tag:blogger.com,1999:blog-56970302012-01-27T06:36:26.999-05:00Financial Accounting BlogLinks to current items relevant to financial accounting and finance.Dennisnoreply@blogger.comBlogger5861100tag:blogger.com,1999:blog-5697030.post-1166475334075250642006-12-18T15:53:00.000-05:002006-12-18T15:55:34.103-05:00All good things must end. This blog is done.Dennisnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1126553431397229212005-09-12T15:29:00.000-04:002005-09-12T15:30:31.406-04:00The Accounting Observer's blog is doing a much better job than this blog as far as reporting interesting items.Dennisnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1125283561419096312005-08-28T22:40:00.000-04:002005-08-28T22:47:42.400-04:00"...the agreement is about survivability." The NY Times tries to explain why KPMG sold out some of its partners by admitting to "unlawful conduct" regarding tax shelters.Related story here.Dennisnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1125283108494764182005-08-28T22:35:00.000-04:002005-08-28T22:38:28.500-04:00Independence in Appearance. NY TimesPublic documents show that the chief financial officer and head of compliance for the Bayou Group was also a principal in an accounting firm that audited the hedge funds' books. Daniel E. Marino was the No. 2 man at Bayou, a hedge fund company founded in 1996 by Samuel Israel III that appeared to have $411 million in assets at the end of last year. Mr. Marino Dennisnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1117478444226432692005-05-30T14:38:00.000-04:002005-05-30T14:41:08.080-04:00It's the Coverup. CFO.com reports that the PCAOB has taken its first action against a CPA firm since the PCAOB was created in 2003.At issue was a violation of the auditor independence rules of the Sarbanes-Oxley Act, and as part of the inspection, the regulator's Division of Registration and Inspections directed a request for information and documents to the firm. The board found that in Dennisnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1116886093477103742005-05-23T18:08:00.000-04:002005-05-30T14:38:38.946-04:00Was is Worth it? The Economist wonders whether the benefits of Sarbanes-Oxley exceed its costs.Alan Greenspan, chairman of the Federal Reserve, spoke up in defence of the statute this week. It was faint praise. He said he was surprised that a law which had been passed so rapidly had worked as well as it has less of an endorsement than it first seemed, since laws dealing with issues as complex as Dennisnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1116525157075413172005-05-19T13:51:00.000-04:002005-05-19T13:54:04.416-04:00Par-value still has meaning. Delta Airlines is reducing the par value on its common stock.Shareholders also approved a Delta proposal doubling to 900 million the number of shares of common stock it is authorized to issue and reducing the par value of the common stock from $1.50 to 1 cent. The airline, which is incorporated in Delaware, believes the proposal gives it greater flexibility in using Dennisnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1115239223495068962005-05-04T16:39:00.000-04:002005-05-04T16:40:23.503-04:00Comeback of the 30-year Bond. This article says that the Federal government is considering issuing new 30-year bonds---something it hasn't done since 2001.Dennisnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1110050400561638072005-03-05T14:20:00.000-05:002005-03-05T14:23:06.796-05:00Anonymous Letters to Auditors. Newsday reports that an anonymous letter to state auditors led to the uncovering of a massive fraud in a Long Island school district.The Roslyn school scandal unfolded last year after an anonymous letter tipped off authorities that top officials had engaged in systemic misspending for a decade. So far, three former district officials -- Superintendent Frank Tassone,Dennisnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1109620103735339642005-02-28T14:48:00.000-05:002005-03-01T11:32:12.006-05:00Banks' Loan Loss Reserves. BW online has a commentary about how banks adjust their loan-loss estimates to manage earnings.Last year the banks had an easy way to juice their profits. All they had to do was allocate a little less money to loan-loss reserves -- the money they set aside to cover bad debt. As the economy has improved and defaults have slowed, many decided they didn't need as much in Dennisnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1109003166732995022005-02-21T11:26:00.000-05:002005-02-21T11:27:07.713-05:00Leaking the News. MSNBC reports that there was increased volume in the traded options of P&G and Gillette just prior to the announcement of the merger. Well before the investing public learned of the $57 billion takeover of Gillette by Procter & Gamble, traders apparently got wind of the deal: Options-trading volume in both companies spiked more than fourfold on Jan. 27, before news of the Dennisnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1106777349227929872005-01-26T17:09:00.000-05:002005-01-26T17:11:14.456-05:00Stock Options. An article at Law.com quotes a couple of lobbyists as saying that they plan to mount an attack on the FASB's new rule requiring the expensing of the cost of stock options. That's likely to be an uphill battle given thatThe SEC has also thrown its support behind FASB.
Donald Nicolaisen, the SEC's chief accountant, said in a prepared statement that companies should focus their Dennisnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1106776821092589082005-01-26T17:00:00.000-05:002005-01-26T17:01:16.086-05:00Conservatism is Back. Wary Auditors, Clients Worry FASB's HerzFinancial Accounting Standards Board chairman Robert Herz told the Financial Times he is concerned that auditors as well as the companies they audit are acting too conservatively when preparing financial reports especially given the Securities and Exchange Commission's (SEC) endorsement of a principles-based approach.
Herz contends Dennisnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1106263359928172462005-01-20T18:22:00.000-05:002005-01-20T18:29:10.183-05:00Restatements. The NY Times reports that the number of restatements was up again in 2004. Although several theories to explain the increase are proposed, I believe the correct one is that auditors don't want to take any chances so are making clients restate items that in the past would have been rolled over into future numbers.Some of the restatements may simply reflect the fact that auditors areDennisnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1106262171671974572005-01-20T18:02:00.000-05:002005-01-20T18:04:17.236-05:00Analysts. CFO.com says that fewer companies have analyst coverage than anytime since 1995. Where's the Coverage?Although the number of equity analysts in the United States has climbed 7.5 percent since 2003, up to 3,207 from 2,983 a year earlier, that number is still 9.5 percent lower than it was during 2000...Dennisnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1105544189210150442005-01-12T10:36:00.000-05:002005-01-12T10:38:27.203-05:00Managing Earnings. USA Today reports that an independent review of Nortel has concluded that company executives juggled figures to earn bonuses.As the telecom bust spawned layoffs and huge losses at Nortel in 2001 and 2002, there was 'a decline in financial discipline,' the report says.
Dunn and other executives began to 'stretch the judgment' as to when certain charges could be taken, the Dennisnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1103150763119555572004-12-15T17:46:00.000-05:002004-12-15T17:47:39.713-05:00New Fences. The PCAOB is proposing that audit firms not be allowed to sell tax shelters to the top executives of their audit clients. Wash Post. The proposed rules would not impose a blanket ban on tax advice, a step that some consumer advocates had advanced two years ago. Auditors still would be able to perform routine tax work, including preparing tax returns for companies. They would also be Dennisnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1102004637922036472004-12-02T11:20:00.000-05:002004-12-02T11:29:59.683-05:00Sales Returns. The WSJ published an interesting article about retailers tracking individual's behavior patterns in the returns area. The companies want to cut down on abuse of their liberal returns policies.
According to retail consulting firm KingRogers International, in 2003, the return rate for specialty retailers was 10.6 percent of total sales, higher than the industry average of 8.58 Dennisnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1101658774074091612004-11-28T11:17:00.000-05:002004-11-28T11:19:34.076-05:00Where Have All the Chief Financial Officers Gone? The New York Times has this article about CFOs who changed jobs to get away from the pressure of being a CFO."Every C.F.O. has been pushed at times to take something that is clearly black and white and color it a shade of gray," Mr. Goldman, 46, said. "But when the chief executive is shot at, he uses the chief financial officer as a human shield. Dennisnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1100791189269050672004-11-18T10:19:00.000-05:002004-11-18T10:24:14.253-05:00Due Diligence. The city of Cincinnati learned a painful lesson about the improtance of due diligence. City mishandled aspects of failed theater project.City officials also apparently did not know that when Pettus-Brown provided financial statements showing assets of '1.6 million,' the assets were listed in yen - not dollars. The amount in dollars would have been about $14,000.Dennisnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1100579175363657542004-11-15T23:26:00.000-05:002004-11-15T23:27:02.536-05:00Embezzlement. The Philly paper reports the story of an accountant whose gambling addiction led him to embezzle $7 million from his employer.Prosecutors said Szagola began stealing in 1996 by drafting company checks in pencil, then erasing the vendor names and substituting his own after the checks had already been reviewed and signed by company executives. Szagola cashed more than 200 Dennisnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1100278723086266332004-11-12T11:54:00.000-05:002004-11-16T15:54:22.570-05:00Sampling. Studies show that auditors often make inappropriate conclusions from sample evidence because they fail to take into consideration sampling risk in their measures. The Economist looks at the statistics behind a recently published study that attempted to measure Iraqi deaths from the war. One of the controversial points is the wide confidence interval that results from the researchers' Dennisnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1100105430244280602004-11-10T11:43:00.000-05:002004-11-10T12:03:50.683-05:00Internal Controls. The WSJ recently published an article about companies' frantic efforts to get their controls sufficiently in-line to prevent receiving a failing grade from their external auditors. Some initial evidence of stock market reaction to announcements of material weaknesses is provided.Click here and go to 2nd article to read the whole thing. Drawing on a sample of 100 companies thatDennisnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1098412183725901042004-10-21T22:29:00.000-04:002004-10-21T22:30:40.190-04:00KPMG to Pay $10 Million to Settle Charges Over Gemstar Audits
Regulators said that from September 1999 through March 2002, KPMG and its auditors should have known that Gemstar was improperly booking $152 million in licensing revenue and $60 million in ad revenue. Gemstar, which publishes TV Guide magazine, also sells ads on an 'interactive program guide' that allows TV viewers to navigate and Dennisnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1097784271722769142004-10-14T16:02:00.000-04:002004-10-14T16:10:00.756-04:00Confirmation Letters. Part of a standard audit is to have the client's banks send letters directly to the auditor confirming the existence and amounts of client's bank accounts. I haven't followed the Parmalat scandal so this is likely old news but this article states that auditors of Parmalat were fooled by a phony bank confirmation letter. The author of the article questions "Is it too much to Dennisnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1097770577832959692004-10-14T13:12:00.000-04:002004-10-14T12:16:17.833-04:00Stock Options. FASB voted to delay by six months the new rule for expensing stock options. Business Week thinks this delay may give opponents of the rule time to regroup. In FASB's defense, Chairman Robert Herz says the delay was strictly practical, since many companies were unprepared to tackle another major regulatory change. Says Herz: "We have clearly heard from preparers, auditors, and the Dennisnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1097700080443261512004-10-13T16:41:00.000-04:002004-10-13T16:43:43.400-04:00Does dollar-cost averaging work for bonds? I came across this 1997 paper that provides some evidence on the question. The idea with dollar-cost averaging is that you invest a set dollar amount into your investment each period. That way, when prices fall you'll buy more units (e.g. shares) of the investment and fewer units when the price rises. Based on historical evidence, the major conclusion ofDennisnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1096556854777995702004-09-30T11:07:00.000-04:002004-10-01T11:06:33.546-04:00I like to keep the articles that I use in teaching updated and Business Week has put out a fresh article on .... fuzzy accounting. I'm only part of the way through the article but the following quote doesn't seem right...The upshot: The three major financial statements -- income, balance sheet, and cash flow -- that investors and analysts need to detect aggressive accounting and get a full Dennisnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1096323369231882552004-09-27T18:13:00.000-04:002004-09-27T18:18:06.286-04:00The Big Four. Securities Law Beacon points us to this article that poses the question "Will courts kill Big 4 audit firms?"This may be a case of Catch 22. If auditors are doing a good job, they deserve to be protected from lawsuits that could put them out of business. But without the threat of such suits, will they do a good job? Dennisnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1096300850163236152004-09-27T13:00:00.000-04:002004-09-27T12:07:56.330-04:00Bond Market. Have you ever searched the internet for information on corporate bond issues? Were you surprised at how difficult it was to find pricing information? Well, here is an article that says that starting October 1, the NASD will be making information about bonds easily available at this site.Individual investors already make 65% of all trades in the $4.6 trillion corporate bond market Dennisnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1095805179742172462004-09-21T18:19:00.000-04:002004-09-21T18:26:20.686-04:00BW Online reports the non-surprising fact that a lot of companies are not ready to comply with the requirements of Sec. 404.Even with the deadline delayed twice, many companies likely will be forced to admit to deficiencies in their internal controls -- mainly because they don't have time to fix all the problems that are cropping up before the end of their fiscal years. Auditors estimate that Dennisnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1095628248064288682004-09-19T17:10:00.000-04:002004-09-19T17:13:01.963-04:00Auditors and Fraud. This Feb 2004 article in the J. of Accountantcy makes an interesting proposal for a change in auditors' responsibilities for detecting fraud.One of the most difficult issues facing the profession is that there are no auditing procedures that can provide absolute assurance in detecting all fraudulent financial reporting. As a result auditors have historically attempted to avoidDennisnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1094057320007235892004-09-01T12:48:00.000-04:002004-09-01T13:35:28.813-04:00Auditor Rotation. This is an interesting article on whether Italy's required auditor rotation helped to uncover the Parmalat fraud. Interestingly the rotation rule only required that Deloitte take over the Italian part of the company which left Grant Thornton to continue auditing other areas. Guess where the problems were?
Another good article on this issue of divided responsibilities here.Dennisnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1094056827301012922004-09-01T12:40:00.000-04:002004-09-01T12:46:11.560-04:00Stock Options. FASB received some help from the SEC's chief accountant when he told legislators that they should leave the topic of accounting for stock options up to the judgment of FASB.
"I believe strongly that FASB's consideration of this proposed standard regarding stock options should be allowed to run its full course,'' SEC Chairman William Donaldson reportedly wrote to Senate majority Dennisnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1093038594002083882004-08-20T17:49:00.000-04:002004-08-20T17:54:24.600-04:00Capitalizing Costs. It's the age-old problem in accounting. You spend some money and you make a credit to cash--- but what do you debit, an expense or an asset account? The WSJ reported that some analysts are concerned that Helen of Troy is capitalizing costs in inventory (asset) that should have been expensed immediately. "According to the paper some analysts said Helen of Troy's decision to Dennisnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1092935131018983992004-08-19T13:05:00.000-04:002004-08-19T13:07:26.103-04:00Wow. According to Accounting Web, auditor turnover is running at a furious pace."By the end of last month more than 900 businesses said goodbye to their auditors - about the same number as in all 12 months of the previous year. However, nearly 700 of the 900 companies in a recent survey on auditor turnover gave no reason at all for the change according to the Wall Street Journal."
Dennisnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1092672840807896022004-08-16T12:14:00.000-04:002004-08-16T12:14:41.846-04:00Too Much Information? The management of Clear Channel Radio does not believe that investors know how to use information provided to them. To help them out, Clear Channel announced that they will no longer be providing weekly ad-sales information, but rather monthly totals.
Dennisnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1089298996395276432004-07-08T11:03:00.000-04:002004-07-08T11:04:17.736-04:00Forbes reviews the latest book about the Enron fraud: 24 Days In The Life (And Death) of Enron.Dennisnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1088104779995671202004-06-24T14:46:00.000-04:002004-06-24T16:28:04.666-04:00Federal Government's Financial Condition The Journal of Accountancy provides the text of an address delivered by Comptroller General of the United States David Walker, before the National Press Club in Washington, September 2003. Walker describes the issue of transparency and how the American people are given an incomplete and inaccurate picture of the government's current financial condition. Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1088096608526210812004-06-24T12:52:00.000-04:002004-06-24T13:49:40.280-04:00Bonds and Rising Interest Rates. The NY Times gives a good explanation as to how a change in interest rates can affect the bond market. The Federal Reserve is poised to start raising interest rates at the end of the month. Yields on the 10-year Treasury bond are climbing steadily, and bond prices, which move in the opposite direction, have been falling since March. So far this quarter, fixed Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1088048532155426872004-06-23T23:15:00.000-04:002004-06-24T10:55:55.990-04:00Executive Compensation. CFO.com has an excellent article from 2003 that addresses various reasons why companies are changing the way they are compensating employees. The article's principle focus is on how these changes affect executive compensation. Part of this article focuses on the logic behind reducing the use of stock options as compensation in an effort to encourage executives to focus Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1088008096532114602004-06-23T12:10:00.000-04:002004-06-23T18:39:39.186-04:00Asset Retirement Obligations AccountingWeb.com reports that FASB has published an exposure draft concerning conditional asset retirement obligations and is an interpretation of Statement 143. The exposure draft proposes that"to provide more consistent recognition of liabilities relating to asset retirement obligations and more information about future cash outflows relating to these obligations.Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1087878713628019292004-06-22T00:31:00.000-04:002004-06-22T00:34:07.786-04:00For-Profit Blogging. Blogger was purchased by Google last year. Google provides the blogging software and hosts this blog on its own servers at no cost to the blog's authors/creators. If they're giving it away, then How does Blogger make any money?Dennisnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1087866775802356092004-06-21T20:57:00.000-04:002004-06-24T10:39:19.950-04:00Vivendi Arrested. AP reports that former CEO of Vivendi Universal has turned himself into Paris police. Authorities are probing a massive share buyback in which Vivendi allegedly spent over $1.2 billion to prop up its own share price in the weeks following the Sept. 11 terror attacks. Messier and his top team are suspected of buying back Vivendi shares well above the authorized volumes even whileCampusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1087860307874422892004-06-21T19:08:00.000-04:002004-06-21T22:53:27.516-04:00Stock Options. The Financial Accounting Standards Board found some friends in Washington. A few key government officials spoke on behalf of FASB's proposal that companies expense the fair market value of stock options and against some recent efforts to legislate accounting rules. The chairman of the Senate Banking Committee lashed out at Congress for undermining efforts by the accounting Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1087859283087348042004-06-21T19:00:00.000-04:002004-06-21T22:56:19.796-04:00Sarbanes-Oxley. CFO.com reports that the SEC has approved a new auditing standard proposed by the PCAOB (Public Company Accounting Oversight Board) related to Section 404 of SOX.The auditor's report on internal control over financial reporting will express two opinions — an opinion on whether management's assessment of the effectiveness of internal control over financial reporting as of the end Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1087841268655650492004-06-21T13:57:00.000-04:002004-06-24T14:02:42.010-04:00Earnings management. The 2003 Medicare Reform act doesn't come into effect until 2006. However, companies are able to take advantage of it already in estimating future retirement healthcare benefits.Long-range estimates of drug subsidies also provide firms with an opportunity to engage in a bit of earnings management. That's because the forecasts add gray areas to the task of figuring out a Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1087833553098133652004-06-21T11:53:00.000-04:002004-06-22T14:33:07.190-04:00Accounting for environmental liabilities. At this time thereis not a uniform way of accounting for environmental liabilities. This report by The Rose Foundation for Communities and the Environment, The Environmental Fiduciary: The case for incorporating environmental factors into investment management policies, offers suggestions on how companies can account for such liabilities.Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1087831586313987912004-06-21T11:19:00.000-04:002004-06-23T13:06:35.486-04:00Debt Financing. What happens to a company when they are unable to pay the interest on their bonds? Donald Trump found out the answer to this question in May when his casino company didn't have the necessary cash to pay the interest on its bonds. The result was less control in the company for Donald Trump, who now has a diminished ownership percentage in the company. See this post from February Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1087824661813871262004-06-21T09:11:00.000-04:002004-06-23T12:01:21.716-04:00United Parent Seeks Investors
September 11,2001 brought an onset of several problems for the United States, more specifically in the airline industry. Americans had a fear of flying, which caused the airline industry earnings to plummet. As a result many airlines went under. United Airlines, the number two airline, was no exception. It filed for bankruptcy, Chapter 11, in December of 2002.Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1087624585093927812004-06-19T01:31:00.000-04:002004-06-20T23:54:15.143-04:00Not So Fast FASB. Just when it looked like FASB had solved the expensing of stock options issue, several bills are now in the works to change all that. This topic has become such a hot-button issue that the Securities and Exchange Commission took the liberty of inviting public comment, which is rather unusual. See our previous posts on these bills here, here, here, and here.Recognizing the Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1087623041568254632004-06-19T01:06:00.000-04:002004-06-19T09:21:12.113-04:00Several Milacron Execs Turn In Stock Earlier Than Expected Milacron CEO Ron Brown was among a handful of company officials that were forced to prematurely turn in restricted shares of company stock in order to appease income tax requirements.The moves were made necessary be the recent change in control of the corporation. The change of control was effective last week when Milacron completed a Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1087578915534696672004-06-18T11:10:00.000-04:002004-06-18T14:47:58.566-04:00SEC warns audit firms. Bloomberg News reports a recent SEC warning to accounting firms that they cannot provide both savings based tax consulting services (those with a contingent fee) and financial statement audit services to the same client. The two services seem to pose a confict of interest. This type of tax work rewards the audit firm for client taxes saved. Financial auditors could be Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1087564952784687502004-06-18T09:16:00.000-04:002004-06-18T13:06:37.553-04:00FASB and Legislation. The Financial Accounting Foundation's Board of Trustees has issued a statement opposing legislation that they believe would jeopardize FASB's ability to function as an independent standard setting body. This foundation appoints and funds FASB and the members are concerned about accounting rules being legislated rather than determined by FASB.The Financial Accounting Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1087564429391396622004-06-18T08:56:00.000-04:002004-06-21T11:51:09.373-04:00HealthSouth. HealthSouth has settled it's dispute [noted previously here] with bondholders. You can read about the premium they are giving to the bondholders of 7.625% notes. After HealthSouth failed to issue audited financial statements the bondholders called due the principal of the bonds. Healthsouth has been negotiating with the bondholders to avoid having to come up with the full Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1087529388955863582004-06-17T23:17:00.000-04:002004-06-18T12:57:04.333-04:00Stock Options. The chairman of the Cato Institute explains why he thinks FASB is wrong about expensing the cost of stock options. This is in response to FASB's recent exposure draft of a new accounting rule that would require that all forms of share-based compensation be accounted as a cost in the period they are granted. The author argues that:A stock option in not like "other forms of Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1087523594380908142004-06-17T21:40:00.000-04:002004-06-22T14:57:47.316-04:00The Columbus Business First journal has an opinion piece on why Ohioans should care about the stock options debate. FASB currently calls for "one size fits all" accounting standard for stock options.Up until now, standard practice with regard to accounting for stock options involved acknowledging their issue and then later incorporating their impact once employees cashed them in. The standards Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1087509525493462792004-06-17T17:45:00.000-04:002004-06-18T13:08:30.090-04:00Financial Statement Accounting Fraud. The New York Times reports that Prabhat Goyal, former CFO of Network Associates, will face criminal charges in connection with a scam to dupe investors. Essentially, the scam entailed recording revenue for product shipped to distributors before the product was sold to consumers. Distributors were paid "excess inventory fees" for the returned products.
The Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1087507665681527112004-06-17T17:15:00.000-04:002004-06-21T23:09:34.226-04:00 APR vs. APY. The Motely Fool website explains the difference between APR (annual percentage rate) and APY (annual percentage yield). "You'll typically see one (APR) cited in relation to mortgage loans and the other (APY) in regard to interest-bearing accounts." InvestorWords.com defines APR as "the yearly cost of a mortgage, including interest, mortgage insurance, and the origination fee (Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1087488818086427552004-06-17T12:01:00.000-04:002004-06-18T13:01:26.970-04:00Accounting gets bigger and smaller. The Atlanta Business Chronicle says that the requirements of Sarbanes-Oxley are causing changes in the size of accounting firms.
Under Sarbanes-Oxley,
-The lead audit partner and audit review partner working with a publicly traded company must be rotated every five years
-The Big Four accounting firms cannot mix the services they provided pre-Enron. As a Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1087488036831673202004-06-17T11:44:00.000-04:002004-06-21T23:12:00.420-04:00Fraud. Shareholders Sue Alliance Gaming claiming the corporation took advantage of its artificially inflated stock price at the expense of investors. According to the complaint, Alliance issued a series of materially false statements that artificially inflated its share price and then allowed certain executives to sell $3.6 million in shares. Then on June 8th, the company lowered earnings due Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1087487038803473572004-06-17T11:29:00.000-04:002004-06-22T13:28:26.043-04:00Conflicts of Interest? Can shareholders trust the Institutional Shareholder Services (ISS), or are there potential conflicts of interest? The ISS provides proxy voting and corporate governance services. Its core business is analyzing proxies and issuing informed research and objective vote recommendations to more than 20,000 shareholders each year.
However, the SEC has questioned whether Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1087442385468982762004-06-16T22:59:00.001-04:002004-06-18T13:09:16.133-04:00The Mercury News [registration required] reports that the House Financial Services Committee has voted favorably on a measure that would block FASB's proposed rule for expensing the cost of stock options. However, the Senate Banking Committee is poised to block the blocking measure: Under the House bill, only options going to the top five executives of a company must be expensed.
Supporters Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1087440454968835372004-06-16T22:29:00.000-04:002004-06-22T13:16:38.256-04:00Fraud. The SEC has filed civil fraud charges against Network Associates' ex-CFO Prabhat K. Goyal. He faces charges in connection with accounting transgressions, [including charges] that he overstated the company's revenue and earnings from the second quarter of fiscal 1998 to the fourth quarter of fiscal 2000 [and] that [he] has sold stock while possessing material non-public information Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1087438665836345022004-06-16T22:07:00.000-04:002004-06-17T14:40:12.953-04:00Market Efficiency. In The Efficient Market Hypothesis on Trial professors Phillip Russell and Violet Torbey re-examine EMH and conclude that a refinement is in order. Their premise states:The hitherto dominant paradigm in financial market research, the Efficient Market Hypothesis (EMH), has been put on trial recently and subjected to critical re-examination. The preliminary evidence indicates Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1087437975898213712004-06-16T21:54:00.000-04:002004-06-17T16:46:12.756-04:00Market Efficiency. The website Investor Home presented an insight into the motives of the"non-believers" of the Efficient Market Hypothesis. Specifically referring to active managers the essay states, Faced with the inference that they cannot add value, many active managers argue that the markets are not efficient (otherwise their jobs can be viewed as nothing more than speculation). SimilarlyCampusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1087438527964235182004-06-16T21:53:00.000-04:002004-06-18T13:02:41.856-04:00Global Accounting Standards. Four European Nations have rejected the latest version of the international accounting rule on derivatives. With a target of January to pass a full package of accounting standards starting to look doubtful, four European Nations rejected the compromise rule that would require investments in derivative securities to be measured by their market value as opposed to Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1087437357916550172004-06-16T21:47:00.000-04:002004-06-18T13:10:09.433-04:00Sarbanes-Oxley and Private Companies. A recent survey found that although they are not subject to the provisions of Sarbanes-Oxley, many privately-held companies have changed their business practices in reaction to the law. Nearly half of the companies that responded to the survey said that they had adjusted their accounting / reporting processes.Among those who cited a specific area of change,Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1087436584202282252004-06-16T21:32:00.000-04:002004-06-17T21:22:59.116-04:00Computer Associates revised company financial information for the first three quarters of the current fiscal year, as reported on CFO.com . CA is currently under investigation by the Securities and Exchange Commission and the Justice Department for previous errors in its financial statements. This filing is another example of improper accounting practices, dating back to 2000, that have been Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1087434701289111372004-06-16T21:03:00.000-04:002004-06-17T21:24:26.356-04:00FASB is in the news again. CFO.com reports that the Financial Services Committee of the House of Representatives has voted to restrict an option-expensing standard recently proposed by the FASB.H.R. 3574, the Stock Option Accounting Reform Act — which was approved last month in subcommittee — would demand an economic impact study before FASB is permitted to implement its proposed rule. In Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1087436377227591592004-06-16T21:00:00.001-04:002004-06-18T10:29:26.716-04:00Global Accounting Standards. J. Edward Ketz writes an opinion piece about the work of both the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) towards global harmonization of financial accounting rules. Although he admires the work they've done he argues that the benefits of global harmonization will not amount to much until enforcement Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1087412794899898532004-06-16T14:55:00.000-04:002004-06-16T15:19:44.793-04:00Power of Markets. A new book by James Surowiecki called The Wisdom of Crowds:Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations examines the power of capturing the collective wisdom of groups rather than relying on individual experts. One area where this is applied is markets. Markets are a method of collecting the wisdom that is Dennisnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1087350763584645652004-06-15T21:44:00.000-04:002004-06-16T10:57:35.706-04:00What should Microsoft do with its $56bil nest egg? The Economist reports that Microsoft is sitting on $56 billion in short term investments and cash equivalents. While Bill Gates wants to sit on enough money to make up for a year with no income, there is still $28 billion left. So what should Microsoft do with its retained earnings? Some say to re-invest the money; buy a company like SAP and Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1087350202045263392004-06-15T21:34:00.000-04:002004-06-16T11:20:51.216-04:00Hostile Takeovers. The Economist says that hostile takeovers are on the rise again and that they remain unpopular with investors and government regulators.
...hostile bids are, in fact, just as unpopular in America these days which is what makes Oracle's recent unfriendly bid for PeopleSoft, a rival software firm, stand out. Despite the efficiency of its capital markets, America's market for Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1087326571723280492004-06-15T14:50:00.000-04:002004-06-15T16:45:21.873-04:00Carly Fiorina, CEO of Hewlett Packard, urged investors to re-evaluate HP's stock price especially in comparison to IBM and Dell. Her argument revolves around analysts believing HP's stock is riskier than it actually is, and that IBM and Dell are actually riskier investments in the long run. Fiorina does have some grounds for complaining about HP's stock market performance. Over the past year, HPCampusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1087318146410813712004-06-15T12:48:00.000-04:002004-06-17T14:43:53.170-04:00Dell Joins debates over Expensing Stock Options. CFO.com reports that Dell Inc. has joined Apple Computer Inc., Hewlett-Packard Co., and Intel Corp. in the dilemma of whether or not to expense the value of stock options. Dell's position is that until FASB sets its final standard regarding expensing of options, any potential benefit of reporting the expense does not measure up to the investor Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1087317796094279092004-06-15T12:35:00.000-04:002004-06-15T15:10:21.333-04:00Computer Associates' Sanjay Kumar steps down. In a follow-up to the "How Executive Greed Cost Shareholders $675 Million" article presented in supplemental class readings from the chapter on stock options, this article notes that Sanjay Kumar [one of the three people who received the combined $1.1 Billion in stock] is leaving the company."It has become increasingly clear to me in the past few daysCampusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1087316331442607472004-06-15T11:58:00.000-04:002004-06-15T15:06:52.286-04:00Omnivision Technologies, Inc. Proposed Earnings Restatements cause investor confidence to falter. This article notes that investor confidence in Omnivision Technologies, Inc. has declined after the company issued a public announcement that it might be restating some of its 2004 and possibly some of its 2003 quarterly reports. Investor uncertainty increased further with news that 2004 fourth Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1087171588829961772004-06-13T19:43:00.000-04:002004-06-14T10:35:42.566-04:00Cisco Employees Flood FASB with Letters. After issuing a proposed rule that would require companies to expense stock options on their income statements, FASB received a plethora of complaint letters, most of which came from Cisco Systems.About 1,800 Cisco employees, or 7.5 percent of the company's domestic workforce, have submitted comments on the proposed rule; in a CFO.com sampling of 25 Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1087135509835840672004-06-13T10:02:00.000-04:002004-06-14T11:35:09.236-04:00Revenue Recognition for Software. i2 technologies has settled with the SEC over revenue recognition issues.
Over a nearly five-year period ending in 2002, the company allegedly misstated about $1 billion of license revenues, including over $125 million it should never have recognized.
Had the Dallas-based developer and marketer of enterprise supply chain software provided accurate financial Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1086972252174232912004-06-11T12:40:00.000-04:002004-06-15T21:23:52.583-04:00Qwest fails after overstatment of revenue was revealed Forbes.com reports that after the collapse of telecommunications company Qwest was overstating its revenues. By overstating revenues, Qwest appeared to be profitable, though it was not. All four defendants and four other Qwest executives have been sued by the Securities and Exchange Commission, which says they inflated revenues by about Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1086970850112015782004-06-11T11:56:00.000-04:002004-06-17T14:46:58.066-04:00How Options Fueled the Enron collapse: A 2002 episode of the PBS series Frontline argued that the failure to expense the cost of stock options contributed to the collapse of Enron. [Sarah Teslik, Executive director of the Council of Institutional Investors] "had FASB changed the rules and required companies to show stock options as an expense, I think Enron and a number of the other companies Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1086914561159486482004-06-10T20:32:00.000-04:002004-06-10T20:42:54.843-04:00Congress and FASB Decide to study effects of stock options CFO.com reports that as part of the Financial Transparency Act, Congress will begin a three year study on the effects of booking stock options as expenses. However, during that three-year period, there can be no change to the expensing rules. FASB is opposed to this bill. But the proposed legislation would also commission a three-year Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1086824309342164272004-06-09T19:24:00.000-04:002004-06-18T09:57:21.603-04:00Proper Disclosure. The SEC used the settlement with Warnaco Group to send a message to all companies. cfo.com reports that the SEC settled charges against Warnaco and its auditors PwC stemming from the company's misleading disclosures concerning the clothing company's 1998 financial results and an inventory overstatement of $145 million. In other words, they neglected to tell shareholders that Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1086727868119944712004-06-08T16:46:00.000-04:002004-06-17T17:01:29.876-04:00Accounting Fraud. cfo.com reports that although Symbol has settled probes for $138 million, seven former executives have been indicted for their roles in the accounting scandal."This is a textbook example of a company cooking the books," U.S. Postal Service Inspector William Kezer reportedly stated at a press conference in Brooklyn. "What's significant about this case is the number of cooks in Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1086727500037943602004-06-08T16:24:00.000-04:002004-06-14T11:33:00.726-04:00Ford sends not so discreet signal to analysts. Ford Motor Company announced that it has completed the first phase of its turn-around effort and still plans on making $7 billion operating profit by the middle of the decade. Even though it earned $0.96 a share in the first quarter, it revised its earnings upward by only $0.30 to $1.50 - $1.60. This should be a clear signal that it expects lower Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1086645223422976222004-06-07T17:48:00.000-04:002004-06-08T11:16:18.746-04:00Dividend Payments. A judge has given movie-theater operater Regal permission to pay a special $5 per share cash dividend to its shareholders. The Teachers Retirement System of Louisiana had petitioned the court to block the dividend payment arguing that it favored some shareholders at the expense of others. But since the dividend is paid on a per share basis, the judge ruled in favor of Regal. A Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1086609861663376112004-06-07T08:00:00.000-04:002004-06-07T10:59:20.506-04:00Stock Options. JDSU says that 2004 stock options worth 18% of it's revenues! The article notes that the accountants may reduce the reported expense this if they deem the volatility of the stock can be considered lower. Technology company JDS Uniphase Corp. said on Tuesday it awarded 47 million stock options to employees in its current fiscal year, which if expensed would be equivalent to around Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-10865523583590952004-06-06T15:59:00.000-04:002004-06-23T17:11:39.606-04:00 Another Way to Evaluate Stocks - Voodoo. Arthur Laffer, an economist, has found a new way to evaluate stocks that may seem to be unconventional, compared to the standard P/E method, however, he uses data that is credible, which makes this approach one to consider, as one evaluates a stock. This new Voodoo approach can be considered strategic or completely unconventional - you decide. The Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1086549891036055582004-06-06T15:18:00.000-04:002004-06-23T18:42:17.183-04:00 Separate Facts from Forecast In this article, the author makes a very logical point in that on financial statements, separating hard numbers from forecast and business predictions, will help everyone. It will help investors delineate between the two in an effort to make a sound decision on the future risk of the company and it will help the executives in their role by making them accountable Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1086546719576120012004-06-06T14:23:00.000-04:002004-06-06T15:31:06.776-04:00 CFO.COM reports stocks that pay dividends are down an average 0.55 percent this year; non-dividend-paying issues are off nearly 5 percent. Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1086546176704653412004-06-06T14:12:00.000-04:002004-06-23T23:44:23.013-04:00Executive Compensation Changes. In this report, CFO.com says that executives are compensated with an abundant amount of stock options which may be the wrong incentive in the interest of shareholders. Furthermore, their measurable business objectives are centered around their impact on the stock itself. This creates an issue and can result in what many people call "cooking the books" in hopes Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1086483399947633842004-06-05T20:54:00.000-04:002004-06-15T14:23:17.696-04:00Start-ups and Accounting. The Cincinnati Business Courier says that owners of startups must be careful in their selection of accounting methods and form of business.
Planning a company's financial operations and preparing for quarterly taxes is something every entrepreneur must face when forming a company. Connie Weaver, an assistant professor of accounting in the McCombs School of Business at Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1086482251694060462004-06-05T20:23:00.000-04:002004-06-15T13:01:20.826-04:00FASB changes accounting rules for Medicare subsidyFASB’s final guideline requires companies to record the amount of federal subsidy they expect to receive as an "actuarial gain," to be amortized into income over the average working life of their employees rather than recognizing the full effect all at once.
The guideline will take effect for fiscal periods beginning after June 15 for publicly Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1086376981850332072004-06-04T15:13:00.000-04:002004-06-07T08:02:14.756-04:00Black-Scholes may not be the best model for stock option expenses. CFO.com article proposes that binomial stock option value modeling may be more accurate than Black-Scholes, however, it may also be more easily manipulated by management to lower reported stock option expenses. Additional FASB usage guidelines may be needed to establish allowable assumptions for the new model....the traditional Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1086355507238249042004-06-04T09:11:00.000-04:002004-06-15T14:29:03.073-04:00Gross Margins. Gross margins are a closely watched measure of success in the chip business. So much so, that Intel forecasts revenues and gross margins. MSNBC reports.Intel said it now expected revenue of $8.0 billion to $8.2 billion, with a gross profit margin of 60 percent to 61 percent for the second quarter ending June 26.Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1086297690329368632004-06-03T17:12:00.000-04:002004-06-04T10:13:50.546-04:00cfo.com reports that PWC has settled the Raytheon case for $50 million.Plaintiffs were reportedly eyeing PwC's lead partner on its work for Raytheon; he's now the defense contractor's chief financial officer.
PricewaterhouseCoopers LLP agreed to pay $50 million to settle charges that it helped Raytheon Co. hide cost overruns five years ago, according to the Boston GlobeCampusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1086226988833340002004-06-02T21:36:00.000-04:002004-06-03T13:09:00.283-04:00Break up the Big Four? cfo.com reports some critics want to break up the Big Four accounting firms into as many as eight different companies.One such critic is Richard Breeden, former SEC commissioner and court-appointed monitor for MCI. "The next head of antitrust at the [Department of Justice] should just sit down with [European Union competition commissioner] Mario Monti and agree to break Campusnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1086032436364070002004-05-31T15:40:00.000-04:002004-05-31T23:35:55.996-04:00Former CEO of Rite Aid has been sentenced to serve eight years for his part in an accounting scandal and coverup.Grass took control in 1995 and began an acquisition spree. Rite Aid grew from 1,618 stores and $943 million in debt in 1995 to 3,821 stores and $4.1 billion in debt by 1999.
But the grand jury said the boom years were accomplished by 'massive accounting fraud, the deliberate Dennisnoreply@blogger.comtag:blogger.com,1999:blog-5697030.post-1085768647354882892004-05-28T13:51:00.000-04:002004-05-28T15:14:08.636-04:00Auditors may increase focus on reporting of environmental issues. An article in Accountancy magazine implies that major auditing firms may increase their scrutiny over reporting of environmental and other non-financial issues.
The Big Four and the accounting bodies agree that non-financial information, including environmental issues, should take greater precedence in companies' reporting Campusnoreply@blogger.com