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 at rjensen@trinity.edu if you really need to file that is missing

New Bookmarks
Year 2015 Quarter 2:  April 1 - June 30 Additions to Bob Jensen's Bookmarks
Bob Jensen at Trinity University

For earlier editions of New Bookmarks go to http://faculty.trinity.edu/rjensen/bookurl.htm 
Tidbits Directory --- http://faculty.trinity.edu/rjensen/TidbitsDirectory.htm 

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

Choose a Date Below for Additions to the Bookmarks File

2015
June 30

May 31

April 30

June 30, 2015

Bob Jensen's New Bookmarks for June 1-30, 2015 

Bob Jensen at Trinity University 

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

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

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

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

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

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

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

Higher Education Recruitment Consortium --- http://www.hercjobs.org/

How to Mislead With Statistics
The Chronicle’s interactive database to see how much top public-college presidents earned in 2014 ---
http://chronicle.com/factfile/ec-2015/?cid=at&utm_source=at&utm_medium=en#id=table_public_2014

Jensen Comment
It's very difficult to make comparisons of "compensation" since the perks of university presidents vary so much. Some live for free or for very low rent  in mansions on campus whereas some have to pay for their own housing. Some have free cars with drivers or free cars without drivers versus those who have to purchase their own cars. Access to private jets and yachts and luxury vacations vary under all sorts of deals with university trustees and alumni. There can be fixed-compensation contracts versus contracts that provide a percentage of funds raised from donors.

Deals can be even more varied among politicians. I just read where Michelle Obama had plastic surgery on taxpayer funding even though Obamacare will not pay for cosmetic surgery ---
http://www.coachisright.com/michelle-obama-has-plastic-surgery-at-walter-reed-on-taxpayers-dime/ 

Concerns Over Shortage of Competent Accounting Recruits
"Staffing issues surge to forefront of accounting firm concerns,"  by Jeff Drew, Journal of Accountancy, June 9, 2015 ---
http://www.journalofaccountancy.com/news/2015/jun/accounting-firm-issues-201512451.html 

It’s been a long time, but U.S. accounting firms are again dealing with a full-fledged talent shortage.

That’s one of the main takeaways from the 2015 Private Companies Practice Section (PCPS) CPA Firm Top Issues survey, which found staffing issues leading the list of concerns for accounting firms of all sizes except sole proprietors.

Finding qualified staff ranked as one of the two most pressing issues for all firms with more than one professional, topping the list for firms with two to 10 professionals and ranking second among firms with 11 or more professionals (see chart below). Firms in the two largest size categories (11–20 professionals and 21+ professionals) named staff retention as their No. 1 concern.

Continued in article

Bob Jensen's threads on careers are at
http://faculty.trinity.edu/rjensen/Bookbob1.htm#careers
 

AICPA ISSUES REPORT ON PROPOSED CHANGES IN NEXT VERSION OF CPA EXAM , Accounting Education.con, June 6, 2015 ---
http://www.accountingeducation.com/index.cfm?page=newsdetails&id=153473

PwC:  During the delayed implementation of the forthcoming revenue standard revisions the FASB and IASB are fine tuning the rules for gross versus net reporting --- Click Here
http://www.pwc.com/us/en/cfodirect/publications/in-transition/fasb-iasb-clarify-revenue-recognition-principal-agent-guidance.jhtml?display=/us/en/cfodirect/issues/revenue-recognition

"SEC upgrades EDGAR, drops 2013 GAAP taxonomy support for XBRL," by Jeff Drew, Journal of Accountancy, June 17, 2015 ---
http://www.journalofaccountancy.com/news/2015/jun/sec-upgrades-edgar-database-201512511.html 

The SEC has released an updated version of its EDGAR company filings database that does not support the 2013 GAAP taxonomy for the XBRL tagging of financial reports.

Release 15.2 of EDGAR, which came out Monday, also no longer supports the 2013 EXCH taxonomy.

The SEC adopted the 2015 GAAP financial reporting taxonomy March 9. The GAAP taxonomy is a list of computer-readable tags in extensible business reporting language (XBRL) format.

Companies can use XBRL to tag data in financial statements and footnote disclosures. The tags allow financial statement users to search for, assemble, and process data from the filings.

A list of standard taxonomies supported by the SEC is available on the commission’s website.

Also see: “Recommendations Could Help SEC Improve EDGAR Database.”

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

The disconnect between econometric teaching and practice
Or might we reword this as saying the disconnect between accountics science research and accounting practice?

"Why econometrics teaching needs an overhaul," by By Josh Angrist and Jorn-Steffen Pischke, World Economic Forum, May 21, 2015 ---
https://agenda.weforum.org/2015/05/why-econometrics-teaching-needs-an-overhaul/

The Global Crisis provoked some to ask, “what’s the use of economics”?, a reference to the economics that most economists had studied in college. We’d pile on, adding, “what’s the use of econometrics… at least as currently taught”? Most of the undergraduates who major in economics take a course in econometrics. This course should be one of the more useful experiences a student can have. For decades, economics undergraduates have found jobs in sectors that make heavy use of quantitative skills. As data sets have grown bigger and more complex, the demand for new grads with data-analytic skills has accelerated rapidly. Econometrics courses promise to equip our students with the powerful tools economists use to understand the economic relationships hidden in data. It’s both remarkable and regrettable, therefore, that econometrics classes continue to transmit an abstract body of knowledge that’s largely irrelevant for economic policy analysis, business problems, and even for much of the econometric research undertaken by scholars.

After a brief discussion of curve fitting, Pindyck and Rubinfeld’s (1976) first edition book began with subsections titled ‘The Model’, ‘Statistical Properties of Estimators’, and ‘Best Linear Unbiased Estimation’. The second edition of Johnston (1972) similarly started with models, assumptions, and estimators. Johnston describes multivariate regression models as “fitting the regression plane” a technical extension of the two-variable model that fits a line. The undergraduate econometrics canon has evolved little in the decades since. Becker and Greene (2001) surveyed econometrics texts and teaching at the turn of the millennium, arguing that “econometrics and statistics are often taught as branches of mathematics, even when taught in business schools… the focus in the textbooks and teaching materials is on presenting and explaining theory and technical details with secondary attention given to applications, which are often manufactured to fit the procedure at hand… applications are rarely based on events reported in financial newspapers, business magazines or scholarly journals in economics”.

The disconnect between econometric teaching and practice

Hewing to the table of contents in legacy texts, today’s market leaders continue to feature models and assumptions at the expense of empirical applications. Core economic questions are mentioned in passing if at all, and empirical examples are still mostly contrived, as in Studenmund (2011), who introduces empirical regression with a fanciful analysis of the relationship between height and weight. The first empirical application in Hill, Griffiths, and Lim (2011: 49) explores the correlation between food expenditure and income. This potentially interesting relationship is presented without a hint of why or what for. Instead, the discussion here emphasises the fact that “we assume the data… satisfy assumptions SR1-SR5”. An isolated bright spot is Stock and Watson (2011), which opens with a chapter on ‘Economic Questions and Data’ and introduces regression with a discussion of the causal effect of class size on student performance. Alas, Stock and Watson also return repeatedly to more traditional model-based abstraction.

The disconnect between econometric teaching and econometric practice goes beyond questions of tone and illustration. The most disturbing gap here is conceptual. The ascendance of the five core econometric tools – experiments, matching and regression methods, instrumental variables, differences-in-differences and regression discontinuity designs – marks a paradigm shift in empirical economics. In the past, empirical research focused on the estimation of models, presented as tests of economic theories or simply because modelling is what econometrics was thought to be about. Contemporary applied research asks focussed questions about economic forces and economic policy.

Continued in article

"A Scrapbook on What’s Wrong with the Past, Present and Future of Accountics Science," by Bob Jensen, Working Paper 450.06, Date Fluid ---
http://www.cs.trinity.edu/~rjensen/temp/AccounticsWorkingPaper450.06.pdf

The purpose of this paper is to make a case that the accountics science monopoly of our doctoral programs and publish ed research is seriously flawed, especially its lack of concern about replication and focus on simplified arti ficial worlds that differ too much from reality to creatively discover findings of greater relevance to teachers of accounting and practitioners of accounting. Accountics scientists themselves became a Cargo Cult.

In spite of lower fuel prices
Container shippers are in serious trouble ---
http://www.businessinsider.com/container-shippers-are-losing-money-2015-6

Issue 15 - E: The EITF decided that an entity would not need to determine whether a contingency related to the exercisability of a put or call option on a debt instrument is clearly and closely related to the debt host ---
http://www.ey.com/Publication/vwLUAssetsAL/EITFUpdate_BB3003_19June2015/$FILE/EITFUpdate_BB3003_19June2015.pdf

Jensen Comment
Note how IFRS 9 in general ignores the impact of embedded derivatives on hedge effectiveness.  Little by little FASB standards are converging on weaker (in my opinion) IFRS standards.

Examples are given at
http://www.fasb.org/jsp/FASB/Document_C/DocumentPage&cid=1176166130557
Note Alternative A versus Alternative B

Replication or Lack Thereof in Accounting Research

IS THERE A MULTINATIONALITY EFFECT? A REPLICATION AND REEXAMINATION OF THE MULTINATIONALITYPERFORMANCE RELATIONSHIP
by Heather Berry and Aseem Kahl
SSRN
June 2015

Abstract:     
 

We revisit the effect of multinationality on firm performance while accounting for problems of consolidation and selection. Using detailed longitudinal data from a comprehensive sample of US manufacturing MNCs, we replicate the U-shaped relationship found in prior studies and then show that this U-shaped relationship results from the combination of a negative relationship with aggregation activities and a positive relationship with adaptation and arbitrage activities. Further, once we control for the endogeneity of multinationality, we no longer find a significant effect of overall multinationality on performance, although arbitrage activities, in the form of cross-border product transfers, continue to have a positive effect on firm performance. These findings provide fresh empirical insight into the multinationality-performance relationship, while highlighting the benefits from arbitrage across subsidiary networks.

. . .

Replication of prior studies We start by trying to replicate the approach and measures used in prior work; specifically, we try to replicate the relationships found by Lu and Beamish (2004) in their study of Japanese multinationals. We choose to replicate Lu and Beamish (2004) both because it is an important and highly cited study of the multinationality-performance relationship, and because it is the closest to our work in that it studies multinationals using panel data. Models I-IV in Table Three show the results of our attempt to replicate the findings of Lu and Beamish (2004) in our sample, using the same dependent variable and predictors that they use6, as well as a similar estimation approach..

Models I-III in Table Three show the relationship of performance with the main, squared and cubed terms of our consolidated multinationality index respectively, using a fixed effects OLS regression. Model I shows a moderately significant negative coefficient for multinationality, which becomes significant at conventional levels in Model II once we include a squared multinationality term, which takes a positive and significant coefficient. Model II thus indicates a U-shaped relationship between multinationality and performance. We do not find evidence of an S-shaped relationship (Contractor et al., 2003; Lu and Beamish, 2004), with the coefficient for the cubed term in Model III being insignificant. Lu and Beamish (2004) also find a positive interaction between multinationality and parent R&D intensity when predicting RoA. We attempt to replicate this finding in Model IV, but the coefficient of the interaction term is insignificant.

Continued in article

Jensen Comment
Replication is not at all common in accounting research ---
http://faculty.trinity.edu/rjensen/TheoryTAR.htm

To my knowledge there's never been a replication study in accounting that alters the findings of the original research. When replication  does take place there's usually a relatively long time lag (ten years or more) such that the intent of the replication is not to validate the original findings. Rather the intent is to set the stage for expanding the research model to better explain the findings of the earlier studies.

The Berry and Kahl replication and model expansion fits into this pattern.
The original studies went over ten years without being replicated.
Berry and Kahl conducted a replication that did not alter the findings of the original studies. Berry and Kahl design a more complicated model to explain better explain the U-shaped relationship as described above.

"574 Shields Against Validity Challenges in Plato's Cave," by Bob Jensen, Evolving Web Document ---
http://faculty.trinity.edu/rjensen/TheoryTAR.htm

What is an Exacting Replication?
I define an exacting replication as one in which the findings are reproducible by independent researchers using the IAPUC Gold Book standards for reproducibility. Steve makes a big deal about time extensions when making such exacting replications almost impossible in accountics science. He states:

By "exacting replication," you appear to mean doing exactly what the original researcher did -- no more and no less. So if one wishes to replicate a study conducted with data from 2000 to 2008, one had better not extend it to 2009, as that clearly would not be "exacting." Or, to borrow a metaphor I've used earlier, if you'd like to replicate my assertion that it is currently 8:54 a.m., ask to borrow my watch -- you can't look at your watch because that wouldn't be an "exacting" replication.

That's CalvinBall bull since in many of these time extensions it's also possible to conduct an exacting replication. Richard Sansing pointed out the how he conducted an exacting replication of the findings in Dhaliwal, Li and R. Trezevant (2003), "Is a dividend tax penalty incorporated into the return on a firm’s common stock?," Journal of Accounting and Economics 35: 155-178. Although Richard and his coauthor extend the Dhaliwal findings they first conducted an exacting replication in their paper published  in The Accounting Review 85 (May 2010): 849-875.

My quibble with Richard is mostly that conducting an exacting replication of the Dhaliwal et al. paper was not exactly a burning (hot) issue if nobody bothered to replicate that award winning JAE paper for seven years.

This begs the question of why there are not more frequent and timely exacting replications conducted in accountics science if the databases themselves are commercially available like the CRSP, Compustat, and AuditAnalytics databases. Exacting replications from these databases are relatively easy and cheap to conduct. My contention here is that there's no incentive to excitedly conduct exacting replications if the accountics journals will not even publish commentaries about published studies. Steve and I've played CalvinBall with the commentaries issue before. He contends that TAR editors do not prevent commentaries from being published in TAR. The barriers to validity questioning commentaries in TAR are the 574 referees who won't accept submitted commentaries ---
http://faculty.trinity.edu/rjensen/TheoryTAR.htm#ColdWater

Exacting replications of behavioral experiments in accountics science is more difficult and costly because the replicators must conduct their own experiments by collecting their own data. But it seems to me that it's no more difficult in accountics science than in performing exacting replications that are reported in the research literature of psychology. However, psychologists often have more incentives to conduct exacting replications for the following reasons that I surmise:

1. Practicing psychologists are more demanding of validity tests of research findings. Practicing accountants seem to pretty much ignore behavioral experiments published in TAR, JAR, and JAE such that there's not as much pressure brought to bear on validity testing of accountics science findings. One test of practitioner lack of interest is the lack of citation of accountics science in practitioner journals.
    
2. Psychology researchers have more incentives to replicate experiments of others since there are more outlets for publication credits of replication studies, especially in psychology journals that encourage commentaries on published research ---
   http://faculty.trinity.edu/rjensen/TheoryTAR.htm#TARversusJEC

My opinion remains that accountics science will never be a real science until exacting replication of research findings become the name of the game in accountics science. This includes exacting replications of behavioral experiments as well as analysis of public data from CRSP, Compustat, AuditAnalytics, and other commercial databases. Note that willingness of accountics science authors to share their private data for replication purposes is a very good thing (I fought for this when I was on the AAA Executive Committee), but conducting replication studies of such data does not hold up well under the IAPUC Gold Book.

Note, however, that lack of exacting replication and other validity testing in general are only part of the huge problems with accountics science. The biggest problem, in my judgment, is the way accountics scientists have established monopoly powers over accounting doctoral programs, faculty hiring criteria, faculty performance criteria, and pay scales. Accounting researchers using other methodologies like case and field research become second class faculty.

A Success Case for the Inability to Replicate in Validation of Social Science Research
 

"What Social Science Can Learn From the LaCour Scandal," by Joseph K. Young and Nicole Janz, Chronicle of Higher Education, June 3, 2015 ---
http://chronicle.com/article/What-Social-Science-Can-Learn/230645/?cid=cr&utm_source=cr&utm_medium=en

. . .

So why don’t more researchers replicate? Because replication isn’t sexy. Our professional incentives are to come up with novel ideas and data, not confirm other people’s prior work. Replication is the yeoman’s work of social science. It is time-consuming, it is frustrating, and it does not gain any accolades for your CV. Worse, critics of students' doing replications state that they are amateurs, or that they may jeopardize their reputations by starting their scientific careers as "error hunters." The LaCour scandal shows that critics could not be more wrong. Scientific knowledge is built on the edifice of prior work. Before we get to a stage where we need more new ideas, we need to have a better sense of what works given the data.

Others have argued that the LaCour incident shows the weakness of the social sciences. Some have decided to make this some kind of steamy academic soap opera, even dubbing it LaCourGate, with daily revelations about fake awards and fake funding. While Americans love to shame, this episode is not about LaCour or Green or what is or was not the cause of the errors in the study. This is about openness, transparency, and replication.

The important lesson, however, is that replication works. It is a verification tool that improves science and our knowledge base. The takeaway is that we need to provide more incentives for such work. We need a new, highly respected journal that is just about replication. More funding sources are needed for replications. Each current journal in all of the social sciences should establish policies that require data, tools, and processes to be completely open-source upon publication.

The data given to Science provided the evidence needed to identify errors in LaCour and Green. What prevents this from occurring more often is an incentive for others to replicate. Students can be a crucial force, and colleges should start embedding replication in their courses more rigorously and systematically. And instructors should encourage students to publish their work; currently most replications done in class are an untapped resource.

In fact, LaCour and the uproar surrounding the scandal did supporters of replication and data transparency a big favor. The field of political science was already undergoing changes toward more reproducibility. Top journals — but not all journals in the field — have started to adopt strict replication policies requiring authors to provide their materials upon publication. The American Political Science Association released new guidelines on data access and research transparency.

Those new trends toward higher-quality research were not based on a crisis in political science itself. For example, there were hardly any retractions, accusations of fraud, plagiarism, or large-scale irreproducibility scandals in political science before this one. But there were scandals in psychology, economics, and cancer research that sparked a discussion in our discipline. In fact, political science has been feeding off crises in other fields without bleeding itself. We’ve often wondered: If there were more scandals in political science, could a change toward higher research quality be more rapid, and more profound? Enter LaCour.

Joseph K. Young is an associate professor in the School of Public Affairs and the School of International Service at American University, and Nicole Janz is a political scientist and research-methods associate at the University of Cambridge.

Continued at
http://faculty.trinity.edu/rjensen/TheoryTAR.htm

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

Jensen Comment
It's not clear that the companies are in violation of FASB accounting standards. For example, they would be in violation of FAS 123r if they did not book employee vested stock options as expenses ---
https://en.wikipedia.org/wiki/Stock_option_expensing 

Restricted Stock --- https://en.wikipedia.org/wiki/Restricted_stock

. . .

Executive compensation practices came under increased congressional scrutiny in the United States when abuses at corporations such as Enron became public. The American Jobs Creation Act of 2004, P.L. 108-357, added Sec. 409A, which accelerates income to employees who participate in certain nonqualified deferred compensation plans (including stock option plans). Later in 2004, FASB issued Statement no. 123(R), Share-Based Payment, which requires expense treatment for stock options for annual periods beginning in 2005. (Statement no. 123(R) is now incorporated in FASB Accounting Standards Codification Topic 718, Compensation—Stock Compensation.)

Prior to 2006, stock options were a popular form of employee compensation because it was possible to record the cost of compensation as zero so long as the exercise price was equal to the fair market value of the stock at the time of granting. Under the same accounting standards, awards of restricted stock would result in recognizing compensation cost equal to the fair market value of the restricted stock. However, changes to generally accepted accounting principles (GAAP) which became effective in 2006 led to restricted stock becoming a more popular form of compensation.^[4] Microsoft switched from stock options to restricted stock in 2003, and by May 2004 about two-thirds of all companies surveyed by HR consultancy Mercer had reported changing their equity compensation programs to reflect the impact of the new option expensing rules.^[5]

The median number of stock options (per company) granted by Fortune 1000 firms declined by 40% between 2003 and 2005, and the median number of restricted stock awards increased by nearly 41% over the same period (“Expensing Rule Drives Stock Awards,” Compliance Week, March 27, 2007). From 2004 through 2010, the number of restricted stock holdings of all reporting executives in the S&P 500 increased by 88%.^[

Continued in article.

FASB rules for stock compensation are set out in ASC 718, Compensation—Stock Compensation ---
http://www.pwc.com/en_US/us/cfodirect/assets/pdf/accounting-guides/pwc_stock_based_2013.pdf 

It would seem unlikely that auditors of companies using stock awards would allow violations of ASC 718.

My point is that it is unlikely that "Fantasy Accounting" by tech companies are outright violations of FASB accounting standards. In the 1990s the tech industry was notoriously creative in writing contracts for creative accounting for increasing revenue and decreasing expenses. It became like a game to invent creative accounting followed by new EITFs to restrain the creative accounting.
http://faculty.trinity.edu/rjensen/ecommerce/eitf01.htm 

The article ["Tech Companies Fly High on Fantasy Accounting,"] cited above in  The New York Times, June 18, 2015] is not specific enough to allow us to judge whether the companies and auditors put themselves in jeopardy of huge lawsuits by blatantly violating FASB standards in a fantasy land. It would be interesting to learn more of the specifics, however, about how they are skating on the edge of FASB standards with tacit approval of their auditors. What the article does suggest is that some of the tech company transactions (such as acquisition transactions) are so complex that the FASB has not yet caught up with creative accounting. This most certainly has been the case of the new revenue recognition standard that keeps being delayed and delayed and delayed presumably because of costs of implementation.

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

"Hollywood Creative Accounting: The Success Rate of Major Motion Pictures," by Sergio Sparviero (University of Salzburg), SSRN, 2015 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2617170

Abstract:     
 

Academic, trade, and popular publications commonly assert that 80 percent of motion pictures fail to make a net profit, suggesting also that the main players of the motion picture industry operate in highly volatile market conditions. More importantly, major film companies use this argument to negotiate for better terms with their production and distribution partners, to lobby for stricter copyright protections, and to argue in favor of media conglomeration as a hedge against adverse market conditions. This article disputes these assertions by calculating the full range of income that major motion pictures derive from their primary and secondary markets. It demonstrates that a large share of studio films are ultimately profitable, therefore challenging the arguments that conglomerates make with industry partners and government policy makers.

June 21, 2015 reply from Tom Selling

No good deed goes unpunished. The SEC tried to limit the use of non-GAAP financial measures by publishing pretty strict requirements prior to their use (See Reg. G and Item 10(e) of Regulation S-K. But issuers could now be assured that if they complied with the letter of the rules, then they wouldn’t have to revise their filings.

Previously (may 12 years ago?), whether a non-GAAP measure was misleading was subject to the judgment of the Division of Corporation Finance, which reviewed disclosures only very selectively. As a result of the new rules, the use of non-GAAP measures exploded.

Best,
Tom

Jensen Note
Pro forma statements must be reconciled with traditional GAAP financial statements. Hence, investors and analysts who take the time and trouble can evaluate the extent of pro forma distortions.

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

"Intangible Assets in Germany," by Andreas Oehler (Bamberg University) and Hannes Frey (Bamberg University), SSRN, 2014 ---
 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2615862

Abstract:
Purpose – Intangible assets are regarded as the future value drivers of company performance. However, hardly anything is known about the actual importance and influence of intangible assets. The purpose of this paper is to fill this gap, so the authors analyse the German stock market index DAX and accomplish a survey among the German Certified Public Accountants (CPAs) concerning intangible assets.

Design/Methodology/Approach – In a first step, the authors analyse the balance sheet data and the corresponding notes of the companies with regard to reported values of intangible assets and applied valuation methods. The sample period covers the years from 2005 to 2008. In a second step, the authors analyse the statements of the German CPAs with regard to intangible assets. The authors sent a standardised questionnaire to all 180 offices of the top ten German auditing firms.

Findings – The results indicate that intangible assets have gained in importance, while information on valuation methods is still scarce. According to the German CPAs, the current influence of intangible assets on company performance is on a high level and even will increase during the next few years. The mostly used valuation approach for the fair value measurement of patented technologies is the income approach. Furthermore, the accounting standards leave room for accounting policy – a result which casts doubt on the reliability of financial statements.

Originality/Value – For the first time not only annual balance sheet data but also corresponding notes regarding intangible assets are analysed. The findings are connected with a survey of an expert group for the valuation of intangibles.

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

How to Mislead With Statistics:  Is this spurious correlation?
"The Psychology of Messiness & Creativity: Research Shows How a Messy Desk and Creative Work Go Hand in Hand ---
http://www.openculture.com/2015/06/the-psychology-of-messiness-creativity.html

Jensen Comment
I'm suspicious about messiness being psychological --- at least in general.. My hypothesis is that people highly absorbed in in art, writing, or researchl are simply putting a lower priority on things like keeping things tidy relative to other priorities in their behavior. Of course there are limits. They may be aware that bad hygiene interferes with their health and relationships to a point where orderly hygiene has priority over a clean desk or a clean lab. Also messiness just seems to go with some jobs. Avid researchers often accumulate reading and other materials to a point where there is no way of storing them neatly. Artists often accumulate artwork and materials that cannot be stored neatly in their studios or living quarters.

In any case I don't think messiness is "normally" psychological, although it may be deeply rooted in nurturing while growing up. Children of a nasty-neat parent might go either way.

There are, of course, some psychology disorders that can lead either way. Teenagers may try to be messy in defiance of parental control. For some people, extreme neatness is part of an obsessive-compulsive disorder (OCD) ---
https://en.wikipedia.org/wiki/Obsessive%E2%80%93compulsive_disorder

I'm reminded of a study of NFL lockers that I can no longer cite. One finding was that linebackers tended to have much more jumbled lockers on average than quarterbacks. I hesitate to venture into the psychology of this, although it could be that the role of a linebacker is to create disorder on the field whereas the role of a quarterback is to create order on the field.

My nasty-neat wife chronically jokes about my cluttered work stations, studio, and most of all --- my barn. Cleaning up my barn is most certainly not a priority in my life. However, I've learned the hard way about keeping tools in proper places. It is awfully frustrating to waste time looking for a tool. I always return tools to their proper places.

Sometimes what looks messy may not be so messy in reality. Along one very-long wall (over 40 feet) of our basement I have hundreds of things hanging from screws or pegs. For example, all sizes of metal plates, wires, and fasteners are hanging on this wall. My feeling is that for something I don't often use or need if you can't see it you can't find it. Another bad thing is to waste floor space when it can be hung from the ceiling. Our basement has an abnormally high ceiling. Virtually all our backpacks and other luggage hangs from the ceiling along with power cords and other bulky items.

The worst thing is to have a lot of junk drawers and cupboards and boxes that have to be emptied out every time you are looking for something. The best thing is to have your junk hanging from a wall or ceiling that's easily eyeballed.

My point is that what looks messy in our basement really is not so messy once you understand my eyeballing philosophy. Erika belatedly agrees that it's not such a bad philosophy after all as long as it's confined to the basement, studio, or barn. Unfortunately most of her junk is still hidden in stacked boxes that have to be opened quite often. She keeps way to much stuff until she at long last decides to give it away.

"Should companies eliminate audits?" by Eleanor Bloxham, Fortune, June 18, 2015 ---
http://fortune.com/2015/06/18/company-audits/

Jensen Comment
I think my friend Lynn Turner has gone a bit over the edge on this issue. What Lynn and other critics can't answer is the extent the process of auditing as we know it today prevents more bad stuff from happening beyond what is already happening.

Of course audits have lots of flaws and fail often to meet some of the PCAOB inspection tests. Of course audits are not as independent as we would like in each and every instance. Of course the benefits of spending a lot more on audits will probably have marginal net losses in terms of costs versus benefits. Of course there are many auditing scandals ---
http://faculty.trinity.edu/rjensen/Fraud001.htm
Andersen audits did not prevent fraud and financial reporting manipulation at Enron, Worldcom, etc. That, however, ignores how much worse things might have been if there had been no audits at all of any Andersen clients. Enron's executive felons would have had an unimaginable field day without having to worry a lot about Andersen auditors.

No matter how much we spend on terrorism prevention there is no way to eliminate the risk of terrorism. Perhaps some of the most costly prevention programs such as airport security inspections of passengers by TSA score low in terms of attempted cost-benefit calculations. But those calculations can never provide numbers to the prevention benefits since we will never know the number of terrorists who never try due to fear of the TSA inspections.

CEOs have shown in recent years to be willing to gamble a whole lot (in the trillions) as long as it's other peoples money. I don't want to give them the power to decide not to have our companies audited. Similarly, I don't want the CEO American Airlines to decide not to participate in TSA screening of AA passengers at airports.

Lynn implies there will be less fraud if the government becomes more involved in auditing. He never mentions that the biggest frauds in the USA are perpetrated under GAO auditing, Exhibit A being Medicare, Exhibit B being Medicaid, Exhibit C being the Pentagon, and on and on and on. The government track record on auditing is horrible relative to private sector auditing by deep pocket auditors that can and do get sued every day.

How Do You Value an Audit?

June 16, 2015 message from Glen Gray

An audit (in Canada) of senators’ expenses “flagged nearly $1 million in questionable spending from 30 current and former senators.”

Issue: the audit cost $24 million!

http://www.huffingtonpost.ca/2015/06/15/john-oliver-senate-canada-expense-scandal_n_7585756.html

Jensen Comment
It's probably impossible to put numerical values on much of anything where the consequences of the act are preventions that don't take place in the future? If an act prevents bad things from happening without knowing when and how they might have otherwise happened, everything becomes hypothetical, including valuations of the preventatives.

Beyond trying to value audits, there's the enormous problem of valuing benefits of costly protections of the environment. We can calculate how much it cost to recently plant (in one day alone) 640,000 reforestation trees in Ecuador ---
http://fusion.net/story/136589/ecuador-sets-world-record-for-planting-trees-but-its-oil-drilling-plans-will-only-add-to-deforestation/
But it's impossible to measure the value to the world of this reforestation in terms of future oxygen on the planet, prevention of soil erosion, timber harvesting values in decades to come and on and on and on.

Valuing the Unknown --- http://www.hakaimagazine.com/article-short/valuing-unknown

Hence benefit-cost calculations are often nonsense, including the benefit-cost calculations of most audits. We can never value the bad stuff that such audits prevented. We should carefully listen to what an expert like Lynn Turner has to say, but we should listen with educated and skeptical ears. 

June 19, 2015 reply from Tom Selling

Hi, Bob:

Lynn’s proposals are radical, but you still manage to exaggerate them. Lynn is not proposing that audits be eliminated, but that they not be mandated.

Regardless of whether any of us agree with Lynn, and regardless of how valuable we believe the current audit is, I think the broader point is that we recognized the existence of an "expectations gap" (or at least that’s when I became aware of the term) about 40 years ago. Notwithstanding, that gap has been growing instead of shrinking with time.

Best,
Tom

Data Mining Case Studies --- http://dataminingcasestudies.com/DMCS_WorkshopProceedings25.pdf
Thank you for the following link Jagdish Gangolly

"Lawsuit: Infilaw Pays Low Performing Law Grads $5k To Defer Bar Exam To Pump Up School's Pass Rate," by Paul Caron, TaxProf Blog, June 6, 2015 ---
http://taxprof.typepad.com/taxprof_blog/2015/06/lawsuit-infilaw-pays-low-performing-law-grads-5k-.html

Francine moved from her long-time home in Chicago (that was near her parents' home) and took on a full-time (and presumably better paying) job as a reporter for MoneyWatch and not just a free lance commentator ---
http://retheauditors.com/2015/05/31/re-the-auditors-is-now-at-marketwatch/

FIFA --- Fraud Involved, Fooled Auditor

"FIFA auditor KPMG totally missed the soccer scandal," by Francine McKenna, Market Watch, June 3, 2015 ---
http://www.marketwatch.com/story/fifa-auditor-kpmg-missed-scandal-but-stays-out-of-spotlight-2015-06-03 

Of all the individuals and firms tied up in the scandal over bribery and corruption at FIFA, scrutiny has so far largely escaped KPMG, the soccer association’s external auditor.

The accounting and consulting firm’s Swiss member is responsible not only for the audit of the multibillion-dollar umbrella FIFA organization, and has been since before the period under scrutiny by U.S. and Swiss prosecutors, but also audits a large sample of member associations around the world that receive FIFA funding on an annual basis. KPMG also prepares a compilation of all financial reports after the completion of each four-year World Cup cycle.

Also read: Sepp Blatter to resign as FIFA president

KPMG was also the auditor and adviser for the official Russia and Qatar organizing committees when they prepared the winning bids that are now targeted in corruption investigations in the U.S. and Switzerland. KPMG continues to support Russia’s organizing committee, while Qatar switched to Ernst & Young in 2011.

A spokesman from KPMG declined to comment. “As FIFA’s statutory auditor, we are bound by professional confidentiality and have to refrain from any comment regarding our client.”

Robert Appleton, a former assistant United States attorney, a special investigations counsel with Paul Volcker’s U.N. Iraqi Oil for Food Commission Investigation and the former chief of the United Nations Anti-Corruption Task Force, said KPMG absolutely should have caught, and called out, these alleged illegal activities.

“There were sufficient red flags of improper and highly suspicious payments, as well as money transfers to and from officials and others, including other highly questionable activities coupled with a history of similar issues, that should have been identified and that should have caused the auditors to highlight and report on them internally, and recommend further investigation. This is especially the case in light of the recent history of this organization, where recent investigations already had found bribery and corruption activity,” Appleton said.

Though not a publicly traded company, FIFA is required by Swiss law to be audited by a qualified firm because of its size as measured by revenue and number of employees. KPMG Switzerland actually claims to be an expert in not-for-profit association audits in Switzerland, including sponsoring a “competence center” to share knowledge inside and outside the firm.

KPMG’s audit is intended to express an opinion on whether the financial statements, prepared by FIFA personnel according to International Financial Reporting Standards, are free from material misstatements. KPMG reviews the organization’s internal controls when deciding which audit procedures to perform but did not, in this case, express an opinion on the effectiveness of FIFA’s internal control system.

Jerry Silk, a partner at law firm Bernstein Litowitz Berger and Grossman who has represented investors in lawsuits against the global audit firms, said the country-level member associations that pay dues to belong to FIFA and participate in its programs and events are FIFA’s true stakeholders.

“Even though a few FIFA member associations were named in the indictment, the vast majority of the national associations and their executives are innocent of any wrongdoing. They have a fundamental right to know what KPMG did or did not do as auditor to protect their interests in the global association,” Silk said.

Also read: Blatter has dealt a blow to Switzerland’s economy

The Department of Justice indictment states that the FIFA officials conspired to solicit and receive well over $150 million in bribes and kickbacks in exchange for their official “support.” This “support” included influencing the award of marketing, broadcast rights and sponsorship contracts to those who paid bribes and, in one case, allegedly selling votes to award the 2010 World Cup to South Africa. FIFA’s internal controls would govern which payments require authorization and by what level of executive. Strict controls would also prevent a payment to an executive’s personal account if it is not a payroll transaction, for example, and would provide special instructions for international wire transactions for the bank and within FIFA.

Some of those transactions went through FIFA headquarters and used FIFA bank accounts to send money to U.S. bank accounts controlled by the indicted officials, according to the Justice Department. That means KPMG, as FIFA’s independent external auditor, could have seen the transactions while performing annual audit tests.

KPMG selects activities and transactions to be tested based on their risk of causing a material misstatement of financial reports. The transactions highlighted by the DOJ indictment may not have met KPMG’s materiality threshold, given the size of the organization. FIFA recorded more than $3 billion in revenue in 2014. However, Silk is surprised that after all this time working so closely with FIFA, KPMG would not have uncovered evidence of the illegal acts the DOJ is now alleging.

“With all the prior allegations of corruption and bribery leveled against FIFA and some of its member associations over the years, KPMG should have been on high alert to the potential for corruption,” he said. “Auditors are supposed to do more and be more vigilant when there’s clearly higher risk.”

"Corruption in FIFA? Its Auditors Saw None," by Lynnley Browning, The New York Times, June 8, 2015 ---
http://www.nytimes.com/2015/06/06/sports/soccer/as-fifa-scandal-grows-focus-turns-to-its-auditors.html?_r=0 

. . .

Accounting firms often contend that their audits are only as good as the information they receive from clients, but they are supposed to recognize patterns or anomalies that suggest they should dig a little deeper.

A key element in the Justice Department’s case is a $10 million payment that prosecutors say was transferred in 2008 from FIFA to accounts controlled by a soccer official, Jack Warner, as a bribe in exchange for helping South Africa secure the right to host the 2010 World Cup.

Mr. Epstein said that while the $10 million payment could be insignificant, or immaterial in accounting terms, given FIFA’s size, it would not be immaterial in qualitative terms. “That’s something people would want to know about,” he said.

KPMG had questioned another payment a decade earlier. In a 1999 “Revised Audit Management Letter” sent to FIFA, KPMG noted an unusual payment in connection with the Confederations Cup — an important tournament involving soccer’s continental champions that is now held the year before the World Cup.

“To cover the excess expenditure at the Confederations Cup in Saudi Arabia, the organizer has made an additional payment of 470,000 Swiss francs,” the letter, obtained by the independent journalist Andrew Jennings, says in German. “The payment was authorized by the president of FIFA, but without the authorization of the finance committee or the executive committee.”

It is unclear to whom the payment was made or which Confederations Cup in Riyadh was involved — Saudi Arabia hosted them in 1995 and 1997, part of the four-year financial cycle covered in the 1999 letter.

Even before the indictments, there was no shortage of potential red flags.

In 2002, Michel Zen-Ruffinen, FIFA’s secretary general at the time, wrote an explosive report accusing Mr. Blatter and his lieutenants of extensive fraud. The report, parts of which were published in the Swiss news media, contended that from 1999 to 2002, FIFA, which was struggling financially, booked 336 million Swiss francs in revenue from its sale of marketing rights to the 2006 World Cup in Germany — an unusual move for an organization that at the time used accounting methods that recorded income when it was received, not in advance, according to accounting experts.

KPMG noted the move in its audit of the period. Mr. Zen-Ruffinen’s report added that FIFA had destroyed financial documents before 1998, a year before KPMG was hired.

In 2008, a trial in Zug, Switzerland, of former executives of International Sports and Leisure, a FIFA-affiliated marketing firm that had collapsed amid allegations of fraud and theft, fell apart after the group’s lawyers produced internal documents contending that FIFA was involved.

By 2012, FIFA named Michael J. Garcia, a prominent former federal prosecutor, as the lead investigator of its ethics committee. Mr. Garcia, who extended his inquiry into bidding practices for the 2018 World Cup in Russia and the 2022 World Cup in Qatar, gave FIFA his final report last September but resigned from the role in December after FIFA released a redacted version that Mr. Garcia complained was erroneous and misleading.

And last November, a member of FIFA’s eight-person audit and compliance committee, Canover Watson, was charged in his native Cayman Islands with fraud and money laundering in connection with procurement of a card-swipe system for the public hospitals there. FIFA’s most recent annual report notes that Mr. Watson has “temporarily left the committee.”

“You’re looking for the tip of the iceberg in an audit,” Mr. Epstein said, adding that in KPMG’s work for FIFA, “the tip should have gotten the auditor’s attention sometime over the years.”

June 3, 2015 reply from Linda Kidwell in Romania

Bob,

All I can tell you from 3 months of living in a country with a highly corrupt political elite is that bribery is unlike other frauds for two reasons. One is that the money doesn’t pass through the firm, so there’s no evidence within the financial records for the auditors to find (though with the rife rumors, one would hope their engagement risk assessments were high). The other is that only two parties know about the bribery: the bribe payer and the bribe receiver. There may be no other people in the know, eliminating the potential for whistle-blowing. This is what the anti-corruption prosecutors here have told me. In the FIFA case, because the bribe payers were groups instead of individuals, it may be there was indeed a whistle-blower; conversely, someone on the board may have been cut out of the take, leading to revenge. But either way, the money was unlikely to flow through FIFA or any of its units.

On a related note, while I was here, the Dutch embassy released a study of convicted corrupt politicians conducted by a group of criminal justice students who interviewed them. The crux of their findings is that the convicts readily admitted to every detail of their corruption. They just didn’t think they’d done anything wrong, because that’s just the benefit of being in power. If you think of the old fraud triangle, the rationalization is completely unnecessary in a corrupt environment.

Linda

Bob Jensen's threads on KPMG scandals ---
http://faculty.trinity.edu/rjensen/Fraud001.htm

Bloomberg:  These Are Wall Street's Must-Read Books of the Summer of 2015 ---
http://www.bloomberg.com/news/articles/2015-06-12/these-are-wall-street-s-must-read-books-of-the-summer?cmpid=BBD061115
This list was compiled in an interesting manner.

PwC:  Medical Cost Trend: Behind the Numbers 2016 ---
http://www.pwc.com/us/en/cfodirect/industries/health-industries/medical-cost-trends-behind-numbers-2016.jhtml?display=/us/en/cfodirect/industries/health-industries

The Government Not Exactly Sure Where $3 Billion in Obamacare Subsidies Went --- Click Here
http://townhall.com/tipsheet/katiepavlich/2015/06/16/the-government-has-no-idea-where-3-billion-in-obamacare-subsidies-went-n2013393?utm_source=thdaily&utm_medium=email&utm_campaign=nl&newsletterad=

PwC:  IFRS news - June 2015 ---
http://www.pwc.com/us/en/cfodirect/publications/ifrs-news/june-2015.jhtml?display=/us/en/cfodirect/publications/ifrs-news

June 13, 2015 reply from Tom Selling

If finalized, there will be, for the first time in a long time, some real differences the IASB and FASB conceptual frameworks. This short PwC article has a convenient table for summarizing them.

I’m writing this as a heads-up to instructors who might like to use these differences as a basis for class discussions.

Best,
Tom

 

Question
Why do gun manufacturers secretly applaud political activism on gun control?

To be clear, gunmakers don't benefit from tighter gun control. They benefit when there are talks of tighter gun control but those talks go nowhere ---  Sam Roe --- http://www.businessinsider.com/smith-and-wesson-obama-was-good-for-gun-sales-2015-6#ixzz3dVv0J1uZ
Jensen Comment
The real irony is that activism on reducing gun production and sales leads to more production and sales. Activism on fuel efficiency leads to urgent demand for products with low fuel efficiency.  And so the world turns.

This type of thing happens with other products.
Every time the government talks about increasing gas mileage restrictions buyers rush out to buy big cars and trucks before it's too late. Up in these mountains a lot of home owners like me bury huge propane tanks and maintain huge inventories of propane to level out propane costs over pricing cycles. Media warnings of natural gas shortages (as in cold weather) or price hikes are applauded by tank sellers.

It's not common for a firm paying a fine to "admit wrongdoing."
"SEC charges Merrill Lynch, fines firm $11 million for short sales violations," by Francine McKenna, Market Watch, June 1, 2015 ---
http://www.marketwatch.com/story/sec-charges-merrill-lynch-fines-firm-11-million-for-short-sales-violations-2015-06-01?dist=beforebell 

The Securities and Exchange Commission announced charges Monday against Bank of America's BAC, +2.44% Merrill Lynch subsidiary for using bad data since 2012 to "locate" stock for short sales, violating Rule 203(b) of Regulation SHO. That rule prevents "naked" short sales, shorting shares that are not "easy to borrow." The firm admitted the wrongdoing and will pay a $9 million penalty plus interest and give up $1.6 million in profits. Merrill Lynch must also submit to a compliance review by an independent consultant.

Continued in article

Bob Jensen's archived timeline  about fraudulent dealings of Merrill Lynch when selling derivative financial instruments, including the infamous Orange County fraud ---
http://faculty.trinity.edu/rjensen/FraudRotten.htm#DerivativesFrauds

"This mathematical law can tell you if a company is cooking its books," by Oscar Williams-Grut, Business Insider, June 4, 2015 ---
http://www.businessinsider.com/deutsche-banks-use-of-benford-law-to-detect-company-fraud-2015-6

How can you tell if a company is juicing its numbers? If you're not a forensic accountant, it is often only when it's too late and you've lost a lot of money, that you realise a firm has cooked the books. 

Deutsche Bank is recommending a pretty simple maths trick that can give you at least an indication if something is up, even if it doesn't tell you precisely what's wrong.

It all rests around Benford's Law, also known as the law of natural numbers.

Named after physicist Frank Benford, the law says that in set of data gathered from real life, such as stock prices, birth rates and electricity bills, the number 1 will appear most frequently as the first digit of numbers – for example 12, 145 or 1,012. Numbers starting with 2 to 9 then occur much less frequently, getting less common the higher you get. 

To give an example, if I took 20 stock prices at random Benford's law says about 30%, or 6, would begin with the digit 1 — 110p, 134p and 154p let's say. The frequency of numbers beginning with digits 2, 3, 4 and so on, would decline in probability until we reach 9, which is the first digit in less than 5% of numbers in real life data sets.

Read more:
http://www.businessinsider.com/deutsche-banks-use-of-benford-law-to-detect-company-fraud-2015-6#ixzz3c5VXgyiV
 

 

Jensen's Comments
Benford's Law is not a Swiss Army knife for detecting book cooking in financial statements. Many frauds in financial statements do not have good distributional properties. Often they are one-time frauds that are not repetitive. There are illustrations in accountancy where purportedly Benford's law helped to detect frauds, but these are rather rare events relative to the many, many accounting frauds in the world.

If it this rather simple mathematical tool had a higher success rate it would be in every auditor's toolbox. I think this tool is seldom in tool boxes of auditors, and the reason is not that it's too complicated for auditors. Auditors deal with more complicated software every day. For example, if KPMG had applied Benford's law to detect financial statement frauds in FIFA would those frauds have been nipped in the bud? No way Jose!

I do think Benford's law is  becoming  a more common tool when auditors are confronted with large databases that may satisfy the statistical assumptions of Benfor's Law. But reports of successful detection of fraud are few and far between. It should not shove out more important topics in auditing courses, at least not in a big way. This is a warning to auditing professors who like to teach this type of statistics.

Benford's Law --- http://en.wikipedia.org/wiki/Benford%27s_law 
Note statistical distribution assumptions and weaknesses that are likely to arise in accounting frauds.

Mathematical fraud detection, fraud mathematics, number theory

"I've Got Your Number How a mathematical phenomenon can help CPAs uncover fraud and other irregularities," 
Journal of Accountancy, May 1999, --- 
http://www.journalofaccountancy.com/Issues/1999/May/nigrini.htm 

EXECUTIVE SUMMARY BENFORD'S LAW PROVIDES A DATA analysis method that can help alert CPAs to possible errors, potential fraud, manipulative biases, costly processing inefficiencies or other irregularities. A PHYSICIST AT GE RESEARCH LABORATORIES in the 1920s, Frank Benford found that numbers with low first digits occurred more frequently in the world and calculated the expected frequencies of the digits in tabulated data. CPAs CAN USE BENFORD'S DISCOVERY in business applications ranging from accounts payable to Y2K problems. In addition, subset tests identify small lists of serious anomalies in large data sets, making an analysis more manageable. DIGITAL ANALYSIS IS WELL SUITED to finding errors and irregularities in large data sets when auditors need computer assisted technologies to direct their attention to anomalies.

"The Effective Use of Benford's Law to Assist in Detecting Fraud in Accounting Data," by Cindy Durtchsi, William Hillison, 
and Carl Pacini,
Journal of Forensic Accounting, Vol. 5, 2004, pp. 17-34
http://www.auditnet.org/articles/JFA-V-1-17-34.pdf 

Benford's Law Excel Add-in 
http://benford.softalizer.com/ 

June 4, 2015 reply from Sharon Gavin

I only briefly cover Benford in my Fraud Examination class (and have the students develop a spreadsheet to test for it on a data file I provide), but you are correct in saying it will not necessarily help identify frauds.

I have had more success having students do the Beneish M-Score (5-variable model) on old financial statements of companies that were later found to have committed fraud. (This year we worked on the old Sunbeam fraud.) Students pick it up quickly (especially if they are already familiar with computing the Altman Z-Score.) The M Score strategy also gets the students to thinking about the 5 different parts of the formula and how deficiencies in a particular one might help pinpoint the type of fraud to look for (which I think is the greatest benefit of covering M Scores).

Here is a link from Beneish talking about the models he has developed:

https://www.youtube.com/watch?v=gxviBoaYoUQ 

I am also attaching a handout I used in class this spring, for what it's worth. (Note it was written for both Accounting majors in Fraud Examination class and for Finance majors in a Financial Statement analysis class.)

Dr. Sharon K. Garvin Professor Business and Economics Department School of Business and Technology Gardner Hall 111A Wayne State College 1111 Main Street Wayne, NE 68787

Controversies in Plato's Cave

May 28, 2015 message from Jagdish Gangolly

The latest issue of the journal Physica has the following fascinating paper:

 

How much inequality in income is fair? A microeconomic game theoretic perspective Venkat Venkatasubramanian, Yu Luo, Jay Sethuraman

Physica A: Statistical Mechanics and its Applications, Volume 435, 1 October 2015, Pages 120-138,

http://ac.els-cdn.com/S0378437115003738/1-s2.0-S0378437115003738-main.pdf?_tid=c4964666-0601-11e5-afa1-00000aab0f26&acdnat=1432904216_8e5e640ae2860e9ee1873823caa8b0c8

 

The authors describe their work as follows:

 

"Our new theory shows, for the first time, a deep and direct connection between game theory and statistical mechanics through entropy,"

"This has led us to propose the fair market hypothesis, that the self-organizing dynamics of the ideal free market, i.e., Adam Smith's 'invisible hand,' not only promotes efficiency but also maximizes fairness under the given constraints. By defining and identifying the ideal outcome, our theory can provide an intellectual framework that could be used to design macroeconomic policies to correct for such inequities."
 

I consider this paper to be one of the most significant I have seen in my career. It brings together results in In formation theory, Game Theory, Probability Theory, and Statistical Mechanics/Thermodynamics to explain income inequality.

 

I somehow suspect this might have a bearing on a theory of income in accounting.

 

Regards to all,

 

Jagdish

Jensen Note
Also see
http://www.sciencedirect.com/science/article/pii/S0378437115003738

May 29, 2015 reply from Bob Jensen

Hi, Jagdish:

 

I haven’t yet accessed the paper, but perhaps you can tell us how the authors define/operationalize the concept of fairness.  

 

For example, are the outcomes of their “game” defined to be fair because all players have equal opportunity to be successful?  If so, I wonder if this corresponds to fairness in a Rawlsian sense — which to me would mean that the participants start with equal endowments and would be able to settle on what constitutes fair outcomes before the game starts.

 

Or, perhaps fairness is defined in a completely different way that I am surmising?  I would appreciate your thoughts.

 

 

Best,

Tom

May 29, 2015 reply from Bob Jensen

The authors claim entropy is the measure of fairness.

Entropy is the measure of fairness.

Entropy --- http://science.howstuffworks.com/dictionary/physics-terms/entropy-info.htm
Also see http://en.wikipedia.org/wiki/Entropy

Game Theory, Statistical Mechanics and Income Inequality

Venkat Venkatasubramanian, Yu Luo, Jay Sethuraman

(Submitted on 25 Jun 2014 (v1), last revised 12 Nov 2014 (this version, v2))
http://arxiv.org/abs/1406.6620

The widening inequality in income distribution in recent years, and the associated excessive pay packages of CEOs in the U.S. and elsewhere, is of growing concern among policy makers as well as the common person. However, there seems to be no satisfactory answer, in conventional economic theories and models, to the fundamental question of what kind of pay distribution we ought to see, at least under ideal conditions, in a free market environment and whether this distribution is fair. We propose a game theoretic framework that addresses these questions and show that the lognormal distribution is the fairest inequality of pay in an organization comprising of homogenous agents, achieved at equilibrium, under ideal free market conditions. We also show that for a population of two different classes of agents, the final distribution is a combination of two different lognormal distributions where one of them, corresponding to the top 3-5% of the population, can be misidentified as a Pareto distribution. Our theory also shows the deep and direct connection between potential game theory and statistical mechanics through entropy, which is a measure of fairness in a distribution. This leads us to propose the fair market hypothesis, that the self-organizing dynamics of the ideal free market, i.e., Adam Smith's "invisible hand", not only promotes efficiency but also maximizes fairness under the given constraints.

 

Comments:	Corresponding author: Venkat@columbia.edu
Subjects:	Economics (q-fin.EC); General Finance (q-fin.GN)
Cite as:	arXiv:1406.6620 [q-fin.EC]
	(or arXiv:1406.6620v2 [q-fin.EC] for this version)

Jensen Comment
Everybody knows entropy is a measure of fairness somewhat like information is defined as log 2.

Information http://en.wikipedia.org/wiki/Information

. . .
nformation resolves uncertainty. The uncertainty of an event is measured by its probability of occurrence and is inversely proportional to that. The more uncertain an event, the more information is required to resolve uncertainty of that event. The bit is a typical unit of information, but other units such as the nat may be used. Example: information in one "fair" coin flip: log₂(2/1) = 1 bit, and in two fair coin flips is log₂(4/1) = 2 bits.

Aside from the limits of mathematical assumptions, virtually all nations in the real word lowered their marginal tax rates (Bernie Sanders does not want to near about this) because even in Scandinavia it was found that very high marginal tax rates for egalitarian purposes are dysfunctional to economic prosperity ---
http://www.cs.trinity.edu/~rjensen/temp/TaxNoTax.htm

Marginal Tax Rate Declines in the Rest of the World ---
http://www.econlib.org/library/Enc/MarginalTaxRates.html

 

*. Hong Kong’s maximum tax (the “standard rate”) has normally been 15 percent, effectively capping the marginal rate at high income levels (in exchange for no personal exemptions).
**. The highest U.S. tax rate of 39.6 percent after 1993 was reduced to 38.6 percent in 2002 and to 35 percent in 2003.
Table 1 Maximum Marginal Tax Rates on Individual Income
	1979	1990	2002
Argentina	45	30	35
Australia	62	48	47
Austria	62	50	50
Belgium	76	55	52
Bolivia	48	10	13
Botswana	75	50	25
Brazil	55	25	28
Canada (Ontario)	58	47	46
Chile	60	50	43
Colombia	56	30	35
Denmark	73	68	59
Egypt	80	65	40
Finland	71	43	37
France	60	52	50
Germany	56	53	49
Greece	60	50	40
Guatemala	40	34	31
Hong Kong	25*	25	16
Hungary	60	50	40
India	60	50	30
Indonesia	50	35	35
Iran	90	75	35
Ireland	65	56	42
Israel	66	48	50
Italy	72	50	52
Jamaica	58	33	25
Japan	75	50	50
South Korea	89	50	36
Malaysia	60	45	28
Mauritius	50	35	25
Mexico	55	35	40
Netherlands	72	60	52
New Zealand	60	33	39
Norway	75	54	48
Pakistan	55	45	35
Philippines	70	35	32
Portugal	84	40	40
Puerto Rico	79	43	33
Russia	NA	60	13
Singapore	55	33	26
Spain	66	56	48
Sweden	87	65	56
Thailand	60	55	37
Trinidad and Tobago	70	35	35
Turkey	75	50	45
United Kingdom	83	40	40
United States	70	33	39**
Source: PricewaterhouseCoopers; International Bureau of Fiscal Documentation.

 

Respectfully,
Bob Jensen

May 29, 2015 reply from Jagdish Gangolly

Tom,

 

The actual thesis of the paper is far deeper than the simplistic explanation provided by Bob. And harping on tax rates is a red herring (I'll have more to say a bit later in this post).
 

Assuming that we know 

a. The total number of employees

b. The budget M for compensation

c. Minimum salary

d. Maximum salary (that is M where CEO bags the entire budget)

 

the authors are trying to ask the question what is the distribution of income among the employees that is fair. We know that employees at the low to middle of the income spectrum if an employee perceives his income to be unfair reflection of her value she will look for other opportunities where she can get a fairer compensation to reflect her contributions. Existence of markets ensures that they are paid a wage that closely reflects their contributions. Unfortunately at the high end of the spectrum, for example the CEOs, that explanation does not hold. The market is thin to non-existent, and the process determining CEO compensation is not transparent, leading to a divergence between the compensation and the actual contributions of the CEOs. This suggests a concept of fairness where the compensation reflects the contributions that the employees make. Suppose S is salary and V is the contribution of the employees. We can express the relation between compensation and value provided as: V = f(S). So the objective is to find the function f such that for any employee i,  V_i = f(S_i), ie., the salary reflects the value.

 

We know that marginal utility of money is diminishing as an incentive (a la St. Petersburg Paradox), and so we can constrain the behaviour of f as follows:

 

V=f(S) such that    dV/dS = 1/f(S)

 

which means for any employee i we have

 

V_i = C log S-i

 

In other words, the distribution that can be considered fair is a logarithmic function. The paper assumes natural logarithms, but the jump to binary logarithms is trivial. Now the use of entropy in the rest of the paper comes naturally.

(Those further interested in this line of research may like to read the following paper: http://www.mdpi.com/1099-4300/11/4/766/pdf).

 

One of the most ingenious papers I have read. Much of this was known because Theil's measure of inequality came close in spirit to this, but he did not have an underlying model that made the whole thing very transparent and the argument very appealing.

 

Incidentally, in Accounting the first use of entropy was by Theil's student Baruch Lev. His dissertation at Chicago was what piqued my interest and made me change my mind about being an accountant. This in spite of the fact that I found the dissertation rather trivial but innovative; I was just transitioning from Operations Research to Accounting. It was a required reading at Pitt, and I asked the professor  who was teaching us how such a trivial dissertation could merit a PhD at Chicago. His answer was rather facile, that Henri Theil must have got tired of the student and wanted him to graduate. Nevertheless I have great admiration for Baruch Lev; he made such research acceptable in Accounting.

 

On the matter of Bob's harping on tax rates, I have an alternative explanation.  In the early days, even in Scandinavian countries the income inequalities must have been very high. The draconian tax rates probably helped moderate such inequalities and facilitate transition from a feudal to an egalitarian society. Once that was achieved, the draconian tax rates had served their purpose and it is no longer necessary to maintain them. We can not say the same of the US. In the US, the journey has been in reverse. We have been moving from an egalitarian society up to the seventies back to a feudal society with a small number of oligarchs rule the roost. The only thing is the absence of fealty; may be that is the next stage. One sees initial signs already, with the politicians fawning over the oligarchs.

 

Jensen Comment
I don't think any compensation comparisons of people or nations can meaningfully take place on a before-tax basis. For example, what good would it do to compare high-end earnings in a Bernie Sander's world where the top marginal tax rate is 90%?  My point was that when taxes were factored in virtually all nations  lowered their top marginal tax rates to stimulate economic growht.

 

Regards,  

 

Jagdish

May 31, 2015

What gets to me the most is the following quotation from the article at
http://www.sciencedirect.com/science/article/pii/S0378437115003738 
 

. . .

We find similar close-to-ideality trends in Sweden, Denmark, and Switzerland, for the bottom 90% and top 10%–1%. In these countries, typically, the bottom 90% ψψ is within ∼10% of the ideal value; the top 10%–1% ψψ is within ∼15%–25%.

Do these nations really have close to ideal trends in dealing with compensation and inequality?

Or is it the entropy game theory model that is deceiving us?

If the author's are going to make policy conclusions like this based upon an entropy game theory model then we must look closer at the assumptions of that model. For example, is Sweden really the ideal? Sweden has the highest youth unemployment rate in Europe. Finland is also struggling with unemployment, and the average citizen in Norway has some of the highest debt and highest prices in the world.

And as much as Jagdish thinks I am ranting about the lowering of marginal tax rates in virtually all developed nations, he's ignoring what I think is very important. You cannot compare nations regarding compensation and inequality on a before-tax basis implicit in this entropy game theory model.

Jagdish nicely summarizes the  the following assumptions in the log utility model.:

Assuming that we know 

a. The total number of employees

b. The budget M for compensation

c. Minimum salary

d. Maximum salary (that is M where CEO bags the entire budget

This begs the question of how realistic these assumptions become.

The first challenge is to reduce the "budget for compensation" to a parameter M. The budget for compensation is more realistically a complicated "formula" that is a prioi dependent upon ex post outcomes, particularly stock prices. The simplest example is where employees receive commissions or other performance-based stock options, stock awards, stock purchase discounts, etc.

Second, a large share of USA Silicon Valley compensation, especially in the executive suite, is deferred compensation of some sort.

These points are not trivial in market-based economies since compensation has all sorts of performance-based incentive plans. Some of these are good in the sense that they encourage innovation and invention. Some are bad in the sense that they may be myopic in terms of short-term performance at the expense of long-term performance.

Thus it becomes a huge stretch to assume that what is considered fair compensation can be assumed to be a "logarithmic function." There's almost no basis for assuming this in the way tech company executives are compensated in the USA mostly based upon stock price performance. There is no fixed parameter M for budgeted compensation.

The problem of M becomes exacerbated when comparing nations based upon the outcomes of this entropy model. In some of these nations equity compensation is downplayed because equity (stock) markets of companies in those nations are not nearly as developed and do not play nearly as much of a role in financing either operations or IPOs.

Thus I think the paper Jagdish introduced us to is an extremely interesting paper for accoutics scientists and others deeply into game theory. However, the paper is not as useful when it comes to compensation policy matters. It's conclusions may be entirely misleading when it comes to long-term inequality issues.

By way of example, Nokia in Finland may have what the authors term an "ideal compensation" policy when Nokia had the lion's share of the mobile phone market. However, perhaps the egalitarian compensation policy dragged it down when it came to innovation and product performance. Most certainly Nokia crashed in terms of world competition as the highly-compensated executives of Apple Corporation introduced vastly superior products that left Nokia in the dust.

My point is that the entropy model proposed in this paper for reducing inequality in compensation may make Nokia compensation policies, along with the compensation policies of Nordic countries in general, look "ideal" when in fact the  highly criticized compensation practices of Apple Corporation and Silicon Valley in general may be beating the pants off Nordic companies and hurting employees in the long-term.

Apple pays some of the highest compensation in the world with enormous inequality between highest and lowest paid employees. Perhaps performance-based compensation inequality policies  are not as bad as lowly-paid professors in ivory towers would have us believe.

"Labor Department Finds Problems with CPA Audits of Employee Benefit Plans," by Michael Cohn, Accounting Today, May 28, 2015 ---
http://www.accountingtoday.com/news/audit-accounting/labor-department-finds-problems-with-cpa-audits-of-employee-benefit-plans-74739-1.html

. . .

More than 7,300 licensed CPAs nationwide audit more than 81,000 employee benefit plans. EBSA's review found that 61 percent of audits fully complied with professional auditing standards or had only minor deficiencies under professional standards. The remaining 39 percent of the audits contained major deficiencies, however, which put $653 billion and 22.5 million plan participants and beneficiaries at risk. These figures reflect increases in the amount of plan assets and number of plan participants at risk compared with prior EBSA studies.

Continued in article

Computer Sciences Corporation --- http://en.wikipedia.org/wiki/Computer_Sciences_Corporation

. . .

• In June 2013, Margaret Hodge, chair of the Public Accounts Committee, a Select Committee of the British House of Commons, described CSC as a "rotten company providing a hopeless system", with reference to their multi-billion pound contract to deliver the National Programme for IT Lorenzo contract.
• In December 2011, the non-partisan organization Public Campaign criticized CSC for spending $4.39 million on lobbying and not paying any taxes during 2008–2010, instead getting $305 million in tax rebates, despite making a profit of $1.67 billion.
• In February 2011, the SEC launched a fraud investigation into CSC’s accounting practices in Denmark and Australian business. CSC's CFO Mike Mancuso confirmed that accounting errors and intentional misconduct by certain personnel in Australia prompted SEC regulators to turn their gaze to Australia. Mancuso also stated that the alleged misconduct includes $19 million in both intentional accounting irregularities and unintentional accounting errors.
• The company has been accused of breaching human rights by arranging several illegal rendition flights for the CIA between 2003 and 2006, which also has led to criticism of shareholders of the company, including the governments of Norway and Britain.
• The company has engaged in a high number of activities, that have resulted in legal action against it. These are:

1) Millions of visas allowing foreigners to enter Britain are being issued by them rather than British Diplomats.
2) As one of the Obamacare contractor hired by the Internal Revenue Service to modernize its tax-filing system. They told the IRS it would meet a January 2006 deadline, but failed to do so, leaving the IRS with no system capable of detecting fraud. It failure to meet the delivery deadline for developing an automated refund fraud detection system cost the IRS between $200 million and $300 million.

 

Accounting Fraud
"SEC Reaches $190 Million Settlement From Computer Sciences:  Agency says CSC manipulated financial results, concealed problems with contract," by Lisa Beilfuss. The Wall Street Journal, June 5, 2015 ---
http://www.wsj.com/articles/sec-reaches-190-million-settlement-from-computer-sciences-1433516418?mod=djemCFO_h

The Securities and Exchange Commission on Friday reached a $190 million settlement with Computer Sciences Corp. in connection with accounting fraud charges against the information-technology services provider.

The agency had reached a tentative settlement with Computer Sciences worth the same amount in December, but recent media reports suggested that infighting at the agency could result in a lower fine.

The Wall Street Journal said this week that Chairwoman Mary Jo White’s agenda at the SEC has been thwarted by bickering among its five members, and the New York Times reported late last month that divisions within the agency had disrupted the case against Computer Sciences.

A representative from the SEC declined to comment, and CSC neither admitted nor denied the findings.

According to the commission, CSC manipulated financial results and concealed problems about the company’s largest contract, with the U.K.’s National Health Service, on which it was set to lose money on account of missed deadlines.

To avoid a resulting hit to its earnings, Robert Sutcliffe, CSC’s finance director for the multibillion-dollar contract, allegedly added items to CSC’s accounting models that artificially increased its profits.

With then-Chief Executive Michael Laphen’s approval, CSC continued to avoid the financial effect of its delays by basing its models on contract amendments it was proposing to the NHS, and that the NHS was rejecting, rather than on the actual contract, the SEC said.

By basing its models on a negotiated contract rather than the actual contract, CSC artificially avoided recording significant reductions in its earnings in 2010 and 2011, according to the SEC.

Continued in article

CSC 2014 Independent Auditors Report

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Computer Sciences Corporation
Falls Church, Virginia

We have audited the accompanying consolidated balance sheets of Computer Sciences Corporation and subsidiaries (the "Company") as of March 28, 2014 and March 29, 2013, and the related consolidated statements of operations, comprehensive income (loss), cash flows, and changes in equity for each of the three fiscal years in the period ended March 28, 2014. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. W e believe that our audits provide a reasonable basis for our opinion.

 In our opinion, such consolidated financial statements present fairly , in all material respects, the financial position of Computer Sciences Corporation and subsidiaries as of March 28, 2014 and March 29, 2013, and the results of their operations and their cash flows for each of the three fiscal years in the period ended March 28, 2014, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly , in all material respects, the information set forth therein.

 We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of March 28, 2014, based on the criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated May 22, 2014 expressed an unqualified opinion on the Company's internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP
McLean, Virginia
May 22, 2014

LIBOR --- http://en.wikipedia.org/wiki/Libor

. . .

Reliability and scandal

Main article: Libor scandal

On Thursday, 29 May 2008, The Wall Street Journal (WSJ) released a controversial study suggesting that banks might have understated borrowing costs they reported for Libor during the 2008 credit crunch.^[35] Such underreporting could have created an impression that banks could borrow from other banks more cheaply than they could in reality. It could also have made the banking system or specific contributing bank appear healthier than it was during the 2008 credit crunch. For example, the study found that rates at which one major bank (Citigroup) "said it could borrow dollars for three months were about 0.87 percentage point lower than the rate calculated using default-insurance data."

In September 2008, a former member of the Bank of England's Monetary Policy Committee, Willem Buiter, described Libor as "the rate at which banks don't lend to each other", and called for its replacement.^[36] The former Governor of the Bank of England, Mervyn King later used the same description before the Treasury Select Committee.^[37][38]

To further bring this case to light, The Wall Street Journal reported in March 2011 that regulators were focusing on Bank of America Corp., Citigroup Inc. and UBS AG.^[39] Making a case would be very difficult because determining the Libor rate does not occur on an open exchange. According to people familiar with the situation, subpoenas have been issued to the three banks.

In response to the study released by the WSJ, the British Bankers' Association announced that Libor continues to be reliable even in times of financial crisis. According to the British Bankers' Association, other proxies for financial health, such as the default-credit-insurance market, are not necessarily more sound than Libor at times of financial crisis, though they are more widely used in Latin America, especially the Ecuadorian and Bolivian markets.

Additionally, some other authorities contradicted the Wall Street Journal article. In its March 2008 Quarterly Review, The Bank for International Settlements has stated that "available data do not support the hypothesis that contributor banks manipulated their quotes to profit from positions based on fixings."^[40] Further, in October 2008 the International Monetary Fund published its regular Global Financial Stability Review which also found that "Although the integrity of the U.S. dollar Libor-fixing process has been questioned by some market participants and the financial press, it appears that U.S. dollar Libor remains an accurate measure of a typical creditworthy bank’s marginal cost of unsecured U.S. dollar term funding."^[41]

On 27 July 2012, the Financial Times published an article by a former trader which stated that Libor manipulation had been common since at least 1991.^[42] Further reports on this have since come from the BBC^[43][44] and Reuters.^[45] On 28 November 2012, the Finance Committee of the Bundestag held a hearing to learn more about the issue.^[46]

In late September 2012, Barclays was fined £290m because of its attempts to manipulate the Libor, and other banks are under investigation of having acted similarly. Wheatley has now called for the British Bankers' Association to lose its power to determine Libor and for the FSA to be able to impose criminal sanctions as well as other changes in a ten-point overhaul plan.^[47][48][49]

The British Bankers’ Association said on 25 September that it would transfer oversight of LIBOR to UK regulators, as proposed by Financial Services Authority Managing Director Martin Wheatley and CEO-designate of the new Financial Conduct Authority.^[9]

On 28 September, Wheatley's independent review was published, recommending that an independent organization with government and regulator representation, called the Tender Committee, manage the process of setting LIBOR under a new external oversight process for transparency and accountability. Banks that make submissions to LIBOR would be required to base them on actual inter-bank deposit market transactions and keep records of their transactions supporting those submissions. The review also recommended that individual banks' LIBOR submissions be published, but only after three months, to reduce the risk that they would be used as a measure of the submitting banks' creditworthiness. The review left open the possibility that regulators might compel additional banks to participate in submissions if an insufficient number do voluntarily. The review recommended criminal sanctions specifically for manipulation of benchmark interest rates such as the LIBOR, saying that existing criminal regulations for manipulation of financial instruments were inadequate.^[10] LIBOR rates may be higher and more volatile after implementation of these reforms, so financial institution customers may experience higher and more volatile borrowing and hedging costs.^[11] The UK government agreed to accept all of the Wheatley Review's recommendations and press for legislation implementing them.^[12]

Bloomberg LP CEO Dan Doctoroff told the European Parliament that Bloomberg LP could develop an alternative index called the Bloomberg Interbank Offered Rate that would use data from transactions such as market-based quotes for credit default swap transactions and corporate bonds.^[50][51]

Criminal investigations

On 28 February 2012, it was revealed that the U.S. Department of Justice was conducting a criminal investigation into Libor abuse.^[52] Among the abuses being investigated were the possibility that traders were in direct communication with bankers before the rates were set, thus allowing them an advantage in predicting that day's fixing. Libor underpins approximately $350 trillion in derivatives. One trader's messages indicated that for each basis point (0.01%) that Libor was moved, those involved could net "about a couple of million dollars".^[53]

On 27 June 2012, Barclays Bank was fined $200m by the Commodity Futures Trading Commission,^[6] $160m by the United States Department of Justice^[7] and £59.5m by the Financial Services Authority^[8] for attempted manipulation of the Libor and Euribor rates.^[54] The United States Department of Justice and Barclays officially agreed that "the manipulation of the submissions affected the fixed rates on some occasions".^[55][56] On 2 July 2012, Marcus Agius, chairman of Barclays, resigned from the position following the interest rate rigging scandal.^[57] Bob Diamond, the chief executive officer of Barclays, resigned on 3 July 2012. Marcus Agius will fill his post until a replacement is found.^[58][59] Jerry del Missier, Chief Operating Officer of Barclays, also resigned, as a casualty of the scandal. Del Missier subsequently admitted that he had instructed his subordinates to submit falsified LIBORs to the British Bankers Association.^[60]

By 4 July 2012 the breadth of the scandal was evident and became the topic of analysis on news and financial programs that attempted to explain the importance of the scandal.^[61] On 6 July, it was announced that the UK Serious Fraud Office had also opened a criminal investigation into the attempted manipulation of interest rates.^[62]

On 4 October 2012, Republican U.S. Senators Chuck Grassley and Mark Kirk announced that they were investigating Treasury Secretary Tim Geithner for complicity with the rate manipulation scandal. They accused Geithner of knowledge of the rate-fixing, and inaction which contributed to litigation that "threatens to clog our courts with multi-billion dollar class action lawsuits" alleging that the manipulated rates harmed state, municipal and local governments. The senators said that an American-based interest rate index is a better alternative which they would take steps towards creating.^[63]

Aftermath

Early estimates are that the rate manipulation scandal cost U.S. states, counties, and local governments at least $6 billion in fraudulent interest payments, above $4 billion that state and local governments have already had to spend to unwind their positions exposed to rate manipulation.^[64] An increasingly smaller set of banks are participating in setting the LIBOR, calling into question its future as a benchmark standard, but without any viable alternative to replace it.^[65]

Continued in article

From the CFO Journal's Morning Ledger on June 9, 2015

Libor trial hears global banks submitted skewed data
http://www.wsj.com/articles/libor-trial-hears-global-banks-submitted-skewed-data-1433761036?mod=djemCFO_h
A succession of global banks told a British trade association in 2005 and 2006 that they and their rivals were deliberately submitting inaccurate data for inclusion in Libor in some cases to boost the interest rates that borrowers had to pay on their loans.

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

Pro Forma Misguidance

To accounting experts, however, it is another in a long line of “pro forma” figures that companies have trotted out over the years to show their business in a better light than possible under generally accepted accounting principles.
"How Big Is GE Capital? It Depends," by Ted Mann, The Wall Street Journal, June 9, 2015 ---
http://www.wsj.com/articles/ge-uses-own-metric-to-value-its-finance-arms-assets-1433842205?mod=djemCFO_h

. . .

To accounting experts, however, it is another in a long line of “pro forma” figures that companies have trotted out over the years to show their business in a better light than possible under generally accepted accounting principles.

GE does report total assets as well. But in slides, investor discussions and forecasts, it consistently refers to ENI.

“We disclose ENI in addition to total assets so that our investors can better assess our total capital invested in financial services,” GE spokesman Seth Martin said.

Pro forma reporting really took off in the 1990s, and after dropping off in the wake of the dot-com bust, is back on the upswing, according to Ben Whipple, an assistant professor of accounting at the University of Georgia who has researched the subject.

Mr. Whipple and several collaborators went through nearly 130,000 earnings announcements filed with the Securities and Exchange Commission from 2003 through 2013. They found that nearly 50% of those announcements used a pro forma earnings per share metric in 2013, up from about 20% in 2003. The research didn’t track other kinds of pro forma figures, such as GE’s ENI number.

In the best case, pro forma metrics can reveal details that might be lost in official figures, he said. Consumer products companies, for instance, regularly report sales excluding currency effects to show the strength of underlying demand. But the problem for investors is that, by definition, there aren’t any rules for coming up with pro forma data.

“The discretionary nature of non-GAAP reporting might allow some firms to simply use metrics that portray firm performance in a more favorable light and that are not necessarily better measures of performance,” Mr. Whipple said in an email.

To come up with ENI, GE counts up the assets in its lending businesses, then subtracts liabilities that don’t require it to pay interest, like accounts payable or insurance reserves. GE says that provides a better measure of the positions on its books that it has to fund, whether with deposits or with money borrowed in the market.

Continued in article

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

In this new world, Mr. Edmans writes, intangibles such as employee satisfaction have a real impact on the bottom line

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

Time was, companies built success by mass-producing standardized products for the lowest cost. But modern consumers, and the firms that serve them, have entirely different expectations, writes Alex Edmans, professor of finance at London Business School. That means that chief financial officers must focus on qualitative measures in addition to the quantitative. As consumers now tend to favor customization and quality over reliable sameness, he says, CFOs need to learn to protect innovation in their businesses.

In this new world, Mr. Edmans writes, intangibles such as employee satisfaction have a real impact on the bottom line. But persuading shareholders that such investments are worth it can present a hurdle. “If a firm invests in its corporate culture, this isn’t immediately visible, so investors may interpret the resulting low cash position as stemming from poor managerial quality,” he writes.

Some shifts in perspective can help. Among them is to focus on the long term over quarterly results. But changes in practice can also help a CFO push a company to perform better. For instance, Mr. Edmans advises companies to avoid providing earnings guidance, because he says that markets then hold firms accountable for them, which forces companies to think short term.

Read his five ways for CFOs to focus on the long term.

 

Internal Auditor Shortage

From the CFO Journal's Morning Ledger on June 23, 2015

Companies are facing the most severe internal-auditor shortage in more than a decade at the same time that the regulatory burden has increased, and those combined forces have raised the importance of internal auditors in corporate finance departments, CFO Journal’s Emily Chasan reports. CFOs are working to build up their teams of internal auditors as they face concerns ranging from cybersecurity threats to the implementation of new guidelines for internal-control systems.

But for CFOs, the concern isn’t only that there are fewer unemployed auditors to choose from. Risks have changed significantly over the past decade, so finding the right skill set among auditors is a challenge in its own right.

“Ten years ago internal audit was really focused on financial controls. Five years ago we were fresh into the financial crisis, and internal auditors were focused on cost containment and risks related to profitability,” said Richard Chambers, chief executive of the Institute of Internal Auditors. “Today, we see information-technology and compliance and regulatory risks emerging.”

 

Obamacare Cadillac Tax --- https://en.wikipedia.org/wiki/Cadillac_insurance_plan

Companies are cautious about raising the quality of their employee health insurance plans because of the Cadillac Tax
From the CFO Journal's Morning Ledger on June 18, 2015

CFOs mindful of “Cadillac Tax” in upcoming union talks
http://blogs.wsj.com/cfo/2015/06/17/cfos-mindful-of-cadillac-tax-in-upcoming-union-talks/?mod=djemCFO_h
Finance executives of companies with unionized workers are bracing for the impact that excise tax on high-cost healthcare benefits will have on their businesses in three years, write CFO Journal’s Kimberly S. Johnson and Vipal Monga. Verizon Communications Inc. CFO Fran Shammo,  said the issue of health plans will be the subject of “very difficult negotiations.” The company covered almost 700,000 people last year at a cost of roughly $3.2 billion, and begins negotiations for a new contract with its unions next week. CSX Corp. has already begun scaling back costs, said finance chief Fredrik Eliasson. About 85% of the company’s workforce is unionized and talks with the United Transportation Union begin this year.

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

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

FASB Issues Proposed ASU to Amend Equity Method Accounting

http://deloitte.wsj.com/cfo/2015/06/19/fasb-issues-proposed-asu-to-amend-equity-method-accounting/
The accounting for equity method investments could be amended if a proposal from FASB is approved. The proposal would eliminate the requirement for an investor to account for basis differences related to its equity method investees. Deloitte’s “Heads Up” provides an overview of this and other proposed amendments, including changes to disclosures. If adopted, the proposal also would affect equity method goodwill. Comments are due by August 4, 2015. Continue »

Read more Deloitte Insights »

Financial Stress Testing --- https://en.wikipedia.org/wiki/Stress_test_%28financial%29

From the CFO Journal's Morning Ledger on June 17, 2015

Fed faulted BofA regarding its foresight
http://www.wsj.com/articles/fed-faulted-bofa-regarding-its-foresight-1434496115?mod=djemCFO_h
The Federal Reserve reprimanded Bank of America Corp. earlier this year for not anticipating problems with its “stress test” submission. The Fed has told Bank of America it doesn’t believe its management is forward-looking enough and instead merely reacts to problems after they are raised by regulators. In response to the criticism, Bank of America hired several outside consultants, including McKinsey & Co., KPMG LLP, Ernst & Young and Deloitte, to scrutinize the way it runs the tests, according to others close to the situation. The bank disclosed in April that it would spend an extra $100 million this year to improve its stress-testing procedures.

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

Ways to Build Strong Ethical Cultures
http://deloitte.wsj.com/cfo/2015/06/15/ways-to-build-strong-ethical-cultures/

Culture is the single biggest determinant of behavior in any organization, and one thing that is clear—if an organization is not managing culture, culture might be managing it. Keith Darcy, an independent senior advisor to Deloitte & Touche LLP, discusses the four principles of an ethical culture and the cultural impacts raised by M&A and multinational operations, as well as insights on strengthening bonds among employees and building stronger ethical cultures. Continue »

Read more Deloitte Insights »

From the CFO Journal's Morning Ledger on June 11, 2015

Ex-controller testifies he altered Dewey accounting records
http://www.wsj.com/articles/ex-controller-testifies-he-altered-dewey-accounting-records-1433972860
 Years before Dewey & LeBoeuf collapsed, the law firm’s accounting department scrambled to avoid trouble with its banks by making the firm’s income appear higher than it was, Dewey’s former controller testified.

Activist Funds Put Executive Pay Formulas Under Microscope

From the CFO Journal's Morning Ledger on June 10, 2015

Activist funds are scanning corporate filings for what they see as skewed incentives and overly generous formulas that determine what top executives get to take home, the WSJ’s Liz Hoffman reports. Some activists argue that ill-designed plans encourage the wrong kinds of growth—for example, boosting revenue at the expense of profitability. Others point to nonstandard financial metrics they say reward executives even when business falters.

Case in point: Shutterfly Inc., where an activist hedge fund is seeking three board seats at the online photo retailer at a shareholder vote set for Friday. The founder of Marathon Partners Equity Management LLC said once the fund “started peeling back the onion” on Shutterfly’s pay plans, it found “a compensation scheme that had run amok.”

WSJ Article
http://www.wsj.com/articles/activist-funds-put-executive-pay-formulas-under-microscope-1434058799?mod=djemCFO_h

The salary of the chief executive of a large corporation is not a market award for achievement. It is frequently in the nature of a warm personal gesture by the individual to himself.
John Kenneth Galbraith --- Click Here

If you aren’t (cynical) now, you will by the time you finish the new Bebchuk and Fried paper on executive compensation.  They paint a fairly gloomy picture of managers exerting their power to “extract rents and to camouflage the extent of their rent extraction.”  Rather than designed to solve agency cost problems, the paper makes the case that executive pay can by an agency cost in and of itself.  Let’s hope things aren’t this bad. 
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=364220

They say that patriotism is the last refuge
To which a scoundrel clings.
Steal a little and they throw you in jail,
Steal a lot and they make you king.
There's only one step down from here, baby,
It's called the land of permanent bliss.
What's a sweetheart like you doin' in a dump like this?
Lyrics of a Bob Dylan song forwarded by Damian Gadal [DGADAL@CI.SANTA-BARBARA.CA.US] 

Bob Jensen's threads on Outrageous Executive Compensation Schemes That Reward Failure and Fraud ---
http://faculty.trinity.edu/rjensen/FraudConclusion.htm#OutrageousCompensation

Sky-High Valuations of Startups Using Non-GAAP Measures

From the CFO Journal's Morning Ledger on June 10, 2015

The tech startup scene has a taste for non-GAAP measures, and skeptics say the perfectly legal practice may be behind many of their sky-high valuations, the WSJ reports. They warn that the tactic is yet another sign that the tech sector is plagued with overconfidence and is setting itself up for a fall. Investors who go along with vague, unconventional financial terms, they say, are inflating valuations and leaving almost no room for error at fledgling technology companies.

Instead of revenue, these closely held firms tout “bookings,” “annual recurring revenue” or other numbers that often far exceed actual revenue. Uber Technologies Inc., for instance, has told investors that its “bookings” are on pace to reach $10 billion in 2015, even though the company keeps little of the money from all those bookings.

 

From the CPA Newsletter on June 9, 2015

The Global Management Accounting Principles
 http://www.cgma.org/Resources/Reports/Pages/GlobalManagementAccountingPrinciples.aspx
Quality decision-making has never been more important -- or more difficult. New innovations and innovators daily disrupt the status quo. The volume and velocity of unstructured data are increasingly complex. The Global Management Accounting Principles, prepared by the AICPA and CIMA, reflect the perspectives of CEOs, CFOs, academics, regulators, government bodies and other professionals in 20 countries across five continents.

From the CFO Journal's Morning Ledger on June 8, 2015

SEC may seek more information from audit committees
http://blogs.wsj.com/cfo/2015/06/05/sec-may-seek-more-information-from-audit-committees/?mod=djemCFO_h
U.S. securities regulators are preparing a “concept release” that could push corporate boards of directors to disclose more about how they oversee their outside auditors, a top official said on Friday. CFO Journal’s Emily Chasan reports that the SEC’s chief accountant, James Schnurr, said he would like to understand “how investors currently use the information provided in audit committee disclosures” and the usefulness of additional disclosures.

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

SEC Proposes Rule on Pay Versus Performance

http://deloitte.wsj.com/cfo/2015/06/05/sec-proposes-rule-on-pay-versus-performance/
The SEC has issued its proposal to amend the rule requiring a registrant to disclose the relationship between executive compensation actually paid and the financial performance of the registrant. The proposal, which is intended to improve shareholders’ ability to objectively assess the link between executive compensation and company performance, raises a number of interesting questions and challenges, including where in the proxy to present this disclosure and how to integrate it into the other extensive compensation disclosures already required by SEC rules. Continue »

Read more Deloitte Insights »

Elizabeth Warren --- http://en.wikipedia.org/wiki/Elizabeth_Warren

Mary Jo White --- http://en.wikipedia.org/wiki/Mary_Jo_White

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

Warren sharply criticizes SEC chairman in letter
http://www.wsj.com/articles/sen-elizabeth-warren-sharply-criticizes-sec-chairman-in-letter-1433250001?mod=djemCFO_h
Sen. Elizabeth Warren sharply criticized Mary Jo White, saying her tenure as chairman of the SEC has been “extremely disappointing” and that she appeared to have broken promises made to lawmakers during her confirmation hearings in early 2013. Ms. White, in a written statement, disputed Ms. Warren’s charges.

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

Biggest MasterCard issuers scuttled deal on Target data breach
http://www.wsj.com/articles/biggest-mastercard-issuers-scuttled-deal-on-target-data-breach-1433253072?mod=djemCFO_h
MasterCard Inc.’s $19 million settlement with Target Corp. over a data breach was scuttled when it was rejected as too small by MasterCard’s largest U.S. credit-card issuers: Citigroup Inc., Capital One Financial Corp. and J.P. Morgan Chase & Co. News of the deal’s failure was reported last month, but the banks behind its demise weren’t reported at the time. The three banks decided to quash the pact that was negotiated on the industry’s behalf by MasterCard because they thought it was too small to cover their losses in the incident.

Clawback --- http://en.wikipedia.org/wiki/Clawback

SEC Eyes Broadened ‘Clawback’ Restrictions

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

The Securities and Exchange Commission is targeting executive pay in its latest bid to keep errors out of corporate financial statements. The commission will soon propose long-awaited rules forcing companies to claw back, or revoke, some of their top officials’ incentive pay if they have to restate the financial results that led to it, the WSJ’s Andrew Ackerman reports.

The rules, if finalized, could force an executive who received stock options after the company met a performance target, such as a revenue figure, to return some or all of that compensation if a misstatement shows revenue fell below the executive’s performance target. The rules would also apply to a larger group of executives than existing rules, although it isn’t clear how many top executives would be covered under the restrictions. Existing rules passed in the wake of accounting scandals in the early 2000s affect only a company’s chief executive and chief financial officer.

SEC Eyes Broadened ‘Clawback’ Restrictions
http://www.wsj.com/articles/sec-eyes-broadened-clawback-restrictions-1433285178?mod=djemCFO_h

Auditing:  Paying More for Less

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

Regulator (PCAOB) finds deficiencies in 11 audits by Deloitte & Touche
http://www.wsj.com/articles/regulator-finds-deficiencies-in-11-audits-done-by-deloitte-touche-1433286148?mod=djemCFO_h
 The 11 deficient audits found by the Public Company Accounting Oversight Board represent 21% of the 53 audits and partial audits reviewed by the board in its 2014 inspection report of Deloitte & Touche LLP, issued Tuesday. In the previous year’s report, the board found 15 deficient audits at Deloitte out of 53 surveyed, a 28% deficiency rate.

Bob Jensen's threads on Deloitte's auditing controversies ---
http://faculty.trinity.edu/rjensen/Fraud001.htm

FASB:  Simplifying Accounting Standards --- http://www.fasb.org/simplification

The FASB has launched a tightly-focused initiative to make narrow-scope simplifications and improvements to accounting standards through a series of short-term projects.

The projects included in the initiative are intended to improve or maintain the usefulness of the information reported to investors while reducing cost and complexity in financial reporting.

In addition to the Simplification Initiative, the FASB recently completed several projects, and currently is working on several projects, that are intended to reduce cost and complexity in financial reporting.

Many suggestions for simplification were identified by our stakeholders. We encourage stakeholders to submit additional ideas for simplification in other areas of accounting. Stakeholders should email their suggestions to fasbcomments@fasb.org.

Read more about the FASB’s current projects, and projects that were successfully completed.

Completed Projects --- http://www.fasb.org/cs/ContentServer?c=Page&pagename=FASB%2FPage%2FSectionPage&cid=1176164432588

• Discontinued Operations
• Development Stage Entities
• Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement
• Extraordinary Items
• Measurement Date of Defined Benefit Pension Plan Assets
• Presentation of Debt Issuance Costs

Current Projects --- http://www.fasb.org/cs/ContentServer?c=Page&pagename=FASB%2FPage%2FSectionPage&cid=1176164432556

• Simplifying the Accounting for Measurement-Period Adjustments (measurement-period adjustments in a business combination)
• Simplifying the Measurement of Inventory
• Balance sheet classification of debt
• Accounting for income taxes
• Equity method of accounting
• Accounting for Financial Instruments—Hedging

The Board will consider opportunities to align with IFRS 9 Financial Instruments.
Jensen Comment
Please say it isn't so.

• Liabilities & Equity—Targeted Improvements

For more information on Emerging Issues Task Force (EITF) projects that seek to reduce complexity, visit the EITF page.

For more information on Private Company Council (PCC) projects that seek to reduce complexity, visit the PCC page.
 

Purchase Price Allocation (FAS 141r and FAS 142 embodied in ASC Topic 805) ---
https://en.wikipedia.org/wiki/Purchase_price_allocation

"What is the FASB’s Simplification Initiative, Really?," by Tom Selling, The Accounting Onion, June 16, 2015 --- Click Here
http://accountingonion.com/2015/06/what-is-the-fasbs-simplification-initiative-really.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+typepad%2Ftheaccountingonion+%28The+Accounting+Onion%29

The FASB’s “simplification” proposals are coming fast, and some of them are making me furious. Proposed ASU No. 2015-260, which would roll back important anti-abuse provisions in ASC Topic 805—Business Combinations, is a very nice place to start.

A Perfectly Good GAAP

GAAP has long permitted companies to revise “provisional” measures of assets acquired and liabilities assumed (AA&LA) in a business acquisition. It’s more than a little bit hard for me to sympathize with a company that doesn’t have a really good idea of the actual value of the assets it acquired and the liabilities it has assumed, but that’s beside the point. The reality is that accounting rules have long accommodated management’s desire to have a “measurement period” in M&A accounting during which it may collect and process additional information about conditions that existed at the balance sheet date pertaining to particular assets and liabilities.

It is important for you to be aware as well that up until the issuance of FAS 141(R) in 2007, the measurement period rules had loopholes that made for interesting and imaginative financial statement manipulations. Paragraphs 52 -55 (ASC 805-10-25-13 thru 19 of FAS 141(R)) set forth a simple, reasonable and effective anti-abuse provision: if the acquirer adjusts during the measurement period its provisional amounts for the AA&LA, it must do so by restating the comparative financial statements in subsequent financial reports as needed.

And whaddyaknow, those paragraphs in FAS 141(R) worked as they were intended. Adjustments during the measurement period dwindled. Perhaps it did little to incentivize acquirors to adequately performing their due diligence at the time they closed on a deal; but now, at least they were acting as if they had.

Since It’s Not Broken, We Gotta “Simplify” It (If You Know What I Mean)

Now come some of the FASB’s “stakeholders” — that’s the doublespeak the Board uses to refer to groups when they can’t legitimately say that “users” or “investors” are included — to complain that GAAP is working too well. Quick like a fox, the FASB issues a fast-track “simplification” proposal that roll back the restatement requirement.

To set the stage for examining the Board’s questionable basis for the proposal, let’s use a simple example* to understand the effects it would have. My example is an adaption of the current and proposed illustrative example set forth in ASC 805-10-55-27 thru 28. The base case is rather vanilla, but just a few tweaks will get at the heart of the matter.

Continued in article

Jensen Comment
Tom goes on to make a case that the proposal really does not simplify the standard. I might note that this is not a completed FASB project topic so there's a chance that he can influence the final outcome if he convinces the FASB to read his posting.

I'm more worried about pending simplifications to accounting for derivatives and hedging activities. It will be awful if FAS 133 does become a clone of hedge accounting in IFRS 9.

EITF Updates From EY on June 20, 2015

The Emerging Issues Task Force (EITF) reached final consensuses on the following issues:

 

• Application of the Normal Purchases and Normal Sales Scope Exception to Certain Electricity Contracts within Nodal Energy Markets

 

• Employee Benefit Plan Simplifications

 

The EITF reached consensuses-for-exposure on the following issues:

 

• Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships

 

• Contingent Put and Call Options in Debt Instruments

 

The EITF also discussed but didn’t reach a consensus-for-exposure on the classification of certain cash receipts and cash payments on the statement of cash flows.

 

For further information on related topics, see our AccountingLink site.
http://www.ey.com/UL/en/AccountingLink/Accounting-Link-Home

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

A Success Case for the Inability to Replicate in Validation of Social Science Research
"The Unraveling of Michael LaCour," by Tom Bartlett, Chronicle of Higher Education, Chronicle of Higher Education, June 2, 2015 ---
http://chronicle.com/article/The-Unraveling-of-Michael/230587/?cid=at

By his own account, Michael J. LaCour has told big lies. He claimed to have received $793,000 in research grants. In fact, he admits now, there were no grants.

The researchers who attempted to replicate his widely lauded Science paper on persuasion instead exposed a brazen fabrication, one in which Mr. LaCour appears to have forged an email and invented a representative for a research firm. New York magazine’s Science of Us blog noted that Mr. LaCour claimed to have won a nonexistent teaching award, and then caught him trying to cover up that fiction.

As more facts emerge from one of the strangest research scandals in recent memory, it becomes clear that this wasn’t merely a flawed study performed by a researcher who cut a few corners. Instead it appears to have been an elaborate, years-long con that fooled several highly respected, senior professors and one of the nation’s most prestigious journals.

Commenters are doling out blame online. Who, if anyone, was supervising Mr. LaCour’s work? Considering how perfect his results seemed, shouldn’t colleagues have been more suspicious? Is this episode a sign of a deeper problem in the world of university research, or is it just an example of how a determined fabricator can manipulate those around him?

Those questions will be asked for some time to come. Meanwhile, though, investigators at the University of California at Los Angeles, where Mr. LaCour is a graduate student, are still figuring out exactly what happened.

It now appears that even after Mr. LaCour was confronted about accusations that his research was not on the level, he scrambled to create a digital trail that would support his rapidly crumbling narrative, according to sources connected to UCLA who asked to speak anonymously because of the university investigation. The picture they paint is of a young scholar who told an ever-shifting story and whose varied explanations repeatedly failed to add up.

An Absence of Evidence

On May 17, Mr. LaCour’s dissertation adviser, Lynn Vavreck, sent him an email asking that he meet her the next day. During that meeting, the sources say, Ms. Vavreck told Mr. LaCour that accusations had been made about his work and asked whether he could show her the raw data that underpinned his (now-retracted) paper, "When Contact Changes Minds: An Experiment on Transmission of Support for Gay Equality." The university needed proof that the study had actually been conducted. Surely there was some evidence: a file on his computer. An invoice from uSamp, the company that had supposedly provided the participants. Something.

That paper, written with Donald Green, a professor of political science at Columbia University who is well-known for pushing the field to become more experimental, had won an award and had been featured in major news outlets and in a segment on This American Life. It was the kind of home run graduate students dream about, and it had helped him secure an offer to become an assistant professor at Princeton University. It was his ticket to an academic career, and easily one of the most talked-about political-science papers in recent years. It was a big deal.

Jensen Comment
Detection of fraud with inability to replicate is quite common in the physical sciences. It occasionally happens in the social sciences. More commonly, however, whistle blowers are the most common source of fraud detection, often whistle blowers that were insiders in the research process itself such as when insiders revealed the faked data of http://faculty.trinity.edu/rjensen/Plagiarism.htm#ProfessorsWhoPlagiarize 

I know of zero instances where failure to replicate detected fraud in the entire history of accounting research.
One reason is that exacting replication itself is a rare event in academic accounting research ---
http://faculty.trinity.edu/rjensen/TheoryTAR.htm#Replication
Academic accountants most likely consider themselves more honest than other academic researchers to a point where journal editors do not require replication and in most instances like The Accounting Review will not even publish critical commentaries about published articles ---
http://faculty.trinity.edu/rjensen/TheoryTAR.htm

Whereas real scientists are a suspicious lot when it comes to published research, accounting researchers tend to be a polite and unsuspecting lot ---
http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm 

"The Case of the Amazing Gay-Marriage Data: How a Graduate Student Reluctantly Uncovered a Huge Scientific Fraud," by Jesse Singal, New York Magazine, May 2015 ---
http://nymag.com/scienceofus/2015/05/how-a-grad-student-uncovered-a-huge-fraud.html

The exposure of one of the biggest scientific frauds in recent memory didn’t start with concerns about normally distributed data, or the test-retest reliability of feelings thermometers, or anonymous Stata output on shady message boards, or any of the other statistically complex details that would make it such a bizarre and explosive scandal. Rather, it started in the most unremarkable way possible: with a graduate student trying to figure out a money issue.

It was September of 2013, and David Broockman (pronounced “brock-man”), then a third-year political-science doctoral student at UC Berkeley, was blown away by some early results published by Michael LaCour, a political-science grad student at UCLA. On the first of the month, LaCour had invited Broockman, who is originally from Austin, Texas, to breakfast during the American Political Science Association’s annual meeting in Chicago. The pair met in a café called Freshii at the Palmer House Hilton, where the conference was taking place, and LaCour showed Broockman some early results on an iPad.

. . .

So when LaCour and Green’s research was eventually published in December 2014 in Science, one of the leading peer-reviewed research publications in the world, it resonated far and wide. “When contact changes minds: an expression of transmission of support for gay equality” garnered attention in the New York Times and a segment on "This American Life" in which a reporter tagged along with canvassers as they told heart-wrenching stories about being gay. It rerouted countless researchers’ agendas, inspired activists to change their approach to voter outreach, generated shifts in grant funding, and launched follow-up experiments.

But back in 2013, the now-26-year-old Broockman, a self-identifying “political science nerd,” was so impressed by LaCour’s study that he wanted to run his own version of it with his own canvassers and his own survey sample. First, the budget-conscious Broockman had to figure out how much such an enterprise might cost. He did some back-of-the-envelope calculations based on what he’d seen on LaCour’s iPad — specifically, that the survey involved about 10,000 respondents who were paid about $100 apiece —  and out popped an imposing number: $1 million. That can’t be right, he thought to himself. There’s no way LaCour — no way any grad student, save one who’s independently wealthy and self-funded — could possibly run a study that cost so much. He sent out a Request for Proposal to a bunch of polling firms, describing the survey he wanted to run and asking how much it would cost. Most of them said that they couldn’t pull off that sort of study at all, and definitely not for a cost that fell within a graduate researcher’s budget. It didn’t make sense. What was LaCour’s secret?

Eventually, Broockman’s answer to that question would take LaCour down.

A Success Case for the Inability to Replicate in Validation of Social Science Research
"The Unraveling of Michael LaCour," by Tom Bartlett, Chronicle of Higher Education, June 2, 2015 ---
http://chronicle.com/article/The-Unraveling-of-Michael/230587/?cid=at

By his own account, Michael J. LaCour has told big lies. He claimed to have received $793,000 in research grants. In fact, he admits now, there were no grants.

The researchers who attempted to replicate his widely lauded Science paper on persuasion instead exposed a brazen fabrication, one in which Mr. LaCour appears to have forged an email and invented a representative for a research firm. New York magazine’s Science of Us blog noted that Mr. LaCour claimed to have won a nonexistent teaching award, and then caught him trying to cover up that fiction.

As more facts emerge from one of the strangest research scandals in recent memory, it becomes clear that this wasn’t merely a flawed study performed by a researcher who cut a few corners. Instead it appears to have been an elaborate, years-long con that fooled several highly respected, senior professors and one of the nation’s most prestigious journals.

Commenters are doling out blame online. Who, if anyone, was supervising Mr. LaCour’s work? Considering how perfect his results seemed, shouldn’t colleagues have been more suspicious? Is this episode a sign of a deeper problem in the world of university research, or is it just an example of how a determined fabricator can manipulate those around him?

Those questions will be asked for some time to come. Meanwhile, though, investigators at the University of California at Los Angeles, where Mr. LaCour is a graduate student, are still figuring out exactly what happened.

It now appears that even after Mr. LaCour was confronted about accusations that his research was not on the level, he scrambled to create a digital trail that would support his rapidly crumbling narrative, according to sources connected to UCLA who asked to speak anonymously because of the university investigation. The picture they paint is of a young scholar who told an ever-shifting story and whose varied explanations repeatedly failed to add up.

An Absence of Evidence

On May 17, Mr. LaCour’s dissertation adviser, Lynn Vavreck, sent him an email asking that he meet her the next day. During that meeting, the sources say, Ms. Vavreck told Mr. LaCour that accusations had been made about his work and asked whether he could show her the raw data that underpinned his (now-retracted) paper, "When Contact Changes Minds: An Experiment on Transmission of Support for Gay Equality." The university needed proof that the study had actually been conducted. Surely there was some evidence: a file on his computer. An invoice from uSamp, the company that had supposedly provided the participants. Something.

That paper, written with Donald Green, a professor of political science at Columbia University who is well-known for pushing the field to become more experimental, had won an award and had been featured in major news outlets and in a segment on This American Life. It was the kind of home run graduate students dream about, and it had helped him secure an offer to become an assistant professor at Princeton University. It was his ticket to an academic career, and easily one of the most talked-about political-science papers in recent years. It was a big deal.

Jensen Comment
Detection of fraud with inability to replicate is quite common in the physical sciences. It occasionally happens in the social sciences. More commonly, however, whistle blowers are the most common source of fraud detection, often whistle blowers that were insiders in the research process itself such as when insiders revealed the faked data of http://faculty.trinity.edu/rjensen/Plagiarism.htm#ProfessorsWhoPlagiarize 

I know of zero instances where failure to replicate detected fraud in the entire history of accounting research.
One reason is that exacting replication itself is a rare event in academic accounting research ---
http://faculty.trinity.edu/rjensen/TheoryTAR.htm#Replication
Academic accountants most likely consider themselves more honest than other academic researchers to a point where journal editors do not require replication and in most instances like The Accounting Review will not even publish critical commentaries about published articles ---
http://faculty.trinity.edu/rjensen/TheoryTAR.htm

Whereas real scientists are a suspicious lot when it comes to published research, accounting researchers tend to be a polite and unsuspecting lot ---
http://www.cs.trinity.edu/~rjensen/temp/AccounticsDamn.htm 

Large-Scale Fake Data in Academe
"The Case of the Amazing Gay-Marriage Data: How a Graduate Student Reluctantly Uncovered a Huge Scientific Fraud," by Jesse Singal, New York Magazine, May 2015 ---
http://nymag.com/scienceofus/2015/05/how-a-grad-student-uncovered-a-huge-fraud.html

The exposure of one of the biggest scientific frauds in recent memory didn’t start with concerns about normally distributed data, or the test-retest reliability of feelings thermometers, or anonymous Stata output on shady message boards, or any of the other statistically complex details that would make it such a bizarre and explosive scandal. Rather, it started in the most unremarkable way possible: with a graduate student trying to figure out a money issue.

It was September of 2013, and David Broockman (pronounced “brock-man”), then a third-year political-science doctoral student at UC Berkeley, was blown away by some early results published by Michael LaCour, a political-science grad student at UCLA. On the first of the month, LaCour had invited Broockman, who is originally from Austin, Texas, to breakfast during the American Political Science Association’s annual meeting in Chicago. The pair met in a café called Freshii at the Palmer House Hilton, where the conference was taking place, and LaCour showed Broockman some early results on an iPad.

. . .

So when LaCour and Green’s research was eventually published in December 2014 in Science, one of the leading peer-reviewed research publications in the world, it resonated far and wide. “When contact changes minds: an expression of transmission of support for gay equality” garnered attention in the New York Times and a segment on "This American Life" in which a reporter tagged along with canvassers as they told heart-wrenching stories about being gay. It rerouted countless researchers’ agendas, inspired activists to change their approach to voter outreach, generated shifts in grant funding, and launched follow-up experiments.

But back in 2013, the now-26-year-old Broockman, a self-identifying “political science nerd,” was so impressed by LaCour’s study that he wanted to run his own version of it with his own canvassers and his own survey sample. First, the budget-conscious Broockman had to figure out how much such an enterprise might cost. He did some back-of-the-envelope calculations based on what he’d seen on LaCour’s iPad — specifically, that the survey involved about 10,000 respondents who were paid about $100 apiece —  and out popped an imposing number: $1 million. That can’t be right, he thought to himself. There’s no way LaCour — no way any grad student, save one who’s independently wealthy and self-funded — could possibly run a study that cost so much. He sent out a Request for Proposal to a bunch of polling firms, describing the survey he wanted to run and asking how much it would cost. Most of them said that they couldn’t pull off that sort of study at all, and definitely not for a cost that fell within a graduate researcher’s budget. It didn’t make sense. What was LaCour’s secret?

Eventually, Broockman’s answer to that question would take LaCour down.

June 2, 2015 reply from Patricia Walters

  I'm sure many of you received the announcement today of this new journal.  I added the emphasis (bold & purple) to the last sentence of the description that encourages (at least, IMHO) replications.  Only time will tell whether replications and eventual publication will occur.

Pat

 

The Financial Accounting and Reporting Section (FARS) of the AAA is excited to announce the official opening of submissions for its new journal:   The Journal of Financial Reporting   The Journal of Financial Reporting (JFR) is open to research on a broad spectrum of financial reporting issues related to the production, dissemination, and analysis of information produced by a firm's financial accounting and reporting system. JFR welcomes research that employs empirical archival, analytical, and experimental methods, and especially encourages less traditional approaches such as field studies, small sample studies, and analysis of survey data. JFR also especially encourages "innovative" research, defined as research that examines a novel question or develops new theory or evidence that challenges current paradigms, or research that reconciles, confirms, or refutes currently mixed or questionable results.    Editors: Mary Barth, Anne Beatty, and Rick Lambert   See the complete Editorial Advisory Board and more details about the journal's background and submission guidelines at:   http://www2.aaahq.org/fars/JFR.cfm (includes a link to submit)

 

More Retractions of Jim Hunton's Publications

March 28, 2015 message from XXXXX

Hi Bob,

I know you’ve been interested in the Hunton retractions. I thought you might want to know that he recently had his three publications in JAR retracted (bringing the total to six retractions). I think these are all his JAR publications.

If you post this or pass this along, I’d rather not be associated with the news.

Here is the link: http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1475-679X/earlyview 

Here is a document with the text from the retractions.

The third one is the most interesting in my opinion. Someone said it sounds like he got his excuse from a student!

Contemporary Accounting Research. 2014. Retracted: Hunton, J. E., R. Hoitash and J. C. Thibodeau. 2011. The relationship between perceived tone at the top and earnings quality. Contemporary Accounting Research 28(4): 1190-1224. Contemporary Accounting Research 31(4): 937-938 ---
http://maaw.info/ContemporaryAccountingResearch2014.htm

March 28, 2015 reply from Bob Jensen

"Following Retraction, Bentley Professor Resigns," Inside Higher Ed, December 21, 2012 ---
http://www.insidehighered.com/quicktakes/2012/12/21/following-retraction-bentley-professor-resigns

James E. Hunton, a prominent accounting professor at Bentley University, has resigned amid an investigation of the retraction of an article of which he was the co-author, The Boston Globe reported. A spokeswoman cited "family and health reasons" for the departure, but it follows the retraction of an article he co-wrote in the journal Accounting Review. The university is investigating the circumstances that led to the journal's decision to retract the piece.

REPORT OF JUDITH A. MALONE, BENTLEY UNIVERSITY ETHICS OFFICER, CONCERNING DR. JAMES E. HUNTON
July 21, 2014 ---
http://faculty.trinity.edu/rjensen/Plagiarism.htm#ProfessorsWhoPlagiarize

Pursuant to the Bentley University Ethics Complaint Procedures (“Ethics Policy”), this report summarizes the results of an eighteen - month investigation into two separate allegations of research misconduct that were received by Bentley in November 2012 and January 2013 against James E. Hunton, a former Professor of Accountancy. The complainants – one a confidential reporter (as defined in the Ethics Policy) and the other a publisher – alleged that Dr. Hunton engaged in research misconduct in connection wit h two papers that he published while a faculty member at the University: “A Field Experiment Comparing the Outcomes of Three Fraud Brainstorming Procedures: Nominal Group, Round Robin, and Open Discussion,” The Accounting Review 85 (3): 911 - 935 (“Fraud Br barnstorming”) and “The Relationship between Perceived Tone at the Top and Earnings Quality,” Contemporary Accounting Research 28 (4): 1190 - 1224 (“Tone at the Top”).

Because of concerns regarding Fraud Brainstorming that the editors at The Accounting Review had been discussing with Dr. Hunton since May 2012, the editors withdrew that paper in November 2012. Bentley received the allegation of research misconduct from the confidential reporter later that month. The confidential reporter also raised questions about ten other articles that Dr. Hunton published or provided data for while he was at Bentley, which, the reporter alleged, raised similar questions of research integrity.

In my role as Ethics Officer, it was my duty to make the preliminary determination n about whether the allegations warranted a full investigation. To make that determination, I met with Dr. Hunton in person when Bentley received this allegation, after I first instructed Bentley IT to back up and preserve all of his electronic data store d on Bentley’s servers. During that meeting, we discussed the allegation, I explained the process that would be followed if I found an investigation was warranted, and I described the need for his cooperation, including the specific admonition that he pre serve, and make available to me, all relevant materials, including electronic and paper documents. This information and these instructions were confirmed in writing to Dr. Hunton. Dr. Hunton resigned shortly after that meeting, which coincided with my de termination that a full investigation was warranted.

In January 2013 as the investigation was just getting underway, Bentley received the second allegation of research misconduct from the editor of Contemporary Accounting Research. The editor had contacted ted Dr. Hunton directly in November 2012 with concerns about Tone at the Top after the Fraud Brainstorming paper was retracted. The journal brought the issue to Bentley’s attention after the response it received failed to resolve its concerns. When Bentley received this second allegation, I informed Dr. Hunton of it, as well.

Continued in article

Jensen Comment
The last paragraph of the article suggests that Professor Hunton did not cooperate in the investigation to the extent that it is unknown if his prior research papers were also based upon fabricated data. The last paragraph reads as follows:

Bentley cannot determine with confidence which other papers may be based on fabricated data. We will identify all of the co - authors on papers Dr. Hunton published while he was at Bentley that involve research data. We will inform them that, unless they have independent evidence of the validity of the data, we plan to ask the journals in which the papers they co - authored with Dr. Hunton were published to determine, with the assistance of the co - authors, whether the data analyzed in the papers were valid. The various journals will then have the discretion to decide whether any further action is warranted, including retracting or qualifying, with regard to an y of Dr. Hunton’s papers that they published

Years ago Les Livingstone was the first person to detect a plagiarized article in TAR (back in the 1960s when we were both doctoral students at Stanford). This was long before digital versions articles could be downloaded. The TAR editor published an apology to the original authors in the next edition of TAR. The article first appeared in Management Science and was plagiarized in total for TAR by a Norwegian (sigh).

 

November 28, 2012 forward from Dan Stone

Anna Gold sent me the following statement and also indicated that she had no objections to my posting it on AECM:

Explanation of Retraction (Hunton & Gold 2010)

On November 9, 2012, The Accounting Review published an early-view version of the voluntary retraction of Hunton & Gold (2010). The retraction will be printed in the January 2013 issue with the following wording:

“The authors confirmed a misstatement in the article and were unable to provide supporting information requested by the editor and publisher. Accordingly, the article has been retracted.”

The following statement explains the reason for the authors’ voluntary retraction. In the retracted article, the authors reported that the 150 offices of the participating CPA firm on which the study was based were located in the United States. In May 2012, the lead author learned from the coordinating partner of the participating CPA firm that the 150 offices included both domestic and international offices of the firm. The authors apologize for the inadvertently inaccurate description of the sample frame.

The Editor and the Chairperson of the Publications Committee of the American Accounting Association subsequently requested more information about the study and the participating CPA firm. Unfortunately, the information they requested is subject to a confidentiality agreement between the lead author and the participating firm; thus, the lead author has a contractual obligation not to disclose the information requested by the Editor and the Chairperson. The second author was neither involved in administering the experiment nor in receiving the data from the CPA firm. The second author does not know the identity of the CPA firm or the coordinating partner at the CPA firm. The second author is not a party to the confidentiality agreement between the lead author and the CPA firm.

The authors offered to print a correction of the inaccurate description of the sample frame; however, the Editor and the Chairperson rejected that offer. Consequently, in spite of the authors' belief that the inaccurate description of the sample does not materially impact either the internal validity of the study or the conclusions set forth in the Article, the authors consider it appropriate to voluntarily withdraw the Article from The Accounting Review at this time. Should the participating CPA firm change its position on releasing the requested information in the future, the authors will request that the Editor and the Chairperson consider reinstating the paper.

Signed:

James Hunton Anna Gold

References: Hunton, J. E. and Gold, A. (2010), “A field experiment comprising the outcomes of three fraud brainstorming procedures: Nominal group, round robin, and open discussions,” The Accounting Review 85(3): 911-935.

 

December 1, 2012 reply from Harry Markopolos <notreallyharry@outlook.com> 

Harry Markopolos <notreallyharry@outlook.com>

The explanation provided by the Hunton and Gold regarding the recent TAR retraction seems to provide more questions than answers. Some of those questions raise serious concerns about the validity of the study.

1. In the paper, the audit clients are described as publically listed (p. 919), and since the paper describes SAS 99 as being applicable to these clients, they would presumably be listed in the U.S. However, according to Audit Analytics, for fiscal year 2007, the Big Four auditor with the greatest number of worldwide offices with at least one SEC registrant was PwC, with 134 offices (the remaining firms each had 130 offices). How can you take a random sample of 150 offices from a population of (at most) 134?

Further, the authors state that only clients from the retail, manufacturing, and service industries with at least $1 billion in gross revenues with a December 31, 2007 fiscal year-end were considered (p. 919). This restriction further limits the number of offices with eligible clients. For example, the Big Four auditor with the greatest number of offices with at least one SEC registrant with at least $1 billion in gross revenues with a December 31, 2007 fiscal year end was Ernst & Young, with 102 offices (followed by PwC, Deloitte and KPMG, with 94, 86, and 83 offices, respectively). Limiting by industry would further reduce the pool of offices with eligible clients (this would probably be the most limiting factor, since most industries tend to be concentrated primarily within a handful of offices).

2. Why the firm would use a random sample of their worldwide offices in the first place, especially a sample including foreign affiliates of the firm? Why not use every US office (or every worldwide office with SEC registrants)? The design further limited participation to one randomly selected client per office (p. 919). This design decision is especially odd. If the firm chose to sample from the applicable population of offices, why not use a smaller sample of offices and a greater number of clients per office? Also, why wouldn’t the firm just sample from the pool of eligible clients? Finally, would the firm really expect its foreign affiliates to be happy to participate just because the US firm is asking them to do so? Would it not be much simpler and more effective to focus on US offices and get large numbers of clients from the largest US Offices (e.g., New York, Chicago, LA) and fill in the remaining clients needed to reach 150 clients from smaller offices?

3. Given the current hesitancy of the Big Four to allow any meaningful access to data, why would the international offices be consistently willing to participate in the study, especially since each national affiliate of the Big Four is a distinct legal entity? The coordination of this study across the firm’s international offices seems like a herculean effort, at least. Further, even if the authors were not aware that the population of offices included international offices, the lead author was presumably aware of the identity of the partner coordinating the study for the firm. Footnote 4 of the paper and discussion on page 919 suggest that the US national office coordinated the study. It seems quite implausible that the US national office alone would be able to coordinate the study internationally.

4. In the statement that has been circulated among the accounting research community, the authors state:

“The second author was neither involved in administering the experiment nor in receiving the data from the CPA firm. The second author does not know the identity of the CPA firm or the coordinating partner at the CPA firm. The second author is not a party to the confidentiality agreement between the lead author and the CPA firm.”

However, this statement is inconsistent with language in the paper suggesting that both authors had access to the data and were involved in discussions with the firm regarding the design of the study (e.g. Footnote 17). Also, isn’t this kind of arrangement quite odd, at best? Not even the second author could verify the data. We are left with only the first author’s word that this study actually took place with no way for anyone (not even the second author or the journal editor) to obtain any kind of assurance on the matter. Why wouldn’t the firm be willing to allow Anna or Harry Evans to sign a confidentiality agreement in order to obtain some kind of independent verification? If the firm was willing to allow the study in the first place, it seems quite unreasonable for them to be unwilling to allow a reputable third party (e.g. Harry) to obtain verification of the legitimacy of the study. In addition, assuming the firm is this extremely vigilant in not allowing Harry or Anna to know about the firm, does it seem odd that the firm failed to read the paper before publication and, therefore, note the errors in the paper, including the claim that is made in multiple places in the paper that the data came from a random sample of the firm’s US offices?

5. Why do the authors state that the paper is being voluntarily withdrawn if the authors don’t believe that the validity of the paper is in any way questioned? The retraction doesn’t really seem voluntary. If the authors did actually offer to retract the study that implies that the errors in the paper are not simply innocent mistakes.

Given that most, if not all US offices would have had to be participants in the study (based on the discussion above), it wouldn’t be too hard to obtain some additional information from individuals at the firms to verify whether or not the study actually took place. In particular, if we were to locate a handful of partners from each of the Big Four who were office-managing partners in 2008, we could ask them if their office participated in the study. If none of those partners recall their office having participated in the study, the reported data would appear to be quite suspect.

Sincerely,

Harry Markopolos

Jensen Comment
Thanks to the Ethics Officer at Bentley College on July 14, 2014 we now know more of the story.

I have no idea what happened to Professor Hunton after he resigned from Bentley University in 2012.

Accounting professor faked data for two studies, destroyed evidence: University report ---
http://retractionwatch.com/2014/07/22/accounting-professor-faked-data-for-two-studies-destroyed-evidence-university-report/

Jim Hunton appears to have become the Scarlet Letter Professor of Accounting Research. Once a professor becomes known as a cheat his or her entire body of research may be retracted. To my knowledge no accounting researcher attempted to replicate Jim's research. It should be noted, however, that replication cannot prevent cheating in research. Fiction can, and sometimes is, repeated in real life.

The American Accounting Associated brought the total number of Jim's retractions up to 25 retractions to 25 plus a section of an article ---
http://aaahq.org/Portals/0/documents/Website-FinalListofRetractedArticles-6-25-15.pdf
A list of the retractions is provided.

It is extremely rare to detect an accounting professor who cheated.
Bob Jensen's threads on the Jim Hunton saga plus a listing of professors in other disciplines who cheated ---
http://faculty.trinity.edu/rjensen/Plagiarism.htm#ProfessorsWhoPlagiarize

June 28, 2015 reply from Bob Jensen

I'm not sure how to formulate my question. What about the other authors on these retracted papers? It's difficult for me to believe that Hunton controlled all of this research in such a way that it's all suspect.

Thoughts?

Pat

June 28, reply from Bob Jensen

Hi Patricia,

In the first article retracted by TAR the co-author from Canada claimed she had no knowledge that the data collected by Jim was fabricated. Bentley did some investigation of this and found that, in this one case, the co-author appeared to be innocent. Jim kept may have kept his cheating secret from co-authors on other papers, although I'm suspicious that this may not have been the case in 27+ papers and counting. It's not clear, however, that there was even cheating in all retracted papers. It may be that some papers were retracted simply because they were tainted with Jim Hunton's name and cheating reputation.

We may never know unless Jim writes a tell-all article or book about his cheating history. If done well, the book could probably have some decent sales in the academic market. However, he could be vulnerable to lawsuits if he rats on co-authors.

Sometimes cheaters do tell all out of conscience, greed (book sales and speaker fees), or revenge. I watched the show "American Greed" last night about Ponzi felon (20 years in Club Fed) and big-time Miami Hurricanes booster Nevin Shapiro ---
https://en.wikipedia.org/wiki/Nevin_Shapiro 

Apparently out of revenge Shapiro ratted on Miami's coaches, administrators, and players who were lured into luxurious partying, gambling, and sex by the high-living Nevin Shapiro.

My point is that sometimes those who get caught drag others down with them --- often out of revenge. Eight players did get kicked off Miami's team, but they were not part of his Ponzi fraud. Dragging them down seems to be low meanness even for a scumbag like Shapiro.

Bob Jensen

June 28, 2015 reply from Dan Stone

Regarding Bob's post about the most retracted scientists
"Here are the most-retracted scientists in the world, ranked," by Julia Belluz, Vox, June 25, 2015 ---
http://www.vox.com/2015/6/24/8834405/scientists-most-retractions

Jim Hunton is moving up this list with 25 American Accounting Association retractions. And I'm betting that we haven't seen the last of the retracted Hunton papers.

Here's the AAA list:

http://aaahq.org/Portals/0/documents/Website-FinalListofRetractedArticles-6-25-15.pdf  

I have written an essay about this episode:

Dan N. Stone (2015) Post-Hunton: Reclaiming Our Integrity and Literature. Journal of Information Systems, In-Press.

which is available to AIS section members of the AAA:
http://aaajournals.org/doi/10.2308/isys-51094 

Abstract
A Bentley University investigation of allegations of data fabrication by Jim Hunton concludes that, "...The whole body of Dr. Hunton's extensive research while a faculty member at Bentley University must now be considered suspect (Malone 2014 p. 5)." Jim served as President of the Information Systems (IS) section of the American Accounting Association (AAA) in 2002-2003 and is the most cited author in the Journal of Information Systems (JIS) (Guffey and Harp 2013). This essay is a personal reflection on, with proposed lessons for the AIS community from, the Hunton fraud. These include developing skepticism, recognizing the limited usefulness of Cressey's fraud "stump" (formerly triangle), noting the dysfunctional implications of agency theory, and adopting contemplative practices designed to increase observational awareness.

Sincerely,

Dan Stone

Bob Jensen's threads on professors who plagiarized or otherwise cheated ---
http://faculty.trinity.edu/rjensen/Plagiarism.htm#ProfessorsWhoPlagiarize

"Can we Reverse the Declining Ethic in Society?" by Steven Mintz, Ethics Sage, June 16, 2015 ---
http://www.ethicssage.com/2015/06/can-we-reverse-the-declining-ethic-in-society.html

PwC:  PCAOB issues staff consultation paper seeking comment on the auditor using the work of specialists ---
http://www.pwc.com/us/en/cfodirect/publications/in-brief/pcaob-auditor-using-work-of-specialists.jhtml?display=/us/en/cfodirect/issues/auditing

. . .

Overview of the approach being considered by the PCAOB staff

This staff consultation paper describes that the PCAOB staff is considering:

• Requirements to improve the auditor's oversight and review of the work of an auditor's specialist, whether employed or engaged by the auditor, by creating consistent requirements that would apply to any auditor’s specialist.
• Requirements to improve the auditor's evaluation of the objectivity of an auditor's specialist, whether employed or engaged by the auditor. Those requirements are based on the independence requirements in Rule 2-01 of Regulation S-X of the Securities and Exchange Commission. An auditor’s employed specialist is already required to follow the independence requirements.
• Alternatives that would improve the auditor's evaluation of the work of a company's employed or engaged specialist. The alternatives would require more rigorous procedures than those currently required by PCAOB AU 336, Using the Work of a Specialist (“PCAOB AU 336”).

Continued in article

June 3, 2015 Message from Scott Bonacker

The Internal Revenue Service will now provide identity theft victims with copies of fraudulent tax returns filed in their name.

http://time.com/money/3906160/irs-fraudulent-tax-returns/

This is a good idea I think. Now we need to get the procedure.

Scott

CENTER FOR AUDIT QUALITY LAUNCHES “PROFESSION IN FOCUS” WEB VIDEO SERIES ---
http://www.accountingeducation.com/index.cfm?page=newsdetails&id=153458

IRS asks for comments on accounting method changes for proposed (FASB) revenue recognition standards ---
http://www.journalofaccountancy.com/news/2015/may/revenue-recognition-accounting-method-changes-201512408.html

New GASB Standards on Retirement and Post-Employment Benefit Accounting
From EY on June 4, 2015

The GASB approved three standards that will require state and local governments to align their reporting about certain retiree obligations with the pension accounting standards it issued in 2012. The standards, which the GASB said will be available on its website in late June, are:

 

• Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, which primarily addresses retiree health insurance

 

• Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, which addresses reporting by governments that provide these benefits to employees and by governments that fund the benefits for employees of other governments

 

• Statement No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68, which covers pensions and pension plans that are not administered through a trust that meets specified criteria

GASB Link ---
http://www.gasb.org/cs/ContentServer?c=GASBContent_C&pagename=GASB%2FGASBContent_C%2FGASBNewsPage&cid=1176166092700

From EY on May 27, 2015

To the Point: FASB proposes simplifying measurement-period adjustments in business combinations

 http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2991_MeasurementPeriod_27May2015/$FILE/TothePoint_BB2991_MeasurementPeriod_27May2015.pdf

The FASB proposed eliminating today’s requirement that an acquirer in a business combination account for a measurement-period adjustment retrospectively. Instead, an acquirer would recognize a measurement-period adjustment during the period in which the amount of the adjustment is determined. Comments are due by 6 July 2015.

What you need to know

• The FASB proposed guidance that would eliminate the requirement for an acquirer in a business combination to account for measurement - period adjustments retrospectively .

• Instead, an acquirer would recognize a measurement - period adjustment during the period in which the amount of the adjustment is determined .

 • The proposal is part of the FASB’s simplification initiative to reduce the cost and complexity of applying US GAAP . • Comments are due by 6 July 2015.

From EY on May 27, 2015

To the Point: FASB addresses collectibility assessment for lessors and other topics in leases project
http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_BB2985_Leases_27May2015/$FILE/TothePoint_BB2985_Leases_27May2015.pdf

 

The FASB came back to the table on its leases project and decided to add a requirement that lessors assess the collectibility of lease payments for purposes of lease classification, recognition and measurement. The FASB also decided to change its previous decisions about how lessors would account for modifications to Type A leases and evaluate Type A lease assets for impairment. In addition, the FASB decided to carry forward today’s guidance on a lessee’s accounting for the purchase of a leased asset during the lease term. The Board will set an effective date before issuing the new standard, which is expected in the fourth quarter of 2015.

 

What you need to know

• The FASB decided to add a requirement that lessors assess the collectibility of lease payments for purposes of lease classification, recognition and measurement .

 

• The FASB also decided to change its previous decisions about how lessors would account for modifications to Type A leases and evaluate Type A lease assets for impairment.

 

• The Board will set an effective date before issuing the new standard, which is expect ed in the fourth quarter of 2015.

 

Capacity Accounting --- http://maaw.info/CapacityRelatedMain.htm

Electric Power Company Dilemma:  Those Pesky Capacity Costs
"Frank Wolak: How to Keep Green Policies from Crashing the Electricity Grid As California embarks on “cap and trade,” Stanford researchers employ advanced trading games to head off nasty surprises," by Edmund Andrews, Stanford University Graduate School of Business, May 13, 2015 --- Click Here
http://www.gsb.stanford.edu/insights/frank-wolak-how-keep-green-policies-crashing-electricity-grid?utm_source=Stanford+Business&utm_campaign=7df5032836-Stanford-Business-Issue-63-5-31-2015&utm_medium=email&utm_term=0_0b5214e34b-7df5032836-70265733&ct=t%28Stanford-Business-Issue-63-5-31-2015%29

. . .

The games also highlight what is perhaps the biggest long-term conundrum tied to regulatory mandates for solar and wind power: a pricing dynamic that sends spot-market electricity prices crashing to almost zero at times when sunlight and wind are abundant, which can make it hard for other electricity providers that are essential during periods of peak demand to recover their fixed costs.

Price crashes have already become a serious issue in Germany, where government-supported mechanisms have propelled renewables to the point that, during a few hours of the year, renewables are the nation’s largest source of electricity. Germany has actually experienced negative spot prices on days in the summer when solar output is high and electricity demand is relatively low. Negative prices also occur in US electricity markets with substantial renewable energy shares, such as California and Texas.

Continued in article

Jensen Comment
This topic should be great for student projects in both cost accounting and environmental accounting.

MAAW's Blog:   list of articles that appeared in the 2014 issues of Management Accounting Research ---
http://maaw.blogspot.com/2015/06/management-accounting-research-2014.html

MAAW's Blog:  list of articles that appeared in the 2014 issues of Contemporary Accounting Research ---
http://maaw.blogspot.com/2015/06/contemporary-accounting-research-2014.html

How to Mislead With Statistics
"Report: Social Security overpaid disability benefits by $17 billion," by Stephen Ohlemacher, Business Insider, June 5, 2015 ---
http://www.businessinsider.com/social-security-17-billion-in-overpayments-2015-6

Social Security overpaid disability beneficiaries by nearly $17 billion over the past decade, a government watchdog said Friday, raising alarms about the massive program just as it approaches the brink of insolvency.

Many payments went to people who earned too much money to qualify for benefits, or to those no longer disabled. Payments also went to people who had died or were in prison.

In all, nearly half of the 9 million people receiving disability payments were overpaid, according to the results of a 10-year study by the Social Security Administration's inspector general.

Social Security was able to recoup about $8.1 billion, but it often took years to get the money back, the study said.

"Every dollar misallocated is a dollar lost for those who truly need it most," said Sen. Orrin Hatch, R-Utah, chairman of the Senate Finance Committee. "Today's report shows the inability of the Social Security Administration to properly safeguard payments, which has no doubt contributed to speeding the fund toward exhaustion."

The trust fund that supports Social Security's disability program is projected to run out of money late next year, triggering automatic benefit cuts, unless Congress acts. The looming deadline has lawmakers feuding over a solution that may have to come in the heat of a presidential election.

The program's financial problems go beyond the issue of overpayments — Social Security disability has paid out more in benefits than it has collected in payroll taxes every year for the past decade. But concerns about waste, fraud and abuse are complicating the debate in Congress over how to address the program's larger financial problems.

Read more: http://www.businessinsider.com/social-security-17-billion-in-overpayments-2015-6#ixzz3cHL6x2se

Jensen Comment
The $17 billion is a totally misleading understated number.

Firstly, the $17 billion is understated because it does not include the Medicare participation that accompanies being declared disabled. Retirees cannot participate in Medicare until age 65. However, disabled people at any age can participate in Medicare, and Medicare is one of the best medical insurance programs in the USA.

My wife was injured on the job (as a nurse injured in an operating room), and after about ten years on worker compensation insurance (salary and medical) she was put on SS Disability and Medicare. Her Medicare billings afterwards exceeded  well over $1 million, way more than the disability benefits she collected over the years until she turned 65. Ten of her really expensive spine (sometimes 14-hour) surgeries came after she was on Medicare. She truly is disabled and in constant pain since the medications no longer work very well. We recently had her evaluated in Boston for a pain pump, but her surgeon says that with four rods in her back there's no room for a pain pump.

Secondly, the government will never know the number of so-called disabled people that are faking it. I'm told that fraud is especially rampant in South Florida among the Cuban immigrant population where doctors and lawyers often are co-conspirators in getting fake disability status. Up the road from where we live a young man (these days I consider age 40 to be young) moved up here from Florida. He's on full SS disability and Medicare for spinal disability. When driving by I cringe every time I wave at him while he's shoveling his driveway with a snow shovel. He tells me that on his limited disability income he cannot afford to pay to have his drive plowed. Say what?

Teaching Case
From The Wall Street Journal Weekly Accounting Review on May 22, 2015

Management Accounting Skills Found Lacking in Entry-Level Talent
by: Kimberly S. Johnson
May 19, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Accounting Careers, Accounting Education

SUMMARY: Accounting and finance majors need a broader range of skills to get a foot in the door, particularly if they aspire to be finance chiefs. The American Productivity and Quality Center, a Houston business benchmarking nonprofit, sought to quantify the "skills gap" between competencies needed for success within a company and the level possessed by entry-level finance employees.

CLASSROOM APPLICATION: This article is excellent to help students to begin thinking about their careers, in addition to being helpful for accounting faculty and business schools to develop accounting curriculum.

QUESTIONS: 
1. (Introductory) What is a skills gap? What does the article state regarding the skills gap in accounting and finance majors?

2. (Advanced) What are the differences between financial and managerial accounting? Why are skills and knowledge in both areas important for accounting majors?

3. (Advanced) What are the career options for accounting majors? How do those options change as accountants proceed through their careers?

4. (Advanced) How should students prepare for entry-level jobs, as well as for positions later in their careers? What additions and changes will you make after reading this article?
 

Reviewed By: Linda Christiansen, Indiana University Southeast

"Management Accounting Skills Found Lacking in Entry-Level Talent by: Kimberly S. Johnson, The Wall Street Journal, May 19, 2015 ---
http://blogs.wsj.com/cfo/2015/05/19/management-accounting-skills-found-lacking-in-entry-level-talent/?mod=djem_jiewr_AC_domainid

Accounting and finance majors need a broader range of skills to get a foot in the door, particularly if they aspire to be finance chiefs.

CFO Journal Tuesday looked at the problems companies have filling entry-level jobs.  The Institute of Management Accounts considers the situation dire, calling it a “competency crisis,” because many college graduates are ill-equipped to tackle modern-day corporate challenges.

“Unfortunately, students are unaware of these needs—and the opportunities—until it’s too late,” said Jeff Thomson, president and CEO of the IMA.

The group, along with the American Productivity and Quality Center, a Houston business benchmarking nonprofit, sought to quantify the “skills gap” between competencies needed for success within a company and the level possessed by entry-level finance employees.

A recent survey of 173 hiring managers found that the skills with the biggest gap between “needed” and “possessed” are not traditionally associated with entry-level work.

For example, 80% of company hiring managers said they need employees with internal financial reporting experience, but only a paltry 13% of workers possess those skills.

When it comes to all around business acumen, 75% of survey respondents said it’s needed to help the company succeed, but only 7% of entry-level workers have the chops.

“The research found that there were systemic problems,” said Mary Driscoll, senior research fellow for the APQC. “Companies need perspective in finance, way beyond what happened during the last quarter.”

More than three-quarters said leadership is a quality needed “quite a bit” or “extremely,” while only 14% said hires demonstrate the skill.

The Montvale, N.J. IMA is focused on management accounting globally and offers its members a certified management accounting program and credential. The group says higher education places too much focus on public accounting.

“They’re prepared for entry-level jobs in audit and tax, but not for long-term careers in management accounting,” Mr. Thomson said. “This is where they will likely land.”

Continued in article

Jensen Comment
This article is a bit misleading in that there are so few entry-level jobs for managerial accounting graduates. For decades employers seeking managerial accountants require experience that most newly-minted college graduates lack. There are low-level accounting jobs such as when small firms are seeking employees with skills in Quickbooks or other accounting software. But these are not managerial accountants from major universities who usually have zero training skills in Quickbooks.

Most managerial accounting jobs are filled by employees who have experience, including public accounting employees who have 1-10 years of experience in public accounting firms. Other managerial accounting jobs are filled by employees who have been working in AIS  and are moving up to advanced levels of managerial accounting.

Bob Jensen's threads on how to save managerial accounting courses in the Academy ---
http://faculty.trinity.edu/rjensen/Theory02.htm#ManagementAccounting

Teaching Case
From The Wall Street Journal Weekly Accounting Review on May 22, 2015

Hertz Accounting Fix Keeps CFO in Financial No-Man's Land
by: Maxwell Murphy
May 15, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Financial Reporting, Restatements

SUMMARY: Hertz will ultimately restate results for the years 2011 through 2013. But so far, 367 days have passed since it announced that it would restate results. And yet, no restatements. The company disclosed it had again found additional errors that would add at least another $30 million to the non-cash charges. Hertz first disclosed accounting problems in May 2014, after it discovered problems that include the timing of write-downs of certain assets, the allowance for doubtful accounts in Brazil and uncollectible damages for rented vehicles.

CLASSROOM APPLICATION: This article can be used when discussing restatements and annual meetings.

QUESTIONS: 
1. (Introductory) What is a restatement? In what situations do companies issue restatements?

2. (Advanced) What is a reasonable time frame for a company to issue a restatement? Why is timing important for restatements?

3. (Advanced) What are the timing issues with Hertz's restatements? How can this impact the company? How might the markets, investors, and other external parties react to the restatement issues?

4. (Advanced) What are the issues regarding Hertz's annual meeting? Why do companies have annual meetings? How could the delay affect Hertz?
 

Reviewed By: Linda Christiansen, Indiana University Southeast

"Hertz Accounting Fix Keeps CFO in Financial No-Man's Land," by Maxwell Murphy, The Wall Street Journal, May 15, 2015 ---
http://blogs.wsj.com/cfo/2015/05/15/hertz-accounting-fix-keeps-cfo-in-financial-no-mans-land/?mod=djem_jiewr_AC_domainid

Thomas Kennedy’s move from hotels to rental cars in December 2013 came with an unexpected twist.

The finance chief came aboard Hertz Global Holdings Inc.HTZ -1.53% barely five months before it announced a restatement.

Hertz will ultimately restate results for the years 2011 through 2013.  But so far, 367 days have passed since it announced that it would restate results.

And yet, no restatements.

On Thursday the company disclosed it had again found additional errors that would add at least another $30 million to the non-cash charges. Hertz first disclosed accounting problems in May 2014, after it discovered problems that include the timing of write-downs of certain assets, the allowance for doubtful accounts in Brazil and uncollectible damages for rented vehicles.

Among restatements since 2011, just 20, including Hertz’s, entailed investigations that were pending for more than 170 days, according to research firm Audit Analytics, which studied 1,450 restatements back in November.

Nut-and-snacks-producer Diamond Foods Inc. currently holds the crown among actively-traded companies, at 379 days, according to Audit Analytics. But for those of you keeping score, Hertz will likely take the top spot in less than two weeks.

Hertz moved its headquarters to Florida from New Jersey, and former CFO Elyse Douglas left in late 2013 rather than relocate.

The company last held an annual meeting one year ago, and has yet to file proxy materials for its 2015 gathering of shareholders. By the middle of June the company will potentially be in violation of a little-known Delaware law that has been used by activists from time to time to force meetings and director elections.

Under the law, investors can sue Delaware-incorporated companies that go 13 months without holding a meeting, citing undue delay.

Teaching Case
From The Wall Street Journal Weekly Accounting Review on May 22, 2015

Etsy Reports Wider Loss on Higher Costs
by: Suzanne Kapner and Tess Stynes
May 20, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Corporate Taxation, Financial Reporting

SUMMARY: Etsy Inc.'s tax-reducing handicraft came at a high cost. The online crafts bazaar reported a deeper-than-expected loss in its first outing as a public company thanks to millions of dollars in costs associated with a restructuring it said could lower its future tax bill. The company, which began trading publicly after an IPO last month, also reported lower-than-expected sales and warned of rising expenses as it ramps up hiring and spends more heavily on marketing.

CLASSROOM APPLICATION: This is an interesting article regarding a company's financial activities after an IPO, including financial and tax issues.

QUESTIONS: 
1. (Introductory) What is an IPO? How does a company's financial reporting change as it goes through an IPO?

2. (Advanced) What is restructuring? Why did Etsy do this restructuring? What benefits does management expect it to bring? What problems did the restructuring cause?

3. (Advanced) What changes is management making in its business model after the IPO? How will those changes affect the financial statements and results? What are management's hopes for long-term benefits as a result of those changes?
 

Reviewed By: Linda Christiansen, Indiana University Southeast
 

RELATED ARTICLES: 
Etsy Inc. Prices IPO at $16 Share
by Corrie Driebusch
Apr 15, 2015
Online Exclusive

"Etsy Reports Wider Loss on Higher Costs," by Suzanne Kapner and Tess Stynes, The Wall Street Journal, May 20, 2015 ---
http://www.wsj.com/articles/etsy-reports-wider-loss-on-higher-costs-1432067604?mod=djem_jiewr_AC_domainid

Teaching Case
From The Wall Street Journal Weekly Accounting Review on May 22, 2015

Etsy Inc. ’s tax-reducing handicraft came at a high cost.

The online crafts bazaar reported a deeper-than-expected loss in its first outing as a public company thanks to millions of dollars in costs associated with a restructuring it said could lower its future tax bill.

The company, which began trading publicly after an IPO last month, also reported lower-than-expected sales and warned of rising expenses as it ramps up hiring and spends more heavily on marketing.

Shares fell 17.4% to $17.34 in after-hours trading. Through Tuesday’s close, the stock had risen 31% from its initial public offering price of $16. On its first day of trading in April, the stock surged as high as $35.74 before closing at $31.

Etsy lost $36.6 million in the first three months of the year, compared with a year-earlier loss of $463,000. Revenue jumped 44% to $58.5 million.

Analysts polled by Thomson Reuters expected revenue of $59 million.

The company said its restructuring led to a $10.5 million increase to its tax provision and a $20.9 million loss on currencies largely because of intercompany debt taken on as part of the moves.

The company said it has shifted to a more global structure now that about 30% of its gross merchandise sales come from outside the U.S.

It didn’t provide details, but an earlier securities filing indicated the changes involved transfers of intellectual property within the company.

“Our new corporate structure changes how we use our intellectual property and implements certain intercompany arrangements, which we expect may result in a reduction in our overall effective tax rate and other operational efficiencies,” Etsy said in the filing.

Continued in article

Teaching Case
From The Wall Street Journal Weekly Accounting Review on May 22, 2015

The Plain-Vanilla Accountant Goes Out of Style
by: Kimberly S. Johnson
May 19, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Accounting Careers, Accounting Education

SUMMARY: As the chief financial officer's role becomes less numbers-oriented and more strategic, so are lower-ranking jobs in corporate finance departments. Tighter regulation, automation and an increasingly complex business landscape require even entry-level accountants to possess a wider range of technical and communications skills. More CFOs say they want people who have initiative and can do things like analyze data and present their findings coherently to colleagues.

CLASSROOM APPLICATION: This article offers excellent information for accounting majors to help them understand how to make themselves marketable and valuable in the workplace.

QUESTIONS: 
1. (Introductory) What skills are important for accounting majors? What skills and experience are employers seeking?

2. (Advanced) How are careers in accounting evolving and changing? What knowledge and skills are becoming less valuable and which ones are more valuable? What are some reasons for these changes?

3. (Advanced) What are your strengths and weaknesses? What steps should you take to develop your skills and gain experience to be prepared for your career?
 

Reviewed By: Linda Christiansen, Indiana University Southeast

"The Plain-Vanilla Accountant Goes Out of Style," by Kimberly S. Johnson, The Wall Street Journal, May 19, 2015 ---
http://blogs.wsj.com/cfo/2015/05/19/the-plain-vanilla-accountant-goes-out-of-style/?mod=djem_jiewr_AC_domainid

Judi Pulig would like to hire two junior accountants this year. The videoconferencing company where she is finance chief is offering them yearly salaries of about $55,000 apiece.

But, she said, most of the 118 people who have applied for the openings at York Telecom Corp., in Eatontown, N.J., don’t have what it takes.

As the chief financial officer’s role becomes less numbers-oriented and more strategic, so are lower-ranking jobs in corporate finance departments.

Tighter regulation, automation and an increasingly complex business landscape require even entry-level accountants to possess a wider range of technical and communications skills.

More CFOs say they want people who have initiative and can do things like analyze data and present their findings coherently to colleagues. But demand is outpacing supply. The U.S. unemployment rate for accountants and auditors was 2.9% in the first quarter. That compares with an overall jobless rate of 5.4% in April.

Leadership, forecasting, strategic thinking, cost management and financial reporting are the skills where the gaps between demand and supply are the widest, according to a survey of 173 finance and human resources hiring managers.

According to the Institute of Management Accountants, a Montvale, N.J., accreditation group and the American Productivity & Quality Center, a Houston-based nonprofit organization, 81% of those polled said planning, budgeting and forecasting skills were “quite a bit” or “extremely” necessary for their organization to succeed.

Yet the same respondents said only 30% of entry-level finance professionals possess those skills. Though 77% agreed that leadership ability was a necessity, only 14% said their employees had it.

“What I need is someone who can analyze data, see problems and figure out solutions,” said Benjamin Mulling, CFO of Tente Casters Inc., a wheel maker with its North American headquarters in Hebron, Ky. He said he has a hard time hiring junior- and senior-level accountants.

“A college grad telling me they know how to do debits and credits and financial statements doesn’t really help me,” Mr. Mulling added, because Tente Casters uses software to automate many order-processing and billing tasks.

Continued in article

Teaching Case
From The Wall Street Journal Weekly Accounting Review on May 22, 2015

Fees Rise as Internal Controls Draw Auditor Focus
by: Emily Chasen
May 19, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Audit Fees, Auditing, Internal Controls

SUMMARY: Companies spent more money for outside audits this year, amid an increased focus on internal controls, which act as a first line of defense against financial fraud. External auditors are broadly increasing the scrutiny they give internal controls, due to pressure to give closer attention to them from regulators including the Public Company Accounting Oversight Board. The fees companies paid their outside auditors as well as internal costs are on the rise.

CLASSROOM APPLICATION: This article is appropriate for an auditing class when covering internal controls and audit fees.

QUESTIONS: 
1. (Introductory) What are internal controls? What are the purposes of internal controls? How are they included in the accounting system?

2. (Advanced) What are external auditors? How do their responsibilities differ from those of internal auditors?

3. (Advanced) Why are external auditors focusing more on internal controls? What additional work is required as a result of this increased focus?

4. (Advanced) What is the purpose of an audit? How is the increased focus affecting audit fees? Why? How is the internal audit function of the business affected?

5. (Advanced) What are the ranges of audit fees for businesses of various sizes? Are you surprised at the sizes of the fees?
 

Reviewed By: Linda Christiansen, Indiana University Southeast

"Fees Rise as Internal Controls Draw Auditor Focus," by Emily Chasen, The Wall Street Journal, May 19, 2015 ---
http://blogs.wsj.com/cfo/2015/05/19/fees-rise-as-internal-controls-draw-auditor-focus/?mod=djem_jiewr_AC_domainid

Companies spent more money for outside audits this year, amid an increased focus on internal controls, which act as a first line of defense against financial fraud.

External auditors are broadly increasing the scrutiny they give internal controls, due to pressure to give closer attention to them from regulators including the Public Company Accounting Oversight Board. The fees companies paid their outside auditors as well as internal costs are on the rise, according to a survey this week from consulting firm Protiviti.

Nearly three out of four companies in a poll of 460 firms this year are reporting an increase in external audit fees. Mid-size companies reported the largest jump in fees, with 38% of companies saying their audit fees increased by between 16% and 19%.

According to the consulting firm’s survey, nearly three out of four organizations said their auditors put more focus on evaluating internal controls this year, as auditors sought better evidence and documentation for companies to prove their controls were working, said Jim DeLoach, a managing director at Protiviti. That has led to higher internal costs for companies also as they respond to the requests.

“When the auditor says we need more evidence in this specific area, the client needs to spend more time as well,” Mr. DeLoach said.

Some 58% of large companies with revenues over $10 billion said they spent more than $1 million on internal costs for their audit on top of the fees paid to the outside firm, while 25% reported spending $2 million plus. Audit costs for small companies with revenues under $100 million mostly were under $500,000, Protiviti said.

Continued in article

Teaching Case
From The Wall Street Journal Weekly Accounting Review on May 29, 2015

Emails to Play Key Role in Dewey & LeBoeuf Trial
by: Sara Randazzo
May 26, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Cash Basis Accounting, Financial Accounting, Fraud, Auditing

SUMMARY: When opening arguments kick off in a criminal trial over the collapse of once-elite law firm Dewey & LeBoeuf LLP, emails will play a starring role. Prosecutors will be trying to prove that three of Dewey's former leaders intentionally misled banks and others in an ultimately futile effort to keep the firm afloat. Prosecutors allege that soon after the merger, Messrs. Davis, DiCarmine and Sanders began manipulating the law firm's finances to make it appear they were in compliance with bank-loan covenants requiring the firm to maintain certain levels of cash flow.

CLASSROOM APPLICATION: This is a great article for auditing, fraud examination, and financial accounting classes. The fact situation involves leaders of a major law firm who are facing criminal charges for manipulating financial statements and hiring a "clueless auditor" to stay in compliance with debt covenants.

QUESTIONS: 
1. (Introductory) What are the facts of this case? Who are the defendants? What was their occupation and what were their positions?

2. (Advanced) What is a loan covenant? How are they related to financial reporting? Why were the defendants concerned about loan covenants?

3. (Advanced) What were the defendants' alleged wrongdoings related to the firm's financial reporting? Why could these actions be considered fraud?

4. (Advanced) What is cash-basis accounting? What is the alternative? How do they differ? Why was the law firm's accounting cash basis? How did being cash basis affect the financial statements?

5. (Advanced) What did the defendants communicate in the emails? Why could that be problematic for them?

6. (Advanced) How do criminal cases differ from civil cases? Why were criminal charges pursued in this case?
 

Reviewed By: Linda Christiansen, Indiana University Southeast
 

RELATED ARTICLES: 
Fallen Law Firm's Leaders Are Charged With Fraud
by Jennifer Smith and Ashby Jones
Mar 06, 2014
Online Exclusive

"Emails to Play Key Role in Dewey & LeBoeuf Trial," by Sara Randazzo, The Wall Street Journal, May 26, 2015 ---
http://www.wsj.com/articles/emails-to-play-key-role-in-dewey-leboeuf-trial-1432546382?mod=djem_jiewr_AC_domainid

Prosecutors will try to prove that three of Dewey’s former leaders intentionally misled banks and others.

When opening arguments kick off on Tuesday in a criminal trial over the collapse of once-elite law firm Dewey & LeBoeuf LLP, emails will play a starring role.

Prosecutors will be trying to prove that three of Dewey’s former leaders intentionally misled banks and others in an ultimately futile effort to keep the firm afloat.

“Can you find another clueless auditor for next year?” one of the defendants, former chief financial officer Joel Sanders, allegedly wrote in one email included in the 100-count indictment. The recipient responds: “That’s the plan. Worked perfect this year.”

Mr. Sanders and his co-defendants, former chairman Steven Davis and former executive director Stephen DiCarmine, have denied any guilt, saying they worked honestly to head off a 2012 bankruptcy that brought an end to a firm with roots dating back more than a century. The firm carried the name of former New York governor and onetime presidential hopeful Thomas E. Dewey.

Prosecutors in the office of Manhattan District Attorney Cyrus Vance Jr. allege the three defendants intentionally inflated revenue and used other accounting tricks to stay in compliance with covenants on $100 million in term debt and revolving credit lines of more than $130 million from four banks. The fraud, prosecutors say, was also used to deceive more than a dozen insurance companies into participating in a $150 million bond offering in 2010.

In addition to scores of emails, the prosecution will rely on testimony from some of the seven lower-level employees at the firm who have pleaded guilty to related crimes. The trial is expected to last between four and six months, and the eight women and four men on the jury must weigh the evidence against each defendant separately.

Continued in article

Teaching Case
From The Wall Street Journal Weekly Accounting Review on May 29, 2015

Shareholder Group Says Ernst & Young Knew About Wal-Mart Mexico Bribery Allegations
by: Sarah Nassauer
May 25, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Auditing, External Auditors, FCPA, PCAOB

SUMMARY: A small shareholder group says Wal-Mart 's longtime auditor, Ernst & Young, knew about possible bribery in Mexico long before the company disclosed it to U.S. authorities, highlighting a little-plumbed area of U.S. anticorruption law. The challenge raises the question of external auditors' responsibilities when their clients may have violated the Foreign Corrupt Practices Act, the tough U.S. antibribery law. If an outside auditor discovers a potentially illegal act, it generally is only expected to notify responsible authorities within the company, accounting and legal experts said. But it may be obliged to notify the government if the appropriate steps aren't being taken and a company's books may be compromised.

CLASSROOM APPLICATION: This article covers an interesting issue regarding what external auditors should do when they find possible bribery. This would be a valuable example for an auditing class.

QUESTIONS: 
1. (Introductory) What are the facts of Wal-Mart's bribery case? What is Ernst & Young? How is it involved with Wal-Mart and Wal-Mart's activities?

2. (Advanced) What are external auditors? What are their duties and responsibilities? What did the auditors do in this case that is being questioned?

3. (Advanced) What are the rules for external auditors for situations like this? Are these rules appropriate or should they be changed? Why?

4. (Advanced) What is the FCPA? How does it apply to Wal-Mart's actions? Could it also apply to Ernst & Young's actions? Why or why not?

5. (Advanced) What is the PCAOB? What are its responsibilities? How is it involved in this case? What is it likely to do to address this situation?

6. (Introductory) What is the SEC? How could it have been involved in this situation?

7. (Introductory) How has FCPA enforcement changed in recent years? How has the FCPA investigation affected Wal-Mart?
 

Reviewed By: Linda Christiansen, Indiana University Southeast
 

RELATED ARTICLES: 
Wal-Mart Discloses a Corruption Probe
by Miguel Bustillo and Joe Palazzolo
Dec 09, 2011
Online Exclusive

Rash of Civil Suits Complicates FCPA Cases
by Joel Schechtman
Feb 17, 2015
Online Exclusive

"Shareholder Group Says Ernst & Young Knew About Wal-Mart Mexico Bribery Allegations," by Sarah Nassauer, The Wall Street Journal, May 25, 2015 ---
http://www.wsj.com/articles/shareholder-group-ctw-says-ernst-young-knew-about-wal-mart-mexico-bribery-allegations-1432580954?mod=djem_jiewr_AC_domainid

CtW Investment Group made claim in letter to Public Company Accounting Oversight Board.

A small shareholder group says Wal-Mart ’s longtime auditor, Ernst & Young, knew about possible bribery in Mexico long before the company disclosed it to U.S. authorities, highlighting a little-plumbed area of U.S. anticorruption law.

CtW Investment Group, which works with union pension funds that hold about 0.15% of Wal-Mart Stores Inc. stock, made the claim in a letter last Thursday to the Public Company Accounting Oversight Board, which oversees public companies’ outside accounting firms.

The letter cites an internal Wal-Mart email dated Feb. 27, 2006, that says employees in Wal-Mart’s Bentonville, Ark., headquarters “briefed Ernst & Young over the past several months,” along with some of the company’s directors, on an internal investigation into the possible bribery. It wasn’t until late 2011 that Wal-Mart disclosed its investigation to the Justice Department and Securities and Exchange Commission, according to the company’s securities filings.

CtW said in its letter that Ernst & Young likely should have reported the suspected bribery to the SEC and should be investigated by the accounting oversight board, because the acts under investigation and how the investigation was handled could have affected the retailer’s financial statements.

The challenge raises the question of external auditors’ responsibilities when their clients may have violated the Foreign Corrupt Practices Act, the tough U.S. antibribery law. If an outside auditor discovers a potentially illegal act, it generally is only expected to notify responsible authorities within the company, accounting and legal experts said. But it may be obliged to notify the government if the appropriate steps aren’t being taken and a company’s books may be compromised, they said.

Ernst & Young, which has been Wal-Mart’s outside accountant for decades, said it couldn’t comment on matters involving its clients. Wal-Mart wouldn’t comment, saying the bribery investigation is ongoing. PCAOB and the SEC also declined to comment.

The PCAOB can investigate public company accounting firms for poor audits, including fraud, and in some cases hands out disciplinary fines or revokes a firm’s right to practice. It has never sanctioned an outside accountant for issues related to the Foreign Corrupt Practices Act, a spokesman for the regulatory body said. Nor have any been penalized by the SEC, which along with the Justice Department has jurisdiction over the FCPA.

Continued in article

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

Teaching Case
From The Wall Street Journal Weekly Accounting Review on May 29, 2015

House Votes to Permanently Extend Research Tax Credit
by: John D. McKinnon
May 21, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Corporate Taxation, Individual Taxation, Research Tax Credit

SUMMARY: The House voted to permanently extend a popular federal tax credit for research. The research break is one of about 50 targeted tax breaks that have been enacted repeatedly on a temporary basis. Starting last year, congressional Republicans sought to extend a few of the largest and most popular ones on a permanent basis, without offsetting the budgetary cost through budget cuts or other means. Such permanent extensions could greatly simplify the task of overhauling the federal tax code.

CLASSROOM APPLICATION: This article is a good update regarding the status of temporary tax breaks. It could be used in either an individual or corporate tax class.

QUESTIONS: 
1. (Introductory) What is the research tax credit? What did the House do regarding that tax credit? What are the chances of this becoming law? Why?

2. (Advanced) What is a temporary tax break? Why are some tax breaks temporary? Why are they renewed each year? Why aren't they enacted permanently?

3. (Advanced) Why would it be beneficial for taxpayers to know if temporary tax breaks were going to be renewed? Who is benefited by certainty in the tax code? Consider ripple effects and include all parties.
 

Reviewed By: Linda Christiansen, Indiana University Southeast
 

RELATED ARTICLES: 
House Republicans Advance Expanded, Permanent Tax Cuts
by John D. McKinnon
Feb 12, 2015
Online Exclusive

"House Votes to Permanently Extend Research Tax Credit," by John D. McKinnon, The Wall Street Journal, May 21, 2015 ---
http://www.wsj.com/articles/house-votes-to-permanently-extend-research-tax-credit-1432164443?mod=djem_jiewr_AC_domainid

Move sets up likely clash between Republicans and Obama.

The House on Wednesday voted to permanently extend a popular federal tax credit for research, in a move that foreshadows a likely clash between congressional Republicans and President Barack Obama later this year.

The vote was 274 to 145.

The legislation appears unlikely to become law on its own. But it could become a bargaining chip in a developing debate over taxes as well as highway funding.

The research break is one of about 50 targeted tax breaks that have been enacted repeatedly on a temporary basis.

Starting last year, congressional Republicans sought to extend a few of the largest and most popular ones on a permanent basis, without offsetting the budgetary cost through budget cuts or other means. Such permanent extensions could greatly simplify the task of overhauling the federal tax code.

But many Democrats including Mr. Obama have objected, arguing that the price tag of the permanent extensions would be too high. The permanent research credit, for example, would cost the government about $180 billion over the next decade.

Mr. Obama intervened late last year to scuttle a bipartisan deal on the extenders that likely would have made some of them permanent. Instead, they generally were re-enacted for 2014 only. Indications are that Republicans will try again this year for a package that includes some permanent extensions, such as the research credit. But it appears the White House will try to hold its ground.

The White House this week threatened again to veto the permanent research credit, accusing Republicans of a “double standard” that would cut taxes for businesses and the wealthy, while “slashing investments and programs that serve middle-class and working Americans in the name of fiscal rectitude.”

Still, with pressure growing for legislation to boost the economy and jobs—such as a tax overhaul and changes to boost U.S. infrastructure spending—the tax extenders debate eventually could become a vehicle for a broader tax deal, some lawmakers say. That could open the door to horse-trading over the extenders as well as other tax measures.

“We’re looking at all these options,” Rep. Charles Boustany (R., La.), an influential Ways and Means Committee member, said in a recent interview. He added that the environment for a tax rewrite is “a difficult landscape, but it doesn’t mean we’ll give up.”

The legislation approved Wednesday would make permanent and simplify the research credit, which has been criticized as too complicated.

In Wednesday’s debate, Democrats criticized Republicans for dragging their feet this year on a tax overhaul. Democrats and Republicans alike are hoping to use a tax rewrite to generate one-time corporate tax revenues that could boost spending on highways and other infrastructure.

Rep. Earl Blumenauer (D., Ore.) said that while Congress dickers, the U.S. is “falling behind [in infrastructure] while America falls apart.” He and other Democrats called on Republicans to hold hearings on how to finance more highways.

Democrats, including Rep. Mike Thompson of California, also complained about the bill’s cost.

Continued in article

Teaching Case
From The Wall Street Journal Weekly Accounting Review on May 29, 2015

As Activism Rises, U.S. Firms Spend More on Buybacks Than Factories
by: Vipal Monga, David Benoit, And Theo Francis
May 27, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Financial Accounting, Managerial Accounting, Return on Investment, Strategy

SUMMARY: U.S. businesses, feeling heat from activist investors, are slashing long-term spending and returning billions of dollars to shareholders, a fundamental shift in the way they are deploying capital. Data show a broad array of companies have been plowing more cash into dividends and stock buybacks, while spending less on investments, such as new factories and research and development.

CLASSROOM APPLICATION: This article offers a real-world case study of how management strategies and decisions influence what is reported on the financial records.

QUESTIONS: 
1. (Introductory) What are activists? What are their intentions regarding large corporations?

2. (Advanced) What benefits can activists offer businesses, the economy, and society? What harm could their activities cause?

3. (Advanced) How would a company's financial statements differ if management chooses to pay dividends rather than buying back shares of the company's stock or continue to help the cash?

4. (Advanced) What can management do with excess cash instead of paying dividends or buying back shares? How are investors affected by each of these options? How is the economy and society affected by each option? What are potential short-term and long-term ripple effects of each option?

5. (Advanced) How have levels of dividends, stock purchases, and investments changed in recent years? What are the expectations for the future?
 

Reviewed By: Linda Christiansen, Indiana University Southeast
 

RELATED ARTICLES: 
GM Sets Buyback, Placating Activists
by Vipal Monga and David Benoit
Mar 09, 2015
Online Exclusive

Tech Firms Seek Ways to Fend Off Activist Investors
by Shira Ovide and Don Clark
May 26, 2015
Online Exclusive

"As Activism Rises, U.S. Firms Spend More on Buybacks Than Factories," by Vipal Monga, David Benoit, and Theo Francis, The Wall Street Journal, May 27, 2015 ---
http://www.wsj.com/articles/companies-send-more-cash-back-to-shareholders-1432693805?mod=djem_jiewr_AC_domainid

New data reveals S&P 500 companies spent 36% of cash flow on shareholder payouts; Are giants like Apple and GE ‘underinvesting in innovation’?

U.S. businesses, feeling heat from activist investors, are slashing long-term spending and returning billions of dollars to shareholders, a fundamental shift in the way they are deploying capital.

Data show a broad array of companies have been plowing more cash into dividends and stock buybacks, while spending less on investments such as new factories and research and development.

Activist investors have been pushing for such changes, but it isn’t just their target companies that are shifting gears. More businesses sitting on large piles of extra cash are deciding to satisfy investors by giving some of it back. Rock-bottom interest rates have made it cheap to borrow to buy back shares, which can boost a company’s stock price. And technology-driven productivity gains are enabling some businesses to do more with less.

As the trend picks up steam, so too has debate about whether activist investors—who take sizable stakes in companies, then agitate for changes they think will boost share prices—have caused companies to tilt too far toward short-term rewards.

Laurence Fink, chief executive of BlackRock Inc., the world’s largest money manager, argued as much in a March 31 letter to S&P 500 CEOs. “More and more corporate leaders have responded with actions that can deliver immediate returns to shareholders, such as buybacks or dividend increases, while underinvesting in innovation, skilled workforces or essential capital expenditures necessary to sustain long-term growth.”

An analysis conducted for The Wall Street Journal by S&P Capital IQ shows that companies in the S&P 500 index sharply increased their spending on dividends and buybacks to a median 36% of operating cash flow in 2013, from 18% in 2003. Over that same decade, those companies cut spending on plants and equipment to 29% of operating cash flow, from 33% in 2003.

At S&P 500 companies targeted by activists, the spending cuts were more dramatic. Targeted companies reduced capital expenditures in the five years after activists bought their shares to 29% of operating cash flow, from 42% the year before, the Capital IQ analysis shows. Those companies boosted spending on dividends and buybacks to 37% of operating cash flow in the first year after being approached, from 22% in the year before.

Continued in article

Crummey Trust --- http://en.wikipedia.org/wiki/Crummey_trust

Teaching Case
From The Wall Street Journal Weekly Accounting Review on May 29, 2015

A Way to Make Big Gifts to Family Without Tax
by: Laura Saunders
May 23, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Crummey Trust, Estate Tax, Gift Tax

SUMMARY: The U.S. Tax Court affirmed in a recent decision affirmed the use of Crummey trusts, and ruled against the Internal Revenue Service and allowed a New York couple to use Crummey trusts-named after a Methodist minister who was the plaintiff in a 1968 case-to make tax-free transfers of $1.6 million without dipping into their lifetime gift-tax exemptions. Experts say the decision serves as reminder of how useful Crummey trusts can be for estate planning-especially for people who aren't ultrarich. The affluent often owe significant state death duties even if they don't owe anything to the federal government, which often has a higher exemption.

CLASSROOM APPLICATION: This is a great update for the use of Crummey trusts, and is appropriate for tax courses.

QUESTIONS: 
1. (Introductory) What is Crummey trust? To what areas of tax law does it apply?

2. (Advanced) What the benefits of a Crummey trust? How do they work? What must a taxpayer do to take advantage of this type of trust?

3. (Advanced) How do state estate tax laws differ from federal? How does this impact taxpayer estate planning? How do Crummey trusts affect state estate taxes?

4. (Advanced) What are the facts of the Mikel case? How do the facts differ from other Crummey trust cases? What aspects did the IRS challenge? What did the court decide? How does this decision affect tax planning?
 

Reviewed By: Linda Christiansen, Indiana University Southeast

"A Way to Make Big Gifts to Family Without Tax," by Laura Saunders, The Wall Street Journal, May 23, 2015 ---
http://www.wsj.com/articles/a-way-to-make-big-gifts-to-family-without-tax-1432311083?mod=djem_jiewr_AC_domainid

The Tax Court cleared a couple’s use of Crummey trusts to give $1.6 million free of U.S. gift or estate tax.

There’s nothing crummy about “Crummey” trusts for people planning their estates—as the U.S. Tax Court affirmed in a recent decision.

In Mikel v. Commissioner, the court ruled against the Internal Revenue Service and allowed a New York couple to use Crummey trusts—named after a Methodist minister who was the plaintiff in a 1968 case—to make tax-free transfers of $1.6 million without dipping into their lifetime gift-tax exemptions.

Experts say the decision serves as reminder of how useful Crummey trusts can be for estate planning—especially for people who aren’t ultrarich. The affluent often owe significant state death duties even if they don’t owe anything to the federal government, which often has a higher exemption.

Currently 18 states plus the District of Columbia have a state estate tax, an inheritance tax or both, according to the Tax Foundation, a nonprofit group in Washington. Some can be stiff.

In New York, for example, the top estate-tax rate is 16%, and a feature known as “the cliff” can catch taxpayers unawares. This year, it rescinds the $3.125 million estate-tax exemption if an estate has taxable assets exceeding 105% of that amount, or $3,281,250, says Linda Hirschson, an estate attorney with Greenberg Traurig in New York. In that case, the estate tax takes effect from the first dollar, rather than applying only to the amount above the exemption.

Continued in article

Teaching Case
From The Wall Street Journal Weekly Accounting Review on June 5, 2015

The 109,894-Word Annual Report
by: Vipal Monga and Emily Chasan
Jun 02, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Annual Reports

SUMMARY: Companies are spending an increasing amount of time and energy beefing up their regulatory filings to meet disclosure requirements. The average 10K is getting longer-about 42,000 words in 2013, up from roughly 30,000 words in 2000. By comparison, the text of the Sarbanes-Oxley Act of 2002 has 32,000 words. Some companies wonder whether investors benefit from the additional information. Their question: How much is too much? Regulators at the Securities and Exchange Commission and the Financial Accounting Standards Board say they are working on projects to reduce the volume of useless information in company filings, while increasing transparency.

CLASSROOM APPLICATION: This is a great article discussing the length and contents of today's annual reports.

QUESTIONS: 
1. (Introductory) What is an annual report? Why do companies issue them?

2. (Advanced) What are the components of an annual report? What are the typical lengths? How have annual reports grown over the years?

3. (Advanced) Who reads and uses annual reports? What information do these parties need? Is there enough information in the annual reports for these parties?

4. (Advanced) What is a 10-K? What is its purpose? What information does it provide? Who uses it? What additional information and value does it provide in addition to the annual report?

5. (Advanced) What issues or problems does the article present? How should those issues or problems be remedied?
 

Reviewed By: Linda Christiansen, Indiana University Southeast
 

RELATED ARTICLES: 
The 109,894-Word Annual Report
by Vipal Monga and Emily Chasan
Jun 02, 2015
Online Exclusive

Investors: Filings Are For Searching, Not Reading
by Emily Chasan
Jun 02, 2015
Online Exclusive

The 109,894-Word Annual Report As regulators require more disclosures, 10-Ks reach epic lengths; how much is too much?" by Vipal Monga and Emily Chasan, The Wall Street Journal, June 2, 2015 ---
http://www.wsj.com/articles/the-109-894-word-annual-report-1433203762?mod=djem_jiewr_AC_domainid

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

Investors: filings are for searching, not reading
http://blogs.wsj.com/cfo/2015/06/02/investors-filings-are-for-searching-not-reading/?mod=djemCFO_h
Institutional investors and analysts are much more likely to search filings for specific information they need than to read them cover-to-cover these days, CFO Journal’s Emily Chasan reports. And even though corporate filings are getting longer, some investors say that it is still terribly difficult to get the information they need from companies to do fundamental analysis. Companies can “use 1,000 words and say nothing,” said Brian Barnier, an analyst at investment-research firm ValueBridge Advisors.

Are we giving Tolstoy too much credit for long novels in this era of monumental SEC 10K reports (not to suggest that 10K reports are entirely fiction)?

From the CFO Journal's Morning Ledger on June 2, 2015

Good morning. With page counts once reserved for epic novels, annual reports and other required corporate filings have grown substantially longer as regulatory burdens have increased, CFO Journal’s Vipal Monga and Emily Chasan report. That’s forcing companies to spend a growing amount of time on the lengthy filings. The average 10K has grown to about 42,000 words in 2013 from roughly 30,000 words in 2000.

General Electric Co. Chief Financial Officer Jeffrey Bornstein was taken aback by the company’s 246-page report. “Not a retail investor on planet Earth could get through” it, let alone understand it, he said. Packed with text on the company’s internal controls, auditor statements and regulator-mandated boilerplate on “inflation, recession and currency volatility,” the 2013 annual report was 109,894 words long.

Part of the reason for the ballooning filings: More U.S. companies are operating internationally, exposing their investors to new geopolitical risks. In addition, many also use abstract financial instruments such as derivatives and sophisticated hedging tactics to protect themselves from swings in currency and commodities markets.

Jensen Comment
War and Pease in English has over 500,000 words, such that 10K reports are not yet competitive.

This begs the question of when robots will commence to seriously read long books and reports and analyze the outcomes in varying  contexts.

When will a neurotic Hal be followed by millions of readers in Fortune Magazine?
http://en.wikipedia.org/wiki/2001:_A_Space_Odyssey

Teaching Case
From The Wall Street Journal Weekly Accounting Review on June 5, 2015

Avago's Pending Broadcom Purchase Taps Arcane Tax Structure
by: Liz Hoffman
May 29, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Corporate Taxation, Mergers, Tax Deferrals, Tax Planning

SUMMARY: Avago Technologies Ltd. 's pending takeover of Broadcom Corp. taps an arcane tax structure that's being dusted off amid a rise in cross-border mergers. Avago said it is prepared to offer Broadcom shareholders special partnership units that would defer any taxes triggered by the $37 billion tie-up. The cross-border nature of the deal might otherwise generate tax bills for Broadcom investors. The partnership arrangement would give those shareholders flexibility in deciding when to take their tax hit. Broadcom negotiated for the partnership units with the founders in mind. Stock mergers of two U.S. companies are typically tax-free to shareholders. But under Internal Revenue Service rules that govern cross-border mergers, if Broadcom is larger than Avago by the time the deal closes, the transaction could be taxable to Broadcom's U.S. shareholders, though the IRS could issue a waiver.

CLASSROOM APPLICATION: This transaction is a good example of tax planning. Our students should understand the value of structuring deals to manage the tax effect.

QUESTIONS: 
1. (Introductory) What are the facts of the merger discussed in the article? What companies are involved?

2. (Advanced) What special tax plans has management arranged for the merger? What are the details of that plan?

3. (Advanced) Why did management develop these plans? What are the benefits? Who will benefit? Who is most likely to use it? Who will not benefit as a result of the plan?

4. (Advanced) What are potential issues or limitations related to the plan? Should the parties go forward with it?
 

Reviewed By: Linda Christiansen, Indiana University Southeast
 

RELATED ARTICLES: 
Avago Dives Deep With Broadcom
by Dan Gallagher
May 29, 2015
Online Exclusive

"Avago's Pending Broadcom Purchase Taps Arcane Tax Structure," by Liz Hoffman, The Wall Street Journal, May 29, 2015 ---
http://www.wsj.com/articles/avagos-pending-broadcom-purchase-taps-arcane-tax-structure-1432847788?mod=djem_jiewr_AC_domainid

Avago Technologies Ltd. ’s pending takeover of Broadcom Corp. taps an arcane tax structure that’s being dusted off amid a rise in cross-border mergers.

Avago said it is prepared to offer Broadcom shareholders special partnership units that would defer any taxes triggered by the $37 billion tie-up, which was announced Thursday. The cross-border nature of the deal—Avago is based in Singapore, while Broadcom is in California—might otherwise generate tax bills for Broadcom investors.

The partnership arrangement would give those shareholders—including Broadcom’s two co-founders, who collectively own about 8.6% of the company—flexibility in deciding when to take their tax hit. Broadcom negotiated for the partnership units with the founders in mind, said a person familiar with the deal.

At issue is the relative size of the two companies, experts say. Stock mergers of two U.S. companies are typically tax-free to shareholders. But under Internal Revenue Service rules that govern cross-border mergers, if Broadcom is larger than Avago by the time the deal closes, the transaction could be taxable to Broadcom’s U.S. shareholders, though the IRS could issue a waiver.

As of Tuesday’s close, before The Wall Street Journal first reported the negotiations, Avago had a market value of $34 billion, while Broadcom had a market value of $28 billion. But by Thursday trading, the gap had narrowed, with Avago worth about $36.7 billion and Broadcom worth about $34.6 billion.

The issue arose several times last year, when overseas deals known as inversions were in vogue. Those deals, in which a U.S. acquirer buys a foreign target and redomiciles to a lower-tax venue, generally prompted taxes for the U.S. shareholders, often without generating much, if any, cash to cover the bill.

Continued in article

Teaching Case
From The Wall Street Journal Weekly Accounting Review on June 5, 2015

Government Retiree Costs to Be Put in the Spotlight
by: Michael Rapoport
Jun 03, 3201
Click here to view the full article on WSJ.com
 

TOPICS: GASB, Governmental Accounting

SUMMARY: State and local governments will have to add hundreds of billions of dollars in retiree obligations to their books under rules that spotlight the growing costs of health insurance and other benefits owed to former municipal employees. The new rules approved unanimously by the Governmental Accounting Standards Board, which sets accounting rules for states and municipalities, will require governments to carry their unfunded retiree-benefit obligations on their balance sheets-thus making their overall financial position look worse. Currently, governments are required only to disclose the benefit costs in the footnotes to their financial statements.

CLASSROOM APPLICATION: This is an excellent update to use for coverage of governmental accounting.

QUESTIONS: 
1. (Introductory) What is the Governmental Accounting Standards Board? What is its area of authority?

2. (Advanced) What are the details of the new rules passed by GASB? What is the reason for the rules? What additional information and value does it add?

3. (Advanced) How will financial statements and reporting change with this new rule? What changes in management of the entities could occur as a result of this change in reporting?

4. (Advanced) Why haven't these liabilities been included in the financial statements before this rule? How were they reported? Was that sufficient? Why or why not?
 

Reviewed By: Linda Christiansen, Indiana University Southeast

"Government Retiree Costs to Be Put in the Spotlight," by Michael Rapoport, The Wall Street Journal, June 3, 2015 ---
http://www.wsj.com/articles/state-governments-must-add-billions-in-obligations-to-books-under-new-gasb-rules-1433273603?mod=djem_jiewr_AC_domainid

State and local governments will have to add hundreds of billions of dollars in retiree obligations to their books under rules enacted Tuesday that spotlight the growing costs of health insurance and other benefits owed to former municipal employees.

The new rules approved unanimously by the Governmental Accounting Standards Board, which sets accounting rules for states and municipalities, will require governments to carry their unfunded retiree-benefit obligations on their balance sheets—thus making their overall financial position look worse. Currently, governments are required only to disclose the benefit costs in the footnotes to their financial statements.

In addition, governments will have to use more conservative interest-rate assumptions in calculating the value of benefit obligations that they haven’t funded. That could increase the current value of the obligations, thus worsening the plans’ funding shortfalls.

The changes are intended to provide more information to taxpayers, policy makers and municipal-bond analysts, GASB Chairman David Vaudt said in a statement. The rules won’t require governments to commit more money to pay for retiree benefits, nor do they require any changes in the level of benefits provided to retirees. But by making benefit costs more visible, the changes could prompt more governments to take action to address rising benefit costs.

“I think we would expect to see ongoing efforts by governments to control these costs,” Moody’s Investors Service analyst Marcia Van Wagner said.

The rising costs of retiree benefits have plagued state and local governments and have played a role in the bankruptcies of cities like Detroit. According to Moody’s, state governments alone had $454 billion in unfunded retiree-benefit liabilities for 2013, the most recent data available.

“These costs have been rising pretty significantly, and it’s a cost states want to control,” Ms. Van Wagner said.

Continued in article

Bob Jensen's threads on government retiree costs ---
http://faculty.trinity.edu/rjensen/Theory02.htm#Pensions

Teaching Case
From The Wall Street Journal Weekly Accounting Review on June 5, 2015

Tech Firms Fret Over Looming Revenue Accounting Changes
by: Kimberly S. Johnson and Emily Chasan
Jun 01, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Financial Accounting, Revenue Recognition

SUMMARY: More technology companies are fretting over accounting rule changes that will affect how companies report their top-line sales numbers to investors. The U.S. Financial Accounting Standards Board handed down new rules on the way companies book revenue last May. There's uncertainty surrounding the mandates final version and implementation date, which involves changes to deferred revenue, or the money companies collect from customers and recognize as revenue over time. U.S. companies are required to disclose meaningful risk factors in securities filings if they could materially affect the company's stock, profitability or growth. Federal, state and local regulations were the most frequently cited risk this year, along with competition in the technology industry and pricing pressures. But accounting concerns made one of the biggest jumps as a frequently cited risk this year.

CLASSROOM APPLICATION: This article offers an example of how a business or industry could be affected by changes in accounting rules.

QUESTIONS: 
1. (Introductory) What changes to accounting rules are mentioned in the article? What companies or industries are affected?

2. (Advanced) How are these companies affected by the accounting changes? How could those changes affect the way the companies do business?

3. (Advanced) Why does the Financial Accounting Standards Board make changes to accounting rules? How often are changes made? Should FASB take the possible impact on business into account when deciding what changes to make and how often to make them? Why or why not?

4. (Advanced) What are companies' views toward the impact of accounting rule changes on their businesses? How do those views compare with other risk factors they have rated?
 

Reviewed By: Linda Christiansen, Indiana University Southeast

"Tech Firms Fret Over Looming Revenue Accounting Changes," by Kimberly S. Johnson and Emily Chasan, The Wall Street Journal, June 1, 2015 ---
http://blogs.wsj.com/cfo/2015/06/01/tech-firms-fret-over-looming-revenue-accounting-changes/?mod=djem_jiewr_AC_domainid

More technology companies are fretting over accounting rule changes that will affect how companies report their top-line sales numbers to investors.

This year, 92% of top tech companies cited regulatory accounting, internal controls and compliance standards as a leading risk factor in 2015, according to BDO USA LLP.

That figure jumped 13 percentage points from last year. In 2014, 79% of companies mentioned them, and nearly two-thirds did so in 2013.

U.S. companies are required to disclose meaningful risk factors in securities filings if they could materially affect the company’s stock, profitability or growth.

Federal, state and local regulations were the most frequently cited risk this year, along with competition in the technology industry and pricing pressures. But accounting concerns made one of the biggest jumps as a frequently cited risk this year.

The U.S. Financial Accounting Standards Board handed down new rules on the way companies book revenue last May, according to BDO.

“Companies that sell software and maintenance service, or that sell through distribution channels are those we think will be largely impacted by the new rules,” said Aftab Jamil, leader of BDO’s technology and life sciences practice.

Accounting, control and compliance issues came in 11th in terms of frequency among the 100 U.S. tech companies, ranked by revenue, according to the BDO ranking.

Amid a list of risks to the company’s growth strategy and competitive position, chip-maker Intel Corp.INTC -1.45%, for example, said in its latest annual report in February that changes in the way it applies accounting policies could be material to its bottom line. “These methods, estimates, and judgments are subject to large risks, uncertainties, and assumptions and changes could affect our results of operations,” it said in the filing.

A BDO survey of technology company CFOs earlier this year found that 50% hadn’t taken the steps necessary to implement the new revenue recognition standard, Mr. Jamil said.

Continued in article

Teaching Case
From The Wall Street Journal Weekly Accounting Review on June 5, 2015

Tax Identity Theft Victims Cite Woes With IRS
by: Laura Saunders
May 28, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Individual Taxation, Tax Identity Theft

SUMMARY: The Internal Revenue Service's announcement of a data breach affecting more than 100,000 households has prompted fresh complaints from victims of tax identity theft about delayed refunds, red tape, cumbersome IRS procedures and continued effects on their finances. Tax ID theft occurs when criminals steal personal information and use it to claim a tax refund in a taxpayer's name before he or she files. The IRS said it would contact the 104,000 taxpayers whose information was compromised, as well as the 100,000 for whom attempts were unsuccessful. The first group will be offered credit monitoring, while the second will be warned that thieves have their personal information.

CLASSROOM APPLICATION: This article and the related articles are appropriate to update discussions regarding tax identity theft and the IRS problems managing this issue.

QUESTIONS: 
1. (Introductory) What is tax identity theft? What challenges do taxpayers face when this occurs?

2. (Advanced) How do thefts of tax data and identity happen? What things could taxpayers be doing that could increase the risk of this happening? What does the IRS do to contribute to the problem?

3. (Advanced) What is the IRS doing to combat tax identity theft? What should the agency be doing to combat this problem? What internal controls, processes, procedure, guards, etc. should the agency use to stop these problems from occurring?

4. (Advanced) What future problems could taxpayers face as a result of IRS actions or lack of controls?
 

Reviewed By: Linda Christiansen, Indiana University Southeast
 

RELATED ARTICLES: 
IG Report: IRS Paid Billions in Refunds on Potentially Fake Returns
by John D. McKinnon
May 28, 2015
Online Exclusive

Protect Yourself From Tax Identity Theft
by Laura Saunders
Feb 28, 2015
Online Exclusive

IRS Data Breach Draws Capitol Hill Scrutiny
by John D. McKinnon
May 28, 2015
Online Exclusive

Even the Tax Man Has a Taxing Time
by Laura Saunders
Apr 16, 2015
Online Exclusive

"Tax Identity Theft Victims Cite Woes With IRS," by Laura Saunders, The Wall Street Journal, May 28, 2015 ---
http://www.wsj.com/articles/tax-identity-theft-victims-cite-woes-with-irs-1432767512?mod=djem_jiewr_AC_domainid 

When criminals file fraudulent returns, taxpayers say they have to wade through red tape and wait months longer for refunds.

The Internal Revenue Service’s announcement Tuesday of a data breach affecting more than 100,000 households has prompted fresh complaints from victims of tax identity theft about delayed refunds, red tape, cumbersome IRS procedures and continued effects on their finances.

Tax ID theft occurs when criminals steal personal information and use it to claim a tax refund in a taxpayer’s name before he or she files. Many refunds are put on debit cards that can be hard to trace, experts say. IRS Commissioner John Koskinen said the agency assisted 875,000 victims of tax ID theft in the fiscal year ended Sept. 30.

Rick Yost, a tire salesman from Palm City, Fla., said his troubles began when he got an unsolicited Green Dot Corp. debit card in the mail in March. It turned out, Mr. Yost learned, that a $9,856 tax refund had been claimed in his name by a fraudster who obtained Mr. Yost’s date of birth and Social Security number.

The criminal opened the account with $20 and withdrew the tax refund as soon as it posted, he said.

In a statement Wednesday night, Green Dot said it “detected suspicious activity and blocked the account for further verification…the fraudster never gained access to the funds.” The company said it would return the money to the IRS “so that they can help reunite Mr. Yost with his tax refund.”

Mr. Yost said he was frustrated to learn from a Green Dot representative that the firm never verified personal information about him that was required to open an account—and most of it didn’t match his actual information.

Mr. Yost also learned he would have to file separate legal affidavits with the IRS and other agencies, notify credit bureaus, and file his 2014 tax return on paper. He might have to wait six months for his refund.

“We are the ones who are inconvenienced, not the thieves,” said Mr. Yost. He said he asked an IRS staffer working on his case why no red flag was raised by the change from longtime direct-deposit information to a debit card. The staffer replied: “ ‘We’re working on that!’ ” Mr. Yost said.

A spokeswoman for the IRS said the agency is continually adjusting its fraud filters.

Vicki Niesen, a chemical engineer who works with an oil firm in Houston, believes her ID theft began when her husband’s 2014 W-2 information was stolen through Get Transcript, the compromised IRS application that prompted Tuesday’s announcement.

The false return filed in their names, she said, had her husband’s 2014 salary information “to the dollar”—although the thieves included $28,000 of Social Security income in the false return. It claimed a refund of $26,424.

Continued in article

June 3, 2015 Message from Scott Bonacker

The Internal Revenue Service will now provide identity theft victims with copies of fraudulent tax returns filed in their name.

http://time.com/money/3906160/irs-fraudulent-tax-returns/

This is a good idea I think. Now we need to get the procedure.

Scott

Teaching Case (from Real Life)
"Bleak Weather for Sun-Shine AG: A Case Study of Impairment of Assets," by  Dominic Detzen, Tobias Stork genannt Wersborg, and Henning Zülch, Issues in Accounting Education, Volume 30, Issue 2 (May 2015) ---
http://aaajournals.org/doi/full/10.2308/iace-51007
Not a Free Case

ABSTRACT:

This case originates from a real-life business situation and illustrates the application of impairment tests in accordance with IFRS and U.S. GAAP. In the first part of the case study, students examine conceptual questions of impairment tests under IFRS and U.S. GAAP with respect to applicable accounting standards, definitions, value concepts, and frequency of application. In addition, the case encourages students to discuss the impairment regime from an economic point of view. The second part of the instructional resource continues to provide instructors with the flexibility of applying U.S. GAAP and/or IFRS when students are asked to test a long-lived asset for impairment and, if necessary, allocate any potential impairment. This latter part demonstrates that impairment tests require professional judgment that students are to exercise in the case.

THE CASE

Introduction

On a rainy and gray December morning in 20X1, Thomas Schmidt enters the offices of Sun-Shine AG on the 20th floor of the “Opera Tower” in Frankfurt, Germany.¹ He has been the accounting manager of Sun-Shine for several years and enjoys working for a company in the solar industry.

Today, however, Thomas appears a little tense as he enters the office. He has been thinking for a while about the analyst conference that is set for the next morning and for which he still needs to brief Sun-Shine's CEO, Sebastian Albers. When walking down the corridor, Thomas is stopped by Daniela Gruber, his assistant. Daniela is an International Financial Reporting Standards (IFRS) specialist and has been with Sun-Shine for four years. Typically a rather relaxed person, she appears very anxious today because of a message she received the previous night from California-Sun Corp., Sun-Shine's U.S.-based subsidiary, which was acquired six months ago and mainly produces solar modules for the U.S. market. Daniela tells her boss that the state government of California has unexpectedly decided to cut its subsidies of solar installations by 50 percent. Due to the financial and economic crisis, the state of California has been forced to lower its budget deficit, with the subsidy cut being its latest measure. Daniela says, “California-Sun now expects a severe decline in demand for solar modules and a significant drop in sales. Their assets may need to be written down, which would certainly ruin our numbers this year.”

Background

Sun-Shine was founded ten years ago by its current CEO, Sebastian Albers, who expected to profit from the increasing interest in renewable energies from both the German government and the German public. Still headquartered in the city of Frankfurt where the company was founded, Sun-Shine has ever since specialized in the production of solar modules and now runs several solar parks, mainly in the sunnier Mediterranean countries of Italy and Spain. In recent years, Sun-Shine recorded a tremendous sales and profit growth because renewable energies have been on the rise, not only in Germany, but also in the entire European Union.

Five years ago, the company's great economic success led the management to list all of Sun-Shine's 10 million shares on the German stock exchange, which also brought about the requirement to apply IFRS in the company's consolidated financial statements. The shares were first listed at a face value of 5 euros each.

. . .

Implementation Guidance

We tested this case in two classes at the Master's level: “Advanced International Financial Reporting” is an elective in the Master of Science program, while “International Accounting” is part of the M.B.A. program. The classes are similar in nature in that they aim at educating students in applying IFRS, providing them with problem-solving skills, and an understanding of IFRS accounting. Students passing the courses are generally able to handle IFRS and critically reflect on them. Naturally, the M.B.A. class focuses more on decision-making issues, while the M.Sc. class covers the standards more comprehensively.

Students were to prepare the case for discussion in class, after having heard about the accounting rules behind impairment tests, which was about halfway through the course. Following the lecture, the case was distributed for completion as an individual exercise (M.Sc. class) and as a group exercise (M.B.A. class). Our assistance was limited to giving hints as to where to find background material and to explaining the more technical issues. We then allocated one class session (90 minutes) to the discussion, which seemed sufficient for an in-depth coverage of the case. The discussion in the M.B.A. class gravitated to the management-relevant questions and the implications of impairment charges. We expect that students spend about seven hours on the case. This estimate considers one hour for reading, about two hours for searching and reading empirical research, and four hours discussion with team members to work out the case requirements. The time needed to complete the case depends on students' knowledge and is reduced if the case is used as an individual exercise.

While we used the case on a discussion basis, it can also be applied as a written exercise, either individually or in small groups. Such an assignment would have to allow students more time to complete the case because the written answers can be quite extensive. Accordingly, some guidance should be given regarding the length of answers expected. Grading could be done along the answers provided in the Teaching Notes. To increase the case's ease of use, we have prepared the resource such that each part can be assigned separately.

The resource can be used in a number of classes, primarily at a graduate level. Financial reporting classes in a Master of Accountancy program, e.g., (Advanced) Financial Accounting, (Advanced) Financial Reporting, or a Capstone Seminar, seem to be suited best for the case. International Accounting and, especially, Comparative Accounting would be able to discuss the differences between IFRS and U.S. GAAP in detail. With a slight change of focus, instructors could also use the case in an Auditing class. The case may be too complex for Intermediate Accounting at an undergraduate level because it requires basic knowledge of accounting and finance. However, instructors may well choose to discuss the case in senior-level classes such as Advanced Financial Accounting or Special Topics in Accounting.

As for students' background knowledge, we believe that a basic understanding of impairment requirements and corporate finance (determining cash flows, discount rate, etc.) should be provided. To some extent, this knowledge can be expected from students at a more advanced level. To be sure, we recommended Palepu, Healy, and Peek (2013, Chaps. 7 and 8) to students as background reading. Detailed understanding of impairment tests is not necessary, as it is part of the assignment and students should work this out independently.

We estimate that a first-time adopter of the case needs approximately four hours to prepare the case (one hour of reading and preparing classroom discussion, one hour for the technical aspects and Part I, and two hours for Part II). While focusing on impairment tests, the resource allows instructors flexibility when distributing the case. It can be applied by focusing on comparing U.S. GAAP and IFRS requirements, or on one of the two frameworks. The accompanying handout (see the Teaching Notes) helps instructors discuss similarities and differences between impairment requirements, if they choose to discuss only one of the accounting frameworks.

Student Feedback

The effectiveness of the case study was assessed by a feedback questionnaire of 12 questions, based on a five-point Likert scale, where 1 indicated “Strongly Agree” and 5 “Strongly Disagree.” Thirty-two students completed the questionnaire (Table 4).

Continued in article

Bob Jensen's Threads on Impairment ---
http://faculty.trinity.edu/rjensen/Theory02.htm#Impairment

Teaching Case
"The City of Providence, RI: A Case Examining the Financial Condition of a U.S. Municipality." by Christine E. Earley, Nancy Chun Feng, and Patrick T. Kelly, Issues in Accounting Education, Volume 30, Issue 2 (May 2015)  ---
http://aaajournals.org/doi/full/10.2308/iace-51042
This case is not free

ABSTRACT: This case is intended for use in a wide variety of learning contexts, including undergraduate and graduate government and not-for-profit accounting courses, advanced accounting courses, public policy courses, along with courses that address municipal pensions at the college or university level, or other training programs. The case achieves four primary objectives: developing proficiency in ratio analyses for a municipality, conducting research related to the financial status of a municipality, improving critical thinking and problem-solving skills, and developing an awareness of potential public interest issues facing municipal leaders. We find that students benefit from analyzing the financial condition of the City of Providence, RI and develop critical thinking skills through their analyses.     BACKGROUND City of Providence Overview The city of Providence, Rhode Island was founded in 1638 by Roger Williams, who fled religious persecution in Massachusetts and started a settlement based on religious and political freedom (GoProvidence.com 2012). Providence is a medium-sized city, ranking 134th of U.S. cities in terms of size (Citymayors.com 2013), with a population of 178,042 based on the 2010 U.S. census (United States Census Bureau 2010). Mayor Angel Taveras, the 37th mayor and first Latino mayor of Providence, began serving in January 2011 (Smith 2011). Due to its easy accessibility by water, Providence has a rich history as a major world seaport; but it has also been vulnerable to hurricanes, experiencing devastating effects from the great New England Hurricane of 1938 and Hurricane Carol in 1954. In the late 1970s the city's infrastructure was greatly enhanced, and in the 1990s two major rivers running through the city were uncovered and moved, adding a pleasing aesthetic aspect to the city. As a result of the major improvements to the infrastructure, as well as significant building projects in the 1990s and the first decade of the 21st century, the city has experienced a cultural revival and has been successful in attracting visitors to its world-renowned restaurants and cultural events, particularly Waterfire, an event that occurs over numerous weekends in the summer and early fall. Cultural institutions include the Tony award-winning Trinity Repertory Company and Providence Performing Arts Center. Providence is also home to a number of colleges that lend an academic and innovative air to the city including Brown University, Providence College, Rhode Island College, the Rhode Island School of Design (RISD), and Johnson & Wales University (JWU). The prominence of RISD has led to growth in the Providence arts scene, and JWU's culinary school has fueled the growth and national reputation of the Providence restaurant scene (GoProvidence.com 2012).   The Providence Economy Manufacturing was the predominant industry in Providence from the 1830s until the 1980s, with the production of textiles, light metals, and jewelry being most prevalent. The textile industry saw a sharp decline in the late 1920s, as companies in the northern states faced increasing competition from those in the south, and therefore jewelry and light metal manufacturing grew to be the dominant manufacturing sectors during the middle part of the 20th century. However, after World War II, Providence saw a big decline in population and many of the large manufacturing companies left the city for the suburbs. By 1970, four of the five largest companies with a strong manufacturing presence during the industrial revolution of the 1800s had left the city, and only Gorham Silver remained. Other companies, such as Speidel, Federal Products, and Imperial Knife, were also present but were not as dominant as their earlier counterparts. During this time service industries, such as financial, educational, and health services, were beginning to overtake manufacturing as growth industries (Conley and Campbell 2012).

Continued in artciel

Bob Jensen's Threads on the Sad State of Governmental Accounting ---
http://faculty.trinity.edu/rjensen/Theory02.htm#GovernmentalAccounting

Teaching Case from MIT's Technology Review
"Cyber-Espionage Nightmare:  A groundbreaking online-spying case unearths details that companies wish you didn’t know about how vital information slips away from them," by David Talbot, MIT's Technology Review, June 10, 2015 --- Click Here
http://www.technologyreview.com/featuredstory/538201/cyber-espionage-nightmare/?utm_campaign=newsletters&utm_source=newsletter-daily-all&utm_medium=email&utm_content=20150610

On a wall facing dozens of cubicles at the FBI office in Pittsburgh, five guys from Shanghai stare from “Wanted” posters. Wang Dong, Sun Kailiang, Wen Xinyu, Huang Zhenyu, and Gu Chunhui are, according to a federal indictment unsealed last year, agents of China’s People’s Liberation Army Unit 61398, who hacked into networks at American companies—U.S. Steel, Alcoa, Allegheny Technologies (ATI), Westinghouse—plus the biggest industrial labor union in North America, United Steelworkers, and the U.S. subsidiary of SolarWorld, a German solar-panel maker. Over several years, prosecutors say, the agents stole thousands of e-mails about business strategy, documents about unfair-trade cases some of the U.S. companies had filed against China, and even piping designs for nuclear power plants—all allegedly to benefit Chinese companies.

It is the first case the United States has brought against the perpetrators of alleged state-sponsored cyber-espionage, and it has revealed computer-security holes that companies rarely acknowledge in public. Although the attackers apparently routed their activities through innocent people’s computers and made other efforts to mask themselves, prosecutors traced the intrusions to a 12-story building in Shanghai and outed individual intelligence agents. There is little chance that arrests will be made, since the United States has no extradition agreements with China, but the U.S. government apparently hopes that naming actual agents—and demonstrating that tracing attacks is possible—will embarrass China and put other nations on notice, inhibiting future economic espionage.

That may be unrealistic. Security companies say such activity is continuing, and China calls the accusations “purely ungrounded and absurd.” But there’s another lesson from the indictment: businesses are now unlikely to keep valuable information secure online. Whatever steps they are taking are not keeping pace with the threats. “Clearly the situation has gotten worse, not better,” says Virgil Gligor, who co-directs Carnegie Mellon University’s computer security research center, known as CyLab. “We made access to services and databases and connectivity so convenient that it is also convenient for our adversaries.” Once companies accept that, Gligor says, the most obvious response is a drastic one: unplug.

Fracking and hacking

Sitting at a small conference table in his office in the federal courthouse in Pittsburgh, David Hickton, the United States attorney for western Pennsylvania, opened a plastic container he’d brought from home and removed and peeled a hard-boiled egg for lunch. Although we were discussing an investigation involving global players and opaque technologies, the homey feel of our meeting was apt: the case had many roots in close-knit business and political circles in Pittsburgh. Hickton showed me a framed photo on a shelf. In the picture, he and a friend named John Surma are standing next to their sons, the boys wearing hockey uniforms, fresh from the ice. Both fathers had attended Penn State. As Hickton rose in the prosecutorial ranks, Surma rose in the corporate world, becoming CEO of U.S. Steel. When Hickton became the top federal prosecutor in the area in 2010, one of his meet-and-greet breakfasts was with Surma and Leo Girard, the boss of United Steelworkers, which represents 1.2 million current or retired workers in several industries. “I was asking them in a completely unrelated matter to serve on a youth crime prevention council,” Hickton recalls. “They said, ‘Can we talk to you about something else?’”

Continued in article

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

Big Firms Getting Better Grades on Internal Control Audits: PCAOB
by: Emily Chasan
Jun 04, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Auditing, Internal Controls, PCAOB

SUMMARY: The largest public accounting firms made significant improvements in their audits of corporate internal controls this year. Audits of internal controls - the systems and processes that act as a first line of defense against corporate fraud and financial misstatements - have been a sticking point with regulators over the past few years. In some years, failures by auditors to adequately test controls comprised as much as 15% of audit deficiencies found by regulators.

CLASSROOM APPLICATION: This is a good update on the PCAOB's inspections of auditors' internal controls evaluations.

QUESTIONS: 
1. (Introductory) What are internal controls? Why do companies implement them? Why are they important?

2. (Advanced) What are auditors duties regarding client internal controls? Why are auditors involved in that area?

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

4. (Advanced) How has auditing of internal controls changed? How have those changes affected the statistics the PCAOB has collected?
 

Reviewed By: Linda Christiansen, Indiana University Southeast
 

RELATED ARTICLES: 
PCAOB Warns on Internal-Control Problems
by Emily Chasan
Oct 25, 2013
Online Exclusive

"Big Firms Getting Better Grades on Internal Control Audits: PCAOB," by Emily Chasan, The Wall Street Journal, June 4, 2015 ---
http://blogs.wsj.com/cfo/2015/06/04/big-firms-getting-better-grades-on-internal-control-audits-pcaob/?mod=djem_jiewr_AC_domainid

The largest public accounting firms made significant improvements in their audits of corporate internal controls this year, their regulator says.

Audits of internal controls—the systems and processes that act as a first line of defense against corporate fraud and financial misstatements—have been a sticking point with regulators over the past few years.

In some years, failures by auditors to adequately test controls comprised as much as 15% of audit deficiencies found by regulators.

But the larger firms have “shown some real improvements in the [inspection] findings,” says Helen Munter, director of the Division of Registration and Inspections at the government’s audit watchdog, the Public Company Accounting Oversight Board.

The improvements came as audit firms increased guidance and training for internal control audits, and demanded more proof from companies that internal controls were working, Ms. Munter said in an interview.

In the past, auditors may have simply asked a financial staffer if a control, such as a purchasing manager’s approval for large purchases, existed and occurred, Ms. Munter said. Now auditors are more likely to get proof that a meeting occurred to approve the purchase, to seek documentation showing the approval, or event to talk to the approver about what they did to ensure the control is working.

Deloitte & Touche LLP, was the first of the large accounting firms to have its 2014 inspection report released by the regulator this week, while the others should follow in the next few months.

Deloitte’s report showed just 21% of audits inspected by the PCAOB had deficiencies — the lowest level in the past five years for the firm. However, the inspection report still cited several deficiencies in internal control audits, such as the auditor failing to properly test internal controls over billing rates and revenue.

Deloitte has made “significant investments” in audit quality over the last several years and “emphasized to our professionals the importance of our internal control work,” Deloitte spokesman Dan Mucisko said. He said the firm has provided enhanced training and tools targeted at internal controls audits.

In a letter to the SEC and PCAOB last week, the U.S. Chamber of Commerce said it is worried the board’s inspection process may have “unintended consequences,” which could be increasing costs and burdens on companies, while not necessarily leading to more effective audits or internal control systems at companies.

“Spending inordinate amounts on audits does not promote investor protection or provide the basis for an effective and sustainable system of controls,” Tom Quaadman, vice president of the Chamber’s Center for Capital Markets Competitiveness wrote in the letter. It is seeking a meeting with the regulators to discuss its concerns.

Continued in article

Pro Forma Reporting --- http://faculty.trinity.edu/rjensen/Theory02.htm#ProForma

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

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

TOPICS: Financial Reporting, GAAP

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

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

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

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

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

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

Reviewed By: Linda Christiansen, Indiana University Southeast
 

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

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

Hortonworks Inc. Chief Executive Rob Bearden forecast in March 2014 that the software firm would have a “strong $100 million run rate” by year-end. But the number looked a lot smaller after Hortonworks went public and then reported financial results: just $46 million in revenue last year.

It turns out that Mr. Bearden wasn’t talking about revenue, though he didn’t say so at the time. The Santa Clara, Calif., company now says the $100 million target was for “billings,” a gauge of future business that isn’t part of generally accepted accounting principles. Mr. Bearden declines to comment.

As young technology companies jostle for investors who will pour money into the firms as they try to make it big and strike it rich, some companies are using unconventional financial terms.

Instead of revenue, these privately held firms tout “bookings,” “annual recurring revenue” or other numbers that often far exceed actual revenue.

The practice is perfectly legal and doesn’t violate securities rules because the companies haven’t sold shares in an initial public offering. Public companies can use “non-GAAP” financial terms but must explain them and disclose how they differ from measurements that follow strict accounting rules.

Continued in article

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

Jensen Comment
It's not clear that the companies are in violation of FASB accounting standards. For example, they would be in violation of FAS 123r if they did not book employee vested stock options as expenses ---
https://en.wikipedia.org/wiki/Stock_option_expensing 

Restricted Stock --- https://en.wikipedia.org/wiki/Restricted_stock

. . .

Executive compensation practices came under increased congressional scrutiny in the United States when abuses at corporations such as Enron became public. The American Jobs Creation Act of 2004, P.L. 108-357, added Sec. 409A, which accelerates income to employees who participate in certain nonqualified deferred compensation plans (including stock option plans). Later in 2004, FASB issued Statement no. 123(R), Share-Based Payment, which requires expense treatment for stock options for annual periods beginning in 2005. (Statement no. 123(R) is now incorporated in FASB Accounting Standards Codification Topic 718, Compensation—Stock Compensation.)

Prior to 2006, stock options were a popular form of employee compensation because it was possible to record the cost of compensation as zero so long as the exercise price was equal to the fair market value of the stock at the time of granting. Under the same accounting standards, awards of restricted stock would result in recognizing compensation cost equal to the fair market value of the restricted stock. However, changes to generally accepted accounting principles (GAAP) which became effective in 2006 led to restricted stock becoming a more popular form of compensation.^[4] Microsoft switched from stock options to restricted stock in 2003, and by May 2004 about two-thirds of all companies surveyed by HR consultancy Mercer had reported changing their equity compensation programs to reflect the impact of the new option expensing rules.^[5]

The median number of stock options (per company) granted by Fortune 1000 firms declined by 40% between 2003 and 2005, and the median number of restricted stock awards increased by nearly 41% over the same period (“Expensing Rule Drives Stock Awards,” Compliance Week, March 27, 2007). From 2004 through 2010, the number of restricted stock holdings of all reporting executives in the S&P 500 increased by 88%.^[

Continued in article.

FASB rules for stock compensation are set out in ASC 718, Compensation—Stock Compensation ---
http://www.pwc.com/en_US/us/cfodirect/assets/pdf/accounting-guides/pwc_stock_based_2013.pdf 

It would seem unlikely that auditors of companies using stock awards would allow violations of ASC 718.

My point is that it is unlikely that "Fantasy Accounting" by tech companies are outright violations of FASB accounting standards. In the 1990s the tech industry was notoriously creative in writing contracts for creative accounting for increasing revenue and decreasing expenses. It became like a game to invent creative accounting followed by new EITFs to restrain the creative accounting.
http://faculty.trinity.edu/rjensen/ecommerce/eitf01.htm 

The article ["Tech Companies Fly High on Fantasy Accounting,"] cited above in  The New York Times, June 18, 2015] is not specific enough to allow us to judge whether the companies and auditors put themselves in jeopardy of huge lawsuits by blatantly violating FASB standards in a fantasy land. It would be interesting to learn more of the specifics, however, about how they are skating on the edge of FASB standards with tacit approval of their auditors. What the article does suggest is that some of the tech company transactions (such as acquisition transactions) are so complex that the FASB has not yet caught up with creative accounting. This most certainly has been the case of the new revenue recognition standard that keeps being delayed and delayed and delayed presumably because of costs of implementation.

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

"Hollywood Creative Accounting: The Success Rate of Major Motion Pictures," by Sergio Sparviero (University of Salzburg), SSRN, 2015 ---
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2617170

Abstract:     
 

Academic, trade, and popular publications commonly assert that 80 percent of motion pictures fail to make a net profit, suggesting also that the main players of the motion picture industry operate in highly volatile market conditions. More importantly, major film companies use this argument to negotiate for better terms with their production and distribution partners, to lobby for stricter copyright protections, and to argue in favor of media conglomeration as a hedge against adverse market conditions. This article disputes these assertions by calculating the full range of income that major motion pictures derive from their primary and secondary markets. It demonstrates that a large share of studio films are ultimately profitable, therefore challenging the arguments that conglomerates make with industry partners and government policy makers.

June 21, 2015 reply from Tom Selling

No good deed goes unpunished. The SEC tried to limit the use of non-GAAP financial measures by publishing pretty strict requirements prior to their use (See Reg. G and Item 10(e) of Regulation S-K. But issuers could now be assured that if they complied with the letter of the rules, then they wouldn’t have to revise their filings.

Previously (may 12 years ago?), whether a non-GAAP measure was misleading was subject to the judgment of the Division of Corporation Finance, which reviewed disclosures only very selectively. As a result of the new rules, the use of non-GAAP measures exploded.

Best,
Tom

Jensen Note
Pro forma statements must be reconciled with traditional GAAP financial statements. Hence, investors and analysts who take the time and trouble can evaluate the extent of pro forma distortions.

Bob Jensen's threads on Pro Forma Reporting --- http://faculty.trinity.edu/rjensen/Theory02.htm#ProForma

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

Tax Deferral --- https://en.wikipedia.org/wiki/Tax_deferral

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

How to Cut Taxes on Tax-Deferred Retirement Accounts
by: William Reichenstein
Jun 05, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Individual Taxation, Tax Planning

SUMMARY: This article illustrates tax planning for individuals that could help many taxpayers extend the life of their financial portfolio by using the key principle that funds in tax-deferred accounts like a 401(k) are pretax funds that will eventually be taxed.

CLASSROOM APPLICATION: This article is appropriate to use as an example of tax planning in an individual income tax class.

QUESTIONS: 
1. (Introductory) What is a tax-deferred account? What types of accounts are tax-deferred?

2. (Advanced) What are the facts of the scenario used in this article? What is the purpose of the tax planning? What is the tax advisor's goal? What tools does he use?

3. (Advanced) What makes this example tax-efficient? What do taxpayers often do in this kind of situation that is not as beneficial?

4. (Advanced) What advantages does a tax-deferred account offer? What are the advantages of having assets in taxable accounts?
 

Reviewed By: Linda Christiansen, Indiana University Southeast

"How to Cut Taxes on Tax-Deferred Retirement Accounts," by William Reichenstein, The Wall Street Journal, June 5, 2015 ---
http://blogs.wsj.com/experts/2015/06/05/how-to-cut-taxes-on-tax-deferred-retirement-accounts/?mod=djem_jiewr_AC_domainid

A key principle that could help many taxpayers extend the life of their financial portfolio is that funds in tax-deferred accounts like a 401(k) are pretax funds that will eventually be taxed. If converted this year, then they will be taxed at this year’s marginal tax rate. If retained in the tax-deferred account and withdrawn later, they will be taxed at that year’s tax rate. If this year’s tax rate will be lower than your usual tax rate later in retirement, then look to convert funds to a Roth account this year.

Here is a hypothetical example. Like many retirees, Sue has funds in tax-deferred accounts and taxable accounts. She has $300,000 in taxable accounts and $1,450,000 in tax-deferred accounts. She is 65 and plans to spend about $60,000 a year. For simplicity, we assume she does not qualify for Social Security benefits. She plans to withdraw $60,000 from her taxable account for the next five years, thus allowing her tax-deferred accounts to benefit from five more years of tax-deferred growth. Then, beginning at age 70, she would withdraw over $70,000 of pretax funds from her tax-deferred accounts to provide the $60,000 of after-tax funds.

For the first five years, her adjusted gross income will consist of interest, dividends, and realized capital gains on remaining assets held in her taxable account. This may be $6,000 in the first year (i.e., 2.5% of the $240,000 in taxable account assets that remain after the first-year’s $60,000 withdrawal). Her adjusted gross income will be even lower in her next four years. Since the sum of personal exemption plus standard deduction in 2015 will be $11,850, her adjusted gross income would not be enough to cover this tax-free portion of her adjusted gross income. In contrast, at age 70 and beyond, she would have about $21,000 of tax-deferred account withdrawals taxed at the 25% tax rate.

There is a more tax-efficient withdrawal strategy. In the early years, she should convert enough funds from her tax-deferred account to a Roth IRA to fully use the 15% tax bracket. This will reduce or eliminate the amount of tax-deferred account withdrawals later in life that will be taxed at 25%. In short, it is better to convert some funds to a Roth each of the first five years and pay 0% to 15% on these conversions than to withdraw these funds later at a 25% tax rate. She should convert at least enough to ensure that she will fully use the 15% tax bracket. Suppose she converts $49,000 in 2015 and learns in March 2016 that this amount would raise her 2015 taxable income into the 25% bracket by $2,345. Then she recharacterizes $2,345. Perfect!

Continued in article

Audit Committee --- https://en.wikipedia.org/wiki/Audit_committee

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

SEC May Seek More Information from Audit Committees
by: Emily Chasan
Jun 05, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Audit Committees, SEC

SUMMARY: U.S. securities regulators are preparing a "concept release" that could push corporate boards of directors to disclose more about how they oversee their outside auditors. Under the 2002 Sarbanes-Oxley Act audit committees took on a much larger role in the oversight of auditors, yet the law didn't require them to disclose many details about their efforts.

CLASSROOM APPLICATION: This article is an update to use in auditing classes.

QUESTIONS: 
1. (Introductory) What is the Sarbanes-Oxley Act? When was it enacted? What activities does it cover?

2. (Advanced) What are audit committees? What are their duties and areas of authority? Why are they important?

3. (Advanced) What is the SEC? What is its areas of authority? How is the SEC involved with the Sarbanes-Oxley Act and with audit committees? What does the SEC want from audit committees? Why? What types of information and disclosures should the SEC require?
 

Reviewed By: Linda Christiansen, Indiana University Southeast

"SEC May Seek More Information from Audit Committees," by Emily Chasan, The Wall Street Journal, June 5, 2015 ---
http://blogs.wsj.com/cfo/2015/06/05/sec-may-seek-more-information-from-audit-committees/?mod=djem_jiewr_AC_domainid

U.S. securities regulators are preparing a “concept release” that could push corporate boards of directors to disclose more about how they oversee their outside auditors, a top official said on Friday.

The Securities and Exchange Commission could soon publish a document, seeking formal feedback from investors about whether they are getting enough information from audit committees, the agency’s chief accountant James Schnurr said Friday. He made the remarks at a financial reporting conference in Pasadena, California.

Under the 2002 Sarbanes-Oxley Act audit committees took on a much larger role in the oversight of auditors, yet the law didn’t require them to disclose many details about their efforts. SEC Chairman Mary Jo White said last year that the agency would consider issuing a release this year on whether audit committees should disclose more to investors about their role.

Continued in article

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

Another Death-Triggered Tax Event to Worry About
by: Jonathan Clements
Jun 13, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Individual Taxation, Tax Planning

SUMMARY: Thanks to 2015's $5.43 million federal estate-tax exclusion, perhaps just one out of 600 deaths this year will trigger federal estate taxes. Yet many heirs still will face steep tax bills, partly because some states levy their own estate tax, but mostly because of the income taxes due on inherited retirement accounts.

CLASSROOM APPLICATION: This article is filled with great tax planning strategies related to retirement accounts and would be good for an individual tax class.

QUESTIONS: 
1. (Introductory) What is the federal estate-tax exclusion? Why does U.S. tax law allow for this? What is the current dollar amount for this exclusion?

2. (Advanced) How are taxable accounts treated for estate tax purposes? How does this differ from the treatment of retirement accounts? Why are these types of accounts treated differently?

3. (Advanced) What uncertainty exists in this area of tax law? Why does Congress create or allow this kind of uncertainty? What impact does uncertainty have on tax planning? How can tax professionals manage this kind of uncertainty?

4. (Advanced) What tax planning strategies does the writer of this article offer? What types of taxpayers would benefit from this kind of plan? Who would not benefit?
 

Reviewed By: Linda Christiansen, Indiana University Southeast

"Another Death-Triggered Tax Event to Worry About," by Jonathan Clements, The Wall Street Journal, June 12, 2015 ---
http://www.wsj.com/articles/another-death-triggered-tax-event-to-worry-about-1434145527?mod=djem_jiewr_AC_domainid

Your death could be more taxing than you imagine.

Thanks to 2015’s $5.43 million federal estate-tax exclusion, perhaps just one out of 600 deaths this year will trigger federal estate taxes. Yet many heirs still will face steep tax bills, partly because some states levy their own estate tax—but mostly because of the income taxes due on inherited retirement accounts.

If you bequeath, say, a stock in a regular taxable account that has climbed in value, the cost of the investment for tax purposes automatically rises to its current value as of your death. This “step-up in cost basis” means that the potential capital-gains tax bill can disappear.

But if you die owning traditional retirement accounts, such as 401(k) plans and individual retirement accounts, the income taxes owed on withdrawals still have to be paid by your heirs.

Moreover, this tax problem could get a whole lot worse if Congress kills off the “stretch” IRA. Right now, after you die, your IRA’s beneficiaries can draw down the account slowly over their lifetime.

But if the stretch IRA disappears, your heirs may be forced to empty inherited retirement accounts within five years of your death—and the extra income could push them into a much higher tax bracket.

This change almost became law in 2013. The White House proposed eliminating the stretch IRA again this year for all beneficiaries, except for spouses and in certain special situations, and many experts believe it is just a matter of time until the law gets changed.

“I think there’s a better than 50% chance that the death of the stretch IRA will eventually pass,” says Pittsburgh accountant and investment adviser James Lange, author of “Retire Secure.”

All this is bad news for many Americans. For the typical household approaching retirement age, retirement accounts are the second-largest asset they own, after their home, according to calculations by Boston College’s Center for Retirement Research. (This ignores any value assigned to Social Security and traditional employer pensions.)

How much do older Americans have in retirement accounts? According to the Federal Reserve’s 2013 Survey of Consumer Finances, retirement accounts are owned by 48% of families headed by someone 65 to 74 years old, and the median value is $149,000.

A 2014 report by the Investment Company Institute, a fund-industry trade group, found that 19.2% of IRA investors age 75 and older have accounts worth $200,000 or more—and the number would be even larger if 401(k), 403(b) and other retirement accounts were included.

What should these investors do? There are three key strategies that many folks ought to consider, and two others that could make sense for some families.

First, you might shelve the standard advice for retirees, which is to tap your taxable accounts first, while leaving retirement accounts to continue growing tax-deferred. Instead, you might hang on to taxable-account investments, with a view to getting the step-up in cost basis upon your death.

Continued in article

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

FedEx to Book $2.2 Billion Pension Accounting Charge
by: Chelsey Dulaney and Laura Stevens
Jun 13, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Contingent Liabilities, Financial Reporting, Pension Accounting

SUMMARY: FedEx Corp. said that it will book a $2.2 billion pretax charge in its most recently ended quarter as a result of its decision to switch to a pension accounting method that it said makes it easier to gauge plan performance. FedEx joins dozens of companies, such as AT&T Inc., that have adopted mark-to-market pension accounting in the last few years. The method allows pension gains and losses to flow into earnings sooner than under old rules, which allow companies to smooth out the impact over several years.

CLASSROOM APPLICATION: This article is useful for a financial accounting class regarding several reporting issues FedEx is facing, including pension accounting.

QUESTIONS: 
1. (Introductory) What financial issues is FedEx facing? When will reporting of the financial impact of these issues take place? Will it be an ongoing factor?

2. (Advanced) What is pension accounting? What are the rules? What choices does a company have in reporting pension expense? What option did FedEx select? Why?

3. (Advanced) Why can pensions have a substantial impact on a company's financial statements? Why are users of the financial statements interested in pension information?

4. (Advanced) What are the details of the legal settlement FedEx recently settled? How will that impact the company's financial statements?

5. (Advanced) What is a contingent liability? What are the rules regarding financial reporting of contingent liabilities? What information in the article could be a contingent liability for FedEx? How should the company present this information on its financial statements?
 

Reviewed By: Linda Christiansen, Indiana University Southeast

"FedEx to Book $2.2 Billion Pension Accounting Charge," by Chelsey Dulaney and Laura Stevens, The Wall Street Journal, June 13, 2015 ---
http://www.wsj.com/articles/fedex-to-book-2-2-billion-pension-accounting-charge-1434115094?mod=djem_jiewr_AC_domainid

FedEx Corp. said Friday that it will book a $2.2 billion pretax charge in its most recently ended quarter as a result of its decision to switch to a pension accounting method that it said makes it easier to gauge plan performance.

FedEx joins dozens of companies, such as AT&T Inc., that have adopted mark-to-market pension accounting in the last few years. The method allows pension gains and losses to flow into earnings sooner than under old rules, which allow companies to smooth out the impact over several years.

FedEx said it will now recognize actuarial gains and losses in the fourth quarter of its fiscal year rather than amortizing them over several years, making its operating performance easier to understand and more transparent.

Net of tax, the charge is valued at $1.4 billion, or $4.88 a share. Before the announcement, analysts polled by Thomson Reuters expected FedEx to post $2.68 a share in adjusted earnings in its fiscal fourth quarter, which ended in May.

FedEx said the plan won’t impact its employees’ pension benefits or the company’s cash flows.

Continued in article

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

Small Firms Slower to Adopt New Internal-Control Guidelines
by: Kimberly S. Johnson
Jun 16, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Internal Controls

SUMMARY: Just two-fifths of small public companies use updated internal-control guidelines that public companies rely on to design and test these systems. Among the largest public companies, by contrast, 84% use the guidelines. Small companies typically don't have resources or don't spend the resources to implement sweeping audit-related changes, unless there is a deadline looming or penalty involved.

CLASSROOM APPLICATION: This article is appropriate for financial accounting classes when covering the topic of internal controls.

QUESTIONS: 
1. (Introductory) What are internal controls? What are their purposes?

2. (Advanced) What does the article report regarding internal controls for companies of various sizes? Why is there such a variety of compliance and priorities? What will it take to get all businesses adopting proper internal controls?

3. (Advanced) What benefits could small businesses glean from internal controls? What are the costs involved? Are the benefits worth the costs? Please explain your answer.
 

Reviewed By: Linda Christiansen, Indiana University Southeast

"Small Firms Slower to Adopt New Internal-Control Guidelines," Kimberly S. Johnson, The Wall Street Journal, June 13, 2015 ---
http://blogs.wsj.com/cfo/2015/06/16/small-firms-slower-to-adopt-new-internal-control-guidelines/?mod=djem_jiewr_AC_domainid

Small public companies in the U.S. are taking more time to adopt the latest corporate safeguards against fraud and reporting errors.

Just two-fifths of the companies use updated internal-control guidelines that public companies rely on to design and test these systems. Internal controls range from requiring two people to sign off on purchasing orders to limiting access to sales systems.

Among the largest public companies, by contrast, 84% use the guidelines, which were released by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, two years ago. The latest framework added 17 guidelines to the five from 1992.

The figures are based on an examination of 2014 annual reports filed as of June 1. Consulting firm Audit Analytics compiled the data. Small companies, as defined by regulators for filing purposes, have freely traded shares valued at less than $75 million. The largest companies have $700 million or more in freely traded shares.

Small companies typically don’t have the resources to implement sweeping audit-related changes, unless there is a deadline looming or penalty involved. “Without a deadline, it’s going to slide down the list,” said David Garrison, finance chief of Tecogen Inc., a Waltham, Mass., maker of combined heating and power systems.

Continued in article

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

IRS, Tax-Preparation Firms Join Forces to Combat Return Fraud
by: John D. McKinnn and Laura Saunders
Jun 12, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Tax Fraud, Tax Identity Theft

SUMMARY: The Internal Revenue Service is working with states and tax-preparation firms to find new ways to strengthen security of the tax-filing system, after criminals this year used increasingly sophisticated strategies to commit stolen-identity refund fraud. The steps are likely to include finding better ways to validate taxpayers' identities when they file returns. The new approach also will include more sharing of broad-based data about trends in suspected identity fraud.

CLASSROOM APPLICATION: This update is appropriate for an individual income tax class.

QUESTIONS: 
1. (Introductory) What is tax identity theft? What problems is it causing?

2. (Advanced) What is the IRS doing to address tax fraud? What is the agency asking of private companies? Why is the IRS enlisting the help of outside parties?

3. (Advanced) Are these steps sufficient to stop this type of fraud? Why or why not? What could the IRS do or do better to prevent tax fraud and losses due to tax identify theft or other issues?
 

Reviewed By: Linda Christiansen, Indiana University Southeast
 

RELATED ARTICLES: 
Questions About the IRS Data Breach
by
May 27, 2015
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by John D. McKinnon and Laura Saunders
May 26, 2015
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IRS Takes Step to Tighten Security for Tax System
by John D. McKinnon
Jun 02, 2015
Online Exclusive

Even the Tax Man Has a Taxing Time
by Laura Saunders
Apr 15, 2015
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IG Report: IRS Paid Billions in Refunds on Potentially Fake Returns
by John D. McKinnon
May 28, 2015
Online Exclusive

FBI to Investigate Internal Revenue Data Breach
by Devlin Barrett
May 28, 2015
Online Exclusive

"IRS, Tax-Preparation Firms Join Forces to Combat Return Fraud," by John D. McKinnn and Laura Saunders, The Wall Street Journal, June 12, 2015 --- |
http://www.wsj.com/articles/irs-tax-preparation-firms-join-forces-to-combat-return-fraud-1434050523?mod=djem_jiewr_AC_domainid

The Internal Revenue Service is working with states and tax-preparation firms to find new ways to strengthen security of the tax-filing system, after criminals this year used increasingly sophisticated strategies to commit stolen-identity refund fraud.

The steps are likely to include finding better ways to validate taxpayers’ identities when they file returns. The new approach also will include more sharing of broad-based data about trends in suspected identity fraud.

“We’re asking every company that helps taxpayers file returns to provide us information that will add layers of security and step up their pre-refund authentication,” IRS Commissioner John Koskinen said Thursday. “We’re also making clear that companies need to let the IRS know if they detect any suspicious activity or refund fraud patterns.”

The IRS said industry and government groups have identified several new types of data that can be shared at filing time to help authenticate a taxpayer’s identity and detect potential refund fraud. Those data include the Internet address and computer associated with the return, as well as other characteristics of the transaction.

Already this year, the IRS has stopped some 3 million fraudulent filings, up about 30% from last year, Mr. Koskinen said. States also report surges in suspicious filings. Utah had more than 37,000 this year, for instance, up from 1,200 last year.

The IRS lost more than $5.8 billion to identity-theft fraud in 2013, according to a study by the Government Accountability Office.

The attacks are growing in sophistication. In the highest-profile problem this year, criminals—possibly operating from Russia and other countries—used ID data stolen elsewhere to obtain about 100,000 taxpayers’ prior-year return data from an IRS online application, the agency announced recently. Those data in some cases helped crooks defeat existing security systems and file fraudulent return claims using the taxpayers’ identities.

Continued in article

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

Ex-Controller Testifies He Altered Dewey Accounting Records
by: Sara Randazzo
Jun 11, 2015
Click here to view the full article on WSJ.com
 

TOPICS: Business Crime, Fraud, Loan Covenant

SUMMARY: Years before Dewey & LeBoeuf LLP collapsed, the law firm's accounting department scrambled to avoid trouble with its banks by making the firm's income appear higher than it was, Dewey's former controller told a jury.

CLASSROOM APPLICATION: This is an excellent article to share with our accounting students to show the ramifications - both criminal and financial - of "cooking the books."

QUESTIONS: 
1. (Introductory) What are the facts of the case featured in the article? Who is on trial and what are the charges? Who is the witness and what was his position in the firm?

2. (Advanced) What reasons does Mr. Mullikin give for his actions? What was the firm's management seeking to accomplish?

3. (Advanced) What is a loan covenant? How do they relate to financial statements?

4. (Advanced) What internal controls can a company implement or a lender require to insure that the financial statements are accurate and the loan covenants requirements are met?

5. (Advanced) What charges were filed against Mr. Mullikin? What is his potential punishment? Does that punishment seem in proportion to what he admits doing? Why or why not?
 

Reviewed By: Linda Christiansen, Indiana University Southeast
 

RELATED ARTICLES: 
Prosecutor Alleges Dewey & LeBoeuf Cooked the Books for Years
by Sara Randazzo
May 26, 2015
Online Exclusive

"Ex-Controller Testifies He Altered Dewey Accounting Records," by Sara Randazzo, The Wall Street Journal, June 11, 2015 ---
http://www.wsj.com/articles/ex-controller-testifies-he-altered-dewey-accounting-records-1433972860?mod=djem_jiewr_AC_domainid

Years before Dewey & LeBoeuf LLP collapsed, the law firm’s accounting department scrambled to avoid trouble with its banks by making the firm’s income appear higher than it was, Dewey’s former controller told a jury Wednesday.

In January 2009, with just days to find a way to boost 2008 income by $25 million, members of the department used fraudulent adjustments to get the numbers where they wanted them, former controller Thomas Mullikin said during the third week of a criminal trial of Dewey’s three top leaders, accused of conspiring to defraud the firm’s banks and creditors.

“Did you falsify accounting records to make it appear the firm’s financial condition was better than reality?” Assistant District Attorney Steve Pilnyak asked. “Yes I did,” replied Mr. Mullikin, who left Dewey in June 2011, less than a year before the firm collapsed into bankruptcy.

Mr. Mullikin, 54 years old, is the first of seven cooperating witnesses to take the stand for the Manhattan district attorney’s office in what is expected to be a six-month-long trial. Mr. Mullikin has pleaded guilty to a scheme to defraud in the first degree tied to his actions in Dewey’s accounting department, and prosecutors will recommend he receive five months in a Manhattan detention center.

Continued in article

Forwarded by Rev. Hahn

Humor June 1-30, 2015

I have something that rhymes with "bucket list."
Barack Obama --- http://www.businessinsider.com/white-house-correspondents-association-dinner-2015-2015-4

Maya Rudolph Finally Did the Rachel Dolezal Impression We’ve All Been Waiting For ---
http://www.vulture.com/2015/06/maya-rudolph-rachel-dolezal-late-night.html 

Man caught stuffing assault rifles down his pants at pawn shop ---
http://www.wrcbtv.com/story/29191303/man-caught-stuffing-assault-rifles-down-his-pants-at-pawn-shop
He might have gotten away with it if women did not keep asking him to dance.

Interactive Fun for Kids and Bored Adults
Draw a Stickman With Legs and Arms ---
http://www.drawastickman.com/index.htm

Canadian Dad Takes Daughter for a Ride --- http://kottke.org/15/06/airplane-aerobatics-are-hilarious 

Python Eats Porcupine, Regrets It Later (Here's Why) ---
http://news.yahoo.com/python-eats-porcupine-regrets-later-heres-why-114016276.html

Pat Venditte (Oakland) can pitch with either his left or his right arm.
Small-town newspaper claims switch pitcher Pat Venditte is also 'amphibious' ---
http://www.si.com/extra-mustard/2015/06/08/oakland-athletics-pat-venditte-switch-pitcher-amphibious

Man caught stuffing assault rifles down his pants at pawn shop ---
http://www.wrcbtv.com/story/29191303/man-caught-stuffing-assault-rifles-down-his-pants-at-pawn-shop
He might have gotten away with it if women did not keep asking him to dance.

Forwarded by Auntie Bev

WELCOME to 2015: 
  
• Our Phones – Wireless
• Cooking – Fireless
• Cars – Keyless
• Food – Fatless
• Tires –Tubeless
• Dress – Sleeveless
• Youth – Jobless
• Leaders – Shameless
• Relationships – Meaningless
• Attitudes – Careless
• Babies – Fatherless
• Feelings – Heartless
• Education – Valueless
• Children – Mannerless
• Country – Godless 
  
We are SPEECHLESS, 
Government is CLUELESS, 
  
And our Politicians are WORTHLESS ! 
  
I'm scared – Shitless

and

This is "Priceless".

Forwarded by Paula

Blonde on a plane

A plane is on its way to Chicago when a blonde in economy class gets up and moves to the first class Section and sits down.

The Flight Attendant watches her do this and asks to see her ticket.

She then tells the blonde that she paid for economy class and that she will have to sit in the back.

The blonde replies, “I’m blonde, I’m beautiful, I’m going to Chicago, and I’m staying right here.”

Another flight attendant tries to get her to move, but the blonde replies, “I’m blonde, I’m beautiful, I’m going to Chicago, and I’m staying right here.”

The head flight attendant goes to the cockpit and tells the pilot and the co-pilot that there is a blonde bimbo sitting in first class, that she belongs in economy and won’t move back to her seat.

The co-pilot goes back to the blonde and tries to explain that because she only paid for economy she will have to leave and return to her seat.

The blonde replies, “I’m blonde, I’m beautiful, I’m going to Chicago, and I’m staying right here.”

The co-pilot tells the pilot that he probably should have the police waiting when they land in Chicago, to arrest this blonde woman who won’t listen to reason.

The pilot says, “You say she’s a blonde? I’ll handle this, I’m married to a blonde. I speak ‘blonde.’”

He goes back to the blonde and whispers in her ear. She says, “Oh, I’m sorry,” gets up and goes back to her seat in economy.

The flight attendants and co-pilot are amazed and asked him what he said to make her move without any fuss.

“I told her ‘first class isn’t going to Chicago.’”

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

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

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

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

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

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

Humor December 1-31, 2014 --- http://faculty.trinity.edu/rjensen/book14q4.htm#Humor123114

Humor November 1-30, 2014 --- http://faculty.trinity.edu/rjensen/book14q4.htm#Humor113014

Humor October 1-31, 2014 --- http://faculty.trinity.edu/rjensen/book14q4.htm#Humor103114

Humor September 1-30, 2014 --- http://faculty.trinity.edu/rjensen/book14q3.htm#Humor093014

Humor August 1-31, 2014 --- http://faculty.trinity.edu/rjensen/book14q3.htm#Humor083114

Humor July 1-31, 2014--- http://faculty.trinity.edu/rjensen/book14q3.htm#Humor073114

And that's the way it was on June 30, 2015 with a little help from my friends.

Bob Jensen's gateway to millions of other blogs and social/professional networks ---
http://faculty.trinity.edu/rjensen/ListservRoles.htm

Bob Jensen's Threads --- http://faculty.trinity.edu/rjensen/threads.htm

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

Free Online Textbooks, Videos, and Tutorials --- http://faculty.trinity.edu/rjensen/ElectronicLiterature.htm#Textbooks
Free Tutorials in Various Disciplines --- http://faculty.trinity.edu/rjensen/Bookbob2.htm#Tutorials
Edutainment and Learning Games --- http://faculty.trinity.edu/rjensen/000aaa/thetools.htm#Edutainment
Open Sharing Courses --- http://faculty.trinity.edu/rjensen/000aaa/updateee.htm#OKI

Bob Jensen's Resume --- http://faculty.trinity.edu/rjensen/Resume.htm
 

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

Accounting Historians Journal --- http://www.libraries.olemiss.edu/uml/aicpa-library  and http://clio.lib.olemiss.edu/cdm/landingpage/collection/aah
Accounting Historians Journal Archives--- http://www.olemiss.edu/depts/general_library/dac/files/ahj.html
Accounting History Photographs --- http://www.olemiss.edu/depts/general_library/dac/files/photos.html

Concerns That Academic Accounting Research is Out of Touch With Reality

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

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

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

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

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

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

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