In a last-minute change to the financial reforms bill, Congress allowed Wall Street to continue to sell interest-rate swaps directly, rather than isolating these derivatives in separate units. The thinking behind this move is that the interest-rate securities are benign, or at least less dangerous than credit default swaps, which the legislation requires banks to detach from their main operations.
1. What is an interest-rate swap? Do you think that Congress’ action regarding interest-rate swaps was a good idea? Why or why not?
2. What is an auction-rate security?
3. How was the hospital industry harmed by these financial instruments? What other entities took a hit from these financial instruments?
The U.S. Supreme Court ruled on June 28, 2010, that the Public Company Accounting Oversight Board (PCAOB) violates the U.S. Constitution’s separation of powers principle because board members are not appointed by the president. In a 5-4 decision, the Court stated that the president must have more power to remove PCAOB members. The five-member board is appointed by the U.S. Securities and Exchange Commission after consultation with the Federal Reserve System’s chairman of the board of governors and the Secretary of the Treasury.
1. How was the PCAOB originally established and why?
2. Look at the ruling. Which justices joined to support the ruling and which justices dissented?
3. According to the sources listed, how do you think the ruling will affect the Board’s operations and why does Barry Melancon, president and CEO of the American Institute of Certified Public Accountants (AICPA), see this as a victory for investors and for the accounting profession?
The SEC announced that it had reached a settlement with Technip for multiple violations of the Foreign Corrupt Practices Act (FCPA). The SEC allegations focus on Technip’s role as a global engineering, construction and services company based in Paris, France in bribing Nigerian government officials over a 10-year period in order to win construction contracts in Nigeria worth more than $6 billion. The SEC also charged that Technip engaged in books and records and internal controls violations related to the bribery.
1. Go to the U.S. Department of Justice website (www.justice.gov) and briefly summarize the the Foreign Corrupt Practices Act?
2. Why would the SEC have any jurisdiction over a French firm doing business in Nigeria? Who is one of Technip’s joint venture partners?
3. What did the company do in February 2010 to prepare its shareholders for this potential settlement?
OK. For all you accountants, here’s another acronym. What does FIFA stand for? Well, it’s not an inventory method, but refers to the governing organization for the world’s biggest athletic event this summer ( the World Cup). Even if you’re not a fan, you can’t ignore World Cup fever that is sweeping the globe this summer. Tongue-in-cheek, author Daniel Braddock thinks that public accounting can learn a thing or two from these games.
Barry Minkow was the famed entrepreneur who started ZZZZ Best in the 1980’s, only to have it collapse in 1987 under the weight of a discovered Ponzi scheme. Minkow was convicted of fraud, among other charges, and sentenced to 25 years in prison, but only served 7 years. Minkow now is head of the Fraud Discovery Institute, a company which searches for fraudulent corporate activities and highlights the allegations through its website. Minkow and his firm, the Fraud Discovery Institute, are currently the subject of a probe by the U.S. Securities and Exchange Commission. The subpoenas ask, among other things, for all communications regarding six companies FDI has criticized: InterOil Corp. (IOC), Lennar Corp. (LEN, LENB), Pre-Paid Legal Services Inc. (PPD), Medifast Inc. (MED), Herbalife Ltd. (HLF) and Usana Health Sciences Inc. (USNA). In addition, the subpoenas want information about Minkow’s involvement with Whitney Tilson, who runs a $135-million New York hedge fund. It also appears that the SEC is focused on the fact that Minkow acknowledges that he takes short positions in some of the companies he criticizes. The SEC states the “investigation is a non-public, fact-finding inquiry,” intended “to determine whether there have been any violations of the federal securities laws,” according to copies of three of the subpoenas and related materials reviewed by Dow Jones Newswires. Minkow, however, believes the probe is politically motivated.
1. What is a short position?
2. What can you find out about Pre-Paid-Legal Services, Inc? Are there any “red flags” noted in the video or your research that would raise your level of skepticism about a suspected fraud?
3. Research the other companies that the SEC named in the FDI subpoenas. Based on your research, is there anything to raise your level of skepticism about these firms and financial fraud?
According to Adrienne Gonzalez, you need to avoid the hype surrounding upcoming changes in the CPA exam and map out a strategy that uses your strengths. One change that is occurring is the format of simulations, which will be trimmed down to “simlets.” Instead of getting one topic, you have a better chance of doing well because they will be smaller and consist of several different topics. One thing that will not change is the rolling 18 month period which allows you to keep credit for whatever you have passed in the last 18 months. Another thing that will not change is that the exam changes twice a year. As the AICPA continues to adjust the format, remember that a focus on planned study schedules and debits on the left and credits on the right are the key to passing the exam.
1. What are the two biggest changes for the CPA exam that Gonzalez sees for 2011?
2. Based on these changes, what strategy does Gonzalez suggest?
Satyam Computer Services, a leading Indian outsourcing company that served more than a third of the Fortune 500 companies, was at the heart of a huge 2009 fraud perpetrated through the significant inflation of earnings and falsification of accounts and assets for a number of years. Chairman, Ramalinga Raju, resigned in January 2009 after revealing that 94 percent or about $1.04 billion in assets were nonexistent and revenue was actually 20 percent lower than that reported.
1. Who were Satyam’s auditors? What are some of the audit procedures that should have helped in the detection of this fraud?
2. What prior incident led to scrutiny of the company in October 2008? What does this indicate to you about the corporate culture of the company?
3. Is Satyam still in business? Provide a brief summary of its demise. What happened to the Satyam’s Chairman?
In an extended expose, the New York Magazine reported that Bernard Madoff described his scheme as a real nightmare to him, as if he were the real victim, and complained about little old ladies bugging him for money. The article goes on to describe his celebrity in prison among the other inmates and his “freedom” in prison.
1. What kind of scheme did Bernie Madoff use to defraud his investors? What is the estimated amount that he stole from investors? What was his sentence?
2. What did Bernie Madoff claim that the SEC failed to do that would have uncovered his scheme? Do you agree?
3. What trait does Bernie Madoff continue to exhibit that is common to fraudsters? Do you think the sentence fits the crime for this case?
When the IASB and FASB began the convergence process in 2002, they considered R & D as a high-priority project, where differences between US GAAP and IFRS were seen as particularly straightforward. However, as this article notes, still no consensus has been reached because IASB’s R&D treatment appears to defeat comparability in the eyes of the FASB.
1. The author refers to SFAS 2 as support for R & D reporting under U.S. GAAP. What is SFAS 2?
2. What are the capitalization criteria from IAS 9 that became part of IAS 38 to distinguish research costs from development costs?
3. Briefly summarize the article’s presentation of why FASB ruled in the 1970’s that all R&D expenditures must go straight to the income statement.