The Aftermath in Japan

The Tokyo Electric Power Co. on Friday reported a net loss of 1.2 trillion yen ($15.4 billion) for the fiscal year that ended March 31. Tokyo Electric also announced it will decommission reactors Nos. 1-4 at Fukushima Daiichi and has also canceled plans to build two other reactors at the site. In addition to the company’s earnings, Tokyo Electric president Masataka Shimizu announced his resignation Friday, which must be approved by the board of directors at a June meeting.

A restructuring plan was announced to boost company finances and help create more than a trillion yen in savings. The Fukushima Daiichi plant has faced a series of setbacks since a magnitude 9.0 earthquake and tsunami struck on March 11. The disasters triggered a glitch in the plant’s cooling system, and caused radiation to leak.

Questions:

1. Based on the video and the article, how much compensation is being made to some of the families directly affected by the tragedy?
2. Under IFRS, how would these payments be accounted for?
3. What is the anticipated total compensation projected?
4. What measures is the company taking to make up losses?

Source:
Lah, K. and Wakatsuki, Y. (2011). Tokyo Electric reports $15 billion net loss after earthquake, tsunami, CNN.com (Retrievable online at http://www.cnn.com/2011/BUSINESS/05/20/japan.tokyo.electric.earnings/index.html)
CNN.com Video (2011)., TEPCO Reports Massive Losses, May 20. (Retrievable online at www.cnn.com/videos)

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)

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)

The Costs and Benefits of Simultaneous Audits for Multinational Companies

Simultaneous audits mean two separate exams, conducted by different governments, in which those governments share with each other some of the taxpayer’s information.  Even though you may not have heard of them, they have existed since the 1970s, but are becoming more common today as government tax agencies race to match the level of global coordination practiced by multinational companies and their tax advisers.

Questions:

1. What does the article point to as “the biggest downside to an unplanned simultaneous audit?”

2. What is the most common reason(s) for countries to exchange corporate tax information?

3. Explain the statement “firms would do well to understand the difference between the collaborative modes — enforcement and service — in which tax authorities operate.” Briefly explain the difference between the two and why it benefits firms.

Source:
Leone, M. (2010). Double Trouble? Maybe Not. CFO Magazine, May 1 (Retrievable online at http://www.cfo.com/article.cfm/14493124″>http://www.cfo.com/article.cfm/14493124)

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)

Politics in Accounting, Really?

A member of the International Accounting Standards Board, James Leisenring, told attendees at the Standard & Poor’s Accounting Hot Topics conference in New York on December 10, 2009, about possible abuses and accounting arbitrage that may result from IASB’s recently issued standard for recognizing and measuring financial instruments. In his remarks, he acknowledged that political pressures had forced the board to publish the standard. In his remarks, Leisenring presented serious reservations about company adoptions of the new standard, IFRS 9, which is the first of a three-part effort to replace the IAS 39 standard on financial instruments. (For an EU perspective, refer to the article by Peter Williams.)

QUESTIONS:

1. Who are the political powers that Leisenring contends were pressuring the IASB? Do you think this happens with FASB processes? Explain.

2. Look at the article by Carver (in particular, the sixth & seventh paragraphs). Leisenring is critical of the “look-through” method of accounting for products like collateralized debt obligations. What are collateralized debt obligations and tranches?

3. Where do collateralized debt obligations appear on the financial statements under U.S. GAAP?

Sources:

Carver, Laurie (2010). “Abuse of Revised IFRS Standards “Inevitable” – IASB’s Leisenring,” Risk.net. (Retrievable online at http://www.risk.net/life-and-pensions/news/1567708/abuse-revised-ifrs-standards-inevitable-iasb-s-leisenring)

Cohn, M. (2009). “IASB’s Leisenring: Pay No Attention to IFRS 9,” WebCPA (Retrievable online at http://www.webcpa.com/news/IASB-Leisenring-Pay-No-Attention-IFRS-9-52702-1.html)

Williams, Peter. (2009). “Accounting: IFRS 9 and What It Means For Year-End Reporting,” Computeractive (Retrievable online at http://www.computeractive.co.uk/financial-director/comment/2255297/shock-value)

Japan’s Big Accounting Move

During the week of December 7, 2009, Japan’s Financial Services Agency (FSA) announced that it is moving to the formal adoption of International Accounting Standard (IAS) reporting by 2015. Up until now, the FSA has allowed Japanese companies to file consolidated statements using U.S. GAAP, but in 2015 this may end. The agency will make a final determination about whether to make IAS reporting mandatory in 2012.

QUESTIONS:

1. Based on this article, what are the major differences between U.S. or Japanese GAAP and IAS?
2. Approximately what percentage of current firms on the Tokyo Stock Exchange may be affected by this decision for the future?
3. What are the four major reasons cited by Japanese companies that are considering early adoption of IAS?

SOURCE:
Whitten, D. (2009). Shifting the Goalposts: Japan to Adopt New Accounting Rules. iStockAnalyst (Retrievable online at http://www.istockanalyst.com).