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/)

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)

Donated Inventory

Over the next five years, Wal-Mart plans to donate about 1.1 billion pounds of food to food banks and provide $250 million to help them buy refrigerated trucks, improve storage and develop better logistics.

The plan to contribute $2 billion in cash and food to the nation’s food banks is considered to be one of the largest corporate gifts on record.

Wal-Mart began taking on hunger as a cause in 2005, when it distributed 9.9 million pounds of food to food banks; last year, it provided 116.1 million pounds of food. The company also has donated the services of its staff to help food banks improve lighting and refrigeration, and develop ways to increase the amount of fresh food on their shelves.

Questions:

1.According to Robert Midler, when are merchandisers eligible for enhanced deductions for a charitable contribution of inventory under the U.S. tax code?  Would Wal-Mart’s effort qualify?

2. Using the video, can you identify which accounts of a merchandiser would be affected when making the journal entries for donated inventory? 

3. Assuming that Wal-Mart’s revenue on the donated food would be $1.5 Billion, its cost would be $0.875 Billion, $250 million was donated for trucks and $250 million was donated through services of Wal-Mart staff, create the journal entries for the cash merchandise and service donation for the financial statements.

Source:

Midler, Robert (1993). Tax benefits of donating inventory – some donations may also qualify for enhanced deduction.The Tax Adviser, January 1 (Retrievable online at http://www.allbusiness.com/accounting-reporting/corporate-taxes/351023-1.html)

Strom, Stephanie (2010). Wal-Mart donates $2 billion to food banks, New York Times, May 13. (Retrievable online at http://www.postbulletin.com/newsmanager/templates/localnews_story.asp?z=7&a=452224)

Nerdenterprises.  (2010). “Accounting For Donated Inventory In QuickBooks video,” May 4 (Retrievable online at http://www.youtube.com/watch?v=B9-N2ZmUMhs)

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)

What’s the Diagnosis – Accounting Fatigue Syndrome (AFS)?

At a recent conference in Orlando, financial executives discussed one of the top reasons for employee fatigue – a continuous stream of regulatory and accounting standard-setting guidance that has been issued in recent years and the promise of more to come over the foreseeable future.

Questions:

1. Although the article provides little detail, what accounting standard-setters and regulators do you think CFO’s are referring to?
2. What areas will be affected by the six major projects currently under way, which are expected to be revealed next June?
3. Explain why Jay Hanson of McGladrey & Pullen says that “more principles-based rules will require seasoned professionals, not recent graduates.”
4. What particular area of accounting is one that will demand “an army of people”?

Source: Johnson, Sarah. (2010). “A Growing Contagion: Accounting Fatigue Syndrome,” CFO.com, March 9. (Retrievable online at http://www.cfo.com/blogs/index.cfm/l_detail/14482207?f=blog_mostrecentpost)

The Fraudulent World of Hurricane Restoration

Home Solutions of America, Inc., a hurricane restoration company, is charged by the SEC with recording millions of dollars in bogus revenues and issuing misinformation to fraudulently inflate its stock price. The scheme was compounded by transactions that occurred between Home Solutions and Fireline Restoration Inc., its largest subsidiary. All of this alleged activity happened after Hurricane Katrina and other weather-related disasters.

QUESTIONS:

1. Explain the expense-deferral scheme that Home Solutions used to commit fraud and why it violates GAAP.
2. Explain the related-party violations that are alleged.
3. From 2004 to 2007, this multi-million dollar fraud continued at the direction of various Home Solutions and Fireline executives. How does the magnitude and timeline of this fraud compare with the average fraud mentioned in the Association for Certified Fraud Examiners Report to the Nation? (Hint: Go to www.acfe.com)
4. Speculate on what factors and/or lack of controls allowed for the perpetration of this fraud.

SOURCE:
WebCPA Staff. (2009). Hurricane Company Charged in Katrina Accounting Fraud. WebCPA (Retrievable online at http://www.webcpa.com/news/Hurricane-Company-Charged-Katrina-Accounting-Fraud-52563-1.html)

What are Non-GAAP Financial Measures?

Amgen is a biotechnology firm that develops and manufactures human therapeutics that fight cancer, kidney disease, rheumatoid arthritis and other serious illnesses. As part of its 2008 financial report, the Company issued non-GAAP financial measures to facilitate additional analysis by investors.

QUESTIONS:

• In one paragraph, briefly describe non-GAAP financial measures and how they differ from GAAP.
• Does the SEC allow non-GAAP financial measures?
• What non-GAAP financial measures did Amgen report? Explain some of specific issues they addressed in this supplemental information.

SOURCES:

PR Newswire. (2009). Amgen’s Fourth Quarter 2008 Adjusted Earnings Per Share Increased 6 Percent to $1.06; Full Year 2008 Adjusted Earnings Per Share, Fierce BioTech (Retrievable online at http://www.fiercebiotech.com/press-releases/amgens-fourth-quarter-2008-adjusted-earnings-share-increased-6-percent-1-06-full-year#ixzz0Yk4GRVCZ)

U.S. Securities and Exchange Commission. (2002). Final Rule: Conditions for Use of Non-GAAP Financial Measures, Release No. 33-8176; 34-47226; FR-65; FILE NO. S7-43-02 (Retrievable online at http://www.sec.gov/rules/final/33-8176.htm)

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