastic search engine.
Maybe it's just a thing with me, but I like uncluttered home pages with links
to more clutter on separate pages. For example, the old AAA Home Page had a
single hot word called "Meetings." Clicking on it took you to a page of links to
the many forthcoming regional, sectional, and national AAA meetings.
The new Home Page is cluttered with links to some but not all the forthcoming
meetings. This type of clutter in not necessary on a Home Page when such clutter
can be put at a separate site for forthcoming meetings.
I think home pages should be more like the Table of Contents of a book with
links to the pages that have the details.
In any case, Ms. Terry is a very nice woman, and I'm certain the AAA would
not have hired her if she wasn't very competent. I'm think she would love to
hear your suggestions about how to improve the new site.
Update:
In an earlier message I complained about the search engine both the old and the
new American Accounting Association Home Page http://aaahq.org/
Note that at some Home Pages, such as that of Stanford University, one of the
first things you see is a Search box with two buttons. One entitled "Web" versus
another entitled "People."
This search button entitled Web lets you search for topics without first
having to search on "Stanford University" in a Web crawler such as Google.
In order to illustrate go to the Search box at the AAA Home Page at http://aaahq.org/
Type in the letters "AECC"
The search result will provide zero hits.
Type in "American Accounting Association" AND "AECC"
You will get 10 pages of hits.
Not all hits are on the AAA server, but who cares? At least there are some hits
to the AAA Web server.
Top Websites like Stanford University have learned how to make use of Web
crawlers to search for pages on their Web servers.
This is an idea for the AAA's new Home Page. Perhaps the AAA can make better
use of Web crawlers to find files on the AAA Web server.
PS
By killing so many old links to documents on the AAA Web server, many of the
searches by Web crawlers are killed as well. I repeat my earlier appeal that the
AAA should bring back to life most of the links that it killed to pages on its
Web server. If nothing else the hits should provide a popup that provides the
new links to those old URLs that were changed.
Jensen Comment
For me it was age and maturation. I avoided math courses until I spent five
years in Stanford's doctoral program. Then I took math courses every quarter,
for four years because math became my favorite subject.
It was also perfect timing on my part.
Math was a great part of my other coursework in the doctoral program. My
fellow students in those courses, some of whom were engineers, struggled with
the math because they had been away from math courses for so many years. I
remember one statistics course final examination where the professor (Chuck
Bonini) goofed in a problem that could not be solved without integrating the
normal distribution. The other students didn't have a clue. But I was so current
in advanced calculus that I could shift to polar coordinates and integrate the
normal distribution. I looked like a genius, which was definitely not the case.
I was simply more current in advanced calculus. Chuck later became my
dissertation chairman.
Jensen Comment
First we reduced the 7-8 hours of school to 4-5. Now we take away the homework.
Are kids really better off with video games, cold pizza and watching
television?
The worst thing we can do is make students work at learning. Yeah Right!
The experimental Charter School evidence shows that students really learn
more with more time (including Saturdays) in school and intense learning
assignments. But we want happy and fat kids on welfare more than skinny kids
sweating buckets to get into Harvard.
Academic blogging gets your work and research
out to a potentially massive audience at very, very low cost and relative
amount of effort.
Patrick Dunleavy argues blogging and
tweeting from multi-author blogs especially is a great way to build
knowledge of your work, to grow readership of useful articles and research
reports, to build up citations, and to foster debate across academia,
government, civil society and the public in general.
One of the recurring themes (from many different
contributors) on the LSE Impact of Social Science blog is that a new
paradigm of research communications has grown up — one that de-emphasizes
the traditional journals route, and re-prioritizes faster, real-time
academic communication. Blogs play a critical intermediate role. They link
to research reports and articles on the one hand, and they are linked to
from Twitter, Facebook, Pinterest, Tumblr and Google+ news-streams and
communities. So in research terms blogging is quite simply, one of the most
important things that an academic should be doing right now.
But in addition, STEM scientists, social scientists
and humanities scholars all have an obligation to society to contribute
their observations to the wider world. At the moment that’s often being done
in ramshackle and impoverished ways
in pointlessly obscure or charged-for forums
in difficult language where you need to look
up every second word in Wikipedia. Some of this is necessary for
condensed specialist communication. But much of it is just unneeded
jargon and poor writing dressed up as necessary vocabulary
with acres of ‘dead-on-arrival’ data (that
will never be used by anyone else in the world), often presented in
unreadable tables
and all delivered over bizarrely long-winded
timescales. From submission to publication in some top economics
journals now takes 3.5 years. At the end of such a process any published
paper is no more than a tombstone marking where happening debate and
knowledge used to be, four or five years earlier.
So the public pay for all or much of our research
(especially in Europe and Australasia). And then we shunt back to them a few
press releases and a lot of out-of-date, arcanely phrased academic junk.
Types of blogs
A lot of people think that all blogs are solo
blogs, but this is a completely out of date view. A ‘blog’ is defined by
Wikipedia as:
‘a truncation of the expression web log… [It]
is a discussion or informational site published on the World Wide Web
and consisting of discrete entries (“posts”) typically displayed in
reverse chronological order (the most recent post appears first). Until
2009 blogs were usually the work of a single individual, occasionally of
a small group, and often covered a single subject. More recently
“multi-author blogs” (MABs) have developed, with posts written by large
numbers of authors and professionally edited. MABs from newspapers,
other media outlets, universities, think tanks, advocacy groups and
similar institutions account for an increasing quantity of blog traffic.
The rise of Twitter and other “microblogging” systems helps integrate
MABs and single-author blogs into societal newstreams’. [Accessed 29
August 2014]. (Let me pause here to reassure some academic readers who
may be bristling at being asked to read Wikipedia text – I know this
passage is sound since I co-wrote much of it).
Actually the evolution of academic blogs
specifically has now progressed even further, so that we can distinguish
group or collaborative blogs as an important intermediate type between solo
blogs and multi-author blogs. The two tables below summarize how these three
types of blogs now work, drawing attention to their very different
advantages and disadvantages.
Hoyle on Characteristics of Great Teachers
March 6, 2015 message from Joe Hoyle
. . .
I recently did an informal survey of my 77 students
(77???). I asked them to describe the characteristics of great teaching. I
was curious as to what they would tell me. I didn’t ask them about good
teaching or okay teaching. I wanted to know how they viewed great teaching.
I wrote up the results and posted it to my teaching
blog. Because it is so cold and snowy, I thought you might enjoy having
something to read. The URL for this posting is below.
If you ever want to grab a coffee and discuss
teaching (great or otherwise), let me know.
Jensen Comment
Students also need other ingredients not found in motherhood and apple pie. Not
mentioned are spinach, turnip greens, lemons, and caster oil. Are philosophy
professors really doing you a favor by inspiring you to become a philosophy
professor or a professor of music where the probabilities of eventually
obtaining tenure track employment in the Academy are less than one percent? It's
good to be inspirational as long as there's no deception about reality.
Not mentioned in-depth expertise of the subject matter, making us learn
better by making us learn on our own, and tough grading to a point where even a
B grade exceeds the grades of most students in the class.
Not mentioned is the fact that many of the best physicians often have lousy
personalities. Many are arrogant and have very little empathy or chit chat time
even though they are great at diagnostics and skills like surgical skills. I'm
told (fortunately never needed one) that some of the best psychiatrists are
tough with patients to a point where patients don't think their psychiatrists
are empathetic.
Some of my best college professors rate poorly on many of the criteria listed
by Joe.
My point is that trying to be what you are not
should not detract from being the best in what counts for a parent or a teacher
or a doctor or an accounting professor. More importantly the best parent
or teacher or doctor or accounting professor may not be the most loved.
The proof in academe are the results of teaching evaluations at the end of a
course versus teaching evaluations two decades later. Some worst-rated teachers
occasionally move to the top two decades after graduation.
Jensen Comment
One difference between books and wine is the ability to digitally store books
that really aren't worth paying to keep in hard copy storage.
Companies that used to pay the medical insurance for Workers Comp that
covers employee injuries on the job are using the ACA to shift those insurance
costs to taxpayers --- "The Demolition of Workers’ Comp: Over the past decade, states have
slashed workers’ compensation benefits, denying injured workers help when they
need it most and shifting the costs of workplace accidents to taxpayers," by
Michael Grabell, ProPublica and NPR, March 4, 2015 ---
http://www.propublica.org/article/the-demolition-of-workers-compensation
Distance Education: Stanford Center for Professional Development
Stanford University was probably the first prestigious university to offer an
online masters degree in engineering in a video program called ADEPT. That has
since been replaced by an expanded online program in professional development
that offers certificates or full masters of science degrees in selected
programs, especially engineering. The program is highly restrictive in that
employers must be members of Stanford's Corporate Education Graduate Program.
For example, to earn a masters of science degree the requirements are as
follows:
I don't think the Stanford Graduate School of Business has anything
comparable to this online professional development program. Most other top
universities in the USA now have selected online certificate and degree programs
offered in their extension programs. Go to a university of interest and search
for "extension." It's still rare to find an online doctoral program at a top
university. For-profit universities offer more online doctoral programs, but
these tend not to be accepted very well for employment in the Academy. In fact
it may be better to not mention such doctoral degrees when seeking employment in
the Academy.
The Sunday Times has named EY as one of the top 25
best big companies to work for in 2015 - See more at: http://economia.icaew.com/news/february-2015/ey-best-accountancy-firm-to-work-for#sthash.qXUG0Zof.dpuf
Jensen Comment
I always warned my students to be skeptical of national rankings of employers.
The main problem is that work life in local offices of big firms can be highly
varied. In San Antonio, for example, virtually all Big Four CPA firm offices are
relatively small and are usually dependent upon a relatively small number of
clients. The addition or loss of a client may impact the office considerably.
In comparison the Dallas and Houston offices of these same firms are enormous
with many enormous clients. The offices are more shock proof in terms of
additions to or losses from the client base.
Decisions about where to work should perhaps be more influenced by the big
office versus small office dichotomy than the multinational Firm A versus
multinational Firm B dichotomy. For example, for a graduate who is really
interested in becoming an expert on some technical area of accounting such as
insurance, leasing, or derivatives the San Antonio office is not the place to
choose relative to offices in Hartford (for insurance), Chicago (for leasing),
or Houston or NYC (for derivatives). San Antonio, however, is a good place to
consider for opportunities to work with Latin American clients.
When it comes to working in foreign offices there are even more things to
consider.
The filing season is upon us and the question
practitioners are asking themselves is “What due diligence steps are
necessary for getting Affordable Care Act information from clients?”
The ACA provides a new challenge to practitioners
in preparing 2014 returns, which will require more due diligence and effort
to comply with these new rules.
Continued in article
Jensen Tax Question
Can the free-file software handle "special tax forms
related to their health-care coverage?"
And now we hear that H&R Block is poised to cash in
big time (on its lobbying efforts for Obamacare)
thanks to Obamacare. That’s awesome. Just what we
need. Another corporate interest which will get in the way of simplifying
the tax code.
(From The Daily Caller)
H&R Block’s decision to seek windfall profits
from the Obamacare law also has riled some of its competitors, which are
instead providing free help to low-income enrollees in filling out the
complex tax forms.
Ryan Ellis, the tax policy director at
Americans for Tax Reform and a former H&R Block senior preparer told
TheDC that the company hopes to profit from the plight of Obamacare
enrollees and those without health insurance who, for the first time,
will have to file special tax forms related to their health-care
coverage.
Ellis said the Obamacare participants are the
“real target audience. It’s an alignment of interest.”
Jensen Tax Question
Can the free-file software handle "special tax forms
related to their health-care coverage?"
Before reading the tidbits below you may want to watch a video on the
Scenarios of Higher Education for Year 2020 --- http://www.youtube.com/watch?v=5gU3FjxY2uQ
The above great video, among other things, discusses how "badges" of academic
education and training accomplishment may become more important in the job
market than tradition transcript credits awarded by colleges. Universities may
teach the courses (such as free MOOCs) whereas private sector companies may
award the "badges" or "credits" or "certificates." The new term for such awards
is a "microcredential."
Employers say they are sick of encountering new
college graduates who lack job skills. And colleges are sick of hearing that
their young alumni aren’t employable.
Could a new experiment to design employer-approved
"badges" leave everyone a little less frustrated?
Employers and a diverse set of more than a
half-dozen universities in the Washington area are about to find out,
through a project that they hope will become a national model for
workplace badges.
The effort builds on the burgeoning national
movement for badges and other forms of "microcredentials." It also pricks
at much broader questions about the purpose and value of a college degree in
an era when nearly nine out of 10 students say their top reason for going to
college is to get a good job.
The "21st Century Skills Badging Challenge" kicks
off with a meeting on Thursday. For the next nine months, teams from the
universities, along with employers and outside experts, will try to pinpoint
the elements that underlie skills like leadership, effective storytelling,
and the entrepreneurial mind-set. They’ll then try to find ways to assess
students’ proficiency in those elements and identify outside organizations
to validate those skills with badges that carry weight with employers.
The badges are meant to incorporate the traits most
sought by employers, often referred to as "the four C’s": critical thinking,
communication, creativity, and collaboration.
"We want this to become currency on the job
market," says Kathleen deLaski, founder of the
Education Design Lab,
a nonprofit consulting organization that is coordinating the project.
No organizations have yet been selected or agreed
to provide validations. But design-challenge participants say there’s a
clear vision: Perhaps an organization like
TED
issues a badge in storytelling. Or a company like
Pixar,
or
IDEO,
the design and consulting firm, offers a badge in
creativity.
If those badges gain national acceptance, Ms.
deLaski says, they could bring more employment opportunities to students at
non-elite colleges, which rarely attract the same attention from recruiters
as the Ivies, other selective private colleges, or public flagships. "I’m
most excited about it as an access tool," she says.
‘Celebrating’ and ‘Translating’
The very idea of badges may suggest that the
college degree itself isn’t so valuable—at least not to employers.
Badge backers prefer a different perspective. They
say there’s room for both badges and degrees. And if anything, the changing
job market demands both.
Through their diplomas and transcripts, "students
try to signal, and they have the means to signal, their academic
accomplishments," says Angel Cabrera, president of George Mason University,
which is involved in the project. "They just don’t have the same alternative
for the other skills that employers say they want."
Nor is the badging effort a step toward
vocationalizing the college degree, participants say. As Ms. deLaski puts
it: "It’s celebrating what you learn in the academic setting and translating
it for the work force."
Yet as she and others acknowledge, badges by
themselves won’t necessarily satisfy employers who now think graduates don’t
cut it.
That’s clear from how employer organizations that
may work on the project regard badges. "We’re presuming that there is an
additional skill set that needs to be taught," says Michael Caplin,
president of the Tysons Partnership, a Northern Virginia
economic-development organization. "It’s not just a packaging issue."
In other words, while a move toward badges could
require colleges to rethink what they teach, it would certainly cause them
to re-examine how they teach it. At least some university partners in the
badging venture say they’re on board with that.
"Some of what we should be doing is reimagining
some disciplinary content," says Randall Bass, vice provost for education at
Georgetown University, another participant in the project.
Mr. Bass, who also oversees the
"Designing
the Future(s) of the University" project at
Georgetown, says many smart curricular changes that are worth pursuing, no
matter what, could also lend themselves to the goals of the badging effort.
(At the master’s-degree level, for example, Georgetown has already begun
offering a one-credit courses in grant writing.)
"We should make academic work more like work," with
team-based approaches, peer learning, and iterative exercises, he says.
"People would be ready for the work force as well as getting an engagement
with intellectual ideas."
Employers’ gripes about recent college graduates
are often hard to pin down. "It depends on who’s doing the whining," Mr.
Bass quips. (The critique he does eventually summarize—that employers feel
"they’re not getting students who are used to working"—is a common one.)
Where Graduates Fall Short
So one of the first challenges for the badging
exercise is to better understand exactly what employers want and whether
colleges are able to provide it—or whether they’re already doing so.
After all, notes Mr. Bass, many believe that
colleges should produce job-ready graduates simply by teaching students to
be agile thinkers who can adapt if their existing careers disappear. "That’s
why I think ‘employers complain, dot dot dot,’ needs to be parsed," he says.
Mr. Caplin says his organization plans to poll its
members to better understand where they see college graduates as falling
short.
Coursera /kɔərsˈɛrə/ is a for-profit educational
technology company founded by computer science professors Andrew Ng and
Daphne Koller from Stanford University that offers massive open online
courses (MOOCs). Coursera works with universities to make some of their
courses available online, and offers courses in physics, engineering,
humanities, medicine, biology, social sciences, mathematics, business,
computer science, and other subjects. Coursera has an official mobile app
for iOS and Android. As of October 2014,
Coursera has 10 million users in 839 courses from 114 institutions.
Continued in article
Jensen Comment
Note that by definition MOOCs are free
courses generally served up by prestigious or other highly respected
universities that usually serve up videos of live courses on campus to the world
in general. MOOC leaders in this regard have been MIT, Stanford, Harvard, Penn,
and other prestigious universities with tens of billions of dollars invested in
endowments that give these wealthy universities financial flexibility in
developing new ways to serve the public.
When students seek some type of transcript "credits" for MOOCs the "credits"
are usually not free since these entail some types of competency hurdles such as
examinations or, at a minimum, proof of participation. The "credits" are not
usually granted by the universities like Stanford providing the MOOCs.
Instead credits, certificates, badges or whatever are provided by private sector
companies like Coursera, Udacity, etc.
Sometimes Coursera contracts with a college wanting to give its students
credits for taking another university's MOOC such as the now infamous instance
when more than half of San Jose State University students in a particular MOOC
course did not pass a Coursera-administered final examination.
"What Are MOOCs Good For? Online courses
may not be changing colleges as their boosters claimed they would, but they can
prove valuable in surprising ways," by Justin Pope, MIT's Technology
Review, December 15, 2014 ---
http://www.technologyreview.com/review/533406/what-are-moocs-good-for/?utm_campaign=newsletters&utm_source=newsletter-daily-all&utm_medium=email&utm_content=20141215
The following describes how a company, Coursera, long involved with the
history of MOOCs, is moving toward non-traditional "credits" or
"microcredentials" in a business model that it now envisions for itself as a
for-profit company. Also note that MOOCs are still free for participants not
seeking any type of microcredential.
And the business model described below probably won't apply to thousands of
MOOCs in art, literature, history, etc. It may apply to subsets of business and
technology MOOCs, but that alone does not mean the MOOCs are no longer free for
students who are not seeking microcredentials. They involve payments for the "microcredentials"
awarded for demonstrated competencies. However these will be defined in the
future --- not necessarily traditional college transcript credits. A better term
might be "badges of competency." But these will probably be called
microcredentials.
Whether or not these newer types of microcredentials are successful
depends a great deal on the job market.
If employers begin to rely upon them, in addition to an applicant's traditional
college transcript, then Coursera's new business model may take off. This makes
it essential that Coursera carefully control the academic standards for their
newer types of "credits" or "badges."
Massive open online course providers such
as Coursera have long pointed to the benefits of the data collected by the
platforms, saying it will help colleges and universities understand how
students learn online. Now Coursera’s data is telling the company that
learners are particularly interested in business administration and
technology courses to boost their career prospects -- and that they want to
take MOOCs at their own pace.
As a result, Coursera will this year
offer more course sequences, more on-demand content and more partnerships
with the private sector.
Asked if Coursera is closer to
identifying a business model, CEO Rick Levin said, “I think we have one. I
think this is it.”
Since its founding in 2012, Coursera has
raised millions of dollars in venture capital
while searching for a business model. Many questioned if the
company's original premise -- open access to the world's top professors --
could lead to profits, but with the introduction of a verified certificate
option, Coursera
began to make money
in 2013. By that October, the company had earned its first million.
In the latest evolutionary step for its
MOOCs, Coursera on Wednesday
announced a series of capstone projects developed
by its university partners in cooperation with companies such as Instagram,
Google and Shazam. The projects will serve as the final challenge for
learners enrolled in certain Specializations -- sequences of related courses
in topics such as cybersecurity, data mining and entrepreneurship that
Coursera
introduced last year. (The company initially
considered working with Academic Partnerships before both companies created
their version of Specializations.)
The announcement is another investment
by Coursera in the belief that adult learners, years removed from formal
education, are increasingly seeking microcredentials -- bits of knowledge to
update or refresh old skills. Based on the results from the past year, Levin
said, interest in such credentials is "palpable." He described bundling
courses together into Specializations and charging for a certificate as “the
most successful of our product introductions." Compared to when the
sequences were offered as individual courses, he said, enrollment has “more
than doubled” and the share of learners who pay for the certificate has
increased “by a factor of two to four.”
“I think people see the value of the
credential as even more significant if you take a coherent sequence,” Levin
said. “The other measure of effectiveness is manifest in what you’re seeing
here: company interest in these longer sequences.”
Specializations generally cost a few
hundred dollars to complete, with each individual course in the sequence
costing $29 to $49, but Coursera is still searching for the optimal course
length. This week, for example, learners in the Fundamentals of Computing
Specialization were surprised to find its three courses had been split into
six courses, raising the cost of the entire sequence from $196 to $343.
Levin called it a glitch, saying learners will pay the price they initially
agreed to.
The partnerships are producing some
interesting pairings. In the Specialization created by faculty members at
the University of California at San Diego, learners will “design new social
experiences” in their capstone project, and the best proposals will receive
feedback from Michel "Mike" Krieger, cofounder of Instagram. In the
Entrepreneurship Specialization out of the University of Maryland at College
Park, select learners will receive an opportunity to interview with the
accelerator program 500 Startups.
As those examples suggest, the benefits
of the companies’ involvement mostly apply to top performers, and some are
more hypothetical than others. For example, in a capstone project created by
Maryland and Vanderbilt University faculty, learners will develop mobile
cloud computing applications for a chance to win tablets provided by Google.
“The best apps may be considered to be featured in the Google Play Store,”
according to a Coursera press release.
Anne M. Trumbore, director of online
learning initiatives at the University of Pennsylvania’s Wharton School,
said the capstone projects are an “experiment.” The business school, which
will offer a Specialization sequence in business foundations, has partnered
with the online marketplace Snapdeal and the music identification app
Shazam, two companies either founded or run by Wharton alumni.
“There’s not a sense of certainty about
what the students are going to produce or how the companies are going to use
it,” Trumbore said. “Snapdeal and Shazam will look at the top projects
graded highest by peers and trained staff. What the companies do after that
is really up to them. We have no idea. We’re casting this pebble into the
pond.”
Regardless of the companies' plans,
Trumbore said, the business school will waive the application fee for the
top 15 learners in the Specialization and provide scholarship money to those
that matriculate by going through that pipeline.
“The data’s great, but the larger
incentive for Wharton is to discover who’s out there,” Trumbore said.
Levin suggested the partnering companies
may also be able to use the Specializations as a recruitment tool. “From a
company point of view, they like the idea of being involved with educators
in their fields,” he said. “More specifically, I think some of the companies
are actually hoping that by acknowledging high-performing students in a
couple of these capstone projects they can spot potential talent in
different areas of the world.”
While Coursera rolled out its first
Specializations last year, Levin said, it also rewrote the code powering the
platform to be able to offer more self-paced, on-demand courses. Its MOOCs
had until last fall followed a cohort model, which Levin said could be
“frustrating” to learners when they came across an interesting MOOC but were
unable to enroll. After Coursera piloted an on-demand delivery method last
fall, the total number of such courses has now reached 47. Later this year,
there will be “several hundred,” he said.
“Having the courses self-paced means
learners have a much higher likelihood of finishing,” Levin said. “The idea
is to advantage learners by giving them more flexibility.”
Some MOOC instructors would rather have
rigidity than flexibility, however. Levin said some faculty members have
expressed skepticism about offering on-demand courses, preferring the
tighter schedule of a cohort-based model.
Whether it comes to paid Specializations
versus free individual courses or on-demand versus cohort-based course
delivery, Levin said, Coursera can support both. “Will we develop more
Specializations? Yes. Will we depreciate single courses? No,” he said. “We
don’t want to discourage the wider adoption of MOOCs.”
How to Reduce Federal Loan Fraud by Accounting for Risks
A great place
to start (at reducing Federal loan fraud) is the accounting for federal lending
programs which deliberately understates their risks. Readers may have noticed
that every time federal student-loan subsidies expand, liberals like Senator
Elizabeth Warren (D., Mass.) hail it as a taxpayer windfall. She gets away with
this because administrative expenses and market risk aren’t included in the loan
cost estimates.
http://www.wsj.com/articles/ending-federal-loan-fraud-1426030608?tesla=y
(Bloomberg) -- Student-loan delinquencies increased
at the end of 2014, a troubling sign that Americans are failing to keep up
with payments as education debt climbs, according to the Federal Reserve
Bank of New York.
Data from the New York Fed released Tuesday showed
11.3 percent of student loans were delinquent in the final three months of
2014, up from 11.1 percent in the prior quarter. The share of auto loans at
least 90 days overdue also rose, climbing to 3.5 percent from 3.1 percent
the prior period, even as fewer credit card and mortgage loan payments were
late.
“Although we’ve seen an overall improvement in
delinquency rates since the Great Recession, the increasing trend in
student-loan balances and delinquencies is concerning,” Donghoon Lee,
research officer at the New York Fed, said in an e-mailed statement.
“Student-loan delinquencies and repayment problems appear to be reducing
borrowers’ ability to form their own households.”
The nation’s student-loan balance climbed by $31
billion last quarter to $1.16 trillion. That makes it the largest source of
debt after mortgages, which gained $39 billion to $8.2 trillion in the
fourth quarter. Auto-loan debt increased by $21 billion to $955 billion.
Education loan balances have skyrocketed over the
past decade. In the first quarter of 2005, outstanding student debt stood at
$363 billion -- about a third of the current level, based on a 2013 New York
Fed report.
Delinquency rates for student loans probably
understate the actual situation, according to today’s report. About half of
the student loans are in deferment, in grace periods or in forbearance,
temporarily removing them from the repayment cycle.
Education debt delinquency levels have come down
since 2013, when the rate reached 11.8 percent, yet remain elevated from
around 6 percent a decade ago, according to the New York Fed. Student loans
are the type of debt most likely to be past-due, having surpassed
credit-card delinquency rates in 2012.
Jensen Comment
When car and truck owners default a repo guy shows up in the dead of night and
takes the vehicle to the bank. How do you repo a
college education?
First things first, Berkshire Hathaway earned $2,412 per Class A share in
the fourth quarter of 2014, missing expectations for earnings of $2,702.
As of December 31, Berkshire Hathaway's book value
per Class A share was $146,186.
For the first time, Berkshire included the
historical stock price in this year's annual letter.
And while Buffett said that the intrinsic value of
the company and the price of the shares isn't always exact — in fact that
relationship used to be closer than it is today — Buffett and his partner
Charlie Munger believe the increase the share price and the increase and
intrinsic value is roughly equal.
That increase over the last 50 years?
1,826,163%
Buffett said that Berkshire's "Powerhouse Five" —
the company's largest non-insurance businesses — earned $12.4 billion
pre-tax, up from $1.6 billion in 2013. These businesses include, Berkshire
Hathaway Energy (formerly MidAmerican Energy), BNSF, IMC (I’ve called it
Iscar in the past), Lubrizol and Marmon. If the US economy continues to
improve in 2015, Buffett expects earnings for these companies will improve
as well.
BNSF's results, however, was the major spot of bad
news for the company in 2014, and the company plans to spend $6 billion on
plant and equipment in 2015, which Buffett says is nearly 50% more than any
other railroad has spent in a single year. "A truly extraordinary amount,"
Buffett wrote.
In all, Berkshire Hathaway's subsidiaries spent $15
billion on plants and equipment in 2015, with 90% of that money spent in the
US.
Berkshire Hathaway also completed its acquisition
of Van Tuyl Automotive, a group of 78 auto dealerships with annual sales of
$9 billion. With this deal, Buffett said, "we are now 'car guys.'"
And the company is clearly open to more
acquisitions.
Buffett wrote: "With the acquisition of Van Tuyl,
Berkshire now owns 9 1/2 companies that would be listed on the Fortune 500
were they independent (Heinz is the 1/2). That leaves 490 1/2 fish in the
sea. Our lines are out."
Jensen Comment
The Wharton School shocked the world when it commenced to provide free
(non-credit) MOOCs of its actual MBA core courses. Aside from curiosity seekers
and business faculty around the world wondering how the prestigious Wharton
School teaches its core courses, many of the students taking these MOOCs are
prospective MBA students who want to get an edge before entering MBA programs of
their choice ---
http://knowledge.wharton.upenn.edu/article/moocs-upend-traditional-business-education/
Although Harvard provides hundreds of MOOCs in various disciplines, the
Harvard Business School has not been providing MOOCs. Now the HBS is proposing a
pre-MBA distance education program with a relatively low fee that may also shake
up the MBA world. Since it is not free and has admission standards it cannot be
called a MOOC.
This week, Harvard Business School launched an
innovative new online education program to the public that it thinks is so
far ahead of free online courses that it's worthy of a $1,500 price tag.
The 11-week pre-MBA program called CORe accepts
about 500 students and is taught in the school's signature case-study
method. The first official session started on Feb. 25, and applications are
open for spring and summer sessions.
CORe is the flagship offering from HBS's new
digital platform,
HBX, which aims to
become a full-fledged branch of the school rather than a place to dump video
recordings of classroom lectures.
CORe is made up of three courses —
economics for managers, business analytics, and
financial accounting — and primarily
targets young professionals with liberal arts backgrounds who aspire to rise
to management or are considering getting an MBA.
Students who pass the program receive a certificate
that carries the weight of one from HBS's executive education program.
HBX chair Bharat Anand tells Business Insider that
most online course offerings are still in their infancy, where long video
lectures posted alongside multiple choice questions is the norm.
Conversely, HBX CORe is built on a proprietary
platform that uses the case-study technique that distinguishes HBS. "This
has some very interesting and exciting potential for education," Anand says.
It started as a way to find an online tool to
address the "non trivial" 20% to 30% of students accepted to HBS's MBA
program who lacked the necessary background in "the language of business":
accounting, economics, and data analysis. These students always had access
to a two-week primer before matriculating in the fall, but Anand says the
short time was insufficient for achieving a thorough understanding, and
traveling to HBS's campus before the school year officially starts could be
an inconvenience for many students.
Jensen Comment
The Wharton set of free MOOCs will probably be a better choice for students
wanting to learn a wider spectrum of business knowledge that includes things
like marketing and finance that Harvard's pre-MBA program will not offer, at
least not initially.
But there are advantages of Harvard's pre-MBA distance education program
relative to MOOCs. Firstly, there's the prestige of being one of only 500
admitted to the program. Secondly, there will be more student-to-student
learning interactions in Harvard's fee-based program. Unlike the HBS MBA program
itself I doubt if there are writing assignments and examinations that are graded
by faculty.
Given the low price and limited enrollments, I suspect that this pre-MBA
program is not (at least not yet) intended to be a cash cow program relative to
the massive cash cow MBA program and Executive MBA programs at the HBS.
Most MOOCs are college courses
that comprise part of the curriculum at a university,
usually a leading university. The typical MOOC is the filmed
version of a complete live course on campus where onsite
students get credits for taking the course in a campus
classroom.
Online MOOC viewers usually watch the videos of an onsite
course and may even get together in online learning teams,
but viewers typically do not pay for or receive transcript
credit unless they take competency examinations that are
usually not administered by the MOOC professors. Prestigious
universities created EdX and Udacity for purposes of
competency testing and granting of transcript credits.
Most Webinars are much shorter
training modules conducted live that were never intended to
provide college course credits. They may be replayed as videos,
but viewers can usually ask questions online and interact with
the Webinar leaders only when the Webinar was first filmed.
Business firms like KPMG usually provide Webinars. Webinars are
not commonly provided by colleges and universities. Typically
Webinars are intended for employees, customers, or clients, but
these Webinars may be shared freely with college faculty and
students worldwide. Organizations like the FASB also conduct
Webinars bit do not offer MOOCs. Webinars may also be conducted
for continuing education (CEP) credits.
Contrary to popular belief, the typical
MOOC is not an introductory course in a discipline. More commonly a
MOOC is an advanced specialty course in a college. For example,
MOOCs are available on the writings of great poets but not
introductory courses how to write compositions or poems. There are
exceptions of course and often the most popular MOOCs are less
advanced such as an introductory MOOC in social psychology versus an
advanced MOOC on memory and metacognition.
• The FASB substantially completed
redeliberations on credit impairment and plans to issue a final standard
that would apply to all entities , not just those in financial services.
• A n entity would recognize an allowance for
management’s current estimate of lifetime expected credit losses for
loans, trade receivables, held - to - maturity debt securities and
certain other financial assets measured at amortized cost .
• Today’s other-than-temporary impairment model
for available-for- sale debt securities would be modified to require an
allowance for credit impairment rather than a direct write-down , among
other things .
• Entities would be required to make
disclosures about the credit quality of certain financing receivables by
year of or origination ( i.e., vintage). This would significantly expand
the volume of disclosures.
• The Board will decide on an effective date
after the staff prepares a draft of the final standard. We expect the
FASB to issue a final standard in the second half of 2015.
Right from its inception in
1985, the journal
Econometric Theory has
featured the "ET Interviews". These are published
interviews with key figures who have helped to shape the
discipline of econometrics as we know it.
Many of these interviews
have been conducted by ET Editor,
Peter Phillips, but other
interviewers ave also participated. This invaluable contribution
provides us with a unique "window" on the history of
econometrics, and the ET Interviews should be required
reading for all of our graduate students.
The very first issue of ET included
Peter's interview with Denis Sargan - one of the most
influential British econometricians of all time, and Peter's
Ph.D. supervisor at the LSE. Since then, interviews with 38
other econometricians and statisticians have been added to the
collection. These recorded memories will become increasingly
valuable with each passing year.
The majority of the
interview articles can be downloaded freely from Peter's website
(although they're not shown as links). In the following list of
all of the "ET Interviews" to date, those articles that
have to be accessed through the
journal site itself are flagged with an asterisk (*):
Today we start a series of blog posts on Skills for
Young Professionals. The focus of this series is the best-selling and
provocative book by Adam Grant, Give and Take: Why Helping Others Drives Our
Success. We’ll cover one chapter per blog post. For those desiring an
overview before embarking on the series, I recommend, “How
to Read a Book like Adam Grant’s ‘Give and Take,”
by Ryan Quinn.
First a word about the author, Adam Grant. I
personally don’t know the man. All I know of him can be found on
his LinkedIn profile. His B.A. is from
Harvard, received in 2003. His M.A. and Ph.D. are from UMichigan, received
in 2006. 8.5 years later he has received numerous teaching and research
publication awards, received fast promotions to Associate Professor and then
Full Professor, and has written a best selling book. His rise has been
meteoric.
He classifies a person’s approach to relationships
as giver, taker or matcher. Giver and taker are opposites, a matcher is
somewhere between. I have no clue as to whether Grant is a giver or taker.
From what I can gather from his profile, he might be a giver as a teaching
professor (a conclusion based on his receipt of teaching awards), and a
taker with regards to his research and publishing efforts (a conclusion
based on his exhaustive list of awards received).
A focus on the
approach to interactions with other people.
Early on, Grant writes,
“According to conventional wisdom, highly successful people have three
things in common: motivation, ability and opportunity. If we want to
succeed, we need a combination of hard work, talent and luck. [We should
add] a fourth ingredient, one that’s critical but often neglected: Success
depends on how we approach our interactions with other people.” (p. 4)
A giver is defined by
Grant as “other focused, paying more attention to what other people need
from (him/her).” A taker is defined as:
“They
like to get more than they give. They tilt reciprocity in their own favor,
putting their own interests above others’ needs. Takers believe the world is
a competitive, dog-eat-dog place. They feel that to succeed, they need to be
better than others. To prove their competence, they self-promote and receive
plenty of credit for their efforts.” (p. 4)
Matchers strive
“…. to
preserve an equal balance of giving and getting. Matchers operate on the
principle of fairness: when they help others, they protect themselves by
seeking reciprocity. If you’re a matcher, you believe in tit for tat, and
your relationships are governed by equal exchanges of favors.
Hmm. At Christmas time in the United States, it is
frequently said that it is better to give than receive. Christians profess
belief in the Golden Rule, you should treat others as you would have them
treat you. But in the basic human makeup, pride runs amok. We are all
self-centered to some degree.
Continued in article
Turbo Tax Insiders Reveal "Dubious
Practices" in Their Company (Intuit)
Robert Lee and Shane MacDougall, both former security
executives at Intuit,
spoke with KrebsOnSecurity.com about the company's
dubious practices: Identity thieves have been creating fake accounts in
droves to cash in on strangers' legitimate refunds. It's a simple maneuver:
plug in someone else's Social Security number and other tax identification,
then go through the same TurboTax steps as normal—only they bank the refund
deposit, not you:
Lee said he was mystified when Intuit repeatedly
refused to adopt some basic policies that would make it more costly and
complicated for fraudsters to abuse the company's service for tax refund
fraud, such as blocking the re-use of the same Social Security number
across a certain number of TurboTax accounts, or preventing the same
account from filing more than a small number of tax returns.
"If I sign up for an account and file tax refund
requests on 100 people who are not me, it's obviously fraud," Lee said
in an interview with KrebsOnSecurity. "We found literally
millions of accounts that were 100 percent used only for fraud.
But management explicitly forbade us from either
flagging the accounts as fraudulent, or turning off those accounts."
It's a near perfect online scam: with hacked social
security numbers and other personally identifying fragments flooding the
web, fraudsters need only create a free TurboTax account to siphon away
someone else's refund. And because TurboTax allows filers to pay for the
price of the software with their refund before they actually receive it,
there's no need to submit or falsify a credit card number—it's free money
for both Intuit and crooks.
Continued in article
TurboTax is Suspected Since the Other Tax Preparation Software Has Not Yet
Been Compromised
"FBI to Probe Fraudulent Tax Filings: As States Move to Contain Bogus
Returns Through TurboTax, Signs Emerge That Fraud
May Involve Federal Filings," by Laura Saunders. Liz Moyer in New York, and
Devlin Barrett, The Wall Street Journal, February 11, 2015 ---
http://www.wsj.com/articles/fbi-to-probe-fraudulent-tax-filings-1423614826
The Federal Bureau of Investigation has opened a
probe to determine whether a computer data breach led to the filing of false
tax returns through TurboTax software, according to a person familiar with
the case.
The move comes as states try to contain a wave of
bogus state tax filings through TurboTax amid signs that the fraud may also
involve federal returns, according to some security specialists and
taxpayers.
FBI investigators are still working to determine
exactly how personal information was obtained to file bogus returns in about
19 states and whether that information may have been stolen from TurboTax or
somewhere else, the person said.
TurboTax parent
Intuit Inc. says it believes recent instances of
fraud didn’t result from a breach of its systems, based on a preliminary
examination conducted with the assistance of independent security experts.
“Tax fraud is an industrywide issue and Intuit is
actively engaged with federal and state governments, as well as industry
associations, to fight fraud,” the company said in a statement. “Intuit has
not been notified, nor are we aware, that we are the target of an FBI
investigation. We work with law-enforcement agencies, including the FBI as
appropriate, on matters such as identity theft.”
But what’s worse, recession millennials like Joe,
Richard and their friends are hard-pressed to make up the ground they lost,
just because of their unlucky timing. Research from Yale University
economist
Lisa Kahn shows that when college graduates
enter the labor market affects their lifetime earnings. Her
2009 article in Labour Economics studied the
timing of college graduates in the early 1980s using the National
Longitudinal Survey of Youth. Those who graduated in a bad economic year had
lower earnings even 14 to 23 years later. Specifically, for each
percentage-point increase in the unemployment rate when graduating from
college, there was an average wage loss of 3 to 4 percent per year.
Kahn’s research on graduating in a recession
indicates that Joe, Richard and other recent college graduates will feel the
effects for decades.
Jensen Comment
Timing is all-important to almost everything in life. When I was on a battleship
we played hide and seek games with Russian submarines. It was in those
"peaceful" Cold War years after the hot years in Korea and before the hot years
in Viet Nam. Terrorism as we know it today had not been invented.
I got a free ride for five years in the
Stanford University accounting doctoral program because the Ford Foundation
poured money into colleges of business after the Gordon and Howell Report and
the Pearson Report both concluded that business studies in major universities
should be upgraded with more Ph.D. faculty and research in the Academy. My
timing was perfect by sheer luck! I got funding for full tuition and living
expenses and even savings for later years after graduation.,
And what good timing to choose accountancy
for my doctoral studies as opposed to anything else I can think of, because
those were the years of dire shortages of accounting Ph.D. faculty and soaring
demand for accountancy as a career choice by university students. My timing
was perfect by sheer luck!
I could go on in life about how so many
good things in my life can be attributed to good timing on a serendipitous path.
Years later I even retired at a perfect time. In Year 2006 interest rates were
still quite high and it was a perfect time convert all my TIAA-CREF accounts
into lifetime annuities. Shortly thereafter came the economic crash followed by
the Fed's decision to drive savings interest rates to almost zero. I didn't care
personally because I was locked into those high pre-crash rates that may never
return in the USA. My timing for retirement was perfect by sheer luck.
My life was and still is very good. I
attribute almost all of this to very lucky timing. It was sheer luck! But I like
to brag that it was all brains and personality. Yeah Right!
Three more athletes who say they were scammed out
of an education at the University of North Carolina are now suing over
academic fraud, and the whistleblower who exposed the fake-class system has
now settled her lawsuit with the university.
Former basketball player Kenya McBee has joined
former football player Mike McAdoo's federal class-action lawsuit, claiming
the university denied him and thousands of other athletes education when
advisers forced him to take classes that never met.
Former basketball player Leah Metcalf, and former
football player James Arnold filed a separate but similar class-action
lawsuit in state court in North Carolina.
Ken Wainstein, who was hired by the university to
act as an independent investigator, revealed in October that academic fraud
had taken place at UNC for 18 years, and that UNC officials were wrong when
they denied -- for nearly five years -- that anyone in athletics was
involved.
Instead it was players, like McAdoo, who were
blamed by the university for cheating and punished by the NCAA.
"All of these student-athletes were promised a
legitimate UNC education, were implored to trust UNC academic advising, and
were then guided into academically bereft courses against their interests,"
said attorney Jeremi Duru, one of the attorneys representing these athletes.
Earlier this year high-profile attorney Michael
Hausfeld filed a class-action suit against UNC and the NCAA over the same
scandal. About 3,100 students -- nearly half of them athletes -- who
enrolled in the fake classes could easily join these lawsuits.
Mary Willingham, the whistleblower who began
revealing details about the sham classes, accused UNC of retaliating against
her before she quit last year, and then sued the university to get her job
back.
Willingham told CNN that she reached a settlement
agreement with the school this week, although it had not yet been approved
by a judge. It would compensate her financially but not restore her job as a
learning specialist and adviser.
Cheated
by Jay M. Smith and Mary Willingham
Potomac, 280 pages, $26.95
Book Review of Cheated Dark Days in Chapel Hill: If you ran a college and knew there was
substantial money to be had from sports but no requirement to educate athletes,
you might cut corners—that’s exactly what the University of North Carolina did
for nearly two decades.
Mr. Smith is a history professor at the University
of North Carolina, Ms. Willingham was for many years an academic counselor
there who brought attention to the scandal by granting interviews to the
Raleigh News & Observer. The authors accuse their state’s prestige public
campus of “broad dishonesty” and of stocking its teams in football and men’s
basketball—the “revenue sports”—with athletes to generate profit, then
breaking its promise to educate them. Ms. Willingham resigned last year and
later sued the school—a settlement was reached this week—and both authors
recount being shunned in Chapel Hill for helping bring the scandal to light,
so they may have an ax to grind. At times, their account flirts with a tone
of “if only they’d listened to me.” Nonetheless “Cheated” sounds an
important call for reform.
Details of the scheme confirm the worst fears about
“student athletes,” at least as regards football and men’s basketball.
(Other men’s and all women’s collegiate sports generally have good academic
reputations.) Some Tar Heels men’s basketball players, Ms. Willingham
contends, read at a third-grade level. (A university official last year
dismissed her research as “a travesty.”) As a student at Chapel Hill, Green
Bay Packers star Julius Peppers failed real courses but got B’s in what were
known as “paper classes,” barely supervised independent-study courses that
required only a single research paper. (Mr. Peppers claims that he “earned
every grade” he got at UNC.) “Cheated” reports that Rashad McCants, key to
the Tar Heels’ 2005 March Madness title, “saw his GPA rise significantly—he
even made the dean’s list—after a semester in which he had done no academic
work.”
Like many large universities, Chapel Hill has a
committee that grants admission waivers to top sports recruits. “Cheated”
says that the committee admitted players who scored below 400 on the verbal
SAT—that’s the 15th percentile, barely north of illiterate—or who were
chronically absent from high school except on game days. There is no chance
that a student so poorly prepared for college will earn a diploma. All he
can do is generate money for the university.
Most of the phony classes described in the report
were in the African and Afro-American Studies Department, under Prof. Julius
Nyang’oro and a departmental administrator. The department had multiple
subject codes for its courses, including AFRI, AFAM and SWAH (for Swahili).
This allowed transcripts to appear to satisfy Chapel Hill’s distribution
requirement, even if most of an athlete’s “classes” were within the same
department. Mr. Nyang’oro resigned in 2012 and was eventually indicted for
fraud, accused of accepting pay for “teaching” that was imaginary. Charges
were dropped when he agreed to assist investigators.
“Cheated” details how Mr. Nyang’oro liked to hang
around with athletes: He was even invited to serve as a “guest coach” for
the football team. Tutors and academic-support staffers also enjoyed
friendly access to the jocks. At football-factory and basketball-power
programs, teachers and tutors who avert their eyes from grade fixing may be
rewarded with courtside seats and sideline passes.
The authors and the report agree that Mr. Nyang’oro
and the administrator perceived that their role was partly to make academic
problems go away so that stars could tape their ankles. University of North
Carolina officials did not want to know how athletes who had barely bested
chance on their SATs were suddenly pulling A’s at a selective college.
“Cheated” recounts two instances when staffers told superiors that football
or men’s basketball stars handed in plagiarized work. The university took
swift, decisive action, the authors write: It punished those who made the
reports.
Last year, according to Education Department data,
UNC–Chapel Hill cleared $30 million in profit on football and men’s
basketball, a number that does not include whatever part of the $297 million
in gifts and grants received by the school last year was prompted by
athletics, or $130 million in assets held by the athletic foundation
affiliated with the college. Some of the gain is expended on sports that
lose money, but football and men’s basketball are still profit centers. At a
prestige university, the African-American studies department became a
mechanism to exploit African-Americans. Players may as well have been
picking cotton.
Across the big-college landscape, around $3 billion
annually flows from networks to schools in rights fees for national TV
broadcasts of football and men’s basketball. Ticket sales and local
marketing add to the total. Meanwhile, the NCAA almost never sanctions
colleges that don’t educate scholarship athletes.
Coaches and administrators make out well themselves
even if their players don’t get educations. Tar Heels men’s basketball coach
Roy Williams and football coach Larry Fedora each earn $1.8 million per
year, according to the USA Today NCAA salary database. Speaking and
endorsement fees for coaches rise with victory totals. Athletic director
Lawrence Cunningham draws $565,000 annually, plus bonuses for wins.
Perhaps the reader is thinking: Why this worry
about diplomas? Don’t big-college athletes go on to wealth in the pros?
Surely starry-eyed teens with Greek-god physiques arriving at the University
of North Carolina, or at any powerhouse program, believe they’re headed for
professional glory in prime time.
Yet most scholarship players never receive a pro
paycheck. “Cheated” reports that the Chapel Hill swindle went into full
swing in 2003, when the school was trying to rebuild its basketball
reputation. Since that year, 54 Tar Heels have been drafted by the NFL or
NBA. That’s less than a fifth of University of North Carolina football and
men’s basketball scholarship holders during the period. And Chapel Hill does
better than most: Broadly across NCAA football and men’s basketball, only
about 2% of athletic-scholarship recipients are drafted. Because a
bachelor’s degree adds about $1 million to lifetime earnings, the diploma is
the potential economic reward for the overwhelming majority of college
athletes.
Of course, athletes have only themselves to blame
for not taking their studies seriously. But many are encouraged by coaches
to believe pipe dreams about the pros, to focus all their effort on winning
so the coach gets his victory bonus. By the time NCAA athletes realize
they’ve been duped, their scholarships are exhausted. Used up and thrown
away, they are easily replaced by the next batch of starry-eyed teens who
believe their names will be called on draft day.
After the Chapel Hill scandal went public, the
school commissioned a flurry of reports, the two most prominent of which
appeared to tell all but were at heart whitewashes. The first, overseen by
former North Carolina Gov. Jim Martin, in 2012 declared “with confidence”
that the Tar Heels athletic department knew nothing, nothing: “This was not
an athletic scandal,” the report stated. “Sadly, it was clearly an academic
scandal; but an isolated one.” Mr. Smith and Ms. Willingham write that in
“an amazing display of evasiveness and dishonesty,” Chapel Hill chancellor
Holden Thorp pretended that the Martin report concluded the matter. Later
Mr. Thorp resigned and floated away to the provost’s post at Washington
University in St. Louis. The best-case analysis of Mr. Thorp is that he was
hopelessly incompetent; explanations go downhill from there. Yet he paid
little professional price. If an NCAA athlete commits a petty violation, he
can be thrown out of school. University leaders know that if their schools
are caught systematically cheating, a wrist slap will be their fate.
The second report, conducted by a law firm and
released in 2014, revealed that the first report was a fairy tale. Though
Mr. Thorp denied knowing about the “paper classes,” it concluded that he
knew Mr. Nyang’oro’s department “issued higher grades than most other
departments and was popular among student-athletes.” Why wasn’t this a red
flag? But this document, too, largely exonerated those who commissioned it.
Thousands of students got A’s in fake classes. Yet “the higher levels of the
university” were guilty only of “a loose, decentralized approach to
management” that prevented “meaningful oversight,” even though the existence
of “easy-grading classes with little rigor” was widely known.
The second report attached no blame to basketball
coach Williams, the most marketable figure in Chapel Hill athletics,
reporting his insistence that he “constantly preaches that [the] number one
responsibility [of] coaches and counselors is to make sure their players get
a good education.” The men’s basketball program has seven coaches for a
roster that averages 16—the kind of instructor-to-student ratio normally
found only in doctoral programs. Yet we’re asked to believe there’s no way
the coaches could have noticed that many players never seemed to need to be
in class. Mr. Williams should have been fired for presiding over an
institutionally corrupt program. Instead he was given a pass.
Cheating may have gone over the top at Chapel Hill,
but in collegiate sports, institutional corruption is a norm. The NCAA works
assiduously to change the subject from football and men’s basketball
graduation rates, a straightforward measure that anyone can understand.
Instead it offers Academic Progress Rate, a hocus-pocus metric seemingly
designed to be incomprehensible.
Currently the overall APR of big-college sports is
976 out of 1000. That sounds as if everyone’s nearly perfect. But on this
scale, perfection is achieved if all players have at least a 2.0 GPA. Since
the average GPA at public universities is 3.0, what the NCAA touts as
“academic progress” may equate to significantly below-average outcomes in
the classroom.
But the APR shifts the spotlight from actual
grades. Last fall, Louisville announced to fanfare that football coach Bobby
Petrino will receive a $500,000 bonus for his players’ academic performance.
Sound enlightened? The bonus is triggered by the team hitting a 935 APR.
Since the average for NCAA football programs is 951, academic excellence at
Louisville is now defined down to below average.
Cynicism regarding athletics and education pervades
the big-college system. The networks that are “broadcast partners” (their
term) with the NCAA—ABC, CBS, ESPN, Fox, NBC and Turner—have a financial
stake in college sports income and so steer clear of issues like grades and
graduation rates.
Nobody much seems to care so long as money flows.
Steven Spielberg is a member of the board of trustees at USC, where the
graduation rate for African-American men’s basketball players is 25% and 38%
for African-American football players. The reason these numbers are terrible
isn’t that athletes are departing early for the pros—in the past decade,
more than two-thirds of USC football and men’s basketball players were not
drafted. The numbers are terrible because players are used for revenue
without receiving educations. Mr. Spielberg has made two powerful movies
depicting the historical exploitation of African-Americans, “The Color
Purple” and “Amistad.” Where is his movie about present-day exploitation of
African-Americans in college athletics? He need only look out the window at
USC. Or he could buy the rights to “Cheated.”
Continued in article
Bob Jensen's threads on the UNC scandal and the many, many other athletics
cheating scandals at major universities in the USA ---
http://www.cnn.com/2015/02/25/us/unc-academic-fraud/
We're led to believe that they nearly all cheated at one time or another. The
UNC scandal was unique in that it entailed fake courses and grade changes for
nearly two decades and covered multiple sports and even students who were not
into athletics. The sad thing is that many of the principle coaches and faculty
who cheated moved on from UNC before the scandal broke and are still thriving
unpunished in their careers.
Most of the students now suing UNC were not innocent victims and were
knowingly cheaters. They are victims in a larger sense that they were promised
an education (such as learning how to read) that was denied them in their years
at UNC.
While underfunded public-employee pensions capture
the headlines, health-insurance benefits for retired state and local workers
are also a huge problem. But a recent ruling by the Supreme Court may help
state and local governments scale back these benefits.
Unlike public pension plans, retiree health
benefits aren’t funded in advance; they are typically paid out of current
tax revenues, so they compete with other budget priorities like schools and
police. This competition will only grow more intense, as unfunded retiree
health benefits are close to $1 trillion, according to a recent
study in the Journal of Health Economics.
Several cities and states have tried to reduce the
scope of retiree health-care services, or to increase the portion of the
premiums paid by retired workers going forward. Public unions have
frequently sued, claiming the benefits are vested for life—roughly parallel
to the legal arguments the unions have made against efforts to curb future
pension costs.
In late January, however, the Supreme Court issued
an unanimous decision that will increase the chances of local governments
winning such lawsuits. While the case involved a private business and its
union, the principles should generally apply to public-sector agreements.
M&G Polymers vs. Tackett involved a
collective-bargaining agreement that provided certain retirees, along with
their surviving spouses and dependents, with a full company contribution
toward the cost of their health-care benefits “for the duration of [the]
Agreement.” The contract was subject to renegotiation after three years, but
the critical legal question was whether the retirement health-care benefits
continued even after the agreement expired—in effect whether the intent was
to vest these benefits for life.
The union argued that the contract did vest these
benefits for life and the Sixth Circuit Court of Appeals agreed. The Supreme
Court reversed, noting that to prevail, the plaintiffs, in this case the
union, had to supply concrete evidence—“affirmative evidentiary
support”—that lifetime vesting of retiree health benefits was what both
parties to the agreement intended.
Normally, the explicit terms of a contract are
taken to reflect the parties’ intentions; only when a contract’s language is
ambiguous does a court look to the parties’ intent. Here the Supreme Court
followed a traditional rule of contract law: If a contract is ambiguous,
proof requires evidence of what the parties intended, not what a court—in
this case the appellate court—might infer from the ambiguous contract.
Two principles in Tackett should be
especially relevant to reductions in retiree health-care benefits where the
duration of these benefits is often unclear. The court, Justice
Clarence Thomas wrote, supported the “traditional
principle that courts should not construe ambiguous writings to create
lifetime promises.” Similarly, he wrote that the court endorsed the
traditional principle that “contractual obligations will cease, in the
ordinary course, upon termination of the bargaining agreement.”
This is where the Supreme Court’s decision is
particularly significant for the public sector. There must be explicit proof
that a collective-bargaining agreement intended long-term commitments to
bind a city or state long past the incumbency of the public officials who
signed the agreement.
Today elected officials trade generous retiree
benefits in the future for current wages. By doing so, they avoid having to
take responsibility for current cutbacks in state and municipal services
that would accompany wage increases.
The Supreme Court’s ruling in Tackett
means that lifetime benefits cannot be inferred but must be made explicit.
As a result, if public officials now attempt to revise the benefits in a
current or new collective agreement, unions will doubtless demand that any
long-term promises be made explicit. But public officials who make these
promises explicit send a strong signal that they are putting potentially
enormous burdens on future taxpayers and elected officials. This makes it
harder for current officials to make such promises. That is a step
forward—not just in interpreting contracts but also in enhancing political
accountability.
Mr. Pozen is a senior lecturer at Harvard Business School and a
senior fellow at the Brookings Institution. Mr. Gilson is a professor of law
at Columbia and Stanford law schools.
Jensen Comment
The above article does not estimate ROI for these highest-paid players. The
problem with both the article and ROI in general is that often factors
contributing to financial returns have higher order effects called
covariances, non-convexities, or whatever in mathematics. When these are
significant in a positive or negative sense they make attributions of
performance of a single factor extremely difficult or impossible. For example,
when Cleveland brought back LeBron James this year the entire sports world
refocused on Cleveland, including advertisers, ticket buyers, other players,
etc. Because there are so many higher order positive and negative effects it's
impossible to assess a single player's true worth to the team.
It's also impossible to judge the worth of a veteran player for a single
season since players like Kobe Bryant had enormous impacts across many seasons.
It's also impossible to judge the value a a player because there are so many
unknown opportunity values of alternative investments that might have been made.
For example, if Cleveland had decided to not invest in LeBron for this season in
favor of one or two of the best rookies who play elsewhere we cannot really be
sure how well those rookies would be playing for Cleveland's team since there
are so many team factors that affect a single performer. Exhibits A-Z are the
many players let go by teams who become stars on other teams.
Jensen Comment
I'm still looking for an operational concept of the most important measurement
in all of accountancy (net earnings) from the IASB, FASB, or IMA. No luck.
Net earnings and EBITDA cannot be defined since
the FASB and IASB elected to give the balance sheet priority over the income
statement in financial reporting --- "The Asset-Liability Approach: Primacy does not mean Priority,"
by Robert Bloomfield, FASRI Financial Accounting Standards Research
Initiative, October 6, 2009 ---
http://www.fasri.net/index.php/2009/10/the-asset-liability-approach-primacy-does-not-mean-priority/
IMA to Endorse Universities Preparing Students for Careers in Management
Accounting: Pennsylvania State University and Washington State University
Vancouver Endorsed in Pilot Program ---
http://www.businesswire.com/news/home/20130807005147/en
Jensen Criteria
I was disappointed that the criteria focused mostly on curriculum rather than
placement. I would recommend the addition of the proportion of corporate
accounting recruiters who visit a campus and the numbers of entry-level job
offers to newly-minted accounting graduates in the four-year and five-year
programs.
The IMA struggles to keep managerial accounting from dying in accounting
programs. But without more entry-level job offers in corporate accounting it;s
an uphill battle.
Sue Haka, former AAA President, commenced a thread on the AAA Commons entitled
"Saving Management Accounting in the Academy,"
---
http://commons.aaahq.org/posts/98949b972d
A succession of comments followed.
The latest comment (from James Gong) may be of special interest to some of
you.
Ken Merchant is a former faculty member from Harvard University who form many
years now has been on the faculty at the University of Southern California.
Here are my two cents. First, on the teaching side,
the management accounting textbooks fail to cover new topics or issues. For
instance, few textbooks cover real options based capital budgeting, product
life cycle management, risk management, and revenue driver analysis. While
other disciplines invade management accounting, we need to invade their
domains too. About five or six years ago, Ken Merchant had written a few
critical comments on Garrison/Noreen textbook for its lack of breadth. Ken's
comments are still valid. Second, on the research and publication side,
management accounting researchers have disadvantage in getting data and
publishing papers compared with financial peers. Again, Ken Merchant has an
excellent discussion on this topic at an AAA annual conference.
With EVs and other fuel-efficient vehicles saving
consumers money at the pump, Oregon will be the first to issue a per-mile
road tax to refill its coffers.
Automotive News reports the state will offer two
options to its motorists: pay at the pump, or pay a 1.5-cent rate per mile
traversed. The latter will be conducted through a device that plugs into a
vehicle’s OBD port, then gathers mileage data to determine how much the
motorist will pay in tax.
Right now, the program — set to begin July 1 — will
be implemented by the Oregon DOT in partnership with Sanef ITS Technologies
America and Intelligent Mechatronic Systems, the latter supplying the
aforementioned OBD mileage reader.
Up to 5,000 volunteers will participate in the
initial program, which will compare the tax paid at the pump to the miles
driven. The results will be turned over to ODOT, which will then determine
if a motorist is given a refund or an invoice based on said findings.
Oregon won’t be the only one to undergo a road tax
program: over 10 other states are either in the process of passing
legislation or conducting trials for such programs.
Jensen Content
When I raised horses in Florida I used to ride for miles into pine woods across
the road where my neighbor owned tens of thousands of acres clear into Georgia.
I used to daydream about what I would do if I found a drug dealer's stash of
cash deep in the woods, possibly where dealers transferred drugs for cash.
I wondered whether the fact that the cash belonged to a drug dealer made it more
ethical to keep the cash.
My daydreams were never put to a test, because I never found a stash of cash.
That's probably a good thing, because a mean dealer might've traced the horse
tracks back to my pasture.
March 9, 2015 reply from Denny Beresford
This reminds me of a real life experience that I
used a few times in the classroom. I stopped for a few items on the way home
from work at a convenience store and when getting out of my car I looked
down and saw a $50 bill sitting on the ground. I picked it up and went into
the store thinking, should I ask in a loud voice, “did anyone in here drop a
$50 bill in the parking lot?” I decided that would be a self- fulfilling
prophecy and passed on that approach. Then I thought, perhaps I should leave
it with the clerk in case someone who really needed it came back later and
asked if someone had turned it in. But I figured that if I gave it to the
clerk that was the last I would ever see of if!
My “ethical solution” was to wander around the
store (a pretty small one) for an extra ten minutes or so and try to listen
in to see if someone had returned to the store to claim the missing $50
bill. No one did during that time so I pocked the bill and went home. I
still felt a little guilty although at the same time I thought that anyone
carrying $50 bills couldn’t be that hard up so perhaps I shouldn’t feel too
bad.
When I’ve discussed this with students most of the
time they’ve thought I was crazy to be the least concerned. They thought I
should have just pocketed the bill in the parking lot and that was that.
Denny
Contrary to popular opinion, the Texas State Board of Public Accountancy did
not commence with the publication of George Orwell's Book "1984" in 1949
---
http://en.wikipedia.org/wiki/Nineteen_Eighty-Four
History of the Texas State Board of Public Accountancy that began in 1915
(100 years ago) ---
http://www.tsbpa.state.tx.us/pdffiles/TSBPA_Act_History.pdf
Over the years the TSBPA has been one of the most restrictive state boards in
terms of requirements to become a CPA and the requirements for a license to
practice. It's also one of the most interfering state boards in terms of
dictating content and pedagogy of accountancy courses in Texas institutions of
higher learning.
For example, as Chuck Pier recently pointed out on the AECM. the TSBPA will
not approve taking of the CPA examination in Texas unless about half of the
required accounitng courses are taken face-to-face. This may be the
least-friendly of all 50 state boards of accountancy towards distance education.
It may also be the reason that Texas universities are the most behind in terms
of innovative online education programs in accountancy.
Actually the Texas universities don't seem to mind because this drives out
the online providers of accounting degrees and forces students with out-of-state
online degrees to take courses in Texas universities such as transfers from out
of state into the big accounting firms in Dallas, Houston, and San Antonio. It's one big and happy anti-distance education
oligopoly.
When I was at Trinity University in Texas I did not practice as a CPA and did
not do things as maintain CPE credits or anything else needed to maintain a
Texas CPA license. The TSBPA at one time wanted me to take away the letters CPA
on my resume and surrender my CPA Certificate into the TSBPA. It took some
doing, but I finally convinced the TSBPA that it did not have jurisdiction to
make me turn in my Colorado CPA Certificate or to remove the letters CPA from my
resume as long as I did not practice as a CPA in Texas. Orwell's Big Brother
lost this time.
Jensen Comment
Accountics scientists are very poor communicators of their research. Most of
their sessions at annual meetings only need about ten chairs. One time I was on
a panel with Bill Cooper and Yuji Ijiri. Only the panel showed up at the
session.
One time when an accountics scientist received a Notable Contributions to the
Literature Award at an American Accounting Association, he said that in a
previous year when he presented his research at an AAA meeting the only people
who showed up came to borrow chairs for the session next door.
Not one accountics scientist has a blog. Nor do they tell about their
research on listservs or at Websites.
Some professors of mathematics, statistics, and econometrics have great
blogs. Why doesn't a single accountics scientist have a blog?
It is our responsibility as scientists, knowing the
great progress and great value of a satisfactory philosophy of ignorance,
the great progress that is the fruit of freedom of thought, to proclaim the
value of this freedom, to teach how doubt is not to be feared but
welcomed and discussed, and to demand this freedom as our duty to
all coming generations.
Jensen Comment
Are accountics scientists living up to their responsibilities?
Question
Citizenship for sale
Is there any assurance that a nation that grants tax freedom for citizen
purchases will guarantee such tax freedom for a lifetime?
In 2006, the tiny Caribbean state of St. Kitts and
Nevis was in deep trouble. Its sugar plantations had closed a year earlier,
gang violence had given it the dubious distinction of having one of the
world’s highest murder rates, and only two governments on Earth were more
indebted. A three-hour flight south of Miami, the country of 48,000 people
was more or less unknown. Certainly, the two specks of volcanic rock in the
middle of the West Indies weren’t of much interest to the world’s rich. St.
Kitts and Nevis had run a citizenship-by-investment program—had sold
passports—since 1984, but it didn’t get much attention and was never a
moneymaker.
Then a Swiss lawyer named Christian Kalin showed
up.
Thanks to Kalin, St. Kitts has become the world’s
most popular place to buy a passport, offering citizenship for $250,000 with
no requirement that applicants ever set foot on the island’s sun-kissed
shores. Buyers get visa-free travel to 132 countries, limited disclosure of
financial information, and no taxes on income or capital gains. The program
became so successful that St. Kitts emerged from the global financial crisis
far ahead of its neighbors in the Caribbean. “It’s been a complete
transformation,” says Judith Gold, head of an International Monetary Fund
mission to the country.
Continued in article
Jensen Comment
This type of tax dodge is no assurance of tax avoidance or deferral for
non-residents of St. Kitts. Even residents of St. Kitts have to be cautious
about where they invest there money offshore.
A Toronto lawyer has launched a $384-million
class-action lawsuit against Deloitte LLP, alleging that hundreds of lawyers
were misclassified as independent contractors, depriving them of employee
benefits.
The lawsuit claims that as independent contractors,
the lawyers missed out on Employment Standards Act entitlements such as
vacation or overtime pay, and the company was not required to provide
termination notice.
Lawyer Shireen Sondhi has accused Deloitte and
placement agency Procom Consultants Group Ltd. of misclassifying employees
working in Deloitte’s document review branch, which formerly operated as ATD
Legal Services Professional Corp.
Document review is the process of classifying
documents relevant to a legal case.
Sondhi said she began doing contract work with ATD
in November 2013, shortly before it was bought by Deloitte in January 2014.
The claim states Sondhi accepted work on a project
at Deloitte on Jan. 15 that was expected to run for two to three weeks at an
hourly rate of $47.
She alleges Deloitte unilaterally decided to
administer the contract through Procom, which then deducted wages for
administrative services, placement and Employment Insurance and Canadian
Pension Plan contributions.
She said she was uncomfortable with these changes,
and raised her concerns with management. After several back and forth
emails, the lawsuit alleges Sondhi was told that if she didn’t accept the
revised contract — at about $43 an hour — it would be terminated.
“I felt like Deloitte was in a power position and
they knew it, and they were taking advantage of the document reviewers,” she
told the Star.
None of the allegations have been proven in court,
and Deloitte has denied them.
“We believe that the claim has no merit and we will
vigorously defend the proposed class action. As the matter is now before the
courts, it is not our intention to discuss the matter publicly,” Vital Adam,
Deloitte’s senior manager of public relations, told the Star in an email.
The lawsuit states the lawyers should have been
treated as employees since they worked under supervision in Deloitte’s
offices, and the company provided them with computers, set their work
schedules and barred them from hiring subcontractors.
The plaintiffs also argue that their duties as
document reviewers did not constitute legal services, and therefore they
should be covered under the Employment Standards Act.
“They have all the hallmarks of being employees,”
said Andrew Monkhouse, a Toronto employment lawyer who filed the claim.
Most of the money being claimed in the lawsuit
relates to pay “in lieu of reasonable notice” of termination, and a failure
to remove statutory deductions, lost Employment Insurance benefits, and
punitive damages, among other things.
“For many young lawyers, saddled with staggering
student debt and desperate not to leave the field of law, document review is
a last resort,” the statement of claim says. “Deloitte is one of only a few
document review companies in Ontario, and for many Class Members, represents
their sole source of income.”
The lawsuit was served on Tuesday on behalf of all
persons that performed, or are performing, document review or e-discovery
services for ATD or Deloitte, and were classified as independent
contractors.
A certification motion is pending to determine
whether there is a legal basis for a class action, Monkhouse said. If the
case is certified, it could eventually include hundreds of people.
“We don’t know how many class members there are
exactly, but it is certainly hundreds of lawyers,” he said, adding the case
could lead to more class actions related to how workers are classified in
other job sectors.
"What We Can Learn from Ancient Athens’ Manufacturing Industry: A
former vice president at Boston Consulting Group analyzes an ancient sector and
how it parallels changes in today’s economy," by Theodore Kinni, Insights
from the Stanford University Graduate School of Business, March 10, 2015 ---
http://www.gsb.stanford.edu/insights/what-we-can-learn-ancient-athens-manufacturing-industry
WILLIAM BRADY (pictured, in the middle) and Howard
Sheperd had each spent more than 30 years at National City Bank before
becoming its leaders in 1948. But even after all that time, they were not
really sure how the sprawling financial conglomerate that would become
Citigroup made money. George Moore, who would later rise to chairman, was
appointed head of a “New Look Committee” to unravel the mystery. His
conclusion: “We have never really known just where we made our net profits,
but have generally proceeded on the assumption that we should encourage the
growth of all these businesses to the maximum, on the theory that the more
they grow the more money we could make.”
The assumption under the current boss, Michael
Corbat, is precisely the opposite. But working out how Citigroup makes its
money—and therefore which parts of the business are most dispensable—is just
as vexing. In total, Mr Corbat reckons 60 businesses have been sold since
the crisis. Among them are brokerage arms in America and Japan, a
student-loan operation and some credit-card units. The most visible
contraction has been in Citi’s consumer business, which is shrinking from 50
countries to 24, and in America, from 14 cities to seven. This week, Citi
announced the sale of OneMain Financial, a subsidiary that makes
high-interest consumer loans, and a stake in Akbank, a Turkish lender.
In spite of all this restructuring, Citi’s
performance remains dismal. Part of the problem is the endless restructuring
itself: provisions related to it were $148m in the first quarter of 2013,
$75m in the second, $133m in the third, $234m in the fourth, $211m in the
first quarter of 2014, $397m in the second, $382m in the third and $655m in
the fourth, according to S&P Capital IQ, a financial-data firm. Its return
on equity last year was 3.4%. Regulators have frozen its dividend at one
cent per share (a yield of less than 0.1%) since the crisis. Even as the
share prices of other American banks approach or pass their pre-crisis
peaks, Citi’s is down by 90% (see chart). Its market capitalisation is well
below its book value, suggesting it would be more valuable if broken up.
On March 11th the Federal Reserve will reveal the
results of the second of the two annual “stress
tests” it conducts for big banks, which
attempt to simulate downturns to make sure that banks have enough capital to
withstand them. Citi failed this test in 2012 and in 2014, and as a result
has not been allowed to raise its dividend. The first failure prompted the
depature of its then chief executive, Vikram Pandit; a third one would
probably put an end to Mr Corbat’s tenure.
From the CFO Journal's Morning Ledger on March 12, 2015
All but one of the six largest U.S. banks boosted
their dividend payments after clearing the most recent Federal Reserve
stress tests, but it wasn’t immediately clear whether the banks would reduce
the amount of money the firms return to shareholders overall, the
WSJ reports. Bank of America Corp.,
though it failed to win an unqualified approval, did receive a conditional
approval to return capital to shareholders after the Fed found “certain
weaknesses” in its ability to measure losses and revenue and in other
internal controls. BofA must now resubmit
its capital plan by Sept. 30,
and if the Fed isn’t satisfied, it can freeze its
capital distributions.
Several potential issues related to the
implementation of the new revenue standard issued jointly by the Financial
Accounting Standards Board and the International Accounting Standards Board
were discussed at the January 26, 2015, meeting of the joint revenue
transition resource group (TRG). Deloitte summarizes several of the
meeting’s important topics in its latest “TRG Snapshot.”
Continue »
• The FASB and the IASB agreed to amend the
transition guidance in their new revenue standards but did not agree on
the nature of those amendments .
• The Boards also reached different decisions
on whether to amend the guidance on noncash consideration , presentation
of sales taxes and collectibility .
• The staffs of both Boards provided updates on
their research on how to address concerns about the guidance on
principal versus agent considerations.
• Any changes to the standard s would be
subject to the due process procedures of each Bo ard, including seeking
public comment. T he FASB will decide at a meeting in April whether to
propose delaying the effective date of its standard .
From the CFO Journal's Morning Ledger on March 16, 2015
GE agrees to sell unit for nearly $6.3 billion
Click Here
General Electric Co.
has agreed to sell the consumer-lending business of GE Capital in Australia
and New Zealand to an investor group including KKR & Co.
and Deutsche Bank AG for about $6.26 billion. GE continues
to shed consumer-finance businesses around the world amid investor pressure
to focus on industrial operations.
Sort of like those rules on a young teenager that drive the teenager to run
away from home
From the CFO Journal's Morning Ledger on March 16, 2015
Tax inversion curb turns tables on U.S
Click Here
A crackdown on “tax inversion” deals has had the
effect of prompting a sharp increase in foreign takeovers of American
companies, the Financial Times reports. Since the crackdown, there have been
$156 billion of inbound cross-border U.S. deals announced, compared with
$106 billion in the same period last year and $81 billion a year before
that.
From the CFO Journal's Morning Ledger on March 13, 2015
Intel slashes revenue outlook on weak PC demand---
http://www.wsj.com/articles/intel-cuts-revenue-outlook-1426165693?mod=djemCFO_h The chipmaker credited the slowdown to
economic and currency conditions in Europe and hesitancy on the part of
small and medium-size businesses in making new PC purchases. Analysts say
the Europe economy is the primary factor. PC makers have
boosted their prices in Europe sharply to respond to the rapid downward move
of the euro relative to the dollar, but
those pricing changes hurt PC demand.
Jensen Comment
Teachers of CVP models most likely do not stress the importance of
foreign currency translation rate changes on CVP outcome. The Intel example
above is a good illustration that can be brought into the classroom.
title:
CVP Analysis: Can a clever cost accountant save Intel from Attorney General of
New York State?
citation:
"N.Y. files antitrust lawsuit
against Intel: Chipmaker used bribes, coercion to get PC makers to shun
its rivals, Cuomo says," by Tomoeh Murakami Tse and Cecilia
Kang, The Washington Post, November 5, 2009 ---
Click Here
brief description:
Question
Can a clever cost accountant save Intel from Attorney General of New
York State?
Jensen
Comment
One gray zone in such lawsuits is where the "bribes" in reality are
volume discount pricings. Accountants often teach cost-volume-profit
decision making with one of the decision variables being how to set
prices on the basis of expected sales volumes at each of the various
pricing alternatives (that affect contribution margins over variable
costs). We seldom, however, bring into the CVP equation the possibility
that certain types of discount pricing restrains competition. Also
giving a $2 billion "bribe" is not quite the same as setting a lower
price per unit that can be justified on the basis of economies of scale
in production. A fixed $2 billion bribe falls more into the realm of a
"fixed cost." Fixed costs are included in CVP analysis, but they're
usually assumed, in our courses, to be legitimate fixed costs and not
illegal bribes. It will be interesting to see how Intel (an Dell)
presents a defense to this lawsuit. Ken Lay (at Enron) personally paid
over a million dollars for an accounting professor from USC to be his
expert witness. It did not do any good in Ken's trial where Lay was
found guilty.
In the testimony below, defense
witnesses for Skilling and Lay (Walter Rush and Jerry Arnold) "attribute
Enron's descent into bankruptcy proceedings to a combination of bad
publicity and lost market confidence" rather than accounting fraud. This
places the Professor Arnold's opinion in conflict with that of
Professors Hartgraves and Benston earlier analyses based upon the
lengthy Powers Report commissioned by the former Chairman of the Board
of Enron ---
http://faculty.trinity.edu/rjensen/FraudEnron.htm
Your household finances might be humming along just
fine. But would they be able to withstand an unforeseen medical bill or
sudden reduction in paid working hours? How about a job loss, furlough or
unexpected tax assessment? As the Federal Reserve prepares to announce the
results of this year’s stress tests on the nation’s largest banks Wednesday,
we offer the following five stress tests for your own finances.
1 Debt-to-Income Ratio
Divide your debts, including credit cards,
student-loan and car-loan balances, and your mortgage, by your pretax
earnings. That will give you your debt-to-income ratio.
Sheryl Garrett, the founder of the Garrett Planning
Network, says a good rule of thumb is to have a personal debt-to-income
ratio of less than 28%, not counting mortgages, or household
debt-to-household income of less than 36%, including mortgages.
A higher ratio is a warning that you have too much
debt relative to your income and you either have to lower your debt or raise
your income, or both.
2 Discretionary Expenses
It’s important to know what your discretionary
expenses are and how quickly you can cut back on them in times of stress.
Start by sorting all your expenses into three
categories: fixed, which are those payments you have to make regardless of
circumstances; variable nondiscretionary, which are expenses such as
groceries or air-conditioning bills over which you can exercise some level
of control; and purely discretionary expenses such as gym memberships and
vacations.
Discretionary expenses should make up a greater
percentage of your overall expenses than your fixed expenses, says Eleanor
Blayney, consumer advocate for the CFP Board in Washington, giving you room
to defer, cut back or eliminate.
“Figure out what you could live without or whittle
down quickly,” she says. Discretionary Expenses > Fixed Expenses
A good standard is for discretionary expenses to be
two thirds of your overall expenses.
3 Emergency Savings
Financial planners tell clients to reserve enough
cash in savings or other easily liquidated accounts to cover three to nine
months of expenses—with three months being the bare minimum.
This stash will be the first place you turn for
help because it is readily available. Getting at it shouldn’t require
selling securities or taking an early-withdrawal penalty from a retirement
account or certificate of deposit.
The greater your obligations, the more emergency
cash you should have squirreled away, planners say. A single mother with a
mortgage would want several months if not more than a year of cash to cover
expenses, for example. A freshly graduated single person who has no student
debt and who is renting an apartment might need only three months’ worth.
The National Foundation for Credit Counseling
offers a program called “Sharpen Your Financial Focus” that has free online
questionnaires for people to use in figuring out their own plans. 3 to 9 You
should have enough cash to cover three to nine months of expenses in case of
emergency.
4 Additional Income
Consider your options for generating additional
income in a period of stress, says Bruce McClary, a spokesman for the
National Foundation for Credit Counseling.
Wages or tips from a second part-time job or
proceeds from selling personal possessions could raise enough to float you
through a financially strapped period without spending down your emergency
savings too quickly.
5 Total Assets
If banks are evaluated by the liquidity and quality
of their balance sheets and their ability to weather a run on their
deposits, consumers could be evaluated by the liquidity and quality of their
assets and how well they could withstand an immediate call by all their
creditors, Ms. Blayney says.
Add up your emergency savings, the equity in your
home and the balances in your retirement savings accounts to get your total
assets. Then divide that number by your monthly expenses to figure out how
many months you could live with no investment appreciation and no income
until you have completely depleted those assets.
Take two people, each with a net worth of $1
million. The first person has securities and cash accounts, the second has
her money tied up in real estate. Which one could pay the bills more quickly
with less of a discount to convert assets to cash?
“You need to look at the liquidity of the net worth
and the quality of it,” she says.
Corrections & Amplifications
To calculate debt-to-income ratio, divide your debts by pretax
earnings. An earlier version of this post incorrectly said the ratio was
obtained by dividing pretax earnings by debts.
Jensen Comment
The article should have given more consideration to tax planning. For example, I
would give consideration to combining savings liquidity with tax exempt income
in a diversified tax exempt mutual fund such as a a low cost fund (with a
checkbook) available from Fidelity or Vanguard. Care must be taken, however, to
have long-term savings that are better protections against inflation such as
CREF accounts.
Real estate is a tricky investment due to property taxes and insurance. If
there's sufficient rental to cover these expenses such as in a condo or
profitable farm then real estate is more attractive as a long-term investment.
For example, I have a friend who kept his condo beside the Dartmouth College
campus long after he moved on. He now calls this condo his cash cow.
However, I don't like being a landlord --- which is why I sold my inherited
Iowa farm and invested mostly in our home and in a tax exempt mutual fund from
Vanguard. However, I'm old now so that inflation is less of a worry in my
remaining lifetime.
Illinois lawmakers have put a benefit commonly
offered to college employees — tuition breaks for their children — on the
chopping block at public universities in response to a big expected cut in
state spending on higher education.
A measure pending before the Illinois House of
Representatives’ State Government Administration Committee would phase out
tuition waivers for public-university employees. Strongly opposed by the
universities and unions representing their faculty and staff members,
House Bill 403 calls for the repeal of laws that
provide a 50-percent tuition waiver to the children of people who have been
employed by one or more of the state’s public universities for at least
seven years.
Continued in article
Jensen Comment
Many years ago when I was visiting Dartmouth College, a senior accounting
professor named Len Morrissey remarked that he could not leave Dartmouth even if
he had an opportunity to double his salary (salaries were much, much lower in
those years). As I recall he had five sons, and Dartmouth had the most generous
tuition deals for employees of any college in the USA. Dartmouth would pay for
tuition of any faculty member's child up to the amount of the Dartmouth's very
high tuition. And the child could attend any college in the world. I don't know
if that benefit still exists at Dartmouth College.
Many private universities modified their plans to tuition exchange plans
among only selected partners. When I was at Trinity university many of those
partnership plans were dropped, but some of my Trinity colleagues still managed
to send their children to Rice University free of charge.
Jensen Comment
When teaching accounting for share buybacks teachers sometimes struggle for
giving real world reasons for buybacks. This is a good example of one of the
reasons. This particular reason is quite controversial.
From the CFO Journal's Morning Ledger on March 9, 2015
GM plans share buyback, averting proxy fight
http://www.wsj.com/articles/gm-plans-share-buyback-averting-proxy-fight-1425859605
As soon as
Monday,
General Motors Co.
will disclose plans to return billions of dollars to shareholders, a move
that is expected to avoid a potential proxy fight with investor Harry J.
Wilson. Mr. Wilson will drop a previous request to join the Detroit auto
maker’s board in light of the buyback plan, though GM plans to repurchase
shares over time in an amount less than the $8 billion Mr. Wilson previously
proposed.
March 9, 2015 reply from Ruth Bender
Interesting.
When I’m teaching buybacks I use a piece from the
financial report of Next, the clothing company. I like their policy – and it
makes a great pre-class question, to get them to reproduce the graph on p14.
General Motors’ announcement that it will settle a
fight with activist shareholders by buying back
$5 billion in stock over the coming 21 months is a
major loss for American taxpayers and GM’s workers. The investors’ leader,
Harry J. Wilson, called the deal a ”win-win outcome.” But the only real wins
are a victory for the hedge funds, and a Pyrrhic victory for GM in that it
managed to keep Wilson off its board and reduced the size of the buyback
from the $8 billion the investors had been demanding.
In 2009, Wilson was part of a Wall Street team that
the Obama administration hired to structure the bailout of GM, after the
company, once the world’s largest automobile producer, sustained over $88
billion in losses in the previous four years. During the bailout, financial
firms, including hedge funds, were nowhere to be found. Instead, U.S.
taxpayers put up
$49.5 billion in rescue funding, and Canadian
taxpayers pitched in another
$10.9 billion, allowing GM to emerge from
bankruptcy after just 40 days. In 2010 the “New GM” did one of the largest
initial public offerings in history, with share sales to the public of
$23.1 billion by the U.S. and Canadian governments
as well as the United Automobile Workers (UAW) through its Voluntary
Employee Beneficiary Association (VEBA) Trust. By the time the U.S.
government sold off all of its GM holdings in December 2013, U.S. taxpayers
had absorbed a
$11.2 billion loss.
The UAW made big sacrifices, allowing GM to reduce
labor costs by
$11 billion. There were 21,000 layoffs; a wage
freeze for current workers; a halved wage of $14 per hour for non-core new
hires; elimination of a funding program for unemployed workers; a no-strike
agreement until 2015; and the VEBA that shifted UAW retiree healthcare and
pension benefits from GM to the UAW, saving the company
$3 billion per year. (In early February,
a day after she met with Wilson, Barra decided to
grant 48,400 UAW workers as much as
$2,400 each in extra profit-sharing bonuses that
were over and above the amount stipulated in the union contract. But this
“Barra bonus” totals only $116 million, a pittance compared with the $5
billion that GM will spend on the buyback.)
While the restructuring certainly helped GM return
to profitability (its annual net income averaged $6.7 billion from 2010
through 2013), it would probably still be bankrupt but for the booming
Chinese market. In 2013 GM produced 3 million
cars in China, or 45% of its global car
production; that was up from 1.1 million vehicles in 2008. Indeed, in 2013
GM
produced only 12% of its passenger cars and 21% of
its motor vehicles in the United States.
Going forward, GM will need all the financial
resources it can muster to produce automobiles that buyers in diverse global
markets want at prices that they are willing to pay. In an industry
characterized by intense global competition and major technological
challenges, GM cannot afford to be held hostage by hedge funds in the name
of “maximizing shareholder value.”
One of us (Bill Lazonick) has been
extremely critical of the kind of buybacks
— open-market stock repurchases — that GM has pledged to undertake. Their
only purpose is to give manipulative boosts to GM’s stock price. The winners
will be public shareholders, including the hedge funds, who stand ready to
gain by selling their GM shares. If U.S. corporate history of the past three
decades is a guide, the $5 billion in buybacks won’t be the last. The
pump-and-dump hedge funds will come back to GM’s buyback well year after
year until the cash flow once again runs dry.
GM did $20.4 billion worth of buybacks from 1986 through 2002.
If it had saved that money and earned a modest 2.5% on
it, the company would have had $35 billion on hand when the financial crisis
and Great Recession hit and probably would not have had to file for
bankruptcy protection. As
Bob Lutz, the veteran auto executive, said
recently, stock buybacks are “always a harbinger of the next downturn…in
almost all cases, you regret it later.”
So why is GM risking déjà vu all over again? Surely
GM CEO Mary Barra understands the deadweight loss that stock buybacks pose
for her company. She has been with GM since 1980 when, at the age of 18, she
entered General Motors Institute to get an engineering degree. She must know
that public shareholders, including the hedge funds, whose only relation to
the company is to buy and sell outstanding shares, contribute nothing at all
to the creation of high quality, low-cost vehicles. One would hope that
Barra’s motivation in caving in to the hedge funds has nothing to do with
her $10 million in stock awards waiting to vest.
Continued in article
From the CFO Journal's Morning Ledger on March 9, 2015
Although I'm not seeing much discussion of it in
the US, the international accounting folks are paying lots of attention to
the Integrated Reporting <IR> Framework. A few American companies have begun
implementing this approach - something akin to a balanced scorecard meets
financial statements meets CSR. This GE report is clearly guided by the <IR>
movement. It's a great illustration, so thank for bringing it to our
attention!
From the CFO Journal's Morning Ledger on March 3, 2015
New standards for internal controls
took effect late last year, but you wouldn’t know it from the regulatory
filings of more than 300 companies,
CFO Journal’s Maxwell Murphy reports.
Those firms are still using the internal-control
guidelines that were written more than two decades ago, and the number of
laggards is expected to climb as more companies close their books on 2014
and disclose whether they have made the switch.
For the new standards, the Committee of
Sponsoring Organizations of the Treadway Commission, or COSO, added 17
related principles to the original set of five that were released in 1992.
The new standards require companies to disclose more details about how they
design and test their internal controls, which could range from requiring
that two people sign off on purchasing orders to restricting access to sales
systems.
“If you don’t have a good business reason for
not making the move…that may be indicative” that management hasn’t put
enough emphasis on controls, said Chuck Landes, a COSO board member. Has
your firm made the switch?
Color Book Accounting
It's sad that neither the FASB nor the IASB can conceptualize "true cost" and
"real value." But then most important things in life cannot be operationally
conceptualized. We saving those tasks for smart robots.
Short-term value changers can be very misleading about long-term value
We have a 6'7" grandson who was photographed and reported up in a local
(California) newspaper nearly every month for his outstanding performances in
both high school football and basketball. He was recruited by major universities
(e.g., Cal and Oregon) for both sports but had to drop out due to a heart valve
weakness. His younger brother was even taller in every grade. We all predicted
his "value" in athletics would exceed that of his brother. We all drooled over
the possible full-ride scholarships. Now he is a 6"8" freshman in high school.
He's into the academics and could care less about sports. So much for predicting
long-term "value" based upon short term value changers like growth spurts in
childhood. So much for using transitory short-term price fluctuations to predict
long-term value.
The U.S. Securities and Exchange Commission
requires drillers to calculate the value of their oil reserves every year
using average prices from the first trading days in each of the previous 12
months. Because oil didn’t start its freefall to about $45 till after the
OPEC meeting in late November, companies in their latest regulatory filings
used $95 a barrel to figure out how much oil they could profitably produce
and what it’s worth. Of the 12 days that went into the fourth-quarter
average, crude was above $90 a barrel on 10 of them.
So Continental Resources Inc., led by billionaire
Harold Hamm, reported last month that the present value of its oil and gas
operations increased 13 percent last year to $22.8 billion. For Devon Energy
Corp., a pioneer of hydraulic fracturing, it jumped 31 percent to $27.9
billion.
This year tells a different story. The average
price on the first trading days of January, February and March was $51.28 a
barrel. That means a lot of pain -- and writedowns -- are in store when
drillers’ first-quarter numbers are announced in April and May.
“It has postponed the reckoning,” said Julie Hilt
Hannink, head of energy research at New York-based CFRA, an accounting
adviser.
Cash Flow
Companies use the first-trading-day-of-every-month
calculation to estimate future cash flow and to tally how much crude can be
profitably pumped out of the ground. The SEC introduced the formula in 2009
as part of wider changes in how the regulator required drillers to report
reserves. Prior to the shift, the value of the reserves was measured based
on the oil price on the last day of the year, which also caused distortions.
There are no current plans to revisit or modify SEC
reporting rules, Erin Stattel, an SEC spokeswoman, said in an e-mail. She
declined to comment further.
Most shale drillers are reporting increases in
what’s known as proved reserves. The SEC requires oil producers to submit an
annual tally, along with an estimate of the present value of the future cash
flow from those properties. The estimates are limited to what the firm is
reasonably certain it can extract from existing wells and prospects
scheduled to be drilled within five years. The reports are based on factors
such as geology, engineering, historical production -- and price. To count
as proved, the resources must be economic to develop given existing market
conditions.
“What the SEC requires isn’t thorough enough to get
to the numbers investors really want,” said Mike Kelly, an analyst with
Global Hunter Securities in Houston. “What is the true cost of producing a
barrel of oil? And what is the real value of the assets?”
A similar pricing formula helps determine whether
some companies need to write off their oil and gas properties.
Market Value
West Texas Intermediate for April delivery fell 31
cents to $50.21 a barrel on the New York Mercantile Exchange at 12:30 p.m.
local time. Brent dropped 52 cents to $60.50.
Continental provides one example of how much the
price move matters. The company’s Feb. 3 press release announcing the $22.8
billion figure included a disclaimer saying the estimate didn’t represent
market value.
Three weeks later, Continental published more
detail in its annual financial report to the SEC. Using current prices
instead of the SEC-prescribed $95 a barrel would erase $13.8 billion, or 61
percent, from the value of Continental’s oil and natural gas properties. It
would also mean that 10 percent of the company’s reserves, the equivalent of
135 million barrels, would be too expensive to pump with prices where they
are, the company said in the filing.
SEC Rules
“Continental just follows the rules like everyone
else that are mandated by the SEC” and provided additional details to
investors in its filing, John Kilgallon, the company’s vice president of
investor relations, said in an interview.
Continental shares have risen almost 14 percent
this year. Devon’s stock is little changed. That compares with the Bloomberg
Intelligence North America Independent Exploration & Production Index, which
has risen more than 2 percent since the beginning of 2015.
The drillers in the index will lose an estimated 89
cents per share in the first quarter of 2015, according to data compiled by
Bloomberg Intelligence. The companies gained $1.13 in the first quarter of
2014 and 26 cents in the three months ended Dec. 31, the data show.
Devon follows SEC regulations and provides updates
“in the course of regular disclosures under SEC rules,” Tim Hartley, a
company spokesman, said in an e-mail.
The company’s Feb. 17 press release said that its
proved oil reserves rose “to the highest level in company history.” Three
days later, in its SEC filing, the Oklahoma City-based driller said it
expects to take writedowns “beginning with the first quarter of 2015.” The
company didn’t offer details except to say that it doesn’t expect the
amounts to have an impact on cash flow or liquidity. However, they will be
material to its net earnings.
Net earnings and EBITDA cannot be defined since the FASB and IASB elected to
give the balance sheet priority over the income statement in financial reporting
--- "The Asset-Liability Approach: Primacy does not mean Priority,"
by Robert Bloomfield, FASRI Financial Accounting Standards Research
Initiative, October 6, 2009 ---
http://www.fasri.net/index.php/2009/10/the-asset-liability-approach-primacy-does-not-mean-priority/
Hewlett-Packard Co. agreed to acquire
wireless-networking company Aruba Networks Inc. in a deal valued at roughly
$2.7 billion, expanding H-P’s capabilities in the mobile market.
H-P is offering $24.67 a share, a 1% discount to
Aruba Network’s close on Friday, when the stock reached the highest level in
nearly two years following a report about a possible deal. Including cash
and debt, the companies valued the deal at roughly $3 billion.
H-P Chairman and Chief Executive Meg Whitman said
the deal will combine Aruba’s wireless-mobility solutions with H-P’s
switching portfolio, allowing the company to offer most secure networking
solutions to help enterprises easily deploy next-generation mobile networks.
The planned acquisition complements H-P’s
networking portfolio, Cantor Fitzgerald analysts said. H-P’s bigger push
into the networking market over the past few years included the $2.7 billion
acquisition of 3Com Corp. in 2010. However, Cantor also thinks H-P’s capital
would be better spent on cloud and Big Data software-related vendors.
Analysts at Mizuho Securities USA Inc. added that
despite Aruba’s strong revenue growth, the deal was unlikely to solve growth
issues within H-P, and the firm estimated that Aruba’s potential revenue
contribution would represent less than 2% of the revenue in H-P’s
enterprise-technology business.
Aruba Networks, based in Sunnyvale, Calif., had
revenue of $729 million in fiscal 2014.
The H-P and Aruba operation will be led by Aruba
Chief Executive Officer Dominic Orr and Chief Strategy and Technology
Officer Keerti Melkote. They will report to Antonio Neri, head of H-P
Enterprise Group.
Both companies’ boards have approved the deal.
Hewlett-Packard in October unveiled plans to
separate its personal-computer and printer businesses from its corporate
hardware and services operations, which has been billed as the growth
engine.
H-P’s strong market position in corporate hardware
such as computer servers and personal computers hasn’t helped it in newer
areas such as cloud software and mobile computing, where it remains largely
irrelevant. Sales fell in its software segment, which is supposed to be a
future growth engine for the company—an emblem of H-P’s tough market
position.
Continued in article
Jensen Comment
This seems like a relatively small company for such an enormous price.
Embedded Derivatives:
portions of contracts that meet the definition of a
derivative when the entire nonderivative contract cannot be considered a
financial instruments derivative. Types of embedded derivative instruments
are often indexed debt and investment contracts such as commodity indexed
interest or principal payments, convertible debt, credit indexed contracts,
equity indexed contracts, and inflation indexed contracts. Embedded
derivatives are discussed in FAS 133, pp. 7-9, Paragraphs 12-16. Embedded
derivatives such as commodity indexed and equity indexed contracts and
convertible debt require separation of the derivative from the host contract
in FAS 133 accounting. In contrast, credit indexed and inflation indexed
embedded derivatives are not separable from the host contract. Also see FAS
133 Paragraphs 51, 60, 61, 176-178, and 293-311. The overall contract is
sometimes referred to as a "hybrid" that contains one or more embedded
derivatives. Embedded derivatives within embedded derivatives generally meet
the closely-and-clearly related test and cannot be accounted for as separate
derivatives. The concept of "closely related is also discussed in IAS 39:
paragraph 23a. Rules for accounting for the host contract after an embedded
derivative has be bifurcated are discussed in SFAS Paragraph 16). If an
embedded derivative should bifurcated but the firm cannot do so for some
reason, SFAS 16 requires that the entire contract be treated as a trading
security that is adjusted to fair value at least quarterly with changes and
fair value being charged to current earnings rather than OCI. See FAS 133
Paragraph 16 and IAS Paragraph 26.
Jensen Comment
When FAS 133 first went into effect some firms complained that the most costly
implementation issue for them was pouring over thousands of contracts worldwide
in an effort to find embedded derivatives and then decide whether they had to be
bifurcated and accounted for separately under FAS 133 rules. In one of my dog
and pony shows on implementation of FAS 133 I had several executives discuss
their biggest problems with implementation. Here are some audio files of their
presentations that mention the bifurcation problem of embedded derivatives:
Detecting derivatives and embedded derivatives to account for
worldwide (bifurcation)
The Subsequent FASB versus IASB Split on Embedded
Derivatives and Bifurcation
After 2012 the FASB and the IASB dramatically split with respect to embedded
derivatives accounting rules. The IASB essentially dropped the requirement to
find embedded derivatives, thereby the FASB declared that bifurcation was no
longer required even if it affects financial risk. The FASB id not change its
detection and bifurcation requirements under FAS 133
A FASB proposal issued Tuesday is designed to
provide more useful information to financial statement users about hybrid
financial instruments that contain bifurcated embedded derivatives.
The amendments in the
proposal would require an entity to disclose
information in the notes to financial statements that links each bifurcated
embedded derivative to its related host contract.
This information would be helpful to financial
statement users because it would reflect the overall economics and cash
flows for the entire hybrid financial instrument, according to the proposal.
Under current GAAP, Accounting Standards
Codification Topic 815, Derivatives and Hedging, does not require an
entity to provide information that explicitly links bifurcated embedded
derivatives with their related host contracts. As a result, financial
statement users often are unable to trace these derivatives to their host
contracts.
The proposed amendments would apply to all
reporting entities that issue or invest in hybrid financial instruments with
embedded derivatives that are separated from their host contracts and
accounted for as derivative instruments.
Under the proposal, an entity would be required to
disclose in both interim and annual reporting periods the carrying amount,
measurement attribute, and line item within the balance sheet and the income
statement in which each bifurcated embedded derivative and its related host
contract are presented.
The amendments would be applied on a prospective
basis to hybrid financial instruments with bifurcated embedded derivatives
that existed as of the beginning of the fiscal year for which the proposed
amendments are effective.
The effective date will be determined by the board
after hearing stakeholders’ comments, which can be submitted through April
30 at FASB’s
website. The proposal
is titled Proposed Accounting Standards Update, Derivatives and Hedging
(Topic 815): Disclosures About Hybrid Financial Instruments With Bifurcated
Embedded Derivatives.
In summary, bifurcation under FAS 133 is
required in the following examples:
Call/Put Debt Option --- If options alter maturity dates,
they are clearly and closely related to a debt instrument that requires
principal repayments unless both (1) the debt involves a substantial premium
or discount and (2) the put/call option is only contingently exercisable.
See FAS 133 Paragraph 61d. An example is given in FAS 133 Paragraph 186.
Also see IAS 39 Paragraph 24g.
Put/Call Equity Option on Host Equity Instrument --- A put
option should abe separated from the host contract by the issuer of the
equity instrument except in those cases in which the put option is not
considered to be a derivative instrument pursuant to FAS 133 Paragraph
11(a), because it is classified in stockholders' equity. A call option
embedded in the related equity instrument would not be separated from the
host contract by the issuer, but would be otherwise for the holder of the
related equity instrument
See FAS 133 Paragraphs 11a and 61b; IAS 39 Paragraphs
11a, 24a, and 25b.
Equity-indexed interest payments --- See FAS 133 Paragraph
61h and an example given in SFAS Paragraph 185. Also
see IAS Paragraph 24d.
Option to Extend Debt Maturity --- Variable annuity
instruments are generally not subject to FAS 133 accounting rules except for
specific components such as equity-index-based interest annuity and
accumulation period payments discussed in Paragraph 200.
Also see IAS Paragraph 24c.
Credit-linked Debt --- These are not be separated from the
host contract for debt instruments that have the interest rate reset in the
event of (1) default, (2) a change in the debtor's published credit rating,
or (3) a change in the debtor's creditworthiness indicated by a change in
its spread over Treasury bond See Paragraph 61c of FAS 133. An example is
given in SFAS Paragraph 190.. Also see IAS 39
Paragraph 24h.
Equity Conversion Feature --- If an option is indexed to the
issuer's own stock, a separate instrument with the same terms would be
classified in stockholders' equity in the statement of financial position,
so that the written option is not considered a derivative instrument. See
FAS 133 Paragraph 11a. If a debt instrument is convertible into a shares of
the debtor's common equity stock or another company's common stock, the
conversion option must be separated from the debt host contract. That
accounting applies only to the holder if the debt is convertible to the
debtor's common stock. See FAS 133 Paragraph 61k. An example is provided in
Paragraph 199 of FAS 133. Also see IAS 39 Paragraph
24f.
Commodity-linked Notes --- A commodity-related derivative
embedded in a commodity-indexed debt instrument must be separated from the a
host contract under FAS 133 Paragraph 61i. Examples are given in FAS 133
Paragraphs 187 and 188. Also see IAS 39 Paragraph
24e.
Bifurcation under FAS 133 is not
allowed in the following examples:
Loan Prepayment Options --- these are not bifurcated. See
Paragraphs 14, 189, and 198 of FAS 133 and Paragraph
25e of IAS 39.
Contingent rentals --- these are not bifurcated. Examples
include Contingent rentals based upon variable interest rates (FAS 133
Paragraph 68j), related sales, inflation bonds (FAS 133 Paragraph 191).
There also is no bifurcation of a lease payment in foreign currency (FAS 133
Paragraph 196), although the derivative should be separated if the lease
payments are specified in a currency unrelated to each party's functional
currency. Also see (FAS 133 Paragraph 197).
Embedded Cap/Floor --- See FAS 133 Paragraph 183 for reasons
why embedded caps and floors are not bifurcated.
Indexed amortizing note --- See Paragraph 194 in FAS 133.
Inverse Floater --- See Paragraphs 178 and 179 of FAS 133.
Birfurcation depends upon certain circumstances. Inverse floaters are
separated if the embedded derivative could potentially result in the
investor's not recovering substantially all of its initial recorded
investment. In addition, Levered inverse floaters must be separated if
there is a possibility of the embedded derivative increasing the investor's
rate of return on the host contract to an amount that is at least double the
initial rate of return on the host contract. Also see
IAS 39 Paragraph 25a.
Some Foreign Currency Embedded Derivatives --- Dual Currency
Bond (FAS 133 Paragraph 194) and Short-Term Loan with a Foreign Currency
Option (FAS 133 Paragraph 195) if both the principal payment and the
interest payments on the loan had been payable only in a fixed amount of a
specified foreign currency, in which case remeasurement will be done
according to SFAS 52 (refer to paragraph 194). However, foreign currency
options not clearly and closely related to issuing a loan should be
separated (refer to FAS 133 Paragraph 195.) Also see
IAS 39 Paragraph 25c.
From the CFO Journal's Morning Ledger on February 27, 2015
The Complex Accounting of Net Neutrality
From the CFO Journal's Morning Ledger on February 26, 2015
The Federal Communications Commission is
expected to vote on Thursday to put carriers’ Internet lines
under rules similar to the ones that govern more highly regulated phone
service. Proponents of the new rules, dubbed “net neutrality” as they would
require Internet service providers to treat all Web traffic equally, insist
that the rules are good for consumers and would protect a level playing
field for upstart businesses seeking entry into the online marketplace. But
the
WSJ’s Greg Ip writes
that the case is more complicated for
several reasons and that the FCC rules could undermine investment in
Internet infrastructure and new technology.
For big online firms like
Netflix Inc.,
much is at stake, including issues not directly addressed in the rules but
sure to surface in the near future. The least settled issue in the rules is
how much carriers like Verizon Communications Inc.
can charge
companies like Netflix to connect with
their networks. The call for net neutrality got a boost last year when
Netflix, which accounts for a third of all Web traffic in North America
during peak hours, picked a high profile fight with Verizon,
AT&T Inc. and
Comcast Corp.,
accusing them of slowing delivery of its movies to gain leverage in a
pricing dispute. But the rules up for a vote
Thursday aren’t clear on how much network
owners can change companies to connect with them in the first place, and
instead focus on the last stretch of infrastructure that reaches consumers.
Cablevision Systems Corp., for
its part,
played down the potential business
effect
of the proposed new rules. “The idea of more regulation is never great for
us,” Cablevision CEO James Dolan said, “but to be honest, we don’t see at
least what the chairman has been discussing as having any real effect on our
business.” And as Mr. Ip notes, net neutrality, while not yet enforced, has
basically been in practice all along, so it won’t mark a major change.
Chicago's finances are staggering under the weight
of an unfunded pension liability that Moody's Investors Service has
estimated at $32 billion, eight times the city's operating revenue.
Chicago has a $300 million structural deficit. And
Illinois law requires the city to up its 2016 contributions to its police
and fire pension funds by $550 million.
"This is an unfortunate wake-up call for anyone
still asleep over the fiscal cliff facing the city of Chicago," said
Laurence Msall, president of the Chicago-based government finance watchdog,
the Civic Federation.
The steady financial decline of the nation's
third-largest city prompted us recently to say that Chicago was well on its
way to becoming the next Detroit.
In other words, it's another bankrupt monument to
the perils of Democratic governance: a one-party town in one of the bluest
states, whose mayor, former White House Chief of Staff Rahm Emanuel, learned
financial discipline at the feet of President Barack Obama.
A large part of Chicago's problem is that the game
of maintaining campaign armies by overpromising and underfunding pensions is
over. Emanuel can expect little help from Illinois' new Republican governor,
Bruce Rauner, who is trying to fix similar problems at the state level.
Chicago's pension funds are only 40% funded, and
prospects aren't good, as people — particularly high-income individuals and
businesses — flee the city's high taxes and stiff regulations.
Emanuel recently emerged from the Windy City's
mayoral primary with just 45% of the vote against four opponents, forcing
Chicago's first-ever mayoral runoff. A poll taken by local polling firm
Ogden & Fry on Feb. 28 showed Emanuel leading second-place primary finisher
Jesus "Chuy" Garcia, who serves on the Cook County Board of Commissioners,
by a slim 42.9% to 38.5% margin. Chicago natives are clearly restless.
As Aaron Renn has noted in City Journal, Chicago
lost 7.1% of its jobs in the first decade of this century. Its famous Loop,
the second-largest business district in the nation, lost 18.6% of its
private-sector positions.
Raising the city's minimum wage will not reverse
that trend. People are leaving in droves, voting the only way they can in a
one-party town — with their feet.
From 2000 to 2009, Chicago's population shrank by
200,000 — the only one of the nation's 15 largest cities to lose people. The
city now has 145,000 fewer school-age children than it had more than a
decade ago, according to district data, forcing the closure of about 100
schools since 2001.
Chicago may soon be forced to go to Washington for
a bailout similar to New York City's 1975 rescue. The prospect of Emanuel
begging his former boss, President Obama, for financial help would be ironic
indeed.
The man who once said that a crisis is a terrible
thing to waste now finds his city and President Obama's home town in fiscal
crisis and his own political future teetering on the brink.
While underfunded public-employee pensions capture
the headlines, health-insurance benefits for retired state and local workers
are also a huge problem. But a recent ruling by the Supreme Court may help
state and local governments scale back these benefits.
Unlike public pension plans, retiree health
benefits aren’t funded in advance; they are typically paid out of current
tax revenues, so they compete with other budget priorities like schools and
police. This competition will only grow more intense, as unfunded retiree
health benefits are close to $1 trillion, according to a recent
study in the Journal of Health Economics.
Several cities and states have tried to reduce the
scope of retiree health-care services, or to increase the portion of the
premiums paid by retired workers going forward. Public unions have
frequently sued, claiming the benefits are vested for life—roughly parallel
to the legal arguments the unions have made against efforts to curb future
pension costs.
In late January, however, the Supreme Court issued
an unanimous decision that will increase the chances of local governments
winning such lawsuits. While the case involved a private business and its
union, the principles should generally apply to public-sector agreements.
M&G Polymers vs. Tackett involved a
collective-bargaining agreement that provided certain retirees, along with
their surviving spouses and dependents, with a full company contribution
toward the cost of their health-care benefits “for the duration of [the]
Agreement.” The contract was subject to renegotiation after three years, but
the critical legal question was whether the retirement health-care benefits
continued even after the agreement expired—in effect whether the intent was
to vest these benefits for life.
The union argued that the contract did vest these
benefits for life and the Sixth Circuit Court of Appeals agreed. The Supreme
Court reversed, noting that to prevail, the plaintiffs, in this case the
union, had to supply concrete evidence—“affirmative evidentiary
support”—that lifetime vesting of retiree health benefits was what both
parties to the agreement intended.
Normally, the explicit terms of a contract are
taken to reflect the parties’ intentions; only when a contract’s language is
ambiguous does a court look to the parties’ intent. Here the Supreme Court
followed a traditional rule of contract law: If a contract is ambiguous,
proof requires evidence of what the parties intended, not what a court—in
this case the appellate court—might infer from the ambiguous contract.
Two principles in Tackett should be
especially relevant to reductions in retiree health-care benefits where the
duration of these benefits is often unclear. The court, Justice
Clarence Thomas wrote, supported the “traditional
principle that courts should not construe ambiguous writings to create
lifetime promises.” Similarly, he wrote that the court endorsed the
traditional principle that “contractual obligations will cease, in the
ordinary course, upon termination of the bargaining agreement.”
This is where the Supreme Court’s decision is
particularly significant for the public sector. There must be explicit proof
that a collective-bargaining agreement intended long-term commitments to
bind a city or state long past the incumbency of the public officials who
signed the agreement.
Today elected officials trade generous retiree
benefits in the future for current wages. By doing so, they avoid having to
take responsibility for current cutbacks in state and municipal services
that would accompany wage increases.
The Supreme Court’s ruling in Tackett
means that lifetime benefits cannot be inferred but must be made explicit.
As a result, if public officials now attempt to revise the benefits in a
current or new collective agreement, unions will doubtless demand that any
long-term promises be made explicit. But public officials who make these
promises explicit send a strong signal that they are putting potentially
enormous burdens on future taxpayers and elected officials. This makes it
harder for current officials to make such promises. That is a step
forward—not just in interpreting contracts but also in enhancing political
accountability.
Mr. Pozen is a senior lecturer at Harvard Business School and a
senior fellow at the Brookings Institution. Mr. Gilson is a professor of law
at Columbia and Stanford law schools.
The Securities and Exchange Commission is probing
whether companies are muzzling corporate whistleblowers.
In recent weeks the agency has sent letters to a
number of companies asking for years of nondisclosure agreements, employment
contracts and other documents, according to people familiar with the matter
and an agency letter viewed by The Wall Street Journal. The inquiries come
as SEC officials have expressed concern about a possible corporate backlash
against whistleblowers.
Some of these types of documents sometimes include
clauses that impede employees from telling the government about wrongdoing
at the company or other potential securities-law violations, according to
lawyers who handle whistleblower cases and some members of Congress. In some
cases, the firms require employees to agree to forgo any benefits from
government probes, effectively removing the financial incentive for
participating in the SEC program.
In a separate January letter to Rep.
Maxine Waters (D., Calif.) that was reviewed by
the Journal, SEC Chairman
Mary Jo White said she was concerned about the
agreements.
The SEC has made a push to bring more whistleblower
cases since the 2010 passage of the Dodd-Frank financial-reform bill, which
created the agency’s whistleblower program.
Whistleblowers have flocked to the SEC program,
with the number of tips increasing each year. The agency fielded 3,620 tips
on potential securities-law violations in the 2014 fiscal year, up 21% from
two years before.
As part of the program, tipsters can get between
10% and 30% of the sum of penalties collected if their information leads to
an SEC enforcement action with sanctions of more than $1 million. The
program handed out an
award for more than $30 million last year to an
undisclosed foreign tipster, which was its largest ever.
Dodd-Frank regulations prohibit companies from
interfering with employees reporting potential securities-law violations to
the agency.
An SEC spokesman declined to comment.
Continued in article
From the CFO Journal's Morning Ledger on February 20, 2015
A
whistleblower’s horror story Recent exposés of less than proprietary behavior in government and
in business has led
Rolling Stone Magazine to
call this era the age of the whistleblower. As Matt Taibbi writes,
“whistleblowers are becoming to this decade what rock stars were to the
Sixties — pop culture icons, global countercultural heroes.” But today’s
whistleblowers tend to partake in little of the spoils and almost none of
the glamour. In fact their lives are very often almost destroyed in the
process.
From the CFO Journal's Morning Ledger on December 18, 2014
SEC gives internal auditor $300,000 whistleblower award
The Securities and Exchange Commission is giving a $300,000
whistleblower award to a corporate internal auditor who provided
information that directly resulted in an enforcement action. The auditor
had reported the wrongdoing internally, but when no action was taken
within 120 days, the auditor turned to the SEC. Awards to whistleblowers
range from 10% to 30% of the money collected from an enforcement action.CFO.com
(8/29)
Jensen Comments
Such puny settlements might be beneficial to career advancement, but
they are more likely to be just the opposite if they are the cause of
getting fired and the cause of troubles finding other jobs.
Whistleblowers are seldom heroes in USA except where national security
is involved.
Jensen Comment
Faculty researchers who teach cost accounting and/or AIS are often looking for
new topics for research. Health care costs are now a wide open field for new
research. For example, the case below points out that
small business owners are having a terrible time tracking employee health care
costs.
The above topic could also qualify for clinical research under the new
Pathways Commission initiatives for getting more academic accounting researchers
to address practitioner problems in the field.
Teaching Case on Small Business Taxation
From The Wall Street Journal Weekly Accounitng Review on March 13,
2015
SUMMARY: Small
employers are facing an unexpectedly onerous task: tallying their individual
employees' monthly health-care costs. Starting in 2016, under the Affordable
Care Act, employers with 50 or more full-time workers are required to file
new tax forms laying out what individual employees are being charged for
their employer-sponsored plans. The Internal Revenue Service released the
new forms on Feb. 8, 2015. Though completed forms aren't due until January
2016, many employers are scrambling to get procedures in place now to
collect the data. The new process entails measuring every individual
full-time worker's total monthly out-of-pocket cost for an employer health
plan this year.
CLASSROOM APPLICATION: This
an excellent article to share in class regarding taxation and reporting
requirements of businesses, especially small businesses.
QUESTIONS:
1. (Introductory) What are the details of the new reporting
requirements under the Affordable Care Act? What businesses are impacted?
What is the effective date?
2. (Advanced) What are the challenges of complying with the tax
requirements detailed in the article? What burdens does it place on
businesses, both large and small? What types of businesses are affected more
than others?
3. (Advanced) Who will use the new information that must be
reported? How will it be used? Are there other ways to gather this
information or to achieve this same purpose?
4. (Advanced) What options does a business have to facilitate
compliance with these requirements? What are examples of the costs involved?
Reviewed By:
Linda Christiansen, Indiana University Southeast
Employers are finding the task of tracking employee
health-care costs confusing, time-consuming.
Small employers are facing an unexpectedly onerous
task: tallying their individual employees’ monthly health-care costs.
Starting in 2016, under the Affordable Care Act,
employers with 50 or more full-time workers are required to file new tax
forms laying out what individual employees are being charged for their
employer-sponsored plans. The Internal Revenue Service released the new
forms on Feb. 8.
Though completed forms aren’t due until next
January, many employers are scrambling to get procedures in place now to
collect the data. The new process entails measuring every individual
full-time worker’s total monthly out-of-pocket cost for an employer health
plan this year.
The IRS says tax officials will use this
information to figure out whether employers are complying with the law’s
requirement that businesses offer affordable health coverage to full-time
employees and their dependents. Federal penalties for failing to provide an
affordable health plan can run up to $3,000 an employee.
But small employers, especially those who keep
their own books and prepare their own tax returns, say they’re finding the
task of tracking employee costs for the plans to be confusing and
time-consuming.
Rather than simply ask employers to record the
price tag for a given health plan, the forms require employers to calculate
the lowest-cost plan available to each full-time worker on a month-by-month
basis—a figure that can vary as wages or working hours change, tax lawyers
and workplace benefits consultants say.
That can be especially hard for retailers,
restaurants, day-care services or other businesses where workers’ hours can
vary from part-time to full-time, or so-called variable hour employees, they
add. Under the law, employers aren’t required to offer coverage to
part-timers.
“It’s a labor intensive process,” says Adam Okun, a
senior vice president of Frenkel Benefits in New York, about completing the
new IRS paperwork, Form 1095C. Employers who don’t start collecting this
information today are heading for a “real nightmare next year,” he adds.
As of January 2015, employers with more than 100
full-time workers are required under the health law to offer affordable
coverage plans to their employees, or face penalties. Employers with 50 to
99 full-time workers have until 2016 to offer such plans.
Yet even these smaller businesses, which are
otherwise exempt from the law this year, are required to submit the new tax
forms in 2016, according to the 84-page guidelines issued by the Treasury
Department last year.
Barbara Weltman, a Florida-based lawyer who
specializes in small-business tax issues, says small-business owners who
manage payroll themselves “may want to outsource this to a payroll company”
to avoid any costly errors down the road.
Some outside payroll services are charging extra
fees to complete the new forms—in some cases as high as a $400 “set up” fee,
and 40 cents per employee, according to Victoria Braden, an accountable care
certified specialist and president of Braden Benefit Strategies Inc., in
Johns Creek, Ga.
Ms. Braden calls the fees “crazy,” adding that, in
most cases, a good spreadsheet is all employers need to track the data,
provided they start collecting the data now.
“Anytime an employer sees a new IRS form number, it
send chills up their spine because they don’t know what is required, it is
one more thing to keep up with and one more potential place to make a
mistake,” Ms. Braden says.
Some payroll services are opting not to handle the
new IRS paperwork. For instance, Intuit Inc., one of the biggest providers
of financial and tax preparation software for small businesses, recently
posted on its website that it “will not support” the new tax forms, because
of the detailed benefits and human resources information required to
correctly complete them.
“The vast majority of our customers are not
required to comply with this mandate, and the data required by these forms
is not fully collected in our payroll application,” says Stephen Sharpe, a
spokesman for Intuit.
Tommy Cain, owner of T. Cain Grocery Inc., a
Fairhope, Ala.-based operator of five Piggly Wiggly stores along the Gulf
Coast, says in recent weeks he has worked with staff to develop a system for
recording the necessary data on the chain’s 250 employees.
“We’re keeping a list that we can update every
month,” says Mr. Cain, who offers employees both a low-cost and a premium
health plan. “It means logging extra hours” for the store’s accountant, “and
it’s just one more thing we’ve got to worry about.”
Roughly 80 of the Piggly Wiggly workers have signed
up for one of the company’s two health plans. Many of the remainder are
covered by a spouse’s plan or have purchased plans on the individual market.
Mr. Cain says complying with the health law is
challenging because so far “it’s a moving target.” He cited some recent
changes in deadlines for business owners under the law, including a move
last month by the IRS to delay tax penalties on small employers that provide
cash to their workers to cover the cost of purchasing their own health
plans.
Teaching Case on How Staples Swings To Loss on Write-down of International
Businesses
From The Wall Street Journal Weekly Accounitng Review on March 13,
2015
TOPICS: Financial
Reporting, Mergers and Acquisitions, Write-Down
SUMMARY: Staples
Inc. reported another quarter of declining sales and dwindling store
traffic, deepening the chain's challenges while it awaits regulatory
approval for its $6.3 billion takeover of rival Office Depot Inc. In North
America, Staples suffered a 4% sales drop at stores open at least a year,
excluding the effect of currency-exchange rates, its 11th straight quarter
of sales declines. Store traffic fell 1%, and shoppers spent 4% less per
visit for the three months through January. Online sales grew 9%, but that
wasn't enough to offset the declines in the chain's store base. For the
quarter ended Jan. 31, Staples reported a loss of $260.4
million, down from $212.4 million in profit a year earlier. Total sales fell
3.7% to $5.66 billion. Most of the loss stemmed from a $410 million
write-down tied to Staples' businesses in Australia, China and South
America. The charge resulted from an annual review that values the
businesses partly based on what they could theoretically fetch in a sale.
Weak results in all three markets forced Staples to trim those valuations.
CLASSROOM APPLICATION: This
article offers many accounting factors and issues you could use in a
financial accounting course.
QUESTIONS:
1. (Introductory) What is Staples? What is its line of business?
What is its overall condition?
2. (Advanced) What are Staples plans regarding Office Depot? What
is the reasons for those plans? If that deal occurs, what accounts would be
affected? How would the transaction be booked?
3. (Advanced) What are the various segments of Staple's business
mentioned in the article? Which of the segments are relatively strong and
profitable; which are problematic or in decline? What is the company doing
to address these issues? What should the company be doing?
4. (Advanced) What is the company's forecasts for this year? What
factors came into play in formulating these forecasts?
5. (Advanced) What is a write-down? What are the accounting rules
related to a write-down? Why did Staples have a recent write-down? How did
the write-down affect the company's financial statements?
Reviewed By:
Linda Christiansen, Indiana University Southeast
Staples’ continuing slump points up impetus
behind proposed takeover of Office Depot
Staples Inc. reported another quarter of declining
sales and dwindling store traffic, deepening the chain’s challenges while it
awaits regulatory approval for its $6.3 billion takeover of rival Office
Depot Inc.
In North America, Staples suffered a 4% sales drop
at stores open at least a year, excluding the effect of currency-exchange
rates, its 11th straight quarter of sales declines. Store traffic fell 1%,
and shoppers spent 4% less per visit for the three months through January.
Online sales grew 9%, but that wasn’t enough to offset the declines in the
chain’s store base.
Staples shares fell 3% to $16 in recent trading
after the company swung to a fourth-quarter loss.
Staples has been hit by shifts in office needs
where basics like paper folders and printer toner are no longer in high
demand. In response, the retailer broadened its range of products to include
tablet computers and phones as well as coffee makers and cleaning supplies.
But sales of computers and tablets fell short of executives’ expectations.
Staples and Office Depot have responded to slower
store traffic by proposing combining into a single office-supply chain to
compete with the discounters and Web retailers that have invaded their turf.
The acquisition, however, will have to win approval from regulators who shot
down a merger of the same companies 18 years ago.
Both chains have suffered from declining sales for
nearly a decade. In February, Office Depot warned that its sales for the
year would be lower because of its previously-announced plans to close
stores, ongoing market challenges and foreign-exchange effects.
For the quarter ended Jan. 31, Staples reported a
loss of $260.4 million, down from $212.4 million in profit a year earlier.
Total sales fell 3.7% to $5.66 billion.
Most of the loss stemmed from a $410 million
write-down tied to Staples’ businesses in Australia, China and South
America. The charge resulted from an annual review that values the
businesses partly based on what they could theoretically fetch in a sale.
Weak results in all three markets forced Staples to trim those valuations.
The company has meanwhile come under fire from
activist investor Starboard Value LP. Earlier this week, Starboard, which
pushed for the Office Depot deal, urged Staples to improve the composition
of its board, a move the company said it has already pledged to do by adding
two Office Depot directors.
“Certainly I’m not going to apologize for our board
because I think it’s been a terrific board for a long time,” Chief Executive
Ron Sargent said during a conference call with analysts.
Teaching Case
"Using the Codification to Research a Complex Accounting Issue: The Case of
Goodwill Impairment at Jackson Enterprises," by Casey J. McNellis, Ronald F.
Premuroso, and Robert E. Houmes, Issues in Accounting Education, February
2015 ---
http://aaajournals.org/doi/full/10.2308/iace-50949
Abstract
This case is designed to help students develop research skills using the
Financial Accounting Standards Board's (FASB) Accounting Standards
Codification (Codification or ASC). The case also helps develop students'
abilities to analyze and recommend alternatives for a complex accounting
issue, goodwill impairment, which is very relevant in today's business
world. This case can be used in an undergraduate or graduate accounting
class, either in groups of students or as an individual student project.
. . .
Shortly after the case was tested in the graduate
course, it was administered to undergraduate students enrolled in an
Intermediate I course (n = 50). These students had learned the basics of the
two-step impairment test in the week preceding the assignment of the case.
As indicated in Table 1, the undergraduate class averaged 57.33 percent on
the six-question post-case assessment. These students did not receive the
six-question assessment prior to reading the case. This was done partially
out of necessity because of the time constraints imposed by the
intermediate-level curriculum. The Intermediate I course contains a fixed
amount of material that must be learned by students prior to their
enrollment in the Intermediate II course.7 Given the demands of the
curriculum, the instructor only had a portion (approximately 60 minutes) of
one class period in which to devote to the case. This class period was used
to discuss the case and to administer the case-related survey items (see
paragraph below) after the students read the case and answered the case
requirements.8 However, given the pre-test scores that we observed in the
graduate class, we also felt this course of action was appropriate, as it
was deemed unlikely that the undergraduate students' pre-case knowledge of
the in-depth issues would be greater than the graduate students, who had
already taken the Intermediate I course. As such, we believe the
undergraduate post-case assessment average provides additional evidence of
the efficacy of this case.
After the case study was completed and the results
and the answers to the case study were discussed and reviewed with the
students in each respective class, the instructors had each student complete
a five-question survey found in Appendix A. The results of the survey are
summarized in Table 2. In general, the mean responses to the five survey
questions exceeded 4 on a scale of 1 (disagree) to 5 (totally agree) for the
students performing this case study.
SUMMARY: Small employers are facing an unexpectedly onerous task:
tallying their individual employees' monthly health-care costs. Starting in
2016, under the Affordable Care Act, employers with 50 or more full-time workers
are required to file new tax forms laying out what individual employees are
being charged for their employer-sponsored plans. The Internal Revenue Service
released the new forms on Feb. 8, 2015. Though completed forms aren't due until
January 2016, many employers are scrambling to get procedures in place now to
collect the data. The new process entails measuring every individual full-time
worker's total monthly out-of-pocket cost for an employer health plan this year.
CLASSROOM APPLICATION: This an excellent article to share in class
regarding taxation and reporting requirements of businesses, especially small
businesses.
QUESTIONS:
1. (Introductory) What are the details of the new reporting
requirements under the Affordable Care Act? What businesses are impacted? What
is the effective date?
2. (Advanced) What are the challenges of complying with the tax
requirements detailed in the article? What burdens does it place on businesses,
both large and small? What types of businesses are affected more than others?
3. (Advanced) Who will use the new information that must be reported?
How will it be used? Are there other ways to gather this information or to
achieve this same purpose?
4. (Advanced) What options does a business have to facilitate
compliance with these requirements? What are examples of the costs involved?
Reviewed By: Linda Christiansen, Indiana University Southeast
SUMMARY: Robert H. Herz served as chairman of
the Financial Accounting Standards Board from 2002 through 2010. In January
2015, he joined the board of the Sustainability Accounting Standards Board,
an organization working to develop industry-specific environmental, social
and governance accounting standards for investment analysis. The SASB aims
at producing metrics on key sustainability issues that impact company
performance over time. The idea is to develop standardized metrics across an
industry so companies can benchmark themselves and investors can benchmark
them. They are non-financial metrics but they are metrics that drive
financial performance and answer the question, "If I were going to make a
big investment or buy a company, what would I look at besides the financial
statement?"
CLASSROOM APPLICATION: This is a very
informative piece regarding Sustainability Accounting and the Sustainability
Accounting Standards Board.
QUESTIONS:
1. (Introductory) What is sustainability accounting? What is the
SASB? For whom is this information intended?
2. (Advanced) Why is sustainability accounting important? How can
this information be used? What value does it add?
3. (Advanced) How are the metrics developed? How could they differ
between different industries?
4. (Advanced) How does sustainability accounting different from
financial and managerial accounting? How is it similar?
Reviewed By: Linda Christiansen, Indiana University Southeast
Robert H. Herz served as chairman of the Financial Accounting
Standards Board from 2002 through 2010. In January of this year, he joined
the board of the Sustainability Accounting Standards Board, an organization
working to develop industry-specific environmental, social and governance
accounting standards for investment analysis. Mr. Herz has spent much of his
career studying non-financial metrics relevant to value creation, and in
2001 co-authored a book on the subject, entitled The ValueReporting
Revolution: Moving Beyond the Earnings Game. In a conversation with Risk &
Compliance Journal, Mr. Herz explained why and how he expects to see
adoption of such standards.
What is sustainability accounting?
Mr. Herz: The SASB aims at
producing metrics on key sustainability issues that impact company
performance over time. This reporting is for investors, not aimed at the
broader group of people interested in corporations from an ESG point of
view, but rather at providing a set of information on ESG issues that matter
from an investment point of view.
How do you develop such standards?
Mr. Herz: You’ve got to do it
industry by industry, because in a particular industry or sector, some
issues matter more than others. For example, in service and some types of
manufacturing industries, labor policies matter an awful lot. With services
it’s being able to attract and retain the best people. In manufacturing, you
get to the issues of child labor overseas and things like that. In some
industries, the key issues are environmental, for example related to carbon
emissions. What the SASB does is research which issues in the array of all
ESG issues seem to matter most to a particular industry and its value
proposition. Then comes a thorough due diligence process to develop metrics
that capture those key issues.
How would the metrics be used?
Mr. Herz: The idea is to develop
standardized metrics across an industry so companies can benchmark
themselves and investors can benchmark them. They are non-financial metrics
but they are metrics that drive financial performance and answer the
question, “If I were going to make a big investment or buy a company, what
would I look at besides the financial statement?”
For example, in the pharmaceutical industry, it
might be the proportion of your business from new products aimed at
improving health and welfare. Unilever has had a whole initiative the last
five years to grow their line of products in that area and it now
constitutes a significant and fast-growing part of their revenue. The
counter example would be pharmaceutical products that cause lots of adverse
side effects beyond the benefits, have been taken off the market, and
similar matters.
What have investors had to say to you
about such metrics?
Mr. Herz: What I hear from
investors is that they are very interested in these issues but they have to
sift through so much data that is unstandardized, not comparable, aimed at a
broader social responsibility community. They’ve been saying that if they
could have a set of more standardized metrics, targeted at the issues that
really matter to a particular industry, that’s what they want. They don’t
care very much about the carbon emissions of an investment bank for example;
it is not key to their investment thesis, but for a utility it probably is.
Do you expect a regulatory push for
this disclosure?
Mr. Herz: My view is that it has
to be market-driven to begin with, driven by investor pull, and by
companies seeing the advantage of doing it.
What stage of development are the
standards now and what is the timeframe for adoption?
Mr. Herz: The SASB is well into
issuing provisional standards, and once they finish that there’s going to
additional due process, including talking to people industry by industry,
then finalizing. There’s been a lot of interest. A number of these metrics
are already reported by companies in their sustainability reports and other
venues, but not in as targeted a way. I would hope to get to a broad
expectation of such disclosure by the market within five years. A lot of
companies are intrigued but cautious; there are always questions of whether
it exposes me to more legal risk, do I really want to be first, those kinds
of questions.
Why is such disclosure important?
Mr. Herz: I’m not a tree hugger or
an environmental activist. I’ve devoted a lot of my career to provide better
information to help the capital markets work. I believe that what you
measure matters and how you report it matters and that this is important to
the investment analysis.
Teaching Case (possible)
This could be informative to students when teaching cost accounting. Returns
vary by location and entrepreneurial skills.
Subway is one of the cheapest major fast-food
restaurants to franchise.
To open one restaurant, the company requires that
potential franchisees have liquid assets of at least $30,000 and a net worth
of $80,000 to $310,000, according to Entrepreneur.
By comparison, McDonald's requires its franchisees
to have at least $750,000 in liquid assets.
Subway franchisees need less money because the
sandwich chain's restaurants are cheaper to open.
Subway's startup costs, which include construction
and equipment leasing expenses, range from $116,200 to $262,850, according
to the company.
Opening a McDonald's restaurant requires as much as
$2.3 million in startup costs alone, by comparison.
But Subway restaurants generate less revenue than
McDonald's units.
A Subway restaurant, on average, generates $490,000
in sales annually, compared to $2.5 million in average annual revenue for
McDonald's restaurants, according to QSR magazine.
Subway also charges its franchisees hefty fees.
The company charges an ongoing royalty fee equal to
8% of gross sales, as well as an advertising fee equal to 4.5% of gross
sales. That means 12.5% of each restaurant's revenues go to Subway
corporate.
Here's a breakdown of startup costs, from the
company:
SUMMARY: When General Motors Co.'s pension
plan took a big hit in February 2015, it joined hundreds of companies facing
growing pension shortfalls as Americans keep living longer. Longevity has a
downside for those paying the bills, and the higher costs now have to be
reflected on corporate balance sheets because of new mortality estimates
released in October 2014. The new estimates won't affect many U.S.
companies, which long ago shifted their employees to defined-contribution
plans like 401(k)s, which leave workers on their own after retirement. But
they are hitting other big companies with defined-benefit plans that have to
make payments to some former employees for as long as they live.
CLASSROOM APPLICATION: Use this when covering
pension accounting.
QUESTIONS:
1. (Introductory) What are the recent changes to life-expectancy
estimates? Why do those estimates affect accounting for pensions?
2. (Advanced) How does increased longevity affect a company's
income statement and balance sheet? How are those changes calculated? What
are the appropriate journal entries?
3. (Advanced) Which companies are most likely to be affected by
these changes? Why? What companies will not be affected by the change?
4. (Advanced) Do you think these changes will cause more companies
to change their retirement options for employees? Why or why not? How could
a company change the options to lessen the impact? What benefits would those
changes bring to employers?
5. (Advanced) How have the companies mentioned in the article dealt
with the changes in life expectancy? What announcements have they made? How
have some of these companies differed?
Reviewed By: Linda Christiansen, Indiana University Southeast
When General Motors Co. ’s pension plan took a big
hit earlier this month, it joined hundreds of companies facing growing
pension shortfalls as Americans keep living longer.
Longevity has a downside for those paying the
bills, and the higher costs now have to be reflected on corporate balance
sheets because of new mortality estimates released in October.
In its first revision of mortality assumptions
since 2000, the Society of Actuaries estimated the average 65-year-old man
today will live 86.6 years, up from the 84.6 it estimated a decade and a
half ago. The average 65-year-old woman will live 88.8 years, up from 86.4.
The new estimates won’t affect many U.S. companies,
which long ago shifted their employees to defined-contribution plans like
401(k)s, which leave workers on their own after retirement. But they are
hitting other big companies with defined-benefit plans that have to make
payments to some former employees for as long as they live. The changes may
also prompt more companies to take steps to reduce the risks associated with
their pension plans, experts say.
When GM announced fourth-quarter earnings Feb. 4,
it said the mortality changes had caused the funding of its U.S. pension
plans to fall short by an additional $2.2 billion and contributed to
significant pension losses that will be filtered into its earnings over a
period of years.
Verizon Communications Inc. and AT&T Inc. recorded
big charges to earnings tied to their pension and retiree-benefit plans
partly as a result of the new estimates, and the changes could have a
significant impact across corporate America. Consulting firm Towers Watson
estimates the funding status of 400 large U.S. companies could weaken by a
total of $72 billion as a result.
The cost is another weight on pension-plan
operators already wrestling with the impact of declining interest rates.
Lower rates boost the current value of the future payments the plans have
promised to retirees because the value of future pension obligations isn’t
discounted back to the present as dramatically. That raises the current
value of pension obligations, making pension plans more underfunded.
Continued in article
Jensen Comment
The biggest disaster of longevity will be on entitlement programs like Medicare
and Medicaid.
These programs are not sustainable.
SUMMARY: High profit margins have been a
mainstay of the last several earnings seasons, but they're not shrinking any
time soon, according to RBC Capital Markets. In the third quarter of 2014,
profit margins for the S&P 500 were at a record 10.1% of sales. Those
sky-high margins have helped companies beat earnings expectations. The
biggest drivers of higher margins in 2015 will be SG&A - an accounting term
that refers to the costs of running a business, such as administrative
expenses - and interest expense, he says. In particular, it's the declining
ratio of those expenses to sales that will push margins higher.
CLASSROOM APPLICATION: This article would be
appropriate for a financial accounting class.
QUESTIONS:
1. (Introductory) What is profit margin? What does the article say
about recent and future trends in profit margins?
2. (Advanced) What is SG&A? How does it impact profit margins? What
are the benefits of analyzing SG&A in management and planning?
3. (Advanced) How does SG&A affect profitability during economic
recoveries? Why? Would it have the opposite effect during economic declines?
Why or why not?
4. (Advanced) How have recent interest rates affected the financial
performance of companies? How are the rates affect expected to affect future
financial performance?
Reviewed By: Linda Christiansen, Indiana University Southeast
High profit margins have been a mainstay of the
last several earnings seasons, but they’re not shrinking any time soon,
according to RBC Capital Markets.
Profit margins represent how much money a company
keeps from its sales. Back in the third quarter, profit margins for the S&P
500 were at a record 10.1% of sales. Those sky-high margins have helped
companies beat earnings expectations, says Jonathan Golub, chief U.S. market
strategist at RBC Capital Markets.
“The vast majority of earnings beats over the last
two, three years have been on margins,” he says.
The biggest drivers of higher margins in 2015 will
be SG&A — an accounting term that refers to the costs of running a business,
such as administrative expenses — and interest expense, he says. In
particular, it’s the declining ratio of those expenses to sales that will
push margins higher.
SG&A mainly consists of total compensation costs
and tends to rise slower than revenues during economic recoveries.
Interest expense, or the cost from borrowing, is
likely to remain stable as revenues rise. Interest expense depends on how
much a company has borrowed and what interest rates are doing. Historically
low interest rates have led companies to push out when their debt becomes
due, locking in low interest rates for the next several years.
“These are two areas that people are overlooking,”
says RBC’s Mr. Golub. “What we’re saying is that if you analyze the data…[it
shows margins] will be at new all-time highs,” he adds.
Teaching Case on Earnings Analysis of Apple Corporation Financial Outcomes
From The Wall Street Journal Weekly Accounitng Review on February 20,
2015
TOPICS: Corporate Taxation, Financial
Reporting, International Business, Valuation
SUMMARY: Carl Icahn says analysts and
investors have constantly overestimated the tax obligations of Apple Inc.,
causing them to consistently underestimate the tech giant's earning power
and undervalue the company. In his latest missive on Apple, Mr. Icahn
outlined the discrepancy he sees between what Apple pays in taxes and what
it says it might pay. That was one of the reasons he increased his forecast
for Apple's fiscal 2015 earnings to $9.70 per share from $9.60 and boosted
his price target for Apple's stock to $216. U.S. companies have a right to
pay taxes on foreign earnings in the jurisdiction where they are generated.
In most parts of the world where foreign cash is held, that amounts to a
much lower rate than the U.S.'s 35% nominal corporate tax rate.
CLASSROOM APPLICATION: This is an interesting
article that combines the accounting concepts of financial reporting,
corporate tax, and stock valuation. It is excellent to show how areas of
accounting interrelate.
QUESTIONS:
1. (Introductory) Who is Carl Icahn? Why are his views on Apple
featured in the Wall Street Journal?
2. (Advanced) What is Mr. Icahn's views on Apple's tax obligations?
What are the applicable tax laws? What options does a U.S. company have in
classifying international profits?
3. (Advanced) How do Apple's tax obligations impact the company's
financial reporting results? Why?
4. (Advanced) How do Apple's tax obligations impact the company's
stock valuation? What is Mr. Icahn's point on Apple's value?
5. (Advanced) How did Mr. Icahn arrive at his estimate of Apple's
tax rate? Is that reasonable? Why or why not?
6. (Advanced) What is Mr. Icahn's opinion of Apple's stock price?
How did he estimate the company's value?
7. (Advanced) What are others saying about Mr. Icahn's views on
Apple's financial position? Which viewpoint seems more reasonable?
Reviewed By: Linda Christiansen, Indiana University Southeast
The billionaire investor says analysts and
investors have constantly overestimated the tax obligations of Apple Inc.,
causing them to consistently underestimate the tech giant’s earning power
and undervalue the company.
In his
latest missive on Apple, released last week, Mr.
Icahn outlined the discrepancy he sees between what Apple pays in taxes and
what it says it might pay. That was one of the reasons he increased his
forecast for Apple’s fiscal 2015 earnings to $9.70 per share from $9.60 and
boosted his
price target for Apple’s stock to $216.
The Street expects Apple’s fiscal 2015–which ends
in September–to come in at $8.54 per share on a fully reported basis,
according to Thomson Reuters. The most bullish analyst on the Street has a
$165 per share price target on Apple’s stock, according to FactSet. On
Wednesday afternoon, Apple’s shares traded at $128.41.
Mr. Icahn says that looking at Apple’s actual tax
rate on its overseas earnings is a key of how he gets to his $216 per share
valuation for the stock. As he wrote:
We believe it’s important to note that we
assume a 20% tax rate for the purpose of forecasting Apple’s real cash
earnings, not the 26.2% “effective” tax rate used by Apple. We consider
this an essential adjustment that many analysts and investors simply
fail to understand.
But how did Mr. Icahn arrive at that 20% rate?
U.S. companies have a right to pay taxes on foreign
earnings in the jurisdiction where they are generated. In most parts of the
world where foreign cash is held, that amounts to a much lower rate than the
U.S.’s 35% nominal corporate tax rate.
But Jennifer Blouin, a professor at the Wharton
School of the University of Pennsylvania, explained that U.S. companies have
a right to treat the tax on foreign earnings in two different ways for
accounting purposes. One way is to hold the earnings as “permanently
reinvested earnings,” which means the company, for accounting purposes, is
saying that it never plans to bring these earnings back to the U.S. and in
turn doesn’t have to accrue so-called repatriation taxes. The broad majority
of companies have some foreign earnings permanently reinvested abroad for
tax purposes, Ms. Blouin said.
Apple treats roughly half of its overseas
earnings–or $69.7 billion–as permanently reinvested earnings.
Apple
says in its regulatory filing that “substantially
all” of its permanently reinvested earnings are held in its Irish
subsidiaries, which have a statutory tax rate of 12.5%. (That’s not what
Apple actually pays on those Emerald Isle earnings, but that’s fodder for
another post). The company says in its filing that it has not accrued an
expense for the cost of bringing those earnings back to the U.S. but if it
did, the repatriation liability would be $23.3 billion.
But the permanently reinvested earnings aren’t
where Mr. Icahn is focusing. He’s looking at the other half, where Apple has
booked a $21.5 billion liability for the remainder of the earnings it has
accumulated overseas. In 2014, it added $3.5 billion to this liability.
Importantly, Apple, as Mr. Icahn points out, has
never said that it plans to repatriate these overseas earnings.
Mr. Icahn wrote in his letter: “It is a non-cash
tax since Apple likely will not repatriate the international cash at today’s
tax rate. Therefore, we believe the correct way to treat this non-cash tax
for the purpose of valuation is to add it back to earnings, reflected in our
EPS forecast.”
SUMMARY: While the IRS publishes little data
on tax identity theft, information released by others points to a serious
issue. According to Government Accountability Office reports, the IRS lost
an estimated $5.8 billion to fraudulent refund claims in 2013, the most
recent data available, while blocking about $24 billion in attempts. In 2013
there were almost 2 million suspected tax identity theft incidents, compared
with about 440,000 in 2010. Curbing this type of theft may require multiple
efforts by businesses, the IRS and Congress. But there are steps people can
take to help prevent tax identity theft-and to cope after it happens.
CLASSROOM APPLICATION: This article is
appropriate for use in tax classes, both as an explanation of recent
tax-return fraud for use as a future tax preparer and adviser, as well as to
alert students to protect themselves.
QUESTIONS:
1. (Introductory) What are some of the problems taxpayers have
experienced regarding identity theft?
2. (Advanced) What company was linked to some of the fraudulent
returns? What parties became involved? How has that issue been addressed?
3. (Advanced) What is an IP PIN? How does a taxpayer obtain one?
What protection does it offer? Is this something everyone should get?
4. (Advanced) What advice does the article offer regarding emails?
Have you ever received an email purporting to be from the IRS? If so, did it
seem credible?
5. (Advanced) What suggestions does the article offer regarding
taxpayers staying proactive? How could you use this information to advise
your future clients?
6. (Advanced) What should taxpayers do if they suspect fraud? How
long does it take to resolve the matter?
7. (Advanced) What can Congress and the IRS do to combat and limit
fraud and tax identity theft? Why haven't they taken steps to do this?
Reviewed By: Linda Christiansen, Indiana University Southeast
Robert Scott Jack took precautions most people
never dream of to prevent tax identity theft.
Mr. Jack, a retired federal cybersecurity expert in
Alexandria, Va., who now works as a consultant, shunned online
tax-preparation programs that store data on the Internet. He researched the
security features of different software programs and opted for a
packaged—not downloaded—product. He checked the package for signs of
tampering before loading it into his secure home computer.
Yet soon after he tried to electronically file his
federal tax return through TurboTax on Feb. 14, the company told him it been
rejected because someone already had filed using his Social Security number.
“I was disappointed and frustrated,” Mr. Jack says.
He knew that “sweeping up the broken glass” would take three days of
scrambling to lock down financial accounts, plus many more months of waiting
for resolution.
Plenty of other taxpayers are feeling the same
frustration.
In early February, a surge of fraudulent state tax
returns forced
Intuit , the maker of TurboTax—by far the most
popular tax-prep program—to suspend state e-filings for 24 hours.
Several states, including Utah, Kentucky, North
Dakota and Minnesota, suspended processing returns for a few days. State
officials were alarmed because many of the false filings included data
apparently drawn from taxpayers’ 2013 tax returns.
Since then there have been many reports of
fraudulent federal returns linked to TurboTax that also apparently used 2013
information.
Both the Federal Bureau of Investigation and the
Internal Revenue Service’s criminal division are probing the issues at
TurboTax, according to a person familiar with the matter, and Congress is
looking into them as well. A spokeswoman for Intuit says the company isn’t
the target of an FBI investigation, and Chief Executive Brad Smith says that
the company hasn’t had a data breach.
Much remains unclear about this year’s rash of
fraudulent filings—especially how they compare in size or success to others,
or whether they affected a disproportionate number of TurboTax users.
While the IRS publishes little data on tax identity
theft, information released by others points to a serious issue. According
to Government Accountability Office reports, the IRS lost an estimated $5.8
billion to fraudulent refund claims in 2013, the most recent data available,
while blocking about $24 billion in attempts. In 2013 there were almost 2
million suspected tax identity theft incidents, compared with about 440,000
in 2010, according to the Treasury Inspector General for Tax Administration.
Curbing this type of theft may require multiple
efforts by businesses, the IRS and Congress, says Neal O’Farrell, a
cybersecurity specialist at the Identity Theft Council, a nonprofit advocacy
group in Walnut Creek, Calif. But there are steps people can take to help
prevent tax identity theft—and to cope after it happens.
Ask for an IP PIN. The IRS issues
victims of tax identity theft a six-digit Identity Protection PIN for use in
filing returns once cases have been resolved. Returns can’t be filed without
the number, and the taxpayer receives a new one every year.
But you don’t have to be a victim to obtain such a
PIN. Starting this year,
an IRS pilot program is giving PINs to people who
filed federal returns as residents of Georgia, Florida and the District of
Columbia last year. (These are the areas with the highest percentage rate of
tax identity theft.) To get one, apply at
www.irs.gov.
The IRS also recently sent letters offering PINs to
about 1.7 million people who were selected because the agency had seen
suspicious activity in their accounts.
In addition, people who are potential victims of
identity theft—be it from a stolen purse or a data breach—can notify the IRS
by filing Form 14039, “Identity Theft Affidavit,” and checking Box 2. The
IRS may or may not grant a PIN, but filing the form could qualify taxpayers
for other heightened security measures, according to an IRS spokeswoman.
Andy Mattson, a certified public accountant at Moss
Adams in Campbell, Calif., hasn’t been a victim of identity theft. But he
received a PIN from the IRS after a 2012 data breach of South Carolina’s tax
system exposed the information of 3.8 million individuals, including
his—because he prepares corporate tax returns filed there.
Mr. Mattson urges everyone who is at risk to file
Form 14039. “It only takes a few minutes and could save many hours of your
time or a professional’s,” he says.
Shun email links and attachments.
Realistic-looking emails can harbor malware that could steal your
information—a practice known as phishing. The massive South Carolina data
breach, for example, occurred after state tax employees opened links in
phishing emails, according to an official report.
Experts say it’s unfortunate that many legitimate
offers from financial firms come with embedded links. “Marketers are looking
for reactions they can measure, but as a result consumers become less
cautious and fall prey to malicious emails that seem real,” says Mr.
O’Farrell, who also advises consumer-credit firm Credit Sesame. Instead of
clicking a link, he says, enter through the company’s website.
The IRS reminds taxpayers that it never initiates
contact by email, text messages or social media.
Stay proactive. As of now, there
is no way to find out if someone has already filed a tax return using your
Social Security number until you send in your own. Filing early can beat
thieves to the punch, but taxpayers with investments or complex returns
often must wait for paperwork to arrive.
Meanwhile, practice cyber-hygiene—especially in the
wake of data breaches such as the massive one at health insurer Anthem,
which may have exposed the sensitive personal information of nearly 80
million people, according to the company.
“There’s so much stolen information out there now,
and it’s all for sale,” says Mr. O’Farrell.
Experts advise using strong passwords and changing
them frequently. Update computer applications, especially antivirus
software, and make sure that Wi-Fi access is password-protected.
If you prepare your own taxes using a commercial
product, make sure your personal information is accurate when you log into
the account—especially the bank account number listed for direct deposit of
a refund. Inaccurate information could be a telltale sign of a fraudster.
Be careful with paper mail, especially during tax
season, when sensitive documents arrive. Guard against theft of such
documents and be careful when disposing of them, as thieves can make use of
partial information such as a date of birth or bank account number.
Think twice before paying for ID-protection
services, experts say. Typically they don’t claim to prevent tax identity
theft, which is the most common type of such theft, according to Federal
Trade Commission statistics. Most services actually help more with recovery
than prevention.
What about filing a paper tax return? That may not
help either. If thieves can get your Social Security number and other
information via another source, they can still file a false return. An
e-filing rejection notice from the IRS is often the first sign of identity
theft, Mr. Mattson says, so the extra time it takes to process a paper
return delays the discovery and could compound the damage.
If you are a victim, act fast—and then plan
to wait. The IRS has a list of steps for victims to take at
www.irs.gov before calling the agency. They include filing a police report,
an affidavit with the IRS and a complaint with the Federal Trade Commission;
contacting one of the three major credit-reporting companies to place a
90-day fraud alert on your credit records; and closing any fraudulent
accounts opened in your name.
Victims may want to impose a credit freeze with the
credit-reporting firms, which can prevent extensions of credit using their
identity. They should also file their tax returns on paper, the IRS says.
After taking these steps, Mr. Jack contacted the
firms holding every financial account he and his wife had, including pension
and 401(k) plans. He didn’t close the accounts, but the sponsors did issue
fraud alerts and in some cases added an extra layer of security.
Victims say the mad dash to deal with tax identity
theft typically takes two to three days, followed by a long wait while the
IRS completes its investigation. How long? A spokeswoman for the agency say
120 days is the norm, but Mr. Jack and other recent victims say they have
been told to expect resolution in 180 days.
In complex cases, the wait can be longer and the
process more frustrating. National Taxpayer Advocate Nina Olson has chided
the IRS because taxpayers in such cases don’t have a single contact person
within the agency, among other issues. Taxpayers “shouldn’t have to navigate
the maze of IRS operations, recounting their experience time and again,” she
said.
In response, the IRS says that the current system
allows taxpayers to get help when they need it and doesn’t depend on a
particular employee’s availability.
Tax refunds aren’t paid until a case is closed,
which is one more reason to minimize them by not having too much money
withheld from paychecks.
Urge Congress to act. Top
lawmakers in both the House and Senate are probing this year’s spate of tax
identity thefts, and the Senate Finance Committee is expected to focus on
them in a hearing on tax scams in March.
Experts say the fraudulent-filing epidemic is
partly of the government’s own making, because
easy e-filing and rapid refunds—both priorities in
Washington—also offer myriad opportunities to criminals. The IRS often
doesn’t get wage data until late spring, long after many tax refunds have
been paid, so it is at a disadvantage.
Legislation is required, however, to change key
elements of the current system, such as speeding up data delivery or
allowing employers to mask a portion of an employee’s Social Security number
on a W-2.
The IRS, which has had its budget cut by $1.2
billion over the past five years, recently estimated that $82 million more
spent on identity theft prevention could save nearly $1 billion in revenue
by 2018.
Keep perspective. Experts say tax
identity theft can actually be one of the least harmful types of ID theft.
Although the process is painful and slow, taxpayers can work out their
problems with the IRS.
Continued in article
Teaching Case on New Efforts to Clarify the Forthcoming Revenue Standard
From The Wall Street Journal Weekly Accounitng Review on March 6,
2015
SUMMARY: In May 2014, the Financial
Accounting Standards Board (FASB) and the International Accounting Standards
Board (IASB) issued a new revenue standard that will replace most of the
current guidance on revenue recognition. Since its issuance, however,
stakeholders have raised a number of implementation questions, many of which
have been discussed at meetings of the boards' joint transition resource
group (TRG) on revenue recognition. The FASB directed its staff to draft a
proposed Accounting Standards Update for possible ratification by the Board
at a future meeting.
CLASSROOM APPLICATION: This article offers an
update to the FASB and IASB revenue recognition guidance, especially in the
area of licenses for intellectual property. It offers comparisons of the
rules under each board.
QUESTIONS:
1. (Introductory) What is FASB? What is its area of authority? What
is IASB? What is its area of authority? How do the two organizations
overlap? How are they different?
2. (Advanced) What are the specifics of the new revenue standard?
To whom to they apply?
3. (Advanced) What is intellectual property? What is another name
for that type of asset? What is licensing? How does licensing relate to
intellectual property? How is licensing reflected in the accounting records?
4. (Advanced) What tentative decisions are reported in the article?
How do FASB's decisions compare with IASB's decisions?
Reviewed By: Linda Christiansen, Indiana University Southeast
In May 2014, the Financial Accounting Standards
Board (FASB) and the International Accounting Standards Board (IASB) issued
a new revenue standard¹ that will replace most of the current guidance on
revenue recognition. Since its issuance, however, stakeholders have raised a
number of implementation questions, many of which have been discussed at
meetings of the boards’ joint transition resource group (TRG) on revenue
recognition.²
For example, certain aspects of accounting for
licenses of intellectual property (IP) and the identification of performance
obligations have made repeat appearances on the TRG’s meeting agendas. To
better understand the issues related to these topics, the boards’ staffs
have undertaken research projects. At the January 2015 TRG meeting, the FASB
staff noted that it would discuss its recommendations publicly with the FASB
in February 2015.
The summary below compares the tentative decisions
made at the boards’ joint meeting on February 18, 2015, related to licenses
of IP and identifying performance obligations. The appendix discusses the
FASB staff’s recommendations and the FASB’s tentative decisions in greater
detail. For more information, see the meeting
materials on the IASB’s website.
Tentative Decisions
The following summarizes and compares the boards’
tentative decisions related to IP:
Topic: Determining the nature of an
entity’s promise in granting a license
FASB’s Tentative Decision: The FASB
tentatively agreed with its staff’s recommendation to update the standard to
include “Articulation B,” which would require an entity to characterize the
nature of a license as either functional or symbolic.
IASB’s Tentative Decision: The IASB
tentatively agreed with its staff’s recommendation to update the standard to
include “Articulation A,” which would potentially require an entity to
assess the utility of a license before characterizing it as functional or
symbolic.
Comparison: The decisions are different,
but the differences are currently expected to affect only a small subset of
licenses.
Topic: Sales-based and usage-based
royalties
FASB’s Tentative Decision: The FASB
tentatively agreed with its staff’s recommendation to update the standard to
clarify that rather than splitting a royalty (and applying both the royalty
and general constraints to it), an entity would apply the royalty constraint
if the license is the predominant feature to which the royalty relates.
IASB’s Tentative Decision: The IASB
tentatively agreed with its staff’s recommendation, which was the same as
the FASB staff’s.
Comparison: The decisions are the same;
continued convergence is expected.
The following summarizes and compares the boards’
tentative decisions related to identifying performance obligations:
Topic: Identifying promised goods or
services
FASB’s Tentative Decision: The FASB
tentatively agreed with its staff’s recommendation to amend the standard to
permit entites to evaluate the materiality of promises at the contract level
and that, if the promises are immaterial, the entity would not need to
evaluate such promises further.
IASB’s Tentative Decision: The IASB
tentatively agreed with its staff’s recommendation that no updates or
standard setting should be undertaken.
Comparison: The decisions are different
but because they are intended to clarify the guidance, divergence is
currently not expected.
Topic: Distinct in the context of the
contract
FASB’s Tentative Decision: The FASB
tentatively agreed with its staff’s recommendations to update the standard
to (1) define the term “separately identifiable,” (2) reframe the separation
criteria to focus on a bundle of goods or services, and (3) add illustrative
examples.
IASB’s Tentative Decision: The IASB
tentatively agreed with its staff’s recommendation to add illustrative
examples but otherwise not amend the standard’s guidance.
Comparison: The decisions are the same
except for what were termed “minor” wording differences. As a result,
divergence is currently not expected.
Topic: Shipping and handling services
FASB’s Tentative Decision: The FASB
tentatively agreed with its staff’s recommendation to add guidance that (1)
clarifies that shipping and handling activities that occur before control
transfers to the customer are fulfillment costs and (2) allows entities to
elect a policy to treat shipping and handling activities as fulfillment
costs if they do not represent the predominant activity in the contract and
they occur after control transfers.
IASB’s Tentative Decision: The IASB
tentatively agreed with its staff’s recommendation that no updates or
standard setting should be undertaken at this time because the staff was
unclear about whether and, if so, the extent to which shipping and handling
is an issue for IFRS constituents.
Comparison: It is unclear whether the
different decisions will lead to divergence because it appears that the
boards may need further information to finalize their views. Specifically,
the boards may later decide to make changes on the basis of future feedback
from their constituents or the revised text.
Next Steps
The FASB directed its staff to draft a proposed
Accounting Standards Update for possible ratification by the Board at a
future meeting.
Editor’s
Note: While the IASB tentatively agreed to certain revisions
of IFRS 15, it did not decide on the timing of a draft for exposure.
However, on the basis of some of the discussions, a draft may be exposed in
June or July of 2015.
Produced by Joe DiLeo, Scott Streaser, and Jiaojiao Tian, Deloitte &
Touche LLP
The new Revenue Recognition Standard in accounting is costing billions to
implement
Teaching Case on New Revenue Recognition Rules
From The Wall Street Journal Weekly Accounting Review on January 30, 2015
SUMMARY: Will sweeping revisions in revenue-recognition rules take
effect as scheduled? The planned changes, part of a broader effort to align
U.S. and international accounting standards, involve so-called deferred
revenue-money companies have already collected from their customers but
which they recognize as revenue over time. The change is set to start
Jan. 1, 2017, but officials at the FASB
received roughly 1,400 comment letters from companies that are spending
millions to update computer software, recalculate contracts and adjust past
financial results. A group of U.S. software companies asked the FASB for
more guidance and a two-year delay.
CLASSROOM APPLICATION: This is an excellent update regarding new
revenue-recognition rules.
QUESTIONS:
1. (Introductory) What accounting rules are changing? When is the
change set to begin? Who is changing the rules?
2. (Advanced) What is revenue recognition? What is deferred
revenue? How are the financial statements impacted by each of these? How
will the new rules affect company's financial statements? Will different
companies or industries be affected differently?
3. (Advanced) What is the reasoning behind the change in rules? Who
will be benefited by the change?
4. (Advanced) What parties are concerned about the effective date
of the new rules? What challenges are they reporting? What did they request?
Reviewed By: Linda Christiansen, Indiana University Southeast
Call it the $360 billion question: whether to delay
one of the biggest accounting changes in decades.
The answer isn’t expected until early in the second
quarter.
The sweeping revisions in revenue-recognition rules
“will represent a change for many industries,” said Christine Klimek, a
spokeswoman for the Financial Accounting Standards Board, after a joint
meeting Monday with its international counterparts. “There are bound to be
questions. The answers to most of those questions can be found within the
standard itself.”
The final draft of the new rules, unveiled last May
after years of deliberations, would change the way thousands of companies
book revenue. They would affect how auto makers account for car sales and
telephone companies account for mobile-phone contracts.
The planned changes, part of a broader effort to
align U.S. and international accounting standards, involve so-called
deferred revenue—money companies have already collected from their customers
but which they recognize as revenue over time. The idea is to make it easier
for investors to compare companies across countries and industries.
Companies in the S&P 500 index have about $360
billion of such revenue on their books, according to S&P Capital IQ.
Boeing Co. ,
Microsoft Corp. and
International Business Machines Corp. have a
combined $60 billion in deferred revenue, and the new rules will determine
how much of that they will move to the top line—and when.
The accounting shakeup is set to start Jan. 1,
2017, but officials at the FASB received roughly 1,400 comment letters from
companies that are spending millions to update computer software,
recalculate contracts and rejigger past financial results.
Last Wednesday, a group of U.S. software companies,
including
Adobe
Systems Inc.,
Symantec Corp. and
VMware
Inc., asked the FASB for more guidance and
a two-year delay.
Exactly what deferred revenue will be counted as
sales will vary widely between companies and industries. According to the
Securities and Exchange Commission, as many as 250 questions linger as to
how to implement the rules.
Auto makers such as
Ford
Motor Co. and
General
Motors Co. say the
rules might force them to account separately for each car sold around the
world, rather than group them into comparable transactions. They estimate
they might have to spend as much as $300 million each on accounting
technology, and they claim new financial figures based on per-car accounting
will provide little benefit for investors.
AT&T
Inc. and
Verizon
Communications Inc. said the current deadline
doesn’t give them enough time. Both companies cited difficulty in restating
results for prior periods.
Microsoft signaled investors over the summer that
the rules “will have a material impact” on its financial results. A company
spokesman declined to elaborate.
“The amount of work that it will mean for an
accounting team can be overwhelming,” said Ken Goldman, chief financial
officer of Fiksu Inc., a mobile marketing company that is preparing its
books to potentially go public. He agrees with the rules conceptually, but
said they could be more complicated and costly for companies than the
Sarbanes-Oxley financial reforms of 2002.
Moreover, if companies don’t adequately prepare
Wall Street, the revenue changes could be jarring.
When
Apple
Inc. changed the way it accounted for software
updates for the iPhone in early 2010, the company’s financial results
surpassed analysts’ expectations by billions of dollars. Though Apple was
simply complying with new accounting rules that affected the way it booked
the sales, the Nasdaq Stock Market had to temporarily halt after-hours
trading of Apple’s shares to give investors time to digest the news.
Some big companies say they plan to be ready if the
new revenue-recognition rules take effect as scheduled. “We do not need an
extension,” said Liesl Nebel, accounting-policy controller at
Intel
Corp. “If they do allow an extension, we
would like to early adopt.”
Defense contractor
General
Dynamics Corp. said any delay would cause it to
spend more time and money to run parallel books with two different
standards. “Do not penalize the companies that have moved forward,” wrote
Kimberly Kuryea, its controller, in a letter to the FASB this month. “[The]
costs will naturally and inevitably grow if the implementation period is
extended.” The company declined to comment further.
The FASB needs to consider that argument “very
seriously,” said Prabhakar Kalavacherla, a partner at auditor KPMG LLP who
was a board member of the International Accounting Standards Board and
worked on the project to align global revenue rules.
But smaller public companies with fewer resources
generally will have a harder time getting their books in order, even though
they wouldn’t have to report comparative figures for farther back than the
prior year. Most large companies expect to produce figures for the previous
two years.
SUMMARY: U.S. accounting regulators are
debating sweeping changes for long-term capital leases; Avolon Chief
Financial Officer Andy Cronin is interviewed on the issue.
CLASSROOM APPLICATION: This article would be
useful in a financial accounting course when covering long-term capital
leases.
QUESTIONS:
1. (Introductory) What is lease accounting? What are the current
rules? What are the proposed changes?
2. (Advanced) What is FASB? Why is it involved with lease
accounting?
3. (Advanced) What are International Financial Reporting Standards?
What is GAAP? How are they similar? How do they differ?
4. (Advanced) What are the similarities and differences between
GAAP And IFRS on lease accounting? How will the rules compare if the
proposed change are made?
5. (Advanced) How could the proposed changes for lease accounting
influence or impact how management makes decisions? How would it affect
company financial statements?
6. (Advanced) How do interest rates affect lease accounting? Would
the proposed change in the rules affect that aspect of lease accounting?
Reviewed By: Linda Christiansen, Indiana University Southeast
Internal audits of companies are fraught with
political tension, and a new survey shows many auditors are under
inappropriate pressure.
A little more than half of North American chief
audit executives have been directed to change or ignore results of their
investigations, according to the Institute of Internal Auditors Research
Foundation.
The survey of 500 audit executives found that many
of the auditors had been threatened either physically or with being fired,
while others suffered cuts in internal audits staff and budgets as part of
concerted efforts to neutralize them.
The results underscored the extent to which chief
audit executives “encountered some form of political pressure, almost on a
daily basis, said Larry Rittenberg, one of the authors of the report and
professor emeritus at the University of Wisconsin-Madison.
The foundation interviewed the auditors last year
through in-person meetings, focus groups and surveys. The report doesn’t
name companies or government entities.
Of those questioned, 55% reported pressure to
change their audit reports, while 49% said their managers or executives
directed them to avoid high-risk areas of the business.
The report also found 32% of the auditors reported
that executives used audits to attack others in the company, by asking
investigations to focus on low-risk areas to find dirt on specific people.
The results will be used to raise awareness of
issues auditors face and make recommendations for improvement, Mr.
Rittenberg said.
“We’re talking about how we build a good support
structure for confident internal auditors,” he said.
Teaching Case on Internal Auditing Issues
From The Wall Street Journal Weekly Accounting Review on March 20, 2015
SUMMARY: The survey of 500 audit executives
found that many of internal auditors had been threatened either physically
or with being fired, while others suffered cuts in internal audits staff and
budgets as part of concerted efforts to neutralize them.
CLASSROOM APPLICATION: This article would be
interesting for an auditing class for coverage of internal auditing.
QUESTIONS:
1. (Introductory) What is internal auditing? Who performs these
duties? Who supervises internal auditing? What is the purpose of internal
auditing?
2. (Advanced) What were the findings of the survey discussed in the
article? Who was surveyed?
3. (Advanced) How are internal auditors pressured? If internal
auditors are pressured, who could be harmed by these pressures?
4. (Advanced) What are the problems associated with political
pressure imposed on internal auditors? How should these challenges be
addressed by management? Should other parties be involved in addressing the
situation and resolving these problems?
Reviewed By: Linda Christiansen, Indiana University Southeast
Internal audits of companies are
fraught with political tension, and a new survey shows many auditors are
under inappropriate pressure.
A little more than half of North American chief
audit executives have been directed to change or ignore results of their
investigations, according to the Institute of Internal Auditors Research
Foundation.
The survey of 500 audit executives found that many
of the auditors had been threatened either physically or with being fired,
while others suffered cuts in internal audits staff and budgets as part of
concerted efforts to neutralize them.
The results underscored the extent to which chief
audit executives “encountered some form of political pressure, almost on a
daily basis, said Larry Rittenberg, one of the authors of the report and
professor emeritus at the University of Wisconsin-Madison.
The foundation interviewed the auditors last year
through in-person meetings, focus groups and surveys. The report doesn’t
name companies or government entities.
Of those questioned, 55% reported pressure to
change their audit reports, while 49% said their managers or executives
directed them to avoid high-risk areas of the business.
The report also found 32% of the auditors reported
that executives used audits to attack others in the company, by asking
investigations to focus on low-risk areas to find dirt on specific people.
The results will be used to raise awareness of
issues auditors face and make recommendations for improvement, Mr.
Rittenberg said.
“We’re talking about how we build a good support
structure for confident internal auditors,” he said.
WHY ST.
PATRICK'S DAY IS CELEBRATED EACH YEAR IN AMERICA
The reason the Irish
celebrate St. Patrick's Day is because this is when St. Patrick drove the
Norwegians out of Ireland.
It seems that some centuries ago, many Norwegians came to Ireland to escape the
bitterness of the Norwegian winter. Ireland was having a famine at the time, and
food was scarce. The Norwegians were eating almost all the fish caught in the
area, leaving the Irish with nothing to eat but potatoes.
St. Patrick, taking matters into his own hands, as most Irishmen do, decided the
Norwegians had to go. Secretly, he organized the Irish IRATRION (Irish
Republican Army to Rid Ireland of Norwegians) Irish members of IRATRION passed a
law in Ireland that prohibited merchants from selling ice boxes or ice to the
Norwegians, in hopes that their fish would spoil. This would force the
Norwegians to flee to a colder climate where their fish would keep.
Well, the fish spoiled, all right, but the Norwegians, as everyone knows today,
thrive on spoiled fish.
So, faced with failure, the desperate Irishmen sneaked into the Norwegian fish
storage caves in the dead of night and sprinkled the rotten fish with lye,
hoping to poison the Norwegian invaders. But, as everyone knows, the Norwegians
thought this only added to the flavor of the fish, and they liked it so much
they decided to call it "lutefisk", which is Norwegian for "luscious fish".
Matters became even worse for the Irishmen when the Norwegians started taking
over the Irish potato crop and making something called "lefse".
Poor St. Patrick was at his wit's end, and finally on March 17th, he blew his
top and told all the Norwegians to "GO TO HELL". So they all got in their boats
and emigrated to Minnesota, the only other place on earth where smelly fish, old
potatoes and plenty of cold weather can be found in abundance.
The End.
Forwarded by Maureen
A RETIREE'S LAST TRIP TO COSTCO
Yesterday I was at Costco buying a large bag of Purina dog chow for my loyal
pet, Necco, the Wonder Dog, which weighs 191 lbs. I was in the check-out line
when a woman behind me asked if I had a dog. What did she think I had an
elephant?
So because I'm retired and have little to do, on impulse I told her that no,
I didn't have a dog, I was starting the Purina Diet again. I added that I
probably shouldn't, because I ended up in the hospital last time, but that I'd
lost 50 pounds before I awakened in an intensive care ward with tubes coming out
of most of my orifices and IVs in both arms.
I told her that it was essentially a Perfect Diet and that the way that it
works is, to load your jacket pockets with Purina Nuggets and simply eat one or
two every time you feel hungry. The food is nutritionally complete so it works
well and I was going to try it again. (I have to mention here that practically
everyone in line was now enthralled with my story.)
Horrified, she asked if I ended up in intensive care, because the dog food
poisoned me. I told her no, I stopped to Pee on a Fire Hydrant and a car hit me
I thought the guy behind her was going to have a heart attack he was laughing so
hard.
Costco won't let me shop there anymore. Better watch what you ask retired
people. They have all the time in the World to think of crazy things to say.
Forwarded by Paula
Little Thelma comes home from first grade and tells her father that they
learned about the history of Valentine's Day. And, "Since Valentine's Day is for
a Christian saint and we're Jewish," she asks, "Will God get mad at me for
giving someone a valentine?
Thelma's father thinks a bit then says "No, I don't think God would get mad.
Who do you want to give a valentine to?”
"The Isis group," she says.
"Why them?" her father asks in shock.
"Well," she says, "I thought that if a little American Jewish girl could have
enough love to give them a valentine, they might start to think that maybe we're
not all bad, and maybe start loving people a little bit. And if other kids saw
what I did and then they sent valentines to them, they'd love everyone a lot.
And then they'd start going all over the place telling everyone how much they
loved them and how they didn't hate anyone anymore.”
Her father's heart swells and he looks at his daughter with newfound pride.
"Thelma, that's the most wonderful thing I've ever heard.”
"I know," Thelma says, "and once that gets them out in the open, the Marines
could blow the shit out of them."
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://faculty.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.
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://faculty.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 theshift from Gemeinschaftto
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.”
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
Google URL Shortener ---
http://goo.gl/ Thank you Scott Bonacker for the heads up
Information content of nonverbal vocal communication Note that in these days of video transmission across the Internet, nonverbal
communication does not ipso facto require physical presence. Much depends upon
whether video captures the nonverbal communication.
Speech Analysis in Financial Markets, Foundations and Trends® in
Accounting (Hanover, MA: now Publishers Inc., 2013, ISBN 978-1-60198-652-8,
Vol. 7, No. 2, pp. ix, 60)
Authors
WILLIAM J. MAYEW and MOHAN VENKATACHALAM,
Mayew and Venkatachalam's monograph (hereafter, MV)
reviews the budding literature examining the information content of
nonverbal vocal communication. The monograph defines nonverbal vocal
communication as “the communication process that is distinct from verbal
usage,” which “includes facial expressions, gestures, postures, body
movements, vocal tone” among other features (p. 2). The monograph focuses on
features of the vocal tone portion of nonverbal communication.
While the objective of my review is to critically
assess MV, not to review the literature per se, I ultimately do a bit of
both. My overarching assessment of the monograph is that it provides the
critical starting point for any researcher interested in investigating
nonverbal communication in finance and accounting. The monograph is thorough
(conditional on a focus of nonverbal vocal communication within the
accounting and finance literatures, with a specific focus on vocal tone) and
is clearly written. It includes citations to, and a very useful discussion
of, both the linguistics and human behavior literatures, allowing readers
who are even relatively ignorant of this area, admittedly including me, an
expedient foray into the literature. While the initial results of the
literature are certainly intriguing, I agree with MV that this research is
in an “embryonic state” (p. 47). Causal interpretations and the relative
economic importance of the statistical results need to be assessed, and I
also agree with the authors that theoretical frameworks need to more
rigorously motivate the research. Collectively, though, MV describes a
research area with potentially exciting research possibilities, and the
monograph provides an excellent starting line.
MV contains five chapters, with Chapters 2 and 3
containing the overwhelming majority of the substantive content. Chapter 2
sets the stage for the monograph by describing the elements of nonverbal
research analysis. The authors describe two elements that are required for
empirical nonverbal vocal research: a recording of speech, and a method to
encode the speech. MV highlights various possibilities for both elements. A
laboratory setting (providing a high-fidelity recording) and an intensively
trained human judge may provide ideal circumstances, but the authors argue
that corporate finance provides a novel setting, in the form of earnings
conference calls, to study how humans' nonverbal communication is related to
capital allocation in the economy. Corporate earnings conference calls are
high-stakes events, occurring relatively frequently, and catalogued by data
providers. While alternative settings may exist to study executives—such as
analyst days and annual meetings—the interaction between analysts and
managers (and between managers within the firm) provided during earnings
conference calls provides a sufficiently high-quality recording to
researchers in a relatively inexpensive format. With the minor exception of
the statement on page 9, which states a common misperception that “every
major corporation in America” offers a quarterly conference call, the
authors describe this setting well and provide ample motivation for studying
conference calls.1
After introducing the reader to the prerequisites
of nonverbal vocal communication research in Chapter 2, the authors present
and discuss extant empirical research in Chapter 3. Over half of the content
of the monograph resides in this chapter. Framed mostly around the authors'
own research, they discuss three themes that have been examined in nonverbal
vocal research: market reaction to executive vocal tone, deception
prediction, and managerial trait assessment. I will discuss each.
The authors articulate that tests of market
reaction to managers' nonverbal cues require three factors: (1) the presence
of nonverbal cues that are informative about either the discount rate or a
firm's future cash flows (which are orthogonal to the text and numbers
presented by the manager); (2) a process to measure the nonverbal cues; and
(3) the ability of the market to recognize the cues and impound them into
price (i.e., low frictions to receiving the message or trading on it). If
one of the necessary conditions does not exist—e.g., managers are not
sending information in their vocal cues, or analysts are not able to
interpret it, or researchers cannot measure the cues effectively—then the
null hypothesis of no relation between managers' nonverbal vocal cues and
the market reaction is credible. The authors then discuss the results of
Mayew and Venkatachalam (2012a), which finds that a manager's positive
(negative) affective state as measured from vocal cues using LVA software is
positively (negatively) associated with the firm's abnormal returns around
the conference call date. Moreover, they extend and reinforce the results of
Mayew and Venkatachalam (2012a) by replicating the results with a more
recent sample of conference calls and find very similar results.
The monograph does a thorough job of describing the
main result of Mayew and Venkatachalam (2012a), and the replication results
are a useful reinforcement; however, the monograph is certainly not a
substitute for reading the research paper itself (given the length of the
original research paper, this is understandable). The monograph omits
discussion of long-term return results and analyst reaction results, which
are included in the original paper. Moreover, the monograph does not go much
beyond discussing the statistical relation between CAR and measured
managerial affect. For example, it does not provide much discussion about
why this relation may exist. What is the news that the affect is
revealing—cash flow or discount news? Is the market reacting in the right
direction, or is the market temporarily misled by the manager's affect? The
authors also do not provide the reader with much interpretation of the
economic magnitude of the relation. For example, Table 2 in MV shows that
the coefficient on PAFF (the measure of the manager's positive affect in his
or her vocal cues) is 0.1690. Using the standard deviation from Table 1 of
0.0373, I calculate that a one standard deviation increase in PAFF results
in an increase in CAR of only about 0.6 percent, or about 5 percent of one
standard deviation of CAR. In comparison, a one standard deviation in
POSWORDS (the number of positive words spoken by the manager) results in a
1.4 percent increase in CAR, or about 12 percent of one standard deviation.
These results suggest that what is said has a stronger relation than how it
is said. Of course, this could simply indicate that measurement of
managerial affect is still in its infancy, with much more noise than the
measurement of what is said. Regardless, discussion of the economic meaning
would be helpful to the reader throughout the monograph.
Regarding the measurement of the manager's affect,
the authors do a commendable job throughout highlighting weaknesses in the
measures and reinforcing the idea that causal interpretations are limited.
However, the monograph does not reference an informative exchange of
unpublished work and blog posts between the authors and Francisco Lacerda, a
linguistic academic, which occurred subsequent to the publication of Mayew
and Venkatachalam (2012a). Because the monograph includes the concerns of
Lacerda (2009)—wherein Lacerda asserts that the LVA software is essentially
useless and does little more than generate noise—the omission of the
subsequent exchange between the authors and Lacerda is not a serious gap;
however, the exchange is informative, and future researchers in this area
will likely want to be aware of both the concerns of Lacerda and the
authors' response.
Continued in article
REFERENCES
Hobson, J., W. Mayew, and M. Venkatachalam.
2012.
Analyzing speech to detect financial misreporting. Journal
of Accounting Research 50 (2): 349–392.
[CrossRef]
Lacerda, F. 2009.
LVA-Technology—The illusion of “lie
detection.” In FONETIK2009,
220–226.
Stockholm, Sweden: Department of Linguistics, Stockholm University.
Lacerda, F. 2012.
Money Talks: The Power of Voice:
A Critical Review of Mayew and Venkatachalam's The Power of Voice:
Managerial Affective States and Future Firm Performance.
Available at:
http://su.diva-portal.org/smash/record.jsf?pid=diva2:509721
Lisowsky, P., and M. Minnis.
2013. Financial Reporting
Choices of U.S. Private Firms: Large Sample Analysis of GAAP and
Audit Use. University of Chicago Booth Research Paper No.
14-01. Available at:
http://ssrn.com/abstract=2373498
Mayew, W., and M. Venkatachalam.
2012a.
The power of voice: Managerial affective states and future firm
performance. The Journal of Finance 67 (1):
1–43.
[CrossRef]
Mayew, W., and M. Venkatachalam.
2012b. A Reply to: Money Talks: The Power of Voice. A critical
review of Mayew and Venkatachalam's The power of voice: Managerial
affective states and future firm performance. Unpublished
manuscript. Available at:
https://faculty.fuqua.duke.edu/∼vmohan/bio/files/Lacerdaresponse.pdf
1 Of course, the definition of “major
corporation” is arbitrary, but in recent research with Pete Lisowsky, we use
confidential IRS tax returns and find that there are three times as many
privately held than publicly held U.S. firms with more than $100 million in
revenues, suggesting that, in fact, most major corporations in the U.S. do
not host quarterly conference calls, because they are privately held (Lisowsky
and Minnis 2013).
The news, as you would expect, garnered much media
attention. It says something—but maybe not what the firm’s partners think—
that so many years after the destruction of Arthur Andersen by criminal
indictment—twelve years—so many people care. Every major media and trade
publication as well as several blogs wrote about it. I am quite sure,
however, that this attention does not mean the general public has forgotten
what the Andersen name stood for.
Better to be talked about than not talked about at
all?
The US Editor at Reuters Breakingviews, Jeff
Goldfarb,
asked me to write an OpEd about the name change
for that site. He may have seen this tweet:
Continued in article
Jensen Comment
There must be a hundred or more local firms with the "Andersen" name. I don't
see how you can buy a single name even if it was used by a well-known firm. For
example, can Ralph Andersen in Denver name his firm Andersen Bookkeeping?
"Using the Codification to Research a Complex Accounting Issue: The Case
of Goodwill Impairment at Jackson Enterprises," by Casey J. McNellis,
Ronald F. Premuroso, and Robert E. Houmes, Issues in Accounting Education,
Volume 30, Issue 1 (February 2015) ---
http://aaajournals.org/doi/full/10.2308/iace-50949
This case is designed to help students develop
research skills using the Financial Accounting Standards Board's (FASB)
Accounting Standards Codification (Codification or ASC). The case also helps
develop students' abilities to analyze and recommend alternatives for a
complex accounting issue, goodwill impairment, which is very relevant in
today's business world. This case can be used in an undergraduate or
graduate accounting class, either in groups of students or as an individual
student project.
The requirements for assessing the
valuation of goodwill subsequent to acquisition have significantly
changed over the past 15 years, most recently with the option to perform
qualitative assessments prior to the commencement of the two-step
impairment test and the amortization alternative now available for
private companies. Furthermore, the valuation of goodwill requires
significant judgment, and thus the authoritative literature is
accompanied by significant implementation guidance. The standards
surrounding goodwill and the following case provide students the
opportunity to (1) obtain a further understanding of the related
concepts learned from textbooks, (2) sharpen their professional research
skills, and (3) apply judgment in a relevant scenario.
Company
Overview—Jackson Enterprises
Jackson Enterprises (JE), a
publicly traded company, produces and sells products in several sectors
of the U.S. economy. One of JE's major segments, which meets the
Financial Accounting Standards Board (FASB) definition of an operating
segment, is its semiconductor business comprised of two subsidiary
companies: Dynamic Technologies (80 percent owned and publicly traded),
and ZD Systems (wholly owned). Dynamic Technologies (hereafter, Dynamic)
is headquartered in the northeastern section of the U.S. and specializes
in the manufacture of electronic sensors and indicators used on
automated production systems in North America, Europe, and Asia. In
2011, JE acquired 80 percent of Dynamic's common stock, a transaction
resulting in $150 million of recognized goodwill. ZD Systems (hereafter,
ZD), a company headquartered in the mid-western section of the U.S.,
manufactures sensor-type devices used solely for agricultural machines
and systems in the U.S. At the time of the acquisition of ZD in early
2006, JE recorded $50 million of goodwill. While the two subsidiaries
are classified within the same segment for segment reporting purposes,
they are distinct entities and have no intercompany transactions.
Every year a Nobel Prize in Economics is awarded
when in fact there is no “Nobel Prize in Economics.” There is only a
“Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.”
That prize, which was invented by the Swedish central bank nearly 75 years
after Alfred Nobel’s death, is an annoyance to the recipients of the five
actual Nobel Prizes, those scholars from excluded scientific disciplines
such as astronomy, and a living descendant of the donor, Peter Nobel, who
has
denounced
it as a “PR coup by economists.”
This raises the question: Have we given economists
too much authority based on mistaken views about their scientific reputation
among established scientists and the public?
When asked about the degree to which various
academic fields can be considered “scientific,” the American public is
decidedly more mixed toward economics, ranking it well below established
scientific fields such as physics or biology, and even below sociology.
It’s not the statistical models used by economists
that is the problem, but the rejection of qualitative methods, other fields
and viewpoints. The gulf between the economic view of the world and that of
the lived experiences of the general population is often vast. For example,
in June 2009, the National Bureau of Economic Research declared that the
United States was no longer in a recession, in stark contrast with the felt,
economic experience of
88 percent of Americans the following year.
It’s no wonder, then, that the real-world
implementation of mainstream economic ideas has been a string of massive
failures. Economic thinking undergirded the “deregulation” mantra leading up
to the Great Recession of 2007-2009, and has fared no better in attempts to
“fix” the ongoing crisis in Europe. However, nowhere is the discipline’s
failure more apparent than in the area of development economics. In fact,
the only countries that have effectively transformed from the “Third” to the
“First World” since World War II violated the main principles of current and
previous economic orthodoxies: China plus the “East Asian Tigers” of
Singapore, Hong Kong, Taiwan and South Korea, whose policies entailed
extensive state intervention into the economy, institutional reforms and the
manipulation of prices and markets. Only recently have economists come to
accept the primacy of institutions in explaining and promoting economic
growth, a position long held by sociologists and political scientists.
The dominance of economistic thinking in domestic
policymaking has similarly led to expensive, frequently disastrous failures.
In many of these instances the expertise of sociologists and other academics
more suited to the topics at hand were ignored or thoroughly rejected. A
clear case in point is the
Moving to Opportunity program, a randomized
experiment in the 1990s that moved poor families to slightly less poor
neighborhoods. Controversially, the researchers found no impact on earnings
or educational attainment. The backlash was severe and swift, as
sociologists, many of whom had been studying the impact of neighborhoods on
poverty for decades, appropriately
criticized the limited intervention and narrow
focus on a small set of outcomes over a relatively short time period. It
also meant scuttling policies that might have resulted in desegregation and
real improvements in the housing and life chances of residents of America’s
most impoverished neighborhoods.
While the annual ritual of economists awarding
themselves a "Nobel Prize in Economics" may seem purely academic, the
devastating consequences of placing too much authority in the ideas and
policies of economists is too important to ignore.
Jensen Comment
I was tempted to write "ditto for accountics science," but pseudo science is
more problematic in economics than accounting, because the media and practice
world in economics often pays attention to "scientists" in economics. The media
and practice world virtually ignores academic research in accountics science.
There are quite a lot of citations in accountics science but those are
accountics scientists citing each other. It's more or less a closed loop in the
"Cargo Cult" world of accoutics science.
http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm#CargoCult
By way of illustration there are many blogs by economics scientists
attempting to communicate with the economics profession and the public in
general. I don't know that a single accountics
scientist maintains a blog trying to communicate with anybody..
Philip Cohen (Maryland),
Exceptions Overwhelm Economic Rules: "Exploitation, dishonesty,
violence, ignorance and demagoguery set vast areas of social life apart
outside of economic models."
Marion Fourcade (UC-Berkeley),
An Ambivalent Authority: "Much of economic science is esoteric and
preoccupied with internal struggles. Ideological divisions, exploited by
politicians, defy clarity."
Peter Henry (NYU),
Analyze and Explain, Don’t Prognosticate: "Economics succeeds when
used as a forensic tool, employing history and data, not creating
unrealistic expectations."
Orlando Patterson (Harvard) & Ethan Fosse (Harvard),
Don’t Rely on Pseudo-Science: "Implementation of mainstream
economic ideas has led to massive failures after expertise of other
academics were ignored."
Jensen Comment
Property taxes are considered high in New Hampshire, but I think the property
taxes were slightly higher in Texas. Property taxes valuations do not change
very often in New Hampshire, whereas in Bexar County where I lived in Texas the
valuations changed every year at a minimum. My valuations never went down in New
Hampshire or Texas even when the values of my homes clearly declined. I just
recently got a slight valuation downward adjustment in New Hampshire but the
valuation is still much higher than what I could sell this home and land for in
the dismal real estate market up in these mountains. NH does not in general
re-value homes to the sales prices of recent transactions. This tends to
frustrate buyers who bought their homes in arms length honest transactions and
much less than property tax valuations. Our village tax assessor insists that
when anybody buys property for less than the tax valuation amount it is, by
definition, a "bahgain purchase."
Vermont taxes everything under the sun, but the loudest complaint I hear from
Vermonters is about property taxes. Actually the property taxes are not any
worse than those of New Hampshire, but New Hampshire does not tax everything
else. For example, NH has no regressive sales tax --- which is one of the
reasons people in Vermont come to NH to shop for big ticket items like HDTVs and
new sets of tires. New cars registered in Vermont must pay a sales tax whereas
cars registered in NH have no sales tax no matter where they are purchased. This
slightly helps car dealers in Vermont, Maine, and Massachusetts survive.
What I don't understand in the above article is the
claim that Wyoming property owners pay a 9.5% property tax. That is a
whopping rate relative to most states that have less than a 2%-5% property tax
rate. Perhaps the base in in Wyoming is not truly the current fair value of the
property.
The late evangelist always figured that most people
would dismiss anything that started in this little city, where he founded
Liberty University.
"They think of my hometown as a rather primitive
Blue Ridge Mountain village, a backwater on the James River," he wrote in
his autobiography, Strength for the Journey.
More than four decades after Liberty’s founding, in
1971, few in higher education would count the Rev. Falwell among academe’s
historic visionaries. But college leaders, grappling with how to position
their institutions for the future, might want to take a closer look at the
legacy of Mr. Falwell, who is often better remembered for his divisive
reputation as a firebrand conservative.
The little experiment that Mr. Falwell started in
his hometown is a pretty big deal now, and the residential campus here does
not begin to tell the story. Liberty’s online program boasts nearly 65,000
students, more than any other nonprofit college in the United States,
according to federal data. Only the University of Phoenix, the for-profit
behemoth with an enrollment of 207,000, trumps Liberty.
At most colleges, the question about online
education is no longer so much about whether it will play a role, but rather
how big a role and how soon. Nearly three-quarters of academic leaders
describe online education as crucial to their institutions’ long-term
strategies, a recent national
survey found. Yet the
traditional classroom experience still dominates. Professors, concerned that
face-to-face instruction is pedagogically imperative, can be particularly
dubious about scaling up an educational operation to reach a mass audience
online.
Continued in article
Jensen Comment
I doubt that every college trying to expand its ratio of online students to
onsite students will achieve the success of Liberty University. Liberty is tied
into a population of Christian families seeking a college culture of
Christianity among students and faculty. The small town location does not hurt
recruitment of onsite students as well where crime rates are lower than in most
colleges located in larger cities. There are certain advantages to recruitment
of faculty in small towns as well, faculty seeking shorter commutes and safer
neighborhoods. Acreages may be more reasonably priced for living with a few
horses. Of course, other faculty will prefer some of the life style advantages
afforded by larger cities.
And certainly a large block of faculty will shy away from the religious and
political culture of Liberty University. But not all small town colleges are
religious and conservative. For example, nearly all the small colleges in
Vermont are to the left of liberal. But the student recruiting base of liberal
colleges is not as well defined as that of the recruiting base of Liberty
University.
One problem with many small liberal arts colleges seeking to expand their
online degree programs is that they may not have the undergraduate feeder
programs into career. For example, I always look to see if a small liberal arts
college has an accounting degree program. Since accounting faculty get paid more
than most other faculty (aside from faculty in medical schools) many liberal
arts colleges avoid having accounting degree programs.
Liberty currently has 45 degree programs (including certificate and associate
degree alternatives) ---
http://www.liberty.edu/academics/
I noticed that Liberty has both onsite and online accounting degree programs.
Keep in mind that in most states an accounting graduate has to take at least one
more year to satisfy the 150-hour requirement to sit for the CPA examination.
In also noticed that Liberty now has a masters (MS) program in accounting as
well.
I might add that Liberty apparently has not yet attained AACSB business
school accreditation. Perhaps Liberty has not yet put the resources into faculty
and programs required to be part of the AACSB.
Question
What will the new initiative by the New York Times to "offer courses"
really bring to higher education?
Answer
It's only bringing its brand name and not its resources. The real purpose is to
sell its brand name for desperately needed cash.
The New York Times is re-entering the
world of education with a new effort called NYT EDUcation, the company
announced on Wednesday, though officials revealed
few details.
The Times is collaborating with the CIG
Education Group, which helps create branded academic institutions like
Sotheby’s Institute of Art,
to develop the program. Michael Greenspon, general
manager of news services and international for the Times, said the
effort had come from the business side rather than the newsroom.
Journalists on the Times staff are busy
with their day jobs and would not be required to participate, though he said
he could see them offering guest lectures or particularly interested staff
members becoming otherwise involved—as long as it did not conflict with
their editorial duties.
The Times has tried and failed at such
educational efforts before. Its Knowledge Network, an online-education
program the newspaper
started in 2007 in
collaboration with Stanford University, the University of Southern
California, and other colleges, was
suspended in 2012.
NYT EDUcation differs from the Knowledge Network
primarily in its business model. “The Knowledge Network relied primarily on
the New York Times brand alone, and I think the combination of the New York
Times brand with the educators and the practitioners that CIG brings just is
a combination that we alone could not beat,” Mr. Greenspon said.
When the Times suspended the Knowledge
Network, it wasn’t trying to get out of the education game completely, he
said.
“We took a step back, we didn’t take a step out,”
Mr. Greenspon said. “For us, it was really just trying to figure out what
was the right way to get back in.”
Though the plan is to offer courses starting this
fall, the development of the courses is still in its very early stages.
Officials did not say what topics would be covered, who would be teaching
them, or how much the courses would cost.
“All the options are on the table,” said Michael
Chung, chief executive of CIG. Some courses could be online, others could
meet face to face, or they could be hybrids, he added.
Jensen Comment
This begs the question of what the NYT will bring to the colleges and college
courses. It would seem that mostly it's bringing a brand name that, in theory,
is a stamp of quality. But how rigorous will be the tests of quality? Is the NYT
really entering the accreditation business. I don't think so. Is the NYT trying
to raise revenue from its brand. I think so.
The Washington Post went even further by buying the for-profit Kaplan
University. We must ask what the name name "Washington Post" did for the profits
of Kaplan University and vice versa. I don't think it was a whole lot since
The Washington Post was going down the tubes until the founder of Amazon,
Jeff Bezos, bought The Washington Post and Kaplan University that now
operate under a new name called Graham Holdings ---
http://en.wikipedia.org/wiki/Graham_Holdings_Company#2013_sale_of_The_Washington_Post
Instead of bringing an image of quality of The Washington Post name
Kaplan University dragged The Washington Post name down with legal battles over
admission scams and poor academic quality of Kaplan University ---
http://en.wikipedia.org/wiki/Kaplan_University#Criticisms
Question
What is the biggest deceit in the NYT re-emergence in higher education?
Answer
The biggest deceit is that the NYT is bringing resources to bear on higher
education. It's quite the opposite. The NYT is trying to sell its brand name to
higher education.
The fact of the matter is that the NYT has no spare resources to bring to
anything.
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.
From the CFO Journal's Morning Ledger on February 26, 2015
The tax inversion wave receded after
new Treasury rules sharply reduced the tax benefits to U.S. companies that
relocate abroad through an acquisition. But Uncle Sam is still scrutinizing
tax structures used by multinationals for evidence that companies are
unfairly cutting their tax bills. For instance, the IRS is still reviewing
Caterpillar Inc.’s
tax filings since 2009, and some
experts warn that the heavy-equipment maker’s tax
liabilities
could grow beyond the
$1 billion in penalties and additional taxes the company has already
disclosed by the time the agency is done.
At issue for Caterpillar is a 1999
restructuring that shifted profits on sales of replacement parts for its
excavators, bulldozers and other equipment outside the U.S. from the
company’s U.S. operations to a newly created Swiss subsidiary, a maneuver
that sharply reduced its U.S. taxes. In some recent years, Caterpillar’s
Swiss tax structure has yielded annual tax savings of about $300 million,
according to a report last year by the U.S. Senate’s permanent subcommittee
on investigations. If tax savings on that scale are disallowed, the company
could face additional payments of as much as $1.5 billion for 2010 through
2014.
Caterpillar has repeatedly said it complied
with tax laws, and said in a filing that it would “vigorously contest” the
IRS’s position. University of Michigan professor of tax law Reuven Avi-Yonah
said that to be blessed by the IRS, a restructuring like Caterpillar’s Swiss
maneuver must have a business rationale that goes beyond tax savings. A law
professor engaged by Caterpillar testified that the Swiss tax structure
indeed was “a sensible business decision to remove a redundant middleman,”
but Prof. Avi-Yonah said the IRS has uncovered “a lot of smoking guns,”
suggesting the move was a pure tax play.
From the CFO Journal's Morning Ledger on February 26, 2015
What clever robots mean for jobs
---
http://www.wsj.com/articles/what-clever-robots-mean-for-jobs-1424835002
Experts are rethinking the belief that technology
always lifts employment as machines take on skills once thought uniquely
human. Technology has long displaced humans, always creating new, often
higher-skill jobs in its wake. But recent advances including driverless cars
and computers that can read facial expressions have pushed experts to
consider that automation may be nearing a tipping point, when machines
master traits that have kept human workers irreplaceable.
But we’re not there yet.
Tasks that require dexterity, such as folding laundry, are still simple for
people but difficult for robots to master.
Jensen Comment
It's interesting to see how some professions declined since the 1970s. I guess
word processing software and answering machines have taken their toll on
secretaries.
Robotics are going to change careers even more in the future. I anticipate a
time when covered lanes for drones and robot trucks will be developed in an
effort to replace those parked delivery trucks blocking traffic on the streets.
Farmers no longer will be in their tractors working in the fields. And students
will be going one-on-one with robotic teachers.
Amazon now sells over 100,000 books that were written by computers.
In finance, subprime lending (also referred to as
near-prime, non-prime, and second-chance lending) means making loans to
people who may have difficulty maintaining the repayment schedule, sometimes
reflecting setbacks such as unemployment, divorce, medical emergencies,
etc.[1] Historically, subprime borrowers were defined as having a FICO
scores below 640, although "this has varied over time and circumstances."[2]
These loans are characterized by higher interest
rates, poor quality collateral, and less favorable terms in order to
compensate for higher credit risk.[3] Many subprime loans were packaged into
mortgage-backed securities (MBS) and ultimately defaulted, contributing to
the financial crisis of 2007–2008.[4]
Proponents of subprime lending maintain that the
practice extends credit to people who would otherwise not have access to the
credit market. Professor Harvey S. Rosen of Princeton University explained,
"The main thing that innovations in the mortgage market have done over the
past 30 years is to let in the excluded: the young, the
discriminated-against, the people without a lot of money in the bank to use
for a down payment."
From the CFO Journal's Morning Ledger on February 19, 2015
The proportion of loans awarded to
subprime borrowers has risen to its highest level since the beginning of the
financial crisis. As the
Wall Street Journal’sAlan Zibel and
Annamaria Andriotisreport, the
rise of a new breed of company extending credit to applicants with
relatively low credit scores and the growth in car financing has fuelled the
boom in subprime loans. These finance firms targeting subprime borrowers are
often backed by Silicon Valley cash and subject to less scrutiny than
conventional banks.
Almost four of every 10 loans for
autos, credit cards and personal borrowing in the U.S. went to subprime
customers during the first 11 months of 2014, according to data compiled by
Equifax . That
amounted to more than 50 million consumer loans and cards totaling more than
$189 billion, the highest levels since 2007, when subprime loans represented
41% of consumer lending outside of home mortgages. Equifax defines subprime
borrowers as those with a credit score below 640 on a scale that tops out at
850.
Lenders’ interest in customers hardest hit by
the financial crisis reflects both the relative health of the U.S. economy
and firms’ desires to take more risks at a time when ultralow interest rates
are depressing profits. It also shows Americans are willing to take on more
debt: a New York Fed report released
Tuesday that showed total household debt increased $306
billion, or 2.7%, in the fourth quarter of 2014 from the year-ago period, to
the highest level since the third quarter of 2010.
Jensen Comment
There's generally a huge difference with respect to subprime loans on
assets that can increase or decrease in value (such as houses and
education) versus assets that will only go down in value (e.g., cars and
trucks). The real estate bubble that burst in 2007 led borrowers to take out
mortgages before 2007 that they had zero hope if repaying before subprime
rates jumped up to market rates. The house
flipping strategy was based on an assumption by home buyers that their home
values would soon jump in value so they could sell it for a profit before
the subprime mortgage rate jumped up.
Subprime borrowers on auto loans are not
buying those automobiles for purposes of flipping gains because those
automobiles will increase in value. Automobiles do not increase in value
unless they've reached the status of being antiques. Generally such buyers
either assume that they will have sufficient income to eventually pay the
higher interest rates or that they will trade in the vehicle for a new
vehicle with another subprime loan. However, generally
frequent trading in for new vehicles does not pay
except for commercial users that put lots and lots of miles on a vehicle
every year.
Subprime borrowers on credit cards are sometimes desperate for cash. They
borrow at subprime rates thinking they will change their spending habits so
they can draw down credit card debt before the credit card rates jump to
higher levels. Some succeed, but the majority fail to change their spending
habits. Some take on partners (e.g., girl friends or husbands) hoping that
the partnership will draw down old credit card debts. Sometimes this works,
but often the new partners refuse to take on old debts of partners. This
leads to a lot of dissolved partnerships. For example, divorces are caused
more by money problems than problems in bed.
Student loans are generally subprime loans with rates that kick up after
students graduate. These students assume that the added training or
education will sufficiently increase their incomes so that they can afford
the higher rates that kick in. However, when those hoped for increases in
income do not kick in (beyond the income that would be earned without a
diploma) then graduates often default on their loans. For example, college
majors that graduate and are still waiting on tables and flipping burgers
are highly likely to default or live with their parents because almost
everything they earn goes toward paying back their student loans.
President Obama is now forgiving tens of millions of those student loans
for the most unfortunate borrowers. However, the majority of graduates who
default will not have their loans automatically forgiven by the President. A
Republican Congress is less likely than a Democratic Congress to expand the
student loan forgiveness program.
The Securities and Exchange Commission is probing
whether companies are muzzling corporate whistleblowers.
In recent weeks the agency has sent letters to a
number of companies asking for years of nondisclosure agreements, employment
contracts and other documents, according to people familiar with the matter
and an agency letter viewed by The Wall Street Journal. The inquiries come
as SEC officials have expressed concern about a possible corporate backlash
against whistleblowers.
Some of these types of documents sometimes include
clauses that impede employees from telling the government about wrongdoing
at the company or other potential securities-law violations, according to
lawyers who handle whistleblower cases and some members of Congress. In some
cases, the firms require employees to agree to forgo any benefits from
government probes, effectively removing the financial incentive for
participating in the SEC program.
In a separate January letter to Rep.
Maxine Waters (D., Calif.) that was reviewed by
the Journal, SEC Chairman
Mary Jo White said she was concerned about the
agreements.
The SEC has made a push to bring more whistleblower
cases since the 2010 passage of the Dodd-Frank financial-reform bill, which
created the agency’s whistleblower program.
Whistleblowers have flocked to the SEC program,
with the number of tips increasing each year. The agency fielded 3,620 tips
on potential securities-law violations in the 2014 fiscal year, up 21% from
two years before.
As part of the program, tipsters can get between
10% and 30% of the sum of penalties collected if their information leads to
an SEC enforcement action with sanctions of more than $1 million. The
program handed out an
award for more than $30 million last year to an
undisclosed foreign tipster, which was its largest ever.
Dodd-Frank regulations prohibit companies from
interfering with employees reporting potential securities-law violations to
the agency.
An SEC spokesman declined to comment.
Continued in article
From the CFO Journal's Morning Ledger on February 20, 2015
A
whistleblower’s horror story Recent exposés of less than proprietary behavior in government and
in business has led
Rolling Stone Magazine to
call this era the age of the whistleblower. As Matt Taibbi writes,
“whistleblowers are becoming to this decade what rock stars were to the
Sixties — pop culture icons, global countercultural heroes.” But today’s
whistleblowers tend to partake in little of the spoils and almost none of
the glamour. In fact their lives are very often almost destroyed in the
process.
(Bloomberg) -- Student-loan delinquencies increased
at the end of 2014, a troubling sign that Americans are failing to keep up
with payments as education debt climbs, according to the Federal Reserve
Bank of New York.
Data from the New York Fed released Tuesday showed
11.3 percent of student loans were delinquent in the final three months of
2014, up from 11.1 percent in the prior quarter. The share of auto loans at
least 90 days overdue also rose, climbing to 3.5 percent from 3.1 percent
the prior period, even as fewer credit card and mortgage loan payments were
late.
“Although we’ve seen an overall improvement in
delinquency rates since the Great Recession, the increasing trend in
student-loan balances and delinquencies is concerning,” Donghoon Lee,
research officer at the New York Fed, said in an e-mailed statement.
“Student-loan delinquencies and repayment problems appear to be reducing
borrowers’ ability to form their own households.”
The nation’s student-loan balance climbed by $31
billion last quarter to $1.16 trillion. That makes it the largest source of
debt after mortgages, which gained $39 billion to $8.2 trillion in the
fourth quarter. Auto-loan debt increased by $21 billion to $955 billion.
Education loan balances have skyrocketed over the
past decade. In the first quarter of 2005, outstanding student debt stood at
$363 billion -- about a third of the current level, based on a 2013 New York
Fed report.
Delinquency rates for student loans probably
understate the actual situation, according to today’s report. About half of
the student loans are in deferment, in grace periods or in forbearance,
temporarily removing them from the repayment cycle.
Education debt delinquency levels have come down
since 2013, when the rate reached 11.8 percent, yet remain elevated from
around 6 percent a decade ago, according to the New York Fed. Student loans
are the type of debt most likely to be past-due, having surpassed
credit-card delinquency rates in 2012.
Jensen Comment
When car and truck owners default a repo guy shows up in the dead of night and
takes the vehicle to the bank. How do you repo a college education?
• The FASB issued final guidance that
eliminates the deferral of FAS 167 and makes changes to both t he
variable interest model and the voting model .
• While t he new guidance is aimed at asset managers , all reporting
entities involved with limited partnerships or similar entities will
have to re - evaluate these entities for consolidation and revise their
documentation .
• In some cases, consolidation conclusions will change. In other cases,
a reporting entity will need to provide additional disclosures if an
entity that currently isn’t considered a variable interest entity ( VIE
) is considered a VIE under the new guidance .
• Under the new guidance, a general partner will not consolidate a
partnership or similar entity under the voting model.
• For public business entities, the guidance is effective for annual and
interim periods beginning after 15 December 2015. Early adoption is
permitted
Before reading the tidbits below you may want to watch a video on the
Scenarios of Higher Education for Year 2020 --- http://www.youtube.com/watch?v=5gU3FjxY2uQ
The above great video, among other things, discusses how "badges" of academic
education and training accomplishment may become more important in the job
market than tradition transcript credits awarded by colleges. Universities may
teach the courses (such as free MOOCs) whereas private sector companies may
award the "badges" or "credits" or "certificates." The new term for such awards
is a "microcredential."
Coursera /kɔərsˈɛrə/ is a for-profit educational
technology company founded by computer science professors Andrew Ng and
Daphne Koller from Stanford University that offers massive open online
courses (MOOCs). Coursera works with universities to make some of their
courses available online, and offers courses in physics, engineering,
humanities, medicine, biology, social sciences, mathematics, business,
computer science, and other subjects. Coursera has an official mobile app
for iOS and Android. As of October 2014,
Coursera has 10 million users in 839 courses from 114 institutions.
Continued in article
Jensen Comment
Note that by definition MOOCs are free
courses generally served up by prestigious or other highly respected
universities that usually serve up videos of live courses on campus to the world
in general. MOOC leaders in this regard have been MIT, Stanford, Harvard,
Penn, and other prestigious universities with tens of billions of dollars
invested in endowments that give these wealthy universities financial
flexibility in developing new ways to serve the public.
When students seek some type of transcript "credits" for MOOCs the "credits"
are usually not free since these entail some types of competency hurdles such as
examinations or, at a minimum, proof of participation. The "credits" are not
usually granted by the universities like Stanford providing the MOOCs.
Instead credits, certificates, badges or whatever are provided by private sector
companies like Coursera, Udacity, etc.
Sometimes Coursera contracts with a college wanting to give its students
credits for taking another university's MOOC such as the now infamous instance
when more than half of San Jose State University students in a particular MOOC
course did not pass a Coursera-administered final examination.
"What Are MOOCs Good For? Online courses
may not be changing colleges as their boosters claimed they would, but they can
prove valuable in surprising ways," by Justin Pope, MIT's Technology
Review, December 15, 2014 ---
http://www.technologyreview.com/review/533406/what-are-moocs-good-for/?utm_campaign=newsletters&utm_source=newsletter-daily-all&utm_medium=email&utm_content=20141215
The following describes how a company, Coursera, long involved with the
history of MOOCs, is moving toward non-traditional "credits" or "microcredentials"
in a business model that it now envisions for itself as a for-profit company.
Also note that MOOCs are still free for participants not seeking any type of
microcredential.
And the business model described below probably won't apply to thousands of
MOOCs in art, literature, history, etc. It may apply to subsets of business and
technology MOOCs, but that alone does not mean the MOOCs are no longer free for
students who are not seeking microcredentials. They involve payments for the "microcredentials"
awarded for demonstrated competencies. However these will be defined in the
future --- not necessarily traditional college transcript credits. A better term
might be "badges of competency." But these will probably be called
microcredentials.
Whether or not these newer types of microcredentials are successful
depends a great deal on the job market.
If employers begin to rely upon them, in addition to an applicant's traditional
college transcript, then Coursera's new business model may take off. This makes
it essential that Coursera carefully control the academic standards for their
newer types of "credits" or "badges."
Massive open online course providers such
as Coursera have long pointed to the benefits of the data collected by the
platforms, saying it will help colleges and universities understand how
students learn online. Now Coursera’s data is telling the company that
learners are particularly interested in business administration and
technology courses to boost their career prospects -- and that they want to
take MOOCs at their own pace.
As a result, Coursera will this year
offer more course sequences, more on-demand content and more partnerships
with the private sector.
Asked if Coursera is closer to
identifying a business model, CEO Rick Levin said, “I think we have one. I
think this is it.”
Since its founding in 2012, Coursera has
raised millions of dollars in venture capital
while searching for a business model. Many questioned if the
company's original premise -- open access to the world's top professors --
could lead to profits, but with the introduction of a verified certificate
option, Coursera
began to make money
in 2013. By that October, the company had earned its first million.
In the latest evolutionary step for its
MOOCs, Coursera on Wednesday
announced a series of capstone projects developed
by its university partners in cooperation with companies such as Instagram,
Google and Shazam. The projects will serve as the final challenge for
learners enrolled in certain Specializations -- sequences of related courses
in topics such as cybersecurity, data mining and entrepreneurship that
Coursera
introduced last year. (The company initially
considered working with Academic Partnerships before both companies created
their version of Specializations.)
The announcement is another investment
by Coursera in the belief that adult learners, years removed from formal
education, are increasingly seeking microcredentials -- bits of knowledge to
update or refresh old skills. Based on the results from the past year, Levin
said, interest in such credentials is "palpable." He described bundling
courses together into Specializations and charging for a certificate as “the
most successful of our product introductions." Compared to when the
sequences were offered as individual courses, he said, enrollment has “more
than doubled” and the share of learners who pay for the certificate has
increased “by a factor of two to four.”
“I think people see the value of the
credential as even more significant if you take a coherent sequence,” Levin
said. “The other measure of effectiveness is manifest in what you’re seeing
here: company interest in these longer sequences.”
Specializations generally cost a few
hundred dollars to complete, with each individual course in the sequence
costing $29 to $49, but Coursera is still searching for the optimal course
length. This week, for example, learners in the Fundamentals of Computing
Specialization were surprised to find its three courses had been split into
six courses, raising the cost of the entire sequence from $196 to $343.
Levin called it a glitch, saying learners will pay the price they initially
agreed to.
The partnerships are producing some
interesting pairings. In the Specialization created by faculty members at
the University of California at San Diego, learners will “design new social
experiences” in their capstone project, and the best proposals will receive
feedback from Michel "Mike" Krieger, cofounder of Instagram. In the
Entrepreneurship Specialization out of the University of Maryland at College
Park, select learners will receive an opportunity to interview with the
accelerator program 500 Startups.
As those examples suggest, the benefits
of the companies’ involvement mostly apply to top performers, and some are
more hypothetical than others. For example, in a capstone project created by
Maryland and Vanderbilt University faculty, learners will develop mobile
cloud computing applications for a chance to win tablets provided by Google.
“The best apps may be considered to be featured in the Google Play Store,”
according to a Coursera press release.
Anne M. Trumbore, director of online
learning initiatives at the University of Pennsylvania’s Wharton School,
said the capstone projects are an “experiment.” The business school, which
will offer a Specialization sequence in business foundations, has partnered
with the online marketplace Snapdeal and the music identification app Shazam,
two companies either founded or run by Wharton alumni.
“There’s not a sense of certainty about
what the students are going to produce or how the companies are going to use
it,” Trumbore said. “Snapdeal and Shazam will look at the top projects
graded highest by peers and trained staff. What the companies do after that
is really up to them. We have no idea. We’re casting this pebble into the
pond.”
Regardless of the companies' plans,
Trumbore said, the business school will waive the application fee for the
top 15 learners in the Specialization and provide scholarship money to those
that matriculate by going through that pipeline.
“The data’s great, but the larger
incentive for Wharton is to discover who’s out there,” Trumbore said.
Levin suggested the partnering companies
may also be able to use the Specializations as a recruitment tool. “From a
company point of view, they like the idea of being involved with educators
in their fields,” he said. “More specifically, I think some of the companies
are actually hoping that by acknowledging high-performing students in a
couple of these capstone projects they can spot potential talent in
different areas of the world.”
While Coursera rolled out its first
Specializations last year, Levin said, it also rewrote the code powering the
platform to be able to offer more self-paced, on-demand courses. Its MOOCs
had until last fall followed a cohort model, which Levin said could be
“frustrating” to learners when they came across an interesting MOOC but were
unable to enroll. After Coursera piloted an on-demand delivery method last
fall, the total number of such courses has now reached 47. Later this year,
there will be “several hundred,” he said.
“Having the courses self-paced means
learners have a much higher likelihood of finishing,” Levin said. “The idea
is to advantage learners by giving them more flexibility.”
Some MOOC instructors would rather have
rigidity than flexibility, however. Levin said some faculty members have
expressed skepticism about offering on-demand courses, preferring the
tighter schedule of a cohort-based model.
Whether it comes to paid Specializations
versus free individual courses or on-demand versus cohort-based course
delivery, Levin said, Coursera can support both. “Will we develop more
Specializations? Yes. Will we depreciate single courses? No,” he said. “We
don’t want to discourage the wider adoption of MOOCs.”
As scientists, we get credit by having our names on
journal articles. Authorship of a scientific paper is binary: Either you are
one of the authors, or you aren’t. That coarse system is central to the
practice of science but does not reflect the complex weave of collaborative
work on which most scientific papers are built.
We are far more than just our papers, but those
papers count, in the literal sense. How many papers you publish, and where
they are published, affects who gets hired, who gets tenure, who gets
funded, and with whom we collaborate. Other factors matter (such as gender,
money, and personality), but authorship is foundational.
Now that authorship system is so outdated that it’s
holding science back. We have the tools and volition to broadly collaborate
and share information, but the formation of collaborations is hindered
because the credit system does not adequately represent actual
contributions.
What are the types of authorship? That varies among
fields, but I can generalize quite a bit. The first author listed on a
scientific paper did the most work and gets the most credit. That person
usually ran the project and wrote most of the paper. Being first author is a
big deal, so much so that we have invented a bizarre phenomenon: co-first
authorship. In a co-first-authored paper, the first two authors allegedly
share the honor of first authorship, by the grace of two asterisks
indicating, “These authors contributed equally to this work.”
The final author named on the paper is often the
senior scholar on the project. For scientists building their profile as a
PI, being a senior author is important because it shows successful
leadership in the laboratory and mentorship of junior scientists. Sometimes
senior authors work really hard on the papers and are instrumental in the
research. Other times, the senior author gets last position because he or
she graciously let the first author use a shared desk in their lab.
But it’s not that simple. Sometimes the last author
is not the senior author. The last author might have made the least
contribution to the paper. How do you know? Unless you’re well involved in
that subfield, I wish you luck. Sometimes the second-to-last author position
is saved for the second-most senior scientist on the project. But you might
not know for sure, because we don’t label senior authors as such. That would
be uncouth.
What is middle authorship? It could mean almost
anything. Someone listed in the middle could be instrumental or incidental.
As a middle author, my contribution has ranged from a few hours to several
weeks of working round-the-clock in challenging conditions. But there’s no
way to tell just by looking at these papers or at my CV.
After a paper comes out, credit is harvested via
citations.Suddenly authorship order no longer matters. I get the same
measure of credit for a well-cited, single-authored paper as I do for a
well-cited article in which I’m buried as middle author among dozens of
other co-authors.
I hope I have convinced you that this nonsensical
system is a hot mess. Is this truly how people who make career-altering
decisions decide the magnitude of our scientific achievements? Oy.
To be fair, I do see some concern in scientific
circles about preventing trivial co-authorships. Some journals list minimum
criteria or have prescriptive publishing guidelines. An increasing
proportion of journals require an “author contributions” section, wherein
the individual contributions of each of the authors are specified.
Nevertheless, as far as I can tell, these efforts haven’t changed the modus
operandi within science.
There is a glaring disparity between what we claim
about authorship, and how people actually become authors in practice. It is
standard operating procedure to trade a contribution for authorship. Since
authorship is the currency for credit, and few want to work for no credit,
the only way to share effort is to make sure that all contributors are
authors. That practice might subvert the official definition of authorship,
but it is also the glue that keeps fertile collaborations intact.
When you help someone out, what qualifies as a
professional courtesy and what constitutes grounds for middle authorship?
That depends on your altruism and negotiation
skills. If a systematist publishes a paper with a taxonomic revision of a
group of rare organisms, you don’t get authorship for sending especially
needed rare samples. That’s just an expected courtesy. But if you have
similar samples already sitting in your lab that are needed for a certain
kind of specialized experimental project, then you can probably ask for
authorship -- but not if you’ve already deposited those samples in a museum
collection. - See more at:
https://chroniclevitae.com/news/905-the-credit-system-in-science-is-outdated?cid=at&utm_source=at&utm_medium=en#sthash.a95RtVNZ.dpu
Federal prosecutors say a former Wells Fargo
Securities investment banker, his stockbroker friend and a network of
friends and family were sentenced to prison after using insider information
to pocket $11 million.
The U.S. attorney's office in Charlotte said Friday
that 33-year-old former banker John Femeni of Greenwich, Connecticut;
34-year-old Shawn Hegedus of Centerreach, New York; and his 34-year-old wife
Danielle Laurenti of Massapequa Park, New York, were sentenced to between 1
½ and 10 years in prison. Thirty-four-year-old Matthew Musante of Miami,
Florida, was sentenced to 3 ½ years.
All pleaded guilty to insider trading and money
laundering conspiracy. Four others were sentenced earlier.
The International Accounting Standards Board (IASB)
issued a proposal Tuesday that is intended to clarify how entities classify
debt, particularly when it is coming up for renewal.
The proposal is designed to improve presentation in
financial statements by clarifying the criteria for the classification of a
liability as either “current” or “non-current.” The proposed amendments
would accomplish this by:
Clarifying that the classification of a
liability as either “current” or “non-current” is based on the entity’s
rights at the end of the reporting period, and
Clearly describing the link between the
settlement of the liability and the outflow of resources from the
entity.
The proposed amendments are contained in the
exposure draftClassification of Liabilities
(Proposed Amendments to IAS 1). The IASB is seeking comments, which can be
made at the board’s
website.
Jensen Comment
Some types of "clarification" may not be possible. For example, one thing that's
really hanging up the new accounting standard for operating lease contracts is
the seemingly impossibility of booking operating lease renewals, especially when
companies will react to the new leasing standard by shortening the lease terms
with high probabilities of renewal of short-term lease contracts..
Another problem of liability accounting standards is that they may sometimes
just be fiddling when firms like coal-burning power companies literally burn. We
can try to measure and classify debt of a coal company balance sheets. But the
future for coal-based energy is so uncertain that things like debt/equity
rations may be almost nonsense in terms of measuring the real and uncertain
"liabilities" of these power companies.
That of course does not mean that standard setters like the IASB should not
be constantly seeking to fine tune existing standards. A little fine tuning
could have made Nero's fiddle much sweeter sounding.
Jensen Note
Entry level accountants are usually called "staff accountants." Upon graduation
some of the most plentiful jobs in the world are for staff accountants. Note
that in the USA, however, CPA firms generally require that students become
qualified to immediately take the CPA examination, and that generally takes a
fifth year of study, usually but not always for a masters degree. The same can
be said for chartered accountants in many other nations.
Jensen Comment
Also important is job-change opportunity. Many college graduates go to work for
CPA firms never intending to stay with those firms. Those firms offer terrific
opportunity for technical training and exposure to clients needing accounting,
internal auditing, forensics, information technology, and tax services. More
often than not those that leave the CPA firms and stay in the work force go with
clients.
Salaries may or may not be higher, but there is often less travel and job
stress when working for a client. Making partner with a CPA firm often entails
long hours and public relations skills requiring special talents. Partners are
paid well, but less than 15% of the new hires in large CPA firms become
partners. Partners generally have skills in obtaining and retaining clients. The
same, by the way, is true of law firms where much of the technical work is often
performed by lower-paid non-partners.
My point is that students hoping to become partners in CPA firms and law
firms should take courses in communications. Foreign languages can also help
since sometimes the path to partnership is easier for USA accounting graduates
to work in off shore offices of multinational CPA firms such as working in
offices in Moscow, Mexico City, and various cities in South America and Asia.
Jensen Comment
When I search for "Accounting" and "Faculty & Research" today there are 256 jobs
posted in the past 30 days. However, not all of these jobs seem property
classified as both "Accounting" and "Faculty & Research." Also I know of some
job openings for accounting professors that are not listed for major
universities.
For persons seeking jobs as accounting faculty in the USA perhaps a better
place to look might be the American Accounting Association Career Center ---
http://aaahq.org/Career-Center
Job seekers may also post their resumes at this center.
Since there are so many faculty vacancies in accountancy, job seekers with
Ph.D. degrees from AACSB-accredited universities are advised to contact colleges
and universities where they would most like to be employed.
Jensen Comment
On infrequent occasions I've witnessed how foreign experience seemed to improve
the odds of my former students being admitted to a Big Four partnership. These
were not top students, and on graduation day I would not have predicted that
they would become partners in Big Four firms. I might add that some of these
students also took double majors in foreign languages such as Russian, Chinese,
and Spanish. That is perhaps why they were afforded opportunities to work for
the Big Four in Moscow, China, and Latin America.
From the CFO Journal's Morning Ledger on February 10, 2015
How many stamps are in your passport?
Or perhaps more importantly, how many work visas? Nearly 40% of CFOs at the
largest 1,000 public and private companies in the U.S. have worked abroad,
and that figure is expected to rise,
CFO Journal’s Kimberly S. Johnson reports.
The trend follows the money: Companies in the
S&P 500 got roughly half their sales outside the U.S. in 2013, up about 10%
over the past decade, according to S&P Dow Jones Indices. And recent
earnings figures underscore the value of understanding the local
consequences of extreme volatility in currencies, commodities and politics.
Years spent in the trenches abroad can
help an executive navigate cultural mores, regulations and supply-chain
disruptions. “I don’t believe you can get there by being there a week or two
and flying back out,” said Thomas Mangas, CFO of
Starwood Hotels & Resorts
Worldwide Inc.
Jensen Comment
This begs the question of when majors do matter, and they matter most when
choosing the wrong one can add a year or more to taking licensing examinations
for careers. For example, it now takes five years (150 credits) to sit for the
CPA examination. Not choosing accounting as a major in the second year can add
more semesters to getting a degree.
When my university added the fifth year masters program in accounting,
however, it did so in what I consider the correct way. It moved some of the
advanced accounting courses to the masters program, thereby leaving more
flexibility in the first four years for double majoring or at least taking
minors in other disciplines like mathematics, communications, computer science,
and even another language.
Not choosing engineering as a major can put a student out of synch in a
curriculum plan. The same can be said of other majors like nursing and pharmacy
and other careers with licensing examinations.
Of course the world does not come to an end if a student has to take more
time to graduate due to uncertainty about a career plan. But often the trial and
error process does not add a whole lot to critical reasoning skills that often
come in more advanced courses like courses in philosophy, economics, etc.
Rash of civil suits complicates FCPA cases
http://blogs.wsj.com/cfo/2015/02/17/rash-of-civil-suits-complicates-fcpa-cases/?mod=djemCFO_h
Companies that disclose their entanglement in foreign
corruption cases are increasingly exposing themselves to problems far beyond
the need to settle with government regulators. Now, more and more, they also
have to contend with being sued by their own investors – who say they have
been harmed by their company’s alleged misconduct overseas. These lawsuits
may have questionable success rates, but they are influencing the timing and
degree of disclosure of possible misconduct by corporate counsels to the
U.S. Justice Department. The suits are often filed soon after news breaks
that a company is conducting an internal investigation into allegations that
its employees bribed foreign officials, even when few facts have been
established.
From the CFO Journal's Morning Ledger on February 17, 2014
A nine-month workers dispute that has hamstrung
West Coast port activity is starting to bite into business sectors across
the U.S. and beyond. The standoff between the Pacific Maritime Association,
which represents port employers, and the International Longshore and
Warehouse Union saw ships remain unloaded over the holiday weekend. The
White House announced Saturday that Labor Secretary Tom Perez will meet with
both parties on Tuesday.
In the meantime, the economic cost of the dispute
is mounting, the Wall Street Journal reports. The Agriculture Transportation
Coalition estimates that port delays and congestion have reduced U.S.
agricultural exports by $1.75 billion a month, while the North American Meat
Institute put losses to U.S. meat and poultry producers at more than $85
million a week. For retailers, the rerouting and carrying costs and other
expenses could bring the industry’s total costs to $7 billion this year,
according to analysis by consulting firm Kurt Salmon.
The port delays also are causing problems for auto
makers. On Monday, Honda Motor Co. said it was experiencing parts shortages
at plants in Ohio, Indiana and Canada that will affect its production on
multiple days over the next week. Small-business owners with limited
inventory to cover sales are also being pummeled.
GM is just trying to do the right thing --- Yeah Right!
From the CFO Journal's Morning Ledger on February 17, 2014
GM heads back into court
http://www.wsj.com/articles/gm-heads-back-into-court-1424128905
Genhttp://www.wsj.com/articles/gm-heads-back-into-court-1424128905eral
Motors Co. is in court
Tuesday fighting to maintain a bankruptcy
shield blocking legal claims from customers seeking compensation for
declining resale values and injuries stemming from a defective ignition
switch linked to at least 56 deaths. The legal battle, with plaintiffs
seeking billions of dollars in damages, is largely the result of a
significant concession
GM made more than
five years ago to expedite its emergence from bankruptcy proceedings. The
auto maker is now back in court because that deal weakened the very
bankruptcy shield that GM is now trying to keep.
Jensen Comment
An illustration of how difficult it is to measure contingent liabilities.
Not Democracy in Theory But Democracy in Action
From the CFO Journal's Morning Ledger on February 11, 2015
Companies with a healthy revenue stream must routinely balance between
returning cash to shareholders through buybacks and dividends and spending
more on themselves to fuel future growth—or simply hoarding the cash for a
rainy day. But for General
Motors Co., if an architect of its 2009 bailout gets his way, its
hand will be forced and
$8 billion will go toward reducing its outstanding
share count.
Harry J. Wilson, a former hedge-fund executive who helped usher GM through a
government-led restructuring that ultimately cost taxpayers about $10
billion, has emerged as one of the auto maker’s chief antagonists. Mr.
Wilson, who holds GM shares and represents hedge funds collectively holding
more than 34 million shares, nominated himself as a GM board candidate and
wants the nation’s largest car maker to spend on buybacks.
Mr.
Wilson’s move is the latest challenge to hit America’s biggest companies.
Activists have collected record amounts of cash to launch campaigns against
blue chips including
Procter & Gamble Co.,
DuPont Co. and
even Apple Inc.
As for GM, the company says it has had regular contact with Mr. Wilson’s
group and would evaluate him as a board nominee, making a recommendation
“based on the best interest of all shareholders.”
From the CFO Journal's Morning Ledger on February 11, 2015
Enterprise quests for greater efficiency and competitive advantage through
IT will drive significant tech sector growth in 2015 and beyond, says Paul
Sallomi, vice chairman and U.S. Technology leader, Deloitte Tax LLP. Mr.
Sallomi points to the Internet of Things and digital disruption as major
trends that will create new tech sector opportunities this year and explains
why being a large technology conglomerate could become a competitive
disadvantage in the sector.
From the CFO Journal's Morning Ledger on February 11, 2015
Denmark’s negative rates spark creativity
http://www.wsj.com/articles/danish-lenders-take-unprecedented-steps-to-combat-negative-interest-rates-1423576590
Banks in Denmark are taking highly unusual steps to deal with negative
interest rates arising from the central bank’s efforts to defend its
currency peg to the euro.
FIH Erhvervsbank announced plans to charge retail customers to hold
money in their deposit accounts, the first Danish bank to do so.
Jensen Comment
Try that old under-the=mattress trick.
Jensen Comment
Colleges should be very explicit about policies in this regard. It's common for
authors of textbooks to adopt their own textbooks in classes they teach.
However, the ethical thing to do is not to profit from those sales. It's
difficult to refund textbook royalties to students. Some authors donate the
funds to the university or charities, but they still might be capitalizing on
tax breaks. Some authors, however, simply pocket the royalties from sales of the
books to their own students.
In accounting it's common for publishers to seek out coauthors in their
largest markets such as universities where thousands of students buy the
textbook every term. With eBook publishing there are added incentives since
there's no market for used eBooks.
I was at a university where there were two accounting professors who were
coauthors on different basic accounting texts. To be "fair to the authors," the
departmental policy became to alternate the basic textbook every year. Yeah
right!
It's quite another matter to promote your own publishing company within a
college. This may even intimidate assistant professors if the owner of the
company is also the Department Chair or sits on the P&T Committee.
Jensen Comment
The word "push" in relation to student assignments and examinations needs to be
defined with more precision. The Harvard Business School is noted for extensive
writing assignments each week that are generally graded by professors
themselves. The HBS is noted for its case study assignments and competitive
pedagogy in case discussion courses.
However, without knowing the facts my hunch is that flunking out of the
Harvard Business School, apart from voluntarily dropping out, is probably a rare
event. Hence the term "push" is a relative term. The same can probably be said
for the Harvard Law School. In both the HBS and Harvard Law the hardest thing is
getting into these programs. Students who are admitted usually have high
academic skills plus unique talents and backgrounds.
To date there are 83 HBS professors rated on RateMyProfessor. Sometimes the
ratings tell more about the students than their professors. However, keep in
mind that students who send in evaluations to RMP are self-selecting. This is
not a random sample of the thousands of HBS graduates. The numerical ratings are
generally nonsense due to a sparse number of evaluations sent in for given
professors. The most revealing information can sometimes be in the added
commentaries.
An example of a commentary on one HBS professor:
too easy after all this is harvard dammit. we
were featured in legally blonde with reese witherspoon
Jensen Comment
I think how well students read/memorize textbooks depends both upon how you
teach classes (e.g., by calling on students to answer questions from the
chapters) and how you test (e.g., model problems directly after textbook
illustrations). Many teachers teach directly from textbooks. This is sad,
because students can learn from textbooks on their own such that the teacher is
not much value added in the course other than his or her role in forcing
textbook learning.
Risk averse students often give high teaching evaluations to textbook
teachers, because those students do no like uncertainty in quizzes,
examinations, and class call outs. This also is sad, because life on the job is
full of uncertainties that are not covered in textbooks.
This makes me wonder how much of our future popular textbooks and textbook
supplements will be written by robots
"America’s oldest news agency wrote 10X more articles by having robots do
what reporters used to do," by Eugene Kim, Business Insider, January
30, 2015 ---
http://www.businessinsider.com/aps-partnership-with-automated-insights-2015-1
If you thought robots could never replace
journalists, think twice.
That’s certainly been the case at The Associated
Press, America’s oldest 24-hour news agency. AP produced roughly 3,000
articles on company earnings last quarter, 10X more than it used to, by
using automated technology.
According
to The Verge, AP has been able to do it by
partnering with
Automated Insights, a company that specializes in
“robot journalism.” Automated Insights uses artificial intelligence and Big
Data analysis to automatically generate data-heavy articles, such as
earnings reports.
Initially there was some human editing involved,
but now most of the articles are fully automated — with far fewer errors
than human reporters and editors. In theory, it could crank out 2,000
articles per second.
But AP says the purpose of having "robot
journalists" is not about replacing its reporters, at least in the
foreseeable future. Instead, it is to allow the reporters to spend more time
on high-quality journalism.
Of course, this is not the first time we’ve seen a
computer software do a better job than its human counterparts. Last year, we
wrote about Narrative Science, another story automation company, that claims
it can
do the type of deep analysis a $250,000 per year
consultant would do.
Jensen Comment
This makes me wonder how much of our future popular textbooks and textbook
supplements will be written by robots.
Question
Before looking up one estimated answer, try to figure out what Tom Brady will
owe when both receiving the now-famous truck award plus what he owes for giving
it to his teammate Malcomb Butler.
Hint
The truck's value is estimated at $34,000. "Assuming Brady has made [$5.43]
million of taxable gifts up to this point in his life (a safe bet), "
"Advances in Accounting: Incorporating Advances in International
Accounting 2014 Update," by Jim Martin,
MAAW's Blog, February 4, 2015 ---
http://maaw.blogspot.com/2015/02/advances-in-accounting-incorporating.html
List of articles from the 2014 issues of Advances in Accounting:
Incorporating Advances in International Accounting.
Over at Medium.com
I’ve written about a new academic study,
Shared Auditors in Mergers and Acquisitions,
to be published soon in the Journal of
Accounting and Economics that documents an interesting, rarely commented on
auditor conflict of interest. The data suggests that when an acquiring
company and its target share the same auditor, the audit firms favor
acquirers at the expense of the smaller target audit clients. The
researchers are also more bold than I have ever seen in an academic study in
alleging that auditors prioritize their own self-interest and larger clients
by using confidential information about the smaller clients to benefit the
big ones.
From the study:
“Results suggest that auditors frequently
violate their duty to put the interests of their clients ahead of their
own in what appears to be a failure to protect confidential client
information within their practice offices.”
There are plenty of studies that talk about shared
advisors in M&A like investment banks and lawyers. (There is also a study
cited in the above paper and also to be published soon in the Journal of
Accounting and Economics that focuses solely on the finance impact of this
shared auditor scenario,
Cai, Kim, Park and White (2014)) Banks and lawyers
are well known to favor the larger clients. But companies choose those
advisors for the deals and, I assume, do so willingly and knowing that
conflicts must be managed.
From the study:
We anticipate that shared auditors may favor
acquisitive clients over targets for at least two reasons. First, an
auditor’s long-term incentives (even within an auditor’s practice
office) are more closely aligned with those of their acquisitive
clients. Our intuition follows that applied to shared investment bank
advisors who are more likely to favor acquiring firms when representing
both a target and an acquirer in the same deal (Agrawal et al., 2013).
And…
We do not incorporate selection into our main
analysis as selection issues with shared auditors in M&A appear to be
less of a concern as compared to shared advisors in M&A deals (Agrawal
et al., 2013). This is because both an acquirer and a target make the
explicit choice to have a shared investment bank advise each of them for
a specific transaction. In contrast, a shared auditor is a result of
both a target and acquirer independently contracting with an audit firm
to receive audit services prior to a bid being announced.
Recently the
New York State Department of Financial Services (NYSDFS)
fined and sanctioned Deloitte and
PricewaterhouseCoopers for sacrificing independence, integrity and
objectivity while providing consulting services to
Standard Chartered and
Bank of Tokyo-Mitsubishi, respectively, that were
mandated by regulatory sanctions against the banks. These regulatory actions
go beyond a typical focus by the SEC and PCAOB on the audit relationships of
public accounting firms only.
Jensen Comment
This article is too long and too complicated to summarize here. In the late
1960s a colleague of mine named Jack Muth taught operations at Michigan State
University where I taught accounting as an assistant professor. Jack put off
getting getting his Ph.D. diploma at Carnegie-Mellon University because he saw
no need for the foreign language requirement. He continued working at CMU as a
research associate ABFL (All-But-Foreign-Language).
As a ABFL research associate Jack had an opportunity at some point to go to
France. He then saw a need to learn some French, took some coursework, met the
language requirement for his Ph.D. at CMU, and picked up his diploma. He then
worked for several years as an assistant professor but was not awarded
tenure at CMU. He later joined the faculty at MSU, was given tenure in advance,
had almost no record of research and publication beyond his famous rational
expectations model developed when he was still at CMU, and spent much of his
time pursuing his obsession with playing in a string quartet ---
http://en.wikipedia.org/wiki/John_Muth
My point is that some people, often brilliant people with resources to be
financially independent, are upset over time wasters that include requirements
in college curriculum and job duties that they view as a waste of time for
themselves. In college they're in a hurry to go places and do things. In Jack's
case Bill Gates and many other well-known college dropouts had not yet entered
college so they were not his role models. I'm not sure Jack had a role model.
Unlike Bill Gates and the Thiel Fellows discussed in the above article Jack Muth
did not have entrepreneurial aspirations ---
http://en.wikipedia.org/wiki/Thiel_Fellowship
What Jack really wanted was to what he was good at but not brilliant --- playing
the viola.
Some brilliant students try to avoid the traditional role models of
graduating from college, going to work for an organization, and performing
according to job specifications. For example, some view joining a tenure track
as a waste of time if it entails counting publications in research journals to
get tenure and pay raises. Many like Jack Muth who who do get tenure early on do
so on the basis on one noted contribution and don't play the career game like us
other drudges had to play the publish or perish game. Jack was a bit problematic
at MSU. He did not make noted research contributions beyond those contributions
before he joined MSU. Students avoided his classes like the plague, because he
was seldom prepared for class and often wandered over their heads on tangents
that were not intended parts of the course.
When I was at Stanford there was a famous professor in the mathematics
department that even the best math majors avoided like the plague. He was so ill
prepared for his classes that students generally considered taking his courses
to be a waste of their time. Maybe he was burned out. When he tried to explain
solutions to problems he generally became all muddled up to to lack of
preparation. Jack was a bit like that back at MSU, although I could still
recognize brilliance that was not burned out. I think Jack just lost interest in
mathematical economics. He loved his music.
As a colleague I thought Jack was brilliant. On occasion I became hopelessly
lost in the mathematics of my own research. I would take my troubles down to
Jack and without the least bit of preparation he would reveal his brilliance by
showing me a way. Jack was an outstanding colleague that most of my other
colleagues and MSU students failed to appreciate because they did not tap his
brilliance in the right way.
I advise students to avoid anything like a Thiel Fellowship that tempts them
to bypass a college degree. The odds are against becoming a Bill Gates or
anything like Bill Gates. Being a Thiel Fellow is an invitation to fail and
being left with nothing but failure. And returning to college later in life
often gets complicated by such things as having children and losing that drive
to compete in college --- where being in college is even more painful later in
life than it was when being young.
"Replications in Economics: A Progress Report," by Maren Duvendack
Richard W. Palmer - Jones W. Robert Reed, WORKING PAPER No. 2 6 /201, Department
of Economics and Finance, University of Canterbury, December 3, 2014 ---
http://www.econ.canterbury.ac.nz/RePEc/cbt/econwp/1426.pdf
Abstract: This study reports on various aspects of
replication research in economics. It includes (i) a brief history of data
sharing and replication; (ii) the results of the authors’ survey
administered to the editors of all 333 “Economics” journals listed in Web of
Science in December 2013; (iii) an analysis of 155 replication studies that
have been published in peer - reviewed economics journals from 1977 - 2014;
(iv) a discussion of the future of replication research in economics, and
(v) observations on how replications can be better integrated into research
efforts to address problems associated with publication bias and other Type
I error phenomena.
. . .
23 economics journals is unreliable. The task o f
identifying which results are reliable, and which are not, should be an
important priority for the economics discipline. The future of replications
. The fields of science and political science have been very active in
calling for an increase in replication activities . For example, the Center
for Open Science received 1.3 Million USD to start the Reproducibility
Initiative 42 , 43 , which aims to independently verify the results of major
scientific experiments. There have also been renewed calls for replication
in the political sciences, e.g. Gary King’s website 44 is a good resource,
the political science replication blog 45 is another. More recently the
Berkeley Initiative for Transparency in the Social Sciences (BITSS) 46 was
started with the objective to make empirical social science research more
transparent which includes promoting replications.
The area of economics has seen some but relatively
few replication initiatives, one is the “Replication in Economics” project
at Goettingen University which is funded by the Institute for New Economic
Thinking and which has compiled a wiki containing an extensive number of
replication studies published in economic journals. Another replication
initiative in the field of development economics has been launched by 3ie.
. . .
We expect that elite journals will likely continue
to find little benefit to publishing replication studies, as they receive
high quality , original research with much citation potential. However,
journals of lesser quality may find that replications of widely - cited
papers can be expected to produce more citations than original research
submitted to those journals. If that is the case, the pursuit of citations
may help replication studies to establish a niche within the hierarchy of
economics journals
Technological innovation also affects journal
demand. The Journal of Applied Econometrics’
practice of publishing summaries of replications
allows it to allocate less journal space for a replication study relative to
an original research study. The
increasing sophistication of online publishing also creates opportunities
for journals to use their scarce journal space more efficiently. Public
Finance Review publishes a summary version of a replication study in its
print edition, but attaches the full - length manuscript as “ Supplemental
material” that can be accessed at the journal’s online website. These
innovations increase the ratio of citations/journal page, and hence can
shift the demand for replication studies relative to original studies at
some journals
Finally, widespread attention directed towards the
replicability of scientific research may affect journal editors’ and
researchers’ “tastes” for replication studies. This also generates dynamic
externalities that simultaneously increases the demand and supply of
replication studies.
Bob Jensen's threads on the lack of replication in accountics science are
at
http://faculty.trinity.edu/rjensen/TheoryTAR.htm
There is little interest in replication since top journals will not publish
replications, summaries of replications, or even commentaries on published
research outcomes.
The second is the comment that Joan Robinson made
about American Keynsians: that their theories were so flimsy that they had to
put math into them. In accounting academia, the shortest path to respectability
seems to be to use math (and statistics), whether meaningful or not. Professor Jagdish Gangolly, SUNY
Albany
It also helped propel her into
becoming the first African-American woman in the U.S. certified as a
public accountant. And it helped the Chicago accounting company she
founded to become one of the largest black-owned CPA firms in the
country, while serving as a gateway for dozens of African-Americans
into the field.
"Mary was a very driven woman but also
very conscious of people and their feelings," said Frederick Ford, vice
chairman of the board at Draper and Kramer Inc. He cut his accounting
teeth as a staff auditor with her firm in the late 1940s and early '50s.
"She was a stickler for details and for getting it right, and, for me
anyhow, it was a wonderful place to get a start. I learned how important
it was to do as nearly to perfect work as you could."
Born in Vicksburg, Mississippi, Mary T.
Washington first became interested in accounting in high school and worked
for Douglas National Bank after school and on weekends. At the bank, she was
mentored by Arthur J. Wilson, the first black CPA in Illinois and 2nd in the
country overall.
While studying for her degree, she
opened an accounting firm, Mary T. Washington and Co., in 1939 in a
corner of her basement. Most of her clients were small black-owned
businesses and non-profit groups. But her firm also came to design and
maintain accounting systems for such large black-owned firms as Fuller
Products and Seaway National Bank.
Her office became a destination for
young black men looking for apprenticeships and jobs in accounting.
During the 1960s, there were more
black CPAs in Chicago than elsewhere in the country because of her
assistance to them, colleagues said.
Among the AICPA-donated volumes at Ole Miss
are two binders containing photographs of individuals appearing in the
JofA or at accounting conventions from 1887 to 1979. Of the 446
individuals featured, eight are women—Christine Ross, Ellen Libby Eastman,
Miriam Donnelly, Mary E. Murphy, Helen Lord, Helen H. Fortune, Mary E. Lewis
and Beth M. Thompson. In a time when the profession was the
all-but-exclusive domain of men, they stood out not only because of their
gender but in many cases because of their accomplishments and contributions
to accounting. Consider that in 1933, slightly more than 100 CPA
certificates had been issued to women. By 1946, World War II had changed
traditional notions of gender in the workplace, and female CPAs had more
than tripled to 360—still a small contingent but, as information gleaned
from the AICPA Library indicates, one capable of exerting a strong and
beneficial influence on the profession.
Christine Ross
Born about 1873 in Nova Scotia, Ross took New York by storm in the late
1890s. New York state enacted licensure legislation in 1896 and gave its
inaugural CPA exam in December 1896. Ross sat for the exam in June 1898,
scoring second or third in her group. Six to 18 months elapsed while her
certificate was delayed by state regents because of her gender. But she had
completed the requirements and became the first woman CPA in the United
States, receiving certificate no. 143 on Dec. 21, 1899.
Ross began practicing accounting around
1889. For several years, she worked for Manning’s Yacht Agency in New York.
Her clients included women’s organizations, wealthy women and those in
fashion and business.
Helen Lord
Lord received her CPA certificate from New York in 1934 and in 1935 joined
the American Society of Certified Public Accountants, which merged with the
American Institute of Accountants (later AICPA) the following year. In 1937,
she was a partner with her father in the New York firm of Lord & Lord and a
member of the AIA. She served in the late 1940s as business manager of
The Woman CPA, published by the American Woman’s Society of Certified
Public Accountants–American Society of Women Accountants. Lord reported the
journal then had a circulation of more than 2,200.
Helen Hifner Fortune
Fortune, one of the first women CPAs in Kentucky, received certificate no.
174 in 1935 and was admitted to the AIA the following year. She became a
member of an AIA committee in 1942 and by 1947 was a partner in the
Lexington, Ky., firm of Hifner and Fortune.
Ellen Libby Eastman
Eastman began her career as a clerk in a Maine lumber company, eventually
becoming chief accountant. She studied for the CPA exam at night and became
the first woman CPA in Maine, receiving certificate no. 37 dated 1918. She
was also the first woman to establish a public accounting practice in New
England. Arriving in New York in 1920, Eastman focused on tax work and
audited the accounts of the American Women’s Hospital in Greece. In 1925,
she was a member of the ASCPA. In 1940, Eastman began working with the law
firm of Hawkins, Delafield & Longfellow in New York.
She was outspoken and eloquent regarding a
woman’s ability to succeed in accounting. In a 1929 article in The
Certified Public Accountant, Eastman recounted her adventures:
One must be willing and able to endure
long and irregular hours, unusual working arrangements and difficult travel
conditions. I have worked eighteen out of the twenty-four hours of a day
with time for but one meal; I have worked in the office of a bank president
with its mahogany furnishings and oriental rugs and I have worked in the
corner of a grain mill with a grain bin for a desk and a salt box for a
chair; I have been accorded the courtesy of the private car and chauffeur of
my client and have also walked two miles over the top of a mountain to a
lumber camp inaccessible even with a Ford car. I have ridden from ten to
fifteen miles into the country after leaving the railroad, the only
conveyance being a horse and traverse runners—and this in the severity of a
New England winter. I have done it with a thermometer registering fourteen
degrees below zero and a twenty-five mile per hour gale blowing. I have
chilled my feet and frozen my nose for the sake of success in a job which I
love. I have been snowbound in railroad stations and have been stranded five
miles from a garage with both rear tires of my car flat. I have ridden into
and out of open culvert ditches with the workmen shouting warnings to me.
And always one must keep the appointment; “how” is not the client’s concern.
Mary E. Murphy
A long-lived pioneer, Murphy (1905–1985) lectured, researched and taught in
the United States and abroad, retiring in 1973. The Iowa native earned her
bachelor of commerce degree with a major in accounting from the University
of Iowa in 1927, then obtained a master’s in accountancy in 1928 from
Columbia University Business School. In 1938, she received a doctorate in
accountancy—only the second woman in the United States to do so—from the
London School of Economics.
In 1928, Murphy began working in the New York office of Lybrand, Ross Bros.
& Montgomery. Two years later, she took the CPA exam in Iowa and received
certificate no. 67, to become the first woman CPA in Iowa. She joined the
AIA in 1937.
Following her public accounting stint, she
served for three years as the chair of the Department of Commerce at St.
Mary’s College in Notre Dame, Ind. Murphy also was an assistant professor of
economics at Hunter College of the City University of New York until 1951.
In 1952, she received the first Fulbright professorship of accounting, with
assignments in Australia and New Zealand. In 1957, she was appointed as the
first director of research of the Institute of Chartered Accountants in
Australia. Murphy retired in 1973 from the accounting faculty at California
State University.
She published or collaborated on more than
20 books and 100 journal articles and many book reviews and scholarly
papers. From 1946 to 1965 she was the most frequently published author in
The Accounting Review. Murphy investigated the role of accounting
in the economy, made the case for accounting education improvements and
paved the way for other aspiring women accountants to prosper. More than
half her publications explored international accounting, often advocating
standardization. She also emphasized accounting history and biographies.
Mary E. Lewis
Lewis received California CPA certificate no. 1404 in 1939. She was admitted
to the AIA that year and by 1947 had her own firm in Los Angeles.
Beth M. Thompson
Thompson worked as the office manager in the Kentucky Automobile Agency she
and her husband, Charles R. Thompson, owned. After closing the car business,
they moved to Florida, where she worked for an accounting firm. She passed
the CPA exam in 1951 with the encouragement of her husband and opened her
own accounting business in Miami. In 1955, Thompson was one of only 900
women CPAs and the only female president of a state association chapter—the
Dade County chapter of the Florida Institute of CPAs.
Miriam Donnelly
From 1949 to 1955, Donnelly was head librarian of the AIA library. (In 1957,
the AIA was renamed the AICPA.) She began her career with the library as
assistant librarian and cataloger in 1927, after working for two
governmental libraries and the New York Public Library.
Jensen Comment
I don't know how this study factored for misleading statistics, but here are a
few considerations. It's quite common for women to support husbands who are
students such as students or residents in medical school. For example, surgical
residents get paid, but they get paid very little relative to what their wives
may be still earning to support the completion of their husband's training
requirements. Of course sometimes it is husbands who support aspiring female
physicians.
Many men are in the USA military. Their wives who work are almost certain to
have higher income, although the benefits of a military are substantial ---
including free family medical care, base housing, base schools, and lifetime
pensions commencing at a young age, sometimes before reaching 40 years of age.
Times are changing for professional women at work. The big CPA firms now hire
more female accounting graduates than male accounting graduates. There are also
cracks in the glass ceiling. Deloitte, one of the top Big Four firms, just
appointed a woman CEO.
The University of Missouri at Kansas City says in a
news release that an
independent audit and review have validated an academic journal’s ranking of
its Henry W. Bloch School of Management as first in the world in
innovation-management research.
The Kansas City Star, however, reports that
the audit also confirms many details of a newspaper investigation last year
that described “a pattern of exaggerations, misstatements, and
cherry-picking data” by officials of the Bloch School in pursuit of top
rankings.
The audit,
by the international accounting firm PricewaterhouseCoopers LLP, was
commissioned by the University of Missouri system’s Board of Curators at the
request of Gov. Jay Nixon in response to the
newspaper’s report. The Board of Curators released
a report on the auditor’s findings on Friday. The
curators also released
an
analysis of the auditors’ findings by Robert D.
Hisrich, a professor emeritus of entrepreneurship at the Thunderbird School
of Global Management, in Arizona, whom the board hired to review and comment
on the audit report.
The audit
focuses in part on data submitted by Bloch School officials to
Princeton Review, a test-preparation-services
company that publishes rankings of universities and academic programs.
Princeton Review, which is not affiliated with Princeton University, has
ranked the Bloch School’s graduate and undergraduate entrepreneurship
programs in its top 25 every year since 2011.
The auditors also examined interactions among Bloch
School officials and the authors of a 2012 article in the
Journal of Product Innovation Management,
“Perspective: Ranking of the World’s Top Innovation Management Scholars and
Universities.” The journal article ranked the Kansas City institution’s
entrepreneurship program as No. 1 worldwide.
Among the audit’s findings are that an official at
the Bloch School had, under pressure from his boss, submitted flawed or
false data to Princeton Review, and that another Bloch official had
participated in the editing of the journal article. The audit does not
challenge whether the article’s or the company’s rankings were deserved.
Mr. Hisrich, in his review, acknowledged that
information provided to Princeton Review “was inaccurate in three
subject-matter areas” but added, “I cannot conclude that the inaccurate
information made a material difference in UMKC’s rankings.” Regarding the
journal article, he concluded that the methodology the authors used and the
circumstances surrounding the article’s publication “were consistent with
generally acceptable professional practices.”
Leo E. Morton, chancellor of the University of
Missouri at Kansas City, said he was “pleased to have the Bloch School’s No.
1 ranking in innovation-management research validated,” but asserted that he
also took seriously the findings about flawed data submitted to Princeton
Review. “We have already implemented changes and will continue to seek ways
to improve our data collection,” Mr. Morton said.
The University of Missouri at Kansas City gave the
Princeton Review false information designed to inflate the rankings of its
business school, which was under pressure from its major donor to keep the
ratings up, according to
an outside audit
released Friday.
The audit -- by PricewaterhouseCoopers -- described
the process by which business school officials came up with creative reasons
to provide data that many at the school believed to be false, and that the
audit found to be false. In one case, for example, the university created a
wish list of clubs that it might support to promote entrepreneurial
students. The university then reported that its wish list was reality and
that it had all of those clubs, which in fact did not exist.
Another part of the audit found that an article
published in The Journal of Product Innovation Management -- an
article that ranked the university's business school as the top institution
in the world in the field of innovation management -- did not violate
professional norms. However, the audit also found that the journal was
unaware when accepting the article that it was written by scholars with ties
to the university.
But the audit also confirmed many of the findings
of an August article in The Kansas
City Star that found "a pattern of
exaggerations and misstatements" by the business school. At the time, the
university disputed the Star's report, but Missouri governor Jay
Nixon requested an investigation, and that request led to the report issued
Friday.
'By All Means Necessary'
PricewaterhouseCoopers officials had access to
senior UMKC officials (including some who left positions they had held in
the period covered by the audit) and to relevant e-mail messages. The e-mail
revealed a focus on finding ways to do well in the rankings in order to keep
happy the business school's largest donor (of $32 million), for whom the
school, the Henry W. Bloch School of Management, is named.
An e-mail from the then dean to colleagues said,
for example: "Henry Bloch gets very upset when our rankings go down. We must
do everything we can to increase it when we can by all means necessary.”
The audit then describes some of the things UMKC
did to rank high in the Princeton Review's evaluation of business schools'
(undergraduate and graduate) entrepreneurial programs.
For example, in answering a question about how many
students are enrolled in an entrepreneurship program, the university started
counting anyone who was taking a class in entrepreneurship. Not
surprisingly, the numbers jumped. For example, UMKC reported that
undergraduate enrollment in entrepreneurship programs increased in a year
(the year in which the university changed how it was filling out the form)
from 99 to 438. A dean told the auditors that he knew that figure "isn't
right."
Another change UMKC made helped it inflate answers
on another Princeton Review question: about what percentage of students
launch a business while enrolled. The university, the audit found, started
using primarily data from its e-scholar program (a certificate program for
entrepreneurs in which they must develop a business plan). The e-scholar
program students are not degree students or enrolled in the university, but
officials said they believed it was legitimate to use this group for
reporting, even though the Princeton Review ranks degree programs. Since all
of the e-scholar students must create business plans, the proportion of
undergraduates reported as launching a business increased from 44 percent to
100 percent from 2010 to 2011.
And then there was the question on clubs. The
Princeton Review asks: “How many officially recognized clubs/organizations
do you offer that are specifically for entrepreneurship students?”
The answers in 2009 were three each for
undergraduates and graduate students, and in 2010 were four each. In 2011
the figure jumped to 29 for graduate students and 28 for undergraduates.
Here's how the number of clubs "grew," according to
the audit. A business school official asked a colleague to put together a
wish list of clubs that might show an entrepreneurial focus at the
university. A second official "then instructed a UMKC graduate student to
populate these clubs onto the university’s webpage." UMKC "used the clubs'
existence on the university’s webpage as the only proof the club existed."
Officials believe "these additional 20-plus clubs never actually existed at
UMKC." Since the Star article, the number of clubs being reported
is down to five each for graduate students and undergrads.
The PricewaterhouseCoopers report says the
Princeton Review does not review the accuracy of information submitted to it
by colleges and universities and so did not do any independent analysis of
UMKC data. The audit also said it was not clear that any of the false
information would affect the business school's overall ranking.
But on Sunday night, Robert Franek, senior vice
president and publisher of the Princeton Review, said in an email to
Inside Higher Ed that Princeton Review would be removing UMKC from the
lists of best colleges and business schools for entrepreneurial programs.
“At The Princeton Review, for the past 34 years we
have provided accurate and timely information to students and parents to
help them make decisions about colleges and graduate schools. We were
extremely disappointed to learn that the University of Missouri-Kansas City
falsified data about the school per a report from PricewaterhouseCoopers on
January 30. As a result of this new information, we are removing the
University of Missouri-Kansas City from our 2014 ranking lists of the best
college and business school entrepreneurial programs," said a statement
Franek released. "Schools earn a spot on our entrepreneurship ranking
through school-reported data. Every school signs an affidavit to ensure
their information is accurate. We take these affidavits and this news very
seriously.”
Questions on a Journal Article
Another major part of the audit was a look at the
journal article published in The Journal of Product Innovation
Management.
On this question, the audit found that the article
was based on data analysis and that no shortcomings could be found in it.
But the article has been questioned from the time it was published. The
original Star article quoted a professor (anonymously, because he
feared speaking out) as saying that “We all knew that this was bullshit. We
knew that UMKC was not better than MIT and Stanford.”
While the audit didn't question the article's
findings, it did note concerns about it. The authors who asserted that UMKC
was tops in the world in innovative management did not disclose to the
journal that they were both visiting scholars at the university and knew
some of the players. Because the article was based on data (number of
articles written in journals of various influence, etc.), the journal's
editor said that the article's findings still stood. However, he said he
wished he had known about the authors' ties to the institution they praised.
The authors are two scholars from China. They gave
a letter to the auditor in which they said that there was no need to
identify their UMKC connections because the "double-blind" peer review
process -- in which they don't know who reviews their work, and the
reviewers don't know the author -- prevented conflict of interest. The
audit, however, found that at the journal in question "papers are solely
reviewed by the editor and not subject to the typical double-blind review of
other research papers."
Jensen Comment
Perhaps we should be more precise in using the term "audit" versus the term
"review." The article content uses the word audit whereas the title more
appropriately uses the term review. Then again maybe this was an audit since it
validated the numbers.
Price Waterhouse years ago was willing to lend its name to the possible
limits of the term "review." Over ten years before its merger with Coopers &
Lybrand, PW signed off on a review in 1987 of Days Inn financial statement
forecasts prior to a planned IPO of Days Inn. This was not an audit of the
forecast numbers themselves. But it was a "review" of the forecast procedures of
Days Inn and a review of the "underlying assumptions" in those forecasts.
I still have a prized copy of that 1987 Days Inn annual report in which PW
audited the 1987 financial statements and reviewed the financial statement
forecasts. A real estate appraisal company, Landhauer Associates, signed off on
the estimates of over 300 hotel exit values based on a sampling of the real
estate appraisals. I provide more details at
http://faculty.trinity.edu/rjensen/Theory02.htm#FairValue
Perform search on the phrase "Days Inn"
"Here's
The Painstakingly Detailed Budget Of A Couple Who Earns Nearly $15,000 A Month,"
by Libby Kane, Business Insider, January 26, 2015
Question
Suppose you were teaching a financial literacy course and used the following
monthly budget for a couple. What would you focus on to stimulate student
debates on the issues.
Hints
·The couple
earns $180,000 after-tax withholdings and tax estimated additional payments per
year (assuming both adults work giving rise to the day care allowance).
·My
calculation assuming a 4% APR 30-year mortgage initially is that the couple owns
a home originally costing $345,150 plus whatever they made in a down payment.
This price would be relatively high in a decadent farming town in Iowa and
relatively low in a suburb of most major cities. It would be a tent in Silicon
Valley. It would not be much of a house within a walking distance of virtually
all major universities in the USA.
The house probably cost a lot less if the $1,647.80 payment also covers property
taxes and mortgage insurance. Have your students estimate the original cost of
the home if the payments on the mortgage itself are only $1,000 per month. They
must be living in an old shack or a cramped town house.
·The life
insurance seems relatively low for a family with young children.
·The
"out-to-eat" budget is relatively low and can be used up entirely with two
nights out at nice restaurants per month. The family must eat out mostly at
fast-food and pizza joints. One way to save money plus eat healthy meals is to
eat at a nearby hospital like we did in both San Antonio (where the Northeast
Baptist Hospital was only a block away). Eating at the hospital was cheaper than
cooking at home. Erika worked full time at this hospital.
·The
electric bill of $200 would not cover our electric bill with heating and air
conditioning while we lived in San Antonio where the electricity and gas bill
was over $400 per month. In the White Mountains of New Hampshire electricity,
propane and heating oil would be more like $1,000 per month. It's very cold up
here.
·I think
for a younger family not of Medicare the medical, dental, and prescription drug
allowance is way too low in the budget shown in the article below. For retired
folks like us on Medicare the medical, dental and prescription outlays would be
much, much higher --- more like $1,500 per month. Younger folks naively think
Medicare is "free" after you retire. It's not free when you add in the cost of
Medicare itself, the cost of Medicare supplemental insurance, and the
out-of-pocket costs of medicine not covered by Medicare D.
·How about
the other monthly estimates?
Are they realistic for the USA?
Are important items deleted in terms of most families?
oIn San
Antonio where I watered my lawn with a sprinkling system my water and sewer
bills were over $200 per month
oMy Time
Warner cable bill is now over $160 per month
oWhat about
those monthly iPhone usage fees?
oHow about
home owner insurance and umbrella (liability) insurance?
oHow about
lawn and garden equipment such as a garden tractor and lawn mowers and snow
throwers?
oWhat about
furniture and appliance costs? Up here in the boondocks I spend quite a lot on
extended on-site warranties.
When you
teach from this budget you might go into more details regarding possible tax
strategy and retirement strategy pros and cons.
Not every place charges for water. We had a well in VA and we paid electricity
and maintenance for the pump, not for the water.
We had a lawn mower in VA. Here we have someone come and cut our grass who has
the equipment, about 100 per month in the growing season only. No snow. Even in
VA we had shovels, not power tools.
No TV, only cable for internet. Biggest utility charges electricity (we have big
OLD house) and phones.
We don't know where these people live. Costs vary widely depending on location,
even within counties.
Are there homes in Fort Worth that cost over a million? Sure. But there are also
homes in reasonable neighborhoods for less than $150,000. I live in one of those
neighborhoods.
I've lived in NYC, NJ, VA and now TX. Costs vary widely across those places and
within those places.
One if their biggest expenditure was school, which seemed likely to me.
Why do you doubt the truth of their budget?
Pat
February
2, 2015 reply from Bob Jensen
Hi Patricia,
I did not doubt the truth of their budget, but I did think they left a few
things out or were ambiguous about some things that need to be clarified by a
teacher or students using this budget in a financial literacy course.
For example, the $1,687 mortgage payment could be the mortgage alone or it could
also cover property taxes, homeowner insurance, and mortgage insurance. Take
those away from the payment and you are left with a fairly low-sized mortgage.
In my case the property taxes are $1,000 per month but they are not part of my
mortgage payment in these mountains. In fact the property tax payment and the
mortgage payment only differ by $200 because I paid over 60% down at the time of
purchase. Later I refinanced the remaining mortgage for 3.6% for 30 years. I pay
the homeowners insurance separately, and that's not cheap up here.
Most people cannot afford such a large down payment unless they're retired. In
rural mountain and ocean properties the banks typically require larger down
payments than in towns. In many instances former owners must finance the homes
they sell.
When I taught at the University of Maine I had an ocean cottage that could not
be financed except by an owner. Banks would not loan on shore property in those
days. That made interest rates highly variable, because they were part and
parcel to sales price negotiations. Owners also typically demand large down
payments when they finance sales properties.
I also wanted a mortgage so I could play the game of having more itemized tax
deductions plus invest more in a long-term insured tax-exempt mutual fund that
pays only slightly less than by mortgage interest rate. The standard deduction
sucks, but you have to have a sizable amount of itemized deductions to cover the
minimum threshold for itemized deductions..
I could pay the mortgage off any time, but I don't want to due to a tax strategy
that might be debated by students in a financial literacy course. That's why I
suggest having students debate alternate tax strategies at the same time they
are discussing household budgeting.
Having a deep water well makes me not concerned about the cost of water usage.
Wells only get expensive when you have to replace the well and or the pressure
tank and pump. Two of my neighbors had to replace their wells, and it cost each
of them thousands of dollars.
With a well also comes a septic system. The risk here is having to replace the
drain fields for broken tiles. That expense depends a lot on having sufficiently
high ground for another field. You can't put a new drain field over an old drain
field or in low land that does not drain well from rain and snow melt.
A B&B down the road is having all sorts of troubles finding a suitable place for
a new drain field. The small hotel has been empty for over a year in part
because of this problem and the need for a new well.
In San Antonio you could get housing relatively close to Trinity University for
less than $200,000 but most faculty who do so either do not have children or
send their children to private schools (which is really expensive). Also crime
risks are higher near campus relative to most outer northern parts of the city.
By higher crime risk I mean that I don't recommend walking near campus at night
and having to have high quality home security systems.
Trinity has very safe and well lighted walking, jogging, and biking trails on
campus that are heavily patrolled by officers on bicycles. These trails are used
a lot by neighbors not affiliated with the University. It's a public service.
Thanks for your thoughts,
Bob
Added Later
I think the bottom line of a study of this budget is that if budgeting is
difficult for a family making $180,000 after taxes think about the "poor"
family trying to do it on half as much income per year after income taxes.
The real bottom line is that you cannot divide each line item in this
$180,000 budget by two for a family making half as much ($90,000) after-tax
income.
Times have changed. In the 1970s when I lived in Maine I had a beautiful
and huge house beside the Eastern Maine Medical Center plus an ocean cottage
on 12 acres of shore front near Acadia National Park.
The cost of the ocean property was $37,500 that I financed with the
former owner. My wife only worked at home in those days, and my income was
about $50,000 per year from the University of Maine --- and we could still
afford two cars, attend NYC theater, etc. I was writing accountics research
articles in those days and earned zip in consulting.
In Florida I owned an acreage with horses while earning less than $80,000
per year. Only in Texas did my income jump to over $200,000 per year such
that I could get more serious about retirement savings for 24 years.
I don't know how a family earning less than $100,000 can make it in a
city like San Antonio, send the kids to decent schools, and still save for
retirement.
It's no wonder that in the 21st Century both parents must work outside
the home to make it all work.
PS It was a mistake to sell (in 1978 when we moved to Florida) the Maine
shore property for about what I paid for it in 1972. Today this shore
property most likely is worth more than a million dollars since it is so
close to Acadia National Park. In those days my property taxes on this
parcel were about $25 per month. Today they are more than likely to be over
to $2,000 per month on the shore.
When I think about it, keeping the shore property may have been a bad
deal because eventually the property taxes would've eaten me alive over the
decades. The cottage was and still is inaccessible in the winter and would
not obtain enough in summer rental to pay for the annual property taxes.
As an employer, would you rehire a former employee
guilty of misconduct? Say, someone you caught falsifying official forms,
peeking at secured confidential files, or misusing company property? How
about rehiring hundreds of such misbehaving workers? These aren’t trick
questions. Most employers breathe a sigh of relief when such an employee
departs. You don’t hire them back.
Rehiring is for someone you want back, not someone
who was a problem. But the IRS may be different from your average employer.
So suggests a new report by the Treasury Inspector General for Tax
Administration. The watchdog report says the IRS rehired hundreds of former
employees with prior substantiated conduct or performance issues.
The Inspector General identified hundreds of
rehires despite prior substantiated conduct or performance issues. Some were
serious. They ranged from unpaid taxes, unauthorized access to taxpayer
information, leave abuse, falsification of official forms, unacceptable
performance, misuse of IRS property, and off-duty misconduct. The Treasury
Inspector General for Tax Administration concluded that the rehires pose
increased risks to the IRS and taxpayers.
Having been one of those "lazy" professors who taught five hours per week
(two three credit courses) most of my career and worked 60+ hours per week
in academic tasks I view myself as the opposite of "lazy," I typically was
in my faculty office before 6:00 am. On days when I was back home at 4:00 pm
I was in my home office doing academic work. I also did not "waste" weekend
time.
However, I'm sure we all know professors who abused the tenure system. In
the gray zone are those who got paid for full time work by the university
but worked more hours each week on supplementary-income tasks such as
textbook writing and consulting. Quite a lot of my colleagues over the
years, before the days of tax and accounting software, had full-time tax and
bookkeeping businesses on the side.
In the red zone are professors who got paid for full-time by the
university, but worked many more hours per week in less professional
activities such as farming as a full-time hobby or sometimes as a full-time
business. I recall two acquaintances who were relatively big-time hog
farmers --- one at Kansas State University and the other at a Canadian
university.
As an MBA student at Denver University one of my hero professors showed
up on campus about 12-15 hours a week and spent much more time tending his
cattle and horses on a 4,000 acre ranch in South Park, Colorado. That was
how I hoped to live when I first went into a doctoral program.
By far the most common abuse of the tenure system came from lifetime
associate professors who, for one reason or another, became disgruntled
faculty members. Often they were unhappy due to low pay raises for
lackluster performance. They took out their unhappiness by abusing the
system henceforth and forever more --- spending as little time as possible
for the university that still paid them for full-time work. Many just gave
up on trying to do research and writing. That's the main reason they never
were promoted to full professor status.
Our profession is one of the most lenient in terms of parenting. I've
seen some parents abuse the system by spending as little time as possible on
campus during their years of child rearing.
Faculty members also take advantage of employers when they are
chronically ill. In other lines of work they would have to seek disability
status. For example, in most lines of work workers cannot put in 12 hours a
week for full-time pay when they are chronically depressed or bipolar or
whatever absentees on the job.
A depressed professor might go on "working" 12 hours per week with a
medical condition that would lead to termination in most other jobs.. I'm
very close with one such faculty member who only after ten years finally
took a pay cut to be declared disabled. That professor was usually badly
prepared for class, hopelessly out of date, and did not do a whole lot for
students in those ten years.
My point is that many faculty members in this profession are not "lazy"
so much as they are teaching on automatic pilot for 12 or less hours per
week while drawing full time pay for less than full time effort.
I don't think Governor Walker will get a
whole lot of benefit from increasing teaching loads of faculty from 6-12
hours per week to 12-18 hours per week.
Those putting in minimal effort in the classroom will still put in minimal
effort and otherwise abuse the spirit of their full-time faculty jobs.
The best hope for college students will be from innovations in the
combination of faculty and technology for getting more learning for the
dollars expended.
My beef is more at the K-12 level.
I think the average time spend by students in school is now about 4.5 hours
per day plus meal times. The school bus returning two little children down
the road goes by my house around 1:30 pm each afternoon. These kids are home
alone, probably watching cartoons and playing video games, until their
parents return after 5:00 pm.
In contrast, our minister's children are home schooled for roughly seven
intense hours per day. Which children will be better prepared for college?
When I was in school we were in school 8:30 am to 4:30 pm with less than
an hour for lunch (that we brought from home in a bag) and one class period
in study hall. I think that those longer hours spent in school contributed
greatly to what I still proudly call my work ethic.
Thanks,
Bob
Questions
With all the horror publicity about taxes in Manhattan why aren't the wealthiest
residents leaving for more tax friendly residences?
Why doesn't Wall Street move to Houston?
The wealthy have lots of good reasons to
invest their money in New York's residential real estate market,
panoramic views and strong returns among them.
But another perk, incredibly low taxes
for some penthouse buyers, have people furious.
The tax cut comes from a controversial
housing program known as 421-a. It offers huge tax breaks for luxury
properties that can last up to 25 years as long as the developers also build
affordable and moderate-income apartments.
But the 44-year-old program has been
criticized for only stimulating the luxury market, costing the city billions
in lost taxes, and allowing developers to “double-dip” by receiving benefits
for future luxury projects with previously-built affordable housing units.
In fact, the tax cuts are so extreme
that US Attorney Preet Bharara launched
an investigation into the 421-a program after a
state investigation on whether developers were receiving tax breaks in
exchange for political contributions was abruptly shut down by Governor
Andrew Cuomo. Continued in article
Jensen Comment
And there are other ways to avoid personal income taxes, business income taxes,
sales taxes, and property taxes in New York, including Manhattan.
New York may have among the highest taxes in the
nation, but it also gives out the most tax breaks, too.
New York has 71,759 tax-subsidy deals worth $21
billion on its books — more than five times any other state,
found a review Wednesday by the Mercatus Center at
George Mason University.
"Corporate welfare is a significant problem at the
state level, with New York state leading the rest," wrote Veronique de Rugy,
a researcher for the conservative group based in Arlington, Virginia.
New York is one of the highest-taxed states in the
nation, so political leaders have long relied on tax breaks to keep
businesses and lure new ones.
It gives out about $7 billion a year in tax breaks,
the largest being more than $1 billion to help clean up old industrial
sites.
The biggest subsidy in the state was $5.6 billion
awarded by the state Power Authority in 2007 to aluminum-maker Alcoa, the
center's report said. The company received a 30-year break on energy costs
for its plant in St. Lawrence County..
The deal ranks on a variety of lists as the second
biggest subsidy a state has ever given to a private company; only the $8.2
billion in incentives Washington state gave in 2013 to Boeing through 2040
for the assembly of a new jet ranks higher.
New York has given out some other big ones in
recent years: $1.2 billion in 2006 went to AMD, now GlobalFoundries, for its
semiconductor plant in Saratoga County. That ranked 14th on the center's
list. Another was $660 million to IBM in 2000 for its Dutchess County plant.
IBM now appears close to selling the plant to GlobalFoundries.
Gov. Andrew Cuomo in January started one of the
largest tax-break programs in state history: Start-Up NY, which offers
tax-free zones for 10 years to businesses. About two dozen small businesses
have already signed up. Earlier this month, Cuomo
launched Global NY to promote the state's improved
tax climate internationally.
"With companies already thriving and creating jobs
on the heels of programs like Start-Up NYSTART-UP NY, the Empire State has
quickly become a top choice for companies of all kinds," Kenneth Adams,
president of Empire State Development, the state's business arm, said in a
statement Oct. 7.
Republican gubernatorial candidate Rob Astorino,
the Westchester County executive, has blasted Cuomo's tax policies.
He has proposed cutting income-tax rates and
lowering business taxes further, arguing that Cuomo's strategy picks certain
industries for tax breaks.
"Why are we giving tax breaks to an industry that
doesn't need it?" Astorino said in a radio interview Wednesday.
Jensen Comment
A lot of wealthy people live in or move to New York for the tax breaks. The
little guys, however, move to Florida when they retire. Of course one of the
reasons is sunshine. And another reason is to be closer to older friends and
relatives. But NY taxes on the little guy are more onerous, including such
things and state income taxes and state inheritance taxes for those whose
estates are just large enough to get hit by NY
Financial traders are in a race to make
transactions ever faster. In today's high-tech exchanges, firms can execute
more than 100,000 trades in a second for a single customer. This summer,
London and New York's financial centres will become able to communicate 2.6
milliseconds (about 10%) faster after the opening of a transatlantic fibre-optic
line dubbed the Hibernia Express, costing US$300 million. As technology
advances, trading speed is increasingly limited only by fundamental physics,
and the ultimate barrier — the speed of light.
Through glass optical fibres, information travels
at two-thirds of the speed of light in a vacuum (300,000 kilometres per
second). To go faster, data must travel through the air. The corridors
between Chicago and New York and New Jersey, and between London and
Frankfurt, are bristling with efficient microwave and millimetre-wave links.
An even more efficient network of lasers — based on military technology for
in-flight signalling between aeroplanes — has been installed to link the New
York and New Jersey as well as the London and Frankfurt financial
exchanges1.
Next up may be hollow-core fibre cables, through
which light would travel in a tiny air gap at light speed. Trading firms
speculate about a fleet of balloons or uncrewed solar-powered drones
carrying signal repeaters to support a network of links across the oceans.
In a decade or so, firms may even communicate using neutrinos, which travel
at the speed of light and can go through obstacles, including Earth. It all
spells big profits for high-tech trading firms, which now account for around
50% of equity trading in the United States and in Europe.
But some firms claim that uneven access to extreme
speed erodes trading fairness. And system-wide failures occur when
algorithms interact in unforeseen ways — such as in the 'flash crash' of 6
May 2010, when the Dow Jones Industrial Average fell by the largest daily
amount ever within minutes (see 'Flash crash'). No one knows when a similar
event might spill over into global markets.
Avoiding these risks will require intensive
research on how markets work — as complex ecologies of interacting
algorithms — and how countermeasures could avert disasters. Getting ahead
High-frequency trading relies on fast computers,
algorithms for deciding what and when to buy or sell, and live feeds of
financial data from exchanges. Every microsecond of advantage counts. Faster
data links between exchanges minimize the time it takes to make a trade;
firms fight over whose computer can be placed closest; traders jockey to sit
closer to the pipe. It all costs money — renting fast links costs around
$10,000 per month.
Communications technology is a limiting factor.
Fibre-optic cables carry the most data, but do not give the speed required.
The fastest links carry information over a geodesic arc — the shortest path
on Earth's surface between two points. So line-of-sight microwaves are a
better option; millimetre waves and lasers are better yet, because they have
higher data densities.
Open-air communications systems are prone to
weather disruption. Anova Technologies, a network provider for trading firms
headquartered in Chicago, Illinois, has augmented its New York laser network
with millimetre waves to overcome rain, fog and snow. Adaptive alignment
mechanisms keep the links working even if winds make towers twist by up to
3°. But microwaves and lasers cannot be used over long distances without
repeaters. They attenuate quickly in the atmosphere and do not curve around
Earth.
The big investors cheating the small investors
High Frequency Trading and Its Insider Trading Frauds (not exactly insider
trading but, yeah, insider trading) ---
http://en.wikipedia.org/wiki/High-frequency_trading
Ever since Michael Lewis went on 60
Minutes Sunday night to accuse high-frequency traders of rigging the
stock market, it has been hard to avoid the debate over
HFT’s merits and evils. Some of
it’s been useful; most has been a lot of angry yelling. The peak of the
frenzy came on Tuesday afternoon in a heated segment on CNBC with IEX’s Brad
Katsuyama and BATS Chief Executive Officer William O’Brien.
To me, this debate
is just circling the ultimate question: Should high-frequency trading be
considered insider trading?
Classically defined,
insider trading means having access to material,
non-public information before it reaches the rest of the market; it’s like
getting a heads-up about a merger before it’s announced, or maybe a
phone call from a Goldman
Sachs (GS)
board member saying that Warren Buffett is about to
invest $5 billion in the bank. Over the past few years, federal prosecutors
have
collected a
number of big insider-trading
convictions of people who got early word about a piece of highly valuable
information and made a lot of money as a result.
To its most
vehement critics, high-frequency trading is not terribly dissimilar. The
most common accusation is that these traders get better information faster
than the rest of the market. They do this through three primary methods:
First, they put computer servers next to
those of the exchanges, cutting down the time it takes for an order to
travel from their computers to the exchanges’ electronic matching engines.
Second, they use faster pathways—fiber-optic
cables, microwave towers, and yes,
even laser beams—to trade more
quickly between far-flung markets such as Chicago and New York.
Last, they pay exchanges for proprietary
data feeds. This is where it gets really complicated. These proprietary
feeds are different than the public, consolidated data feed maintained by
the public exchanges, called the securities information processor, or the
SIP. Though it’s now a piece of software, the public feed is the modern-day
equivalent of the ticker tape that provided stock price data to brokers,
traders, and media outlets. It’s what feeds the stock quotes crawling along
the bottom of the screen on CNBC
(CMCSA)
Bloomberg TV, or on financial websites; when the
public feed
broke in August,
trading on NASDAQ stopped for 3 hours.
While the purpose
of the public feed is to ensure that everyone gets the same price
information at the same time, the playing field isn’t as level as it would
seem since exchanges sell proprietary feeds. And not just to HFT firms. Lots
of different types of investors buy proprietary market data from
exchanges. By law, prices must be entered into the SIP and the proprietary
feeds at the same time, but once the data leaves the exchanges, the
proprietary systems often process and transmit the information faster. These
feeds arrive sooner and contain more robust information—including all prices
being offered, not just the best ones.
From 2006 to 2012, Nasdaq’s proprietary
market data revenue more than doubled, to $150 million. The money it earns
from the public feed fell 21 percent over roughly the same period. So while
Nasdaq used to earn more money from its public feed, it now makes more from
proprietary ones. Especially after the August outage, this has stirred a lot
of complaints from market players that the
SIP has been neglected in favor of prop feeds. For
its part, Nasdaq has been
lobbying the committee
that oversees the SIP to beef it up.
Speed traders spend
a lot of money for faster access to better information. This allows them to
react more quickly to news and, in some cases, jump in front of other
people’s orders by figuring out which way the market is going to move. So is
that insider trading?
New York Attorney General Eric
Schneiderman has called HFT “insider trading 2.0″ on a
number of
occasions. His office is looking into the
relationships between traders, brokers and exchanges and asking whether it
all needs to be reformed. The FBI spent the last year looking to uncover
manipulative trading practices among HFT firms; the federal agency is
now asking speed traders to come
forward as whistleblowers.
U.S. laws dealing
with insider trading were first passed 80 years ago. Some restrict the way
corporate executives and board members can trade in and out of their
company’s shares. Others deal with the fair disclosure of important
information—which, when it comes to high-frequency trading, is what we’re
talking about here. These laws essentially require companies to release
material information, such as earnings, to everyone at the same time. No
playing favorites.
Racial and Other Social Inequality in the Acdemy
"Systematic inequality and hierarchy in faculty hiring networks," by
Aaron Clauset, Samuel Arbesman, and Daniel B. Larremore, Science Advances,
February 1, 2015
The faculty job market plays
a fundamental role in shaping research priorities, educational outcomes,
and career trajectories among scientists and institutions. However, a
quantitative understanding of faculty hiring as a system is lacking.
Using a simple technique to extract the institutional prestige ranking
that best explains an observed faculty hiring network—who hires whose
graduates as faculty—we present and analyze comprehensive placement data
on nearly 19,000 regular faculty in three disparate disciplines. Across
disciplines, we find that faculty hiring follows a common and steeply
hierarchical structure that reflects profound social inequality.
Furthermore, doctoral prestige alone better predicts ultimate placement
than a U.S. News & World Report rank, women generally place
worse than men, and increased institutional prestige leads to increased
faculty production, better faculty placement, and a more influential
position within the discipline. These results advance our ability to
quantify the influence of prestige in academia and shed new light on the
academic system.
INTRODUCTION
Faculty hiring is a
ubiquitous feature of academic disciplines, the result of which—who
hires whose graduates as faculty—shapes nearly every aspect of academic
life, including scholarly productivity, research priorities, resource
allocation, educational outcomes, and the career trajectories of
individual scholars . Despite these fundamental roles, a clear and
systematic understanding of the common patterns and efficiencies of
faculty hiring across disciplines is lacking.
From the institutional
perspective, faculty hiring is an implicit assessment: when an
institution u hires as faculty the graduate of another
institution v, u makes a positive assessment of the
quality of v’s teaching and research programs. Similarly, when
an individual accepts a job offer from u, he or she makes a
positive assessment of u’s quality. As a collection of such
pairwise assessments, a discipline’s faculty hiring network (Fig. 1)
represents a collective assessment (5)
of its own educational and research outcomes. When institutions are
unequally successful in faculty placement, achieving more placements at
other successful institutions implies a more positive collective
assessment of that institution’s outcomes.
Fig. 1Prestige hierarchies in faculty
hiring networks. (Fig. 1 not quoted here)
(Top)
Placements for 267 computer science faculty among 10
universities, with placements from one particular university
highlighted. Each arc (u,v) has a width
proportional to the number of current faculty at university
v who received their doctorate at university u
(≠v). (Bottom) Prestige hierarchy
on these institutions that minimizes the total weight of
“upward” arcs, that is, arcs where v is more highly
ranked than u.
Differential success
rates in such competitions are a hallmark of social hierarchy, which may
emerge from either physical dominance or social prestige mechanisms (6).
Among academic institutions, physical dominance may be neglected,
leaving social prestige, in which less prestigious institutions seek to
emulate the successful behaviors of more prestigious institutions in an
effort to bolster their own prestige (7,
8). In
this context, prestige in faculty hiring is an operational
variable that encompasses differences in both scholastic merit and
nonmeritocratic factors such as social status or geography. If such
factors are irrelevant, then prestige is equivalent to merit. More
realistically, nonmeritocratic factors play a role, and the greater
their importance, the lesser the correlation between prestige and merit.
The percentage of African-American and Hispanic students enrolled in law
school increased between 2010 and 2013, but those gains came almost
exclusively at less prestigious law schools with lower admission standards,
according to new research.
Aaron Taylor, an assistant professor at the Saint Louis University School of
Law, examined application trends, Law School Admission Test (LSAT) scores
and enrollment figures for minority and white students in both 2010 and
2013. He hoped to better understand how the dramatic downturn in law school
applications nationwide has affected diversity.
He found that law schools at the bottom of the prestige ladder — those with
the lowest median LSAT scores for incoming students — have relied
disproportionately on African-American and Hispanic students to fill their
classes. That shift may have served as an economic lifeline for law schools
during a difficult period, but bolstered the racial stratification that
already existed. Elite law schools with higher median LSAT scores actually
saw a proportional decrease in African-American and Hispanic students
between 2010 and 2013, Taylor found.
"You've got more black and Hispanic students attending
schools that are considered less prestigious in 2013," he said of his paper,
Diversity As A Law School Survival Strategy, which
will appear in the Saint Louis University Law Review.
From the CFO Journal's Morning Ledger on February 6, 2015
Sprint takes $1.9 billion write-down
http://www.wsj.com/articles/sprint-loss-widens-but-subscriber-losses-slow-1423141407
Sprint Corp. wrote down the value of its brand name by $1.9
billion, helping drag the wireless carrier to a wider loss than a year ago.
The wireless carrier also lost 205,000 mainstream “postpaid” cellphone
customers in the final three months of the year and posted a higher monthly
customer loss rate. The results extended a streak of customer losses, and
revenue declined 1.8% over the past year.
Jensen Comment
Among the most difficult things to value are brand names and goodwill,
especially when that value becomes impaired and must be written down. The Sprint
case might be a useful topic for academic research into why and how the write
down was so huge.
Could this be an earnings bath this year in an effort to show earnings growth
in future years?
In September 1998 at New York University, he gave a
speech entitled "The Numbers Game". It addressed five ways in which
corporations were managing earnings (big
bath charges, creative acquisition accounting,
cookie-jar reserves, materiality, revenue
recognition). In his speech, Levitt advocated improving the transparency and
comparability of financial statements
Continued in article.
From the CFO Journal's Morning Ledger on February 3, 2015
U.S. multinationals with major Chinese
operations, as well as U.S.-traded Chinese firms, may soon breathe a sigh of
relief regarding their audit procedures. A tentative deal in the works
between the Securities and Exchange Commission and the Chinese arms of the
Big Four accounting firms tosses out a six-month suspension from auditing
U.S.-traded companies,
the WSJ reports.
The suspension, which has been on hold while the firms appeal the ruling,
was levied last year after an SEC administrative judge ruled the firms
violated U.S. law by not handing over requested documents on their clients.
The audit firms said that by doing so, they would have risked jail time in
China, where the documents are treated as state secrets.
Overturning the suspension means U.S.
multinationals operating in China would be able to continue using the
Chinese Big Four firms to assist with their audits, without worrying a
suspension will preclude them from doing so. It also should spare more than
90 Chinese clients the possibility of having to seek new auditors.
Most multinationals have kept quiet about the
potential effects the audit-document dispute might have had on them. But if
a suspension had gone into effect, it could have forced them to scramble for
new auditors. Companies can’t sell securities in the U.S. or stay listed on
U.S. exchanges without audited financial statements. The settlement also
includes a strong framework for the firms to cooperate with the SEC and for
the agency to obtain audit documents in the future, though the details of
the framework weren’t clear
Wednesday.
From the CFO Journal's Morning Ledger on February 3, 2015
The responsibility to oversee financial reporting and compliance and to
monitor management activities remains fundamental for audit committees.
However, items such as information technology, regulatory matters,
globalization, risk oversight and tax issues have recently played a
significant role in many audit committees' activities, and may become more
prominent in 2015, as discussed in a recent edition of Deloitte's Audit
Committee Brief.
From the CFO Journal's Morning Ledger on February 3, 2015
U.S. firms agree that corporate tax
reform belongs at the top of the legislative agenda. But many financial
chiefs disagree with President Obama’s proposed remedies—and are doubtful
about his ability to find agreement with a Republican Congress,
write Vipal Monga and Joann S. Lublin for CFO Journal.
While Obama’s proposed 14% tax rate on overseas cash
and 19% rate on future foreign earnings represent a significant discount to
the 35% standard corporate rate, businesses remain clear on what they think
would be a fair rate on foreign earnings—zero. Only then, many argue, would
the playing field be leveled with rivals in most other developed countries.
And it isn’t just large multinationals
that are unhappy with the White House proposal.
Small exporters say that the move would make them
unable to compete with foreign competitors,
and require them to pivot to focus on domestic markets. Those firms are
already struggling with a stronger U.S. dollar making their products more
expensive overseas.
Although many proclaimed the proposal
to be dead on arrival, the plan also
ignited a push for dealmaking.
Mr. Obama’s call for sweeping tax increases in a budget proposal dropped any
quest for fiscal grand bargains with Congress, but also laid out narrower
domestic priorities that may appeal to Republicans, including a boost to
military spending and the possibility of a corporate-tax revamp.
Jensen Comment
I don't quite understand the jurisdictional rights the USA has to familiar
companies that have really become foreign corporations. For example, isn't
Burger King now a Canadian company? Isn't Accenture an Irish corporation?
It would seem that the President's tax proposal would motivate many USA
multinationals to relocate their headquarters off shore if this proposal was not
already DOA in the Republican-controlled House and Senate. Otherwise would this
a good time for Exxon to move to Ireland or Canada?
Also most of this cash parked off shore was not tax free cash. The
multinationals paid taxes to other countries when earning this cash earned by
operations outside the USA.
New Definition of the Audit Committee as the Corporate Board's "Kitchen
Junk Drawer"
From the CFO Journal's Morning Ledger on February 3, 2015
Meet the corporate board’s “kitchen junk drawer” ---
http://www.wsj.com/articles/meet-the-corporate-boards-kitchen-junk-drawer-1422933078
As new risks multiply, the audit committee has become
the “kitchen junk drawer” for many corporate boards, expanding its workload
sharply beyond its core role of overseeing a company’s financial reporting,
write Michael Rapoport and Joann S. Lublin for CFO Journal. Audit-committee
members are grappling with new regulations, whistleblower claims and issues
like cybersecurity and foreign corruption. The SEC is expected to suggest
new rules by the end of next month requiring them to disclose more about
their activities.
KPMG and its chief operating officer James Marsh
have been fined by the Financial Reporting Council for breaching ethical
standards
The auditing firm and its executive were taken to
tribunal over Marsh's failure to sell shares in Cable and Wireless Worldwide
when he became a partner of KPMG in 2011.
The telecoms giant, where Marsh had previously
“been in a position to exert significant influence over the financial
statements” was a client of the Dutch financial firm.
The tribunal agreed this was a form of misconduct,
and fined Marsh £60,000, though this has been reducd to £39,000 to reflect
his admissions.
KPMG was fined £350,000, though this was similarly
reduced to £227,000. In addition KPMG agreed to pay the majority of the
FRC’s costs.
Paul George, executive director of conduct at the
FRC, said: “I welcome the sanctions imposed by the tribunal in these matters
which serve to emphasise the central importance of the ethical standards for
auditors to the audit process.
“As the tribunal observes, they are at the very
heart of trust in the audit process on which public confidence in capital
markets and the conduct of public entities depends.”
One hundred objects from museums across the UK with
resources, information and teaching ideas to inspire your students’ interest
in history.
More about this project
Jensen Comment
As I scanned the above site it dawned on me how we might add historical objects
(or pictures or videos) of those objects into some of our accounting courses,
especially when teaching topics where accounting history is virtually ignored.
For example rather than just define the term "ledger" in bookkeeping the rich
history could be taught with images or even objects of this history such as
papyrus, quill pens, etc.---
http://en.wikipedia.org/wiki/Ledger (note some of the early
history)
Or when teaching modules from "data science" there are various objects that
might be visualized ---
http://en.wikipedia.org/wiki/Data_science
For examples perhaps objects of machine learning, signal processing, etc. could
catch student's attention.
For example, one possible assignment on a give topic might be to ask teams of
students to discover possible objects of historical interest on this topic.
I kick myself for having given or thrown away a succession of six of early
laptop computers that I owned over the years.
A nice timeline on the
development of U.S. standards and the evolution of thinking about the income
statement versus the balance sheet is provided at:
"The Evolution of U.S. GAAP: The Political Forces Behind Professional
Standards (1930-1973)," by Stephen A. Zeff, CPA Journal, January
2005 ---
http://www.nysscpa.org/cpajournal/2005/105/infocus/p18.htm
Part II covering years 1974-2003 published in February 2005 ---
http://www.nysscpa.org/cpajournal/2005/205/index.htm
Canadian Printer and Publisher (history of various trades and
industries) ---
http://link.library.utoronto.ca/cpp/
You can search for various industry terms such as accounting, cost,
bookkeeping, etc.
Accounting
History Review was formerly
titled Accounting, Business & Financial History is based out
of Cardiff University. Accounting History is a journal
published by Sage as a journal of the Accounting History Special
Interest Group of the Accounting and Finance Association of
Australia and New Zealand. The Accounting Historians Journal
a publication of the Academy of Accounting Historians is
independently published (and as a result far cheaper in price) than
the other two. The Accounting Historians Journal is much
older than the other two having entered its 39th year of
publication. Older editions of the AHJ are available on JSTOR and
other databases, with older back issues available for free at the
University of Mississippi Libraries website that also maintains the
AICPA libraries. I know editors at all three journals and all are
quite capable and respected individuals. There is a considerable
debate which of the journals are considered better than the other
with arguments made for each of the three.
Jim
McKinney, Ph.D., C.P.A. Accounting
and Information Assurance
Robert H. Smith School of Business
4333G Van Munching Hall
University of Maryland
College Park, MD 20742-1815
http://www.rhsmith.umd.edu
In Washington’s National Gallery of Art
hangs a portrait by Jan Gossaert. Painted around 1530, at the very
moment when the Dutch were becoming the undisputed masters of
European trade, it shows the merchant Jan Snouck Jacobsz at work at
his desk. The painter’s remarkable gift for detail is evident in
Jacobsz’s dignified expression, his fine ermine clothes and
expensive rings. Rendered just as carefully are his quill pen,
account ledger, and receipts.
This is, in short, a portrait of not only
wealth and material success, but of accounting. It might seem
strange that an artist would lavish such care on the nuts and bolts
of something so mundane, like a poet writing couplets about a
corporate expense report. But the Jacobsz portrait is far from
unique: Accounting paintings were a significant genre in Dutch art.
For 200 years, the Dutch not only dominated world trade and
portrayed themselves that way, but in hundreds of paintings, they
also made sure to include the account books.
This was not simply a wealthy nation
crowing about its financial success. The Dutch were the leading
merchants of their time, and they saw good accounting as the key to
both their wealth and the moral health of their society. To the
audience of the time, the paintings carried a clear message:
Mastering finance was an achievement requiring both skill and
humility.
Today when we see accountants in art or
entertainment, they are marginal figures—comically boring
bean-counters or fraudsters cooking the books. Accounting is almost
a synonym for drudgery: from the hapless daydreamer Walter Mitty to
the iconic nerd accountant Rick Moranis plays in “Ghostbusters.”
Accounting is seen as less a moral calling than a fussy brake on the
action.
In the wake of decades of financial
scandal—much of it linked to creative accounting, or to no
accounting all—the Dutch tradition of accounting art suggests it
might be us, not the Dutch, who have misjudged accounting’s
importance in the world. Accounting in the modern sense was still a
new idea in the 1500s, one with a weight that carried beyond the
business world. A proper accounting invoked the idea of debts paid,
the obligation of nightly personal reckonings, and even calling to
account the wealthy and powerful through audits.
It was an idea powerful enough to occupy
the attention of thinkers in religion, art, and philosophy. A look
back at the tradition of accounting in art shows just how much is at
stake in “good accounting,” and how much society can gain from
seeing it, like the Dutch, not just as a tool but as a cultural
principle and a moral position.
***
Scratches on ancient tablets show us that
accounts have been kept for as long as humans have been able to
record them, from ancient Mesopotamians to the Mayans. This kind of
accounting was about measuring stores: Merchants and treasurers
recorded how much grain, bread, gold, or silver they had. Most
ledgers were simple lists of assets or payments.
Accounting in the modern sense started
around 1300 in medieval Italy, when multipartner firms had to
calculate their investments in foreign trade. We don’t know who, if
anyone, can take credit for the invention, but it was around this
time that double-entry bookkeeping emerged in Tuscany. Instead of a
simple list, it consisted of two separate columns, recording income
in one against expenditures in the other. Every transaction of
expenditure could be checked against corresponding income: If one
sold a goat for three florins, one gained three florins and, in the
other column, lost a goat. It was a kind of self-checking mechanism
that also helped calculate profit or loss. In Hogarth’s “Marriage a
la Mode: The Tête a Tête,” the man with the account books walks off
in disgust (left).
HIP/Art Resource, New York
In Hogarth’s “Marriage a la Mode: The Tête
a Tête,” the man with the account books walks off in disgust (left).
It would come to change finance, but was
not an immediate hit. Any system of enforcing fiscal discipline is
an incursion against the absolute control of the account-holder, and
kings and the powerful tended to see themselves above the
merchant-like calculations of bookkeeping. They not only hid their
wealth and debts: They often did not bother to calculate them. In
the end, they saw themselves as only accountable to God; if they
needed more ready cash, they could always lean on their inferiors.
At least in the short run, it was far more comfortable to govern
without the constraints of financial accountability.
But in one place, the idea of financial
accountability did take hold. By the early 1500s, Holland had become
the center of global trade, with Antwerp and later Amsterdam acting
as the most important ports in the world. Ships arrived laden with
spices, exotic fruit, minerals, animals, whale oil, cloths, and
other luxury goods. In 1602, the Dutch government in essence created
modern capitalism by founding both the first publicly traded
company—the Dutch East India Company, or VOC—and the Amsterdam Stock
Exchange.
Accounting was central to managing not only
these companies, but also the Dutch government itself. While not all
tax collectors or company managers kept perfect double-entry books,
it represented an ideal. It was also seen as a necessary skill for
civic participation. Most members of Dutch society were fluent in
accounting, having studied at home or in publicly funded city
accounting schools.
Double-entry accounting made it possible to
calculate profit and capital and for managers, investors, and
authorities to verify books. But at the time, it also had a moral
implication. Keeping one’s books balanced wasn’t simply a matter of
law, but an imitation of God, who kept moral accounts of humanity
and tallied them in the Books of Life and Death. It was a financial
technique whose power lay beyond the accountants, and beyond even
the wealthy people who employed them.
Accounting was closely tied to the notion
of human audits and spiritual reckonings. Dutch artists began to
paint what could be called a warning genre of accounting paintings.
In Jan Provost’s “Death and Merchant,” a businessman sits behind his
sacks of gold doing his books, but he cannot balance them, for there
is a missing entry. He reaches out for payment, not from the man who
owes him the money, but from the grim reaper, death himself, the
only one who can pay the final debts and balance the books. The
message is clear: Humans cannot truly balance their books in the
end, for they are accountable to the final auditor.
This message rubbed off on political and
financial leaders. They were expected to keep good books, and they
could expect to be publicly audited—a notion fiercely resisted in
the great monarchies of the Continent. In the 17th century, another
genre of paintings emerged, showing public administrators holding
their books open for all to see. More than 100 of these paintings
were produced between 1600 and 1800. Transparency became a cultural
ideal worthy of art.
The Dutch also appreciated that ledgers,
bills of exchange, and files, like any tool in human hands, were
liable to misuse in the interest of wealth or pride. Dutch painters
like Marinus van Raemerswaele warned against hubris and greed with
paintings of bookkeepers as twisted, grotesque figures in absurd
hats who would be as likely to commit fraud as to keep good books.
The value the Dutch placed on accounting
made a large impression on the English, who sought to emulate “the
Mighty Dutch” in many ways, including this new business technique.
By the 1700s, they were also the only other nation to paint
accounting pictures. The English celebrated the wealth of their
Industrial Revolution and Empire with portraits of successful
merchants smiling over their books—and, like the Dutch, also used
account books as a way to wag a finger. In one scene from William
Hogarth’s “Marriage à la Mode,” a popular series of paintings from
the 18th century, a noble couple squanders their lives on parties
and gambling. In a final signal of disapproval, almost like a
punctuation mark, their accountant walks away in disgust.
***
By the late 19th century, accounting had
become a profession of its own, rather than fundamentally a shared
practice and value. It receded from the lives of individuals, and
began to take on more the reputation it holds today.
Continued in article
"Stock Prices and Earnings: A History of Research," by
Patricia M. Dechow, Richard G. Sloan, and Jenny Zha, SSRN
(no longer available free as a download from SSRN), Annual Review of Financial Economics, Vol. 6, pp. 343-363, 2014
December 2014 ($32 unless accessed free via your university's library
subscription)
http://www.annualreviews.org/doi/full/10.1146/annurev-financial-110613-034522
Abstract:
Accounting earnings summarize periodic corporate financial
performance and are key determinants of stock prices. We review
research on the usefulness of accounting earnings, including
research on the link between accounting earnings and firm value and
research on the usefulness of accounting earnings relative to other
accounting and nonaccounting information. We also review research on
the features of accounting earnings that make them useful to
investors, including the accrual accounting process, fair value
accounting, and the conservatism convention. We finish by
summarizing research that identifies situations in which investors
appear to misinterpret earnings and other accounting information,
leading to security mispricing.
Jensen Comment
AAA Members may want to accompany this paper with Bill Beaver's
recollections of his own pioneering research on stock prices and
earnings --- recollections given at the American Accounting Association
Annual Meetings as the 2014 Presidential Scholar.
Video (free to AAA members who are subscribed to the AAA Commons) ---
http://commons.aaahq.org/hives/8d320fc4aa/summary
It is somewhat surprising that a predictor
variable its extended versions (e.g., earnings per share) that cannot be
defined by the FASB and IASB can be an effective predictor after it no
longer can be defined. By not being definable, there is little
assurance that earnings, eps, etc. are consistently measured over time
for a single firm and across firms at a point in time.
Net earnings and EBITDA cannot be
defined since the FASB and IASB elected to give the balance sheet
priority over the income statement in financial reporting --- "The Asset-Liability Approach: Primacy does not mean
Priority," by Robert Bloomfield, FASRI Financial Accounting
Standards Research Initiative, October 6, 2009 ---
http://www.fasri.net/index.php/2009/10/the-asset-liability-approach-primacy-does-not-mean-priority/
Jensen Comment
I was not impressed by the search engine, but note the categories under the
search box such as "Accounting and Finance"
From the CFO Journal's
Morning Ledger on February 2, 2015
President Obama’s 2016 budget lays out his vision for a corporate tax
overhaul, including a one-time 14% tax on the approximately $2 trillion of
overseas earnings that businesses have accumulated,
the WSJ reports.
Companies would face a 19% minimum tax on future foreign profits, but could
reinvest those funds in the U.S. without paying additional tax.
Some
conservative commentators voiced optimism that the proposal could mark the
opening of productive negotiations with Republicans, who control both houses
of Congress. Still, Mr. Obama linked the one-time tax to spending on
infrastructure, and Rep. Pat Tiberi (R., Ohio) said in a statement “Changes
to our tax code just to fund more spending by our already bloated government
is not the way to boost our economy and encourage job creation.��
While a mandatory tax on existing overseas profits is at odds with some
recent proposals in Congress, some
leading Republican tax writers have embraced such an
approach in recent years. That suggests
that it could become a part of a final deal with Congressional Republicans.
How would a mandatory tax on overseas earnings affect your plans for cash
held abroad?
Let us know.
From the CFO Journal's Morning
Ledger on February 2, 2015
Amazon makes a push on college campuses
---
http://www.wsj.com/articles/amazon-makes-a-push-on-college-campuses-1422825521
Amazon.com Inc. has
struck deals with Purdue University, the University of Massachusetts,
Amherst, and the University of California, Davis, to operate co-branded
websites selling textbooks and other student related-items. While the deals
aren’t exclusive, they acknowledge the reality that students already shop on
Amazon. The websites will offer next-day delivery service, giving students
one fewer reason to head to a brick-and-mortar store. And the hope is that
when they graduate, they will spend more with Amazon.
Societal Cost Versus Company Costs
I needed an adapter plug that I ordered from Amazon for less than $2 and had
it shipped "free" as an Amazon Prime member. I say "free" because if I
was not an Amazon Prime member my total shipping costs from Amazon would greatly
exceed the $95 2015 annual flat rate ---
http://en.wikipedia.org/wiki/Amazon.com#Amazon_Prime
In the past I would have driven about 30 miles round trip to a Radio Shack
that's been out of business for years.
On Friday UPS delivered the adapter plug to my garage. UPS probably had stops
along the way before the hill to our cottage, but chances are that there were no
stops on Friday for about four miles up our hill and four miles back down. UPS
got paid for this tiny shipment that only weighed about three ounces.
It dawned on me that the real value of delivery of this $2 item hardly
justified the costs of the fuel, driver time, etc. to custom deliver a $2 item.
The issue of course is that UPS will deliver one item up this hill no matter
what is the value of the item itself. And even if Amazon had a minimum cost
per order, chances are I would have ordered other things that arrive at UPS on
different days. To my knowledge UPS delivers five days a week up here without
consolidating orders that arrive on different days before delivering up our
hill.
This may be something to think about when teaching cost accounting. Who gets
paid and who gets screwed?
Jensen Comment
The outcome of this lawsuit could have very expensive ramifications on tens of
millions of online videos and live broadcasts. Many learning videos will simply
be withdrawn from the Internet. It might be a good time to consider downloading
and archiving the videos most likely to be withdrawn from the Internet such as
those on YouTube learning channels and those now available at links provided at
http://faculty.trinity.edu/rjensen/000aaa/updateee.htm#OKI
What I think is at issue here is whether free learning materials should
be subject to the same criteria as fee-based materials.
For example, providers of fee-based courses and learning materials can
factor in the extra cost of learning aids such as when a live course factors
in the cost of employing "signers"
when delivering a live course on campus or over the Internet ---
http://en.wikipedia.org/wiki/Hearing_loss#Sign_language
A new lawsuit accuses Harvard University and
the Massachusetts Institute of Technology of failing to provide closed
captioning in online teaching materials, in violation of federal
antidiscrimination laws, The New York Times reports. The lawsuits were
filed by the National Association of the Deaf, and seek an injunction
requiring that closed captioning be provided for all online materials.
Both colleges provide extensive educational
resources free online, including through their membership in edX, which
offers dozens of MOOCs to students around the world.
Advocates for the deaf on Thursday filed a
federal class action against Harvard and M.I.T., saying both
universities violate antidiscrimination laws by failing to provide
closed captioning in their online lectures, courses, podcasts and other
educational materials.
Kicking the can down the road doesn’t seem to work
for many distressed companies.
The percentage of repeat defaulters since the Great
Recession is more than double the historical average. That suggests that lax
credit markets allowed troubled companies to paper over their problems
without fixing them, according to a report Thursday by Moody’s Investors
Service MCO -0.56%.
Nearly 39% of companies that defaulted between Sept
1, 2010 and Sept. 30, 2014, did so more than once, according to Moody’s.
That’s more than twice the 17% historical average of repeat defaulters,
going back to 1987.
Many companies that either sought Chapter 11
bankruptcy protection or missed bond payments during the Great Recession
used the wide-open credit markets to borrow more money or restructure their
debt.
“They were pushing off the inevitable,” said David
Keisman, a Moody’s analyst.
Moody’s tallied 72 companies registering a default
during the 2010 to 2014 timeframe.
Repeat defaulters include casino operator Caesars
Entertainment Corp.CZR -1.79%, formerly Harrah’s Entertainment Inc., which
filed for Chapter 11 bankrupt protection earlier this month, after several
debt exchange offers.
Texas power company Energy Future Holdings Corp.,
the former TXU Corp., which is reorganizing under Chapter 11, was another
repeat defaulter, after making a series of deals to exchange existing debt
for other bonds with longer maturities and higher rates
That some bankers have ended up in
prison is not a matter of scandal, but what is outrageous is the fact that all
the others are free.
Honoré de Balzac
Bankers bet with their bank's
capital, not their own. If the bet goes right, they get a huge bonus; if it
misfires, that's the shareholders' problem.
Sebastian Mallaby. Council on Foreign Relations, as quoted by
Avital Louria Hahn, "Missing: How Poor Risk-Management Techniques Contributed
to the Subprime Mess," CFO Magazine, March 2008, Page 53 ---
http://www.cfo.com/article.cfm/10755469/c_10788146?f=magazine_featured
.
Jensen Question
Why do stockholders take a beating while the bad guys just go on scheming new
crimes?
On Tuesday, IBM announced that it is investing
$1 billion over the next five years in a hot new area of enterprise tech
called "software-defined storage."
This is important and interesting for a whole
bunch of reasons — and shows that CEO Ginni Rometty has her competitive
game on.
She's got a plan to move her massive
400,000-ish strong workforce from shrinking businesses and towards
growth areas, even though it's painful, with a number of
quiet layoffs involved.
To understand why this new $1 billion
investment is cool, you need to know two things:
"Software-defined" is a huge trend in the $3 trillion enterprise
technology market.
This is
the second big move that IBM has made that puts it on a collision
course with storage giant EMC, and the $17 billion storage market
that it dominates with about 30% market share, according to
IDC as reported by Forbes.
Software is eating the enterprise data center
"Software-defined" is a term that refers to
taking expensive hardware, removing the all the fancy features from it
that makes it expensive and putting those fancy features into software
apps that run on special computers. You still need the hardware, but you
need less of it, less expensive varieties and your data center becomes
faster, more efficient, and less expensive — important for today's cloud
computing needs.
Software-defined networking (SDN) is already
happening, forcing market leader Cisco to respond.
A Florida resident who taunted authorities as she
stole millions from the IRS, has been jailed for 21 years
It’s tax season again, and everyone is waiting on
the big refund check from good old Uncle Sam. For those who don’t save
receipts, or think they can outsmart the IRS; think again.
Rashia Wilson, who pleaded guilty to wire fraud and
aggravated identity theft earlier this year, admitted to stealing over $3
million from the IRS. Tampa police were first alerted to the fraud in 2010
when they noticed a drop in drug dealing in the area. Wilson’s fraud was
discovered during a two-year investigation called ‘Operation Rain Maker’.
The multi-agency investigation included Hillsborough County Sheriff’s
Office, Tampa Police Department, IRS-Criminal Investigations, the Secret
Service, and the U.S. Postal Inspection Service.
Wilson became a prime suspect in the investigation.
Her mother was addicted to cocaine when she was born, while her father was
in prison while she was growing up. She came up from a life of poverty,
having been diagnosed as Bi-Polar when she was 14; and then suddenly
becoming rich.
Those involved in the tax fraud operation used
stolen social security numbers to file returns. The scam caused ordinary
taxpayers to have to wait for up to a year to even receive their refunds.
She still claimed food stamps, and became reckless
spending money she supposedly didn’t have…$90,000 on an Audi A8, $30,000 on
her son’s first birthday party, designer handbags from Prada, Gucci, and
Louis Vuitton, and custom jewelry. Then she wore a diamond studded piece
holding racks of money, and put herself on blast on social media. When
police searched her residence in Wimauma they removed electronic goods,
including large flat-screen TV’s, and designer goods. Police say the number
of security cameras around the property had raised suspicions.
The recent corruption charges against New York
Assembly Speaker Sheldon Silver reveal the rot that has long plagued Albany.
But the story deserves more national attention for exposing the links
between politicians and the asbestos-plaintiffs bar.
The 70-year-old Mr. Silver, among the state’s most
powerful Democrats, stands accused of five counts of extortion, fraud and
conspiracy. But the core of U.S. Attorney Preet Bharara’s 35-page complaint
is the allegation that Mr. Silver engaged in an asbestos kickback scheme for
more than decade. He allegedly used his Albany power to steer taxpayer money
to an asbestos doctor, who in return gave him the names of patients for
high-dollar asbestos lawsuits.
As some courts have grown more skeptical about
asbestos claims that are often bogus, the trial bar has focused on
mesothelioma cases. Mesothelioma is a cancer linked to asbestos and has long
been considered a legitimate tort claim. The Silver complaint is a case
study in how lawyers, doctors and politicians conspire to recruit
mesothelioma victims and pump up court payouts.
Prosecutors say Mr. Silver recruited plaintiffs
through Robert Taub, who until recently led a research center for
mesothelioma at Columbia University. Mr. Silver used his discretionary power
over state funds to direct $500,000 in grants to Dr. Taub’s center. He also
sent $25,000 to a nonprofit associated with Dr. Taub’s wife, sponsored a
state Assembly resolution honoring the doctor, and helped get the doctor’s
son a job, according to the complaint.
In return, the complaint says, Dr. Taub gave Mr.
Silver names of mesothelioma patients who could be plaintiffs in asbestos
lawsuits. Mr. Silver passed the names to Weitz & Luxenberg, a powerhouse
asbestos firm where Mr. Silver worked as a lawyer and was paid a salary of
$120,000. Weitz & Luxenberg also paid Mr. Silver a fee for mesothelioma
patient referrals, totaling $3.2 million.
Mr. Silver has resigned as Speaker but says he will
be “vindicated.” Dr. Taub is serving as a witness in the government’s case
against Mr. Silver and hasn’t been charged, though he resigned from the
Columbia center after the Silver complaint became public. Weitz & Luxenberg
says it is “shocked” by the charges against Mr. Silver, who has taken a
leave of absence from the firm. Prosecutor Bharara says the firm was unaware
that Mr. Silver directed state money to Dr. Taub in return for referrals.
But it’s important to recognize that a
contributions-for-patients arrangement isn’t rare. The complaint against Mr.
Silver refers to “law firms” that have contributed to mesothelioma
researchers. The complaint also refers to “the Other Asbestos Firm” whose
affiliated foundation donated to Dr. Taub’s center and also received the
names of potential plaintiffs. News reports have identified that other firm
as the Simmons Law Firm of Illinois and the donation amount as $3.2 million.
The Simmons firm has not been charged and the New York Times reports the
firm said in a statement that it is proud to fund research at Columbia.
Though it is not part of the criminal case, Mr.
Silver also used his political influence to promote judges who look
favorably on asbestos claims. Mr. Silver appointed Arthur Luxenberg, a
founder of Weitz & Luxenberg, to a state judicial screening committee that
vets candidates for appointed judicial posts.
One state judge who has advanced during Mr.
Silver’s tenure is Sherry Klein Heitler, now chief judge of New York City
Asbestos Litigation (NYCAL). More than half the cases in the NYCAL docket
are Weitz & Luxenberg’s. In the past four years the firm won $273.5 million
of the $313.5 million (87% of the total) awarded in 15 mesothelioma
verdicts—$190 million in 2014.
The American Tort Reform Association’s most recent
report on “judicial hellholes” notes that this windfall was aided by Judge
Heitler’s ruling last year, made at the request of Weitz & Luxenberg, to
reverse a 20-year policy deferring punitive damages in asbestos cases. Judge
Heitler’s predecessor had explained in a legal paper that punitive damages
for wrongs committed 30 years ago serve no corrective purpose, and money
could be better used to compensate genuine victims.
Judge Heitler’s ruling opened the cases to fatter
verdicts and settlements that allow bigger paydays for plaintiffs firms.
Judge Heitler has said that only the legislature can “deny plaintiffs the
opportunity to seek punitive damages.”
NYCAL judges have also allowed the consolidation of
cases, which stacks the deck against defendants who feel compelled to settle
rather than risk a jackpot verdict. The consultants at Bates White report
that the average NYCAL asbestos award is now $16 million—two to three times
the average in courts nationwide. Sixty percent of Weitz & Luxenberg’s
revenue comes from asbestos cases, much of it from mesothelioma patients.
Media commentary about the Silver case is playing
as a familiar morality play about money in politics. But the real problem is
a New York state government that protects incumbents with gerrymandered
seats and provides enormous and largely unchecked power to bestow political
favors. The link between politicians and the asbestos bar is one example
that is ripe for further investigation. The Silver case isn’t an aberration.
From the
CFO Journal's Morning Ledger on February 24, 2015
Longevity isn’t all it’s cracked up to be, especially if you’re trying to
balance the books for a defined benefit plan. The Society of Actuaries’
revised mortality assumptions, released in October, now have to be reflected
on corporate balance sheets, theWSJ’s Michael Rapoport reports.According to the new estimates, the average
65-year-old man today will live 86.6 years, up from 84.6 the Society of
Actuaries estimated a decade and a half ago. The average 65-year-old woman
will live 88.8 years, up from 86.4. Good news for humanity, but bad news for
recent earnings reports.
Teaching
Case on Pension Write Downs From The Wall Street Journal Accounting Weekly Review on January 23, 2015
SUMMARY: AT&T
Inc. said it would take a $7.9 billion charge for pension-related costs at least
partially because people are living longer. The telecommunications giant said
the losses were in part due to "updated mortality assumptions" in addition to a
decrease in the rate it uses to measure its pension obligations. AT&T, along
with about 30 other companies, in the past few years has switched to
mark-to-market pension accounting to make it easier for investors to gauge plan
performance. With the switch, pension gains and losses flow into earnings sooner
than under the old rules, which are still in effect and allow companies to
smooth out the impact over several years. Companies that switch to valuing
assets at up-to-date market prices may incur more volatility in their earnings,
but it offers a more current picture of a pension plan's health.
CLASSROOM
APPLICATION: This
is a good article to use when covering accounting for pensions.
QUESTIONS: 1. (Introductory) What are the details of AT&T's announcement? What is
the reason for the changes?
2. (Advanced) Please explain how the changes will impact each of the
financial statements. Will those changes be material?
3. (Advanced) In general, what is mark-to-market? How does mark-to-market
affect pension accounting? What are the benefits of mark-to-market? What are
potential challenges?
4. (Advanced) How have AT&T pensions adjustments changed from
year-to-year? How does this impact financial statement analysis?
Reviewed By: Linda Christiansen, Indiana University Southeast
AT&T Inc. on Friday said it would take a $7.9 billion charge for
pension-related costs at least partially because people are living longer.
The telecommunications giant said the losses were in part due to “updated
mortality assumptions” in addition to a decrease in the rate it uses to
measure its pension obligations.
The nonprofit Society of Actuaries recently updated its mortality tables for
the first time since 2000 to reflect the longer lifespans, estimating
today’s retirees will live about two years longer than in 2000. That means
companies will have to sock away more money to pay benefits for those added
years.
Mercer LLC estimates that corporate pension liabilities totaled about $2
trillion at the end of 2013. The increased life expectancy will add about 7%
to the pension obligations on balance sheets, according to consulting firm
Aon Hewitt. The increased costs may be enumerated in the coming weeks as
companies report earnings.
AT&T, along with about 30 other companies, in the past few years has
switched to mark-to-market pension accounting to make it easier for
investors to gauge plan performance.
With the switch, pension gains and losses flow into earnings sooner than
under the old rules, which are still in effect and allow companies to smooth
out the impact over several years.
Companies that switch to valuing assets at up-to-date market prices may
incur more volatility in their earnings, but it offers a more current
picture of a pension plan’s health.
A year ago, AT&T posted a $7.6 billion pretax gain tied to pension
accounting.
AT&T also said it would take a $2.1 billion noncash charge in the fourth
quarter after it determined that certain copper assets won’t be necessary to
support future network activity, because of lower demand for legacy voice
and data services and the move toward new technology. It said those copper
assets will be abandoned in place.
SUMMARY: How
much will it cost to have a professional prepare your tax return this year? The
national average fee for 2014 returns will be $273, according to a survey by the
National Society of Accountants. Tax-preparation fees vary widely based on an
individual's circumstances and also the preparer-who could have a great deal of
formal training or none at all. The National Society of Accountants says its
members are "owners, principals and partners of local 'Main Street' practices
who hold a variety of credentials." That average $273 fee is for a Form 1040
plus Schedule A (for itemized deductions such as mortgage interest and
charitable donations), plus a state return. This year's average fee is 11%
higher than two years ago.
CLASSROOM
APPLICATION: This
is an interesting look at the price of tax return preparation to use in tax
class.
QUESTIONS: 1. (Introductory) What are the ranges of tax return preparation fees
reported in the article?
2. (Advanced) What group collected the fee data? How are the member
described? Does this survey give an accurate representation of tax preparers?
What groups of preparers or companies are missing? How might the reported data
change if all paid preparers were included?
3. (Advanced) What are some possible explanations for fees varying in
different parts of the country? Must this work be done locally? Could national
competition affect and reduce local differences? Why or why not?
4. (Advanced) Review the prices for the various schedules and types of
returns. Are those price reasonable? Would you be willing to do that work for
those prices? How could preparers justify higher prices?
Reviewed By: Linda Christiansen, Indiana University Southeast
How much will it cost to have a professional prepare your tax return this
year?
The national average fee for 2014 returns will be $273, according to a
survey by the National Society of Accountants.
Tax-preparation fees vary widely based on an individual’s circumstances and
also the preparer—who could have a great deal of formal training or none at
all. The National Society of Accountants says its members are “owners,
principals and partners of local ‘Main Street’ practices who hold a variety
of credentials.”
That average $273 fee is for a Form 1040 plus Schedule A (for itemized
deductions such as mortgage interest and charitable donations), plus a state
return. This year’s average fee is 11% higher than two years ago, the last
time the survey was conducted.
(In other tax news, increased charges for TurboTax tax-preparation software
provoked a revolt among some users, and taxpayers should expect the worst
service from the Internal Revenue Service since at least 2001.)
The average cost reported by the National Society of Accountants conceals a
wide variation among regions, as seen in the graphic below. The group found
that the highest average fee, $348, will be charged by survey participants
in the Far West—a region encompassing California, Oregon and Washington, as
well as Hawaii and Alaska.
The lowest average fee, $198, is expected in the upper Midwest—Iowa, Kansas,
Minnesota, Missouri, Nebraska, North Dakota and South Dakota.
Graph Not Exhibited Here
The survey also reported average fees for preparing additional tax forms.
They include:
$174 for Schedule C (business)
$115 for Schedule D (investment gains and losses) $126 for Schedule E (rental income)
$158 for Schedule F (farm) $634 for Form 1065 (partnership) $817 for Form 1120 (corporation)
$778 for Form 1120S (S corporation)
According to the survey, many tax preparers offer prospective clients a free
consultation that could be worth $100 or more—but they also charge an
average fee of $114 for dealing with disorganized or incomplete records.
The average fee for expediting a return is $88, and there’s often a charge
the client does not provide information by an agreed-upon deadline.
The average hourly rate to handle an Internal Revenue Service audit is $144.
Continued in article
TurboTax
is Suspected Since the Other Tax Preparation Software Has Not Yet Been Breached "FBI to Probe Fraudulent Tax Filings: As States Move to Contain Bogus
Returns Through TurboTax, Signs Emerge That Fraud
May Involve Federal Filings," by Laura Saunders. Liz Moyer in New York, and
Devlin Barrett, The Wall Street Journal, February 11, 2015 --- http://www.wsj.com/articles/fbi-to-probe-fraudulent-tax-filings-1423614826
The Federal Bureau of Investigation has opened a probe to determine whether
a computer data breach led to the filing of false tax returns through
TurboTax software, according to a person familiar with the case.
The move comes as states try to contain a wave of bogus state tax filings
through TurboTax amid signs that the fraud may also involve federal returns,
according to some security specialists and taxpayers.
FBI investigators are still working to determine exactly how personal
information was obtained to file bogus returns in about 19 states and
whether that information may have been stolen from TurboTax or somewhere
else, the person said.
TurboTax parentIntuit
Inc. says it believes recent instances
of fraud didn’t result from a breach of its systems, based on a preliminary
examination conducted with the assistance of independent security experts.
“Tax fraud is an industrywide issue and Intuit is actively engaged with
federal and state governments, as well as industry associations, to fight
fraud,” the company said in a statement. “Intuit has not been notified, nor
are we aware, that we are the target of an FBI investigation. We work with
law-enforcement agencies, including the FBI as appropriate, on matters such
as identity theft.”
Continued in article
Some
States (e.g. Minnesota) Are Refusing eFiled TurboTax Returns
Possible fraud activity tied to the software will be investigated.
Minnesota has stopped accepting tax returns filed through TurboTax, a
popular tax preparation software, because of possible fraudulent activity.
Just as tax season is ramping up, Revenue Department officials made the
urgent announcement late Thursday after two taxpayers reported that they had
logged into Intuit’s TurboTax to file but were advised a return had already
been filed. Because it could indicate fraud, state officials are blocking
new TurboTax returns from coming in. They also are reviewing a “couple of
thousand” returns that have already been filed using TurboTax.
“If we identify a problem, we will contact the taxpayer,” said Revenue
Commissioner Cynthia Bauerly.
Meanwhile, TurboTax says it has temporarily stopped processing state tax
returns due to the increase in fraudulent fillings. Intuit Inc., the company
behind the popular tax preparation software TurboTax, said it is working
with security company Palantir to investigate the problem. So far, Intuit
says there was no security breach of its systems. Instead, it believes
personal information was taken elsewhere and used to file returns on
TurboTax.
Intuit says state tax returns already filed since Thursday will be
transmitted as soon as possible. Users can still submit their federal income
tax returns.
Utah state tax officials also announced Thursday that they have discovered
28 fraudulent filings from third-party vendors. Some taxpayers there also
reported logging into TurboTax to file and then getting a message that their
returns already had been filed.
Utah officials said 18 other states have identified similar problems.
Minnesota officials said Intuit, which is based in Mountain View, Calif.,
will open a dedicated phone number beginning at 8 a.m. Friday for people
with concerns about the issue. TurboTax users can call 1-800-944-8596.
Minnesota Revenue Department officials said they were made aware of the
issue with TurboTax on Wednesday night and “worked around the clock” to
investigate the problem. They will continue to accept returns filed with
Intuit professional preparer products, including Lacerte, Intuit Tax Online
and ProSeries.
Bauerly said the Department of Revenue systems have not been breached and
that the state has a “robust fraudulent protection system in place.”
Bauerly said her department has contacted Intuit and requested information
on their security solutions and any other issues the company has discovered,
along with solutions to resolve them.
Efforts to reach Intuit for comments Thursday night were not successful.
Continued in article
February
6, 2015 messagte from Scott Bonacker
Krebs on Security has posted a new item.
TurboTax owner Intuit Inc. said Thursday that it is temporarily suspending
the transmission of state e-filed tax returns in response to a surge in
complaints from consumers who logged into their TurboTax accounts only to
find crooks had already claimed a refund in their name.
TOPICS: Incomplete
Nongrantor Trust, State Taxation, Tax Planning, Trusts
SUMMARY: Incomplete
nongrantor trusts are serious tax-minimization tools. They are often formed in
Delaware, Nevada and sometimes Wyoming, chosen because they don't tax the income
of trusts established there, even by people who live elsewhere, or have
favorable tax rules. In a typical scenario, an individual would put into the
trust an asset or assets that already have gone up a lot in value or that he or
she hopes will appreciate sharply, such as shares in a private company that
plans to go public. The aim is usually to sell the securities, at which point
federal tax would be due-but not state tax. Alternatively, the trust could be
used to hold assets that throw off a lot of income each year, sheltering that
income from state tax.
CLASSROOM
APPLICATION: This
article is appropriate for an individual taxation class.
QUESTIONS: 1. (Introductory) What is an incomplete nongrantor trust? How are they
structured? What is the purpose of those trusts? What are the benefits?
2. (Advanced) Where are incomplete nongrantor trusts formed? Why? Where
do the taxpayers who utilize these trusts reside?
3. (Advanced) In general, how do states tax residents? Do states tax
nonresidents? How do these trusts work for taxpayers in high-tax states?
4. (Advanced) How are incomplete nongrantor trusts eligible for the
tax-saving treatment? Who owns the trust? Who owns the assets?
5. (Advanced) What are private-letter rulings? For what are they used?
What is the IRS changing regarding private-letter rulings?
Reviewed By: Linda Christiansen, Indiana University Southeast
These trusts may have funny-sounding names, but for some high-net-worth
individuals, they are serious tax-minimization tools.
Known as incomplete nongrantor trusts, they are often formed in Delaware,
Nevada and sometimes Wyoming, hence their acronyms “DING,” “NING” and
“WING.” Those states are chosen because they don’t tax the income of trusts
established there, even by people who live elsewhere, or have favorable tax
rules.
In a typical scenario, an individual would put into the trust an asset or
assets that already have gone up a lot in value or that he or she hopes will
appreciate sharply, such as shares in a private company that plans to go
public. The aim is usually to sell the securities, at which point federal
tax would be due—but not state tax. Alternatively, the trust could be used
to hold assets that throw off a lot of income each year, sheltering that
income from state tax.
At some point, the dollars in the trust would typically be distributed to
the person who created the trust and other beneficiaries.
Advisers say the strategy is especially in demand with residents of
California and New Jersey, where top marginal income-tax rates are 13.3% and
8.97%, respectively. (Those rates apply to capital gains as well as to
ordinary income.)
New York, another high-tax state, clamped down on the practice last year and
won’t let New York residents use the trusts to avoid state taxes.
One risk is that additional states could negate the tax benefits for their
residents. In California, Denise Azimi, a spokeswoman for the state
Franchise Tax Board, says, “We are aware of the trust instruments. We are
actively monitoring them. We will evaluate the situation to determine the
best course of action.”
Says Andrew Katzenstein, a lawyer at Proskauer Rose in Los Angeles: “There’s
a pretty good bet that the [California tax authority] is going to try to
blow this up, but with careful planning there are opportunities to avoid
California tax using these.”
A spokesman for New Jersey’s Office of Legislative Services says, “There is
no pending legislation on this subject.”
Even before President Barack Obama proposed raising federal taxes on high
earners in his State of the Union address this past week, earlier increases
imposed by a 2012 law had encouraged high-net-worth people to look hard for
tax savings.
“People are being crushed by the effect of federal and state taxes and
looking for ways to reduce their effective rate,” says Brent Lipschultz, an
accountant and adviser at EisnerAmper in New York.
To see the benefits of a DING or related trust, consider an example from
Suzanne Shier, the chief tax strategist at Northern Trust, of a hypothetical
individual who has a $10 million asset he originally acquired at a $1
million cost basis. He wants to sell it, but lives in a state where the tax
is 10%.
If he puts the asset in a DING trust and then sells it, he avoids a
state-tax bill of $900,000. He would still owe $2,142,000 in federal tax,
assuming the top capital-gains rate of 20% plus the 3.8% surtax on net
investment income. The assets remaining after the federal tax bill was paid
would be $7,858,000 compared with $6,958,000 if it weren’t in a DING trust.
To pull this off, a little legal maneuvering is needed, because the trust
has to accomplish two things. It has to be designed so that the individual
gives up enough control of the asset to not be considered an owner under
federal income-tax rules; that nonowner status is indicated by “nongrantor.”
But the individual must retain enough control of the asset so as not to
trigger gift taxes.
A gift is considered “incomplete” if the person giving it retains some level
of control. With a DING, NING or WING, the individual usually sits on a
committee of beneficiaries that has the power to change or direct the
distribution of the assets, including making distributions back to him or
herself.
A number of taxpayers have gotten private-letter rulings from the Internal
Revenue Service OK’ing aspects of their particular arrangements for U.S. tax
purposes, including verifying that gifts are incomplete, says William
Lipkind, a partner at the New Jersey law firm Lipkind Prupis & Petigrow. He
has obtained letter rulings on these trusts for several clients, including
residents of New Jersey and California. He recently helped form a trust for
three individuals who have a $30 million private business.
Advisers say people contemplating the creation of such trusts should think
about timing. If an asset put into a trust is immediately sold and the money
distributed back to the person forming it, that is likely to raise red flags
with state tax authorities as a sham.
But setting up a trust, selling the assets a few years down the road and
then distributing them some time after that is less likely to raise negative
attention, especially if the person obtains a private-letter ruling from the
IRS, Mr. Lipkind says.
On that note, the fees for an IRS private-letter ruling are going up as of
Feb. 1, to $28,300 from $19,000 now. And if multiple beneficiaries want an
identical IRS letter for their files, the cost for those will increase to
$2,700 each next month from $1,800.
Mysteries
of Human Memory Does this explain the helicopter memory lapse of NBC's news anchor Brian
Williams?
Jensen
Comment For me role playing did not work so well in teaching ethics or most any other
topic. I think it went too slow and got boring. There are tons of cases, but
these also tend to get boring.
For me
short videos seemed to work the best, especially when followed by review
discussions. At the time the IMA had some very good videos for classroom use.
I think
it's important to stress the occasional murky line between unethical acts and
illegal acts. You can teach both, but it's important to stress when behavior is
possibly unethical but probably not illegal.
The bottom
line is that both ethics and political leanings more often than not are impacted
more by what is learned growing up at home and possibly by what is learned in
church and K-12 schooling. Sometimes we learn ethics best by watching our
teachers, coaches, and supervisors recommending things that are not ethical.
Apple paid just $80.3 million in Australian tax last year, despite making
more than $6 billion in local revenue, accounts filed with the corporate
regulator show.
While a fraction of its overall income, Apple's tax bill was more than
double what it paid the previous year.
The tax-expense figure, disclosed in accounts filed with the Australian
Securities and Investments Commission, comes as a Senate inquiry prepares to
grill the heads of Australian and multinational corporations over their tax
affairs.
It also comes amid an investigation by the Australian Tax Office of tech
companies suspected of shifting profits out of Australia.
While the actual amount of tax a company pays is confidential under
Australian law, an expense figure is calculated for the purpose of annual
accounts.
Professor Antony Ting, at the University of Sydney Business School, said
Apple's latest accounts suggested it was continuing to shift profits
overseas.
"It appears that Apple is still able to shift most of its profits from
Australia with its tax structure, which most likely is perfectly legal under
the current tax law," he said.
"That leaves little profits, after deducting sales and marketing costs in
Australia, to be taxed in Australia."
An Apple spokeswoman declined to comment on whether the accounts reflected
tax paid accurately.
Apple has been in the spotlight over its taxes in Australia, after an
investigation by Fairfax Media last year showed it had shifted $8.9 billion in untaxed profitsfrom
its Australian operations to Ireland in the past decade.
It is one of the companies expected to be hauled in front of a Senate
inquiry into corporate tax avoidance, with hearings due to start as soon as
March.
SUMMARY: Mr.
Obama wants U.S. companies to pay a 14% tax on the approximately $2 trillion of
overseas earnings they have accumulated as part of a plan to overhaul the
federal corporate tax system. They would face a 19% minimum tax on future
foreign profits. Many Republicans ultimately want to largely forgo U.S. tax on
future foreign earnings altogether. That is the direction most other developed
countries have gone in recent years. GOP lawmakers believe their plan would do
more to restore U.S. firms' competitiveness.
CLASSROOM
APPLICATION: This
article and the related ones would be an excellent update to share with students
in a corporate tax class.
QUESTIONS: 1. (Introductory) What are the details of the president's proposal to
overhaul the corporate tax system?
2. (Advanced) Why do some companies have so much money "parked" in other
countries? What encourages this behavior? How do these activities affect U.S.
tax revenues?
3. (Advanced) How does the current U.S. corporate tax system compare with
those in other countries? How does this affect competitiveness of corporations
around the world? Corporations in which countries are benefited, and which
corporations are at a disadvantage?
4. (Advanced) How does this proposal compare with what members of
Congress want? Is Obama's proposal likely to pass? Why or why not?
Reviewed By: Linda Christiansen, Indiana University Southeast
The administration proposal totax foreign earnings of U.S. companieshave
parked offshore fills in important details of a plan that officials have
been discussing in broad terms for several years.
One prominent feature is that it would be mandatory. Instead of relying on
ultralow tax rates to induce companies to bring their money home
voluntarily, as some lawmakers have recently proposed, PresidentBarack Obama
wants to impose a 14% tax on
those profits. He also would tax future foreign profits at 19%—far lower
than his proposed 28% top rate for corporate profits and the existing 35%
top rate, but still significant given the direction many other developed
countries have taken.
While a mandatory tax on existing overseas profits is at odds with some
recent proposals in Congress, some leading Republican tax writers have
embraced such an approach in recent years. That suggests it could become
part of a deal to overhaul the tax system and help pay for big new domestic
infrastructure investments.
Mr. Obama generally wants to make the U.S. system of taxing its
multinationals more world-wide in scope, by imposing tax immediately on
firms’ future foreign earnings as well as their existing ones.
Many Republicans ultimately want to largely forgo U.S. tax on future foreign
earnings altogether. That is the direction most other developed countries
have gone in recent years. GOP lawmakers believe their plan would do more to
restore U.S. firms’ competitiveness, a concern that Democrats say is
overblown.
At a minimum, Mr. Obama’s proposals help to bring a long-running debate over
U.S. company taxation to an important crossroad. While it is still unclear
which direction Washington will take, almost nobody wants to keep slogging
down the current path when it comes to taxing U.S. multinational
corporations.
For years, many other countries have been slashing corporate-tax rates in an
effort to hold on to company headquarters and jobs and attract new
investment. They also have moved to a system known as territorial taxation
that generally seeks to tax firms only on their domestic profits, not their
global earnings, as a further inducement to firms.
As a partial concession, the U.S. for many years has allowed firms to defer
federal tax on their foreign earnings until the money is brought home—a sort
of hybrid of world-wide and territorial taxation. But the result has been
anything but a happy medium.
As the tax differential has grown between the U.S. and the rest of the
world, U.S. firms have chosen to leave more earnings offshore, where the
U.S. tax is deferred. That means they typically can’t make use of the cash
for dividends, stock buybacks or domestic reinvestment. Some have even
sought to move overseas to escape the U.S. tax system and reunite with their
cash.
Many experts regard it as the worst of both worlds: a system that scares off
new investment because of a high statutory rate, yet also collects
relatively little money for the government. The system’s daunting complexity
also adds to compliance costs for everyone. And multinationals often pay
very little in tax, while domestic-focused companies sometimes pay a lot.
The Obama plan appears unconnected to a separate effort by some lawmakers of
both parties to declare a temporary tax holiday, allowing multinationals to
bring home foreign profits at a special low rate, to spur domestic
investment. The administration warned that it still opposes such measures.
Teaching
Case on Warranty Accounting From The Wall Street Journal Weekly Accounting Review
on February 6, 2015
SUMMARY: Beazer
Homes USA Inc.'s loss widened in its December 2012 quarter as home closings fell
and the company was hit by unexpected warranty costs that eroded profitability.
Chief Executive Allan Merrill said that the quarter's results were weighed by a
low backlog conversion rate and an unexpected $13.6 million charge stemming from
stucco installation issues in some of its Florida homes that resulted in water
intrusion. Shares were down 2.3% at $16.85 in premarket trading.
CLASSROOM
APPLICATION: This
article could be used when discussing financial reporting related to warranty
expenses.
QUESTIONS: 1. (Introductory) What facts did the article report regarding Beazer
Homes December quarter's results? What impact have warranty costs had on Beazer
Homes?
2. (Advanced) How are warranty expenses usually booked? When are those
expenses accrued? What accounts are increased or decreased?
3. (Advanced) What should a company do if it unexpectedly experiences an
unusually large number of warranty claims or a large dollar amount? How would
that be recorded in journal entries? How would it affect the financial
statements?
4. (Advanced) What has been the impact of the warranty expense
information on the market price of the company's shares? Why did that happen?
Reviewed By: Linda Christiansen, Indiana University Southeast
Beazer Homes USA Inc. ’s loss widened in its December quarter as home
closings fell and the company was hit by unexpected warranty costs that
eroded profitability.
Chief Executive Allan Merrill said Friday that the quarter’s results were
weighed by a low backlog conversion rate and an unexpected $13.6 million
charge stemming from stucco installation issues in some of its Florida homes
that resulted in water intrusion.
Shares were down 2.3% at $16.85 in premarket trading.
Mr. Merrill said Friday that an improving sales environment and a higher
backlog should help boost the company’s future performance.
At the end of the quarter ended Dec. 31, Beazer’s backlog was up 1.2% to
1,771 homes, with a sales value of $560.5 million.
Overall, Beazer reported a loss of $22.3 million, or 84 cents a share,
compared with a loss of $5.14 million, or 21 cents a share, a year earlier.
Revenue fell 9.3% to $265.8 million.
Analysts polled by Thomson Reuters had expected a per-share loss of 12 cents
on revenue of $296.4 million.
Total home closings fell 14.7% in the quarter, as the average sales price
from closings grew 5.8%.
The home-building gross margin, excluding impairments and abandonments, and
interest, fell to 16.6% from 21.2%. Excluding the aforementioned items and
the Florida warranty costs, margins would have edged up to 21.8% from 21.2%.
New home orders increased 7.9% in the quarter.
Question How would you account for warranty obligations of Tesla electric automobiles? Note that Tesla has an eight-year unlimited mileage warranty.
If profits matter going forward, so does earnings quality. And according to
Gradient Analytics, the earnings quality gets a grade of 'F."
What stands out the most?
"So many things," says Gradient research director Donn Vickrey. "By
declaring themselves profitable, I said there is just no way. How can this
be at this point in the cycle? It has to be purely a paper profit and at
that some elements of the paper may be lower quality than usual."
Paper or not, Vickrey believes whatever Tesla's profitability, it isn't
sustainable.
Rather than go through all of his points, let's focus on just one: warranty
accruals. This is the amount the company puts aside for expected warranty
expenses — a non-cash charge that hits earnings as a cost of goods sold. The
lower the provision, the less of a hit to earnings.
It's highly subjective, and Tesla current reserves at a rate, relative to
sales, in-line with Ford and General Motors. But its warranty is longer than
mainstream auto companies and "its product is based on new technology with
unproven reliability," according to Gradient's report on Tesla." Of
particular concern: The firm's eight-year, 100,000 mile battery warranty
could prove to be extremely costly."
But what if the company is so new it simply doesn't know — so uses existing
auto companies as a benchmark?
Under accounting rules, Vickrey says, if you don't know what they'll be
"they should be higher, not lower."
SUMMARY: As
new risks multiply, the audit committee has become the "kitchen junk drawer" for
many corporate boards. The workload of the powerful committees has expanded
sharply beyond their core role of overseeing a company's financial reporting.
They are grappling with new regulations, whistleblower claims and issues like
cybersecurity and foreign corruption. In addition, the Securities and Exchange
Commission is expected to suggest new rules by the end of next month requiring
them to disclose more about their activities.
CLASSROOM
APPLICATION: This
is an excellent article on audit committees for financial accounting classes, as
well as for auditing and forensic accounting classes.
QUESTIONS: 1. (Introductory) What is an audit committee? What are their duties? Why
are audit committees important?
2. (Advanced) What is the Sarbanes-Oxley Act? How has it affected the
work of audit committees?
3. (Advanced) How have the duties of audit committees expanded in recent
years? What are the reasons for this?
4. (Advanced) What qualifications should a company seek in a member of
the audit committee? As top management in a business, how would you attract
these kinds of people? What benefits could they add to your business?
5. (Advanced) What does the SEC expect to release regarding the
activities of audit committees? What could this change? Would it increase
responsibilities of the audit committee or relieve some of their burdens?
Reviewed By: Linda Christiansen, Indiana University Southeast
Workload of the Audit Committee Has Expanded Well Beyond Oversight of
Financial Reporting.
As new risks multiply, the audit committee has become the “kitchen junk
drawer” for many corporate boards.
The workload of the powerful committees has expanded sharply beyond their
core role of overseeing a company’s financial reporting. They are grappling
with new regulations, whistleblower claims and issues like cybersecurity and
foreign corruption. In addition, the Securities and Exchange Commission is
expected to suggest new rules by the end of next month requiring them to
disclose more about their activities.
“It’s not the favorite committee,’’ says Fredric Reynolds, a retired CBS
Corp. chief financial officer and audit committee chairman at Mondelez
International Inc. To attract committee members, he sometimes promises
relatively short stints: “You’ll be released for time served and good
behavior,’’ he tells directors.
Mr. Reynolds estimates he spends 100-plus hours a year on Mondelez’s audit
committee. One key part of that is the audit committees’ oversight of
whistleblower complaints, which is required by the 2002 Sarbanes-Oxley Act.
The vast majority are from people frustrated with their work colleagues, he
adds. But when there’s smoke, “you don’t know if it’s fire.”
The speed and complexity of business and risk oversight “are stretching and
straining many audit committee agendas,” according to a global survey of
audit committee members released last week by accounting firm KPMG.
Three-quarters of the 1,500 respondents said the amount of time required to
carry out their responsibilities has increased at least “moderately” over
the past two years.
Serving on an audit committee “has taken more time than I expected,’’ says a
former tech-industry finance chief who sits on the board of a fast-growing
community bank.
In August, he became interim chief executive of a closely held aerospace
company, and says he warned the bank he didn’t have enough time for both
roles. But, he says, the bank’s chairman told him, “We want you to stay
involved in the audit committee.” He concedes that he has since skipped two
board meetings.
Some boards appear to view the audit committee as a place to hand off any
internal oversight issues, even if they are outside the committee’s
traditional purview.
“Sometimes the audit committee is viewed as the kitchen junk drawer,’’ says
Cindy Fornelli, executive director of the Center for Audit Quality, an
accounting-industry group. Boards feel “if we don’t know what to do with it,
we’ll give it to the audit committee.”
Some directors remain unfazed by the heavy workload because they enjoy being
where the action is. “It’s where you have a very broad access to management
time and information about the business,” saysJames Quigley
, audit committee chairman forWells Fargo
& Co.
For some, however, the increased demands are taking a toll. E. Follin Smith
resigned as audit committee chairman and a director ofDiscover Financial Services
last spring
because of the intense demands, according to people familiar with the
situation. The retired CFO of Constellation Energy Group already was Ryder System
Inc. ’s lead director, as well
as an audit panel member there and at Kraft Foods Group Inc.
Ms. Smith told Discover Financial directors that she had more board work
than she wanted, recalls one person with knowledge of the matter. “She had a
lot on her plate.’’
Ms. Smith didn’t respond to phone calls seeking comment.
Government investigations can boost an audit committee’s work.Wal-Mart Stores
Inc. ’s audit committee held
an additional 13 meetings during fiscal 2014, because of probes into
allegations that the big retailer had bribed officials in Mexico and other
countries, according to its proxy. Wal-Mart has said it is cooperating with
U.S. and Mexican government investigations in the matter.
Christopher Williams, head of Wal-Mart’s audit committee, couldn’t be
reached.
Sarbanes-Oxley contributed to the more expansive view of the audit
committee’s role. In addition to requiring such committees to establish
procedures to handle whistleblower complaints, the law made it clear the
audit committee hires the outside auditor, and that it must be made up
entirely of independent directors.
“From the perspective of the board, the audit committee looks like the
entity that has the most expertise on anything related to risk,” says Daniel
Goelzer, a Baker & McKenzie lawyer and former interim chairman of the Public
Company Accounting Oversight Board, the government’s audit regulator.
The SEC plans to issue a “concept release” by the end of March on what audit
committees should tell investors—a step toward revamping disclosure
requirements for the first time since 1999.
Accounting and corporate-governance groups have urged audit committees to
voluntarily disclose more to shareholders, but the SEC thinks the voluntary
disclosures lack uniformity. Only 13% of companies in the S&P 500 disclosed
to investors their audit commitees’ specific considerations in approving
their auditor, such as qualifications and geographic reach, according to a
recent analysis by the Center for Audit Quality and consulting firm Audit
Analytics.
SUMMARY: Before
firing off a 2014 income tax return, taxpayers should take some time to master a
few important, but easily overlooked, deductions, credits and other
breaks-including a few that were revived at the end of last year. Even if a
taxpayer considers him or herself a tax wizard who loves studying the Internal
Revenue Code, it's increasingly easy to make costly bloopers. Also, taxpayers
should watch out for a few new wrinkles in 2015, notably those stemming from the
Affordable Care Act. The article offers some areas that deserve extra attention.
CLASSROOM
APPLICATION: This
article offers insight on some areas of individual taxation, especially areas
that have experienced recent changes.
QUESTIONS: 1. (Advanced) What are the tax issues involving health insurance for 2014
tax returns? Will the changes affect all taxpayers, some, or just a few? Why is
health insurance a part of tax returns?
2. (Introductory) What is the income ceiling for the Social Security tax?
How could this be a problem for people who have more than one job?
3. (Advanced) How is income taxed if capital losses exceed capital gains?
How does that differ from when capital gains exceed capital losses? How are
gains and losses from a personal residence different from other capital gains
and losses?
4. (Advanced) What is the standard deduction? How many taxpayers elect to
claim it? What is the other alternative? Why do the majority of the taxpayers
choose the option they choose?
5. (Introductory) What taxpayers should choose to deduct sales taxes?
What is the other option?
6. (Introductory) What is the simplified calculation for the home office
deduction? Why did the IRS develop this calculation? What is the other option?
Reviewed By: Linda Christiansen, Indiana University Southeast
The complexity and questions that arise from the nation’s ever-changing tax
laws are as certain as taxes themselves. So we introduce a new column,
written by Tom Herman, a former tax columnist for The Wall Street Journal,
that will look at developments affecting taxpayers and individual investors.
We welcome your thoughts and questions about tax issues, big and small. Send
them to reports@wsj.com.
Early birds, be careful.
Before firing off your ... income tax return, take some time to master a few
important, but easily overlooked, deductions, credits and other
breaks—including a few that were revived at the end of last year.
Even if you consider yourself a tax wizard who loves studying the Internal
Revenue Code, it’s increasingly easy to make costly bloopers. Also, watch
out for a few new wrinkles this year, notably those stemming from the
Affordable Care Act.
Here are some areas that deserve extra attention:
HEALTH INSURANCE
Get ready for some new lines on this year’s forms because of the Affordable
Care Act. For most, this should be fairly simple. “The majority of
taxpayers—more than three out of four—will simply need to check a box to
verify they have health-insurance coverage,” the IRS says. Others will face
trickier issues. Some may be eligible to claim an exemption from the
coverage requirement. But those who don’t have qualifying coverage or who
don’t qualify for an exemption will need to make “an individual shared
responsibility payment.” Others may qualify for a “premium tax credit.” Seeirs.gov/aca for details. For some “this will be very complicated,” warns
Mark Luscombe, principal federal tax analyst for Wolters Kluwer Tax &
Accounting U.S.
SOCIAL SECURITY TAX
Some people who worked for two or more employers last year may have paid too
much in Social Security tax. The maximum amount that should have been
withheld by all your employers for 2014 was $7,254. (That’s 6.2% of
$117,000, the maximum amount of wages subject to the Social Security tax.)
If you had too much withheld, you typically can claim the excess as a
credit. See IRS Publication 17 for details.
INVESTMENT LOSERS
Did you lose money on stocks, bonds and other investments you sold last
year? Use your capital losses to offset capital gains. But what if your
losses exceeded your gains? You can deduct as much as $3,000 a year ($1,500
for married taxpayers filing separately) of net losses against your wages
and other ordinary income. Carry over excess losses into future years.
Warning: You can’t deduct a loss on the sale of your personal residence.
IRA CHARITABLE TRANSFERS
Late last year, lawmakers revived a provision that allowed many people age
70½ or older to transfer as much as $100,000 directly from an IRA to
charity, tax-free, during 2014. The transfer counted toward the taxpayer’s
required minimum distribution. You’re supposed to report your “qualified
charitable distribution” on your return even if it’s tax-free. Just make
sure you don’t put it on the wrong line. For example, if you file Form 1040,
report your “QCD” on Line 15a. Don’t include any of that distribution on the
line for “taxable amount” (Line 15b). Instead, write “QCD” next to the line.
HIGHER STANDARD
About two out of every three returns typically claim the standard deduction.
For 2014, the basic standard deduction is $12,400 for those married and
filing jointly, or $6,200 if single or married and filing separately. There
are additional amounts for people who were 65 or older, or blind. Before
taking the standard deduction, check to see if you might be better off
itemizing.
SALES TAXES
Late last year, Congress revived a law that gives taxpayers who itemize an
important choice: They can deduct either state and local income taxes paid
in 2014—or their state and local sales taxes. (But they can’t deduct both.)
The sales-tax option offers welcome relief for people in states with no
income tax, such as Texas and Florida. But taxpayers in other states may
benefit from taking the sales-tax deduction, says Mr. Luscombe, including
those who paid large amounts of sales tax on major purchases such as cars or
boats or those who reside in states with high sales-tax rates.
HOME OFFICE
Many people who work at home don’t bother deducting their home-office
expenses because the rules can be fiendishly complex and because of fears it
would increase their chances of getting audited. But if you qualify to
deduct home-office expenses, you may benefit from a simplified calculation
method allowed by the IRS. Multiply the square footage of the home used for
your home office (but not more than 300 square feet) by an IRS-approved rate
of $5 a square foot. Thus, the maximum deduction in this case would be
$1,500.
Mr.
Herman is a writer in New York City. He was formerly The Wall Street
Journal’s Tax Report columnist.
SUMMARY: Will
sweeping revisions in revenue-recognition rules take effect as scheduled? The
planned changes, part of a broader effort to align U.S. and international
accounting standards, involve so-called deferred revenue-money companies have
already collected from their customers but which they recognize as revenue over
time. The change is set to start Jan. 1, 2017, but officials at the FASB
received roughly 1,400 comment letters from companies that are spending millions
to update computer software, recalculate contracts and adjust past financial
results. A group of U.S. software companies asked the FASB for more guidance and
a two-year delay.
CLASSROOM
APPLICATION: This
is an excellent update regarding new revenue-recognition rules.
QUESTIONS: 1. (Introductory) What accounting rules are changing? When is the change
set to begin? Who is changing the rules?
2. (Advanced) What is revenue recognition? What is deferred revenue? How
are the financial statements impacted by each of these? How will the new rules
affect company's financial statements? Will different companies or industries be
affected differently?
3. (Advanced) What is the reasoning behind the change in rules? Who will
be benefited by the change?
4. (Advanced) What parties are concerned about the effective date of the
new rules? What challenges are they reporting? What did they request?
Reviewed By: Linda Christiansen, Indiana University Southeast
Call it the $360 billion question: whether to delay one of the biggest
accounting changes in decades.
The answer isn’t expected until early in the second quarter.
The sweeping revisions in revenue-recognition rules “will represent a change
for many industries,” said Christine Klimek, a spokeswoman for the Financial
Accounting Standards Board, after a joint meeting Monday with its
international counterparts. “There are bound to be questions. The answers to
most of those questions can be found within the standard itself.”
The final draft of the new rules, unveiled last May after years of
deliberations, would change the way thousands of companies book revenue.
They would affect how auto makers account for car sales and telephone
companies account for mobile-phone contracts.
The planned changes, part of a broader effort to align U.S. and
international accounting standards, involve so-called deferred revenue—money
companies have already collected from their customers but which they
recognize as revenue over time. The idea is to make it easier for investors
to compare companies across countries and industries.
Companies in the S&P 500 index have about $360 billion of such revenue on
their books, according to S&P Capital IQ. Boeing Co.
, Microsoft Corp. and
International Business Machines
Corp. have a
combined $60 billion in deferred revenue, and the new rules will determine
how much of that they will move to the top line—and when.
The accounting shakeup is set to start Jan. 1, 2017, but officials at the
FASB received roughly 1,400 comment letters from companies that are spending
millions to update computer software, recalculate contracts and rejigger
past financial results.
Last Wednesday, a group of U.S. software companies, includingAdobe Systems
Inc.,SymantecCorp. andVMwareInc., asked the FASB for more guidance and a two-year delay.
Exactly what deferred revenue will be counted as sales will vary widely
between companies and industries. According to the Securities and Exchange
Commission, as many as 250 questions linger as to how to implement the
rules.
Auto makers such asFord Motor
Co. andGeneral MotorsCo. say the rules might force them to account
separately for each car sold around the world, rather than group them into
comparable transactions. They estimate they might have to spend as much as
$300 million each on accounting technology, and they claim new financial
figures based on per-car accounting will provide little benefit for
investors.
AT&T
Inc. andVerizon Communications
Inc. said the current
deadline doesn’t give them enough time. Both companies cited difficulty in
restating results for prior periods.
Microsoft signaled investors over the summer that the rules “will have a
material impact” on its financial results. A company spokesman declined to
elaborate.
“The amount of work that it will mean for an accounting team can be
overwhelming,” said Ken Goldman, chief financial officer of Fiksu Inc., a
mobile marketing company that is preparing its books to potentially go
public. He agrees with the rules conceptually, but said they could be more
complicated and costly for companies than the Sarbanes-Oxley financial
reforms of 2002.
Moreover, if companies don’t adequately prepare Wall Street, the revenue
changes could be jarring.
WhenApple
Inc. changed the way it accounted for
software updates for the iPhone in early 2010, the company’s financial
results surpassed analysts’ expectations by billions of dollars. Though
Apple was simply complying with new accounting rules that affected the way
it booked the sales, the Nasdaq Stock Market had to temporarily halt
after-hours trading of Apple’s shares to give investors time to digest the
news.
Some big companies say they plan to be ready if the new revenue-recognition
rules take effect as scheduled. “We do not need an extension,” said Liesl
Nebel, accounting-policy controller at IntelCorp.
“If they do allow an extension, we would like to early adopt.”
Defense contractorGeneral Dynamics
Corp. said any delay would
cause it to spend more time and money to run parallel books with two
different standards. “Do not penalize the companies that have moved
forward,” wrote Kimberly Kuryea, its controller, in a letter to the FASB
this month. “[The] costs will naturally and inevitably grow if the
implementation period is extended.” The company declined to comment further.
The FASB needs to consider that argument “very seriously,” said Prabhakar
Kalavacherla, a partner at auditor KPMG LLP who was a board member of the
International Accounting Standards Board and worked on the project to align
global revenue rules.
But smaller public companies with fewer resources generally will have a
harder time getting their books in order, even though they wouldn’t have to
report comparative figures for farther back than the prior year. Most large
companies expect to produce figures for the previous two years.
SUMMARY: The
Chinese affiliates of the Big Four accounting firms agreed to pay $500,000 each
to settle a yearslong dispute with the Securities and Exchange Commission over
their reluctance to give the agency documents about Chinese companies under
investigation. The settlement also allows the firms to avoid a temporary
suspension of their right to audit U.S.-traded firms - a potential outcome of
the dispute that would have complicated life for dozens of Chinese companies and
many U.S. multinationals with significant operations in China. Under the $2
million agreement, the Chinese arms of PricewaterhouseCoopers, Deloitte Touche
Tohmatsu, KPMG and Ernst & Young also agreed to follow procedures designed to
ensure that the SEC is able to obtain audit documents from them in the future.
The settlement follows a judge's ruling that the accounting firms had violated
U.S. law when they refused to give the SEC the audit-work papers about some
Chinese clients the SEC was investigating. Even though the clients' securities
traded in the U.S., the firms had argued they were prevented from sharing the
work papers by strict Chinese laws that treat such documents as akin to state
secrets.
CLASSROOM
APPLICATION: This
is a good article to use in an auditing class, or to use when covering
accounting for international business.
QUESTIONS: 1. (Introductory) What are the details of the settlement described in the
article? Who are the parties involved in the settlement?
2. (Advanced) What are the details of the dispute that led to this
settlement? Why is it important for the SEC to gather information?
3. (Advanced) What defense did the Chinese firms present? How were those
issues and concerns addressed in the settlement?
4. (Advanced) What could have been the ramifications if the Chinese firms
had refused to settle? Who would have been affected? How could that have
affected the accounting firms, the Chinese businesses, and other parties?
5. (Advanced) What is the PCAOB? What is its area of responsibility? How
is its work affected by the dispute and the settlement?
Reviewed By: Linda Christiansen, Indiana University Southeast
Deal Over Refusal to Turn Over Audit Documents Lifts Threat of Suspension.
The Chinese affiliates of the Big Four accounting firms agreed to pay
$500,000 each to settle a yearslong dispute with the Securities and Exchange
Commission over their reluctance to give the agency documents about Chinese
companies under investigation.
The settlement also allows the firms to avoid a temporary suspension of
their right to audit U.S.-traded firms—a potential outcome of the dispute
that would have complicated life for dozens of Chinese companies and many
U.S. multinationals with significant operations in China.
Under the $2 million agreement, the Chinese arms of PricewaterhouseCoopers,
Deloitte Touche Tohmatsu, KPMG and Ernst & Young also agreed to follow
procedures designed to ensure that the SEC is able to obtain audit documents
from them in the future.
The settlement follows a judge’s ruling last year that the accounting firms
had violated U.S. law when they refused to give the SEC the audit-work
papers about some Chinese clients the SEC was investigating. Even though the
clients’ securities traded in the U.S., the firms had argued they were
prevented from sharing the work papers by strict Chinese laws that treat
such documents as akin to state secrets.
Many of the documents were later turned over to the SEC after they were
routed from the firms through Chinese regulators. SEC officials said their
access to such audit documents is crucial to efforts to protect investors
from fraud by Chinese companies, and they said the settlement helps secure
their future access to such documents.
The settlement is “a positive step in attempting to preserve the forward
momentum,” Andrew Ceresney, the SEC’s enforcement director, told reporters
on a conference call.
In a joint statement, the four firms’ Chinese affiliates said they were
“pleased” to have reached a settlement.
While some outside experts welcomed the settlement, Paul Gillis, a professor
at Peking University’s Guangua School of Management, said it “falls far
short of what investors need….The settlement just lets the firms off the
hook and kicks the can down the road.”
The dispute stems from the wave of 170-plus U.S.-traded Chinese
companies—most of them smaller, not China’s best-known and largest companies
—that have faced accounting questions in recent years.
The issues range from allegations of embezzlement and inflated revenues to a
lack of proper disclosure to investors.
The SEC has investigated some of these companies and has filed about 25
enforcement cases against Chinese firms and their executives. But the agency
was frustrated in some of its investigations because the companies’
China-based auditors refused to give the SEC documents from their audits,
contending the Chinese government could throw their auditors in jail if they
did. (All of the major accounting firms are international networks made up
of individual, freestanding firms in each country where they do business.)
In January 2014, Cameron Elliot, an SEC administrative law judge, sided with
the SEC enforcers andordered the four accounting firms suspendedfrom auditing U.S.-traded companies for six months. That suspension has been
on hold while the firms appeal the ruling to the five-member SEC itself.
The settlement requires the firms to follow detailed procedures to give the
SEC access to Chinese firms’ audit documents via the China Securities
Regulatory Commission, similar to the method in use since 2013. If the firms
don’t follow the procedures, the SEC could impose penalties such as
suspensions, or it could restart the current enforcement case.
The China Securities Regulatory Commission wasn’t a party to Friday’s
settlement, and a spokesman for the CSRC said he had no information on the
matter. But Mr. Ceresney said he was hopeful Chinese regulators would
maintain their willingness to act as a conduit. In any event, he said,
“ultimately in our view it’s the firms who are responsible” to make sure any
SEC requests are satisfied. The firms didn’t admit to or deny wrongdoing as
part of the settlement, except that they acknowledged they initially didn’t
give the documents to the SEC.
Continued in article
Teaching
Case on Deducting Expenses That Were Paid as a Gift From The Wall Street Journal Weekly Accounting Review
on February 13,
2015
SUMMARY: In
a 2010 decision worth reviewing this tax season, the U.S. Tax Court concluded
that a daughter could deduct medical expenses and real-estate taxes on her Form
1040 even though they were covered by gifts from her mother. The gifts were in
the form of direct payments by the mother to the medical service providers and
local government entities. The Tax Court's decision may be surprising, because
people probably think a taxpayer can never deduct expenses that were paid by
someone else. Not necessarily true! This article discusses how this decision
could apply to medical expenses, real-estate taxes, and seller-paid points for a
home mortgage.
CLASSROOM
APPLICATION: This
article can be used in an individual taxation course when discussing deductions
or gifts.
QUESTIONS: 1. (Introductory) What was the U.S. Tax Court's decision regarding a
taxpayer's deduction for expenses paid by her mother? Why might that decision
surprised some people?
2. (Advanced) What are the tax rules regarding deduction of medical
expenses for 2014? How did the Tax Court's decision impact this deduction?
3. (Advanced) Why was the daughter in this case allowed to deduct all of
the real-estate taxes?
4. (Advanced) What are seller-paid points? What is the tax treatment for
them? Why is it odd that the buyer could deduct this in the situations
described?
Reviewed By: Linda Christiansen, Indiana University Southeast
In a 2010 decision that is worth reviewing this tax season, the
U.S. Tax Court concluded that a daughter could deduct medical expenses and
real-estate taxes on her Form 1040 even though they were covered by gifts
from her mother. The gifts were in the form of direct payments by the mother
to the medical service providers and local government entities.
The Tax Court’s decision (Judith Lang,
TC Memo 2010-286)
may surprise you, because you probably think a taxpayer can never deduct
expenses that were paid by someone else. Not necessarily true!
Since it is now tax-return time, let’s put this in the context of how it
might affect your 2014 Form 1040.
Medical Expenses
For the 2014 tax year, you can generally deduct medical expenses to the
extent they exceed 10% of your adjusted gross income (AGI), or 7.5% of AGI
if either you or your spouse was age 65 or older as of Dec. 31, 2014. AGI is
the number at the bottom of the first page of your Form 1040; it includes
all taxable income items and selected deductions such as the ones for
alimony paid, self-employed health-insurance premiums and moving expenses.
In this Tax Court case, the Internal Revenue Service argued that the
daughter couldn’t deduct the medical expenses because she didn’t pay for
them with her own money. The Tax Court disagreed. The facts of the case
demonstrated that the mother intended the medical-expense payments to be
gifts to her daughter. Therefore, the Tax Court characterized the
transactions as gifts from the mother to the daughter followed by payment of
the medical expenses by the daughter with the gifted funds. So the daughter
was allowed to count $24,559 of medical expenses that were actually paid by
the mother plus some expenses the daughter paid with her own funds in
calculating her medical-expense deduction.
Thanks to the tax-law exemption for gifts that are made in the form of
direct payments to medical service providers, the payment of the daughter’s
medical expenses had no gift-tax consequences for the mother.
Important point: When you directly pay medical expenses for a person who is
your dependent (meaning you pay over 50% of that person’s total support),
you can add the expenses you pay for the dependent to your own expenses and
claim a deduction for the total to the extent it exceeds the applicable
percent-of-AGI threshold. In the Tax Court case, the daughter was evidently
not the mother’s dependent, so the deduction for the daughter’s expenses
belonged to the daughter rather than the mother.
Real-Estate Taxes
The daughter in the Tax Court case was also allowed to claim an itemized
deduction for $5,508 of local real-estate taxes that were paid by the mother
plus some taxes that the daughter paid with her own funds. Thanks to the
annual federal gift-tax exclusion (currently $14,000), the mother’s payment
of the real-estate taxes had no gift-tax consequences, because the amount
involved was less than the gift-tax exclusion that applied for the year in
question.
Seller-Paid Points for a Home Mortgage
Assuming you itemize deductions, you can write off points (including
loan-origination fees) that you pay to take out a mortgage to buy your
principal residence. Surprisingly enough, you can also deduct mortgage
points paid by the seller to sweeten the deal. In fact, IRS Revenue
Procedure 94-27 actually requires you to claim the deduction. Don’t ask why!
Just follow directions and claim that deduction, even though the seller paid
for it.
Teaching
Case on Tax Traps From The Wall Street Journal Weekly Accounting Review
on February 13,
2015
SUMMARY: Tax
hazards that can trip up taxpayers. These errors aren't the obvious bloopers
that cause trouble, such as entering income information incorrectly or
misstating Social Security numbers. Instead, they are tricky issues that often
confuse taxpayers who do their own returns - and even some paid preparers - and
cause people either to overpay Uncle Sam or invite an IRS challenge. The article
includes issues to be aware of, starting with those that are new this year,
including the new healthcare forms, new IRS reporting for options, charitable
donations, state-tax refunds, unemployment benefits, mileage deductions, passive
losses on real estate, new investment income tax, alimony, and foreign accounts
or payments.
CLASSROOM
APPLICATION: This
is an excellent summary of new and challenging issues in individual taxation.
QUESTIONS: 1. (Introductory) What are the facts of Joseph Mohamed's case? What is
the applicable tax law? What did the court decide? Should there be an exception
for a fact situation like this?
2. (Advanced) What is the purpose of Form 8962? What are potential
complications facing taxpayers and their tax preparers? What is the purpose of
Form 8965? Why is health insurance a part of the tax law and why is it included
in tax returns?
3. (Advanced) What are options? What are the new rules affecting the tax
treatment of options? How have the rules changed? What challenges are taxpayers
facing as a result of these changes?
4. (Advanced) What are the rules regarding the various income levels of
charitable contributions of noncash property? How can taxpayers sometimes miss
the opportunity to deduct contributions?
5. (Advanced) In what situations are state-tax refunds taxable and in
what situations are they not taxable? What is the reasoning for this rule?
6. (Advanced) What are the rules for deducting driving expenses? Why do
the allowances differ for different types of driving?
7. (Advanced) What are passive losses? Why are they restricted for some
taxpayers? Who can deduct passive losses fully? Why are some taxpayers
restricted and others are not?
8. (Advanced) What is the net investment income tax? What issues should
taxpayers consider if subject to this tax?
Reviewed By: Linda Christiansen, Indiana University Southeast
Consider the case of Joseph Mohamed, a real-estate developer in Sacramento,
Calif. In 2012, Mr. Mohamed and his wife, Shirley, were denied a deduction
for charitable donations of property worth $18.5 million by the U.S. Tax
Court—on a technicality.
The loss still stings. “It left me with a very bad feeling about my country,
although I served 32 years with the Army,” he says. “I followed their
instructions explicitly, and we were penalized so heavily.”
The couple had contributed valuable properties to a trust for the benefit of
charities such as Shriners Hospitals for Children, a Sacramento food bank
and the Pacific Legal Foundation.
The judge said he had to side with the Internal Revenue Service and denied
the Mohameds’ deduction because they didn’t secure independent appraisals
for the gifts before filing their return—which the law requires for noncash
donations greater than $5,000.
It didn’t matter that qualified appraisals later valued the properties at
more than $20 million at the time of the donation, or that the instructions
on the IRS form could be confusing to nonexperts like Mr. Mohamed, who
prepared his own return. Despite these facts, the judge said, Congress put
specific language in the law and he couldn’t undermine the rules, even
though it was “a sympathetic case.”
Mr. Mohamed says he didn’t appeal the decision because of the time and money
involved, even though he believes the IRS didn’t follow its own rules. “I’m
86 now, and they told me it could take years and at least $1 million,” he
says.
With tax season in full swing, the Mohameds’ misfortune is a reminder of
hazards that can trip up taxpayers—although, to be sure, fewer dollars
typically are at stake.
These errors aren’t the obvious bloopers that cause trouble, such as
entering income information incorrectly or misstating Social Security
numbers. Instead, they are tricky issues that often confuse taxpayers who do
their own returns—and even some paid preparers—and cause people either to
overpay Uncle Sam or invite an IRS challenge.
Here are issues to be aware of, starting with those that are new this year.
New health-care forms.
The Affordable Care Act, the health-care law passed by Congress in 2010,
brings two new forms many taxpayers will need to file with 2014 returns.
Form 8962 is for people claiming a tax credit to help pay for coverage
through federal or state exchanges, the online marketplaces for buying
health insurance. Some taxpayers who received this credit when they bought
coverage last year may need to pay back part or all of it if their income
was higher than expected.
Since this is the first year for such reporting, the IRS has said it won’t
impose certain underpayment and late-payment penalties related to this form.
But to qualify for the relief, people must file their tax return or an
extension request by April 15.
Form 8965 is for millions of people who qualified for exemptions from ACA
coverage. Its instructions also explain how people who didn’t have approved
coverage should calculate the extra tax they owe and report it on Line 61 of
Form 1040. For more information, see “The Health Care Law’s Effect on Your
Tax Return” on the IRS website, www.irs.gov.
New IRS reporting on options.
New rules affect options, both those traded on the open market and those
received as compensation by employees.
Brokerages and other financial firms must report to the IRS sales of stock
and debt options acquired in 2014 if they involve an exchange of cash, says
Stevie Conlon, a tax lawyer atWolters Kluwer
Financial Services.
Firms must also report on Form 1099-B the adjusted cost of such options, if
they were acquired for cash, so the IRS can more easily track taxable gains.
Previously the taxpayer was supposed to report this information to the IRS,
but the brokerage didn’t have to.
“Taxpayers with these investments need to check 1099s carefully this year,”
Ms. Conlon says.
There are important wrinkles in the reporting of stock options that
employees receive as compensation. If such options are exercised and the
shares sold at the same time, as is often the case, Ms. Conlon says the
employer will report income on the W-2, and the brokerage also will report
proceeds on Form 1099-B.
This year, for the first time, brokerages aren’t permitted to report the
investment’s cost on the 1099-B form, which would help lower the taxable
gain on the sale. It is up to the taxpayer to include it. People who are
unaware of this omission could easily overpay their taxes, Ms. Conlon adds.
A different problem arises if the employee ignores the brokerage’s 1099-B
report for sales of option shares because the income already has appeared on
the W-2 form.
This information on 1099-B forms must be accounted for on forms associated
with Schedule D (Capital Gains and Losses). If it isn’t, the IRS will likely
notice that it is missing and send a letter. But if the income and the cost
are properly reported, the taxpayer won’t overpay and the IRS won’t think
the taxpayer has unreported income, Ms. Conlon says.
Charitable donations.
Numerous strict rules apply to deductions for charitable gifts, and errors
are common. For pure cash donations of less than $250, a bank record may
suffice. For donations of property such as used clothes or books that total
less than $500, a receipt from the charity also may be adequate.
In many cases, however, it is best to have a notice from the charity in hand
before taking a deduction. The notice should state the date and the amount
of the gift and also the value of any goods and services you received—such
as a tote bag, dinner or auction prize.
Donors of noncash property worth more than $500 also need to fill in the
relevant section of Form 8283, and gifts of property worth more than $5,000
typically need an independent appraisal as well.
This requirement trips up many people besides the Mohameds, says Ed
Mendlowitz, a certified public accountant at WithumSmith+Brown in New
Brunswick, N.J. “People who clean out a house after a death in the family
and donate items to Goodwill often don’t know to keep the deduction below
$5,000 or else get an appraisal,” he says.
Special rules apply to donations of cars, inventory and appreciated assets,
as well as to noncash property worth more than $500,000. For more
information, see IRS Publications 526 and 561.
Melissa Labant, a tax specialist at the American Institute of CPAs in
Washington, reminds people who contribute to a charity, such as United Way,
through payroll deductions to remember to deduct their gifts. “Usually
there’s no letter, and the total doesn’t appear on the W-2 form, so people
have to remember to deduct it,” she says.
She also cautions owners of individual retirement accounts who are 70½ or
older and who made direct transfers of assets to charities in 2014 to
remember to exclude such income from total IRA withdrawals on line 15b of
the 1040 form. Such charitable transfers aren’t noted on the 1099-R form
sent by the brokerage.
State-tax refunds.
These payments can be tricky: Sometimes they are taxable, and sometimes they
aren’t.
If you received a state-tax refund for 2013 last year, and you took the
standard deduction in 2013, then the refund isn’t taxable, says Jonathan
Horn, a CPA in New York.
If you itemized your deductions, the refund is likely to be partly or fully
taxable, and your state will tell the IRS about it—although it may not send
you a paper copy. An omission on your tax return, however, will probably
bring a letter from Uncle Sam.
Figuring the nontaxable portion of the refund often is difficult, Mr. Horn
says, especially if a taxpayer was subject to the alternate minimum tax, or
changed filing status, in the year the refund applies to. In such cases, it
often is necessary to recalculate—but not refile—the previous year’s tax
return.
This calculation sometimes requires high-level software, Mr. Horn says, so
for many self-preparers the safest course is to report the refund as fully
taxable. For more information, see IRS Publication 525.
Unemployment benefits.
Unemployment pay is taxable, and forgetting to claim it as income often will
generate a letter from the IRS. But don’t forget to account for tax already
withheld from the unemployment pay, which experts say some people overlook.
Mileage deductions.
Taxpayers who qualify are allowed to deduct the expenses of driving their
own cars for business, medical, moving or charitable purposes. For 2014, the
allowance is 56 cents a mile for business travel; 23.5 cents for medical and
moving travel; and 14 cents for travel on behalf of a charity. For more
information, see IRS Publication 17 or, for moving expenses, 521.
Taxpayers must be able to support the deduction with a log or other records,
and the IRS looks askance at large deductions.
“Keep a log as you go, or at least make sure you have records before you
file the return,” says John Dundon, a Denver-based enrolled agent, a term
for tax specialists federally licensed to represent taxpayers before the
IRS.
In one case, he had to reconstruct records using an appointment book and
Google Maps three years after the fact to help a pharmaceutical
representative support a $50,000 deduction she had claimed on Schedule C.
Passive losses on real estate.
Certain real-estate professionals can fully deduct losses on rental
properties immediately, while for other investors they often are postponed
until the property is sold—which could be years later.
Experts caution that many self-preparers who own rental real estate think
they are professionals when they aren’t, and some software allows the
mistake. But “it’s very hard to prove that you’re a professional if you have
W-2 income from a full-time job,” Mr. Dundon says, and the IRS is on the
lookout for this error.
Some software for individuals isn’t good at tracking losses that were
postponed for later use, he says. Without good multiyear records, it is easy
to miss valuable deductions.
Net investment income tax.
This 3.8% surtax—enacted as part of the Affordable Care Act—applies to
certain net earnings from investments owned by most couples with more than
$250,000 of adjusted gross income and singles with more than $200,000. Such
income can be reduced by deductions for applicable state and local taxes,
investment interest expenses, tax-preparation fees and net operating losses,
among other items.
The surtax took effect in 2013, and experts say last year’s tax-prep
software often overestimated it because deductions could be figured using
“any reasonable method.” The overstatements were large enough that some
investors later were advised by their preparers to redo their 2013 taxes.
This year taxpayers who owe the 3.8% surtax also should check carefully to
make sure they aren’t overpaying, Mr. Horn says. But people who deducted
state and local taxes from the surtax last year and then received a refund
need to take that into account when figuring out this year’s levy.
Alimony.
This spousal support is deductible by the payer and taxable income to the
recipient—unlike payments for child support and property settlements. But a
government study released last year found huge discrepancies between total
alimony deducted and total alimony claimed as income. The IRS has since
changed its audit filters to pick up more of these discrepancies.
Experts say that while some people cheat, others are simply confused. For
example, say the ex-spouse paying alimony picks up the cost of a child’s
summer camp one year and the recipient agrees to a reduction in alimony by
that amount. That move could lower the payer’s allowable tax deduction
because the camp tuition doesn’t qualify as alimony, says Bill Nemeth, an
Atlanta-based enrolled agent.
Foreign accounts or payments.
U.S. taxpayers with global financial ties face some of the worst tax hazards
of all, as they can wind up owing large penalties simply for not reporting
information to Uncle Sam, as well as for not paying taxes owed.
David Lifson, a CPA at Crowe Horwath in New York, had a client who faced a
$10,000 penalty for not disclosing a $200,000 inheritance from an elderly
relative in France he barely knew. Because he had no foreign accounts, he
was unaware he needed to report it.
Forwarded
by Paula 01. After the Lone Ranger saved the day and rode off into the sunset, the
grateful citizens would ask, Who was that masked man? Invariably, someone would answer, I don't know, but he left this behind. What did he leave behind?
_________? Hint: It was silver but not his horse named Silver.
03 Get
your kicks on ______ ___________
10. Red
Skeleton's hobo character was named ______ ___ ___ and Red always ended his
television show by saying, 'Good Night, and ________ ________ ___ ___ ________ Hint: Five words
11. Some
Americans who protested the Vietnam War did so by burning their ______ _______ Hint: Something besides flags and bras.
13. In
1971, singer Don MacLean sang a song about, 'the day the music died.' This was a
tribute to _______ ____________. Hint: Happiness is Lubbock in your rear view mirror
18. Who
knows what secrets lie in the hearts of men? Only The _____ Knows! Hint: He or she works best in the sunlight
How to
mislead with Statistics Mix known facts with speculations
Forwarded
by Paula from an unknown source Here is a wealth of trivia information, for questions no one would have thought
to ask. I removed the pictures and replaced them with the picture URLs
To get
straight to the sex scroll down to Number 28.
01.
http://thechive.files.wordpress.com/2014/08/places-ranked-2.jpg The world's hottest place: Death Valley National Park The highest air
temperature ever recorded on Earth was 134 degrees Fahrenheit, at Death Valley
National Park on July 10, 1913. Jensen Comment A long time ago I read that the highest recorded temperature in a city was 130
degrees in Tehran.
02
http://thechive.files.wordpress.com/2014/08/places-ranked-14.jpg The world's coldest place: East Antarctic Plateau On the high ridge of the East
Antarctic Plateau, the temperature can drop to as low as -135.8 degrees
Fahrenheit, recorded in August, 2010.
06
http://thechive.files.wordpress.com/2014/08/places-ranked-34.jpg World's poorest city: Kinshasa Kinshasa is probably the poorest city in the
Democratic Republic of the Congo, the poorest country in the world, at a GDP of
$55 billion. Many of its residents live on less $1 a day.
08
http://thechive.files.wordpress.com/2014/08/places-ranked-36.jpg Lowest point in the world: Challenger Deep The lowest known natural point in the world is Challenger Deep, 35,797 ft below
sea level at the bottom of the Mariana Trench. Only three people have ever made
it to the bottom, one of which was filmmaker James Cameron.
09
http://thechive.files.wordpress.com/2014/08/places-ranked-35.jpg Most photographed place: The Guggenheim Photos have always told stories, but in today's world of cell phone cameras and
social media, that story is relayed as data to companies who monitor everything
we do. Geotagged data was culled by Sightsmap using a Google-based image sharing
software, and can now show us the most photographed places in the world, right
down to the landmark. The Winner? The Guggenheim in New York.
12
http://thechive.files.wordpress.com/2014/08/places-ranked-3.jpg The driest spot on Earth: The Atacama Desert The 600 miles of South America's Atacama desert is the driest place on Earth, no
contest. The Desert sees an average of 4 inches of rain every thousand years.
Yes, you read that right.
13
http://thechive.files.wordpress.com/2014/08/places-ranked-4.jpg Sunniest Place on Earth: Yuma, Arizona In Yuma, Arizona, the sun shines for an
average of 11 hours a day. Its forecast is sun for 90 percent of the year,
averaging a total of 4015 daylight hours a year.
14
http://thechive.files.wordpress.com/2014/08/places-ranked-5.jpg Most expensive city to live in: Singapore The new champion of the world,
Singapore has recently beat out Tokyo for the title of "most expensive city" for
2014. Cars can cost between 4-6 times in Singapore what they cost in the US or
UK (for example, a Toyota Prius actually costs about $150,000.00 there).
15
http://thechive.files.wordpress.com/2014/08/places-ranked-6.jpg Least expensive city to live in: Mumbai, India At the other end of the spectrum,
Mumbai, India, is the cheapest place to live in the world, according to the
Worldwide Cost of Living Index 2014. For some perspective, a loaf of bread that
would cost $3.36 in Singapore, would only cost $0.91 in Mumbai.
16
http://thechive.files.wordpress.com/2014/08/4th-of-july-food.jpg Country that consumes and wastes the most food (per capita): United States I
suppose there must be a reason why Americans have a food-related reputation when
it comes to other countries: we eat an average of 3,770 calories a day each.
17
http://thechive.files.wordpress.com/2014/08/places-ranked-9.jpg The world's oldest city: Damascus There's quite a bit of controversy over which
city gets to officially claim the title of "oldest continuously inhabited city."
With evidence of civilization that extends back over 11,000 years, Damascus in
Syria is probably the safest bet.
19
http://thechive.files.wordpress.com/2014/08/places-ranked-11.jpg The world's most visited city: London After a several-year bout with Bangkok,
London has regained its place as the world's most visited city (according to
MasterCard's 2014 Global Destinations City Index). The city sees about 18.69
million international visitors annually, generating $19.3 billion in revenue.
21
http://thechive.files.wordpress.com/2014/08/places-ranked-15.jpg The world's most dangerous city: San Pedro Sula, Honduras In San Pedro Sula,
Honduras, there are over 3 murders a day. The violence stems from the city's
role as a major hub for illegal drug and arms trafficking.
22
http://thechive.files.wordpress.com/2014/08/places-ranked-16.jpg Most caffeinated country in the world: Sweden The coffee in Sweden will put a
spring in your step, and hair on your tongue. The Swedes consume an average of
388 mg of caffeine in coffee per person, per day (that's almost 5 Red Bulls).
24
http://thechive.files.wordpress.com/2014/08/places-ranked-18.jpg The most bicycle friendly city in the world: Groningen, Netherlands By comparing
cities along the criterion of average number of bicycle trips made daily, one
city reigns supreme: Groningen in the Netherlands. In Groningen about 50 percent
of the population commute via bike daily, making it the city with the greatest
proportion of cyclists on the planet.
25
http://thechive.files.wordpress.com/2014/08/places-ranked-19.jpg World's most energy efficient city: Reykjavik, Iceland All of the energy and
heat used by the citizens of Reykjavik Iceland come from geothermal plants and
renewable hydropower, making it the most sustainable and energy efficient city
in the world. On their mission to be completely free of fossil fuels by 2050,
the city has also been replacing traditional buses with hydrogen-fueled buses,
from which the only emissions are water.
26
http://thechive.files.wordpress.com/2014/08/cat.jpg Most cat friendly country: United States With a pet cat population of 76.43
million feline friends, the United States dominates the world stage for most cat
friendly country in the world.
28
http://thechive.files.wordpress.com/2014/08/places-ranked-43.jpg Most sexually satisfied country: Switzerland Switzerland might just be the most
progressive and least sexually repressed country in the world. Between liberal
views on pornography and prostitution, and sex ed that starts in Kindergarten,
over a fifth of the population consider their sex-lives "excellent." They even
recently opened up a very successful array of tax-funded drive-in sex boxes in
Zurich. Bonus, in spite of all this, Switzerland also holds the title as one of
the lowest teen birth rates in the world.
29
http://thechive.files.wordpress.com/2014/08/places-ranked-20.jpg Least sexually satisfied country: Japan With its extreme conservatism, Japan is
the country with the least sexual satisfaction, as only 15% of individuals
reported having a fulfilling sex life. Furthermore, over 45% of Japanese women
report being either uninterested in, or actually despising, sexual contact
30
http://thechive.files.wordpress.com/2014/08/places-ranked-22.jpg Most emotional country in the world: Philippines Polling citizens in 150
countries over the years of 2009-2011, researchers found that the people of the
Philippines were the most likely to respond emotionally to simple questions
about their day.
31
http://thechive.files.wordpress.com/2014/08/singapore.jpg Least emotional country in the world: Singapore That same study revealed that
Singaporeans experience the least emotion on the day-to-day. Only 3 out of every
10 reported having any emotional reactions to basic scenarios or when describing
their days.
32
http://thechive.files.wordpress.com/2014/08/places-ranked-24.jpg Country with the longest life expectancy in the world: Monaco According to the
World Health Organization's study from 2013, Monaco tops the charts for longest
living citizens, with an average life expectancy of 87.2 years. Men in Monaco
live an average 85.3 years, and women live to an average of 89 years.
33
http://thechive.files.wordpress.com/2014/08/places-ranked-25.jpg Country with the shortest life expectancy: Sierra Leone On the other side of
that coin, the population of Sierra Leone live to an average of 47 years. The
men of Sierra Leone live to an average of 47 years old, whereas women live an
average of 48 years.
34
http://thechive.files.wordpress.com/2014/08/sexyworld.jpg Sexiest country in the world: Brazil and Australia There will always be a debate
about which countries are home to the most attractive people, in part because
who's to say what is objectively attractive? Though the means are hardly
scientific, a recent poll found quite a disparity between which countries men
believe are the sexiest, and which countries women find the sexiest. For men,
Brazil tops the charts for the most attractive people. For women, it's about the
thunder down under in Australia.
35
http://thechive.files.wordpress.com/2014/08/nigeria.jpg Most stressed-out country in the world: Nigeria by looking at the dimensions of
Homicide Rate, GDP per capita, Income inequality, Corruption, and Unemployment,
one thing is clear: Nigeria is hands-down the most stressed out country in the
world.
36
http://thechive.files.wordpress.com/2014/08/places-ranked-29.jpg Least stressed-out country in the world: Norway Along the same dimensions,
Norway was at the far-end of the other side of the spectrum, and is deemed the
least stressed-out country in the world (until oil prices spiraled downward in
late 2014). Norway is also becoming more stressed with its recent immigrant
population and returned many not yet documented for lawlessness.
37
http://thechive.files.wordpress.com/2014/08/places-ranked-39.jpg Country with the highest average IQ: Hong Kong* There are a lot of factors that
can affect an IQ score, ranging from national and personal wealth to simply who
makes the test. As a result, these findings are highly controversial, but seem
to suggest that Hong Kong is the country* with the highest IQ, at an average of
107 points. *Hong Kong is a special administrative region of China meaning that
it falls within the sovereignty of the People's Republic of China, yet does not
form part of Mainland China, and has it's own government.
38
http://thechive.files.wordpress.com/2014/08/places-ranked-30.jpg Country with the lowest average IQ: Equatorial Guinea According to "IQ and the
Wealth of Nations," Equatorial Guinea caps the low end of the global IQ range,
with a national average of 59 points.
39
http://thechive.files.wordpress.com/2014/08/seoul.jpg World's most well-connected city (for internet): Seoul, South Korea
Surprisingly, despite it's 618 million internet users spending an average of
18.7 hours a week surfing the net, China didn't even make the top 10. Along the
dimensions of average connection speed, availability (weighted towards free
access), openness to innovation, support of public data, and privacy/security,
Seoul in South Korea is the champion of internet-connectedness. With 10,000
government supported free WiFi spots dotting the city, and an internet speed
that goes unchallenged globally, Seoul is an internet junkie's paradise.
Forwarded
by Paula
The
Talking Centipede
A single
guy decided life would be more fun if he had a pet.
So he went
to the pet store and told the owner that he wanted to buy an unusual pet.
After some
discussion, he finally bought a talking centipede, (100-legged bug), which came
in a little white box to use for his house.
He took
the box back home, found a good spot for the box, and decided he would start off
by taking his new pet to church with him.
So he
asked the centipede
in the
box, "Would you like to go to church with me today? We will have a good time."
But there
was no answer from his new pet.
This
bothered him a bit, but he waited a few minutes and then asked again, "How about
going to church with me and receive blessings?"
But again,
there was no answer from his new friend and pet. So he waited a few minutes
more, thinking about the situation.
The guy
decided to invite the centipede one last time.
This time
he put his face up against the centipede's house and shouted,
"Hey, in
there! Would you like to go to church with me and learn about God?"
.....
YOU ARE
GOING TO LOVE THIS ......
This time,
a little voice came out of the box,
"I heard
you the first time! I'm putting my shoes on!
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://faculty.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.
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://faculty.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 theshift from Gemeinschaftto
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.”
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
Where are the 21st Century big idea books in law and accounting?
A few accounting professors write textbooks. And there are some who write
accounting history books that, under Book Editor Steve Zeff, are virtually all
reviewed in The Accounting Review. But there are very few "big idea"
books thus far in the 21st century to compare with big idea books written in the
20th Century. For examples of "big idea books" scan down the list of Accounting
Hall of Famers at
http://fisher.osu.edu/departments/accounting-and-mis/the-accounting-hall-of-fame/membership-in-hall/
Note how many of these famed accountants wrote big idea books that were not
textbooks or history books per se.
Perhaps some of the reasons for less interest in writing big idea books are
the same as the alleged reasons law professors are writing fewer big idea books.
Jensen Comment
Technology makes it easier to bypass publishers and make electronic books
available directly from vendors like Amazon. But there are skimpy financial
rewards incentives in this type of publishing. In fairness, in the 20th Century
most of the big idea accountancy authors did not write books for direct
financial rewards (although there may have been substantial indirect rewards for
reputation building and fame that led to consulting and endowed chairs).
I think the biggest problem is the changed way universities shifted faculty
performance reviews. The focus went from long-term academic reputation building
to short term academic reputation building by counting annual hits in leading
accounting research journals. It's now a counting game and top researchers are
expected to get hits every year in top journals, albeit hits only as one of
several co-authors on each hit.
And perhaps there just aren't many big ideas worthy of books in academic
accounting (other than accounting history books that are more focused on
historical events than innovative big ideas).
Is the rebirth of accountics science dysfunctional to big ideas?
Jensen Comment
Firstly, there's an enormous problem of defining "endowment" for comparisons
among universities.
Secondly there's an enormous problem of valuation, especially for things like
oil lands and shopping malls.
Thirdly, there's an enormous problem of differences in the number of students
in universities. Dartmouth College has slightly over 6,000 students. Texas A&M
has over 60,000 students.
Fourthly, universities with medical schools sort of mess up the comparisons.
Medical schools uniquely attract endowment gifts and spending from those
endowments. For example, an enormous gift (say 100 million dollars) may be
restricted to research of a particular disease and may only indirectly benefit a
few students at best. This is a whole lot different than a gift for
undergraduate scholarships.
Jensen Comment
Maybe this is a cheaper way to find bugs. Google is still aggravating Microsoft
with a program to find bugs in Windows 8. To the embarrassment of Microsoft, the
Google program has been wildly successful.
Once Microsoft gets you hooked on Windows 10 then the debugged upgrades will
no longer be free.
Amazon launched a new service that helps educators
and authors publish their own digital "textbooks" and other educational
content that students can then access on Fire tablets, iPad, iPhone, Android
smartphones and tablets, Mac, and PC.
"Educators and authors can use the public beta of
Amazon's new Kindle Textbook Creator tool to easily turn PDFs of their
textbooks and course materials into Kindle books," the company explained in
its announcement. "Once the book is ready, authors can upload it to KDP in
just a few simple steps to reach students worldwide."
Features include flashcards, highlighting, and
note-taking.
Those who publish through the KDP (Kindle Direct
Publishing) program can earn royalties of up to 70% and keep their rights
and maintain control of their content. "They can also choose to enroll their
books in KDP Select for additional royalty opportunities like Kindle
Unlimited and the Kindle Owners' Lending Library, and access to marketing
tools like Kindle Countdown Deals and Free Book Promotions," Amazon said.
More information about the KDP program is available
on the Amazon website.
Jensen Comment
It's relatively easy in my field to write chapter material relative to the
end-of-chapter material on questions, problems, and cases to be accompanied by a
separate answer book. Also in accounting and tax there's a constant stream of
rules changes such that updating textbooks becomes a pain in the butt for an
individual author. For popular accounting and tax textbooks such updating has
become a factory operation by the big publishing firms along with production of
all the supplementary videos, test banks, teaching notes, etc.
My point is that its harder to be a textbook author in some disciplines
vis-a-vis others where the content needs changing annually or more often.
Textbook authors often find their textbooks own them rather than vice versa.
Kindle Textbook Creater makes it relatively easy to change course handouts
into a textbook. But consideration needs to be given to all those copyrighted
notes now in your password-controlled Moodle or Blackboard servers that cannot
be made available by to the general public.
Also consideration needs to be given to ethics and your employer's policies
regarding sales of materials to your own students.
Update on BYU Flipped Variable-Speed Video Courses in Accounting BYU replaced live lectures in the on-campus two introductory courses in
accounting with variable -speed video 15 years ago. I wrote about the pioneering
efforts of adjunct professor Norman Nemrows who developed these CDs years ago
---
http://faculty.trinity.edu/rjensen/000aaa/thetools.htm#BYUvideo
The variable speed videos enable students to navigate more efficiently through
the video files and to slow down on parts they want to study.
I think Norm supervised the courses and held office hours when students wanted
some help. As I recall he did all this for $1 per term.
This was a one of the early campus classroom replacements on online lectures
with video. My contention then and now was that this would not work well on many
campuses. It worked well at BYU because the accounting majors are nearly all
highly motivated students who learn well on their own or in small groups. In a
course having a high proportion of unmotivated students there is generally more
need for live instructors to kick butt.
In a way, there are
two Norman Nemrows. There’s the real-life professor who spent much of his
career teaching accounting students at Brigham Young University. And there’s
the one I'll call Video Norm, the instructor immortalized in lectures on
accounting that he began recording nearly 15 years ago.
For more than a decade, students at BYU learned
from both Norms. About half of the class sessions for his
introductory-accounting course were "software days," when students watched
an hour or two of video lectures on their computers anywhere they wanted and
then completed quizzes online. The other class periods were "enhancement
lectures," in which students—as many as 800 at a time—gathered in a
classroom and did group work led by the actual Mr. Nemrow.
Back when it started, in 2000, this method of
reducing in-person classes and replacing them with videos and tutorials was
an innovation, but today it is a buzzword: the
flipped classroom.
A few years ago, the living, breathing Norman
Nemrow retired from the university. And that’s when things got interesting,
or at least more complicated, because students at BYU still learn from Video
Norm.
In fact, every student taking introductory
accounting at the university watches the video lectures, some 3,000 students
each year. And the in-person sessions? They’re now led by another accounting
professor, Melissa Larson, who has been thrust into the novel role of doing
everything a traditional professor does except the lecturing. The tough
question—and one of the biggest for the future of the flipped model—is
whether other professors will be willing or able to become sidekicks to
slick video productions.
Ms. Larson gets high marks on student evaluations
for leading group work in the large classroom sessions and answering
questions by email. But Video Norm remains the star.
That was clear when Mr. Nemrow showed up, in
person, at the end of the fall semester to give a guest lecture for the
introductory course. You’d think a Hollywood actor had come to campus.
Students showed up early to take selfies with the professor they had spent
so many hours watching on video.
"We got front-row seats," said Celeste Harris, a
junior in the course. "We said, we have to see what this guy is like in real
life."
How did Mr. Nemrow compare with the digital
version? "He’s a little older than when he recorded the videos," Ms. Harris
noted, "but it was actually one of the best lectures I’ve heard." It was
inspirational, she said, because Mr. Nemrow recounted the story of this
unusual accounting course, which has become a kind of legend on the campus.
From Business to Teaching
Mr. Nemrow started out as a businessman. He worked
at a consulting firm in California, then helped start a
real-estate-investment firm. But he was drawn to the classroom. For years he
taught accounting on the side, first as an adjunct at California State
University at Fullerton, then full time at Pepperdine University.
Around the time he turned 30, he sold his business
and decided to retire early. He didn’t want to do nothing, but he no longer
had to work for money, he says, even with a wife and five small children.
"I didn’t really have a burning desire to create
another business," he says. He took some art classes. He played a lot of
golf. "For a couple of years I was trying to kind of find myself," he
recalls. "I decided what I really wanted to do is probably teach."
So he called up the dean of the business school at
his alma mater, Brigham Young, and asked if there was a teaching spot for
him. He had a master’s degree but not a Ph.D., and at first the answer was
no. "When I told him I was willing to do it as a volunteer, his attitude
changed," Mr. Nemrow recounts, with a laugh. "He let me teach the intro
course for a year."
BYU hired Mr. Nemrow as a full-time professor. He
donated his salary to the university, he says. A devout Mormon, he saw the
work as a way to give back to the church. In his mind, that left his
teaching in the category of volunteer work. "I wanted to have complete and
total freedom, and I didn’t want to make a commitment to how long I’d be
there."
After several years of teaching the introductory
course, he says, he began to get tired of repeating himself and answering
the same questions. He considered writing a textbook and even drafted a
couple of chapters. "But I thought to myself, this isn’t as effective as
when I’m explaining it in person."
So, in 1998, he approached the university’s
fledgling instructional-technology group and pitched his idea to reformat
his course around a series of videos and computerized homework assignments.
"They were worried about getting funding, so I just put up the money
myself," about $50,000, he says.
After two years of development and some lobbying to
persuade the accounting faculty to let him try his flipped experiment, Video
Norm was born.
Mr. Nemrow says the software increased the number
of students he could teach at one time, while reducing the time it took him
to do it. And he says his surveys showed that 93 percent of his students
reported learning more effectively from the flipped format than from a
traditional one. Both his inner businessman and his inner philanthropist
thought: This is going to be big.
Hitting the Road
Mr. Nemrow believed that his system was simply
better than the old way, and he thought that once other accounting
professors saw it, they’d immediately adopt his videos and software rather
than the textbook-and-lecture method.
He started a company, Business Learning Software
Inc., to manage and update the videos and the delivery technology. True to
his desire to keep his teaching like volunteer work, he says, he donates any
profits to charities. Because the software and videos were developed at BYU,
the university owns them and gets a portion of any revenue from their sale.
And he made
all of the
videos for his intro course available free online.
Mr. Nemrow traveled to accounting departments and
academic conferences around the country, evangelizing his teaching approach
and his software. But, to his surprise, he found few takers.
Jensen Comment
Also beware of crime such as having laptops stolen from hotel rooms and, as is
common in Russia, being mugged and stripped down to your underwear. Some nations
have enormous kidnapping risks. Think Mexico. Kidnapping risks may not have a
high probability, but for business travelers they can be hugely dangerous and
expensive. Sexual assaults are also on the rise in some nations.
Are you thinking about tax day yet? Your friendly
neighborhood tax preparer is. IRS Commissioner John Koskinen declared this
tax season one of the most complicated ever, and tax preparers from coast to
coast are trying to get ready for the first year that the Affordable Care
Act will show up on your tax form.
Sue Ellen Smith manages an H&R Block office in San
Francisco, and she is expecting things to get busy soon.
“This year taxes and health care intersect in a
brand new way,” Smith says.
For most people, who get insurance through work,
the change will be simple: checking a box on the tax form that says, “yes, I
had health insurance all year.”
But it will be much more complex for an estimated
25 million to 30 million people who didn’t have health insurance or who
bought subsidized coverage through the exchanges. To get ready, Smith and
her team have been training for months, running through a range of
hypothetical scenarios. One features “Ray” and “Vicky,” a fictional couple
from an H&R Block flyer. Together they earn $65,000 a year, and neither has
health insurance.
“The biggest misconception I hear people say is,
‘Oh the penalty’s only $95, that’s easy,’” says Smith, but the Rays and
Vickys of the world are in for a surprise that will hit their refund. “In
this situation, it’s almost $450.”
That’s because the penalty for being uninsured in
2014 is $95 or 1 percent of income, whichever is greater. Next year, it’s 2
percent. Smith says the smartest move for people to avoid those penalties is
to sign up for insurance before Feb. 15, the end of the health law’s open
enrollment period.
But a lot of people may not think about this until
they file their taxes in April. For them, it will be too late to sign up for
health insurance and too late to do anything about next year’s penalty too,
says Mark Steber, chief tax officer for Jackson Hewitt Tax Services.
Teaching Case on How New Health-Care Rules Affect Your 2014 Tax Return
From The Wall Street Journal Accounting Weekly Review on January 16, 2015
SUMMARY: For 2014, there are only two important federal income-tax
changes for individual taxpayers, beyond the usual inflation-indexing of
tax-rate brackets and various other parameters. Both have to do with the
Affordable Care Act, and both may be complicated enough to inspire many
people to engage the services of a professional tax preparer.
CLASSROOM APPLICATION: This article offers a good explanation of
tax penalties under the Affordable Care Act.
QUESTIONS:
1. (Introductory) What is the Affordable Care Act? Why are
individual tax returns affected by the ACA?
2. (Advanced) What is minimum essential coverage? What are the
penalties for failure to carry that coverage?
3. (Advanced) Who should be concerned about the penalty? How is the
penalty calculated? How is it reported and paid?
4. (Advanced) What is the premium assistance tax credit? Who is
eligible for the credit? What are the options for disbursement of this
credit?
5. (Advanced) What is a refundable credit? Why are some credits
refundable and others are not?
Reviewed By: Linda Christiansen, Indiana University Southeast
Tax forms for 2014—such as W-2s and 1099s—will soon
be arriving in the mail, which means it isn’t too early to start thinking
about putting together your Form 1040 for last year.
For 2014, there are only two important federal
income-tax changes for individual taxpayers, beyond the usual
inflation-indexing of tax-rate brackets and various other parameters. Both
have to do with the Affordable Care Act, also referred to as “Obamacare”—and
both may be complicated enough to inspire many people to engage the services
of a professional tax preparer.
Here’s what taxpayers need to know. Penalty for
failure to carry “minimum essential coverage”
The health-care overhaul established a new federal
income-tax penalty for the failure to carry what it deems minimum essential
coverage. Last year was the introductory year for the penalty, which can
potentially be owed for any month when qualifying health coverage wasn’t in
force. (In Internal Revenue Service speak, the penalty is called a “shared
responsibility payment.”)
You don’t have to worry about the penalty if
you—and all members of your family, if applicable—had qualifying coverage
for all of last year. In this case, simply check the box on line 61 of Form
1040, and you’re done.
If you didn’t have qualifying coverage for the
entire year, the first task is to determine if you are exempt from the
penalty. For that, see the instructions to new IRS Form 8965 Health Coverage
Exemptions (and instructions for figuring your shared responsibility
payment). If you were exempt for last year, file Form 8965 with your 2014
Form 1040 to prove it.
For additional information on exemptions, see IRS
Publication 5187, Health Care Law: What’s New for Individuals and Families.
(All IRS forms and publications discussed in this article can be found at
www.irs.gov.)
If you weren’t exempt, the next step is to
calculate the penalty amount that you owe using the work sheet in the
instructions to Form 8965. Enter the penalty amount on line 61 of your
return. For 2014, the penalty can range from $95 or less to a good deal more
for higher-income folks. Also be aware that the penalty for 2015 and beyond
can be much higher than the penalty for last year. Premium assistance tax
credit
The other Affordable Care Act-related change for
2014 was the debut of the so-called premium assistance tax credit, or PTC.
It is available to eligible individuals and families who obtain health
coverage in a qualifying plan by enrolling through a state-run insurance
exchange or through the federal exchange (www.healthcare.gov).
In general, you are eligible for the credit if your
household income was between 100% and 400% of the federal poverty line and
you didn’t have access to affordable employer-sponsored coverage last year.
The allowable credit amount can vary widely depending on your specific
circumstances. (For additional information on the PTC, see IRS Publication
974.)
The PTC can be advanced directly to the insurance
company to lower your monthly premiums, or it can be claimed when you file
your return. You may not know the exact amount of your allowable PTC for
last year until you actually file your 2014 Form 1040. Calculate the PTC
using the new IRS Form 8962.
If advance PTC payments were made on your behalf
last year, the amount of those payments should be reported by the exchange
to you on the new Form 1095-A, Health Insurance Marketplace Statement. You
should receive Form 1095-A by no later than early February. Then calculate
the difference between your advance PTC payments (if any) and the PTC amount
you are actually entitled to claim on Form 8962. Enter any excess PTC amount
on line 46 of Form 1040 and pay it when you file.
The PTC is a “refundable credit.” That means you
can collect the full allowable credit amount even when it exceeds your
federal income tax liability for last year. Specifically, the PTC amount is
first used to reduce your federal income tax bill. After your bill has been
reduced to zero, any remaining PTC can be either refunded to you in cash or
used to make estimated tax payments for the 2015 tax year.
Jensen Comment
It's sad when companies like Yahoo must offset their operating losses with
passive investments in other, often, high risk investments. Read that as meaning
it's sad when a company cannot make higher returns on its operating assets and
labor force.
Jensen Question
I passed the CPA examination before graduation when I was a senior in college.
My question is whether first-time passage rates were higher or lower in 1960
than in the 21st Century?
2014 CPA Examination Statistics Released Annual Candidate Performance Book
Features Exclusive Data from the National Association of State Boards of
Accountancy
January 27, 2015
http://www.prweb.com/releases/2015/01/prweb12475923.htm
The National Association of State Boards of
Accountancy (NASBA)
announces the release of the
2014 Uniform CPA Examination Candidate Performance Book.
Published annually, the book features comprehensive
statistical data from all four (4) testing windows of the Uniform CPA
Examination administered in 2014.
Top-ranked colleges and universities, accounting
firms, researchers, professors, university accounting programs, corporate
recruiters, students and aspiring certified public accountants find great
value in the publication’s numerous statistical components.
Through analysis of the publication’s national
average data, institutions can compare their school's overall performance
against others. Professors are better equipped to measure student
performance and the performance of their respective accounting programs. The
publication also aids accounting firms and corporate recruiters as they
develop pipelines of talent, and assists students and aspiring CPAs as they
seek enrollment into top-ranked accounting programs.
According to University of Baltimore Professor Greg
Gaynor, “By supplying data and analysis regarding candidate performance,
NASBA helps both schools and the accounting profession by assisting in the
development of successful accounting graduates and future CPAs.”
In addition to the summary data points, significant
emphasis has been placed on enhancing the demographics reported throughout
the publication's two-page jurisdictional dashboards. Featured tables also
provide a more granular view of individual exam event and performance data.
Featured tables in the 2014 Uniform CPA Examination
Candidate Performance Book include:
2014 Annual and Quarterly Summaries,
Jurisdiction Summary Statistics,
Top 30 Countries (By number of
candidates),
Demographic Trending (Age, Gender,
Degree), and
2014 Institution Rankings by first-time
Examination Performance.
The 2014 Uniform CPA Examination Candidate
Performance Book is available for purchase, in both softback ($150) and
eBook (Coming Soon $100) versions.
CLICK HERE to learn more about the publication and
to place an order. Also, a complimentary copy of the 2014 Examination
Summary Report is available by clicking the following link:
COMPLIMENTARY REPORT.
NASBA first began gathering data on CPA Examination
candidates in 1982 and has published reports on performance and selected
characteristics since 1985.
Questions regarding NASBA’s 2014 Uniform CPA
Examination Candidate Performance Book and other candidate performance
products should be directed to cpb(at)nasba(dot)org or 615.312.3806.
About NASBA
Celebrating more than 100 years of service, the National Association of
State Boards of Accountancy (NASBA)
serves as a forum for the nation’s Boards of Accountancy, which administer
the Uniform CPA Examination, license more than 700,000 certified public
accountants and regulate the practice of public accountancy in the United
States.
NASBA’s mission is to enhance the effectiveness and
advance the common interests of the Boards of Accountancy in meeting their
regulatory responsibilities. The Association promotes the exchange of
information among accountancy boards, serving the needs of the 55 U.S.
jurisdictions.
NASBA is headquartered in Nashville, TN, with
satellite offices in New York, NY, and San Juan, PR, and an International
Computer Testing and Call Center in Guam.
Jensen Question
I passed the CPA examination when I was a senior in college. My question is
whether first-time passage rates were higher or lower in 1960 than in the 21st
Century.
January 29, 2015 Message from Francine McKenna
Hi Bob,
You will like this. It's based on a paper by four
academics and talks about auditor independence issues and client
confidentiality compromises when the same auditor is on both sides of an M&A
transaction.
On Sunday evening, CBS’ 60 Minutes did a
feature story on Steven Brill’s new book, America’s Bitter Pill, in
which Brill complains that Obamacare didn’t do enough to tackle the
exorbitantly high price of U.S. hospital care. “Obamacare does zero to
change any of that,” says Brill. That’s not exactly right. What Brill—and
CBS—don’t tell you—is that Obamacare is driving hospitals to charge you
more than they already do.
The U.S. hospital industry is crony
capitalism at its finest
Steven Brill, founder
of The American Lawyer and Court TV took a starring role
in the health care debate when he published the Time article
“Bitter
Pill,” describing how hospitals charge extreme
prices for ordinary care to the uninsured. For example, Sean Recchi, an
uninsured lymphoma patient, went to MD Anderson Cancer Center, a
world-renowned facility in Houston, to seek treatment. MD Anderson proceeded
to charge him $283 for a $20 chest X-ray. They charged him more than $15,000
for blood tests costing a few hundred dollars. They charged him $13,702 for
a dose of Rituxan, a lymphoma drug, for which the average U.S. hospital
price is around $4,000. All told, Recchi’s course of treatment cost $83,900.
Whatever he couldn’t pay was called “uncompensated care.”
MD Anderson is not
struggling under the weight of bills unpaid by the uninsured. In 2010, MD
Anderson recorded revenue of $2.05 billion and operating profits of $531
million. Brill recounted several other patients at other hospitals with
similar stories.
This is a topic
we’ve covered extensively at The Apothecary, and elsewhere: the
U.S. hospital industry is the single largest
example of crony capitalism in the history of civilization. In 2013, I wrote
a piece for National Review called “An
Arm and a Leg” explaining the problem.
To summarize: the average
day spent in a U.S. hospital costs five times as much as it does in other
industrialized countries. That’s not because U.S. hospitals use higher
technology or better care. It’s because they charge more for the same
technology and the same care. Because they can get away with it.
Thanks to federal
intervention in the health care system—Medicare, Medicaid, and the employer
tax exclusion—hospitals have been able to charge whatever they want for
their services, knowing that the average consumer has no idea how much he’s
paying, because he’s paying mostly through taxes and other indirect means.
In 2013, U.S. government
entities—i.e., taxpayers—spent a half-trillion dollars subsidizing American
hospitals. By 2021, thanks in part to Obamacare, that will grow to $800
billion a year. That’s more than twice what the military spends subsidizing
the aerospace industry.
And here’s the thing. While
Brill rightly criticizes Obamacare for not doing anything to bring down the
cost of hospital care, he’s actually an ardent supporter of the law. And
this is the fundamental problem with Brill’s thesis. Obamacare doesn’t
merely not do anything to bring hospital costs down. It actively works to
drive hospital costs upward, by doubling down on the incentives hospitals
have to charge more to patients.
In every state, it’s the
hospital industry that has been the principal lobbyist in support of
Obamacare. Why? Because the law increases taxpayer subsidies of the hospital
industry by around $400 billion per decade. In other words, it takes the
currently high prices that U.S. hospitals charge and says “keep doing what
you’re doing.”
If Obamacare had never
passed, hospitals would have been under much more pressure to keep these
costs down, because no one would be bailing them out if hospital care became
increasingly unaffordable. The opposite, of course, has happened.
Obamacare encourages
hospitals to increase their market power
The next thing
Obamacare does is it encourages hospitals to merge, thereby giving hospitals
even more market power to charge even higher prices.
A
study by Jamie Robinson of the University of
California found that highly concentrated hospital markets–where one or two
hospitals controlled most of the patient volume—hospitals charged an average
of 41 percent more for common procedures than they did in more competitive
markets.
And Yet in New Hampshire and Other States Upwards of Half the Hospitals
are Refusing to Serve Patients with ACA insurance?
Why?
Answer One of the main reasons is that hospitals serving ACA patients get
stuck with having to serve deadbeats who are behind in paying their insurance
premiums. For 60 days doctors and lawyers must serve ACA patients that are
behind over 30 days in paying insurance premiums such that insurance companies
no longer have to pay their medical bills.
In the past people who defaulted on premiums became uninsured people who were
treated in special facilities such as county hospitals funded by taxpayers. Now
people who default on premiums get a 90-day grace period where insurance
companies pay their medical costs for 30 days and the doctors and hospitals have
to pay for their medical care for 60 days.
There's a 90-day grace period in the ACA where people who default on paying
premiums are still covered for the first 30-days by the insurance company and
the next 60 days by the doctors and hospitals providing the care is absolutely
absurd. The insurance companies will simply pass on these bad debt losses (which
may be enormous for surgeries and hospital confinements) into higher premiums
for the people who pay their medical insurance billings.
Bob Jensen's message on why I don't use Skype with my grandchildren
Hi Ross,
If I had Skype my grandchildren cut back on emails
and cards. Being a forever-teacher I want them to practice writing, writing,
and more writing with me politely correcting mistakes.
In truth I think it's more effective getting into
the heads of students and grandchildren asynchronously via email versus
synchronously via phone or Skype. With email they compose, provide
references, and think more about what they want to communicate.
The same applies to me when sending email messages
to students and grandchildren. I spend more time composing, referencing, and
thinking about what I want to communicate.
Via email grandchildren send me pictures of their
years of growing up. In return I send them pictures of my earlier years of
growing up rather than my later yuk years of growing old.
Thanks,
Bob
Jensen Comment
Jacob Soll has a somewhat unique joint appointment at USC. He purportedly is
both a professor of accountancy and a professor of history. I could not find him
listed in my 2013 edition of the Hasselback Accounting Faculty Directory.
Greece is back as a focal point
of the world financial crisis. While coming elections are spooking the
markets, the supposed cause of the crisis has not changed. Greece has a
declared debt of 319 billion euros, or about $369 billion, 175 percent of
its 182-billion-euro ($210 billion) gross domestic product. This sounds like
a nearly impossible task for any government: to govern effectively, spur
economic growth and avoid default. The shackles of the declared Greek debt
have effectively paralyzed the country. Yet maybe all of this debt drama is
unnecessary.
The way this story is usually told, inside and
outside Greece, is as a morality play: the profligate Greeks don’t pay taxes
and their banks and elites, in turn, rob Greek citizens and foreign
investors alike. The Greeks, it seems, need to be held accountable and to
pay back their debt at any cost.
The brutal and counterproductive response has been
austerity. But given Greece’s problems, what the country really needs is
transparency and accountability. Greece has a very weak tradition of
accounting, with few homebred trained accountants. The government does not
use International Public Sector Accounting Standards, or Ipsas, which
measure liabilities and assets over time, similar standards to those used by
leading governments, businesses, banks and investors at all levels. It’s of
little surprise that without internationally verifiable accounting
standards, no one feels the need to be accountable.
This lack of accountants not only means poor
administration; it also means that the Greek government has done a lousy job
of accounting for its debt number. In fact, the debt has been calculated to
be larger than it actually is, or would be if one used Ipsas.
Without real accounting, we also can’t evaluate the
claims of Prime Minister Antonis Samaras’s government — as well as those of
numerous commentators — that Greece has made improvement in its fiscal
position over the last two years. If the European Commission, the
International Monetary Fund and the European Central Bank (known as the
troika) are giving Greece 283 billion euros ($327 billion) of financing in
return for good economic indicators — and credit ratings agencies like
Moody’s shake Greek and eurozone economies with pronouncements made on these
numbers — one would think they would want to verify the numbers, using Ipsas,
which would be much more transparent and something people outside the troika
could realistically evaluate.
But the Greeks are not the only ones content with
bad accounting and fishy numbers. The troika itself does not use Ipsas in
calculating Greek debt, but rather what is confusingly called the Maastricht
definition of debt, which is based on face value.
Think of face value as a promise to pay something
in the so-far-distant future because its value is essentially worthless
today if you don’t get interest payments. This means that the troika
calculates debt neither according to its financial worth, but rather
according to a political agreement that ignores very low interest rates and
the fact that money increases in value the longer you can hold and invest
it. This is working to Greece’s advantage, but Greece can’t show it, and
thus benefit from better credit ratings. Continue reading the main story
Continue reading the main story Continue reading the main story
Neither economic principles nor international
accounting standards would regard this as an acceptable way to report a debt
position. Greece was so cash-strapped and used to European Union handouts
that its leaders signed off on the bailout deal without international
accounting standards.
The fact that Germany has acted as a vigilant
gatekeeper over Greece’s agreement to abide by the agreed debt and austerity
measures should deserve scrutiny. Look again at the 57 billion euros ($66
billion) in German loans through the lens of accounting logic. The loans
have been made at under 2 percent with maturities as far out as 2054.
That means that, in reality, the interest on this
loan is under market rates. Giving loans well under market rates with gaping
repayment schedules amounts to a grant. According to Ipsas standards on
German debts, this portion of the debt alone would require only about 13
billion euros ($15 billion), leaving Germany with a considerable
44-billion-euro ($51 billion) loss.
But given the current draconian austerity
conditions, Germany might be able to avoid showing the losses on the loan,
yet it will destroy Greece in the process. Germany’s demands for both
austerity and overvaluing of the debt are both unjust and counterproductive
for Greek and European stability.
Greek debt is not what it seems. One reason might
be that the Germans have refused to price the debt fairly, or properly
report its value, which means in the short run that they extract more
austerity from the Greeks than they should, and that they also keep this
loan off the budget balance sheets because it would come up as a loss under
any legitimate accounting standard.
A little-known fact is that the Germans also do not
use Ipsas and have notably opaque public finance standards. This means their
potential loss on the Greek loan is out of sight of the German public, who,
not great fans of the Greek bailout, would be even less enthusiastic if they
understood the terms.
It should also be noted that the Greek crisis has
contributed to the 15 percent drop in value of the euro over the last year,
and, with this low rate, German exports have been given a huge boost.
By overstating Greek debt and effectively creating
a false sense of crisis (the Greeks have been bailed out), the troika is
undermining growth and investment through both the drama of overstated debt
and by austerity measures that are ripping apart Greek society. If Greece
continues with the yoke of this inaccurate debt number, it faces more
recession and possibly political unrest, further destabilizing a hobbled
Europe and the euro.
Greek leaders should demand neither more austerity
nor debt default. They should simply ask that the debt be calculated using
Ipsas. And while they are at it, they should implement Ipsas at home to
boost confidence, investment, credit and political stability. Clear
accounting would show the Greek debt to be lower, stabilize the country, and
bring confidence to Greece and, correspondingly, to the euro.
Jacob Soll, a professor of history and accounting at the University of
Southern California, is the author, most recently, of “The Reckoning:
Financial Accountability and the Rise and Fall of Nations.”
OWINGS MILLS, Md. — Inside the gleaming mall here on
the Sunday before Christmas, just one thing was missing: shoppers.
The upbeat music of “Jingle Bell Rock” bounced off the
tiles, and the smell of teriyaki chicken drifted from the food court, but
only a handful of stores were open at the sprawling enclosed shopping
center. A few visitors walked down the long hallways and peered through
locked metal gates into vacant spaces once home to retailers like H&M, Wet
Seal and Kay Jewelers.
“It’s depressing,” Jill Kalata, 46, said as she tried
on a few of the last sneakers for sale at the Athlete’s Foot, scheduled to
close in a few weeks. “This place used to be packed. And Christmas, the
lines were out the door. Now I’m surprised anything is still open.”
The Owings Mills Mall is poised to join a growing
number of what real estate professionals, architects, urban planners and
Internet enthusiasts term “dead malls.” Since 2010, more than two dozen
enclosed shopping malls have been closed, and an additional 60 are on the
brink, according to Green Street Advisors, which tracks the mall industry.
Premature obituaries for the shopping mall have
been appearing since the late 1990s, but the reality today is more nuanced,
reflecting broader trends remaking the American economy. With income
inequality continuing to widen, high-end malls are thriving, even as stolid
retail chains like Sears, Kmart and J. C. Penney falter, taking the middle-
and working-class malls they anchored with them.
“It is very much a haves and have-nots situation,”
said D. J. Busch, a senior analyst at Green Street. Affluent Americans “will
keep going to Short Hills Mall in New Jersey or other properties aimed at
the top 5 or 10 percent of consumers. But there’s been very little income
growth in the belly of the economy.”
At Owings Mills, J. C. Penney and Macy’s are
hanging on, but other midtier emporiums like Sears, Lord & Taylor, and the
regional department store chain Boscov’s have all come and gone as anchors.
Having opened in 1986 with a renovation in 1998,
Owings Mills is young for a dying mall. And while its locale may have
contributed to its demise, other forces played a crucial role, too, like
changing shopping habits and demographics, experts say.
“I have no doubt some malls will survive, but major
segments of our society have gotten sick of them,” said Mark Hinshaw, a
Seattle architect, urban planner and author.
One factor many shoppers blame for the decline of
malls — online shopping — is having only a small effect, experts say. Less
than 10 percent of retail sales take place online, and those sales tend to
hit big-box stores harder, rather than the fashion chains and other
specialty retailers in enclosed malls.
Instead, the fundamental problem for malls is a
glut of stores in many parts of the country, the result of a long boom in
building retail space of all kinds.
“We are extremely over-retailed,” said Christopher
Zahas, a real estate economist and urban planner in Portland, Ore. “Filling
a million square feet is a tall order.” Continue reading the main story
Like beached whales, dead malls draw fascination as
well as dismay. There is a popular website devoted to the phenomenon —
deadmalls.com — and it has also become something of a cultural meme, with
one particularly spooky scene in the movie “Gone Girl” set in a dead mall.
“Everybody has memories from childhood of going to
the mall,” said Jack Thomas, 26, one of three partners who run the site in
their spare time. “Nobody ever thinks a mall is going to up and die.”
Well aware of the cultural dimensions, as well as
the economic stakes, the industry is trying to turn around public perception
of these monuments to America’s favorite pastime: shopping.
In August, the International Council of Shopping
Centers, a trade group based in New York for the shopping center industry,
including mall owners, hired the public relations firm Burson-Marsteller “to
put the real story out there and stop the negativity around the idea that
the mall isn’t going to exist in the next few years,” said Jesse Tron,
communications director for the trade group.
While it is true that many thriving malls will
continue to flourish in the years ahead, it is not clear what the industry
can do to prevent more and more malls from falling on hard times.
About 80 percent of the country’s 1,200 malls are
considered healthy, reporting vacancy rates of 10 percent or less. But that
compares with 94 percent in 2006, according to CoStar Group, a leading
provider of data for the real estate industry.
Nearly 15 percent are 10 to 40 percent vacant, up
from 5 percent in 2006. And 3.4 percent — representing more than 30 million
square feet — are more than 40 percent empty, a threshold that signals the
beginning of what Mr. Busch of Green Street calls “the death spiral.”
Industry executives freely admit that the mall
business has undergone a profound bifurcation since the recession.
Continued in article
Jensen Comment
Keep in mind that the poor do not pay income taxes in the USA. The top 50% of
taxpayers pay 97% of the federal income tax and almost the same percentage of
state income tax since so many states peg the state income tax to the federal
income tax returns. Poor people do pay consumption taxes and property taxes
(even when they rent housing) and low income workers as well as other workers do
contribute Social Security and Medicare taxes that, in turn, entitle them to
collecting those entitlements when they retire or are declared disabled.
Over the weekend, the White House revealed that
President Obama would propose $320 billion in additional taxes during
tonight’s State of the Union address.
Rest assured they’re not going to happen—not while
Republicans control Congress. This is about political signaling more than
it’s about policy; it’s a tax-hike wish list put forth by a president who
wants people to know that he favors higher taxes, not a genuine attempt at
concocting an overhaul of the tax code that could actually pass. It’s game
day, and President Obama wants to show everyone to know which side he’s
rooting for, so he’s showing up early in a jersey that says Team Tax Hikes.
The White House fact sheet makes it clear that
Obama is rooting for a particular kind of tax hike populism. The opening
line declares that "middle class families today bear too much of the tax
burden because of unfair loopholes that are only available to the wealthy
and big corporations." The rest of the document reads much the same way. But
Obama’s populist tax hike rhetoric doesn’t always capture the full reality
of the tax hikes he’s proposing.
For example, Obama will propose ending the
"stepped-up" basis "loophole" in the capital gains tax. According to the
fact sheet, President Obama will propose closing "the trust fund
loophole—the single largest capital gains tax loophole—to ensure the
wealthiest Americans pay their fair share on inherited assets."
That’s one way of putting it. Another way of
putting it is that it is essentially a brand new tax on inheritance. It’s a
proposal that either doesn’t understand or doesn’t care about the primary
reason the tax code employs the stepped-up basis calculation. As Ryan Ellis
of American for Tax Reform
explains:
Under current law, when you inherit an asset your basis in the asset
is the higher of the fair market value at the time of death or the
decedent's original basis. Almost always, the fair market value is
higher.
Under the Obama proposal, when you inherit an asset your basis will
simply be the decedent's original basis.
Imagine buying a piece of property in 1980 for
$100,000. It’s worth a $400,000 now. If you sell that piece of property
before you die, you’ll pay capital gains on $300,000—the difference between
the two. But if you pass that on to your daughter, the value of that
property will be "stepped up" to $400,000. The way it works today, if she
sells the property for $440,000, she’ll pay capital gains on $40,000—the
amount it appreciated while in her possession. Under Obama’s proposal, she’d
be liable for capital gains on $340,000. (The Wall Street Journal
has more on
how this works in practice.)
As Ellis argues, it basically
amounts to a "second death tax."
There are exemptions for most households, but this misses the larger
point: the whole reason we have step up in basis is because we have a
death tax. If you are going to hold an estate liable for tax, you can't
then hold the estate liable for tax again when the inheritor sells it.
This adds yet another redundant layer of tax on savings and investment.
It's a huge tax hike on family farms and small businesses.
Another provision outlined in the White House fact
sheet would "roll back expanded tax cuts for 529 education savings plans
that were enacted in 2001 for new contributions." Those 529 education plans
are college savings plans geared toward the broad middle class—the folks his
tax plan is supposedly intended to boost—the value of which was dramatically
expanded by a 2001 tweak that stopped taxing those plans as ordinary income
once withdrawn.
As Ellis notes in a separate
post, the amount of money families put in those
college funds following the 2001 reform doubled over a year, and then
continued to grow rapidly. As Ellis writes, Obama’s plan would undermine the
value of those plans:
The Obama plan aims to turn back the clock, once again taxing
earnings growth in 529 plans as ordinary income. This is a direct and
clear tax increase on middle class families sacrificing to save for
college, and it’s likely to result in a mass divestment from this type
of savings.
The White House proposal also calls for raising the
capital gains rate from its current rate of 23.8 percent (including a 3.8
percent surtax built into Obamacare) to 28 percent. The White House
describes this as a plan to "raise the top capital gains and dividend rate
back to the rate under President Reagan." It’s true that in 1986 Reagan
supported a law raising the capital gains rate to 28 percent. But that was
in the context of a bipartisan deal to significantly overhaul (though not
completely wipe out) the tax code, one that the Reagan White House worked on
diligently for years.
Similarly, Obama’s fact sheet declines to mention
is that it was a Democratic president who lowered the capital gains rate
back down to its current level: Bill Clinton signed the reduction into law
as part of a package of tax cuts in 1997. That too was passed on a
bipartisan basis as part of a broader package of federal tax reforms.
That’s obviously not what’s going on here. Obama
isn’t after plausible reforms that could pass on with support of the
opposition party. He’s not after anything that could pass, or even lead to a
compromise that could pass—at least not while he’s in office. Which means
that, despite the populist rhetoric, he’s not actually looking for ways to
reduce the tax burden the middle class. He's looking to make a speech, not
do the hard work of negotiating real reforms.
Jensen Comment
Since President Obama is proposing significant populist redistribution of income
it would seem that any type of tax reform over the next two years will probably
have to be proposed by Republicans. Whether of not such reforms put into effect
depends heavily upon whether the President will sign any kind of Republican tax
reforms. He may be forced to compromise on Republican demands to keep his
initiatives on ACA heath care and immigration amnesty alive.
Some outlier Republicans are proposing tax reforms that have little chance of
passage by other Republicans like a proposed flat taxthat eliminates popular deductions (e.g., charitable gifts, medical
expenses, and home mortgage interest) of the middle class as well as higher
income taxpayers. A flat tax might also eliminate exclusion of municipal bond
interest. Since most legislators are lawyers I don't anticipate any tax reforms
that will simplify the tax code and put lawyers and accountants out of business.
In the far background there is always a possibility of federal or state VAT
(turnover) taxes. But turnover taxes are so actively despised by
business firms tax payers will probably be ice skating in Hell before the USA
gets a VAT tax similar to the VAT taxes of Europe.
If there’s any silver lining in the President’s
plan to end the major tax benefit of saving for college, it’s that at least
he’s not talking about taxing money that’s already been saved. This aspect
of the Obama
plan is particularly valuable to people like, well,
Barack Obama.
As
we noted on Thursday, the President wants to allow
the Internal Revenue Service to begin taxing distributions from so-called
529 plans, even if they are used as intended to fund legitimate educational
expenses such as college tuition. The Obama plan is to treat withdrawals
from these savings plans—which are funded with money that’s already been
taxed—as regular income to the
beneficiary. Therefore this money will
be taxed again before it can be used to pay for higher education.
But the President’s plan would only apply the new
taxes to withdrawals of money contributed to these accounts in the future.
All past contributions to 529 plans would continue to grow and then be
withdrawn tax-free to pay for school. This is no doubt a relief to families
that have already managed to save significant sums. And it happens to fit
nicely in the financial plan implemented by the residents of 1600
Pennsylvania Avenue, a household of two parents and two daughters.
According to a 2009 report in the Journal, in 2007
“the Obamas took advantage of a unique feature of 529 plans that allows
account owners to front-load five years’ worth of contributions, $240,000 in
total for the two girls.” No doubt these investments took a hit during the
financial crisis. But given the stock market recovery since the spring of
2009, we imagine the Obama family has built educational resources that most
middle-class families can only dream of.
We would compliment the President on his financial
planning and thoughtful parenting in building up these assets tax-free. But
his latest policy proposal makes us wonder why he won’t let the next
generation of savers do the same.
Jensen Comment
This may sound more unfair that what it will be in reality. Students usually are
"poor people" in terms of income tax returns. Poor people generally do not pay
income taxes in the USA. Over 97% of of the income tax revenue is paid by the
top 50% of the taxpayers, and the remaining 3% generally comes from
taxpayers who earn more than students.
Of course students declared as dependents on their parent's tax returns lose
their personal exemptions. This could be a complicating factor for large 529
savings accounts.
An alternate plan (other than a 529 plan) that would be to avoid double
taxation would be to make a non-taxable gift of less than $14,000 each year to
each growing child, annual gifts that are invested in a non-taxable fund such
as a Vanguard Insured Non-Taxable Fund. The interest/dividends earned each year
are non taxable along with the gifts themselves that would then not be double
taxed. However, there may capital gains taxes at the federal level and some
state income taxes depending up where gift recipients live.
There are of course default risks, most of which are diversified away in
enormous mutual funds like the Vanguard insured tax exempt funds. These days of
nearly zero interest rates on CDs means that financial risks must be taken on
529 plans as well.
Update
Due to voter backlash President Obama quickly axed his plan to tax IRS 529
college savings plans
Jensen Comment
Instead of proposing that taxpayers can invest in tax exempt bonds for towns,
counties, and schools, President Obama is advocating extending the tax exempt
bonds into the public-private sector.
The program, called Qualified Public Infrastructure
Bonds, wouldn’t expire, and there’d be no cap on issuance, the
administration said in a statement Friday. The debt also wouldn’t be subject
to the Alternative Minimum Tax, which limits the tax benefits and exemptions
that high-earning individuals can claim.
“QPIBs will extend the benefits of municipal bonds
to public private partnerships, like partnerships that involve long-term
leasing and management contracts, lowering the cost of borrowing and
attracting new capital,” the administration said in the statement. The bonds
will serve “as a permanent lower cost financing tool to increase private
participation in building our nation’s public infrastructure.”
The proposal for a new type of security in the $3.6
trillion municipal market is part of a broader White House plan calling for
more investment in roads, bridges and other infrastructure in advance of the
administration’s budget proposal that will be released Feb. 2.
Building Block
The market contracted in 2014 for an unprecedented
fourth straight year as local officials refrained from borrowing even as
tax-exempt interest rates were close to
generational lows.
The last time the market expanded was in 2010, the
final year of the federal Build America Bonds program. The initiative,
popular with local officials and Wall Street investors, gave municipalities
a subsidy on interest costs for issuing taxable debt to finance
infrastructure work.
The new type of debt for public-private
partnerships, or P3s, would build upon the $10 billion private-activity bond
market by including funding for airports, ports, mass transit, water and
sewer initiatives. There’s a $15 billion limit to issuance of
private-activity bonds. The proposed bonds can’t be used to privatize public
systems or finance privately owned facilities.
America’s federal, state and local governments need
to spend $3.6 trillion through 2020 to put the nation’s critical systems in
adequate shape, according to a 2013 report from the American Society of
Civil Engineers. Without higher spending, the group projects the costs of
travel delays, power and water outages will reach $1.8 trillion by 2020.
Alternative Appeal
“The interest in P3s has clearly been growing, and
we’ve seen states in particular launch a lot of these projects,” said Robin
Prunty, who oversees state credit ratings at Standard & Poor’s in New York,
said in an interview. “The availability of an attractive alternative with
cost-effective financing, certainly from a strict muni perspective that’s a
positive.”
Obama has made previous calls for increased
infrastructure investment since the end of Build America Bonds, which were
part of his 2009 stimulus plan. He asked Congress in 2013 to create a
national infrastructure bank and recommended a program called America Fast
Forward Bonds. He sought the same initiatives last year after they failed to
advance in Congress.
Continued in article
How to Mislead With Statistics
The ITEP would have you believe that the poor in every state of the USA would be
better off if wealth was redistributed and the poor get even more of a free ride
in terms of state taxation
Jensen Comment
The first thing that makes me suspicious is that ITEP bills itself as being
bipartisan. There's nothing bipartisan about the Board of Directors of ITEP ---
http://www.itep.org/about/board_directors.php
The Institute on Taxation and Economic Policy (ITEP)
released a report last month titled Who Pays? A Distributional Analysis
of the Tax Systems in All 50 States.[1]
The study attempts to examine the overall level of regressivity of the tax
systems of the fifty states and Washington, D.C. and presents state and
local effective tax rates (total state and local taxes paid as a percentage
of income) for each state’s five income quintiles. The report finds that
nearly all states have regressive state and local tax systems.
The report also surveys the features of each state
and local tax system, characterizing each feature as either regressive or
progressive. Some of the tax system characteristics that ITEP regards as
regressive are narrow income tax brackets, lack of a state income tax, and
high reliance on sales and excise taxes. Progressive characteristics include
little reliance on consumption taxes and graduated income tax rate
structures.
Here we present three issues with ITEP’s
conclusions and policy recommendations, in addition to their methods of
presentation.
Issue #1: ITEP advocates tax policies that
dampen economic growth in favor of short-term income redistribution.
A tax system should choose long-term economic
growth over short-term redistribution.[2]
Tax Foundation Chief Economist Dr. William McBride recently published a
comprehensive review of the literature on the empirical relationship between
taxes and economic growth over the last three decades, finding overwhelming
evidence of a negative relationship between the two.[3]
What’s more interesting is that among the work that examined specific tax
types, researchers found that the most harmful to growth were corporate and
individual income taxes, followed by taxes on consumption. The least harmful
were taxes on property.
ITEP suggests that states move away from taxes on
consumption (sales and excise taxes) and aim for “highly progressive income
taxes.” That is, the report suggests moving more towards the taxes that are
most harmful to economic growth. One study in Dr. McBride’s survey, an OECD
panel data analysis, found progressive income tax systems specifically are
negatively related to economic growth.[4]
This may occur due to the way these systems disincentivize certain
behaviors. According to Dr. McBride,
The more we try to make an income tax progressive,
the more we undermine the factors that contribute most to economic growth:
investment, risk-taking, entrepreneurship, and productivity. This is because
high-income earners tend to do much of the saving, investing, risk-taking,
and high-productivity labor.[5]
ITEP suggests that states move toward a tax revenue
source that would harm future economic growth in favor equalizing incomes in
the short term.
Issue #2: ITEP recommends that state and
local governments rely on unstable sources of revenue.
ITEP suggests states move more toward progressive
income tax systems. Income tax revenues, however, are much more volatile
from year to year than sales taxes or property taxes. Using state and local
government finance data from the U.S. Census Bureau,[6]
we analyzed the U.S. totals of various combined state and local tax revenue
sources to identify the most volatile sources of tax revenue from year to
year. Figure 1 shows the annual percentage change in various types of state
and local tax revenues.
Figure 1 Not Quoted Here
The Census data indicates that the most volatile
source of combined state and local government tax revenues in the U.S. is
corporate income tax, followed by individual income tax and sales and gross
receipts taxes. Property tax revenues are the least volatile from year to
year. These findings are confirmed by a 2010 Tax Foundation analysis of
state tax revenue volatility by tax type, which found that corporate income
and personal income tax revenues were the most volatile.[7]
Further, the general shape of annual changes in revenues from taxes on
corporate income, individual income, and sales and gross receipts closely
follows the shape of the overall economy. Changes in income taxes, however,
are much more pronounced as the overall economy changes.
In their analysis, ITEP punishes states that depend
heavily on consumption taxes as a main source of revenue while advocating
moving toward income taxation. Depending largely on a volatile source of
revenue can cause budget issues in the event of an economic downturn. This
is especially important in light of the inadequacy of state rainy day funds
in providing additional funding during the most recent recession.[8]
Depending on high-income earners for tax revenue is
even more problematic. Using 2009 IRS data, we found that millionaire
income, in addition to the tax revenues they generate for the federal
government, is quite volatile:
Comparing the 2009 data to the pre-recession data
for 2007 shows that not only did the number of millionaires fall by 40
percent, but the overall income of millionaires fell by 50 percent. The
result for the U.S. Treasury was that 54 percent of the total drop in tax
revenues during this period was due to the falling tax collections from
millionaires.[9]
Though this example uses federal tax collections,
the principle still applies to state and local governments. The more a
government relies on volatile sources of revenue, the more unstable overall
funding will be when the economy dips.
Issue #3: ITEP includes one regressive
feature of the federal income tax in its calculations, but excludes the rest
of the highly progressive federal income tax.
Perhaps the most problematic part of ITEP’s report
is its selective inclusion of federal policy. When ITEP presents effective
state and local tax rates they also include what is known as the federal
offset. The federal income tax code allows taxpayers who itemize their
deductions to claim tax payments to state and local governments as a
deduction. ITEP argues that since this benefit disproportionately helps
high-income taxpayers lower their total tax bill, it should be accounted for
in an analysis of regressivity. Including the federal offset in an analysis
of state and local tax structures is misleading because it is a feature of
the federal tax code, not state and local tax systems.[10]
When the federal offset is not included in the
calculations of state and local effective rates, ITEP’s regressivity
conclusions are much less severe. ITEP also breaks the top quintile into
three smaller income groups, making the difference between the richest and
the poorest appear much more pronounced. In the following analysis, we
present the top quintile as a whole, rather than breaking it up into smaller
income groups. Figure 2 shows the U.S. average of state and local effective
tax rates, with and without the federal offset.
Fiture 2 Note Quoted Here
Continued in the article
Jensen Conclusion
It all boils down to how biased the unending debate about whether the poor will
be better off if all wealth and income is equally distributed versus whether the
poor in the USA are actually doing better by having incentives to strive for
differential wealth and income.
Some analysts argue that we will have just as many dedicated brain surgeons
if they make no more than dishwashers in a restaurant. I happen to not agree,
but it's probably something that cannot be answered with data since we have very
little to compare it with. Castro complained that when Cuban workers all
received the same allowances they did not want to work very hard. Certainly,
many of the most skilled professionals escaped and are still trying to escape
Cuba. But comparing Cuba with the USA is not really fair in terms of so many
factors affecting prosperity.
In the final analysis it's still Karl Marx versus Friedrich Hayek
The world is still waiting for any of the 200+ nations to demonstrate that
Karl Marx had a better idea.
In Cuba where the goal was to eliminate inequality, Fidel Castro found that
his ration books, free housing, free public transportation, and minimal wages
destroyed incentives to work.
Fidel Castro told a visiting American journalist
that Cuba's communist economic model doesn't work, a rare comment on
domestic affairs from a man who has conspicuously steered clear of local
issues since stepping down four years ago.
The fact that things are not working efficiently on
this cash-strapped Caribbean island is hardly news. Fidel's brother Raul,
the country's president, has said the same thing repeatedly. But the blunt
assessment by the father of Cuba's 1959 revolution is sure to raise
eyebrows.
Jeffrey Goldberg, a national correspondent for The
Atlantic magazine, asked if Cuba's economic system was still worth exporting
to other countries, and Castro replied: "The Cuban model doesn't even work
for us anymore" Goldberg wrote Wednesday in a post on his Atlantic blog.
He said Castro made the comment casually over lunch
following a long talk about the Middle East, and did not elaborate. The
Cuban government had no immediate comment on Goldberg's account.
Since stepping down from power in 2006, the
ex-president has focused almost entirely on international affairs and said
very little about Cuba and its politics, perhaps to limit the perception he
is stepping on his brother's toes.
Goldberg, who traveled to Cuba at Castro's
invitation last week to discuss a recent Atlantic article he wrote about
Iran's nuclear program, also reported on Tuesday that Castro questioned his
own actions during the 1962 Cuban Missile Crisis, including his
recommendation to Soviet leaders that they use nuclear weapons against the
United States.
Even after the fall of the Soviet Union, Cuba has
clung to its communist system.
The state controls well over 90 percent of the
economy, paying workers salaries of about $20 a month in return for free
health care and education, and nearly free transportation and housing. At
least a portion of every citizen's food needs are sold to them through
ration books at heavily subsidized prices.
President Raul Castro and others have instituted a
series of limited economic reforms, and have warned Cubans that they need to
start working harder and expecting less from the government. But the
president has also made it clear he has no desire to depart from Cuba's
socialist system or embrace capitalism.
Fidel Castro stepped down temporarily in July 2006
due to a serious illness that nearly killed him.
He resigned permanently two years later, but
remains head of the Communist Party. After staying almost entirely out of
the spotlight for four years, he re-emerged in July and now speaks
frequently about international affairs. He has been warning for weeks of the
threat of a nuclear war over Iran.
Castro's interview with Goldberg is the only one he
has given to an American journalist since he left office.
Any CPI index is controversial. It's not
clear that it's very comparable between all these nations.
The low cost of living nations are poverty
nations where most of the people barely stay alive in spite of a low cost of
living.
Some of the high cost of living nations
are rich oil producing nations like Norway, Venezuela, and Kuwait. Some have
very high taxes with benefits redistributions like Denmark and New Zealand. Note
that "free health care" is not really free. Even the lower income people are
taxed somewhat for the their national health plans. Most nations do not have as
many poor people on totally free medical and medicine health plans that the USA
provides with Medicaid.
My impression is that some things we take
for granted in the USA are luxuries in the highest cost of living nations. For
example, it's not uncommon for middle class families in the USA to have homes
with over 2,000 square feet. Such large homes are luxuries in all the 15 nations
ranked above. Energy is relatively cheap in the USA in terms of electricity,
heating oil, and gasoline compared to most of the high cost of living nations
ranked above.
Health plans are difficult to compare
between nations. For example, most on national health plans will provide organ,
knee, and hip replacements but the waiting times may stretch into years. But
those national health plans may also provide nursing care for the elderly that's
not covered by Medicare in the USA.
Some of the high cost of living nations
provide free or nearly free college education. But free college is not universal
and may be limited to 25% or fewer of the college-age prospects. I don't think
any nation provides free college education to everybody such as is now being
proposed by President Obama.
My general impression is that most
tourists would tend to agree that the the top 15 nations ranked above are indeed
very expensive tourism destinations. But some of the low cost of
living nations are also expensive tourism destinations when there are high
safety and kidnapping risks such as in Pakistan.
In the past I used TaxACT until 2010 when Wal-Mart only had TurboTax
available. So I switched to TurboTax in 2010 and used it until next year when I
will go back to TaxACT. Note that TaxACT will read all of your prior TurboTax
returns and vice versa.
Here's why I will never ever use TurboTax again.
On January 10. 2015 I went to Wal-Mart as usual to buy by TurboTax
Deluxe disk for $49. I prefer to own the disk to make it easier in future
years if I have a tax audit and a computer crash. I have backup hard copy
returns, the installation disk, and backup copies of my returns on several
hard drives.
I January 24 when I installed TurboTax and the software works fine as
long as I do not try to install updates. The updates corrupt the program
both my main computers. So I decided that this year I will simply not
install updates.
On January 24 things were going smoothly using TurboTax Deluxe until I
tried to install a small amount of bond sales for 2013. A message popped up
from the CEO of TurboTax informing me that his company did a bad thing this
year to TurboTax Deduct. If I wanted to file my tax return I would have to
pay an added $30 to his company. Then when I file my tax return using
TurboTax he will send me a $25. I guess he's
still trying to screw me out of $5 plus all the time I lost sending an added
$30 in extortion money to TurboTax. He shoud be refunding me the
$35 for the added time and aggrevation.
After I put out the refund information on a couple of listservs I got a
few horror stories about frustrations of others with TurboTax in the past.
The most egregious frustration is that
sometimes, purportedly, TurboTax will tell you that your electronic return
has been accepted by the IRS when in fact it was not received by the IRS.
Horrors!
Thus I'm shifting to TaxACT for good. So long TurboTax. This is not the
first year in which you screwed your customers.
Changes to the popular tax program, TurboTax, has some customers mad.
“People are just livid. They feel deceived,” says consumer advocate Edgar
Dworsky. “They feel they’ve used this product for so many years, they’ve
trusted it, and now they’re being sandbagged.” Dworsky is a TurboTax
customer unhappy after Intuit, the maker of TurboTax, changed the deluxe
version of the popular tax preparation software product.
The changes require customers to upgrade to more expensive versions if
reporting investment, self-employment, or rental income — costing an extra
$30 to $40 — and surprising many long-time Turbo customers. “Imagine their
surprise when they get halfway through doing their taxes and there is a
roadblock in the program that says you have to upgrade,” added Dworsky.
“It can be viewed as a bait and switch, yes,” Prof. Bryan Menk told KDKA
money editor Jon Delano on Tuesday, “because people were not accustomed to
this limitation in a prior year.” Menk teaches taxation at Duquesne
University and uses TurboTax himself.
Jensen Comment
Sounds to me like it's time for another boycott.
By the way the only difference on Amazon between Amazon Premiere and Deluxe
is $15.00. So why is Turbo Tax charging 30 for an upgrade to thoroughly
disgusted Deluxe customers?
Worst public relations strategy that I can remember in a very long time.
Turbo Tax Deluxe Customer Reviews
105 Five Star Ratings
25 Four Star Ratings
18 Three Star Ratings
22 Two star Ratings 1,705 One Star Ratings (as low as it goes)
Note that H&R Block software can read your prior-year TurboTax return and
vice versa if you want to change software.
Jensen Comment
2008 TurboTax Boycott
Tax Software Boycott of TurboTax Begins: I'll Bet You Can't Find the Hidden
Fees Disclosed on the TurboTax Website Note that this was back in the time when most taxpayers mailed in hard copy
printouts of their tax returns. It was common to by one copy of TurboTax and
then file returns for other members of the family such as when a married couple
filed separate returns.
Users are not complaining about the functionality of
TurboTax. The problem, as they see it, is with pricing changes. For the first
time, TurboTax producer Intuit started charging users an additional
$9.95 for each additional return whether they print or
e-file. Also, readers complain that the 2008
software costs more at checkout, jumping from $44.95 to $59.95. (However, when
AccountingWEB went on Amazon, the software could be had at the discounted price
of $54.99.) . . . One reviewer seemed to be issuing a battle cry by writing,
"Time to start the boycott." Another reviewer had criticism of a more personal
nature: "You should fire the person who came up with pay to print!" Of the 182
product reviews as of the evening of December 9, 2008, 171 of them were one-star
reviews and only five were five-stars, the highest rating. Of the five five-star
ratings, one user named Fernando Ortega said TurboTax is still the best,
pointing out that he doesn't have to enter all of his personal information and
previous returns manually.
"TurboTax turmoil: Online reviews pan the top selling software,"
AccountingWeb, December 2008 ---
http://www.accountingweb.com/cgi-bin/item.cgi?id=106620
Reply from Denny Beresford on January 25, 2015
Bob,
I've used TurboTax for many years although it has
been frustrating at times. After reading that the Deluxe version I've used
in the past wouldn't accommodate investment sales I bought the Premier
version this time. I should add that I first tried to do this online but
found that the system wouldn't capture my 2013 amounts claiming that those
files were "corrupted" or some such thing. So I bought the CD at Walmart and
the 2013 amounts loaded fine.
As I started working on some preliminary stuff
yesterday, I realized that Premier did not provide for the use of Schedule C
for my small amount of consulting income and that I would have to upgrade to
the still higher version. Apparently I hadn't read the news accounts
correctly or the instructions on the TurboTax packaging.
I then called customer service to ask if I was
entitled to a complimentary upgrade as I had been reading in the press. For
the first 5-10 minutes the young lady essentially insulted me by repeatedly
asking whether I had read the specifications on the website or CD packaging
and if so why hadn't I figured out that Schedule C wasn't included in the
version I was buying. I finally got mad and said are you going to help me or
not at which point she started to try to figure out how to upgrade me over
the phone. After about 45 minutes of wasted effort I said thanks for your
non help and hung up. In the meantime TurboTax sent me an email indicated
that they had processed my order for a free upgrade!
Frankly, I had decided to just pay the extra fee
and not screw around with customer nonservice again, but later in the day I
decided to give it one more try. This time I got a different young lady who
"appreciated my many years of being a customer" and was as friendly and as
helpful as she could be. In less than 10 minutes she decided that rather
than trying to fix my problem through an upgrade, she would simply send me a
new, free CD of the higher version by expedited delivery. While I obviously
haven't received it yet, that sounded like a great solution.
So assuming I do receive the new CD and it works as
promised, I do intend to remain a TurboTax customer. But they've certainly
made this a challenging year.
Many Turbo Tax Users Who Were Promised a $25 Refund Might Be Screwed Out
of That Refund by TurboTax
Jensen Comment
I don't know if anybody else caught this clever ploy by TurboTax to deny a
promised $25 refund.
TurboTax had not intended to offer anybody a refund, but millions of TurboTax
customers were so unhappy about this year's bait and switch fraud by TurboTax
that TurboTax reluctantly promised certain users a refund.
The refund was promised to TurboTax Deluxe ($49 or close) buyers who found
that in order to complete their 2013 tax returns they have to send TurboTax an
added $30. After all the complaints TurboTax reluctantly agreed to refund $25 of
that refund.
But there's a catch that maybe nobody else realizes until they read the
outline below.
TurboTax conducted a bait and switch fraud by deleting Schedules C, D,
E, and F from the TurboTax Deluxe software this year. When you try to
enter data that requires 1040 Schedules C, D, E, and F a message pops up that you will must send an
added $30 to Turbo Tax with a promise that TurboTax will refund $25 of that
payment after you file your tax return.
But there's a catch that I never caught before going to the TorboTax
Website where in a very obscure place TurboTax states the following
Eligibility for $25 cash back for returning Deluxe customers:
Customers who have completed their 2013
taxes in TurboTax Deluxe (CD or download),
and have completed their 2014
taxes in either TurboTax Premier or TurboTax Home &
Business (CD or download), and apply here before 11:59PM PST April 20, 2015,
are eligible for $25 back. 2014 TurboTax Advantage users are ineligible for
this offer. Terms and conditions are subject to change without notice.
Did you notice the catch? You must have used TurboTax Deluxe in 2013 to
file your 2012 tax return and again in 2014 (after paying the added $30) to
file your 2013 tax return.
Presumably taxpayers who did not use
TurboTax Deluxe to file their 2012 tax returns are not eligible for the $25
refund even when they paid the TurboTax $30 surcharge
required to file their 2013 tax returns using TurboTax Premiere. In other
words only people who used TurboTax Deluxe for their 2012 tax returns and
paid an added $30 for their 2013 tax returns are eligible for the payment.
Also note that to be eligible you must apply for the refund before
11:59PM PST April 20, 2015.
Jensen Comment
If this doesn't tell you to never use TurboTax again, here are some other
reasons to never use TurboTax again. Note that H&R Block software can read your prior-year TurboTax return and
vice versa if you want to change software.
Turbo Tax Deluxe Customer Reviews
105 Five Star Ratings
25 Four Star Ratings
18 Three Star Ratings
22 Two star Ratings 1,705 One Star Ratings (as low as it goes)
Reply from Elliot Kamlet on January 25, 2015
Intuit just doesn't care. See some of the following:
Quantitative Easing (QE) despite arguments to the contrary can boil down to
simply printing money to pay government bills, a strategy that destroys interest
payments on savings accounts and pension funds. Exhibit A is the way QE in the
USA drove interest rates on CDs from over 5% to virtually zero.
http://en.wikipedia.org/wiki/Quantitative_easing
From the CFO Journal's Morning
Ledger on January 23, 2015
Stimulus through bond purchases helped tip America
back toward growth, but will it work in Europe? Investors certainly seemed
to think so, as both stock and bond markets rallied on the news that the
European Central Bank plans to flood the eurozone with more than $1.16
trillion in newly created money,
the WSJ reports.
Corporate leaders also responded with guarded
optimism. “It’s one piece of getting Europe back to growth, and we should
see an impact,” said
Novartis AG CEO Joe Jimenez.
But the launching of quantitative easing won’t
necessarily solve Europe’s problems, and soaring markets are just one piece
of the puzzle. Denmark’s central bank
cut its main interest rate 90 minutes after the ECB
announced its plan, underscoring how
swiftly the stimulus plan is likely to ripple through the region. While the
euro sinks in response to the stimulus, that puts other currency areas in
the region at risk, as it will likely weaken their exports. Denmark had
feared that investors would rush into its currency, widening the spread
against the euro further.
Meanwhile, a few savvy investors had
anticipated last week’s surprise from the Swiss
central bank, when it chose to scrap its
three-year-old policy of limiting its value against the euro. Swiss
investment firm Quaesta
Capital AG bought options “a considerable time” ago betting that
the euro would drop below 1.20 francs, said Chief Executive Thomas Suter.
On Thursday, the European Central Bank
is expected to announce a new quantitative easing
program.
And according to
a report
from The Financial Times, Harvard professor Larry
Summers is not convinced that the ECB's program will live up to the hype.
Speaking at the World Economic Forum in Davos,
Summers said, "There is every reason to expect QE will be less impactful in
Europe." QE programs in Japan and the US have had at least some success in
reaching their goals, which in Japan was devaluing the yen and in the US was
boosting economic growth.
Summers said, however, that the risks of doing too
little in Europe outweigh the risks of doing too much. Summers has been the
leading voice behind the economic idea of "secular stagnation," or that
certain of the world's economies will be unable to create enough demand to
sustain their current or expected growth trends.
According to the FT, Summers outlined three reasons
why Europe's QE program might not be as impactful as those undertaken in the
US:
US QE came
earlier when bond yields were higher and could be forced down by the
policy.
QE in the US
was unexpected so gave the economy a jolt.
US QE worked
through the capital markets, but European credit is largely bank based,
so cannot work so freely
The latest indications are that the program will
see the ECB buy €50 billion per month in bonds in an effort to stave off
deflation and kickstart the sputtering European economy.
Markets have expected that the ECB would launch a
QE program for some time, and over the last few months the euro has weakened
and European stocks have rallied in anticipation of this program.
From the CFO Journal's Morning
Ledger on January 23, 2015
The
economic reality in the U.S. is that wealthier households are getting ahead
more quickly, while middle- and lower-income Americans continue to struggle.
That is forcing companies to adjust their marketing strategies and product
lines to appeal to people with money to spend, knowing that those in the
middle and below continue to hold their purse strings tightly,
the WSJ reports.
For
home builder Quadrant
Homes, that has meant pivoting from a “More House, Less Money”
marketing slogan to “Built Your Way,” aiming toward buyers with money to
spend on gourmet kitchens and other custom finishes. It’s easy to see why.
Since 2009, average household spending among the top 5% of U.S. income
earners climbed 12% through 2012, while spending fell by 1% for everyone
else.
The
trend goes beyond homes. Luxury retailers are registering solid growth, as
are luxury hotel chains, whereas midscale hotel chains are seeing revenues
decline. And in grocery stores, sales of economy brands have risen, while
top-tier chain Whole Foods
Market Inc. reported record sales per gross square foot last year.
Jensen Comment
The situation is more dire in other countries where poor people do not get
subsidized housing, welfare, food stamps, and Medicaid free medicine and medical
treatment. America's poor live better than the upper middle class in some
nations.
Midscale hotel chains may do better now that fuel prices have plummeted.
What hurts hotels in general is need for travel is greatly reduced by new
communications technology such as the ability to have virtual meetings where
people see and talk to each other without physical presence. Robotics is also
changing the need to travel, including such things as robotic surgeries where
the skilled surgeon may be thousands of miles from where the surgery is actually
taking place.
Some Things Never Seem to Change
From the CFO Journal's Morning
Ledger on January 29, 2015
Question Does the following post imply that having fewer accountants is a good thing?
From the CFO Journal's Morning
Ledger on January 26, 2015
About one in three of 150 top management jobs at U.K. retail giant
Tesco PLC are
expected to be slashed, but at the same time, the company is
planning to beef up its finance function, the
Financial Times reports. Looking to move past the trials of 2014, which
included a
profit warning pegged to accounting errors,
and a lack of clarity as to who was running finance between one finance
director’s departure in the spring and the next one’s arrival later in the
year, Tesco is now laying the groundwork for a small team that will operate
as a corporate finance department.
Tesco’s plans for finance could herald a further shake up of its diverse
portfolio, and may signal further asset sales, according to the FT. The
company is currently looking for a new head of corporate development, who
will join a team that will concentrate on investment opportunities, M&A
activity, asset disposals and portfolio reviews. The team will report to
current finance director Alan Stewart and Chief Executive Dave Lewis, as
well as group strategy director Benny Higgins.
Bankers and analysts expect further activity from Tesco to strengthen its
balance sheet, after credit rating agencies cut the firm to below investment
grade last week.
Question
What will make a healthy tennis star refuse to play in selected major
tournaments and why?
In an interview at the Australian Open last week,
Swiss tennis virtuoso Roger Federer was lobbed a question about
Switzerland’s recent decision to unpeg its currency from the euro and let
the franc float. “Does it mean I’ve got to win now?” the tournament’s
33-year-old second seed joshed.
The Swiss central bank’s recent gambit jolted
global markets and currency traders, but as Mr. Federer suggested, a rising
franc will also take a bite out of his winnings. In the past two weeks, the
Swiss franc has appreciated by about 15% relative to the Australian dollar.
Mr. Federer was bumped Friday in the third round and will take home 60,000
Australian dollars ($47,599) in prize money, which will now be worth about
8,000 francs ($8,868) less. Had he won the championship, the Swiss currency
spike would have cost him 400,000 francs ($443,298).
Mr. Federer and his fourth-seeded compatriot Stan
Wawrinka, who won his fourth-round match Monday, would be taking even larger
blows had not tournament officials increased the prize money earlier this
month to compensate for the falling Australian dollar. French Open
organizers may have to do the same to account for a weakening euro.
As sport regulators understand, tennis players
respond to economic incentives and often act as strategically off the court
as on. For the past three years Spain’s Rafael Nadal (eliminated in the
Australian Open on Monday) has bowed out of England’s annual Queen’s Club
tournament, traditionally a Wimbledon warm-up, because the U.K. charges
foreign athletes a prorated tax on their world-wide income (including
endorsements). The more tournaments he plays in Britain, the more he owes
Her Majesty’s Government.
“The truth is, in the U.K. you have a big regime
for tax, it’s not about the money for playing. They take from the sponsors,
from Babolat, from Nike and from my watches,” Mr. Nadal explained in 2011 to
the Times of London. He endorses a line of luxury timepieces by Richard
Mille. “This is very difficult. I am playing in the U.K. and losing money.”
The top five French players on the men’s circuit—
Jo-Wilfried Tsonga, Gael Monfils, Gilles Simon, Julien Benneteau and Richard
Gasquet, as well as Germany’s Philipp Kohlschreiber, all claim residence in
Switzerland, ostensibly to avoid paying their home countries’ punitive 45%
top personal income-tax rates (not including surcharges or social-security
contributions).
Many Swiss cantons assess taxes on the living
expenses of foreign high-rollers (typically fives times the market rate for
renting out their residence) rather than on their income. As a result,
Switzerland has become a tax haven for thousands of wealthy Europeans. Maybe
New Jersey Gov. Chris Christie should consider applying the Swiss tax model
in the Garden State. Jersey City might become the Geneva for New York’s
professional athletes.
Yet the most popular haven for tennis players is
the principality of Monaco, which doesn’t tax foreigners’ world-wide income.
(French athletes choose Switzerland because la République Française taxes
its citizens who live in Monaco.) Swedish tennis legends Bjorn Borg and Mats
Wilander escaped to Monte Carlo during their primes in the 1970s and ’80s to
dodge their home country’s 90% top marginal rate, which has since fallen to
57%. In 2002 Germany charged six-time Grand Slam title-winner Boris Becker
with tax evasion for falsely claiming Monaco as his primary residence.
Today, Monaco is the putative home of many of the
world’s top-ranked men and women players. They include Serbia’s Novak
Djokovic (1), the Czech Republic’s Petra Kvitova (4), Tomas Berdych (7) and
Lucie Safarova (16); Canada’s Milos Raonic (8); Denmark’s Caroline Wozniacki
(8); Bulgaria’s Grigor Dimitrov (11); and Ukraine’s Alexandr Dolgopolov
(23). Players who hail from former communist countries are especially keen,
it seems, on keeping their hard-earned money.
The U.S. has its own Monaco: no-income-tax Florida.
It’s no coincidence that America’s top-ranked players Serena (1) and Venus
Williams (18) and John Isner (21), as well as Russia’s Maria Sharapova (2)
and Japan’s Kei Nishikori (5) live in the Sunshine State. So do twins Mike
and Bob Bryan, who have won 16 Grand Slam doubles titles. Like the
Williamses, they come from California, where the 13.3% state income-tax rate
is the nation’s highest.
The new Revenue Recognition Standard in accounting is costing billions to
implement
From the CFO Journal's Morning
Ledger on January 27, 2015
Sweeping changes in the rules that determine when companies can recognize
revenue are afoot, but questions remain as to how they should be
implemented—250 questions, according to the SEC—and some companies are
pleading for a delay in their implementation beyond the current start date
of Jan. 1, 2017,
CFO Journal’s Maxwell Murphy reports.
The
rule changes involve so-called deferred revenue—money already collected from
customers that gets brought to the top line over time. Companies in the S&P
500 have about $360 billion of such revenue on their books. A group of U.S.
software companies, including
Adobe Systems Inc.,
Symantec Corp.
and VMware Inc.
asked rulemakers on Wednesday for guidance and a two-year delay.
AT&T and
Verizon Communications
Inc. also said the current deadline doesn’t give them enough time.
Auto
makers, including Ford
Motor Co. and
General Motors Co. estimate they might have to spend as much as
$300 million each on accounting technology, and claim the new financial
figures the rules will yield will provide little benefit for investors
Building a culture of ethics and an effective
compliance program within an organization today is a business imperative.
Effective ethics and compliance within an organization require senior
management involvement, organization-wide commitment, an effective
communications strategy and an ongoing monitoring system. A series of
questions can assist board members in assessing whether elements of an
ethical culture and an effective compliance program are in place at their
company.
Advances in Visualization
From the CFO Journal's Morning Ledger on January 16, 2015
We know how you feel
http://www.newyorker.com/magazine/2015/01/19/know-feel
The New Yorker’s Raffi Khatchadourian reports on
how technology conceived to help autistic individuals recognize the
emotional meanings behind facial expressions came to be embraced by the
advertising industry and beyond. User engagement has become an increasingly
valuable commodity “and just as the increasing scarcity of oil has led to
more exotic methods of recovery the scarcity of attention, combined with a
growing economy built around its exchange, has prompted R&D in the mining of
consumer cognition.” Today many industries, from film studios to cable
companies to even nightclubs, are paying attention to advances in hardware
and software platforms that detect and record even the most minute facial
expressions for signs of engagement. Representative Mike Capuano, of
Massachusetts tried and failed to propose an act to compel companies to
indicate when sensing begins. “People were saying, ‘Come on. What are you,
crazy, Capuano? What, do you have tinfoil wrapped around your head?’ And I
was like, ‘Well, no. But if I did, it’s still real.’ ”
One of the biggest accounting developments in
2014 was the FASB's and IASB's issuance of their joint standard on revenue
recognition. Deloitte's "Accounting Roundup: Year in Review" summarizes
final guidance released during 2014 that could affect reporting and
disclosures for the coming reporting season. It also provides an overview of
the status of active FASB projects, which could significantly affect
reporting and disclosure in 2015 and beyond, as well as a table of
significant adoption dates and deadlines.
What will business tax reforms look like?
From the CFO Journal's Morning Ledger on January 22, 2015
President Obama’s State of the Union address was long on ideas for boosting
the middle class through adjustments to personal-income-tax rules. But the
White House hasn’t omitted business taxes from the agenda.
The
WSJ’s John D. McKinnon reports
that Treasury Secretary Jacob Lew is optimistic that a
business tax overhaul could happen with the current Congress, and the two
top tax writers in Congress agree.
Both
House Ways and Means Committee Chairman Paul Ryan (R., Wis.) and Senate
Finance Committee Chairman Orrin Hatch (R., Utah) have signaled their
willingness to address business taxes alone, even though they would prefer
to address the entire tax system at once, including individual rates. Such a
move would allow the White House and Congress to sidestep their differences
over Mr. Obama’s various proposals for individual taxation that could have a
larger impact on wealthy Americans.
Mr.
Lew said in a speech
Wednesday, “The fact is, there is a growing bipartisan
consensus in Washington on how to achieve business-tax reform, and we have a
unique opportunity now to get this done.” He added, “I am confident that as
long as we keep our focus on doing what is right for our economy and our
nation, we will get this done.”
Jensen Comment
Problems at the state and local levels are inconsistencies in the way businesses
are taxed. Virtually all states (ranging from Illinois to Vermont) give
governors and town leaders powers to selectively waive taxes and even grant
subsidies for business firms, especially firms that have learned out to play the
game of threatening to leave or threatening develop in locations that give them
the best deals.
Other problems are the added deals where tax revenues are diverted to the
private sector. Exhibit A is comprised of the tens of billions of scarce tax
dollars being diverted to football stadiums, hockey arenas, basketball arenas,
and baseball stadiums. If you want to see the examples of waste witness the
Silverdome stadium near Detroit that will probably cost tens of millions of
taxpayer dollars for demolition after earlier tens of millions of taxpayer
dollars for construction ---
http://en.wikipedia.org/wiki/Silverdome
One thing that is as certain as death and taxes is that team owners will want
a new facility even before they move into their new facility. Tens of millions
of taxpayer dollars were spent on the money-losing Alamo Dome that was built for
the San Antonio Spurs. Before the Spurs even moved in they wanted another (read
that exclusive) new basketball domed arena which taxpayers also built for them
so the Spurs no longer had to use the "new" Alamo Dome.
By the way the Spurs originally wanted not to have to compete with baseball
teams for use of the Alamo Dome. So the Spurs insisted that the roof of the
facility be built too low for baseball. Now that they've departed the Alamo
Dome, San Antonio cannot use the huge Alamo Dome to attract a major league
baseball team. For a major league baseball team, taxpayers of San Antonio would
have to build yet a third domed sports facility. And so the beat goes on and on
and on.
From the CFO Journal's Morning Ledger on January 22, 2015
S&P lowered standards on ratings, SEC says
http://www.wsj.com/articles/s-p-sec-two-states-agree-to-roughly-80-million-settlement-1421851682
Standard & Poor’s Ratings Services agreed to pay
nearly $80 million to resolve an investigation by the Securities and
Exchange Commission and two states into its mortgage-backed securities. As
recently as mid-2012, S&P published “a false and misleading article” showing
how bonds rated triple-A under a revised methodology could withstand Great
Depression-era levels of economic stress, according to the SEC. But the data
used to compile the report was “decades removed” from the Great Depression.
Another Victim of Amazon: It's so much easier to sit at your desk and
order electronic components
From the CFO Journal's Morning Ledger on January 15, 2015
RadioShack prepares bankruptcy filing ---
http://www.wsj.com/articles/radioshack-prepares-bankruptcy-filing-1421279360
RadioShack Corp.
is preparing to file for bankruptcy protection as soon as next month,
following a sputtering turnaround effort that left the electronics chain
short on cash. A filing could come in the first week of February, and the
company has reached out to potential lenders who could help fund its
operations during the process, said people familiar with the matter.
Jensen Comment
Of course this does not mean your favorite Radio Shack store will immediately
disappear --- if you still have such a favorite store
Inventories will probably shrink, and your new clerks may not know much about
electronics.
My closest Radio Shack (10 miles) went out of business years ago.
On January 22, the FASB issued an
exposure draft
of two proposed ASUs related to the accounting for income taxes:
Intra-Entity Asset Transfers and Balance Sheet Classification of
Deferred Taxes. The proposed ASUs are part of the Board’s
simplification initiative aimed at reducing complexity in accounting
standards.
Intra-entity asset transfers
Existing GAAP for intra-entity asset
transfers is an exception to the principle of comprehensive recognition of
current and deferred income taxes. Currently, the buyer and the seller in a
consolidated reporting group are generally required to defer the income tax
consequences of intra-entity asset transfers when the profits from such
transfers are eliminated in consolidation. For example, upon an intra-entity
transfer of inventory, the seller is required to defer the tax expense on
the profit from the transfer and the buyer is prohibited from recognizing
the deferred tax benefit on the inventory’s increased tax basis. Both the
seller’s tax expense and the buyer’s tax benefit are recognized when the
inventory is sold to an outside party. In the case of a transfer of
long-lived assets, recognition of the seller’s tax expense and the buyer’s
tax benefit occurs in one or more subsequent periods.
Under the proposed ASU, the exception
would be eliminated, and as a result, the seller’s tax expense on the profit
from the transfers of assets and the buyer’s deferred tax benefit on the
increased tax basis would be recognized when the transfers occur. As
proposed, this would result in the recognition of the tax consequences of
intra-entity transfers even though the pre-tax profit is eliminated in
consolidation. The Board believes the proposed simplification will reduce
diversity in practice and result in more transparent decision-useful
information, which in many cases will more closely align with tax cash
flows.
Balance sheet classification
of deferred taxes
Current GAAP requires the deferred taxes
for each tax-paying jurisdiction of an entity to be presented as a net
current asset or liability and net non-current asset or
liability. This requires a jurisdiction-by-jurisdiction analysis of deferred
taxes and the underlying classification of the assets and liabilities to
which they relate. To simplify presentation, the proposed ASU would require
that all deferred tax assets and liabilities be classified as non-current on
the balance sheet. The proposed guidance would not affect the existing
requirement to offset the deferred tax liabilities and assets of each
tax-paying jurisdiction. As a result, each jurisdiction will now only have
one net non-current deferred tax asset or liability.
Why is this important?
The proposed ASUs will affect virtually
all tax-paying entities that apply U.S. GAAP. In particular, the change to
the accounting for intra-entity asset transfers could have a significant
impact on reporting entities’ income tax provision for the period in which
transfers occur and, in turn, the effective tax rate in future periods.
The proposed guidance in both standards
would achieve convergence with IFRS on the topics addressed.
What's next?
The comment period for the exposure draft
ends on May 29, 2015. Stakeholders are encouraged to provide comments on the
proposals. After considering comments received, the Board expects to
finalize the standards later this year.
As proposed, the standards would be
effective for annual and interim periods beginning after December 15, 2016
for public business entities, with no option to early adopt. For all others,
the standards would be effective for annual periods beginning after December
15, 2017, and interim periods in annual periods beginning after December 15,
2018. Early adoption would be permitted for non-public companies, but not
before the effective date for public business entities. Early adoption, if
chosen, would need to be applied to both standards.
Entities will be required to apply the
modified retrospective transition approach, with a cumulative catch-up
adjustment to opening retained earnings in the period of adoption for the
Intra-Entity Asset Transfers standard. Prospective transition would
be required for the Balance Sheet Classification of Deferred Taxes
More specifically, the study focuses on the challenges in attracting
students to the career:
Despite decades of intensive efforts, the
accounting profession has not reached its diversity goals. One reason is the
misperceptions about accounting as a career. Studies suggest that young
people, including underrepresented minorities, hold the profession in
relatively low regard, do not understand what accountants do, and do not
appreciate the career opportunities the profession offers.
It turns out that this lack of esteem is widely shared
by parents and educators, the two groups with the most influence on young
people’s academic and career choices.
Improving the quality of accounting curriculum and expanding internship and
scholarship opportunities are essential elements in creating a new,
meaningful perception of the accounting profession.
While the accounting profession is expected to grow by 16 percent between
2010 and 2020, applications by African Americans and Hispanics to accounting
programs at colleges and universities actually are declining, the Howard
study notes.
Additionally, African Americans and Hispanics – who together comprise about
30 percent of the U.S. population – represent just four percent of all
partners in the accounting profession,
according to data published by the American
Associations of CPAs. Caucasians still hold
approximately 75 percent of the professional positions in accounting, and 90
percent of the partnerships.
All of this is occurring while the number of minority-owned businesses is
projected to skyrocket.
Table not reproduced here
Partnering to Form a Pipeline for
Diversity
As a result of the study, the Howard Center for Accounting Education has
partnered with the American Institute of CPAs to establish the “Pipeline
Working Group” to create a unified, nationwide initiative that reaches
out to underrepresented minority students at high schools, community
colleges and universities, as well as to their teachers, guidance
counselors, and parents—to educate them about the profession.
The notion of working collaboratively to help
increase the pipeline of diverse talent into the industry as a whole
is a new idea – and one that deserves support—FAF President &
CEO Terri Polley
The Working Group’s members include
representatives from Deloitte, EY, KPMG, PwC, BDO, the National
Association of Black Accountants, the Association of Latino
Professionals in Finance and Accounting, the New Jersey Society of CPAs
and other organizations.
The Howard study outlines a five-pronged approach to diversifying the
talent pipeline, through the development and implementation of:
A national marketing and awareness
initiative highlighting the benefits and intellectual rewards of
accounting as a profession, aimed at students who are making career
choices.
School-based programs intended to promote
accounting as a high-value career choice, including business career
academies, summer development programs, and other community
programs.
Initiatives aimed at helping minority
students earn their CPA and other professional certifications.
Internships and career exploration
opportunities to provide high school and college students the means
to become familiar with the accounting profession.
Programs that both increase the number of
accounting scholarships available to minority students and that more
widely publicize scholarships that already are available.
A Call to Action
According to FAF President & CEO Terri Polley, the pipeline initiative
represents a call to all in the profession to join a critically
important conversation about the future.
The FAF has begun to hold conversations with
the Center for Accounting Education and the AICPA regarding the role
that the FAF, FASB and GASB – and other stakeholders – can play in the
development of the diversity pipeline initiatives.
Ensuring the success of the pipeline initiative
is in the best interests of all in the accounting profession. Therefore,
it is expected that the collaboration and support of firms, state
societies, and institutions will determine the success and longevity of
the pipeline initiative. Organizations interested in the cause can
educate their stakeholders on the key issues facing the profession and
invite leaders to share their ideas on how to promote the five
initiatives.
Jensen Comment
An extremely important, in my viewpoint, initiative is the KPMG initiative
of getting role model faculty into colleges and universities that inspire
minority students who take an early course in accounting or business.
The PhD Project was founded upon the premise
that advancements in workplace diversity could be propelled forward by
increasing the diversity of business school faculty. Today, our
expansive network of supporters, sponsors and universities helps
African-Americans, Hispanic-Americans and Native Americans attain their
business PhD and become the business professors who will mentor the next
generation of leaders.
The KPMG Foundation
is marking the 15th anniversary of its Minority Accounting Doctoral
Scholarship program by announcing today it has awarded a total of $390,000
in scholarships to 39 minority doctoral scholars for the 2009 - 2010
academic year.
Of the awards, eight
are to new recipients scheduled to begin their accounting doctoral program
this fall, three are to new recipients who have already begun programs, and
28 are renewals of scholarships previously awarded.
Each of the
scholarships is valued at $10,000 and renewable annually for a total of five
years. The Foundation established the scholarship program in 1994 as part of
its ongoing efforts to increase the number of minority students and
professors in business schools – and has since awarded $8.7 million to
minorities pursuing doctorate degrees.
“We’re proud of the
achievements of our program over the last 15 years, and we have seen a
healthy increase in the number of minority faculty members at our nation’s
business schools, although more work needs to be done,” said Bernard J.
Milano, President of the KPMG Foundation and The PhD Project. “That’s why we
continue to award new scholarships each year and we remain committed to our
mission.”
Together with The PhD
Project, a related program whose mission is to increase the diversity of
business school faculty, the Minority Accounting Doctoral Scholarship
program has helped to more than triple the number of minority business
professors in the United States since The PhD Project first began in 1994.
Today, there are 985 minority business school professors teaching in the
United States. Nearly 400 minority students are currently enrolled in
business doctoral programs.
The Minority
Accounting Doctoral Scholarship recipients come from a wide variety of
cultures and backgrounds. This year’s new recipients are:
Continued in article
Jensen
Comment
Under the guidance of KPMG Executive Partner Bernie Milano this program
became more than a money awards program. KPMG works with some recipients in
customized counseling and assistance when problems arise for certain
individuals still studying for their doctorates. Various types of problems
arise, including some crises within families.
Minority Hiring Success Varies
Greatly by Discipline: Law, Business, and Sciences Have the Worst Records The major cause lies in the supply chain of
PhD graduates
One of the reasons for the shortage of minority
undergraduate students in accounting has been the lack of role models
teaching accounting courses in college.
The black faculty
Strategic Initiative began in 1993, on the heels of the failed effort to
add at least one black professor to every department.
As of the fall of 2007, Duke had 62 tenured or
tenure-track black professors, accounting for 4.5 percent of the
faculty. But while the raw number is double that of 20 years ago, it
masks tremendous variation within the university.
Black professors remain rare in the law school,
which has one black professor, the business school, with two, and the
natural sciences, with three.
Karla FC Holloway, an
English professor who served as dean of humanities and social sciences
from 1999 to 2005, says each unit of the university should be held
accountable for its record on diversity. "There has been growth in arts
and social sciences, and medicine, but in some ways that growth has
arguably allowed other schools or divisions not to work as aggressively
with this effort," she says.
Mr. Lange, the provost,
concedes that some parts of the university have fallen short. He says he
is working closely on the issue with the law school's dean, David F.
Levi, and other officials. "They have made offers and have not been
successful at times," Mr. Lange says. "They're putting in a lot of
effort to do better."
Duke makes sure that
when black job applicants visit the campus, they meet other black
faculty members — and not just potential colleagues in the department to
which they're applying. The university also is taking small steps to
widen the pipeline. Duke has financed two postdoctoral positions for
minority candidates each year, with the hope that it will eventually
hire some of them for tenure-track faculty positions.
In 2003, Duke started
yet another faculty initiative related to diversity — but this time the
scope was expanded to include women and all underrepresented minority
groups. "We needed to recognize that diversity had come to include a
substantially broader set of concerns," Mr. Lange says.
Ms. Holloway worries
that the broader focus may give deans and department chairs an out:
"People can say, 'I've hired enough women, and that makes up for the
lack of minorities.'"
Harvard U.: Uneven
progress on racial diversity
Harvard created an
office of faculty development and diversity, to be headed by a senior
vice provost, in 2005, shortly after announcing that it would spend
$50-million to help diversify the faculty.
In the more than three
years since that commitment, the university has made modest progress in
diversifying its faculty, and some professors believe that the new
office deserves some of the credit. Kay Kaufman Shelemay, a professor of
music and of African and African-American studies, says the office has
done a good job compiling statistics related to diversity and working
with deans and department chairs to ensure that they cast a wider net in
their searches. "There is no doubt that the office established by former
President Summers both invigorated and centralized our institutional
efforts," Ms. Shelemay says.
Women now make up 16
percent of tenured and tenure-track faculty members in the natural
sciences, up from 12 percent in 2004-5. In the humanities, 32 percent of
the professors are women, up from 30 percent, and in the social
sciences, 31 percent are women, up from 28 percent.
The changes for the
professional schools over that period varied — law, engineering, and
government all saw significant gains for women, while the proportion of
female faculty members actually dropped in the schools of divinity,
dentistry, and education.
The university's
progress on racial diversity, meanwhile, has been uneven. More than 6
percent of the tenured and tenure-track faculty members in the social
sciences are black, but black professors make up 1 percent or less of
faculty members in the natural sciences and the humanities. Hispanic
professors make up no more than 2 percent of faculty members in each of
those three areas.
In 2006, Harvard
committed $7.5-million to improve child care on the campus — a primary
concern of female faculty members. The university also just completed
its third year of a summer program aimed in part at improving the
pipeline for female and minority professors. The program allows
undergraduates to spend 10 weeks in the research laboratories of science
and engineering faculty members. More than half of the 400 participants
have been women, and more than 60 percent have been minority students.
Judith D. Singer, a
professor of education who became senior vice provost for faculty
development and diversity in June, says she was willing to take on the
job because the climate "feels different" under Drew Gilpin Faust,
Harvard's first female president. But Ms. Singer acknowledges that
progress has been uneven among departments and divisions.
"Addressing issues of
diversity remains a challenge throughout higher education," she says.
"We at Harvard, like our peer institutions, must do better."
U. of Wisconsin at
Madison: Progress in fits and starts
The university undertook
its Madison Plan in 1988, vowing to double the number of black,
Hispanic, and American Indian professors by adding 70 new faculty
members within three years.
Progress has come in
fits and starts. A Wisconsin official told The Chronicle in 1995
that the university hadn't made the progress it had hoped for. The
number of tenured or tenure-track black professors, for example,
increased only 61 percent, to 37, in that seven-year span. The total
then surged to 60 by 2001, only to stall. Over the six years ending in
2007, the number of black professors dropped to 51.
Mr. Farrell, the
provost, argues that part of the challenge is increased competition.
While institutions like Wisconsin were among the first to spell out
ambitious plans to diversify the faculty, now almost every institution
has one. "We compete with everybody else for the pool that exists," he
says.
Damon A. Williams, who
became vice provost for diversity and climate in August, says Wisconsin
and other universities must seek out minority job candidates more
aggressively. For example, he wants to see Madison recruit aggressively
at the annual Institute on Teaching and Mentoring, sponsored by the
Southern Regional Educational Board and attended by hundreds of minority
Ph.D. candidates.
"We have to be visible
and present at that meeting and be willing to sell ourselves to them,"
he says.
Wisconsin's record with
Hispanic and American Indian faculty members has been stronger. The
university had 77 Hispanic professors in 2007, up from 53 in 1998, and
13 American Indian professors, up from four in 1998.
The growth of American
Indian studies — in a state that is home to several Indian tribes — has
helped attract new American Indian professors to the campus, Mr. Farrell
says. "Professors who visit say, 'OK, here's a place where people from
our background can thrive, fit in, and have success.'"
Still, Wisconsin and
other universities must persuade more minority undergraduates to pursue
academic careers, the provost says. The engineering school has developed
a fellowship program, aimed primarily at minority graduate students,
that encourages them to pursue research immediately. That program is
being copied by the College of Letters and Science.
"When students spend
their first year or two just on class work," Mr. Farrell says, "they
find graduate school is not nearly as interesting as they thought it
would be."
Virginia Tech: A
bigger faculty role in hiring
The university made an
extraordinary effort to diversify its campus starting in the late 1990s,
and it paid off: During the three years ending in 2002, the number of
black tenured and tenure-track professors in the College of Arts and
Sciences rose by more than 50 percent, to 17; the number of Hispanic
professors more than doubled, to seven; and the proportion of female
professors rose from 20.6 percent to 23.6 percent.
Myra Gordon, an
associate dean who left Virginia Tech in 2002, was the architect of the
plan. At the time, faculty members complained that she had essentially
taken over their role of hiring new professors.
Mark G. McNamee, the
provost since 2001, says that while the university remains strongly
committed to diversifying the faculty, some of the tactics that were
criticized have been reined in or eliminated. Now he and the deans offer
input at beginning of the process but for the most part let faculty
members have the final say in hiring.
"It was a much more
centrally controlled process at the time," Mr. McNamee says. "The deans
are still engaged and have responsibilities, but they're not perceived
as unduly influencing what the outcome is going to be."
It is difficult to
evaluate progress in the College of Arts and Sciences since then,
because it was divided into smaller colleges several years ago. Over the
four years ending in 2007, the university had a net increase of five
black and five Hispanic professors. Black faculty members make up about
3 percent of the tenured and tenure-track professoriate, Hispanic
faculty members less than 2 percent, and women 24.3 percent.
In 2006 students
protested the university's decision not to grant tenure to a black
professor known for his activism on affirmative action and other causes.
Mr. McNamee promised to establish a committee to study the role of race
at the university. "When someone doesn't get tenure, that doesn't help
us, but that's just the way it is sometimes," he says now.
In August the committee
released a plan that calls for a cluster of six new hires in Africana
studies and race and social policy.
Virginia Tech also
frequently invites professors from historically black universities to
deliver lectures on the campus, in part to elevate awareness of the
university among those lecturers.
"Once people know
Virginia Tech," says Mr. McNamee, "they really like it a lot better than
they think they're going to like it."
Academic blogging gets your work and research
out to a potentially massive audience at very, very low cost and relative
amount of effort.
Patrick Dunleavy argues blogging and
tweeting from multi-author blogs especially is a great way to build
knowledge of your work, to grow readership of useful articles and research
reports, to build up citations, and to foster debate across academia,
government, civil society and the public in general.
One of the recurring themes (from many different
contributors) on the LSE Impact of Social Science blog is that a new
paradigm of research communications has grown up — one that de-emphasizes
the traditional journals route, and re-prioritizes faster, real-time
academic communication. Blogs play a critical intermediate role. They link
to research reports and articles on the one hand, and they are linked to
from Twitter, Facebook, Pinterest, Tumblr and Google+ news-streams and
communities. So in research terms blogging is quite simply, one of the most
important things that an academic should be doing right now.
But in addition, STEM scientists, social scientists
and humanities scholars all have an obligation to society to contribute
their observations to the wider world. At the moment that’s often being done
in ramshackle and impoverished ways
in pointlessly obscure or charged-for forums
in difficult language where you need to look
up every second word in Wikipedia. Some of this is necessary for
condensed specialist communication. But much of it is just unneeded
jargon and poor writing dressed up as necessary vocabulary
with acres of ‘dead-on-arrival’ data (that
will never be used by anyone else in the world), often presented in
unreadable tables
and all delivered over bizarrely long-winded
timescales. From submission to publication in some top economics
journals now takes 3.5 years. At the end of such a process any published
paper is no more than a tombstone marking where happening debate and
knowledge used to be, four or five years earlier.
So the public pay for all or much of our research
(especially in Europe and Australasia). And then we shunt back to them a few
press releases and a lot of out-of-date, arcanely phrased academic junk.
Types of blogs
A lot of people think that all blogs are solo
blogs, but this is a completely out of date view. A ‘blog’ is defined by
Wikipedia as:
‘a truncation of the expression web log… [It]
is a discussion or informational site published on the World Wide Web
and consisting of discrete entries (“posts”) typically displayed in
reverse chronological order (the most recent post appears first). Until
2009 blogs were usually the work of a single individual, occasionally of
a small group, and often covered a single subject. More recently
“multi-author blogs” (MABs) have developed, with posts written by large
numbers of authors and professionally edited. MABs from newspapers,
other media outlets, universities, think tanks, advocacy groups and
similar institutions account for an increasing quantity of blog traffic.
The rise of Twitter and other “microblogging” systems helps integrate
MABs and single-author blogs into societal newstreams’. [Accessed 29
August 2014]. (Let me pause here to reassure some academic readers who
may be bristling at being asked to read Wikipedia text – I know this
passage is sound since I co-wrote much of it).
Actually the evolution of academic blogs
specifically has now progressed even further, so that we can distinguish
group or collaborative blogs as an important intermediate type between solo
blogs and multi-author blogs. The two tables below summarize how these three
types of blogs now work, drawing attention to their very different
advantages and disadvantages.
I am including some Websites here, because the archives of some blogs are
very much like Websites (that can be searched by Web crawlers). For example,
I consider the MAAW Website the most important consideration for most
accounting course syllabi, but Jim's blog is so infrequent I would not list
it as among the most important blogs for syllabi.
Other Infrequent Blogs
There are many accounting blogs that are terribly infrequent such that I
would not include them for current news. However, you may want to consider
using them for their archives. Some examples (mere samplings off the top of
my head) include:
Accounting Education News (International) ---
http://www.accountingeducation.com/
This blog covers international updates in financial, managerial, and AIS
Software that was first put to work writing news
reports has now found another career option: drafting reports for financial
giants and U.S. intelligence agencies.
The writing software, called Quill, was developed
by
Narrative Science, a Chicago company set up in
2010 to commercialize technology developed at Northwestern University that
turns numerical data into a written story. It wasn’t long before Quill was
being used to report on baseball games for TV and online sports outlets, and
company earnings statements for
clients such as Forbes.
Quill’s early career success generated headlines of
its own, and the software was seen by some as evidence that intelligent
software might displace human workers. Narrative Science CEO Stuart Frankel
says that the publicity, even if some of it was negative, was a blessing. “A
lot of people felt threatened by what we were doing, and we got a lot of
coverage,” he says. “It led to a lot of inquiries from all different
industries and to the evolution to a different business.”
Narrative Science is now renting out Quill’s
writing skills to financial customers such as T. Rowe Price, Credit Suisse,
and USAA to write up more in-depth, lengthy reports on the performance of
mutual funds that are then distributed to investors or regulators.
“It goes from the job of a small army of people
over weeks to just a few seconds,” says Frankel. “We do 10- to 15-page
documents for some financial clients.”
An investment from In-Q-Tel, the CIA’s investment
division, led the company to work from multiple U.S. intelligence agencies.
Asked about that work, Frankel says only that “The communication challenges
of the U.S. intelligence community are very similar to those of our other
customers.” Altogether, Quill now churns out millions of words per day.
The software’s output can be impressive for
software, but it can’t write without some numerical data for inspiration. It
performs statistical analysis on that data, looking for significant events
or trends, and it draws on knowledge about key concepts such as bankruptcy,
profit, and revenue, and how such concepts are related.
The following paragraph, from an investment report,
shows that Quill can write passable text for such a document, but it can
still feel as if it were written by a computer.
“The energy sector was the main contributor to
relative performance, led by stock selection in energy equipment and
services companies. In terms of individual contributors, a position in
energy equipment and services company Oceaneering International was the
largest contributor to returns. Stock selection also contributed to
relative results in the health care sector. Positioning in health care
equipment and supplies industry helped most.”
Quill is programmed with rules of writing that it
uses to structure sentences, paragraphs, and pages, says
Kristian Hammond, a
computer science professor at Northwestern University and chief scientist at
Narrative Science. “We know how to introduce an idea, how not to repeat
ourselves, how to get shorter,” he says.
Companies can also tune Quill’s style and use of
language based on what they need it to write. It can accentuate the positive
in marketing copy, or go for exhaustive detail in a regulatory filing, for
example.
Continued in article
Jensen Comment
One problem of with financial data versus scientific data is that financial data
possibly has much higher variation in quality and standardization. For example,
the FASB cannot even define concepts of "earnings" and derivations from earnings
measures like P/E ratios. This makes comparisons of one company's "net earnings"
over multiple years dubious. Even more dubious are comparisons of "net
earnings," eps, and P/E ratios of different companies doubtful no matter how
good the Quill software is for generating narratives out of financial data.
Net earnings and EBITDA cannot be defined since the FASB and IASB elected to
give the balance sheet priority over the income statement in financial reporting
--- "The Asset-Liability Approach: Primacy does not mean Priority,"
by Robert Bloomfield, FASRI Financial Accounting Standards Research
Initiative, October 6, 2009 ---
http://www.fasri.net/index.php/2009/10/the-asset-liability-approach-primacy-does-not-mean-priority/
Similar problems arise with variations in quality and standardization of
components of balance sheets. For example, measures of cash might be relatively
accurate in terms of error variations, whereas variations in goodwill and other
intangibles is subject to high error variations.
It’s telling that the most interesting
presenter during MIT Technology Review’s
EmTech session on big data last week was not
really about big data at all. It was about
Amazon’s
Mechanical Turk, and the experiments it makes
possible.
Like many
other researchers,
sociologist and Microsoft researcher
Duncan Watts performs experiments using Mechanical
Turk, an online marketplace that allows users to pay others to complete
tasks. Used largely to fill in gaps in applications where human intelligence
is required, social scientists are increasingly turning to the platform to
test their hypotheses.
The point Watts made at EmTech was that, from his perspective, the
data revolution has less to do with the amount of data available and more to
do with the newly lowered cost of running online experiments.
Compare that to Facebook data scientists
Eytan Bakshy and Andrew Fiore, who presented right before Watts. Facebook,
of course, generates a massive amount of data, and the two
spoke of the experiments they perform to inform
the design of its products.
But what might have
looked like two competing visions for the future of data and hypothesis
testing are really two sides of the big data coin. That’s because data on
its own isn’t enough. Even the kind of experiment Bakshy and Fiore
discussed—essentially an elaborate A/B test—has its limits.
This is a point political forecaster and author Nate Silver discusses in his
recent book
The Signal and the Noise. After
discussing economic forecasters who simply gather as much data as possible
and then make inferences without respect for theory, he writes:
This kind of statement is becoming more common in
the age of Big Data. Who needs theory when you have so much information?
But this is categorically the wrong attitude to take toward forecasting,
especially in a field like economics, where the data is so noisy.
Statistical inferences are much stronger when backed up by theory or at
least some deeper thinking about their root causes.
Bakshy and Fiore no doubt understand
this, as they cited plenty of theory in their presentation. But Silver’s
point is an important one. Data on its own won’t spit out answers; theory
needs to progress as well. That’s where Watts’s work comes in.
ICAEW’s review looked across numerous topics,
including transparency, comparability, cost of capital and capital flows
across border – to see if authors could discern improvements since 2005.
“For each, the findings are mixed,” says
Singleton-Green. “Overall, we think the balance of the research evidence is
that there is a positive response. Some researchers disagree. No one is
saying that all companies and all countries benefit. The overall answer
seems to be that there are more winners than losers.”
So far so good: allowing for those variations from
study to study, country to country and even within sectors, the results
found a broadly positive response to the notion that IFRS has gone some way
to achieving its stated goals and thereby helped to increase investor
confidence. Nigel Sleigh-Johnson, head of the faculty, says: “There are
inevitably caveats, but overall IFRS has gone a long way to achieving its
objectives.”
One acknowledged area of difficulty is the fact
that IFRS implementation did not occur in a vacuum. It is hard to isolate
its impact to the point where one can know whether it is IFRS or the
evolution of corporate governance that is the most significant factor.
“It’s a very difficult thing to reflect on because
there is no control group,” says Peter Hogarth, partner and head of PwC’s UK
accounting services division.
The academic research is ultimately limited in what
it can communicate, given the mixed messages within it, says Veronica Poole,
global IFRS technical leader at Deloitte. “Yes, there is now a better
understanding of risks and exposures. Some EU countries had no GAAP per se –
they accounted for tax reasons.
So a single set of standards is a big improvement.
And on the cost of capital, many studies suggest that it has indeed lowered
barriers. Within the FD 100 Group, for instance, if you talk to the
companies themselves, they say they have better access to capital markets.”
- See more at: http://economia.icaew.com/finance/january-2015/ifrs-common-good#sthash.jPGpqu4U.dpuf
Comparability has not always been readily achieved.
From a starting point of 17 different national GAAPs across Europe, and with
larger companies starting to adopt US GAAP, IFRS had much ground to cover.
Mark Vaessen, global head of IFRS at KPMG, says the change has been
necessarily gradual: “I would say they are broadly applied consistently.”
At first lots of national traditions continued, he
says. “Now it’s more mature. New standards are coming through that don’t
have a national history so we are losing national bias. Everyone is trying
to speak the same language. IFRS is becoming a language on its own.”
Importantly, the investor community agrees on the
comparability point. Hilary Eastman, director of investment engagement at
PwC, says the evolution means that companies and even countries that
investors might have excluded as investment possibilities are now part of
the investment landscape: “What we hear is that comparability is much
enhanced. Even if individual companies within different countries might
apply standards differently, there is at least a common framework. Investors
don’t have to make so many adjustments and the work to do so is less. With
regard to the common framework, you can see who’s applying it more
rigorously and that helps in investment decisions. They [investors] make
decisions globally so they like to see the consistent accounting around the
world.”
Paul Lee, head of investment affairs at the
National Association of Pension Funds, says that the ability to compare
across national markets is a genuine step forward.
“Inevitably from an investor perspective you want
to look at the universe of possible investments, look at individual
companies and their performance and look at how the market is pricing them.
The ability to compare across national markets is a genuine step forward. We
have a European market instead of a collection of different national
markets.”
From its earliest days, IFRS formalised accounting
procedures, and brought more disclosure and more rigour to financial
reporting. Segment reporting, which had a standard under UK GAAP, was far
from the norm across the EU.
In 2005, IFRS also inherited a pension standard
that the ASB had long been trying to introduce. Perhaps the biggest change
has been the controversial and long-debated financial instruments standard –
still effectively some way off, since the implementation date for IFRS 9 is
January 2018.
“A lot of companies never accounted for financial
instruments. The introduction of the standard shone a light on some of the
exposures that existed,” says Peter Hogarth.
The wider parameters don’t add up to simplification
of corporate reporting, however. Complexity is a charge often levelled at
IFRS – and it doesn’t always stand up well to the accusation. “There are
companies where it’s harder to see what is going on,” says Lee. Again, it’s
difficult to unpick which areas are down to IFRS and which are down to the
added complexity of business life.
“The world of business has changed dramatically,
particularly on the risk management front – a major increase in the use of
derivatives to manage currency risk for example. The whole complexity of
Treasury and interest rate risk – that’s taken off across a whole range of
companies. Life is more complicated and that inevitably means reporting will
be too,” he says.
IFRS defenders will say that the world is better
off for having companies that disclose more and that firms would be in still
worse shape and the investor community would have a much less clear idea
about listed companies and their exposure to risk without it. Along the way,
listed companies have accrued benefits in terms of transparency and access
to capital. “On the cost of capital, many studies suggest that it has indeed
lowered barriers. Within the FD 100 Group, for instance, if you talk to the
companies themselves, they say they have better access to capital markets,”
says Veronica Poole.
There is still a debate raging around financial
stability and the performance of IFRS at the time of the financial crisis.
And the Barnier-commissioned Maystadt Report recommendations to increase the
influence of EFRAG have drawn concern that IFRS will become politicised.
“There are certainly some who want to have
political control of international standards. There is a threat – and that’s
not too strong a word – that such an approach will start to move us towards
an EU version of IFRS.
“If what we are looking for is comparability,
different markets having different flavours of international standards is
potentially a disaster and takes us back towards the situation where we had
numerous different GAAPs. Most of all it will erode confidence and that will
increase the cost of capital,” says Paul Lee.
What is more, Philippe Maystadt’s recommendation
that the goal of international standards contributing to financial stability
and not hindering economic growth be made more explicit has raised eyebrows.
“Our view is that it’s not needed,” says Mark Vaessen. “It is already
included within the public good criteria and it is inherent in the aims of
international standards.”
There are dangers for IFRS in this argument,
Vaessen says. Prudential regulators may understandably want to take a
conservative line and smooth out performance in financial institutions. But
that approach has led to hidden reserves in the past. Vaessen adds: “From a
stewardship point of view that’s bad, because you are not holding management
to account.” - See more at: http://economia.icaew.com/finance/january-2015/ifrs-common-good#sthash.jPGpqu4U.dpuf
Jensen Comment
The benefits of adopting IFRS in a given nation depends a lot on the quality of
that nation's accounting standards before IFRS. For example, for nations having
virtually no accounting standards or no enforced standards the benefits are
greater, especially when audit firms are credible in the global markets.
However, benefits do not always pass the cost-benefit test, especially in the
eyes of some companies that did not see significant improvements in how capital
is raised (e.g., some companies in Germany and Japan where bankers tend to be
part and parcel to management of a company). IFRS has not always been a magic
bullet for opening equity capital markets, but these standards cannot be
entirely blamed for those failures.
Jensen Comment
You can get a forecast from an individual expert or a consensus forecast from a
group of experts who probably do not have most of their own financial futures
tied up in equity investments. Or you can get a forecast from investors in stock
options who actually put enormous amounts of money down in leveraged
speculations on where the stock prices will go in terms of short-term options
(e.g., 30 days) or long-term options for all or a greater part of 2015. The
options can be long (calls) or shorts (puts). Actually each derivatives market
transaction takes an investor betting long and another investor betting short.
The problem with all these forecasts is that we cannot foresee some events
that can make all these forecasts way off the mark. There could be a major
earthquake such as an enormous earthquake in California. Militants could
(heavens forbid) blow up refineries in Saudi Arabia, and that would cause
a huge spike in oil prices. There could be a giant volcano that would greatly
change all the climate forecasts for years to come.
Imagine what might happen if the Chicago Cubs win the World Series!
A sitting member of the Securities and Exchange
Commission co-writes an article
accusing Harvard University of violating
securities laws -- because, the article claims, a professor’s biased
research has been used to argue for eliminating staggered corporate board
terms. The facts are
so juicy that the article has drawn
plenty of attention, and corporate law
heavyweights from the bar to the academy as well as other former SEC members
have all weighed in.
But a crucial question has been lost: Exactly whose
free speech is at stake here? The answer may surprise you, especially if you
live in the shadow of SEC threats. In fact, it’s not only the university and
the professor who have free-speech interests. It’s also the commissioner
himself, who shouldn’t lose his right to express his view just because he
occupies public office.
So let’s start with that commissioner, Daniel
Gallagher, who was joined in writing by Joseph Grundfest, a former SEC
commissioner who is now a professor at Stanford Law School. And for the
moment, let’s leave aside the content of their argument, namely that the
Shareholder Rights Project, led by my Harvard Law
School colleague Lucian A. Bebchuk, has cited incomplete data in the course
of pressuring corporate boards to abandon the staggered structure beloved of
incumbent boards and hated by shareholder activists.
Critics say that Gallagher overstepped his bounds
by charging in the article that the Shareholder Rights Project violated
securities laws by misrepresentation and that the university may be liable
for it. But even if Gallagher is wrong on the merits and law -- we’ll get to
that -- he still should have the free-speech right to say whatever he wants,
provided he specifies that he isn’t speaking on behalf of the SEC.
Preserving free speech for government officials is
important for them and for the public at large. In recent decades the U.S.
Supreme Court has made it hard for government employees to speak publicly
about matters arising in the course of their employment. This development
has been bad for public employees, and bad for the public’s right to know.
Luckily for Gallagher, he isn’t an employee and so couldn’t be fired for
speaking out of school. But what’s good for the employee is equally good for
the principal: more freedom to speak means more public understanding of the
thought processes and practices of government officials. Arguably the need
for transparency is greater still at the SEC, where commissioners are
unelected and can’t be fired. In short, Gallagher may be a fool or a
scoundrel, but he should be free to express his views and be criticized for
their content, not because he has them.
The obvious counterargument is that when an SEC
commissioner suggests a person or institution may have violated the law, he
may in effect be threatening prosecution -- and chilling the free speech of
the targeted party. This isn’t quite right. The enforcement division of the
SEC brings lawsuits, not the commissioners. Gallagher may be revealing to
the world that he is encouraging the enforcement division to investigate
Harvard, and that may be a terrible idea. But we’re better off knowing it
rather than having it happen in secret. And we’re better off hearing
Gallagher’s reasons, so they can be addressed substantively and rebutted.
That brings us to the most troubling aspect of
Gallagher’s claims: the notion that Harvard might be legally responsible for
the actions of the Shareholder Rights Project through the doctrine of
respondeat superior. This claim drastically misunderstands the
relationship between scholars and the university that employs them -- and in
ways that deeply threaten free academic speech.
Harvard is a nonprofit corporation that has some
employees who can act on its behalf and create liability for it, like the
Harvard Management Co. that invests the university’s endowment. If employees
of Harvard Management broke securities laws, the university could rightly be
found liable.
But professors and their projects are fundamentally
different. In a research university, a crucial element of the design is that
faculty research isn’t directed or supervised by anyone in the
administration, not even the deans. Faculty aren’t doing Harvard’s business
like employees of a company. They’re employed to do their own research --
independently. The job of the faculty isn’t to do the deans’ bidding.
Administrative supervision or substantive oversight would break the ideal of
independent research -- precisely because administrators, unlike faculty,
are constrained by institutional and political incentives from which faculty
are meant to be free.
In other words, faculty research independence is an
important element of academic freedom. The doctrine of respondeat
superior applies and makes sense only when there is a principal-agent
relationship between a boss and an employee. Applying the doctrine to
faculty research would seriously undermine academic freedom by introducing a
structure of agency where none is supposed to exist.
Continued in article
January 10, 2015 reply from Tom Selling
Admittedly as a non-lawyer, I immediately see two
troubling aspects of Feldman’s analysis. First, he states:
The obvious counterargument is that when an SEC
commissioner suggests a person or institution may have violated the law,
he may in effect be threatening prosecution -- and chilling the free
speech of the targeted party. This isn’t quite right. The enforcement
division of the SEC brings lawsuits, not the commissioners.
To the best of my knowledge, the Division of
Enforcement is directly responsible to the Chair. If Enforcement is bringing
an action, it is with the permission of the Chair. Granted, Gallagher is not
the chair, but a majority vote of the commissioners is required to give
Enforcement subpoena authority (and to compel testimony?). Also, the
commissioners vote on whether to accept a settlement; and after an issue is
decided by an administrative law judge, the commissioners may vote to reduce
the sanctions — perhaps even to eliminate them. Hence, Feldman may be
technically correct, but if so, it seems that he is splitting hairs to make
a very large point.
Second, the actual legal issue (again, as I see it)
is not a Harvard professor’s right to free speech; rather it is whether the
disclosures in a document filed with the SEC (a proxy statement?) was
misleading by omitting material information — ironically, by not “speaking"
enough.
Note that I am not taking any position on the
issues, because I am still conflicted. Although I do not want to infringe on
the legal right to free speech, I think that what Gallagher did was
underhanded. He probably didn’t even write much of the paper — just leant
his name to it so that it would get exposure. Which, of course, raises
additional ethical questions for the co-authors who added his name without,
perhaps, any significant contribution that normally merits co-authorship.
My previous posts
relating to ARDL models (here
and
here) have drawn a lot of
hits. So, it's great to see that
EViews 9 (now in Beta release -
see the details
here) incorporates an ARDL modelling option,
together with the associated "bounds testing".
This is a great feature, and I
just know that it's going to be a "winner" for EViews.
It certainly deserves a post, so here goes!
First, it's important to note that although there was
previously an EViews "add-in" for ARDL models
(see
here and
here), this was quite
limited in its capabilities. What's now available is a
full-blown ARDL estimation option, together with bounds
testing and an analysis of the long-run relationship
between the variables being modelled.
Here, I'll take you through another example of ARDL
modelling - this one involves the relationship between
the retail price of gasoline, and the price of crude
oil. More specifically,
the crude oil price is for
Canadian Par at Edmonton; and the gasoline price is that
for the Canadian city of Vancouver.
Although crude oil prices are recorded daily, the
gasoline prices are available only weekly. So, the price
data that we'll use are weekly (end-of-week), for the 4
January 2000 to 16 July 2013, inclusive.
The oil prices are measured in Candian dollars per cubic
meter. The gasoline prices are in Canadian cents per
litre, and they exclude taxes. Here's a plot of the raw
data:
MORE THAN 140 current KPMG US
fee-earning female staff have opted in to a lawsuit against the firm.
Lawyers
contacted 9,000 current and former
fee-earning female staff from KPMG in the US, in October 2014, to join the
classaction. A former KPMG manager, Donna
Kassman, spent 17 years in the firm's New York office before resigning,
claiming that she and other women had suffered gender discrimination.
Nearly 900 women have
currently opted into the case. Of the 845
that have been processed by class action representative Kate Kimpel, of law
firm Sanford Heisler, 142 are from existing staff. The opt-in period runs
until 31 January.
Kimpel claimed that the number of current
employeesthat had already opted in was
high. In similar instances, they tend to wait until the end of the time
period before opting-in, to gauge response from their peers, she added.
"It's
easierfor previous employees to opt in,
they're less worried about retaliation. I'm sure the number of current
employees [opted in] will rise dramatically," she told Accountancy Age.
KPMG has previously vigorously denied the
allegations in the claim against the firm. "We will not comment on pending
litigation, except to say that KPMG thoroughly and repeatedly reviewed the
allegations in this case and found them totally unsupported by the facts,"
said a statement from a KPMG spokesman.
Corning changes yen hedging strategy
Do your students understand the difference between hedging strategies and
accounting journal entries for hedging of the yen in the yen in the illustration
below?
Do your students understand the FAS 133 accounting differences between hedging
with written options, purchased options, long forward contracts, short forward
contracts, long futures contracts, short futures contracts, and swaps (that are
generally portfolios of forward contracts)?
For example, what derivative financial contracts have bounded risk in
speculation versus hedging strategies?
From the CFO Journal's Morning Ledger on January 28, 2015
Jensen Helpers
On of my popular Excel workbook downloads showing different speculating and
hedging strategies with alternative derivative contracts ---
www.cs.trinity.edu/~rjensen/Calgary/CD/Graphing.xls
You might ask students to make FAS 133 jounal entries for each of the
illustrations in the above workbook.
My PowerPoint slides on accounting for derivative financial instruments and
hedging activities ---
http://www.cs.trinity.edu/~rjensen/Calgary/CD/JensenPowerPoint/
So-called income-based repayment programs reduce a
borrower’s monthly payments and then forgive the remaining principal after a
period of years. Graduates who choose the nonprofit and government jobs
favored by the President can have their loans forgiven entirely after 10
years.
Mr. Delisle has dug into the government’s numbers
and finds that the take-up rate of these nonpayment programs is far larger than most Americans appreciate.
Two years ago the Administration’s estimate of the average amount to be
forgiven in income-based repayment plans was already $41,000 per borrower.
The total amount of forbearance loans is $125 billion, and rising. And even
with all of these ways to avoid on-time repayment, borrowers are still
defaulting at a rate of nearly 20%. The clear danger is that hundreds of
billions of dollars will never be repaid, which means that future taxpayers
will have to pick up the tab.
That may have been the plan all along, since
Democrats have wanted to make college another federal entitlement. And
conveniently for President Obama, the bill will come due after he has left
office.
Jensen Comment on Coursera
Enter the search term for accounting and note the free accounting courses
from the University of Illinois, University of California at Irvine, Penn
(Wharton), and the University of West Virginia
Dartmouth College has accused 64 students of
cheating in a “Sports, Ethics, and Religion” course taught last fall, the Valley
News
reports. Randall
Balmer, chairman of the religion department, discovered in October that
absent students in his class were passing their clickers to classmates who
were present to answer in-class questions on their behalf.
Mr. Balmer told the newspaper that most of the
students involved had been suspended for a semester. In the fall he counted
43 students who handed off their clickers in the roughly 275-person class,
but that number does not include the students who facilitated the cheating.
The popular class was initially designed to help
the college’s athletes, many of whom struggled with freshman-year
coursework.
Diana Lawrence, a spokeswoman for the college, said
it would not offer more-detailed comment on the proceedings until the
appeals process ends this month.
Continued in article
Jensen Comment
It would be interesting to know the grading distribution in this course. My
hypothesis is that students are more apt to skip class and cheat in a course
where they are assured of an A grade with very little effort. This is what
happened when over 120 students cheated in a political science course assignment
at Harvard University. All students in that course were assured of getting A
grades such that there's less incentive to work hard in the course. In Harvard's
case over half the cheaters were expelled from the University. It appears that
Dartmouth College will be a little less harsh.
A transition is taking place as implementation of
the recommendations of the Pathways Commission on Accounting Higher
Education continues, the AICPA and American Accounting Association (AAA)
announced Thursday.
The Pathways Commission was formed in 2010 to study
possible future higher-education paths for those seeking entry into the
accounting profession.
Recommendations were
published in a report in 2012, and at that time
the AICPA and AAA agreed to continue their support for the commission for
another three years as the commission worked to implement the
recommendations.
As the end of that three-year period approaches,
the AICPA and AAA are transitioning ongoing projects into their respective
organizations during the coming year. The transition will be complete by
Aug. 1.
Developments in implementing the commission’s
recommendations have included:
Proposal for an advanced placement (AP)
course in accounting. The commission has been working with The
College Board, which provides AP courses in high schools, to propose
such a course in accounting.
Development and distribution of the
Pathways Vision Model.This model emphasizes the importance of
professional judgment, the complex thinking that it involves, and the
critical role accountants play in the success of corporations, firms,
organizations, and governments around the world.
Integration of professionally oriented
faculty. The commission has developed a summary of leading
practices and a set of principles for effectively integrating
professionally oriented faculty into accounting departments and schools,
asking department chairs to sign on as adopters of the principles.
Expansion of an AAA Auditing Section
“boot camp” program. The program works to incorporate current
practice issues into accounting classes and research. In the coming
year, boot camps are planned for management accounting, tax, and
accounting information systems.
“Accountants play a crucial role in the economy,”
AICPA President and CEO Barry Melancon, CPA, CGMA, said in a news release.
“Therefore, ensuring that our pipeline of talent is supported by an
education system that meets the evolving demands of an increasingly complex
profession is of the utmost importance.”
The commission has pushed forward with its
recommendations with more than 75 volunteers working on more than 17 task
forces.
“As an educator committed to accounting as a
learned profession, I am enthusiastic about continuing work toward
Pathways-inspired goals to advance the future of accounting through
connecting education and research to practice in the service of the public
interest,” AAA Executive Director Tracey Sutherland said in a news release.
More information on the Pathways Commission is
available online. The website will continue to
host archival information and post updates to make them available to the
accounting community.
It's easier to move a cemetery than to affect a
change in curriculum. Woodrow Wilson
I watched the Pathways Commission videos from the 2014 annual meetings and
was impressed ---
http://commons.aaahq.org/hives/8d320fc4aa/summary These videos may only be available to members of the American Accounting
Association.
Jensen Comment
I worried that the Pathways Commission initiatives would turn to flubber and die
in future years. If anything the momentum is growing stronger with top leaders
in accounting education, research, and practice carrying forward with practical
strategies that have a real chance for doing what is almost impossible in higher
education --- bring about change in something other than technology.
What was sown is what is being reaped
After five decades of narrow-minded econometric and psychometric training and
education in North American accounting doctoral programs we have generations of
accounting faculty who are not ready to handle change. Many of our
mathematicians, statisticians, and economists that we graduated were really not
very good at accounting and not at all interested in clinical accounting
research. They became super at applying the
General Linear Model (GLM) to purchased databases like CRSP, Compustat, and
Audit Analytics. Some could run simplistic behavioral experiments pretending MBA
students were executives. But in comparison to schools of medicine, engineering,
and law, schools of accounting did not produce Ph.D. graduates interested in
solving the
clinical problems of our profession.
Clinical Research ---
http://en.wikipedia.org/wiki/Clinical_research
This point was driven home in 2011 by Harvard's Bob Kaplan --- Accounting Scholarship that Advances Professional Knowledge and Practice
Robert S. Kaplan The Accounting Review, March 2011, Volume 86, Issue 2,
Recent accounting scholarship has
used statistical analysis on asset prices, financial reports and
disclosures, laboratory experiments, and surveys of practice. The research
has studied the interface among accounting information, capital markets,
standard setters, and financial analysts and how managers make accounting
choices. But as accounting scholars have focused on understanding how
markets and users process accounting data, they have distanced themselves
from the accounting process itself. Accounting scholarship has failed to
address important measurement and valuation issues that have arisen in the
past 40 years of practice. This gap is illustrated with missed opportunities
in risk measurement and management and the estimation of the fair value of
complex financial securities. This commentary encourages accounting scholars
to devote more resources to obtaining a fundamental understanding of
contemporary and future practice and how analytic tools and contemporary
advances in accounting and related disciplines can be deployed to improve
the professional practice of accounting. �2010 AAA
Added Jensen Comment
Simplistic solutions like appointing clinical researchers as editors of TAR,
JAR, CAR, and the JAE will not bring about change because no clinical research
manuscripts will be forthcoming from generations of faculty not trained or
educated in clinical research. Another problem that we know from schools of
medicine, engineering, and law is that solid clinical research is very, very
expensive. Higher education research in accountancy is just not funded for
expensive clinical research.
And turning thousands of economists produced by accounting doctoral programs
over the last 50 years into genuine scholars in the professions of auditing,
tax, financial accounting, information systems, and managerial accounting. I
mean scholars that that are sought after by accounting firms because of the
professional expertise of those scholars. Instead schools of accounting are
taking on adjunct teachers of accounting from the profession to cover topics
like the ERP model, insurance accounting, and advanced taxes because the tenured
accounting faculty does not have the expertise for such topics.
The bad news is that changes promoted by the Pathways Commission will very
slowly implemented. But given the current momentum of leaders of the academy and
the the profession eventual change is becoming increasingly possible.
Accounting programs should promote curricular
flexibility to capture a new generation of students who are more
technologically savvy, less patient with traditional teaching methods, and
more wary of the career opportunities in accounting, according to a report
released today by the
Pathways Commission, which studies the future of
higher education for accounting.
In 2008, the U.S. Treasury Department's Advisory
Committee on the Auditing Profession recommended that the American
Accounting Association and the American Institute of Certified Public
Accountants form a commission to study the future structure and content of
accounting education, and the Pathways Commission was formed to fulfill this
recommendation and establish a national higher education strategy for
accounting.
In the report, the commission acknowledges that
some sporadic changes have been adopted, but it seeks to put in place a
structure for much more regular and ambitious changes.
The report includes seven recommendations:
Integrate accounting research, education
and practice for students, practitioners and educators by bringing
professionally oriented faculty more fully into education programs.
Promote accessibility of doctoral
education by allowing for flexible content and structure in doctoral
programs and developing multiple pathways for degrees. The current path
to an accounting Ph.D. includes lengthy, full-time residential programs
and research training that is for the most part confined to quantitative
rather than qualitative methods. More flexible programs -- that might be
part-time, focus on applied research and emphasize training in teaching
methods and curriculum development -- would appeal to graduate students
with professional experience and candidates with families, according to
the report.
Increase recognition and support for
high-quality teaching and connect faculty review, promotion and tenure
processes with teaching quality so that teaching is respected as a
critical component in achieving each institution's mission. According to
the report, accounting programs must balance recognition for work and
accomplishments -- fed by increasing competition among institutions and
programs -- along with recognition for teaching excellence.
Develop curriculum models, engaging learning
resources and mechanisms to easily share them, as well as enhancing
faculty development opportunities to sustain a robust curriculum that
addresses a new generation of students who are more at home with
technology and less patient with traditional teaching methods.
Improve the ability to attract high-potential,
diverse entrants into the profession.
Create mechanisms for collecting, analyzing
and disseminating information about the market needs by establishing a
national committee on information needs, projecting future supply and
demand for accounting professionals and faculty, and enhancing the
benefits of a high school accounting education.
Establish an implementation process to address
these and future recommendations by creating structures and mechanisms
to support a continuous, sustainable change process.
According to the report, its two sponsoring
organizations -- the American Accounting Association and the American
Institute of Certified Public Accountants -- will support the effort to
carry out the report's recommendations, and they are finalizing a strategy
for conducting this effort.
Continued in article
Bob Jensen's threads on how accountics scientists should change:
Homi Kapadia, U.S. Life Sciences leader and vice
chairman of Deloitte LLP, anticipates what is coming in 2015 for the
industry, including market consolidation, new models of innovation, growth
in specialty therapeutic areas, R&D efficiency and the data revolution. He
also discusses what businesses should be mindful of as they plan for growth
and how big data will likely become an integral part of life sciences
organizations encompassing the entire value chain.
The growing number and complexity of cybersecurity risks facing investment
advisers (IAs) have triggered an increased interest in cyber risk management
by the SEC, including a planned sweep of more than 50 registered IAs and
broker-dealers. Learn more about the documentation SEC examiners likely will
request and six areas of focus that organizations may want to address as
they prepare for an examination.
From the CFO Journal's Morning Ledger on January 11, 2015
Electric-car pioneer Musk charges head-on at Detroit
---
Tesla Motors Inc.
is on a collision course with the auto industry’s giants like never before,
but the CEO has no plans to stop cursing or obsessing about the tiniest
design details. In a speech
Tuesday, Chief Executive Elon Musk is expected to criticize
larger auto makers for not responding to Tesla even more aggressively. Tesla
is worth $26 billion in stock-market value, nearly half the size of
General Motors Co.
or Ford Motor Co.
Meanwhile,
GM is readying a one-two punch
in the electric-car market, hoping to gain against
Tesla with a next-generation Chevrolet Volt, as well as a $30,000
all-electric vehicle called the Chevrolet Bolt, slated for 2017.
From the CFO Journal's Morning Ledger on January 5, 2015
Standardized codes used by the federal government
create a link between budgetary and proprietary accounting called
tie-points. Using tie-point analytics can helps agencies support and perform
root cause analyses for Federal agencies' posting logic issues. Once found,
such issues can be permanently fixed using a combination of the knowledge
gained from finding an agency's tie-point discrepancies and any tie-point
methodology used by the agency's financial reporting team members.
From the CFO Journal's Morning Ledger on January 5, 2015
The U.S. economy is
among the strongest in the world as the new
year begins, but that presents special challenges for some sectors.
In
part one of a two-part feature
on the business outlook for 2015, the WSJ notes that
America’s strength has made its products particularly expensive abroad, and
that could continue to crimp foreign demand throughout the year.
And technological disruption remains a
persistent risk. Big IT sellers
Microsoft Corp.,
Cisco Systems Inc.
and Hewlett-Packard Co.
were caught flat-footed as new business-technology trends took hold, such as
software sold by subscription and advanced data-analysis tools. Now they are
faced with trying to claw their way back to relevance.
Another forecast may be cause for particular
nervousness in the C-suite. The powerful forces of bolder shareholder
activists and impatient boards may mean “more CEOs will get ousted in 2015,”
suggests Jeffrey Cohn, a CEO succession expert. That would continue a trend
from last year, when at least 14 top bosses of big U.S. businesses were
shown the door—six in December alone.
The Financial Reporting Council (FRC) has launched
a formal disciplinary complaint against Big Four firm Deloitte, as well as
partner John Clennett, and Hugh Bevan, the former financial director (FD) of
Aero Inventory
The complaint was issued in connection with the
2009 collapse of Aero Inventory plc and its subsidiary Aero Inventory UK.
The FRC alleges that Deloitte’s conduct, as well as
the conduct of the firm’s audit engagement partner (Clennett) and Aero
Inventory FD (Bevan), “fell significantly short” of expected standards.
The FRC complaint said the three parties – all of
whom are ICAEW members – had “failed to act in accordance with the
fundamental principles” of the ICAEW’s guide to professional ethics, and
code of ethics, as part of working with “professional competence and due
care”.
An independent tribunal will now be appointed to
hear the complaint, though a date has yet to be set.
Aero Inventory, a listed wholesaler of aircraft
parts, was placed in administration in November 2009, after suspending
shares when issues concerning the valuation of stock became apparent.
While Deloitte had audited the company’s accounts
for a number of years, the firm refused to sign off accounts in 2009, due to
a disagreement over stock valuations with Aero Inventory’s management.
In late 2014, Deloitte launched an appeal against a
record FRC fine of £14m, issued in connection with the firm’s role as
adviser to MG Rover Group, which collapsed in 2005. A decision has yet to be
reached on that appeal.
Jensen Comment
I mean what's $14.5 billion to the Federal Government?
I'll tell you what it is. It's the approximate price tag of two years of
free tuition for all students under President Obama's proposed free college
plan.
Hedging and Risk Management When Teats are Being Squeezed
From the CFO Journal's Morning Ledger on January 9, 2015
Jensen Comment
Perhaps the word "proof" is too strong due to the many degrees of freedom in
this research. The outcomes are, however, highly suggestive. One problem is that
a bit like Dan Stone's message regarding climate change and the fact that 2014
was the fourth coldest year on record for Illinois.
January 9, 2015 reply from Dan Stone
from the Illinois state climatologist, "In summary,
while it was a cold year
for Illinois, the effect was largely confined to the Midwest and was not
global and it does not reflect the long-term temperature trend in Illinois."
1. it requires understanding data, outliers, and statistics
2. of the fossil fuel industry which, very much like the tobacco industry of
50 years ago, funds promotion campaigns to deny the scientific evidence,
3. a major political party, which is funded by the fossil fuel industry,
promotes science denial.
Dan Stone
January 9, 2015 reply from Bob Jensen
Perhaps given the many referees studied (some impeccably honest and some
biased), perhaps the bias in football refereeing is confusing because "it
requires understanding data, outliers, and statistics."
Statistical analysis just does not work very well for non-stationary
systems. But repeated outcomes may suggest patterns of non-randomness that
are difficult to completely ignore in spite of the limitations in theory.
Bob Jensen
Are "Going Concern" Letters Mere Nails in the Coffin or Are They Part of
the Poison Before Death?
From the CFO Journal's Morning Ledger on January 5, 2015
GAAP versus Non-GAAP Accounting for IPOs From the CFO Journal's Morning Ledger on January 8, 2015
Forty companies went public last year reporting losses under traditional
accounting rules but showing profits under their own tailor-made measures,
the
WSJ’s Michael Rapoport reports. That is 18% of all
U.S. IPOs for the year. Some IPO market observers have raised fears that
companies’ increased use of nonstandard earnings measures could confuse or
mislead investors.
Companies that use the non-GAAP measures insist that they give investors a
better picture of the company. But that worries some experts, and hasn’t
stopped the SEC from demanding that some of the companies revise their
filings, saying that they give too much prominence to the specialty
calculations over more standard measures.
Nonstandard metrics give investors “the best measure” of continuing
performance, said Jason Morgan, chief financial officer of
Zoe’s Kitchen Inc.,
one of the firms that had to revise its filings at the request of the SEC.
Do you feel that you need to look beyond GAAP to tell the full story of your
company’s performance? Send us a note to let us know or tell us in the
comments
Zoe's Kitchen Inc. is serving up profits—but only
after leaving some of its expenses off the menu.
Zoe’s, a chain of 125-plus Mediterranean-theme
restaurants that went public in April, reported an adjusted profit of $13.2
million for the first nine months of 2014 under its own accounting
treatments that strip out a variety of expenses.
Including those expenses, as is required under
standard accounting rules, Zoe’s reported a loss of $8.4 million.
It is far from an isolated example. Forty companies
went public in 2014 reporting losses under traditional accounting rules but
showing profits under their own tailor-made measures. That is 18% of all
U.S. initial public offerings for the year, according to consulting firm
Audit Analytics, the highest level since at least 2009. Of 2014’s 10 biggest
IPOs, nine used nonstandard earnings measures alongside the official
accounting treatment to some degree.
Many companies prefer highlighting their own
customized measures, saying they give investors a better picture of the
company. That worries some experts, and the Securities and Exchange
Commission has written letters to Zoe’s and other companies telling them the
bespoke figures they use are given too much prominence in regulatory filings
and asking for revisions.
Nonstandard metrics give investors “the best
measure” of continuing performance, said Jason Morgan, chief financial
officer of Zoe’s, who added that the SEC’s concerns were addressed in the
company’s case by revising its prospectus.
But as the IPO market heated up last year,
observers have raised fears that companies’ increased use of these
nonstandard measures could confuse or mislead investors at a time when they
are forming their first impression of a company.
“I think it’s a sign of frothiness” in the IPO
market, said Brandon Rees, deputy director of the AFL-CIO’s Office of
Investment. “Why investors tolerate it, I don’t know.”
Some say the costs that companies strip out of
their nonstandard measures are increasingly things that should be counted in
earnings calculations, such as executive bonuses, fees for stock offerings
and acquisition expenses.
“I was just astounded at the wide variety of
elements that people thought were appropriate to exclude,” said Curtis
Verschoor, a DePaul University emeritus professor of accountancy. Investors
should be aware that a company’s nonstandard numbers “are more likely to be
slanted rather than balanced,” he said.
Companies must still prominently disclose their
earnings under generally accepted accounting principles, the standard set of
U.S. accounting rules, even if they also spotlight their earnings under
“non-GAAP” measures.
“It’s knee-jerk to say that’s a place where
companies put bad stuff,” said Mike Guthrie, chief financial officer of
TrueCar Inc., an auto-buying-and-selling platform that went public in May.
For the first nine months of 2014, TrueCar had a
$38.6 million loss under standard rules but a $6.6 million profit under
“adjusted Ebitda”—earnings before interest, taxes, depreciation and
amortization, modified further to exclude other costs, such as an $803,000
expense to acquire rights to the company’s stock symbol.
Mr. Guthrie said it would be more misleading for
the companies not to present adjusted measures; the stock-symbol cost, for
instance, was a one-time expense that won’t affect TrueCar’s future results.
TrueCar closed Wednesday at $20.94 a share, up 133% from its IPO price of
$9.
According to Audit Analytics data, 59% of the
companies that filed for an IPO since 2012 have used nonstandard metrics,
compared with 48% in 2010 and 2011.
Many go beyond the items that companies most
frequently strip out of their preferred measures, such as employee stock
compensation and foreign-exchange gains and losses. A PricewaterhouseCoopers
LLP survey found 80% of IPO companies that made adjustments to their Ebitda
from 2010 to 2013 had at least one adjustment beyond the more-common
strip-outs, though PwC said it couldn’t comment on individual companies.
The growth in such reporting by IPO companies comes
in part because more technology and service-based companies are coming
public. Those companies are more likely to use accounting estimates and
subjective measures when compared with traditional bricks-and-mortar
companies, said Jay Ritter, a University of Florida finance professor who
tracks IPOs.
The SEC has expressed concern in the past about
companies’ non-GAAP metrics, notably with regard to daily-deals company
Groupon Inc. Before Groupon’s 2011 IPO, the SEC raised questions about its
use of “adjusted consolidated segment operating income,” a metric that
excluded Groupon’s marketing costs to land new subscribers. Groupon scaled
back its use of the metric in response to the SEC concerns. Groupon couldn’t
be reached for comment.
In the past two years, the commission has sent
comment letters to more than 30 companies, both pre-IPO companies and those
already public, criticizing them for giving nonstandard earnings measures
“undue prominence” in their securities filings.
Zoe’s received such a letter in January 2014.
Zoe’s had mentioned its adjusted Ebitda first in
the “management’s discussion and analysis” section of its prospectus, four
pages before providing an earnings table that followed standard accounting
rules. The SEC also questioned Zoe’s exclusion of some cash expenses from
its adjusted Ebitda, such as the costs of opening new restaurants and
management and consulting fees.
Are PCAOB Inspection Reports Revealing Audit Firm Deficiencies Misleading?
January 23, 2015 message from a practitioner friend
Hi Bob, I hope all is well with you.
As part of your classroom application you might ask
the following
How are engagements selected by the PCAOB for
inspection
Do the engagements selected represent a random
sample of the Firm’s audit practice
Are entire engagements reviewed or only selected
areas
How are deficiencies determined (i.e. against
objective requirements for audit testing and performance or is the
evaluation subjective)
I think if this is a teaching application, the
students should understand the subjectivity in how engagements are selected
and evaluated.
Practitioner XXXXX
January 23, 2015 reply from Bob Jensen
May I quote you in a message to the AECM?
Alternately may I quote you as being "Anonymous?"
In fairness, I think the PCAOB does not pretend to use random sampling or
inspections of the complete audits.
Also in fairness, auditing is rather unique in that we are and probably
should be critical of deficiencies of any type that are not disclosed in the
audit reports. Auditing in this regard is a bit like a surgeon's report on
1,000 surgeries. Even though that surgeon may have done a great job on 990
of those surgeries, a misleading report on 10 of the surgeries is
inexcusable if the deficiencies are not disclosed in the report.
If I were on a medical board investigating a surgeon I would want the
board to selectively chose what surgeries to investigate for deficiencies.
The real test of a surgeon is how whether he or she occasionally cuts
corners rather than how often corners are cut.
Of course in the case of surgeries there may sometimes be acceptable
reasons for cutting corners such as when the patient is doomed no matter
what. Then we might ask why the surgery is even being performed.?
For example, a former colleague of mine only had a few months to live
with bone cancer. Surgeons in the Eastern Maine Medical Center in Bangor
installed two new artificial hips. He was never going to walk again with or
without those new hips. They probably cut a few corners in his case. I don't
blame them for cutting corners. I blame them for doing the surgeries in the
first place.
Thanks,
Bob
January 23, 2015 reply from Bob Jensen
Bob
I probably should stay anonymous until retirement
and then I can “come out”. I would not debate your comments at all.
The point of my additional questions is that for
those that don’t understand the process, the headline numbers are that the
Firms that are inspected don’t know how to audit because of the high
“failure” rate, language that my former partner, Jay Hanson, wants to change
by the way. I thought it important if we are teaching students for them to
understand that the audits the PCAOB inspects are the high risk audits
(which they clearly say in their report but the public does not seem to
understand) and that many (I won’t say most because no one has the
statistics) of the deficiencies are subjective because the PCAOB does not
want to write rule based standards which the auditors have asked them to
write.
The information shows PCAOB inspections don’t cause
restatements or withdrawn opinions rather deal with if you had sufficient
evidence when the report was released. If the auditing was so bad, you would
see more restatements and more withdrawn opinions. Lastly, consider that an
exit conference is like dealing with the prosecutor who tells you if you
don’t accept the plea bargain for distracted driving, he will indict you and
make you stand trial for first degree murder (maybe a bit of an
exaggeration).
Your analogy regarding surgeons, although a good
one, is not exactly on point since their reviews tend to have a dead patient
or the like as a starting point.
Practitioner XXXXX
January 23, 2015 reply from Bob Jensen
I don't think its fair to judge inspection reports in terms of
restatements. Restatements more often than not do not reflect audit
deficiencies. Restatements are ever so often caused by deceptions of top
management and outright frauds that financial statement auditors are not
intended to detect in the first place (except maybe by accident). Throughout
the history of CPA auditing standard setters have repeated that financial
statements are not fraud detection audits except to the extent that standard
auditing procedures should detect material departures from GAAP in financial
statements and some other related issues such as going concern issues and
examination of internal controls via new responsibilities imposed by SOX.
Time and time again CPA audit firms are not held responsible for not
detecting frauds from the bottom to the top of organizations. Fraud audits
for such purposes would be much more extensive and costly beyond what the
SEC and public sector agencies are willing to pay for in financial statement
audits.
There are some gray zone settlements that really frighten CPA audit
firms, but these are few and far between. A gray zone settlement now
commonly used in audit courses is the Grant Thornton audit of Koss Corp. ---
http://en.wikipedia.org/wiki/Koss_Corporation
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
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.
Jensen Comment
I keep recalling the 1990s when KPMG Executive Partner and AICPA
President Bob Elliott more than any other accountant made a public pitch
that the big accounting firms could expand their services beyond
auditing (remember Elder Care and SysTrust) because the auditing
profession more than any other profession had a reputation for
competence, quality, and integrity. The Big Four firms, especially
KPMG, have nearly destroyed that reputation.
http://faculty.trinity.edu/rjensen/Fraud001.htm
Maybe audit quality really hasn't
declined so much. Instead it may be that no regulatory agencies really
investigated audit firm quality controls before the PCAOB was created.
In the good old days audit quality was mostly regulated by separate
professional boards in the 50 states. For example, the New York Society
of CPAs only suspended the licenses for auditors convicted of drunk
driving. The same state agency that regulated audit firms in Florida
also regulated funeral parlors and para psychologists.
No endorsement carries more weight than an
investment by Warren Buffett. He became the world's second-richest man by
buying safe, reliable businesses and holding them for ever. So when his
company increased its stake in Tesco to 5% in 2012, it sent a strong message
that the giant British grocer would rebound from its disastrous attempt to
compete in America.
But it turned out that even the Oracle of Omaha can
fall victim to dodgy accounting. On September 22nd Tesco announced that its
profit guidance for the first half of 2014 was £250m ($408m) too high,
because it had overstated the rebate income it would receive from suppliers.
Britain's Serious Fraud Office has begun a criminal investigation into the
errors. The company's fortunes have worsened since then: on December 9th it
cut its profit forecast by 30%, partly because its new boss said it would
stop "artificially" improving results by reducing service near the end of a
quarter. Mr Buffett, whose firm has lost $750m on Tesco, now calls the trade
a "huge mistake".
No sooner did the news break than the spotlight
fell on PricewaterhouseCoopers (PwC), one of the "Big Four" global
accounting networks (the others are Deloitte, Ernst & Young (EY) and KPMG).
Tesco had paid the firm £10.4m to sign off on its 2013 financial statements.
PwC mentioned the suspect rebates as an area of heightened scrutiny, but
still gave a clean audit.
PwC's failure to detect the problem is hardly an
isolated case. If accounting scandals no longer dominate headlines as they
did when Enron and WorldCom imploded in 2001-02, that is not because they
have vanished but because they have become routine. On December 4th a
Spanish court reported that Bankia had mis-stated its finances when it went
public in 2011, ten months before it was nationalised. In 2012
Hewlett-Packard wrote off 80% of its $10.3 billion purchase of Autonomy, a
software company, after accusing the firm of counting forecast subscriptions
as current sales (Autonomy pleads innocence). The previous year Olympus, a
Japanese optical-device maker, revealed it had hidden billions of dollars in
losses. In each case, Big Four auditors had given their blessing.
And although accountants have largely avoided blame
for the financial crisis of 2008, at the very least they failed to raise the
alarm. America's Federal Deposit Insurance Corporation is suing PwC for $1
billion for not detecting fraud at Colonial Bank, which failed in 2009. (PwC
denies wrongdoing and says the bank deceived the firm.) This June two KPMG
auditors received suspensions for failing to scrutinise loan-loss reserves
at TierOne, another failed bank. Just eight months before Lehman Brothers'
demise, EY's audit kept mum about the repurchase transactions that disguised
the bank's leverage.
The situation is graver still in emerging markets.
In 2009 Satyam, an Indian technology company, admitted it had faked over $1
billion of cash on its books. North American exchanges have de-listed more
than 100 Chinese firms in recent years because of accounting problems. In
2010 Jon Carnes, a short seller, sent a cameraman to a biodiesel factory
that China Integrated Energy (a KPMG client) said was producing at full
blast, and found it had been dormant for months. The next year Muddy Waters,
a research firm, discovered that much of the timber Sino-Forest (audited by
EY) claimed to own did not exist. Both companies lost over 95% of their
value.
Of course, no police force can hope to prevent
every crime. But such frequent scandals call into question whether this is
the best the Big Four can do--and if so, whether their efforts are worth the
$50 billion a year they collect in audit fees. In popular imagination,
auditors are there to sniff out fraud. But because the profession was
historically allowed to self-regulate despite enjoying a
government-guaranteed franchise, it has set the bar so low--formally,
auditors merely opine on whether financial statements meet accounting
standards--that it is all but impossible for them to fail at their jobs, as
they define them. In recent years this yawning "expectations gap" has led to
a pattern in which investors disregard auditors and make little effort to
learn about their work, value securities as if audited financial statements
were the gospel truth, and then erupt in righteous fury when the inevitable
downward revisions cost them their shirts.
The stakes are high. If investors stop trusting
financial statements, they will charge a higher cost of capital to honest
and deceitful companies alike, reducing funds available for investment and
slowing growth. Only substantial reform of the auditors' perverse business
model can end this cycle of disappointment. Born with the railways
Auditors perform a central role in modern
capitalism. Ever since the invention of the joint-stock corporation,
shareholders have been plagued by the mismatch between the interests of a
firm's owners and those of its managers. Because a company's executives know
far more about its operations than its investors do, they have every
incentive to line their pockets and hide its true condition. In turn, the
markets will withhold capital from firms whose managers they distrust.
Auditors arose to resolve this "information asymmetry".
Early joint-stock firms like the Dutch East India
Company designated a handful of investors to make sure the books added up,
though these primitive auditors generally lacked the time or expertise to
provide an effective check on management. By the mid-1800s, British lenders
to capital-hungry American railway companies deployed chartered
accountants--the first modern auditors--to investigate every aspect of the
railroads' businesses. These Anglophone roots have proved durable: 150 years
later, the Big Four global networks are still essentially controlled by
their branches in the United States and Britain. Their current bosses are
all American.
As the number of investors in companies grew, so
did the inefficiency of each of them sending separate sleuths to keep
management in line. Moreover, companies hoping to cut financing costs
realised they could extract better terms by getting an auditor to vouch for
them. Those accountants in turn had an incentive to evaluate their clients
fairly, in order to command the trust of the markets. By the 1920s, 80% of
companies on the New York Stock Exchange voluntarily hired an auditor.
Unfortunately, Jazz Age investors did not
distinguish between audited companies and their less scrupulous peers. Among
the miscreants was Swedish Match, a European firm whose skill at securing
state-sanctioned monopolies was surpassed only by the aggression of its
accounting. After its boss, Ivar Kreuger, died in 1932 the company
collapsed, costing American investors the equivalent of $4.33 billion in
current dollars. Soon after this the Democratic Congress, cleaning up the
markets after the Great Depression, instituted a rule that all publicly held
firms had to issue audited financial statements. Britain had already brought
in a similar policy.
Investors Losing Confidence in Financial Analysts and Advisers
From the CFO Journal's Morning Ledger on January 5, 2015
Vanguard sets record funds inflow
http://www.wsj.com/articles/vanguard-sets-record-funds-inflow-1420430643
Investors gave stock pickers a resounding vote of no
confidence in 2014, pouring $216 billion into
Vanguard Group,
the biggest provider of index-tracking products. Active investments have
been hurt by years of subpar performance and high fees. Data through
November show investors pulled $12.7 billion in 2014 from actively managed
U.S. stock funds while plowing $244 billion into similar passively managed
funds.
Jensen Comment
I agree. I think investors should first try out the free services from
trustworthy funds like Vanguard or Fidelity. Or they might get into some
long-term investments but not retain the financial adviser year-after-year.
Teaching Ideas
How would your intermediate accounting or accounting theory students propose
accounting for the recent massive hedges placed by oil companies on future oil
prices?
Hint
Under FAS 133 much depends upon the types of hedges placed and
whether they are hedging values of inventories on hand or
forecasted transactions.Make sure your students understand the
difference between hedging fair value versus
hedging cash flows and
why both types of risks are impossible to hedge simultaneously.
I would suggest that you have students journalize various
types of possible hedgings of the oil companies rather than just the types
actually being used by some of the companies.
Bob Jensen's road show CD files used for presentations to
companies and traders regarding hedge accounting ---
http://www.cs.trinity.edu/~rjensen/Calgary/CD/
Especially note the PowerPoint files.
NEW YORK (Reuters) - As a war of nerves
between U.S. shale producers and Gulf powerhouses intensifies, OPEC's
biggest members are counting down the months until their upstart rivals lose
the one thing shielding them from crashing oil prices — hedges.
They may need much more patience than they
reckon, however, because those hedges are a moving target. Rather than wait
for their price insurance to run out, many companies are racing to revamp
their policies, cashing in well-placed hedges to increase the number of
future barrels hedged, according to industry consultants, bankers and
analysts familiar with the deals.
OPEC officials hope that once U.S. oil
companies get fully exposed to the impact of an over 50 percent slide in
crude prices since last June, they will have to drill fewer new wells,
causing U.S. production growth to stall and putting a floor under oil prices
now testing $50 a barrel.
"There are companies which are hedged
until the beginning of the year or until the end of the year, so we need to
wait at least until the first quarter to see what is going to happen,"
United Arab Emirates Energy Minister Suhail Bin Mohammed al-Mazroui told
Reuters and one other news agency last month.
Yet that hope is based largely on
quarterly company reports from several months ago, when drillers last made
their hedging portfolios public. In the meantime, with the price rout
showing no sign of reversing, at least some firms have put on new hedges
that will help prevent their revenues from falling further — and allow them
to drill far longer this year than earlier expected.
"OPEC should not expect to see any impact
on U.S. shale growth in the first half of the year and the impact in the
second half is being attenuated significantly by producer hedging," says Ed
Morse, global head of commodities research at Citigroup, one of the biggest
U.S. banks involved hedging.
There are "natural hedge" reasons to shift
production overseas --- reasons other than cheaper labor and less restrictive
regulations
From the CFO Journal's Morning Ledger on January 21, 2015
The dollar’s surge against many currencies is wreaking
havoc on balance sheets and giving foreign competitors a window of
opportunity to steal market share by undercutting American firms on prices.
The
WSJ’s Theo Francis reports
that the stronger dollar, often presented as an
optical problem, has the potential to inflict real damage, and that the
effects will become clearer as earnings reports roll in over the next
several weeks.
Multinationals have spent decades shifting production
to major markets, providing a natural hedge against currency fluctuations.
Those efforts are imperfect, however, and the dollar’s rise comes as many
firms are coping with sluggish sales globally.
U.S. manufacturers are particularly exposed. The
strong dollar is adding urgency to efforts by U.S. manufacturers, makers of
everything from circuit boards to heavy equipment, to automate their
operations, redesign products or shift some work abroad. Is your business
nimble enough to cope with the dollar’s rapid rise? Let us know in the
comments.
From the CFO Journal's Morning Ledger on January 6, 2015
2015 is the year for power and utility
companies to chart their course to growth and returns, according to John
McCue, a vice chairman and the U.S. Energy & Resources leader at Deloitte
LLP. Mr. McCue discusses current trends in renewable energy, the maturing
retail energy marketplace and energy efficiency sector, and next steps in
the industry's transformation, including state-level regulatory shifts that
could enable new paths to profitability.
2015 is the year for power and utility
companies to chart their course to growth and returns, according to John
McCue, a vice chairman and the U.S. Energy & Resources leader at Deloitte
LLP. Mr. McCue discusses current trends in renewable energy, the maturing
retail energy marketplace and energy efficiency sector, and next steps in
the industry's transformation, including state-level regulatory shifts that
could enable new paths to profitability.
As of December 15, 2014, the new 2013
COSO framework superseded the 1992 version for companies applying and
referencing COSO's internal control framework for purposes of complying with
Section 404 of the Sarbanes-Oxley Act of 2002. For banks and capital markets
firms, which operate under a complex regulatory environment, the transition
to the new framework involves careful considerations.
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.
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
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.
OWINGS MILLS, Md. — Inside the gleaming mall here on
the Sunday before Christmas, just one thing was missing: shoppers.
The upbeat music of “Jingle Bell Rock” bounced off the
tiles, and the smell of teriyaki chicken drifted from the food court, but
only a handful of stores were open at the sprawling enclosed shopping
center. A few visitors walked down the long hallways and peered through
locked metal gates into vacant spaces once home to retailers like H&M, Wet
Seal and Kay Jewelers.
“It’s depressing,” Jill Kalata, 46, said as she tried
on a few of the last sneakers for sale at the Athlete’s Foot, scheduled to
close in a few weeks. “This place used to be packed. And Christmas, the
lines were out the door. Now I’m surprised anything is still open.”
The Owings Mills Mall is poised to join a growing
number of what real estate professionals, architects, urban planners and
Internet enthusiasts term “dead malls.” Since 2010, more than two dozen
enclosed shopping malls have been closed, and an additional 60 are on the
brink, according to Green Street Advisors, which tracks the mall industry.
Premature obituaries for the shopping mall have
been appearing since the late 1990s, but the reality today is more nuanced,
reflecting broader trends remaking the American economy. With income
inequality continuing to widen, high-end malls are thriving, even as stolid
retail chains like Sears, Kmart and J. C. Penney falter, taking the middle-
and working-class malls they anchored with them.
“It is very much a haves and have-nots situation,”
said D. J. Busch, a senior analyst at Green Street. Affluent Americans “will
keep going to Short Hills Mall in New Jersey or other properties aimed at
the top 5 or 10 percent of consumers. But there’s been very little income
growth in the belly of the economy.”
At Owings Mills, J. C. Penney and Macy’s are
hanging on, but other midtier emporiums like Sears, Lord & Taylor, and the
regional department store chain Boscov’s have all come and gone as anchors.
Having opened in 1986 with a renovation in 1998,
Owings Mills is young for a dying mall. And while its locale may have
contributed to its demise, other forces played a crucial role, too, like
changing shopping habits and demographics, experts say.
“I have no doubt some malls will survive, but major
segments of our society have gotten sick of them,” said Mark Hinshaw, a
Seattle architect, urban planner and author.
One factor many shoppers blame for the decline of
malls — online shopping — is having only a small effect, experts say. Less
than 10 percent of retail sales take place online, and those sales tend to
hit big-box stores harder, rather than the fashion chains and other
specialty retailers in enclosed malls.
Instead, the fundamental problem for malls is a
glut of stores in many parts of the country, the result of a long boom in
building retail space of all kinds.
“We are extremely over-retailed,” said Christopher
Zahas, a real estate economist and urban planner in Portland, Ore. “Filling
a million square feet is a tall order.” Continue reading the main story
Like beached whales, dead malls draw fascination as
well as dismay. There is a popular website devoted to the phenomenon —
deadmalls.com — and it has also become something of a cultural meme, with
one particularly spooky scene in the movie “Gone Girl” set in a dead mall.
“Everybody has memories from childhood of going to
the mall,” said Jack Thomas, 26, one of three partners who run the site in
their spare time. “Nobody ever thinks a mall is going to up and die.”
Well aware of the cultural dimensions, as well as
the economic stakes, the industry is trying to turn around public perception
of these monuments to America’s favorite pastime: shopping.
In August, the International Council of Shopping
Centers, a trade group based in New York for the shopping center industry,
including mall owners, hired the public relations firm Burson-Marsteller “to
put the real story out there and stop the negativity around the idea that
the mall isn’t going to exist in the next few years,” said Jesse Tron,
communications director for the trade group.
While it is true that many thriving malls will
continue to flourish in the years ahead, it is not clear what the industry
can do to prevent more and more malls from falling on hard times.
About 80 percent of the country’s 1,200 malls are
considered healthy, reporting vacancy rates of 10 percent or less. But that
compares with 94 percent in 2006, according to CoStar Group, a leading
provider of data for the real estate industry.
Nearly 15 percent are 10 to 40 percent vacant, up
from 5 percent in 2006. And 3.4 percent — representing more than 30 million
square feet — are more than 40 percent empty, a threshold that signals the
beginning of what Mr. Busch of Green Street calls “the death spiral.”
Industry executives freely admit that the mall
business has undergone a profound bifurcation since the recession.
Morgan Stanley fired one of its financial advisers
after it accused him of stealing account data on about 350,000 clients and
posting some of that information for sale online, in potentially the largest
data theft at a wealth-management firm.
The bank last week terminated Galen Marsh, who
worked at a Midtown Manhattan branch of Morgan Stanley, a person familiar
with the matter said.
Continued in article
Jensen Comment
Most data breaches are still inside jobs in one way or another. I suspect that
when they finally get to the bottom of Sony's data reach it will be traced to an
insider. An woman who was fired is now suspected.
First Blockbuster and Radio Shack, Now Kroeger and HEB
At $600 billion a year in sales, food
and beverage is by far the largest retail category in the U.S. by a wide
margin. However, it's also the category that has been the least disrupted by
e-commerce; less than 1% of food and beverage sales currently occur online,
according to
BI Intelligence's estimates.
But shopping habits are changing, and
niche online grocery services that compete on convenience and selection are
gaining traction. Meanwhile tech giants like Amazon are fronting the cost of
expensive delivery infrastructure that has so far held back grocery
e-commerce.
Jensen Comment
Even in the boon docks where we cannot get same-day delivery, we probably buy
more groceries other than perishables from Amazon than we do from the local
markets. The reason is a combination of things including point-and-click
convenience, availability of harder to find items up here, savings in time and
money (think fuel for 20 miles round trip), and "free" shipping via Amazon
Prime. Since we buy in bulk, our basement looks like a supermarket with shelves
to hold the items we now buy by the case.
If we still lived in San Antonio we probably would buy less online mainly
because we would not want to leave our garage unlocked for deliveries from UPS,
the Post Office, and FedEx. Up here, however, we never lock our garage and
disconnected it from our home security system (that we mainly have for fire and
pipe-freezing prevention).
In cities like San Antonio I think neighborhood convenience stores should add
services for holding parcel deliveries from UPS, the Post Office, and FedEx.
There has to be business opportunity here.
Jensen Comment on Coursera
Enter the search term for accounting and note the free accounting courses
from the University of Illinois, University of California at Irvine, Penn
(Wharton), and the University of West Virginia
Laptop Market Shares in Q3 of 2014 ---
http://www.macrumors.com/2014/11/07/apple-mac-us-pc-record/
Bill Gates would probably be selling used cars today if Apple had outsourced its
Mac OS and computer manufacturing to other companies like Dell and HP.
Jensen Comment
Tennis star Serena Williams once claimed she would prefer to live in Paris but
would never do so with the 75% Supertax. Now she's free to reconsider.
It’s rare but it does happen. Employees of the
largest audit firms do occasionally step up and blow the whistle on
potentially illegal and/or unethical activities at their firm or its
clients.
A 28-year-old former PricewaterhouseCoopers
auditor charged with theft and violating trade secrets in Luxembourg in
the wake of the LuxLeaks tax avoidance scandal has revealed his identity
and claimed he acted out of conviction, in an
interview with the French newspaper Libération.
Antoine Deltour, who joined PwC from business
school in 2008, resigned two years later. “Normally auditors are a bit
like regulators. It is a useful profession, we verify the accounts of
companies,” he told the newspaper. “But I wasn’t feeling at home in that
environment [at PwC]. Bit by bit I discovered how extreme the system was
in reality – it was a massive tax optimisation practice. I didn’t want
to be part of that.”
The most interesting thing about Deltour’s
admissions is that he believes he is not alone.
Deltour, who said he had not passed information
to the ICIJ, told Libération: “From the beginning, I acted out of
conviction, for my ideas, not to appear in the media.”
He added that he was part of “a broader
movement” — a reference to the fact that the Guardian and other media
working with the ICIJ had this month published
more revelations and further confidential tax rulings
secured by Ernst & Young, KPMG and Deloitte.
It will be interesting to see if PwC and the other
large firms can squelch this “movement” with threats and legal action or
whether the cat is already out of the bag. If professionals in the US, UK or
Australia become willing to act “out of conviction” and expose activities
that their firms cover up on behalf of clients or that contravene public
policy and the public good, we may witness a sea change return to the
concept of the auditor’s “public duty” rather than
the typical “pleaser” personality that
is highly risk-averse, prone to group think, and fears a black mark on his
or her permanent record above all.
Question
We used to think of divorcing spouses spitting 50-50. What happens
mathematically when you repeatedly split net assets 50-50?
Seems like remarriages can be profitable if one spouse only gets the assets and
not the debt.
Jensen Comment
I once had a colleague auditing professor who became wealthy dealing in Florida
real estate during the S&L boom, divorced his wife, and resigned from the
Academy. He lost his entire 50% and declared bankruptcy when the S&L bust
transpired in the 1980s. Soon thereafter he remarried his first wife who still
had her pre-divorce 50% in solid assets. I always wondered if remarriage was for
love or money on his part? Seems like it had to be for love on her part.
Suppose Elon and Talulah Riley go for a third-time or fourth-time marriage
etc. Seems like Talulah can't lose much except for losing Elon. However, she
should be cautious about prenuptial contracts regarding sharing of debts!
Teaching Case on Taxation Outlook
From The Wall Street Journal Accounting Weekly Review on January 9, 2015
SUMMARY: The new year could bring important
changes to the tax landscape. This article discusses several issues that
will affect how much taxpayers owe for 2015 and beyond, including overhaul
of the federal tax code, secret offshore accounts, expatriate tax issues,
and expired provisions.
CLASSROOM APPLICATION: This article can be
used to discuss or study possible changes to the current tax law. Business
professionals should make it a practice to be informed of possible tax
changes for planning purposes.
QUESTIONS:
1. (Introductory) What areas of tax law might be changed by
Congress in the coming year? Why is Congress targeting these areas?
2. (Advanced) What does the article state about possible changes to
federal tax policy? Are these changes like to occur? Why or why not?
3. (Advanced) For individuals, what tax breaks are the largest for
individuals? Which of the tax breaks would legislators be more comfortable
changing?
4. (Advanced) What is a secret offshore account? Why do they pose a
problem for the U.S. government? What is the government doing to address
this problem? Have these actions been successful?
5. (Advanced) What is an expatriate? What are the tax issues
associated with expatriates? What might Congress change? What impact could
those changes make?
6. (Advanced) What tax breaks have expired? What is the outlook for
renewal? How can taxpayers plan in these areas?
Reviewed By: Linda Christiansen, Indiana University Southeast
The new year could bring important changes to the
tax landscape. Here are several issues that will affect how much taxpayers
owe for 2015 and beyond:
Federal tax policy
There is serious talk of overhauling the federal
tax code. “There appears to be a consensus” on making changes, says Stephen
Baxley, a tax specialist at Bessemer Trust—though it isn’t clear if Congress
will agree on the details.
The details matter when it comes to the individual
income tax. Attempts to improve the system, such as the plan from outgoing
House Ways & Means Chairman Dave Camp (R.-Mich.), often aim to simplify the
code by applying lower tax rates to a broader base of income, without
affecting overall revenue.
If lawmakers want to go that route, they face hard
choices. Lowering rates means cutting or eliminating popular tax breaks,
such as deductions for mortgage interest and charitable donations, to offset
lost revenue.
The tax breaks that cost the government the most
often serve policy goals. For example, breaks encourage retirement savings
and support employer-based health coverage.
That makes tinkering with them painful for many
taxpayers. “The losers are likely to be people who make the most use of
existing tax breaks,” says Dave Kautter, who follows tax policy for
accounting firm McGladrey in Washington.
Despite those hurdles, lawmakers have an incentive
to strike a deal in advance of the 2016 presidential election, experts say.
Serious overhaul proposals could emerge by late
spring. Change, if it actually comes, would likely need to happen by
year-end or early in 2016, says Mr. Kautter. “After that, the election could
complicate things,” he says. Secret offshore accounts
The U.S. campaign against offshore tax evaders is
expanding. In late December, Bank Leumi Group became the first Israeli
financial institution to admit that it helped U.S. taxpayers hide money
abroad. It agreed to pay $400 million and to name more than 1,500 account
holders.
Among other things, the bank helped customers evade
U.S. taxes by making loans using Bank Leumi’s U.S. affiliate, collateralized
by assets abroad, according to court filings. In effect, the clients could
use offshore accounts to obtain capital in the U.S. while keeping the
accounts secret from U.S. officials, according to the filings.
Bank Leumi also admitted sending private bankers to
the U.S. to meet secretly with clients at hotels, coffee shops and parks to
discuss their holdings.
The bank said in a statement that the agreement
with the U.S. government removes “a cloud of uncertainty that has weighed
heavily.”
“This agreement is a major development in the push
against undeclared foreign accounts, and we’re likely to see further
expansion in 2015,” says Scott Michel, a lawyer with Caplin & Drysdale in
Washington who wasn’t involved in the case.
Also last month, the Internal Revenue Service
obtained a court order seeking to identify U.S. taxpayers who it says may
have evaded taxes using a Panama-based firm, Sovereign Management & Legal
Ltd.
According to its website, the company offers a
range of offshore services. For example, its “Panama Corp. & Foundation
Combination” promises “asset protection, complete privacy, and potential tax
deferral.” Also offered are “Anonymous Offshore ATM/Debit Cards.”
The company didn’t respond to requests for comment.
The court order obtained by the IRS doesn’t seek
information directly from Sovereign Management & Legal, according to the
U.S. Department of Justice. Instead, the order authorizes the IRS to issue
summonses to eight U.S. firms that made deliveries or money transfers to or
from Sovereign on behalf of U.S. customers for records identifying those
customers.
“The IRS views the use of Panama corporations to
add a layer of secrecy as egregious conduct that often indicates tax
evasion,” says Jeffrey Neiman, who led the federal prosecution of a major
offshore case in 2009 and is now a lawyer in Fort Lauderdale, Fla.
Since the campaign against secret offshore accounts
began, more than 45,000 taxpayers in an IRS limited-amnesty program have
paid more than $6.5 billion in taxes, interest and penalties.
Expatriate tax issues
The U.S. campaign against offshore tax evasion also
has raised difficult issues for 7.6 million ordinary American citizens
living abroad.
Unlike most countries, the U.S. taxes nonresidents
on world-wide income. There are limited offsets for double taxation as well
as complex reporting requirements with severe potential penalties. For
decades the law generally wasn’t enforced, but it is now.
As a result, “many Americans abroad are finding it
virtually impossible to have bank accounts, save for retirement, and make
investments—all the normal activities of financial life,” says David Kuenzi,
an investment adviser with Thun Financial in Madison, Wis., who has many
clients abroad.
Now expats see a ray of hope. A December report by
the Republican staff of the Senate Finance Committee calls for major change.
“The United States needs to rethink its taxing
rules for nonresident U.S. citizens,” the report says. One option: tax
long-term nonresidents on income from U.S. sources instead of world-wide
income, it says.
The proposal’s future is unclear, but its
appearance is noteworthy, experts say. “Until now, this issue was completely
ignored by policy makers,” Mr. Kuenzi says.
Expired provisions
As of Jan. 1, a one-year extension of dozens of tax
provisions expired. If that sounds familiar, it’s because Congress didn’t
renew these provisions for 2014 until mid-December, giving taxpayers about
two weeks to use them.
Jensen Comment
The article itself is great for pointing out how corruption rankings are
misleading in this ranking that paints Louisiana and Mississippi as the most
corrupt and Oregon and Washington states as the least corrupt.
SUMMARY: This article covers Roth accounts,
which include both tax-sheltered individual retirement accounts and
company-sponsored 401(k) savings plans. Roths and traditional plans vary
considerably in many important ways. The biggest difference: With
traditional IRAs and 401(k) plans, savers typically contribute pretax
dollars and then owe tax at ordinary income rates on withdrawals made after
age 59½. But savers using Roth IRAs and Roth 401(k)s put after-tax dollars
instead of pretax ones into their accounts.
CLASSROOM APPLICATION: This article offers
explanations of aspects of Roth IRAs and 401(k)s, and contrasts them to
traditional IRAs and retirement plans.
QUESTIONS:
1. (Introductory) What is a Roth account? What are the two types
explained in the article?
2. (Advanced) What are the differences between Roth accounts and
traditional ones? Are the differences significant?
3. (Advanced) What are the advantages of Roth accounts? What are
the advantages of traditional accounts? What are the disadvantages of each?
4. (Advanced) For what people would a Roth account be a better
option? Who should choose the traditional option? Why?
Reviewed By: Linda Christiansen, Indiana University Southeast
Roth accounts can be a great way to save for
retirement—and it is getting easier to use them.
Roths include both tax-sheltered individual
retirement accounts and company-sponsored 401(k) savings plans, and, as with
traditional versions of these accounts, assets grow tax-free.
In many other important ways, though, Roths and
traditional plans vary considerably.
The biggest difference: With traditional IRAs and
401(k) plans, savers typically contribute pretax dollars and then owe tax at
ordinary income rates on withdrawals made after age 59½. But savers using
Roth IRAs and Roth 401(k)s put after-tax dollars instead of pretax ones into
their accounts.
Roth owners thus forgo a valuable upfront tax
break, but they can get a better one in return: tax-free withdrawals of
assets after age 59½. Roth accounts
have a host of other benefits as well, such as
more flexibility.
Jared Guyer, a 38-year-old meteorologist in Norman,
Okla., likes the fact that, unlike with a traditional IRA, he and his wife
can withdraw contributions to their Roth IRAs without penalty—making them a
de facto emergency fund.
“Fortunately, we haven’t had to take money out,”
says Mr. Guyer, whose wife just had the couple’s first child. “But it’s nice
to know we could, if push came to shove.”
To be sure, Roth savings aren’t always best. “Roth
accounts are wonderful to have, but not if the price of admission—taxes—is
too high,” says Natalie Choate, a lawyer specializing in retirement benefits
at Nutter McClennen & Fish in Boston.
Making the right choice depends on multiple
factors, including income, future tax rates and
changes Congress could make in the law. Here’s
what you need to know.
Easier Access
Until recently, many affluent savers didn’t have
access to Roth accounts. Income limits set by Congress kept many people from
contributing to Roth IRAs, and Roth 401(k)s weren’t widely available.
Now that is changing. According to benefits firm
Aon
Hewitt, millions of workers have the option of
putting some or all of their 401(k) dollars into a Roth 401(k). Out of
nearly 400 large and midsize firms surveyed, more than half now offer such
an option, compared with only 11% in 2007—and Aon Hewitt expects the number
to grow.
In addition, the Internal Revenue Service recently
issued a ruling making it easier for workers to move after-tax dollars in a
401(k) plan into a Roth IRA. And in 2010, Congress removed an income cap so
that all taxpayers can convert part or all of a traditional IRA to a Roth
IRA.
These expanded options are likely to boost the
trend toward Roth accounts. Although traditional IRAs hold about $6
trillion—more than 10 times the assets that Roth IRAs do—Roths are growing
much faster.
According to the Investment Company Institute, a
fund-industry trade group, the number of households with one or more
traditional IRAs has held steady at about 27 million over the past decade,
while the number with Roth IRAs has grown 47%, to about 13 million.
A spokesman for brokerage firm
Charles Schwab says it now has nearly 1.2 million
Roth IRAs, up 32% in the past five years alone—more than double the growth
of its traditional IRAs.
Tax Breaks
In essence, savers have to decide whether it’s
better to get a tax break now for putting dollars into a traditional IRA or
401(k) plan, or to put after-tax dollars into a Roth account and take
tax-free withdrawals later—perhaps in several decades.
The short answer: If you expect your tax rate on
withdrawals will be higher than or the same as your current tax rate, a Roth
account is often the better choice, experts say.
“The tax comparison is often the main driver,” says
Maria Bruno, a retirement specialist at financial-services firm Vanguard
Group.
In general, many young savers should opt for Roth
accounts, as Mr. Guyer and his wife have done. But for savers in their peak
earning years, it often makes sense to grab the upfront break a traditional
IRA or 401(k) plan offers.
Many savers appear to understand this rule of
thumb. At Vanguard, says Ms. Bruno, people under 30 are putting 92% of their
IRA contributions into Roth accounts.
At the same time, conversions of traditional IRAs
into Roth IRAs, which are fully taxable, peak between age 65 and 70 at
Vanguard. Many of the converters are probably retirees whose tax rate has
recently dropped.
There may be other savers who should avoid Roth
accounts—those who lose tax benefits when their income is too high.
For example, the American Opportunity Credit is a
valuable tax offset for people paying college tuition that’s worth up to
$2,500 per student each year. But it phases out beginning at $160,000 of
adjusted gross income for most married couples in 2014.
Teaching Case on Accounting for Private Companies
From The Wall Street Journal Accounting Weekly Review on January 9, 2015
Private companies just got a break in their reporting of intangible assets.
SUMMARY: The Financial Accounting Standards
Board, tasked with setting U.S. private sector financial standards, released
guidance that lets private companies consolidate their reporting of some
intangible assets. FASB's alternative allows some companies to lump
noncompetition agreements and some "customer-related intangible assets" such
as the value of having an existing customer base, into goodwill items.
However, some customer-related intangible assets would continue to be
recognized separately, such as mortgage servicing rights, commodity supply
contracts, core deposits, and customer information such as names and
contact information.
CLASSROOM APPLICATION: This is an update to
the rules for accounting for intangible assets.
QUESTIONS:
1. (Introductory) What are intangible assets? Why are they
classified separately from other assets?
2. (Introductory) What is FASB? What is its purpose? What are the
details of its new guidance for reporting intangible assets?
3. (Advanced) What is the reason for the new rule? How are
companies benefited? How are users of the financial statements benefited?
Will the change have a negative impact on any of these parties?
4. (Advanced) What intangible assets must be recognized separately?
Why? Does this take away any value of the new rule? Is it an appropriate
exception to the new rule?
Reviewed By: Linda Christiansen, Indiana University Southeast
Private companies just got a break in their
reporting of intangible assets.
The Financial Accounting Standards Board, tasked
with setting U.S. private sector financial standards, today released
guidance that lets private companies consolidate their reporting of some
intangible assets.
The new guidance is an effort to “avoid…unnecessary
costs and complexity,” said Russell Golden, FASB’s chairman. It responds to
feedback from FASB’s Private Company Council, which modifies accounting
standards for private companies.
FASB’s alternative lets companies lump
noncompetition agreements and some “customer-related intangible assets” such
as the value of having an existing customer base, into goodwill items.
Private businesses must decide whether or not to
use FASB’s alternative with their next transaction in its scope.
However, some customer-related intangible assets
would continue to be recognized separately, such as mortgage servicing
rights, commodity supply contracts, core deposits, and customer
information such as names and contact information, said Daryl Buck, a FASB
member.
Companies can sell or buy some intangible assets,
including customer information or commodity supply contracts, but
noncompetition agreements and the existence of a customer base can be more
difficult to value.
Importantly, public companies and not-for-profit
companies must still report intangible assets as they previously did. FASB
however plans to consider offering the alternative for public companies and
not-for-profits.
SUMMARY: The International Accounting
Standards Board announced amendments to its guidelines for financial
statements to combat unnecessary and repetitive disclosures. The amendments
are part of a global effort, which has also been taken up by the Securities
and Exchange Commission and the Financial Accounting Standards Board, to
make financial statements easier to read. In a 2014 survey, IASB found that
investors and analysts felt companies could better communicate the most
relevant issues in financial statements without forcing them to sift through
a surfeit of disclosure. Businesses often over-disclose rather than justify
after the fact why they failed to mention something, but that practice has
led to bloated financial documents with so much information they can be
difficult to parse.
CLASSROOM APPLICATION: This is an interesting
update from the IASB. Because the SEC joins the IASB in desiring financial
statements to be more readable, a similar initiative could be on the way for
the U.S. An important issue related to this topic is over-disclosure of
information as a reaction to the litigious nature of society today.
Corporate counsel will likely advise companies to continue to over-disclose
as protection from some litigation.
QUESTIONS:
1. (Introductory) What is the International Accounting Standards
Board? What is its mission? Does it govern U.S. accounting rules?
2. (Advanced) What new guidelines did the IASB release? What is the
reasoning for these new guidelines? For what companies is this required?
3. (Advanced) Why do businesses often over-disclose? What are good
reasons supporting this decision? How does it affect the financial
statements and annual reports? Why can this be problematic?
4. (Advanced) How should a company strike a balance between
disclosing too much and disclosing too little?
Reviewed By: Linda Christiansen, Indiana University Southeast
Unnecessary and repetitive disclosures are mucking
up corporate financial disclosure, and the International Accounting
Standards Board wants to cut the clutter.
Today the board, which sets the international
accounting standards used in more than 100 countries, announced amendments
to its guidelines for financial statements to combat the problem.
The amendments are part of a global effort, which
has also been taken up by the Securities and Exchange Commission and the
Financial Accounting Standards Board, to make financial statements easier to
read. In a survey early
last year, IASB found that investors and analysts felt companies could
better communicate the most relevant issues in financial statements without
forcing them to sift through a surfeit of disclosure.
Companies should know that “if something’s clearly
not material enough or important enough to disclose, you don’t have to,”
said Alan Teixeira, a senior technical director at IASB.
Businesses often over-disclose rather than
justify after the fact why they failed to mention something, Mr. Teixeira
said. But that practice has led to bloated financial documents with so much
information they can be difficult to parse.
The changes are part of a broader IASB effort. The
board also proposed plans for amending cash flow statements to have
companies clearly explain their sources of capital.
The announced amendments will be required for
annual periods beginning on or after Jan. 1, 2016.
IASB is “just a part” of improving disclosures, Mr.
Teixeira said, noting that companies themselves will have to determine what
information is immaterial and withhold it. Nonetheless, he said the board
has an advantage because it is a standard-setter.
“We’re at the very beginning,” he said, hoping the
board can be a “catalyst for behavioral change.”
GAAP versus Non-GAAP Accounting for IPOs From the CFO Journal's Morning Ledger on January 8, 2015
Forty companies went public last year reporting losses under traditional
accounting rules but showing profits under their own tailor-made measures,
the
WSJ’s Michael Rapoport reports. That is 18% of all
U.S. IPOs for the year. Some IPO market observers have raised fears that
companies’ increased use of nonstandard earnings measures could confuse or
mislead investors.
Companies that use the non-GAAP measures insist that they give investors a
better picture of the company. But that worries some experts, and hasn’t
stopped the SEC from demanding that some of the companies revise their
filings, saying that they give too much prominence to the specialty
calculations over more standard measures.
Nonstandard metrics give investors “the best measure” of continuing
performance, said Jason Morgan, chief financial officer of
Zoe’s Kitchen Inc.,
one of the firms that had to revise its filings at the request of the SEC.
Do you feel that you need to look beyond GAAP to tell the full story of your
company’s performance? Send us a note to let us know or tell us in the
comments
Teaching Case on Creative Accounting
From The Wall Street Journal Accounting Weekly Review on January 16, 2015
TOPICS: Financial Reporting, Initial Public Offerings, IPOs
SUMMARY: Forty companies went public in 2014 reporting losses under
traditional accounting rules but showing profits under their own tailor-made
measures. That is 18% of all U.S. initial public offerings for the year the
highest level since at least 2009. Of 2014's 10 biggest IPOs, nine used
nonstandard earnings measures alongside the official accounting treatment to
some degree. Many companies prefer highlighting their own customized
measures, saying they give investors a better picture of the company. That
worries some experts, and the Securities and Exchange Commission has written
letters to Zoe's and other companies telling them the bespoke figures they
use are given too much prominence in regulatory filings and asking for
revisions.
CLASSROOM APPLICATION: This is very interesting information to add
to the topics of financial accounting and IPOs.
QUESTIONS:
1. (Introductory) What is an IPO? Who is involved? Why have the
numbers of IPOs grown in recent years?
2. (Advanced) Why is financial reporting needed as a part of an
IPO? Who would be using the financial information? Why is accuracy and full
disclose important?
3. (Introductory) What is the issue presented in the article? Who
is concerned by these activities? Why are they concerned?
4. (Advanced) Why do companies wish to use their own customized
measures? What do they say in support of using them? Is their defense of
their actions reasonable? Why or why not?
5. (Advanced) What are some examples of changes companies have made
in their financial reporting? What problems or misunderstandings could this
"tailored accounting" cause?
Reviewed By: Linda Christiansen, Indiana University Southeast
Critics Say Companies’ Increased Use of Customized
Earnings Measures Could Confuse Investors
Zoe’s Kitchen Inc. is serving up profits—but only
after leaving some of its expenses off the menu.
Zoe’s, a chain of 125-plus Mediterranean-theme
restaurants that went public in April, reported an adjusted profit of $13.2
million for the first nine months of 2014 under its own accounting
treatments that strip out a variety of expenses.
Including those expenses, as is required under
standard accounting rules, Zoe’s reported a loss of $8.4 million.
It is far from an isolated example. Forty companies
went public in 2014 reporting losses under traditional accounting rules but
showing profits under their own tailor-made measures. That is 18% of all
U.S. initial public offerings for the year, according to consulting firm
Audit Analytics, the highest level since at least 2009. Of 2014’s 10 biggest
IPOs, nine used nonstandard earnings measures alongside the official
accounting treatment to some degree.
Many companies prefer highlighting their own
customized measures, saying they give investors a better picture of the
company. That worries some experts, and the Securities and Exchange
Commission has written letters to Zoe’s and other companies telling them the
bespoke figures they use are given too much prominence in regulatory filings
and asking for revisions.
Nonstandard metrics give investors “the best
measure” of continuing performance, said Jason Morgan, chief financial
officer of Zoe’s, who added that the SEC’s concerns were addressed in the
company’s case by revising its prospectus.
But as the IPO market heated up last year,
observers have raised fears that companies’ increased use of these
nonstandard measures could confuse or mislead investors at a time when they
are forming their first impression of a company.
“I think it’s a sign of frothiness” in the IPO
market, said Brandon Rees, deputy director of the AFL-CIO’s Office of
Investment. “Why investors tolerate it, I don’t know.”
Some say the costs that companies strip out of
their nonstandard measures are increasingly things that should be counted in
earnings calculations, such as executive bonuses, fees for stock offerings
and acquisition expenses.
“I was just astounded at the wide variety of
elements that people thought were appropriate to exclude,” said Curtis
Verschoor, a DePaul University emeritus professor of accountancy. Investors
should be aware that a company’s nonstandard numbers “are more likely to be
slanted rather than balanced,” he said.
Companies must still prominently disclose their
earnings under generally accepted accounting principles, the standard set of
U.S. accounting rules, even if they also spotlight their earnings under
“non-GAAP” measures.
“It’s knee-jerk to say that’s a place where
companies put bad stuff,” said Mike Guthrie, chief financial officer of
TrueCar Inc., an
auto-buying-and-selling platform that went public in May.
For the first nine months of 2014, TrueCar had a
$38.6 million loss under standard rules but a $6.6 million profit under
“adjusted Ebitda”—earnings before interest, taxes, depreciation and
amortization, modified further to exclude other costs, such as an $803,000
expense to acquire rights to the company’s stock symbol.
Mr. Guthrie said it would be more misleading for
the companies not to present adjusted measures; the stock-symbol cost, for
instance, was a one-time expense that won’t affect TrueCar’s future results.
TrueCar closed Wednesday at $20.94 a share, up 133% from its IPO price of
$9.
According to Audit Analytics data, 59% of the
companies that filed for an IPO since 2012 have used nonstandard metrics,
compared with 48% in 2010 and 2011.
Many go beyond the items that companies most
frequently strip out of their preferred measures, such as employee stock
compensation and foreign-exchange gains and losses. A PricewaterhouseCoopers
LLP survey found 80% of IPO companies that made adjustments to their Ebitda
from 2010 to 2013 had at least one adjustment beyond the more-common
strip-outs, though PwC said it couldn’t comment on individual companies.
The growth in such reporting by IPO companies comes
in part because more technology and service-based companies are coming
public. Those companies are more likely to use accounting estimates and
subjective measures when compared with traditional bricks-and-mortar
companies, said Jay Ritter, a University of Florida finance professor who
tracks IPOs.
The SEC has expressed concern in the past about
companies’ non-GAAP metrics, notably with regard to daily-deals company
Groupon Inc. Before
Groupon’s 2011 IPO, the SEC raised questions about its use of “adjusted
consolidated segment operating income,” a metric that excluded Groupon’s
marketing costs to land new subscribers. Groupon scaled back its use of the
metric in response to the SEC concerns. Groupon couldn’t be reached for
comment.
In the past two years, the commission has sent
comment letters to more than 30 companies, both pre-IPO companies and those
already public, criticizing them for giving nonstandard earnings measures
“undue prominence” in their securities filings.
Zoe’s received such a letter in January 2014.
Zoe’s had mentioned its adjusted Ebitda first in
the “management’s discussion and analysis” section of its prospectus, four
pages before providing an earnings table that followed standard accounting
rules. The SEC also questioned Zoe’s exclusion of some cash expenses from
its adjusted Ebitda, such as the costs of opening new restaurants and
management and consulting fees.
Zoe’s prospectus had been filed under seal with the
SEC at the time, and the company revised its filings to address the “undue
prominence” criticism before it filed a public prospectus in March, the
company’s finance chief, Mr. Morgan, said. Whether the expenses should be
excluded “came down to an interpretation” of regulations, and the company
didn’t change its methodology, he added.
Zoe’s stock closed Wednesday at $31.63 a share,
more than twice its IPO price of $15.
Teaching Case on Section 1031 of the Internal Revenue Code, which enables
investors to defer the capital-gains tax that they would normally owe on the
profit they make from the sale of real estate.
From The Wall Street Journal Accounting Weekly Review on January 16, 2015
SUMMARY: An investment group consisting of a well-known Charlotte,
N.C., developer and an Atlanta entrepreneur, philanthropist and former U.S.
Air Force pilot has purchased the Winston-Salem, N.C., headquarters of
financial-services giant BB&T Corp. with plans to sell stakes in the
property to investors who want to take advantage of Section 1031 of the
Internal Revenue Code, which enables investors to defer the capital-gains
tax that they would normally owe on the profit they make from the sale of
real estate. Current tax law allows them to do this if they use the proceeds
of their sale to invest in a "like-kind," or comparable, property.
CLASSROOM APPLICATION: Use this article when covering Section 1031.
QUESTIONS:
1. (Introductory) What is Section 1031? To what kind of
transactions does it apply?
2. (Advanced) What are the plans for the investors in the article?
What are the tax advantages of their plan? Are there business benefits for
this type of transaction, other than tax advantages?
3. (Advanced) Does Section 1031 allow for a deferral of taxes or a
permanent savings? Why?
4. (Advanced) Why does the tax code allow for the Section 1031
treatment? What are the policy reasons? What are some practical reasons?
Reviewed By: Linda Christiansen, Indiana University Southeast
Investors Plan to Sell Stakes in BB&T Building to
Purchasers Seeking Capital-Gains Tax Break.
An investment group consisting of a well-known
Charlotte, N.C., developer and an Atlanta entrepreneur, philanthropist and
former U.S. Air Force pilot has purchased the Winston-Salem, N.C.,
headquarters of financial-services giant BB&T Corp. with plans to sell
stakes in the property to investors who want to take advantage of a
much-loved provision of U.S. tax law.
The venture of Charlotte investor Ray Gee and
Atlanta investor Tyson “Ty” Rhame paid $60 million for the
240,000-square-foot building at 200 W. Second St. in Winston-Salem’s central
business district.
The 20-story office tower is fully occupied by BB&T
under a 23-year lease and is also home to the Piedmont Club, a private
business and social club.
Messrs. Gee and Rhame plan to sell stakes in the
building to investors who want to take advantage of Section 1031 of the
Internal Revenue Code, which enables investors to defer the capital-gains
tax that they would normally owe on the profit they make from the sale of
real estate. Current tax law allows them to do this if they use the proceeds
of their sale to invest in a “like-kind,” or comparable, property.
Large institutional investors frequently make use
of this tax shelter. When Hilton Worldwide Holdings Inc. announced plans in
October to sell the Waldorf-Astoria Hotel in New York to Anbang Insurance
Group Co. for $1.95 billion, it also stated its intention to use the
proceeds from the sale to acquire additional hotels in the U.S. as part of a
like-kind exchange.
But as the commercial-real-estate market recovers
in many parts of the nation, industry experts report that smaller investors
are increasingly taking advantage of the tax benefits of like-kind
exchanges.
“The less taxes they pay, the more they have to
reinvest,” said Gerard Sansosti, an executive managing director in the
Pittsburgh office of HFF Inc.
Under Internal Revenue Service rules, Section 1031
exchanges have to be like-kind, and the properties have to be held for use
in a trade or business or for investment. Property held for personal use,
such as a primary residence, doesn’t qualify. Most real estate is considered
to be like-kind. In other words, an apartment building can be exchanged for
an office building.
Messrs. Gee and Rhame put 10% down on the purchase
and financed the balance. Since they took title as a Delaware statutory
trust, IRS rules allow them to syndicate 1031 exchange interests in the BB&T
building to investors.
The 1031 structure “allows the smaller investor to
play at an institutional level,” Mr. Gee said. He and his partner said they
are hoping stakes in the property will be attractive because it is leased
long term to a strong tenant. “They can rest easy at night knowing that the
tenant is most likely not going to default,” Mr. Gee said.
Brian Davis, a spokesman for BB&T, said, “The sale
doesn’t affect our long-term lease or our long-standing commitment to the
Winston-Salem community.”
Mr. Gee said he and Mr. Rhame are seeking three to
five investors to reimburse them for 100% of the equity they invested in the
deal, but that the number could climb to as many as 10 investors.
Experts on 1031 exchanges point out that potential
investors in these deals need to understand that they are passive
investments. That means they have less control than they might have had in
the strip center or apartment complex they sold.
“You’re wrapped up in ownership with other people,”
said Edward N. Cooper, director of tax services at Berkowitz Pollack Brant
in Miami. “So if you swapped an apartment complex that you sold for $4
million in which you had control and invest in a [1031 exchange property],
you don’t get the same flexibility.”
A like-kind exchange doesn’t need to be a
simultaneous swap. Tax rules allow the seller of a property 45 days from the
date of relinquishment to identify potential replacements. The seller then
has 180 days from the sale of the relinquished property to complete the
exchange.
Many investors in like-kind exchanges are seeking
single-tenant net lease properties like the BB&T building, said Kenneth L.
Zakin, a senior managing director with Newmark Grubb Knight Frank Capital
Markets in New York.
“They don’t want to risk too much, so they look for
safe, secure investment income,” he added.
Continued in article
Teaching Case on How New Health-Care Rules Affect Your 2014 Tax Return
From The Wall Street Journal Accounting Weekly Review on January 16, 2015
SUMMARY: For 2014, there are only two important federal income-tax
changes for individual taxpayers, beyond the usual inflation-indexing of
tax-rate brackets and various other parameters. Both have to do with the
Affordable Care Act, and both may be complicated enough to inspire many
people to engage the services of a professional tax preparer.
CLASSROOM APPLICATION: This article offers a good explanation of
tax penalties under the Affordable Care Act.
QUESTIONS:
1. (Introductory) What is the Affordable Care Act? Why are
individual tax returns affected by the ACA?
2. (Advanced) What is minimum essential coverage? What are the
penalties for failure to carry that coverage?
3. (Advanced) Who should be concerned about the penalty? How is the
penalty calculated? How is it reported and paid?
4. (Advanced) What is the premium assistance tax credit? Who is
eligible for the credit? What are the options for disbursement of this
credit?
5. (Advanced) What is a refundable credit? Why are some credits
refundable and others are not?
Reviewed By: Linda Christiansen, Indiana University Southeast
Tax forms for 2014—such as W-2s and 1099s—will soon
be arriving in the mail, which means it isn’t too early to start thinking
about putting together your Form 1040 for last year.
For 2014, there are only two important federal
income-tax changes for individual taxpayers, beyond the usual
inflation-indexing of tax-rate brackets and various other parameters. Both
have to do with the Affordable Care Act, also referred to as “Obamacare”—and
both may be complicated enough to inspire many people to engage the services
of a professional tax preparer.
Here’s what taxpayers need to know. Penalty for
failure to carry “minimum essential coverage”
The health-care overhaul established a new federal
income-tax penalty for the failure to carry what it deems minimum essential
coverage. Last year was the introductory year for the penalty, which can
potentially be owed for any month when qualifying health coverage wasn’t in
force. (In Internal Revenue Service speak, the penalty is called a “shared
responsibility payment.”)
You don’t have to worry about the penalty if
you—and all members of your family, if applicable—had qualifying coverage
for all of last year. In this case, simply check the box on line 61 of Form
1040, and you’re done.
If you didn’t have qualifying coverage for the
entire year, the first task is to determine if you are exempt from the
penalty. For that, see the instructions to new IRS Form 8965 Health Coverage
Exemptions (and instructions for figuring your shared responsibility
payment). If you were exempt for last year, file Form 8965 with your 2014
Form 1040 to prove it.
For additional information on exemptions, see IRS
Publication 5187, Health Care Law: What’s New for Individuals and Families.
(All IRS forms and publications discussed in this article can be found at
www.irs.gov.)
If you weren’t exempt, the next step is to
calculate the penalty amount that you owe using the work sheet in the
instructions to Form 8965. Enter the penalty amount on line 61 of your
return. For 2014, the penalty can range from $95 or less to a good deal more
for higher-income folks. Also be aware that the penalty for 2015 and beyond
can be much higher than the penalty for last year. Premium assistance tax
credit
The other Affordable Care Act-related change for
2014 was the debut of the so-called premium assistance tax credit, or PTC.
It is available to eligible individuals and families who obtain health
coverage in a qualifying plan by enrolling through a state-run insurance
exchange or through the federal exchange (www.healthcare.gov).
In general, you are eligible for the credit if your
household income was between 100% and 400% of the federal poverty line and
you didn’t have access to affordable employer-sponsored coverage last year.
The allowable credit amount can vary widely depending on your specific
circumstances. (For additional information on the PTC, see IRS Publication
974.)
The PTC can be advanced directly to the insurance
company to lower your monthly premiums, or it can be claimed when you file
your return. You may not know the exact amount of your allowable PTC for
last year until you actually file your 2014 Form 1040. Calculate the PTC
using the new IRS Form 8962.
If advance PTC payments were made on your behalf
last year, the amount of those payments should be reported by the exchange
to you on the new Form 1095-A, Health Insurance Marketplace Statement. You
should receive Form 1095-A by no later than early February. Then calculate
the difference between your advance PTC payments (if any) and the PTC amount
you are actually entitled to claim on Form 8962. Enter any excess PTC amount
on line 46 of Form 1040 and pay it when you file.
The PTC is a “refundable credit.” That means you
can collect the full allowable credit amount even when it exceeds your
federal income tax liability for last year. Specifically, the PTC amount is
first used to reduce your federal income tax bill. After your bill has been
reduced to zero, any remaining PTC can be either refunded to you in cash or
used to make estimated tax payments for the 2015 tax year.
Rumor has it that the New England patriots had to issue all new and smaller
jock straps for the Super Bowl.
Bob Jensen
I know, but it's the best I could come up with on short notice.
Why does this remind me of Madam Boxer in the USA Senate? Councilman orders newspaper to stop using his name. Newspaper prints
hilarious response ---
I did not quote from the article in fear of having to use his name.
International Pi Day on March 14 --- http://www.piday.org/
Note the Pi Sightings link
Forwarded by Gene and Joan
Brains of older people are slow because they know so much. People do not
decline mentally with age, it just takes them longer to recall facts because
they have more information in their brains, scientists believe. Much like a
computer struggles as the hard drive gets full, so, too, do humans take longer
to access information when their brains are full. Researchers say this slowing
down process is not the same as cognitive decline. The human brain works slower
in old age, said Dr. Michael Ramscar, but only because we have stored more
information over time The brains of older people do not get weak. On the
contrary, they simply know more. Also, older people often go to another room to
get something and when they get there, they stand there wondering what they came
for. It is NOT a memory problem, it is nature's way of making older people do
more exercise.
SO THERE!!
Forwarded by Gene and Joan
If you can read this, you have a strange mind, too. Only 55 people out of 100
can.
I cdnuolt blveiee that I cluod aulaclty uesdnatnrd what I was rdanieg. The
phaonmneal pweor of the hmuan mnid, aoccdrnig to a rscheearch at Cmabrigde
Uinervtisy, it dseno't mtaetr in what oerdr the ltteres in a word are, the olny
iproamtnt tihng is that the frsit and last ltteer be in the rghit pclae. The
rset can be a taotl mses and you can still raed it whotuit a pboerlm. This is
bcuseae the huamn mnid deos not raed ervey lteter by istlef, but the word as a
wlohe. Azanmig huh? Yaeh and I awlyas tghuhot slpeling was ipmorantt! If you can
raed this forwrad it
Uniontown police say 29-year-old Eric Frey tried to rob Michael Maria's Pizza
on Saturday by handing an employee a note written on toilet paper that read: "I
have a gun. Give me $300."
Police arrived before Frey could leave because an employee hit a panic
button.
Frey told officers he was forced to commit the robbery by a large, bearded
man with a gun who accosted him in a nearby alley.
But police say a search of Frey's apartment wiped out that explanation:
That's where they say they found a newly opened roll of toilet paper with the
pen impression from Frey's note on an outer sheet.
Online court records don't list an attorney for Frey.
Great Female Comebacks forwarded by Paula
Man: "So, wanna go back
to my place ?"
Woman: "Well, I don't know. Will two people fit under a rock?"
Man: "Your place or mine?"
Woman: "Both. You go to yours and I'll go to mine."
Man: "I'd like to call you. What's your number?"
Woman: "It's in the phone book."|
Man: "But I don't know your name."
Woman: "That's in the phone book too."
Man: "So what do you do for a living?"
Woman: "I'm a female impersonator."
Man: "What sign were you born under?"
Woman: "No Parking." Or (“Stop”) my daughter Dawn used it!
Man: "Hey, baby, what's your sign?"
Woman: "Do not Enter"
Man: "How do you like your eggs in the morning?"
Woman: "Unfertilized!"
Man: "Hey, come on, admit it. We're both here at this bar for the same reason"
Woman: "Yeah! Let's pick up some chicks!"
Man: "I know how to please a woman."
Woman: "Then please leave me alone."
Man: "I want to give myself to you."
Woman: "Sorry, I don't accept cheap gifts."
Man: "I can tell that you want me."
Woman: "Ohhhh. You're so right. I want you to leave."
Man: "If I could see you naked, I'd die happy:
Woman: "Yeah, but if I saw you naked, I'd probably die laughing."
Man: "Hey cutie, how 'bout you and me hitting the hot spots?"
Woman: "Sorry, I don't date outside my species."
Man: "Your body is like a temple."
Woman: "Sorry, there are no services today."
Man: "I'd go through anything for you."
Woman: "Good! Let's start with your bank account."
Man: "I would go to the end of the world for you.
Woman: "Yes, but would you stay there?
Forwarded by Paula
Actual call center conversations!
Customer: 'I've been calling 700-1000 for two days and can't get through;
can you help?'
Operator: 'Where did you get that number, sir?'
Customer: 'It's on the door of your business.'
Operator: 'Sir, those are the hours that we are open.'
----------------------------------------------------------------------
Samsung Electronics
Caller: 'Can you give me the telephone number for Jack?'
Operator: 'I'm sorry, sir, I don't understand who you are talking about.'
Caller: 'On page 1, section 5, of the user guide it clearly states that
I need to unplug the fax machine from the AC wall socket and
telephone Jack before cleaning. Now, can you give me the
number for Jack?'
Operator: 'I think it means the telephone plug on the wall.'
----------------------------------------------------------------------
RAC Motoring Services
Caller: 'Does your European Breakdown Policy cover me when I am
traveling in Australia ?'
Operator: 'Does the policy name give you a clue?'
----------------------------------------------------------------------
Caller (inquiring about legal requirements while traveling in Europe )
'If I register my car in France , and then take it to England ,
do I have to change the steering wheel to the other side of the car?'
----------------------------------------------------------------------
Directory Inquiries
Caller: 'I'd like the number of the Argo Fish Bar, please'
Operator: 'I'm sorry, there's no listing. Are you sure that the spelling is
correct?'
Caller: 'Well, it used to be called the Bargo Fish Bar but the 'B' fell
off.'
----------------------------------------------------------------------
Then there was the caller who asked for a knitwear company in Woven.
Operator: 'Woven? Are you sure?'
Caller: 'Yes.. That's what it says on the label -- Woven in Scotland ...'
----------------------------------------------------------------------
On another occasion, a man making heavy breathing sounds from a phone box
told a worried operator: 'I haven't got a pen, so I'm steaming up the window
to write the number on.'
----------------------------------------------------------------------
Tech Support: 'I need you to right-click on the Open Desktop.'
Customer: 'OK..'
Tech Support: 'Did you get a pop-up menu?'
Customer: 'No.'
Tech Support: 'OK. Right-Click again. Do you see a pop-up menu?'
Customer: 'No.'
Tech Support: 'OK, sir. Can you tell me what you have done up until this
point?'
Customer: 'Sure. You told me to write 'click' and I wrote 'click'.'
----------------------------------------------------------------------
Tech Support: 'OK. At the bottom left hand side of your screen, can
you see the 'OK' button displayed?'
Customer: 'Wow! How can you see my screen from there?'
----------------------------------------------------------------------
Caller: 'I deleted a file from my PC last week and I just realized that I
need it.
So, if I turn my system clock back two weeks will I get my file back again?'
----------------------------------------------------------------------
The following has to be one of the funniest things in a long time. I think
this guy should have been promoted, not fired. This is a true story from the
WordPerfect Helpline, which was transcribed from a recording monitoring the
customer care department.
Needless to say the Help Desk employee was fired; however, he/she is
currently suing the WordPerfect organization for Termination without Cause.'
Actual dialogue of a former WordPerfect Customer Support employee.
(Now I know why they record these conversations!):
Operator: 'Ridge Hall, computer assistance; may I help you?'
Caller: 'Yes, well, I'm having trouble with WordPerfect .'
Operator: 'What sort of trouble?'
Caller: 'Well, I was just typing along, and all of a sudden the words went
away.'
Operator: 'Went away?'
Caller: 'They disappeared'
Operator: 'Hmm. So what does your screen look like now?'
Caller: 'Nothing.'
Operator: 'Nothing??'
Caller: 'It's blank; it won't accept anything when I type.'
Operator: 'Are you still in WordPerfect, or did you get out?'
Caller: 'How do I tell?'
Operator: 'Can you see the 'C: prompt' on the screen?'
Caller: 'What's a sea-prompt?'
Operator: 'Never mind, can you move your cursor around the screen?'
Caller: 'There isn't any cursor; I told you, it won't accept anything I
type..'
Operator: 'Does your monitor have a power indicator?'
Caller: 'What's a monitor?'
Operator: 'It's the thing with the screen on it that looks like a TV.
Does it have a little light that tells you when it's on?'
Caller: 'I don't know.'
Operator: 'Well, then look on the back of the monitor and find where
the power cord goes into it. Can you see that??'
Caller: 'Yes, I think so.'
Operator: 'Great. Follow the cord to the plug, and tell me if it's
plugged into the wall..
Caller: 'Yes, it is.'
Operator: 'When you were behind the monitor, did you notice that
there were two cables plugged into the back of it, not just one? '
Caller: 'No.'
Operator: 'Well, there are. I need you to look back there again and
find the other cable.'
Caller: 'Okay, here it is.'
Operator: 'Follow it for me, and tell me if it's plugged securely into
the back of your computer..'
Caller: 'I can't reach.'
Operator: 'OK. Well, can you see if it is?'
Caller: 'No...'
Operator: 'Even if you maybe put your knee on something and lean way over?'
Caller: 'Well, it's not because I don't have the right angle -- it's because
it's dark.'
Operator: 'Dark?'
Caller: 'Yes - the office light is off, and the only light I have is
coming in from the window.'
Operator: 'Well, turn on the office light then.'
Caller: 'I can't..'
Operator: 'No? Why not?'
Caller: 'Because there's a power failure.'
Operator: 'A power .... A power failure? Aha. Okay, we've got it
licked now. Do you still have the boxes and manuals and
packing stuff that your computer came in?'
Caller: 'Well, yes, I keep them in the closet..'
Operator: 'Good. Go get them, and unplug your system and pack it
up just like it was when you got it, Then take it back to
the store you bought it from.'
Caller: 'Really? Is it that bad?'
Operator: 'Yes, I'm afraid it is.'
Caller: 'Well, all right then, I suppose. What do I tell them?'
Operator: 'Tell them you're too damned stupid to own a computer!'
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://faculty.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.
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://faculty.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 theshift from Gemeinschaftto
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.”
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://faculty.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.
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://faculty.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 theshift from Gemeinschaftto
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.”
