Articles+of+note

[]April 6th

[]

[]

House Members Question Obama's Call to End LIFO Accounting
By Brett Ferguson Publication date: 02/04/2010 House Ways and Means members crossed party lines in Feb. 3 budget hearings to criticize the Obama administration's proposal to raise an additional $59 billion in tax revenues by eliminating firms' ability to use the last-in, first-out accounting method. “If we do this, if we end it, what's going to happen is U.S. small businesses are going to take a big tax hit and their competitors overseas are going to have a terrific advantage over us in the marketplace,” Rep. Mike Thompson (D-Calif.) told Treasury Secretary Timothy Geithner. “There're some industries that have to hold their inventory for a long time; this is a fair and reasonable way to recognize that and I would strongly urge you to go back and revisit that.” The practice can reduce a business's tax liability, particularly in times of rising inflation, because it takes into account the higher costs of replacing inventories. The LIFO method is especially important to companies that maintain large inventories over a period of years, such as wineries and distilleries that need to age their inventories. As a result, shifting to a first-in, first-out accounting practice would have the effect of giving those producers income on which they would have to pay taxes, even though the products they have put into inventory may not be available for sale for several years. Rep. Geoff Davis (R-Ky.) said the proposal not only hurts distillers, but also the aerospace industry and other business fields that sit on inventory for many years. “If we want to create jobs in manufacturing, the repeal of LIFO creates many challenges,” Davis said, noting that Congress already rejected the same proposal from Obama in his fiscal year 2010 budget. Geithner said the administration still believes the change would be a “reasonable policy,” but he promised to work with Congress on the idea.

**Caps on Deductions**
Lawmakers also attacked the administration's plan to cap the value of itemized tax deductions at the 28 percent tax rate, rather than allowing tax deductions to be valued as high as the 39.6 percent top tax rate that would be in place in 2011 under the Obama budget. Critics have argued that capping the value of the deductions could have a chilling effect on charitable giving and—like the LIFO proposal—the idea was rejected by Congress in 2009. “The limit on itemized deduction has been somewhat controversial within our ranks and across party lines. We need to talk about that,” Rep. Sander Levin (D-Mich.) told White House Office of Management and Budget Director Peter Orszag in a separate budget hearing later in the day. The White House said in its budget proposal that capping the value of the tax deductions would make the income tax system more progressive and “distribute the cost of government more fairly among taxpayers of various income levels.” The proposal would raise an estimated $291.2 billion over 10 years. Combined with the proposal to raise the top tax rates to their pre-2001 levels for high-income individuals and the reinstatement of certain phaseouts on exemptions and deductions, the budget would raise an additional $969.5 billion from upper-income taxpayers. //The complete text of this article can be found in the BNA Daily Tax Report, February 4, 2010. For comprehensive coverage of taxation, pension, budget, and accounting issues, sign up for a free trial or subscribe to the BNA Daily Tax Report today. Learn more »// © 2010, The Bureau of National Affairs, Inc.

"**Critical Points in the Learning Process**," by Joe Hoyle, //Teaching Financial Accounting Blog//, January 21, 2010 --- http://joehoyle-teaching. blogspot.com/ Author’s Note: Before I get started today, I wanted to mention a note that I received from Professor David Albrecht. I am always pleased to pass along information that might help in better teaching.

From David: I've been blogging for a while. My blog is at http://profalbrecht.wordpress. com On my blog, a have a page of links http://profalbrecht.wordpress/ com/links/ for all other accounting professors that blog. You might be interested. http://profalbrecht.wordpress. com/2008/12/30/ace-your- accounting-classes-12-hints- to-maximize-your-potential/


 * I have long believed that there are three critical points in the learning process: (1) what students do prior to class to prepare themselves to learn, (2) what takes place during class, and (3) what happens immediately after class to help the students solidify the material that they have just heard and discussed. If I were to guess, I would think that teachers spend about 10 percent of their time and energy on helping guide step (1), 89 percent of their time setting up step (2), and 1 percent of their time and energy guiding step (3). Personally, I think a 33.3, 33.3, 33.3 allocation might make for a much better educational experience.

Students leave class and if they are not careful any and all understanding leaks away very quickly. Subsequently, when test time arrives, they find it necessary to cram all that understanding back into their brains in almost a panic. Not surprisingly, they will then complain that they “knew it all until they got to the test.” What they really mean is that they had a vague understanding leaving class but never solidified the knowledge so that it went from a general appreciation of the material to an actual and deep understanding.

Therefore, I encourage my students to organize, review, practice, or whatever it takes within a few hours after each class. I stress that this might well be the most important work they do in my class. I do not feel that I can over-emphasize taking the material that we have gone over in class and bringing it into their actual knowledge base.

Unfortunately, students seem to have little training as to how to do this. Ask your students some day “what have you done since the last class to make sure that you understood that material we covered?” You may well get some truly bewildered stares. You have introduced a foreign concept.

I try to help guide my students AFTER material has been presented. As I have said before in these postings, I use email a lot. One of my favorites uses is a quick email right after class to say “okay, here is what we covered today and here is what you should do next to get that material under control.”

For example, on Wednesday of this week, we had our opening discussion on transactions and transaction analysis. Within 10 minutes of leaving class, I sent them the following email to alert them to exactly what I needed for them to do next. Plus, I introduced my concept of “three-second knowledge,” the stuff they should know so well that they really don’t need to think about it. I believe every course has a significant amount of three-second knowledge. If the students can get that learned, they will have an excellent base of understanding on which to build more complicated concepts.

Email to students after Wednesday’s class: “--We ended class looking at the financial ramifications of seven transactions. I need for you to go back over those seven until you know them backwards and forwards. These are not hard (and there are not many) but you cannot have soft knowledge on this. You need to have this down absolutely solid. If I walk into class Friday and ask you about one of those seven, I need for you to have this at what I call the "three-second level of knowledge." In other words, if I call on you with one of those seven, you should be able to count to three and tell me the answer. Not look it up in your notes or the book but count to three and tell me the answer. If you start coughing and sputtering, then, by definition, you are not at the level that I want. Notice, that this is just for the seven transactions that we specifically covered yesterday.”

How can you help your students take their soft knowledge and turn it into an understanding that is absolutely solid?

Jensen Comment Joe Hoyle is one of our most sharing accounting professors.**

Free (updated) Basic Accounting Textbook --- search for Hoyle at http://www.trinity.edu/ rjensen/ElectronicLiterature. htm#Textbooks Free CPA Examination Review Course Courtesy of Joe Hoyle **---@http://cpareviewforfree.com/** ==Saturday December 5, 2009 **Share ...**
 * CPA Examination --- http://en.wikipedia.org/wiki/ Cpa_examination**

[|Home] > [|Articles & Research] > [|Accounting & Audit] > Fifteen Risk Factors for Poor Governance== =Fifteen Risk Factors for Poor Governance= A self-diagnostic to identify risk factors for poor governance and reporting by [|Walter Smiechewicz] | September 8, 2009 Some of the best indicators of our overall physical health come from blood tests. Unfortunately, too often we don’t begin to watch and manage these numbers until later on in life. Of course, it’s never too late to improve your diet and exercise, but we’re always left thinking, “if only I’d paid attention to this earlier.” With so many recent corporate crises, it is plain it’s suffice to say that a great many corporate board members and executives are experiencing similar regret right now. Perhaps this could have been avoided if they too had practiced routine diagnostic check ups. Like an individual blood test, board members need to know the risks their company is facing, and as with any health risk, they also need to be able to mitigate those exposures. Sounds great, but the devils in the details, right? Perhaps not. As chief consultant for governance and risk at Audit Integrity, I’ve examined the worst U.S. companies from an “integrity” standpoint in order to help board members and general auditors see how their company’s health stacks up. Audit Integrity’s metrics have shown which companies are 10 times more likely to face SEC Actions; five times more likely to face class action litigation; and four times more likely to face bankruptcy. Using Audit Integrity’s proprietary AGR (Accounting, Governance, and Risk) score, 196 companies were identified as laggards or high-risk companies. These companies have been proven to have higher odds of SEC actions and class action litigation, loss of shareholder value, and increased odds of material financial restatement and bankruptcy. All are North American, non-financial, publicly traded companies with over $2 billion in market capitalization with an average-to-weak financial condition.

Directors should no longer accept “no worries” explanations on regulatory matters. Compliance tests should be employed routinely and if regulatory action does occur, management needs to take action.

Next, I tested the 119 metrics that Audit Integrity flags and discovered that 15 of those metrics appeared consistently as identifiers of problematic companies; the first metric was prevalent in 65 percent of the 196 high-risk companies and the 11th evident in 40 percent. The other 8,000 companies tested had low incidences of these same metrics. A list – dubbed the Risky Business Catalogue – details the common metrics within high-risk companies. Board members, the C-suite, and general auditors should note if their company is a candidate for the RBC. The evidence is not saying that significant issues are imminent if a company has one of the RBCs, but a combination of RBC metrics indicate risk factors to the entity’s business model and strategy. RBC’s metrics include: While there is certainly nothing wrong with corporate M&A activity, it’s common for policies to be revised and system integrations to be rushed. Company directors need to caution general auditors to be extra vigilant post merger and increase testing of balance sheet accounts. This situation can cause negative motivations and earnings to be increased more creatively to ensure a larger portion of executive pay packages. Close attention should be paid to revenue recognition. An age-old debate, but indispuditedly conflicts of interest invariably result when a company CEO is also its Chairman. Separate the roles to improve governance and reduce compromised oversight.Compromised reliability exists because the very architecture of governance has a built in conflict when the Chairman is also CEO. Restructuring may be completely valid, but also can be employed to conceal the lack of sustainable earnings growth. Directors, by role definition, should be intimately involved in restructuring procedures decisions and promised outcomes. Many corporate stakeholders hold true to the statement that where there’s smoke, there’s fire. Directors should no longer accept “no worries” explanations on regulatory matters. Compliance tests should be employed routinely and if regulatory action does occur, management needs to take action. When intangible assets such as goodwill grow, boards should ask more probing questions about how the business model generated these assets and about concomitant valuation protocols. General Auditors should confirm that models are comprehensively back tested and impairment procedures are adhered to assiduously. If a CEO is awarded a much larger paycheck than anyone else (particularly particularally the CFO), it increases governance risk and leads to a top-directed culture, thus limiting collaboration. Boards need to be involved in all executive compensation issues including that which drives pay packages for the CFO, Chief Risk Officer, as well as internal auditors,. etc. Riskier companies have revenue recognition in excess of what is expected based on operating revenues. Directors should fully understand revenue recognition policies and instruct management to test them to be sure they are not aggressive. Data shows that riskier companies have more divestures, usually because it is an opportunity for more aggressive accounting activity. Board members should inquire as to how this action fits the strategy. When a business relies too heavily on debt it reveals that markets are not independently funding the business model or strategy. Boards should know why the markets are not investing in their entity and therefore why debt is so heavily relied upon. Board members should also be knowledgeable on the quality of their equity and not just the amount. Lastly, they should understand management’s funding overall funding strategy and the strength of contingent funding plans. A repurchase of stock is usually presented to investors as an avenue to increase market demand for the stock, thereby elevating overall shareholder value. Management must provide reasoning for why there are no other ways to invest excess funds. Boards should also request the general auditor to review insider sales during the period of share repurchase programs. When inventory increases in relation to revenue it should raise control questions about inventory valuation. It could indicate changing consumer preferences, which should spur an analysis of a corporation’s business model. This situation can typically be indicative of relaxed credit standards. Directors should ask whether sales are decreasing due to market conditions and instruct the general auditor to probe receivables to determine their viability. If assets are increasing and sales are not flowing it could indicate less productive assets are being brought, or retained, on the balance sheet. Conversely, if sales are decreasing, executives and auditors will again want to analyze changing customer preferences. A collection of other accounting metrics indicates that boards, the C-suite, and general auditors should pay special attention to the controls, assumptions, and governance surrounding assets whose valuations are model driven. This is particularly true if assets that are valued by financial models make up a larger portion of the entities balance sheet. To be sure, any one of these in isolation as an indicator of accounting and governance risk can be debated. Company divestitures and M&A can be a healthy indicator. But if a corporation fails more than a few of these metrics, board members need to take action. It is easy to dismiss any one of these metrics when you find it is an issue in your company. Human nature is quick to retort – maybe for others but not for us. However, like time and tide, the numbers too, wait for no one. So, if you have any of these AGR metrics, you need to begin confronting these risk characteristics today to improve your corporate health and avoid the much more drastic financial equivalent of cardiovascular surgery tomorrow. //Walter Smiechewicz is chief consultant for governance and risk at Audit Integrity, a research firm that provides accounting and governance risk analysis//
 * 1. The company has entered into a merger within the last 12 months.**
 * 2. The CEO and CFO’s compensation is more highly weighted toward incentive compensation than base compensation.**
 * 3. The Board Chairman is also the CEO.**
 * 4. The company has undergone a restructuring in the last 12 months.**
 * 5. The company has encountered a public regulatory action in the last 12 months.**
 * 6. The amount of goodwill carried on the balance sheet, when compared to total assets, is high.**
 * 7. The ratio of the CEO’s total compensation to that of the CFO is high.**
 * 8. Operating revenue is high when compared to operating expenses.**
 * 9. A Divestiture(s) has occurred in the last 12 months.**
 * 10. Debt to equity ratio is high.**
 * 11. A repurchase of company stock has taken place in the last 12 months.**
 * 12. Inventory valuations to total revenue is increasing.**
 * 13. Accounts receivables to sales is increasing.**
 * 14. Asset turnover has slowed when compared to industry peers.**
 * 15. Assets driven by financial models make up a larger portion of balance sheet.**

=
================================================================================= ==The above reference to “IDEA” is no longer used, and link is no longer operational, because the SEC has given up the right to use the term “IDEA” as part of settling a trademark infringement suit brought by Caseware IDEA (here is related news story, May 27, webcpa confirming this: [] and here is Caseware’s May 27 press release on this: [] . (I recall writing about this in FEI blog on June 1 here: [] ) I would suggest you replace the line above (and related link) with the following line (and link): Interactive Data and XBRL Initiatives --- [] Separately, I will send you a list of some additional suggested links, including a few accounting blogs. Thank you. Regards, Edith==

=Wednesday, October 14, 2009[|==was issued by FASB and the International Accounting Standards Board in December 2008 for a six-month comment period. The boards are currently reviewing the comments, and an exposure draft on revenue recognition, which is the penultimate step to a new global rule, is expected out next year.] [| Regarding the issue of multiple deliverables, most technology companies would like to see FASB move closer to international standards with regard to bundled software, and drop the requirement for vendor-specific objective evidence. Under GAAP, VSOE of fair value is preferable when available, according to Sal Collemi, a senior manager at accounting and audit firm Rothstein Kass.] [| Basically, VSOE is equivalent to the price charged by the vendor when a deliverable is sold separately — or if not sold separately, the price established by management for a separate transaction that is not likely to change, explains Collemi. Third-party evidence of fair value, such as prices charged by competitors, is acceptable if vendor-specific evidence is unavailable. Many technology companies argue that it is sometimes impossible to measure the fair value of a component that is not sold separately, but rather is an integral part of the product — as is the Apple software for the iPod series of products.] [| At the same time, international financial reporting standards require companies to use the price regularly charged when an item is sold as the best evidence of fair value. The alternative approach, under IFRS, is the cost-plus margin, says Collemi. That is, the IFRS puts the onus on management to value a product component based on what it costs to manufacture the piece plus the profit-margin share built into the item. Management usually bases its valuation on historic sales as well as current market-established sale prices. The cost-plus margin is not allowed under GAAP.] [| With respect to bundled components, the IFRS focuses on "the substance of the transaction and the thought process and ingredients that go into the transaction," contends Collemi, who says the standard's objective is to make economic sense out of the transaction. FASB's take on the subject is more conservative: the U.S. rule maker calls for objective evidence to establish value.] [| Some critics say the IFRS approach invites abuse, because it's based on management assumptions. But Collemi contends that GAAP accounting is filled with rules and interpretations that require management estimates, and that the burden is on management to produce the correct numbers. What's more, auditors are in place to act as a backstop to verify the processes used to arrive at management estimates. "If management is following the spirit of the transaction and doing the right thing," adds Collemi, "then it is up to auditors to challenge the estimates."] [|© CFO Publishing Corporation 2009. All rights reserved.] =