Posted by & filed under Accounting Principles, All Articles, Financial Accounting, IFRS, Intermediate Accounting.

Good news for accounting graduates! A nationwide survey of 3,500 accounting, finance, and human resource executives indicated that, in 2010, the majority of accounting and financial businesses that were impacted by the economic crisis are likely to hire accounting and financial candidates in 2010. About half of the survey respondents said they anticipated hiring support, staff, and management-level employees.  Another interesting finding of the survey was that over one third of respondents were in favor International Financial Reporting Standards (IFRS).


1. If large, public-sized companies are moving toward adoption of IFRS, what implication does IFRS have on SMEs (small and medium-sized entities)?

2.  What steps might you take to become more familiar with IFRS?  Investigate the web to find resources that will continually provide you with the most recent IFRS updates.

Roger Russell, Senior Editor, Accounting Today,  (c) 2010. (Retrievable online at

Posted by & filed under All Articles, Fraud Accounting.

Paul McKunes, owner of M & M Equipment Services, in Ashland, Massachussets, pleaded guilty on January 15, 2010, to falsifying payroll records at his business so he could pay less in workers’ compensation insurance and taxes.  According to records, McKunes owed the state’s Unemployment Assistance program $21,180 in unpaid assessments and failed to withhold more than $38,322 in state income taxes.  Although McKunes was sentenced to 18 months in jail, the sentence was suspended for five years with supervised probation, so that he could continue to operate his business.


1.  Assume that McKunes’ actual annual payroll was approximately $2.0 million for the first year and increased by 3% for each for the next two years of the fraud.  If annual federal income tax withholding was 10%, state income taxes 5%, FICA and Medicare was 8.0% (rounded), Federal unemployment was 6.2% with a credit for amounts paid to the state unemployment of 3%, what actual journal entries should McKune have made for each of the three years?

2. Based on the fraud, spreading underpaid amounts evenly across the three years, what journal entries might he have fraudulently prepared?

3.  Based on your calculations in (1) and (2), what percentage of the payroll did he misappropriate?  


Riley, David. (2010). “Guilty Plea in Payroll Fraud Case.” (Retrievable online at

Posted by & filed under All Articles, Financial Accounting.

First, Jack Dorsey co-founded Twitter in 2006 and now he wants to change the way we exchange money. Dorsey is leading a startup company called Square that is a tiny credit card terminal that plugs into an iPhone (and soon it will work on Google Android software), allowing small vendors and even individuals to complete credit card transactions from any location. As Tole Hart, an analyst for the Gartner Inc. research firm put it: “It democratizes the receipt of credit card payments.”


1.  Assume that the new Square service will cost $15 per month and credit card fees will be 2.5% of sales.  If you are a street vendor selling t-shirts for $20 each (at a cost to you of $7 each) and sell 340 t-shirts (with credit card transactions only) during the month, what journal entry would you make to record the monthly sales?

2.  What type of internal controls might concern you about this new technology? Explain.

3.  What potential for fraud do you anticipate?  Explain.


Metz, R. (2010). “Device Lets Anyone Accept Credit Cards,” (Retrievable online at

Posted by & filed under Advanced Accounting, All Articles, International Accounting.

Kraft Foods, Inc. Chief Executive Officer, Irene Rosenfeld, is walking a tight wire in negotiations to buy Cadbury Plc. She is trying to please Cadbury investors, but is receiving criticism by Kraft investors, like Warren Buffet, who says the takeover is diminishing its merit by paying too much stock for the deal. The current cash-stock offer of 11-billion pounds (or $17.9 billion) values the U.K. chocolate manufacturer at 771 pence, while the January 18, 2010 price was 808 pence. In an early January announcement, Kraft said it would use the proceeds from a $3.7 billion sale of pizza brands DiGiorno and Tombstone to Nestle SA as a 60 pence cash boost to its current 300 pence cash component of the Cadbury bid.


1. Based on the total cash-stock offer, what is the exchange rate of pounds to dollars?

2. How many pence are currently in a pound?

3. If Kraft stock is trading for $29.58 in New York Stock Exchange on Jan. 15 and the current offer for Cadbury is 300 pence in cash and 0.2589 Kraft share, what is the offer in U.S. dollars?

4.  If Kraft boosts their offer to 360 pence in cash plus the same amount of stock, what is the offer in U.S. dollars?  What percent change is there between the current and the proposed offer?


Stanford, D.D., A. Cleary, and Z. Midler. (2010). “Kraft’s ‘Wiggle Room’  to Win Cadbury Must Be in Cash,” (Retrievable online at

Posted by & filed under All Articles, Financial Accounting, Intermediate Accounting.

Verizon made good on its pledge to help Haiti immediately after the 7.1 magnitude earthquake that struck the island on January 12, 2010. Verizon Wireless said its $2.98 million transfer within two days of the disaster to the Red Cross “bypasses the normal process used to get donations paid to charities.” Unfortunately, with other companies, such donations can take up to three months before the pledges are received along with monthly billings and are later delivered to the not-for-profit organizations.  


1.  What type of journal entry or entries should Verizon make to reflect this advance to the Red Cross, prior to receiving the donations along with monthly bills?

2. Assume that of this $2.98 million, Verizon is unable to collect $80,000 in pledges.  What entry or entries should the company record and what is their recourse?

3.  Assume that Verizon continued to collect an additional $6.4 million in this campaign, but has to close its books prior to sending the money to the Red Cross.  How should the company show this amount on it financial statements?

4.  Since there is no charge for customers who text in this pledge program, how do you think the texting charges are accounted for?


Gustin, Sam. (2010). “Verizon Delivers $3 Million in Subscriber Text Donations for Haiti Relief,” (Retrievable at

Posted by & filed under All Articles, Financial Accounting.

Both Delta Air Lines and Continental Airlines are raising their checked-baggage fees.  According to this article the winners may be package-delivery companies and airlines without such fees. Unfortunately, it is hard to verify the exact numbers through shipping companies, but officials from both Southwest Air Lines and JetBlue Air Lines admit that their lack of checked-baggage fees have bolstered their bottom lines. 


1.  Look at Delta Air Line’s most recent 10-Q (

Where do you think the checked luggage fees are reported in its financial statements?

2.  During the third quarter of 2009, Southwest Airlines reported $2,550 million in passenger revenues and JetBlue Airlines reported $764 million for the same period.  Assuming that their “no checked-bag fees” are responsible for the increased traffic gains reported in November (12% and 7%, respectively) and continue to attract travelers at the same rate throughout the fourth quarter, what additional revenue will the two companies achieve in the fourth quarter?

3.  Assuming that the average traveler checking bags pays a fee of $35, how many travelers on U.S. airlines paid for checked bags in the third quarter (see the total in the article)?


Berr, Jonathan. (2010). “UPS, FedEx Win  When Airlines Charge to Check Bags,” Daily Finance (Retrievable online at

SEC. (2009). Delta Air Lines 10-Q for 3rd quarter 2009. (Retrievable online at

Posted by & filed under All Articles, Fraud Accounting.

Sujata “Sue” Sachdeva, the former vice president of finance and secretary at Koss Corporation, was arrested on December 21, 2009, for allegedly using interstate wire communications to defraud the company. The largest employee theft of 2009 was not detected by the auditors, but in fact resulted when American Express contacted Koss Corp. CEO, Michael J. Koss, and told him that Sachdeva, was paying down her personal American Express balances with large wire transfers from a Koss bank account.


1. According to the Business Journal of Milwaukee, Sachdeva embezzled the following amounts:

2005:  $2,195,477
2006:  $2,227,669
2007:  $3,160,310
2008:  $5,040,968
2009:  $8,485,937
2010:  $10,243,310 (first two quarters)

Now access the SEC’s Edgar System for Koss financial statements (at What percentage of total revenues were the embezzled funds for each of these years?

2. Sachdeva apparently told the FBI that she doctored the company’s bank balance on the books to cover the alleged theft.  Explain a couple of ways that this could have been done through journal entries?

3. Perform some select financial ratios on the 10-Qs and 10-Ks for the period, based on the journal entry methods you speculated in (2) above.  Does anything look out of line?


Anonymous. (2010). Koss: Unauthorized Transactions Increased Over Years, The Business Journal of Milwaukee (Retrievable online at

Kirchen, Rich (2010). Koss Embezzlement Highest of ’09, The Business Journal of Miwaukee (Retrievable online at

Rommell, Rick. (2009). American Express Alerted Koss About Executive’s Spending, The Milwaukee, Wisconsin Journal Sentinel Online (Retrievable online at

Rommell, Rick. (2009). Koss Executive Accused of Embezzling More Than $4.5 Million, The Milwaukee, Wisconsin Journal Sentinel Online (Retrievable online at

Posted by & filed under All Articles, Financial Accounting, Intermediate Accounting.

On January 6, 2010, Walgreen Company, the drugstore giant, announced that it had signed a 10-year contract to outsource its accounting services with Genpact.  Genpact Limited, a spin-off from General Electric in 2005, characterizes itself as a company that has achieved growth from both existing and new clients as companies across industries enacted massive layoffs to trim costs, opening demand for outsourcing companies. In the deal, 500 Walgreen employees will become Genpact employees and Genpact buys the Danville, Illinois accounting facility.  Although details have not been released, about 200 IT employees will be retained and the other 300 jobs will likely be affected over the next six to eighteen months as transitions are made to improve accounting processes.


1. What types of risks do you think that Walgreen Company considered before entering into this arrangement?

 2. Look at Genpact’s most recent 10-Q.  (

(a) Where was Genpact incorporated? 

(b) From reading the 10-Q, do you get a sense of where most of Genpact’s employees are headquartered?

3.   Assume that the facility is being purchased through a noncancellable capital lease over the 10-year contract.  If the facility is being purchased for the fair value of $4.5 million at a 6% implicit annual interest rate, with no residual value, an economic life of 10 years, and equal payments due at year-end, what journal entries would Genpact make for year 1?  

4.  Refer to question 3.  What journal entries would Walgreen make regarding the facility capital lease the first year if the cost of the building is $2.8 million, collectibility of lease payments is reasonably predictable, and no important uncertainties surround the amount of costs yet to be incurred by Walgreen?


ET Staff. (2010). “Walgreens, Genpact In 10-year Outsourcing Deal,” The Economic Times (Retrievable online at 

Moss, T. (2010). Danville Accounting Facility Sold To International Firm,” The (Retrievable online at

Posted by & filed under All Articles, IFRS, International Accounting.

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.)


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?


Carver, Laurie (2010). “Abuse of Revised IFRS Standards “Inevitable” – IASB’s Leisenring,” (Retrievable online at

Cohn, M. (2009). “IASB’s Leisenring: Pay No Attention to IFRS 9,” WebCPA (Retrievable online at

Williams, Peter. (2009). “Accounting: IFRS 9 and What It Means For Year-End Reporting,” Computeractive (Retrievable online at

Posted by & filed under All Articles, Auditing.

The Sarbanes-Oxley Act of 2002 increased audit committees’ responsibilities and authority, and raised the bar on the independence of members. As a result, the SEC and the stock exchanges also proposed new regulations and rules to strengthen audit committees. A recent report by the KPMG Audit Committee Institute presents New Year’s guidance for audit committees and their upcoming 2010 agendas.


1. One of the points presented in the article is that audit committees need to monitor management’s assumptions underlying critical accounting estimates. Pension funding is included as one of these priorities. What are some of the estimates that impact pension funding?

2. In the article’s focus on financial communication, audit committees are urged to understand the company’s policy on the use of Twitter and other social media networks to reach investors. How could these networks impact earnings guidance?

3. In particular, the report urges audit committees to engage early on in reviewing 2010 proxy disclosures. What are contained within proxy disclosures?


WebCPA Staff. (2010). “KPMG Lists Top 10 Priorities for Audit Committees,” WebCPA (Retrievable online at