New Revenue Recognition Standards on the Way for Contractors

Contractors should be educating themselves on the impact of the new proposed revenue recognition standards and the recently published (June 24, 2010) exposure draft pertaining to revenue from contracts with customers. Public comments are due October 22, 2010, and it is expected the standards will be finalized in 2011.

Questions:

1. What are some of the significant changes in this standard that will affect contractors?

2. How will the proposed standard define the economic unit of measure?

3. Explain what the new cost of capitalization rules will mean for contractors.

 

Source:

Henderson, J. (2010). Proposed Revenue Recognition Rules Would Significantly Affect Contractors, BKD Alerts, June (Retrievable online at http://www.bkd.com/industry/Construction-RealEstate/Insights/2010/2010-06alertsCRE-1.htm)

Scrushy Back in the News

The U.S. Supreme Court on Tuesday ordered a new review of the convictions in the government corruption case against former Alabama Gov. Don Siegelman and ex-HealthSouth CEO Richard Scrushy.

Questions:

1. What is the “honest services” fraud law?

2. What is a “quid pro quo” agreement?

3. A judge issued a $2.9 billion civil judgment against Scrushy. According to the opinion, what did Mr. Scrushy do and why?

 

Sources:

Johnson, B. (2010). Court Orders New Review of Siegelman, Scrushy Case, Associated Press, June 29 (Retrievable online at http://www.google.com/hostednews/ap/article/ALeqM5gEFj4h2WLTpKm2g7jltY0N0opHMgD9GL1FQO1

Memorandum Opinion in the 2002 Derivative Litigation for Jefferson County Alabama Circuit Court Case of Wade Tucker, et.al. versus Richard M. Scrushy, et. Al., June 18, 2009. (Retrievable online at http://www.hwnn.com/images/stories/files/Scrushy%20Memorandum%20Opinion.pdf)

Supreme Court Rules on Constitutionality of the PCAOB

The U.S. Supreme Court ruled on June 28, 2010, that the Public Company Accounting Oversight Board (PCAOB) violates the U.S. Constitution’s separation of powers principle because board members are not appointed by the president.  In a 5-4 decision, the Court stated that the president must have more power to remove PCAOB members. The five-member board is appointed by the U.S. Securities and Exchange Commission after consultation with the Federal Reserve System’s chairman of the board of governors and the Secretary of the Treasury.

Question:

1.  How was the PCAOB originally established and why?

2.  Look at the ruling.  Which justices joined to support the ruling and which justices dissented?

3.  According to the sources listed, how do you think the ruling will affect the Board’s operations and why does Barry Melancon, president and CEO of the American Institute of Certified Public Accountants (AICPA), see this as a victory for investors and for the accounting profession?

Source:
Supreme Court Opinion No. 08–861 (2010). Free Enterprise Fund et.al. versus Public Company Accounting Oversight Board, June 28 (Retrievable online at http://www.supremecourt.gov/opinions/09pdf/08-861.pdf)
Accounting WEB staff. (2010). UPDATE: Supreme Court Rules PCAOB Violates Constitution’s Separation of Powers Principle, Accounting WEB, June 28  (Retrievable online at http://www.accountingweb.com/topic/accounting-auditing/supreme-court-rules-pcaob-unconstitutional)

Settlement for FCPA violation

The SEC announced that it had reached a settlement with Technip for multiple violations of the Foreign Corrupt Practices Act (FCPA). The SEC allegations focus on  Technip’s role as  a global engineering, construction and services company based in Paris, France in bribing Nigerian government officials over a 10-year period in order to win construction contracts in Nigeria worth more than $6 billion. The SEC also charged that Technip engaged in books and records and internal controls violations related to the bribery.

Questions:

1. Go to the U.S. Department of Justice website (www.justice.gov) and briefly summarize the the Foreign Corrupt Practices Act?

2. Why would the SEC have any jurisdiction over a French firm doing business in Nigeria? Who is one of Technip’s joint venture partners?

3. What did the company do in February 2010 to prepare its shareholders for this potential settlement?

Sources:

Worthington, C. (2010) Technip’s €245 Million FCPA Charge, The FCPA Blog, Feb. 12 (Retrievable online at http://www.fcpablog.com/blog/2010/2/12/technips-245-million-fcpa-charge.html)

Black, B. (2010) Technip Settles FCPA Charges with SEC and DOJ, Securities Law Prof Blog, June 28 (Retrievable online at http://www.lawprofessors.typepad.com/securities/)

Madoff: Freedom in Prison?

In an extended expose, the New York Magazine reported that Bernard Madoff described his scheme as a real nightmare to him, as if he were the real victim, and complained about little old ladies bugging him for money. The article goes on to describe his celebrity in prison among the other inmates and his “freedom” in prison.

Questions:

1.  What kind of scheme did Bernie Madoff use to defraud his investors? What is the estimated amount that he stole from investors?  What was his sentence?

2.  What did Bernie Madoff claim that the SEC failed to do that would have uncovered his scheme? Do you agree?

3. What trait does Bernie Madoff continue to exhibit that is common to fraudsters? Do you think the sentence fits the crime for this case?

Source: 

Fishman, Steve. (2010). Bernie Madoff, Free At Last, New York Magazine, June 6. (Retrievable online at http://nymag.com/news/crimelaw/66468/)

Research and Development (R & D): Does This Indicate a Crack in the Foundation of IFRS Convergence?

When the IASB and FASB began the convergence process in 2002, they considered R & D as a high-priority project, where differences between US GAAP and IFRS were seen as particularly straightforward. However, as this article notes, still no consensus has been reached because IASB’s R&D treatment  appears to defeat comparability in the eyes of the FASB.

Questions:

1. The author refers to SFAS 2 as support for R & D reporting under U.S. GAAP.  What is SFAS 2?

2.  What are the capitalization criteria from IAS 9 that became part of IAS 38 to distinguish research costs from development costs?

3.   Briefly summarize the article’s presentation of why FASB ruled  in the 1970’s that all R&D expenditures must go straight to the income statement.

Source:

Selling, Tom (2010). Failed Convergence of R & D Accounting: Only Politicians and Opportunists Would Have Downplayed the Implications, The Accounting Onion, June 5 (Retrievable online at http://accountingonion.typepad.com/theaccountingonion/2010/06/failed-convergence-of-rd-accounting-only-politicians-and-opportunists-would-have-downplayed-the-implications.html)

Financial Instrument Accounting

On Wednesday, May 26, 2010, the FASB released an exposure draft for the purposes of improving accounting for financial instruments. The new rules, projected to take effect in 2013, incorporate both amortized cost and fair value information about financial instruments held for collection or payment of cash flows.

Questions:

1. According to the article, how does the proposal plan to provide more timely information for financial statement users about anticipated credit losses?

2. What is the deadline for comments and when does FASB plan to hold roundtable meetings?

3. How many members are on the AICPA’s Accounting Standards Executive Committee, that has weighed in on the proposal and who are those represented on the committee?

Source:

Lamoreaux, Matthew (2010). FASB Proposes Comprehensive Changes to Financial Instruments Accounting, Journal of Accountancy, May 26 (Retrievable online at http://www.journalofaccountancy.com/Web/20102977.htm)

Convergence Delayed

The head of the Financial Accounting Standards Board, which sets U.S. accounting rules, said June 1, 2010, that he does not expect FASB to meet a June 30, 2011 deadline for convergence with international accounting rules, as requested by the G20 group of industrial and emerging countries. According to FASB chairman, Robert Herz, changes that delay the completion date by about six months will soon be announced to allow for greater public comment on the boards’ proposals.

Questions:

1. According to the article, what controversial proposal was released during the last week of May?

2. According to the article, how long would the boards have had available to release 10 standards and still meet a June 2011 deadline with final standards, given the due process typically followed?

3. According to the FEI, what is the maximum number of proposals that the FASB has ever released at one time for public comment?

Source:

Chasan, Emily. (2010) Accounting Rulemakers to Delay Convergence, Reuters, U.S., June 1 (Retrievable online at http://www.reuters.com/article/idUSTRE6505KE20100601)

Bond Rating Under Fire

E-mails and other documents were presented as evidence at a hearing examining the causes of the financial crisis on Capitol Hill on April 23, 2010.  This hearing is part of an 18-month investigation by the Senate Permanent Subcommittee on Investigations, led by Senator Carl Levin. Subcommittee assertions are that the rating agencies were well aware of the risks in the housing market and recklessly used rating models that they knew inflated the grades given to securities.

Questions:

1.  Briefly summarize the level of complexity and problems with Congress to regulate the ratings agencies, as noted by Arturo Cifuentes, former V.P of Moody’s (as shown in the video)?

2. What high profile investment firm was implicated as pressuring the ratings agencies? How do you think Congress can prevent this from happening in the future?

3. In 2007, what percentage of AAA-rated mortgage securities were downgraded to junk status?

Source:

Ellis, Blake. (2010). “How credit watchdogs fueled the financial crisis,” CNN Money.com, April 24 (Retrievable online at http://money.cnn.com/2010/04/23/news/economy/credit_rating_agencies_hearing/index.htm?postversion=2010042411)

If You Are Planning to Work for Grant Thornton in Hawaii, Think Again.

Accounting firm Grant Thornton is leaving the Hawaiian market this summer after more than 50 years, and selling its practice to two of the firm’s audit partners from the Honolulu office.  Several  established Big Four firms have preceded Grant Thornton in this exodus, including PricewaterhouseCoopers, who left in 2006 after 55 years.

Questions:

1. What is the PKF network?

2. Since PricewaterhouseCoopers (PWC) has a major audit of the Hawaiian Electric Industries (HEI) coming up this year, but no offices in the state, how are they planning to do the work? What is probably the biggest reason that HEI went with PWC over a local accounting firm?

3. What is the reason that large accounting firms have left or are leaving Hawaii?

Source:

Magin, J.L. (2010). Grant Thornton Hawaii Office Changing Hands, Pacific Business News , May 14 (Retrievable online at http://pacific.bizjournals.com/pacific/stories/2010/05/17/story1.html?b=1274068800^3357501)

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