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.

PCAOB Chairman James R. Doty sees the audit profession as being at a turning point, not just in the U.S., but globally. One of Doty’s greatest priorities is gaining access to China to conduct inspections of PCAOB-registered firms. He said that meaningful progress was made at the May 9 U.S.-China Strategic and Economic Dialogue that took place in Washington. He said it is in China’s interest as an economic power and a participant in the world economy to have the assurance that joint inspections bring to the markets.

Questions:

1. Doty led the team that represented the Board before the Supreme Court in last year’s Constitutional challenge.  Briefly explain what that was all about, why it was important, and the outcome.

2. Doty said that constituents want the audit report to go beyond the traditional binary report of either clean or qualified. What is another term for a clean audit opinion? Explain briefly what these constituents want.

3. Explain the importance of his work with China for the business field and accounting profession. Include in your answer issues about the reluctance from China.
Source:

 

Lamoreaux, M. (2011). PCAOB Set to Expand Under New Mandates, Journal of Accountancy (Retrievable online at http://www.journalofaccountancy.com/Issues/2011/Jul/20113954.htm)

Youtube video (2011). SEC Investigations Impeded.

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More than 60 billion sets of chopsticks are produced every year in China, so you’d have thought they would be making enough. But a chopstick shortage is growing in the Far East, prompting a U.S. company in Georgia to start exporting millions to the country. Georgia Chopsticks is producing an incredible two million sets of the utensils every day, reported the Daily Telegraph.

Questions:
1. What type of woods is the company using to make the chopsticks?
2.  Assume that the company owns its own land with these trees on it and harvests the raw materials for the chopsticks.   Explain how should the company should record the land and account for the trees in its accounting records.
3. If Georgia Chopsticks currently produces 2 million sets of chopsticks a day and wants to export 10 million pairs a day by the end of the year, what percent increase is that in their production?

Source:
Duell, M. (2011).  U.S. exporting millions of chopsticks to China as wood shortage grows in Far East, Mail online, August 4 (Retrievable online at http://www.dailymail.co.uk/news/article-2022211/US-exports-chopsticks-China-Georgia-producing-utensils-wood-shortage-grows.html)

Yahoo video, Georgia Company Exports Chopsticks to China (Retrievable online at http://news.yahoo.com/video/us-15749625/georgia-company-exports-chopsticks-to-china-25959962.html)
 

 

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Even with the economy in a funk and many Americans pulling back on spending, the rich are again buying designer clothing, luxury cars and about anything that catches their fancy. Luxury goods stores, which fared much worse than other retailers in the recession, are more than recovering — they are zooming. Many high-end businesses are even able to mark up, rather than discount, items to attract customers who equate quality with price. In July, the luxury segment had an 11.6 percent increase, the biggest monthly gain in more than a year.

Questions:

1. According to the article, Tiffany’s first-quarter sales for 2011 were up 20 percent to $761 million, as compared to last year. Based on this information, what were the last year’s first quarter sales?

2. According to the article, in 2008, for example, the most expensive Louboutin item that Saks sold was a $1,575 pair of suede boots. Now, a $2,495 pair of suede boots costs $2,495 .  What percentage increase is that?

3. What is the snob factor?  What is your reaction to this article? Which comment to the article is your favorite and why?

4. If, as the article said, consumers awaited 70 percent discounts rather than buying right away and we assume that a luxury item was priced at $3,300, how much would the consumer pay?  

Source:

Clifford, S. (2011) Even Marked Up, Luxury Goods Fly Off Shelves, The New York Times, Aug. 3 (Retrievable online at http://www.nytimes.com/2011/08/04/business/sales-of-luxury-goods-are-recovering-strongly.html?src=ISMR_AP_LO_MST_FB)

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The struggling town of Central Falls Rhode Island filed a bankruptcy petition on Monday, August 1. A Boston bankruptcy judge held the first hearing on Wednesday August 3, stressing that the court is in “unchartered waters” as it sorts through the $80 million in unfunded pension and benefits liabilities and a $5 million budget deficit.

Questions:

1. Central Falls filed a Chapter 9 bankruptcy.  What is the difference between Chapter 9 and a Chapter 11 bankruptcy?

2.  The Acting Auditor General of Rhode Island, Dennis Hoyle stated that the “At $2.4 billion, the newly disclosed unfunded liability for other post-employment benefits provided by municipalities overshadows the collective unfunded liability for all locally administered pension plans which now totals $1.9 billion. Based on this statement, explain the term “unfunded liability” in terms of pension accounting.

3.  What is the difference between post-employment benefits and pension plans?

4. Explain unfunded pension benefits, using a journal entry or entries to illustrate your answer.

Sources:

CNN video. (2011). Bankrupt town a “cautionary tale,” August 4 (Retrievable online at www.cnn.com/video)

Johnson, D. (2011). Fiscal Disasters Like Central Falls’ Are Being Replicated In Cities Across The U.S., Business Insider, Aug. 4 (Retrievable online at http://www.businessinsider.com/fiscal-disasters-like-central-falls-are-being-replicated-in-cities-across-the-us-2011-8)

Rubenstein, J. (2011). Central Falls Bankruptcy Triggers CU Ads, Credit Union Times, August 4 (Retrievable online at http://www.cutimes.com/2011/08/04/central-falls-bankruptcy-triggers-cu-ads)

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Online music service Spotify has launched what it hopes to be an iTunes rival, allowing users to synch music on their iPods and other MP3 players without using Apple’s proprietary service. Can Spotify’s success in Europe be repeated on American soil? This question should be put to test starting now as the music-streaming company officially launched its services July 14, 2011 in the U.S.
 

 Questions:

1. What are the differences between iTunes? Construct a chart to explain.

2.  Do a cost benefit analysis between Spotify and iTunes, based on your use? Which one wins out?

3.  Do a cost benefit analysis between the three Spotify plans?  Make assumptions as needed.  Which one do you prefer, based on your analysis?

Source:

CNN.com Video. Spotify to challenge iTunes, July 14, 2011

Saavedra, S. (2011). Can Spotify Succeed in the U.S., too? The Christian Post: Business, July 14 (Retrievable online at http://www.christianpost.com/news/can-spotify-succeed-in-the-us-too-52285/)

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According to these experts, it is possible that you can negotiate down your student loans. Outstanding student loan debt is a major problem for many graduates. It is possible to negotiate with your creditors and possibly reduce or even eliminate your student loan debt. If you’re not up to the negotiations yourself, you can hire a company to negotiate with creditors on your behalf. However, if you fully intend and have the ability to pay your debt, it’s usually better to contact your creditors yourself. If you reach the stage where you can’t keep up with the repayments, it’s vital that you contact your creditors as soon as possible and explain your situation.

Questions:

1. What are the key issues to consider in the negotiations? What is the difference between consolidation and forgiveness?  From the loaning entity’s point of view, would the accounting be different for these two options?  

2.  What percentage of student loans did these experts indicate were in default?

3.  Which types of student loans did these experts suggest were easier to negotiate?

 

Source:

CNN.com Video. Negotiating Down Student Loans, July 13, 2011

Staff. (2009). Negotiate your Student Debt. Tidbits and Stuff.com, November 4, 2009 (Retrievable online at http://www.tidbitsandstuff.com/money-matters/credit-debt/82-negotiate-your-student-loan-debt/)

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Barry Minkow, a sixteen year old wonder-boy of Wall Street in 1983 created ZZZ Best as a carpet cleaning and later insurance restoration business.  He took the company public in 1986, making him the youngest CEO of a public company and had a net worth exceeding $100 million at age 21.  The only problem was that these millions were part of a fraud, with the boy-wonder indicted in 1988 for various counts of securities fraud, mail fraud, tax evasion, and credit card fraud.

Sentenced to 25 years in prison plus restitution, Minkow was released in 1995.  Upon release he started an anti-fraud business and assisted the FBI and SEC in capturing white collar criminals.  He also became a senior pastor at San Diego’s Community Bible Church and appeared to have redeemed himself. 

However, he recently was accused of securities fraud (specifically insider trading) again involving his dealings with Lennar, a construction company.  He pleaded guilty and his sentencing was to take place on June 16, but was postponed while the judge reviews his objections to the pre-sentence investigation report.    

Questions:

1.  What is a “presentence investigation report”?  Who can waive this in a fraud trial and why?  Find an example by Googling the terms “presentence investigation report” and “fraud.”

2. What were Minkow’s objections?

3. Which of these, if any, do you believe have relevance to his sentencing? Discuss.

 

Source:

Catanach, A.H. and J.E. Ketz (2010). Update on Barry Minkow’s Sentencing, Grumpy Old Accountants, June 27 (Retrievable only at http://blogs.smeal.psu.edu/grumpyoldaccountants/archives/201).

 

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Australia, which has already banned the public display of tobacco products in retail outlets, wants to outlaw logos on cigarette packs and force them to be sold in plain dark-olive packaging, carrying health warnings instead of company logos. Cigarette brand names will appear on the packages in the same size and style of printing. The legislation, if passed by Parliament, would come into force in 2012.

“The forced removal of trade marks and other valuable intellectual property is a clear violation of the terms of the bilateral investment treaty between Australia and Hong Kong,” Anne Edwards, a spokeswoman for Philip Morris Asia, said in the statement. “We believe we have a very strong legal case and will be seeking significant financial compensation for the damage to our business.”

Questions:

1. How are trademarks valued?

2. Where do trademarks appear on the financial statements? Where will costs regarding this litigation be reported in the financial statements of Philip Morris?

3. Do you agree or disagree with Australia’s approach? Discuss.

Source:

Bloomberg News Staff. (2011). Philip Morris Sues Australia Over Cigarette Packaging. The New York Times, June 26 (Retrievable online at http://www.nytimes.com/2011/06/27/business/27tobacco.html?ref=business)

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In late June 2004, a plant manager in charge of a Mexican plant of Tyson Foods sent a memo to his headquarters in Springdale, Arkansas about 2 women who did not work for Tyson’s but were being paid from his payroll, the equivalent of $2,700 per month (and had been for years). The women happened to be the wives of two veterinarians stationed at the plants as part of Mexico’s effort to meet high sanitary and processing standards. The veterinarians certified products as suitable for export, a step required by countries like Japan and increasingly sought after by Mexican consumers as an assurance of quality and safety for locally produced processed meats.  The purpose of the payments was “to keep the veterinarians from making problems,” according to a subsequent memo — in short, bribes. 

At headquarters, executives convened, including the president of Tyson International, the vice president for operations, and the vice president for internal audit and  evidently agreed the payments to the wives had to stop. A company lawyer said he was seeking advice on “possible exposure” from the payments, evidently referring to potential liability for maintaining fraudulent records and bribing foreign officials, which are felonies under the Foreign Corrupt Practices Act (FCPA). And then, having identified the serious ethical and legal lapses, and the need to stop the bogus payments, this group of executives “were tasked with investigating how to shift the payroll payments to the veterinarians’ wives directly to the veterinarians,” according to a subsequent statement of facts negotiated by Tyson’s lawyers and the Department of Justice.

The issue of the payments resurfaced in November 2006, and this time, Tyson  retained an outside law firm, who conducted an internal investigation and, under a government program intended to encourage voluntary disclosure of white-collar crime, turned the results over to the Justice Department and the Securities and Exchange Commission. In February 2011, the government’s investigation ended when Tyson was charged with conspiracy and violating the Foreign Corrupt Practices Act . Tyson agreed to resolve the charges with a deferred prosecution agreement in which it “admits, accepts and acknowledges” the government’s statement of facts, and paid a $4 million criminal penalty. The company paid an additional $1.2 million and settled related S.E.C. charges that it maintained false books and records and lacked the controls to prevent payments to phantom employees and government officials.

In the 23-page letter agreement between Tyson and the Department of Justice, the criminal information, and the S.E.C.’s public statement of facts all withheld names, identifying the participants only as “senior executive,” “VP International,” “VP Audit” and so on. The FCPA specifically provides for fines of up to $5 million and a prison term of up to 20 years for individuals, as well as fines of up to $25 million for companies. However, no one will be charged.

Questions:

1. Do you think this agreement without prosecution is sufficient to stop these types of ethical breaches? Discuss.

2. The article mentions that settlement costs would be passed on to the shareholders.  What types of costs would these include?

3. Where would these costs show up in the financial statements? 

4.  Research Tyson Foods on the Internet.  Do you see any other incidents that provide positive or negative evidence as to the “tone-at-the top” and the ethical environment at the company? Discuss.

Source:

Stewart, J.B. (2011) Bribery, but Nobody was Charged. The New York Times, June 24 (Retrievable online at http://www.nytimes.com/2011/06/25/business/25stewart.html?_r=1&hp)

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Pandora, an online radio service, had a public offering of stock on June 15, 2011. Many are saying that its success in the public offering is part of a new tech bubble in the stock market. As of April had 90 million registered members, which is up from 80 million in February. Its members racked up 3.8 billion hours of listening to Pandora’s song stream at the end of the 2011 fiscal year. But as its audience grows, so does its biggest cost: the royalties it pays for the music it streams. Pandora’s filing said its current rates for royalty payments are good until 2015, after which it will need to renegotiate.

Questions:

1. Pandora was founded in 2000, but it wasn’t known as “Pandora” at the time. What was its original name?

2. Who are Pandora’s competitors? What are the problems with Pandora’s business strategy?

3. The video mentioned Zip Car (http://www.zipcar.com/) as a new IPO.  What is an IPO?  Look up Zip Car.  What is the focus of this business? 

4.  Compare the Pandora product and the Zip Car product.  Which do you think will be more successful and why?

5.  Pandora was expecting to raise about $100 million with their stock offering and instead raised $250 million.  What percentage is this over their expectations?

Sources:

Pandora CEO Kennedy (http://video.cnbc.com/gallery/?video=3000027758), June 15, 2011

Siegler, M. (2011). Pandora Puts The “P” In IPO — Our Talk With Them On The Big Day , Tech Crunch, June 15 (Retrievable online at http://techcrunch.com/2011/06/15/pandora-stock-ipo/)