Financial Crisis in Greece

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.

While banks and European leaders hold abstract talks in foreign capitals about the impact of a potential Greek default on the euro and the world economy, something frighteningly concrete is under way in Greece: the dismantling of a middle-class welfare state in real time — with nothing to replace it.

Since 2010, the government has raised taxes and slashed pensions and state salaries across the board, in an effort to rein in the bloated public sector that today employs one in five Greeks. Last week, the government announced it would put 30,000 workers on reduced pay as a precursor to possible termination and would cut pensions again for nearly half a million public-sector retirees.

Questions:
1. The article mentions raising the value-added tax.  What is a value-added tax?  Does the U.S. have such a tax? Should they?  Discuss.

2. Ms. Firigou received a pay cut last year.  What percentage pay cut was it?

3. How does this financial crisis impact the U.S.?  What is at the heart of this crisis?

Source:

Donadio, R. (2011) Worried Greeks Fear Collapse of Middle Class Welfare State. The New York Times, September 24 (Retrievable online at http://www.nytimes.com/2011/09/25/world/europe/as-welfare-state-collapses-greeks-suffer-and-fear-future.html?pagewanted=1&_r=3&hp)

Expensive Snacks?

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.

By now you have probably heard that an audit of the Department of Justice by the Inspector General says that taxpayer money was wasted on overpriced food and drinks. At one conference, the DOJ spent $4200 on 250 muffins–that’s about $16 a muffin. But what did the report actually say?

Considering the EOIR reported that at least 534 people received refreshments at its 2009 Legal Training Conference in Washington, D.C., it spent an average of $14.74 per attendee per day on food and beverages—just above the $14.72 JMD limit for refreshments. We credit the EOIR for implementing the following controls to reduce food and beverage costs: (1) it provided just refreshments and not full meals, (2) it ordered fewer refreshments than the total number of reported attendees, and (3) it received 15 gallons of coffee, 30 gallons of iced tea, and 200 pieces of fruit for free. However, many individual food and beverage items listed on conference invoices and paid by the EOIR were very costly. The EOIR spent $4,200 on 250 muffins and $2,880 on 300 cookies and brownies. By itemizing these costs, we determined that, with service and gratuity, muffins cost over $16 each and cookies and brownies cost almost $10 each.

Questions:

1.What controls were in place that the report mentioned?

2. What is the point that Drum is trying to make?

3. Compare this article to the video.  Discuss the situation in terms of variances and budgets that you use in managerial or cost accounting.

 

Source:

Drum, K. (2011). The Great $16 Muffin Myth. Mother Jones, Sep. 21 (Retrievable online at http://motherjones.com/kevin-drum/2011/09/great-16-dollar-muffin-myth)

CBS News VIDEO (2011). Audit finds DOJ Pays Big Bucks for Snacks, Sep. 21.

Intermediate Accounting Updates

Posted by & filed under Intermediate Accounting.

The following Update files contain discussions of key accounting standards and other issues that have arisen since the publication of Intermediate Accounting, 14th Edition.

The first is file reflects the most recent accounting standards concerning comprehensive income. It should replace pages 181–184 in Chapter 4 of Intermediate Accounting, 14th Edition. Replacement homework material is also included.

The second file contains a more expansive discussion of Completed Projects, Proposed Projects and International Developments that you may want to incorporate in your course. The second file also includes the comprehensive income material that is separated out in the first file.

Fraudulent Billing Caught by Whistleblower

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.

Maxim Healthcare Services, a privately held company with 360 offices nationwide offering home health care services, has agreed to pay about $150 million to settle civil and criminal charges over claims of false billings to Medicaid and the Department of Veterans Affairs, the Department of Justice announced Monday.

Questions:

1. Since 2009, how many current and former employees of Maxim have pleaded guilty to related felony charges?

2. What types of schemes resulted in these false billings and what types of internal controls would have prevented this?

3. What is a whistleblower and how much will this person receive with respect to this case under the federal False Claims Act?

Source:

Wilson, Duff (2011). Maxim Healthcare Pays $150 Million in Fraud Case. The New York Times, September 12 (Retrievable online at http://prescriptions.blogs.nytimes.com/2011/09/12/maxim-healthcare-pays-150-million-in-fraud-case/)

Tax Breaks Galore in Video Games

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 United States government offers tax incentives to companies pursuing medical breakthroughs, urban redevelopment and alternatives to fossil fuels, but also to video game producers. They are able to combine tax breaks across software development, the entertainment industry, and online retailing for a bonanza effect.

Electronic Arts, founded in 1982, has since become one of the world’s dominant video game companies, producing popular titles like SimCity, FIFA soccer, Harry Potter, and Madden NFL, largely due to huge tax incentives.

Questions:

1. Discuss why you think that Union Carbide failed to meet the experimental threshold for the R & D credit, though video game makers often seem to have little trouble meeting the requirement.

2. What was the most interesting point made in this article that pertains to you as an accountant? Do you agree or disagree with the tax incentives that the video game industry has been able to capitalize on? Discuss.

3. Do you agree or disagree with video game industry officials that say by improving technology, they are indirectly helping society at large? Why or why not?

Source: Kocieniewski, D. (2011). Rich Tax Breaks Bolster Makers of Video Games, The New York Times, Sep. 10 (Retrievable online at http://www.nytimes.com/2011/09/11/technology/rich-tax-breaks-bolster-video-game-makers.html?_r=2&nl=todaysheadlines&emc=tha2)

Huge job cuts – Bank of America

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.

Bank of America, trying to break free from a pile of bad mortgages and a sagging stock price, announced plans to lay off 30,000 employees over the next few years.

In a statement Monday, the bank said its goal is “not a given number of job reductions,” but to focus “all of its resources on serving individuals, companies, and institutional investors.”

The Charlotte, N.C.-based bank, the largest in the U.S. by deposits, said it will cut $5 billion in costs.  The bank, which has a workforce of 288,000, has already said it plans to cut 6,000 jobs by the end of the year.

According to analyst Paul Miller of FBR Capital Markets & Co., “we knew they were shrinking the balance sheet and cutting costs. Today, there is just an exact plan. If the bank got rid of Countrywide’s litigation expenses and liabilities, it could have a $10 to $12 stock price overnight,” Miller told ABC News.  But Miller added that he did not think bankrupting Countrywide would be politically and legally feasible.

Warren Buffett, CEO of Berkshire Hathaway, announced plans on Aug. 25 to buy $5 billion of Bank of America shares.

Questions:

1.  How will the plans presented in the article shrink the balance sheet?  Be specific.  Based on the video, where does the Wall Street analyst think that the money from the cuts will go?

2. Explain the recording of Countrywide’s litigation expenses and liabilities.  What specific types of liabilities will be affected?

3.  What do you understand Bank of America’s strategy to be at this point and what is Berkshire Hathaway’s role?  What is Bank of America’s current stock price and what has happened to it during 2011?

4.  What percent of jobs is the bank cutting this year as a percentage of its total workforce?  If you compare the 30,000 job cut against their current workforce, what percentage is this?

Source:

Kim, Susanna (2011) Bank of America Confirms 30,000 Layoffs. ABC News.com, September 12 (Retrievable online at http://abcnews.go.com/Business/bank-america-layoff-30000-workers/story?id=14500577)

 Gogoi, P. (2011). Bank of America will cut 30,000 jobs. Associated Press, Sep. 12 (Retriveable online at  http://abcnews.go.com/Business/wireStory?id=14500592)

Fox News video, Bank of America to Cut 30K Jobs, Sep. 12 (Retrievable online at  http://video.foxnews.com)

Ostrich Farming, 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, Video Updates.

Ostrich meat, although poultry is red, not white like most other birds. This red meat, which looks and tastes much like beef, is lower in fat, calories and cholesterol than not only beef, but also white meats like chicken and turkey. Ostriches belong to a family of birds called ratites, which includes emus and rheas well, and they are easy to tell apart from other winged creatures because they can’t fly. All ratites have red meat. It has to do with their muscles. They reproduce more often than cows, and they sell for a lot more because their meat is considered a delicacy, at least in the United States.

Questions:

1. What are the five steps for starting an ostrich farm?  Prepare a brief financial plan for starting an ostrich farm.

2. Based on the video, the owner of the farm said that he sold 25,000 pounds of ostrich meat last year.  At the Exotic Meat Market of Las Vegas (www.exoticmeatmarket.com), 25 pounds of ostrich meat sells for $600. If you assume that the markup is 50%, how much would the ostrich farmer earn?

3.  Based on the video, one ostrich egg is equal to 24 chicken eggs.  At the Exotic Meat Market of Las Vegas (www.exoticmeatmarket.com), one ostrich egg sells for $60.  Assuming the equivalency, what would the buyer be willing to pay per chicken egg?  What is the normal amount that you would pay for a chicken egg?  Is there a benefit to the ostrich egg over the chicken egg that is responsible for the price difference?

4.  What are some of the fixed costs and variable costs that an ostrich farmer would have? 

 

Source:

CNN video. (2011). Demand for Ostrich Meat on the Rise. August 22, 2011.

Arie, B. (2011). How to Start an Ostrich Farm. Chron.com, August 22 (Retrievable online at http://smallbusiness.chron.com/start-ostrich-farm-17914.html)

Maybe he should have taken an accounting course?

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.

Former Director Tom Wheeler is on trial, charged with several counts of fraud, misconduct in office and conspiracy. Wheeler has pleaded not guilty to the charges.  His defense focuses on his lack of experience, being a bad student in college, and not taking an accounting or law class.

Questions:

1.  Why was Mr. Wheeler charged with fraud? 

2.  From everything you have read, how do you believe he may have committed fraud or benefitted from his position? Discuss his defense.  Is it plausible?

3. Explain some of the internal controls mentioned in the case that were violated, beginning with the hiring of Mr. Wheeler.

 

Sources:

Boshart, R. (2011). Tom Wheeler wanted to leave Iowa Film Office, brother testifies. The Gazette, August 24 (Retrievable online at http://thegazette.com/2011/08/24/tom-wheeler-wanted-to-leave-iowa-film-office-brother-testifies/)

WHO-TV Staff. (2011). WHEELER TRIAL: Minnesota filmmaker Wendy Weiner Runge Testifies During Tom Wheeler’s Fraud Trial. MSNBC.com, August 24 (Retrievable online at http://www.msnbc.msn.com/id/44258762/ns/local_news-des_moines_ia/t/wheeler-trial-minnesota-filmmaker-wendy-weiner-runge-testifies-during-tom-wheelers-fraud-trial/)

KCCI.com Staff (2011). Film Office Director Talks Experience, Budgets, More. KCCI.com, August 24 (Retrievable online http:// www.kcci.com/news/28961656/detail.html)

Staff (2011). Blouin: Former film office manager not qualified. Chron.com, August 26 (Retrievable online at http://www.chron.com/news/article/Blouin-Former-film-office-manager-not-qualified-2142472.php ).

Does Embezzlement Pay?

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.

Bradley Whitsell, chief accountant of SDN Communications in Sioux Falls, SD, pleaded guilty to mail fraud on Monday, August 22.  According to the U.S. Attorney’s office 46-year-old Whitsell used his various oversight positions to embezzle more than $392,000 over a 10 year period beginning in 2000. Whitsell could end up in prison for up to 20 years. Whitsell has agreed to pay back the $392,111.65 and will also pay for the $84,000 cost of the audit that uncovered his theft.

Questions:

1.  According to the article, what specific problems with internal controls allowed Whitsell to commit this fraud?  Also, discuss the fraud triangle as it pertains to the case in your answer.

2. Look up the most recent 2010 Report to the Nation at the Association of Fraud Examiners website.  Was the length of Mr. Whitsell’s fraud longer, shorter or about the same of the average fraud in terms of months before getting caught?  Explain.

3.  Compared to the average fraud committed by a man this age, as reported in the 2010 Report to the nation, did Mr. Whitsell steal more, less, or about the same amount of money? How does this compare to the average amount stolen by a women of the same age?  What is typically the key difference between these amounts?

Source:

Gonzalez, A. (2011). Embezzling Accountant Will Pay Back Stolen Money and Pay for Audit That Caught Him. Going Concern, August 23 (Retrievable online at http://goingconcern.com/2011/08/embezzling-accountant-will-pay-back-stolen-money-and-pay-for-the-audit-that-caught-him/ )

The Greedy Boyfriend

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.

This week an action was filed by the SEC against Toby Scammell.  The filing centers on the acquisition of Marvel Entertainment, Inc. by the Walt Disney Company, which was announced on August 31, 2009. Prior to the acquisition, Mr. Scammell lived with his girlfriend in Los Angeles. During that period she was an extern at Disney assigned to work on the Marvel acquisition. She worked long hours during the summer of 2009 and periodically discussed the project in general terms with Mr. Scammel but did not reveal the name of the company. Frequently she worked from home where there were papers about the deal. She was aware of the announcement date for the deal and the $50 price. Mr. Scammel had access to her papers and Blackberry. During one conversation, she suggested that the project would be done shortly after Labor Day. Scammel purchased call options on Marvel weeks before the deal and sold them for a 3,000 percent return.

Questions:

1. Why was the action filed against Toby and not his girlfriend? Discuss your answer in terms of the fraud triangle.

2.  What were some of the red flags used by the SEC and mentioned in the article to pursue this action?

3.  What is the name for this type of fraud? What is the potential punishment for this fraud?

Source:

Staff. (2011). Fund manager charged as Marvel insider trader, Thomson Reuters News & Insight, Aug 11 (Retrievable online at  http://newsandinsight.thomsonreuters.com/Securities/News/2011/08_-_August/Fund_manager_charged_as_Marvel_insider_trader/)