How do you lose $1.2 Billion?

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, Uncategorized, Video Updates.

Three of MF Global Holdings Ltd.’s top executives said they didn’t know what happened to as much as $1.2 billion in client funds that went missing in the days before the New York-based brokerage filed for bankruptcy. Jon S. Corzine, former chairman and chief executive officer of the broker testified in Congress that he didn’t intend to misuse as much as $1.2 billion in now-missing customer funds and that other employees of the failed brokerage oversaw the money. According to Corzine, a team of people in the cash finance and cash management divisions of the company had the authority to move customer funds from segregated accounts.

Questions:

1. Where does the bankruptcy of MF Global rank among all other U.S. bankruptcies?
2. What was the amount of the quarterly loss that MF Global reported on Sep. 30?
3. Briefly explain why regulators do not think that the auditors could find the problems in MF Global and what transactions were affected.
4. From what you can find out from research about MF Global, what were the weaknesses with the company that led to this crisis?

Source:

Brush, S. (2011) Top MF Global Execs Say They Don’t Know How Funds Went Missing, Dec. 13 (Retrievable online at http://www.bloomberg.com/news/2011-12-13/top-mf-global-execs-say-they-don-t-know-how-funds-went-missing.html)
CNN VIDEO. (2011). No Christmas for Former MF Global Client, CNN, Dec. 8 (retrievable online at www.cnn.com/videos)

Tickets, Anyone?

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, Uncategorized.

Ticketmaster’s various fees and surcharges, which sometimes add 40 percent or more to the cost of a ticket, have long infuriated its customers. But next year, thanks to a recent class-action settlement, many of those fans will be able to get some money back.

Questions:

1. According to the article, what are the two types of credits that will be offered to people who bought tickets on the Ticketmaster Web site from Oct. 21, 1999, to Oct. 19, 2011?
2. Are there any limitations to the credits?
3. Explain how Ticketmaster will likely make the journal entries for these claim amounts.
4. What is the minimum payment that Ticketmaster faces per year over the four-year life of the settlement? What happens if individuals do not claim their credits?

Source:

Sisario, B. (2011). Ticketmaster Offers Credits to Settle Lawsuit. The New York Times, Dec. 2 (Retrievable online at http://mediadecoder.blogs.nytimes.com/2011/12/02/ticketmaster-to-offer-redress-for-fees/?scp=2&sq=ticketmaster&st=cse)

Audit Firm Rotation – Coming to a Theater Near You?

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, Uncategorized.

On Wednesday, November 30, the Internal Market Commissioner, Michel Barnier, suggested that radical changes are needed for auditing firms. Barnier said recent apparent audit failures at AngloIrish and Lehman Brothers banks, BAE Systems and Olympus “would strongly suggest that audit is not working as it should”. Under Barnier’s plan, the four top firms will have to separate audit activities from non-audit activities, such as tax and other advisory services — “to avoid all risks of conflict of interest”. It appears that the world’s top four audit firms will have to split up and rename themselves under a far-reaching draft European Union law to crack down on conflicts of interest and shortcomings highlighted by the financial crisis.

Questions:
1. Just four audit firms — Ernst & Young ERNY.UL, Deloitte DLTE.UL, KPMG KPMG.UL, and PwC PWC.UL — check the books of 85 percent of blue-chip companies in most EU states, a situation the Commission said was “in essence an oligopoly”. What is an oligopoly?
2. What does the EU plan propose to ban in relationship to loans? Explain.
3. Barnier, under pressure from some fellow commissioners, has decided to drop which part of the plan? What is the reaction by some, including BDO, an audit firm in the second tier firms?
4. What is your reaction to the proposal and the move by regulators in the U.S. to consider more auditor rotation regulations?

Source:
Jones, H. (2011). Big Four Auditors Face Breakup to Restore Trust, Reuters, Nov. 30 (Retrievable online at http://in.reuters.com/article/2011/11/30/eu-auditors-idINDEE7AT0CQ20111130)

More Job Cuts

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, Uncategorized.

Citigroup Inc is cutting 4,500 jobs worldwide, Chief Executive Vikram Pandit said on Tuesday, becoming the latest large bank to trim staff. Pandit said the cuts would be completed over “the next few quarters” and would come from a range of businesses.

Questions:

1. What is the $400 million charge for?
2. How will this cut and cuts in general affect earnings quality?
3. Where will the charge be reported in the financial statements? Explain

Source: Rauch, Joe (2011)Citi cuts 4,500 jobs, will take $400 million charge. Reuters Dec. 7(Retrievable at http://in.reuters.com/article/2011/12/07/citigroup-layoffs-idINDEE7B50KG20111207)

Kenya Life Companies

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, Uncategorized, Video Updates.

Many countries are making a mint from commodities such as oil, copper and gold thanks to sky-high prices. But is that enough to give Africa a permanent boost? Probably not, because commodity markets are notoriously fickle and revenues can quickly be squandered.

According to a report by the African Development Bank, a third of Africans are now “middle-class”, defined as having between $2 and $20 to spend a day. A decade ago that was true of only a quarter of Africans. This change has occurred in a period of fast population growth among low-income families. This video talks about what some middle class Kenyans are now spending their money on.

Questions:

1.What were some of the benefits for Kenya of having a strong and vibrant insurance sector, as mentioned in the video?

2. What were some of the risks associated with the growing industry of insurance?

3. What is driving the rise of life insurance in Kenya? What are the challenges?

4. What type of journal entry should an insurance company make to account for a whole life policy, where part of the premium goes to investment?

Sources:

CNN Video. (2011). The Business of Death, November 28. (Retrievable online at www.cnn.com/videos)

Staff. (2011). Pleased to be bourgeois. The Economist, May 11 (Retrievable online at http://www.economist.com/node/18682622)

Nobody pays that! – Advantage and avoidance

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, Uncategorized.

The debate over whether to reduce tax shelters and preferences for the rich is one of the most volatile in Washington and will move to the presidential campaign, now that repeated attempts in Congress to strike a grand bargain over spending cuts and an overhaul of the tax code have failed. This article by David Kocieniewski details some of the tax loopholes used by Ronald Lauder, an heir to the Estée Lauder fortune, who is worth about $3.1 Billion. From offshore havens to a tax-sheltering stock deal, so audacious that Congress later enacted a law forbidding the tactic, Mr. Lauder has pursued aggressive tax break advantages.

Questions:

1. Find an article on “shorting against the box.” In a short paragraph, explain what this is. How did Ronald Lauder and his mother use this technique in 1995 when the company, Estée Lauder, when public?
2. According to the article, what was the effective federal income tax rate for the 400 wealthiest taxpayers in 2008? How much lower is this than the 1995 tax rate for the same group?
3. In three sentences, how would you summarize the main point(s) of this article?
4. What is the difference between tax evasion and tax avoidance?

Source:
Kocieniewski, D. (2011). A Family’s Billions, Artfully Sheltered. The New York Times, Nov. 26 (Retrievable online at http://www.nytimes.com/2011/11/27/business/estee-lauder-heirs-tax-strategies-typify-advantages-for-wealthy.html?pagewanted=4&_r=1&hp)

PPM: What does it stand for when funding is involved?

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, Uncategorized, Video Updates.

The abbreviation PPM stands for many things, including parts per million. But what does PPM stand for if you are an entrepeneur that is interested gaining funding for your business? When a company is looking to raise funds without an initial public offering, a private placement memorandum (PPM) is one of the best ways to raise capital. A company must have the consent of the Securities Exchange Commission (SEC) before this can be done, and will need an information memorandum along with the PPM. Because of the complexity of SEC rules and documentation, it is highly advised to seek a knowledgeable attorney to help throughout this process.

Questions:

1.  What are the sections in a PPM?

2.  What should be the length of a PPM?

3. When Mike on the video talks about the internal route of raising funds, from an accounting standpoint, what is comparable to the Use of Funds table that he presents? Do you agree or disagree that all new companies can follow the model that Mike presents using Dell as an example?

4. If you presell like the Dell example in the video, how would you make the journal entries for the products that you sell? Give an example problem.

Sources:

Spotora, A. (2011). Los Angeles Business Attorney Emphasizes the Importance of Private Placement Memorandums, Spotora Blog (Retrievable online at http://www.spotoralaw.com/2011/11/los-angeles-business-attorney-emphasizes-the-importance-of-private-placement-memorandums/)

Michalowisc, M. (2011) Video: On A Roll- Raising Funds For Your Business (Retrievable online at http://www.toiletpaperentrepreneur.com/videos?tubepress_page=15)

Geonzon, M. (2011) Private Funding Technique And Practical Information On Small Enterprises. Articles Corp., Nov. 24 (Retrievable online at http://articlescorp.com/business/venture-capital/private-funding-technique-and-practical-information-on-small-enterprises)

On A Roll- Raising Funds For Your Business from Obsidian on Vimeo.

Accounting Error or Change in Estimate?

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, Uncategorized, Video Updates.

On November 21, 2011, independent research firm, Gradient Analytics issued a report that questioned whether j2 Global appropriately treated the measurement of annual contacts with eFax customers as a change in estimate. Based on its examination of the j2 Global’s financial disclosures, applicable accounting rules, and limited feedback from the company, Gradient reported that “…the description of the underlying circumstances sounds more like a correction of an error in prior-period financial results.” If those adjustments are appropriately considered an accounting error rather than a change in estimate, a restatement of j2 Global’s 2010 financial reports may be warranted if such errors are considered material under accounting rules.

Questions:

1. In your own words, briefly explain the difference between the treatment of an accounting error and a change in estimate and why it is important for this company.
2. Who is Sam E. Antar, the author of this blog, and why should an accountant recognize him?
3. Look at other articles in Mr. Antar’s blog and briefly summarize one that interests you.

Sources:

Antar, Sam (2011). Should j2 Global Communications Restate its 2010 Financial Reports?, November 22. (Retrievable online at http://whitecollarfraud.blogspot.com/2011/11/should-j2-global-communications-restate.html)

Michalowisc, M. (2011) Video: Biggest Accounting Mistake #2. (Retrievable online at http://www.toiletpaperentrepreneur.com/videos?tubepress_page=3)

Biggest Accounting Mistake #2 from Obsidian on Vimeo.

Pharma Bribery Settlements

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, Uncategorized, Video Updates.

Pfizer Inc. will pay at least $60 million to settle allegations by the U.S. government that the drugmaker paid bribes to win overseas business, according to The Wall Street Journal. The paper, citing “people familiar with the matter,” said in an article published to its website Sunday that settlements are expected to be made public by the end of the year.

Questions:

1. Under what anti-bribery act were the charges brought?
2. In general describe what Pfizer did.
3. What other large healthcare company recently settled a similar suit and for how much?
4. What was your reaction to this video, given the news in the article? Explain.

Source:
AP Staff (2011). Pfizer to Pay Tens of Millions to Settle Bribery Probe: Report. Huffington Post.com, Nov. 21 (Retrievable online at http://www.huffingtonpost.com/2011/11/21/pfizer-to-pay-tens-of-millions-bribery-probe_n_1104875.html)

MorningStar Video (2011). Why Pharma Stocks Are Set for a Long Term Growth. (Retrievable online at http://www.huffingtonpost.com/2011/11/21/pfizer-to-pay-tens-of-millions-bribery-probe_n_1104875.html)

 

Expensive Steaks

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, Uncategorized, Video Updates.

Fifty diners at some of the better steakhouse restaurants in New York City, including the Capital Grille, Smith & Wollensky, JoJo and Wolfgang’s Steakhouse, became victims of a scam perpetrated by seven waiters using lipstick-size electronic “skimmers” to extract data from the magnetic strips of American Express Centurion, or “black,” cards and other high- and no-limit credit cards. The waiters targeted these customers, typically because their high credit card bills would not be immediately noticed or they would typically not be alerted by card companies to any suspicious activity on their accounts. Stolen funds were used to buy and resell cases of vintage French wine, Louis Vuitton handbags, Cartier jewelry and even a Roy Lichtenstein lithograph of Marilyn Monroe.

Questions:

1.How long did this fraud last and how does it compare to the average length of time of a similar type fraud (according to the Association of Certified Fraud Examiners)? See the 2010 Report to the Nation on Occupational Fraud and Abuse at http://www.acfe.com/uploadedFiles/ACFE_Website/Content/documents/rttn-2010.pdf.

2. How much cash and merchandise were the police able to recover? How do you think this compares to what was actually stolen?

3. How long had the Secret Service been working on the case? Who does the article say the real loser in this crime is? Explain why.

Sources:

Rosenberg, N. (2011). 28 Indicted in Theft of Steakhouse Patrons’ Credit Card Data. The New York Times, Nov. 18 (Retrievable online at http://www.nytimes.com/2011/11/19/nyregion/28-indicted-in-theft-of-credit-card-data-at-steakhouses.html?_r=1&hp)

New York Post video. (2011). Steakhouse ID-theft ring, Nov. 18 (Retrievable online at http://www.youtube.com/watch?v=-pqYxZuSW34)