On December 9, 2009, Wal-Mart disclosed that it had settled a long-running wage and hour dispute in Massachusetts for $40 million. According to the Boston Globe, this was the largest wage and hour settlement in the state of Massachusetts. Interestingly, it was just a year ago at the end of 2008 that Wal-Mart reported that it had paid $640 million to settle similar wage and hour violations in 63 federal and state lawsuits.
- For SEC and investor purposes, what documents does Wal-Mart release that presents information about the violations?
- What are some of the possible wage and hour violations that a company could commit?
- How do you think that settlements are recorded in the company’s accounting records?
- The article also mentions disclosure of a Philadelphia lawsuit, where a judge ordered Wal-Mart to pay $188 million for a wage and hour violation. Since the case is currently under appeal, should the company accrue the litigation judgment? Explain your answer.
Leder, Michelle. (2009). Wal-Mart Settles Wage and Hour Claims for $40 Million. Footnoted.org (Retrievable online at http://www.footnoted.org/buried-treasure/wal-mart-settles-wage-and-hour-claims-for-40-million/)
Every year, Michelle Leder at www.footnoted.org, takes a look at the worst footnote disclosures that companies try to bury in their routine SEC filings. As her website states, the financial footnotes are important for all users, including professional money managers and analysts, accountants, and individual investors. According to her article, there are a lot of candidates for this distinction, so it is hard to whittle it down to just five.
- Take a look at Michelle’s entrants in the BNET.com article. Then, after 12/31/09, go to her website (www.footnoted.org) to see who won reader-nominated honor of having the worst disclosure. Do you agree? Why or why not?
- What is a retention payment?
- How should the retention payment for Martha Stewart be recorded in journal entry (or entries) form?
- What is a gross-up?
- How should a gross-up for Ross Perot Jr. be recorded in journal entry form by the company granting this concession? (For a hint, see http://www.footnoted.org/buried-treasure/perot-gets-a-gross-up/)
Ritholtz, B. (2009). 2009’s Worst Disclosures Buried in Footnotes, BNET.com, December 21 (Retrievable online at http://www.ritholtz.com/blog/2009/12/2009s-worst-footnote-filings-with-the-sec/)
Leder, Michelle. (2009). Voting now open for worst footnote of 2009! Footnoted.org (Retrievable online at http://www.footnoted.org/)
During the week of December 7, 2009, Japan’s Financial Services Agency (FSA) announced that it is moving to the formal adoption of International Accounting Standard (IAS) reporting by 2015. Up until now, the FSA has allowed Japanese companies to file consolidated statements using U.S. GAAP, but in 2015 this may end. The agency will make a final determination about whether to make IAS reporting mandatory in 2012.
- Based on this article, what are the major differences between U.S. or Japanese GAAP and IAS?
- Approximately what percentage of current firms on the Tokyo Stock Exchange may be affected by this decision for the future?
- What are the four major reasons cited by Japanese companies that are considering early adoption of IAS?
Whitten, D. (2009). Shifting the Goalposts: Japan to Adopt New Accounting Rules. iStockAnalyst (Retrievable online at http://www.istockanalyst.com).
In September 2009, Merck & Co. Inc. announced that they will be the largest drug company to publish details of payments to doctors. The prescription drug industry has met with growing criticism about its lack of disclosure regarding payments that may influence drug prescribing. As the second-largest U.S. drug company, the company vowed to begin publishing regular details in the fourth quarter of 2009.
- Based on the dollar amounts listed in the article, why aren’t these listing currently part of GAAP accounting disclosures to the financial statements?
- What financial statement(s) would contain these payments?
- How do you think these payments are classified (i.e., what account title)?
Jack, A. (2009). Merck to Publish GP Payments. FT.com (Retrievable online at http://www.ft.com/cms/s/0/3f2d7e48-a8a3-11de-9242-00144feabdc0.html?ftcamp=rss&nclick_check=1)
Home Solutions of America, Inc., a hurricane restoration company, is charged by the SEC with recording millions of dollars in bogus revenues and issuing misinformation to fraudulently inflate its stock price. The scheme was compounded by transactions that occurred between Home Solutions and Fireline Restoration Inc., its largest subsidiary. All of this alleged activity happened after Hurricane Katrina and other weather-related disasters.
- Explain the expense-deferral scheme that Home Solutions used to commit fraud and why it violates GAAP.
- Explain the related-party violations that are alleged.
- From 2004 to 2007, this multi-million dollar fraud continued at the direction of various Home Solutions and Fireline executives. How does the magnitude and timeline of this fraud compare with the average fraud mentioned in the Association for Certified Fraud Examiners Report to the Nation? (Hint: Go to www.acfe.com)
- Speculate on what factors and/or lack of controls allowed for the perpetration of this fraud.
WebCPA Staff. (2009). Hurricane Company Charged in Katrina Accounting Fraud. WebCPA (Retrievable online at http://www.webcpa.com/news/Hurricane-Company-Charged-Katrina-Accounting-Fraud-52563-1.html)
The SEC revised its disclosure guidelines for executive pay in late 2006. Since that time the regulator has been sending out letters to violator companies with insufficient disclosures, but has seen little compliance. Now the commission indicates that reviews will be tighter and there’s no room for a “Mister Nice Guy” approach. In fact, its deputy director, Shelley Parratt, threatened (in a recent speech) that companies who wait until receiving staff letters faulting material noncompliance with disclosure guidelines will face the arduous task of amending filings.
- According to the article, what is it that the companies are not providing the SEC in these disclosures?
- According to the article, what are some of the other kinds of disclosures that the SEC is thinking about for the coming year?
- Explain the relationship between the proxy statement and the CD&A, including the type of information contained within each.
Johnson, S. (2009). “No More Lenience on Pay Disclosure: SEC,” CFO (Retrievable online at: http://www.cfo.com/article.cfm/14454811/c_2984410/?f=archives)
According to a new study from the research firm, Audit Analytics, smaller companies that have not had auditors review their internal-control reports are more likely to have restatements than larger companies, despite their claims of effective controls. This is bad news for those small publicly traded companies who have argued that they should be exempt from this auditor-attestation requirement of the Sarbanes-Oxley Act.
- Is a restatement the same as an error change resulting from a change in accounting principle?
- Which Section of the Sarbanes-Oxley Act requires public companies to attest to the effectiveness of their internal controls over financial reporting?
- While the largest of U.S. publicly traded companies are in their fifth year of complying with auditor assessments of internal controls, what is the deadline for these smaller “nonaccelerated” filers?
- What size are these firms (those that were given extra time to design, implement, and document controls prior to auditor attestation of their effectiveness)?
Johnson, S. (2009). “Does Sarbox Reduce Restatements?” CFO (Retrievable online at http://www.cfo.com/article.cfm/14459533)
In an effort to keep their heads above water in recessionary times, many companies ignored their traditional strategic plans. They grabbed at any transactions that were above variable costs in efforts to cover fixed costs. Moving away from value-based pricing, they relied on cost-plus pricing. Unfortunately, as this article mentions, cost-cutting can only go so far and then pricing strategies must be overhauled.
- According to the article, what are five signs that a pricing strategy needs to be changed?
- According to the article, why isn’t profit margin necessarily the best metric when measuring the success of strategic pricing initiatives?
- According to the article, why does cost-plus pricing have little to do with market reality?
Ryan, V. (2009). “Price Fixing,” CFO (Retrievable online at: http://www.cfo.com/article.cfm/14456855/c_14457851?f=insidecfo)
Just a week before the Supreme Court hears oral arguments about constitutionality of the Public Company Accounting Oversight Board (PCAOB) and why it should be dissolved, the members of the Board asked for a 16% in the overseer’s 2010 budget. This amounts to an additional $25.7 million to hire 60 more employees, for international inspections, undertaking a new group of audit firms, and additional focus on increasingly complex accounting rules. The legal battle and monetary controversy has followed the PCAOB over several years, with critics displeased that PCAOB board members are paid more than the SEC commissioners and the President of the United States.
- When was the PCAOB established and why? What issues trouble academics and others about the Board’s make-up?
- What is the group that is suing to dissolve this Board and for what reason?
- What are several things that could theoretically result if the Supreme Court rules against the PCAOB’s constitutionality?
Johnson, S. (2009). “Its Future in Limbo, the PCAOB Asks for More Money,” CFO (Retrievable online at: http://www.cfo.com/article.cfm/14459825/1/c_2984347)
CEOs and CFOs are cautiously eyeing the limitations that convergence of FASB and IFRS standards may bring to lease accounting. Predictions are that a new global lease standard, anticipated in 2011, will require many traditionally classified operating leases into the capital lease status.
- What are the current FASB criteria for classifying leases as either operating or capital leases?
- What is the general concept that the FASB and IASB are considering as the way to distinguish between capital and operating leases?
- Explain how this new reclassification would cause “balance sheet blues” and companies that lease to “appear more highly leveraged?”
Johnson, S. (2009). “Balance-Sheet Blues,” CFO (Retrievable online at http://www.cfo.com/article.cfm/14457794/c_2984368/?f=archives)