What’s a Bitcoin?

Bitcoin is a peer-to-peer currency, meaning it is not issued by a central authority, like the dollar or yen. The money supply grows as the network grows and will max out at about 21 million bitcoins. But right now, you can purchase them online on the Mt. Gox currency exchange or an over-the counter market. They do not exist in physical form—only electronically, owned and traded by members of a special, anonymous peer-to-peer network. No third-party intermediary, such as a payment processor or a bank, needs to keep tabs on or process the electronic transactions.

Questions:

1.  According to the article, what are the advantages of the bitcoin?

2.  According to the article, what are the disadvantages of the bitcoin?

3. Explain how issues related to the bitcoin might overlap with accounting concepts.  

Source:

Lowrey, A. (2011). My Money is Cooler Than Yours. Slate.com, May 18 (Retrievable online at http://www.slate.com/id/2294980/)

Not too squeaky clean

A suit called GSP Finance LLC v. KPMG LLC was filed on March 29 with GPS alleging that KPMG “was well aware of the desperate financial condition of Hicks Sports” — specifically, the Texas Rangers and Dallas Stars — when it was hired to conduct the ’08 audit. The suit says Hicks Sports Group suffered losses of $113 million in 2002, $67.8 million in ’03 and $95 million in ’04. Till the Stars are sold, it won’t be clear exactly how much Hicks’s lenders have lost.

Questions:

1. What issues are in question regarding the clean audit?
2. What was the related party issue that is coming to light?
3. Identify all the financial statement users impacted by this clean opinion.

Source:
Wilonsky, R. (2011)KPMG Sued For Giving Tom Hicks “Clean Audit” a Year Before $525-Million Loan Default, March 30 (Retrieved at http://blogs.dallasobserver.com/unfairpark/2011/03/kpmg_sued_for_giving_tom_hicks_clean_audit_a_year_before_525-million_loan_default.php)

2011 Prediction

According to William K Black, the FBI and the DOJ will not be likely to prosecute the elite bank officers that ran the enormous ”accounting control fraudss that drove the financial crisis. While over 1,000 elites were convicted of felonies arising from the savings and loan crisis from the 1980′s and 1990′s , there are no convictions of controlling officers of the large nonprime lenders. The only indictment of controlling officers of a far smaller nonprime lender arose not from an investigation of the nonprime loans but rather from the lender’s alleged efforts to defraud the federal government’s TARP bailout program.

Black proposes that the U.S. needs to take three major steps to be effective against the epidemic of accounting control fraud. First, DOJ needs to realize that it is dealing with accounting control fraud. That task is not terribly difficult. The criminology, economics, and regulatory literature — as well as the data on fraud and analytics are all readily available. The FBI must end its “partnership” with the MBA. Second, the regulators need new leadership picked for a track record of success as vigorous regulators and a willingness to hold elites accountable regardless of their political allies. Third, the regulators and the DOJ need to partner with the SEC and the state AGs to share data (where appropriate under Grand Jury rule 6e). The federal regulators need to end their unholy war against state regulatory efforts and the SEC needs to end its disdain for the state AGs.

Questions:

1. According to the author, what is the four-part recipe for maximizing fraudulent accounting income in the short-term?

2. According to the author, what is the downfall of the FBI in the role of successful investigation and prosecution of accounting control fraud?

3. What are liar’s loans and what is their role in the financial crisis? 

4.  How do you see this lack of criminal prosecution affecting the accounting and finance profession? Do you agree with Black’s proposals?

Source: Black, W.K. (2010). 2011 Will Bring More de Facto Decriminalization of Elite Financial Fraud, The Huffington Post.com, December 28 (Retrievable online at http://www.huffingtonpost.com/william-k-black/the-role-of-the-criminal_b_802115.html)

Just Say No to Debt During the Holidays

According to this year’s National Retail Federation holiday survey, the average American will spend close to $700 this season on gifts, cards, decorations, and the like. This is one time when you want to be below average — way below. In fact, if you are in debt, just say no to gift buying this holiday. There is absolutely NO reason for you to go further into debt buying gifts for others. There are still 13.6 million Americans who are trying to pay off holiday debt from last year.

 Questions:

 1.  Which of the tips mentioned in the article would help you the most in steering clear of holiday debt? Explain.

2. Go to GiftCards.com and click on Discounted Gift Cards.  Select “View All Available Gift Cards” and then pick one of the merchants that you would normally visit.  Assume that you buy the card.  What journal entry would this merchant make for the sale of this card? (In your answer, assume that the merchant must pay GiftCards.com a transaction fee of 1%.)

3.  Assume that you redeem the card that you purchased in Question 2.  What journal entry would the merchant make for the redemption?

 Source:

Pagliarini, Robert (2010). 10 Tips to Save Big Money This Christmas.  HuffingtonPost.com, December 8 (Retrievable online at http://www.huffingtonpost.com/robert-pagliarini/10-tips-to-save-big-money_b_793857.html)

Amazon.com Must Anticipate Profits in Diapers & Baby Care Products

Amazon.com Inc. agreed to buy Quidsi Inc., the owner of Diapers.com and Soap.com, for $500 million in cash, expanding in baby-care products and gaining merchandise- management expertise. Amazon will also assume about $45 million of closely held Quidsi’s debt and similar obligations, according to a statement from the companies today. They expect to close the deal in December.

Question:

1. Based on the article, what were the sales for Quidsi last year?
2. Based on the article, what was the U.S. e-commerce market last year?
3. Based on the article, what percent of the U.S. e-commerce market does Quidsi comprise?
4. Based on the information given in the article, discuss the accounting treatment  Amazon will record for the Quidsi acquisition.   

Source:

Galante, J. and Serena Saitto (2010). Amazon.com Agrees to Buy Diapers.com Owner for $500 Million, Bloomberg.com, November 8. (Retrievable online at http://www.bloomberg.com/news/2010-11-08/amazon-com-agrees-to-buy-diapers-com-owner-for-500-million.html)

Hiding The Truth?

Jane Buchan is a rarity on Wall Street. Not only has she built a hugely successful hedge fund investment firm but the firm is also the only one that is, on paper, owned and run by women. Unfortunately, it now appears that the firm Pacific Alternative Asset Management Company (PAAMCO) was bankrolled by some of the biggest (male) names in the business, in order to disguise aspects of the business from customers, partners and federal regulators.

Questions:
1. What is this scandal all about in terms of ill-gotten gains? (Include some red flags of fraud and/or motives to commit this type of fraud.)
2. The case centers on whether Mr. Sussman had the right to convert a $2 million loan he made to Paamco’s founding partners in 2000 into an equity stake in Paamco’s parent company. What journal entry would Mr. Sussman make for this transaction, if credible?
3. What was Mr. Sussman’s previous history with the SEC and why is this important?

Source: Creswell, Julie. (2010). A Hedge Fund Controlled By Women, So It Claimed. The New York Times, October 18 (Retrievable online at http://www.nytimes.com/2010/10/19/business/19hedge.html)

Put Me First In Line

Former Denver Broncos quarterback John Elway and his business partner gave $15 million to a hedge-fund manager now accused of running a Ponzi scheme.  In court papers filed by Elway and Mitch Pierce the two claim that their investment was supposed to be kept in a separate account from Mueller’s Over Under Fund. Therefore, the Denver Broncos legend is seeking a declaratory judgment for the return of their money, ahead of other investors. Mueller Capital Management has just $9.5 million left to cover liabilities of $140 million.

Questions:

1.  What is a hedge fund?

2.  What accounting guidance for hedge accounting is available under International Financial Reporting Standards (IFRS)?

3.   What accounting guidance for hedge accounting is available from the Financial Accounting Standards Board (FASB)?

4.  As one accountant said of this story: “It’s hard to feel sorry for rich people who play in games without rules (hedge funds).” Do you agree or disagree? Explain.

 

Source:

Staff. (2010) Hall of Famer Elway Seeks Mueller Money Now. FINAlternatives, October 19 (Retrievable online at http://www.finalternatives.com/node/14212).

Interesting News for IFRS Nay-sayers

While reviewing the proposed expansion of the International Financial Reporting Standards for accounting, Tim Bush, a member of the “Urgent Issues Task Force” that scrutinises the work of the Accounting Standards Board (ASB), claims to have uncovered “fatal” and “dangerous” flaws in the system.  Mr. Bush alleges the regulations, and specifically the way they have been implemented in the U.K. and Ireland, have led to “mistakes [that are so severe] that it is difficult to overstate”.

Questions:

1.  What severe mistakes does Mr. Bush allege?

2. What does he propose would fix these problems?

3. Who does Mr. Bush claim are the first victims of IFRS standards and who will be the secondary victims?  Based on your understanding of the issues, do you agree or disagree?  Why?  

Source:

Armistead, Louise. (2010). UK Bank Accounting “Fatally Flawed” Warns Influential Watchdog, Telegraph.co.uk, August 26 (Retrievable online at http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/7964816/UK-bank-accounting-rules-fatally-flawed-warns-influential-watchdog.html)

What’s up with Hulu?

According to the New York Times, Hulu is approaching investment banks to underwrite an IPO this fall valuing the company at $2 billion. What is Hulu? Hulu is an online video service that offers a selection of hit shows, clips, movies, and more at Hulu.com and numerous destination sites online and across four screens — PCs, TVs, mobile phones and tablets.
Questions:

1. Based on Yarrow’s article, draft a simplified income statement for Hulu in 2009. Assume a year-end of December 31.

 
2. What is an IPO? Why does Atkinson see problems ahead with this?

 
3. How does Hulu generate revenue? What accounts do you think would be associated with this business model?

Source:
Yarrow, J. (2010). Hulu Wants To IPO At A $2 Billion Valuation, Business Insider SAI, August 16. (Retrievable at http://www.businessinsider.com/hulu-ipo-2010-8)

Atkinson, Claire. (2010). Hulu Faces Hurdles to Stock Offering. New York Post, August 17. (Retrievable online at http://www.nypost.com/p/news/business/hulu_faces_hurdles_to_stock_offering_2O1mh3F3PhtbXXbyrQ7QoO)

Who are the most trustworthy companies and why?

Who can you trust? 

In a recent examination by Audit Integrity, an independent financial analytics company in Los Angeles, the company assessed the true quality of corporate accounting and management practices by looking at more than 100 factors beyond the balance sheet and income statement. Their aim was to identify the measures most highly associated with fraud and to quantify the risks of drops in stock prices, that could force managers to restate financials or could potentially result in securities lawsuits. Audit Integrity has back-tested its proprietary metrics to 1996 to establish correlations between corporate behavior and negative events. Audit Integrity’s measures have been used over the past seven years by institutional investors, insurers, auditors, regulators and corporations to identify risk.

Questions:

1. How many public companies typically make Audit Integrity’s Most Trustworthy Companies list?

2. What industry or region of the country has a concentration of the most trustworthy companies?

3.  Who are the companies with the most impressive records and why?

4.  Speculate on what metrics are used by Audit Integrity and list at least 10 factors that would be important to include.

Source:

Weinberg, N. (2010). The Most Trustworthy Companies. Forbes.com, August 6 (Retrievable online at http://www.forbes.com/2010/08/05/most-trustworthy-companies-personal-finance-audit-integrity.html?partner=daily_newsletter)

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