Justice goes after “Rigged” rates

Posted by & filed under Accounting Principles, Advanced Accounting, All Articles, Auditing, Cost Accounting, Financial Accounting, Financial Reporting and Analysis, Financial Statement Analysis, Fraud Accounting, IFRS, Intermediate Accounting, International Accounting, Managerial Accounting.

The Federal Deposit Insurance Corporation has sued 16 big banks that set a crucial global interest rate, accusing them of fraud and conspiring to keep the rate low to enrich themselves.

Questions:
1. Which banks are included in the suit?
2. What was the rate and for how long are they accused of rigging it?
3. Why are cities and municipal agencies also suing these banking institutions?

Source:
Associated Press staff. (2014). F.D.I.C. Sues 16 Big Banks Over Rigging of a Key Rate. The New York Times, March 14 (Retrievable online at http://www.nytimes.com/2014/03/15/business/fdic-sues-16-big-banks-over-rate-rigging.html?smid=tw-share&_r=1)
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Seventeen police officers to ticket Gator fans?

Posted by & filed under Accounting Principles, Advanced Accounting, All Articles, Auditing, Cost Accounting, Financial Accounting, Financial Reporting and Analysis, Financial Statement Analysis, Fraud Accounting, IFRS, Intermediate Accounting, International Accounting, Managerial Accounting.

Only 1,260 feet of Route 301 runs through Hampton, Florida, a city with a population of under 500. Yet between 2011 and 2012, Hampton officers wrote 12,698 speeding tickets. Now Hampton, an 89-year-old city, is fighting the state legislature threatening to wipe the town off the map, after a state audit last month uncovered significant financial irregularities, shoddy record-keeping, and missing funds.

Questions:
1. On which three people is the criminal investigation focusing?
2. Discuss the explanation for faulty recordkeeping. What red flags do you note?
3. Explain the nepotism that probably contributed to the irregularities.
4. How many violations of internal controls do you note in the article and what were they?

Source:
Alvarez, L. (2014) A Dot on the Map, After Scandal, Could Be Wiped Off. The New York Times, Mar. 10 (Retrievable online at http://www.nytimes.com/2014/03/11/us/need-for-speeders-puts-tiny-florida-city-on-brink-of-erasure.html?hp&_r=1)

The new Hampton, Florida mayor, Barry Moore, is in jail awaiting trial for possession of Oxycodone with intent to sell.

Chiquita’s Big Deal

Posted by & filed under Accounting Principles, Advanced Accounting, All Articles, Auditing, Cost Accounting, Financial Accounting, Financial Reporting and Analysis, Financial Statement Analysis, Fraud Accounting, IFRS, Intermediate Accounting, International Accounting, Managerial Accounting, Video Updates.

Chiquita Brands International that it had agreed to acquire Fyffes, an Irish fruit and produce distributor, in an all-stock deal that valued Fyffes at about $526 million. The new firm will be called ChiquitaFyffes and will be the world’s largest producer and distributor of bananas. It is expected that the firm will have about $4.6 billion in annual revenue.

Questions:
1. The article indicated that there was a clear strategy to this acquisition. Explain what it is.
2. Under the deal, what do Fyffes shareholders receive?
3. Compare the size of Fyffes’ operations to Chiquita’s operations.

Source:
Bray, C. (2014). Chiquita to Acquire Irish Fruit Distributor Fyffes in Stock Deal. The New York Times, March 10 (Retrievable online at http://dealbook.nytimes.com/2014/03/10/chiquita-to-buy-irish-fruit-and-produce-distributor-fyffes-in-all-stock-deal/)

Warning about Emails

Posted by & filed under Accounting Principles, Advanced Accounting, All Articles, Auditing, Cost Accounting, Financial Accounting, Financial Reporting and Analysis, Financial Statement Analysis, Fraud Accounting, IFRS, Intermediate Accounting, International Accounting, Managerial Accounting.

Four former leaders of the law firm, Dewey & LeBoeuf, were charged by New York prosecutors with orchestrating a nearly four-year scheme to manipulate the firm’s books during the financial crisis. In emails they talked openly about “fake income,” “accounting tricks” and their ability to fool the firm’s “clueless auditor.”

Questions:
1. Explain the role of these individuals manipulations for a private debt offering.
2. How was the case discovered?
3. At its height, how large was the firm? Who was Dewey’s auditor?
4. What was the amount of claims made against the bankrupt firm?
Source:
Goldstein, M. (2014). 4 Accused in Law Firm Fraud Ignored a Maxim: Don’t Email. The New York Times, March 6 (Retrievable online at http://dealbook.nytimes.com/2014/03/06/former-top-leaders-of-dewey-leboeuf-are-indicted/?src=me&module=Ribbon&version=origin&region=Header&action=click&contentCollection=Most%20Emailed&pgtype=article)

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The Largest Jury Award in the History of the EOE

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This article presents a “Dickensian” story about Atalissa, Iowa and the largest jury award in the history of the Equal Employment Opportunity Commission.

Questions:
1. What was the amount of the awarded damages? Why was the amount reduced?
2. If or when Henry’s Turkey Service pays the judgment for damages and back pay, how would they record the journal entry?
3. What were the paycheck irregularities and who should have caught this fraud? Explain the 2007 example.
4. What role did the article indicate that this case played in the recent executive order to raise the minimum wage to $10.10 an hour for workers employed under certain federal contracts?
5. What is your opinion on the provision of the Fair Labor Standards Act that allows employers or sheltered workshops to pay subminimum wages to employees with disabilities?

Source:
Barry, D. (2014). The ‘Boys’ in the Bunkhouse. The New York Times, Mar. 9 (Retrievable online at http://www.nytimes.com/interactive/2014/03/09/us/the-boys-in-the-bunkhouse.html?hp&_r=0)
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Humans are Bad at Understanding Compound Interest

Posted by & filed under Accounting Principles, Advanced Accounting, All Articles, Auditing, Cost Accounting, Financial Accounting, Financial Reporting and Analysis, Financial Statement Analysis, Fraud Accounting, IFRS, Intermediate Accounting, International Accounting, Managerial Accounting.

Maybe you haven’t even thought about your retirement, but according to Matthew O’Brien, you should. This is particularly true if you are contributing to a 401 (k).

Questions:
1. What should you look at rather than the returns when picking your 401(k) funds?
2. According to O’Brien, what do 1.25 % annual fees for retirement funds add up to during a lifetime of earnings?
3. A fee of 1 percent does not sound bad until you look at what, according to O’Brien?

Source:
O’Brien, M. (2014). The Crushingly Expensive Mistake Killing Your Retirement. The Atlantic, Feb. 15 (Retrievable online at
http://www.theatlantic.com/business/archive/2014/02/the-crushingly-expensive-mistake-killing-your-retirement/283866/)

How do you steal Bitcoins?

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According to McMillan, the world’s largest bitcoin exchange appeared to be a towering example of renegade entrepreneurism. However, insiders have claimed that Mt. Gox was a messy combination of poor management, neglect, and raw inexperience. Herein lies the makings of a $460 million hack of the bitcoin.

Questions:
1. Would you consider a bitcoin to be a cash equivalent? Why or why not?
2. What was the peak price of a bitcoin?
3. What red flags made Mt. Gox a disaster waiting to happen?
4. Was this a one-time hack of the bitcoin exchange? Explain.

Source:
McMillan, R. (2014). The Inside Story of Mt. Gox, Bitcoin’s $460 Million Disaster. WIRED, March 3 (Retrievable online at http://www.wired.com/wiredenterprise/2014/03/bitcoin-exchange/)

You Get What you Pay for?

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The SEC regulators are becoming very “worried” that pressure to reduce auditor fees due to economic cycles could lead to worse audits.

Questions:
1. How do auditor switches impact fees?
2. What legal issues could affect audit committees where auditor fee reductions occur?
3. How does fee-hunting exacerbate this situation?
4. What does the study cited by Kapur say about lower audit fees?

Source:
Chasan, E. (2014). SEC Grows Suspicious of Declining Auditor Fees. CFO Journal, Feb. 24 (Retrievable online at http://blogs.wsj.com/cfo/2014/02/24/sec-grows-suspicious-of-declining-auditor-fees/?mod=djemCFO_h)

Kapur, S. (2014). Falling Audit Fees May Increase Restatements: Study, Feb. 28 (Retrievable online at http://blogs.wsj.com/cfo/2014/02/28/falling-audit-fees-may-increase-restatements-study/?mod=djemCFO_h)

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Chapter 11 for Quiznos

Posted by & filed under Accounting Principles, Advanced Accounting, All Articles, Financial Accounting, Financial Reporting and Analysis, Financial Statement Analysis, Intermediate Accounting, Video Updates.

Quiznos, the Denver-based sandwich chain, is preparing to file for bankruptcy in the next few weeks, due to debt and declining sales.

Questions:
1. This is not the first time that Quiznos has negotiated with creditors. Explain its out-of-court restructuring deal that occurred two years ago.
2. Assuming that the past debt load was similar to the current debt load, show the journal entries that Quiznos probably made for the past restructuring.
3. What would the Chapter 11 filing be focused on, besides debt?
Source:
Kratsas, G. (2014). Reports: Quiznos prepares to file for bankruptcy. USA Today, Feb. 27 (Retrievable online at http://www.usatoday.com/story/money/business/2014/02/27/quiznos-bankruptcy/5875077/)

Easy Come, Easy Go… It’s only Money (and Stock)

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Facebook’s largest acquisition ever was announced this week. The company said it would pay at least $16 billion for WhatsApp, a text messaging application with 450 million users around the world who pay little or no money for it. The purchase price dwarfs the $1 billion Facebook paid for Instagram, the photo-sharing service.

Questions:
1. Explain Friedman’s concept of collaboration.
2. What is Zuckerberg’s strategic plan for WhatsApp? How can the company get a return on its investment?
3. Based on forecasts, how much did Facebook potentially pay per person that is projected to use this app?
4. Explain why this acquisition is a defensive effort by Facebook.
5. What are restricted stock units? What percentage of this deal is cash?

Sources: Gelles, D. and V. Goel. (2014). Facebook Enters $16 Billion Deal for WhatsApp. The New York Times, Feb. 19 (Retrievable online at http://dealbook.nytimes.com/2014/02/19/facebook-to-buy-messaging-start-up/)

ABC News Staff. (2014).’This Week’: Facebook and WhatsApp. ABC News.com, Feb.23 (Retrievable online at http://www.youtube.com/watch?v=PY4TPAjFeQ4)