Hyundai & Kia overstated mileage

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Hyundai Motors America and Kia Motors America are being forced to lower the fuel economy estimates on the majority of their 2012-13 models after an investigation by the Environmental Protection Agency found that the companies overstated the fuel efficiency numbers for their vehicles in previous years. Based on the audit, they will also have to compensate owners of at least 900,000 2011-2013 model year vehicles.

Questions:

1. What is the anticipate reimbursement program expected to cost and how should Hyundai account for it?
2. According to the EPA, why was this deviation from gas mileage so different from previous incidents?
3. Which other agency or agencies may get involved in this investigation? Do you think there should be an audit of the industry for this type of violation? Discuss.

Source:
Guarino, M. (2012). Hyundai, Kia overstated mileage, EPA finds. What it means for consumers. The Christian Science Monitor, Nov. 2 (Retrievable online at http://www.csmonitor.com/Business/2012/1102/Hyundai-Kia-overstated-mileage-EPA-finds.-What-it-means-for-consumers)

Who is the most Indebted Man in the World?

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The answer is that man is Former Société Générale rogue trader Jérôme Kerviel, who owes the bank $6.3 billion. His case tells us a lot about financial reform.

Questions:
1. According to the article, how exactly do you carry out €50 billion (or about $73 billion) of unauthorized trades? (Focus on the controls mentioned.)
2. Explain what Kerviel was supposed to do with European stock futures as opposed to what he did.
3. How does the Kerviel fine compare to the Goldman Sachs settlement? Discuss what this Kerviel case means regarding financial reform.

Source:
O’Brien, M. (2012). Meet the Most Indebted Man in the World. The Atlantic, Nov. 2 (Retrievable online at http://www.theatlantic.com/business/archive/2012/11/meet-the-most-indebted-man-in-the-world/264413/)

Product Chasing a Market – Fuzz Phobia

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When Veet hair removal cream came to China in 2005, sales were sluggish. It turned out that Chinese women did not worry about being too hairy. So the company selling the product promoted a new marketing plan with ads that equate hair-free skin with health, confidence, and “shining glory.”

Questions:
1. How fast are sales of hair removal cream growing in Asian markets?
2. What companies are selling skin whitening creams?
3. If the average Chinese woman spends 400 yuan or $63 on personal beauty products each month, what is the U.S. price of a bottle of Veet that costs 46 yuan? If the bottle of Veet lasts for two months, how much in U.S. dollars does the average Chinese woman spend each month on the product?

Source:
Boyle, M. (2012). Convincing Women in China They’re Too Hairy. Bloomberg News, Oct. 18 (Retrievable online at http://www.businessweek.com/articles/2012-10-18/convincing-women-in-china-theyre-too-hairy)

It Beats Earning $20 an Hour?

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Flipping houses earned a bad reputation during the housing bubble, when speculators bought and sold millions of homes in search of easy profits. But as the real estate market is showing signs of life, the practice is gaining popularity again.

Questions:

1. Which areas of the country have seen the most flipping action and why?
2. What is the average gross profit for flipping a home in Maryland and Virginia?
3. What are the risks associated with the new flipping boom?

Source:

Dennis, B. (2012). Flipping houses is once again a booming business. The Washington Post, Oct. 14 (Retrievable online at http://www.washingtonpost.com/business/economy/flipping-houses-is-booming-business-again/2012/10/14/63463f7a-0f3b-11e2-bb5e-492c0d30bff6_story.html?hpid=z5

The Unveiling of the Future?

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Apple’s iPad Mini will likely be unveiled at a special event on October 23. The device is expected to ship with a 7.85-inch screen and costs about half of what the current starting price for an iPad.

Questions:

1. According to both articles, what have iPad sales to the K-12 market been doing to PC sales?

2. From what product does Apple get its core profit margins? How much of total company profits does this account for and how long is this projected to last?

3. According to the Reisinger article, Apple has sold 1.5 million iPads to educational markets. If it sells twice that amount of mini iPads to the same markets, will it make the same profit? Explain what information you need to answer this question.

Source:

Reisinger, D. (2012). iPad Mini event to include education push, report says. CNET, Oct. 22 (Retrievable online at http://news.cnet.com/8301-13579_3-57537050-37/ipad-mini-event-to-include-education-push-report-says/)

Whitney, L. (2012). iPad Mini could hurt PC market, says analyst. CNET, Oct. 22 (Retrievable online at http://news.cnet.com/8301-13579_3-57537068-37/ipad-mini-could-hurt-pc-market-says-analyst/)

MSNBC Video. Mini-iPad, Oct. 19 (Retrievable online at http://www.msnbc.msn.com/id/32545640)

Visit NBCNews.com for breaking news, world news, and news about the economy

CEO Quits Effective Immediately

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In a surprise move, Citigroup announced on Tuesday that Vikram S. Pandit, the bank’s chief executive, had resigned, effective immediately. While his unexpectedly fast departure has raised many questions, critics said there were many signs that the end was near for Pandit.

Questions:

1. How long had Mr. Pandit been chief executive of Citigroup?
2. What were some of the signs leading up to Mr. Pandit’s resignation?
3. Research the $45 billion lifeline provided to Citigroup from the federal government. When was it paid back and was it a profitable venture for tax payers?

Source:

Thirani, N.(2012). What Happened to Vikram Pandit? The New York Times, Oct. 17 (Retrieved online at http://india.blogs.nytimes.com/2012/10/17/what-happened-to-vikram-pandit/)

Video. (2012). Business Day Live. The New York Times, Oct. 17 (Retrievable online at http://nyti.ms/RTAK8Q)

Long Island Stock Broker Creates Complex Web of Deceit

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Stockbroker, Mark Hotton, defrauded the producers of a Broadway production of “Rebecca,” through the combination of a fictitious loan and phantom investors, conjured up as part of a sham plan to rescue the financially ailing show.

Questions:
1. How was the complex fraud described by federal authorities?
2. How could the producers have been proactive in avoiding the fraud? In other words, discuss what internal controls would have prevented this situation.
3. If Mr. Hotton had somehow managed to get the $4.5 million that he said he would raise or perhaps convinced the principals that the money would arrive, what amount of fee would he have earned (based on the agreement that Mr. Sprecher signed with Mr. Hotton)? How would the production have recorded this transaction in a journal entry, if it had been legitimate? Where would this amount be recorded in the financial statements?
4. What schemes had Mr. Hotton used previous to this Rebecca fraud to obtain ill-gotten gains?

Source:

Video. (2012). An Audacious Fraud. The New York Times, Oct. 17 (Retrievable online at http://nyti.ms/RTAK8Q)

Rashbaum, W.K. and P. Healy. (2012). Middleman in Financing of ‘Rebecca’ Is Arrested on Federal Fraud Charges. The New York Times, Oct. 16 (Retrievable online at http://www.nytimes.com/2012/10/16/nyregion/feds-arrest-middle-man-financier-for-rebecca-show.html?_r=0)

Interesting ACLU case

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

The ACLU is filing suit against Morgan Stanley, alleging that the company targeted African American borrowers in risky loan offerings. The ACLU claims that Morgan Stanley is culpable for predatory loan offered through the New Century Financial Corporation, who is a now-defunct subprime lender, because Morgan Stanley pressured New Century to make these troublesome loans to this demographic group of borrowers who could not afford them.

Questions:
1. Explain the actions that suit alleges Morgan Stanley performed which went beyond the role of a traditional investment bank.
2. What violated Acts are part of class action suits against Morgan Stanley?
3. What were some of the mortgage terms? How do these compare with most terms during that time period. Research the specifics.
4. What other banks have been accused of similar violations? Discuss the cases.

Source:
Silver-Greenberg, J. (2012). A.C.L.U. Sues Morgan Stanley Over Mortgage Loans. The New York Times, Oct. 15 (Retrievable online at http://www.nytimes.com/2012/10/15/business/aclu-to-sue-morgan-stanley-over-mortgage-loans.html?_r=0#h[])

Exploding Water Pipe – Fraud Alert

Posted by & filed under Accounting Principles, Auditing, Cost Accounting, Financial Accounting, Fraud Accounting, Intermediate Accounting, Managerial Accounting, Video Updates.

Forty-five government entities are now joining whistleblower John Hendrix’s suit against JM Eagle. The suit alledges that the largest PVC pipe manufacturer committed fraud by intentionally selling pipe to governments, where the company’s internal quality controls showed 50 to 80 percent failure rates.

Questions:
1. What was Hendrix’s position with the firm and what did the company alledgedly ask him to do to coverup the faulty pipes?
2. When and where were the catastophic pipe breaks?
3. Do you think that this type of whistleblower suit/protection is covered under the Sarbanes Oxley Act?
4. Assume that entities and Mr. Hendrix are successful in their suits against JM Eagle. Detail what types of expenses should they seek damages for.

Source:

Attkisson, S. (2012). Giant plastic water pipe maker accused of fraud, CBS News.com, Oct. 6 (Retrievable online at http://www.cbsnews.com/8301-33816_162-57527339/giant-plastic-water-pipe-maker-accused-of-fraud/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+CBSNewsGamecore+(GameCore%3A+CBSnews.com)

CBS News Video. (2012). JM Eagle Biggest Pipe Manufacture On The Planet Accused Of Fraud By Whistleblower, Oct. 6 (Retrievable online at http://www.youtube.com/watch?v=4rldurzvtl0)

The Cost Disease

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Much of our political debate is fueled by the rise in the cost of healthcare, education, and other necessary services. Interestingly, the new book “The Cost Disease” is based on the work of William Baumol, who as a young economist in the 1960s promoted the idea tagged “Baumol’s Disease,” which explains that our current predicament is that “goods” such as medical care and education, public safety or social work suffer from the fact that they are so labor intensive. Together with Princeton colleague William Bowen, the two observed service work and reasoned that no matter how innovative people were in coming up with new technology and new ways of organizing their work, certain services like health care and education would still take a similar amount of time and therefore, outstrip the cost of almost everything else.

Questions:
1. Explain the title of Steven Perlman’s column “Why cheaper computers lead to higher tuition,” using Baumol’s argument. Discuss whether or not you think Baumol’s Disease has merit in explaining the current economic problems.
2. As Perlman pointed out,”This doesn’t mean that there aren’t things we can and should do to bring down the price of medical care or of a college education.” What is being done in the education realm to enhance or bring down education costs?
3. Refer to Question 2. What is being done in the health care realm to enhance or bring down health care costs?
4. How do you think this concept applies to the Accounting profession?

Source:
Perlman, S. (2012). Steven Perlman: Why Cheaper Computers Lead to Higher Tuition. The Washington Post, Oct. 5 (Retrievable online at http://www.washingtonpost.com/business/steven-pearlstein-why-cheaper-computers-lead-to-higher-tuition/2012/10/05/5dced2a0-0fd6-11e2-acc1-e927767f41cd_story_1.html)