Past Accounting Publications

Accountability and Interperiod Equity
Wyzsza Azkola Ekonomii I Administracji, Wseia Kielce, Poland, October 22, 2004
By Susan W. Martin

Accountability and interperiod (intergenerational) equity are two fundamental concepts established by the Governmental Accounting Standards Board (GASB) in GASB Concepts Statement 1 to serve as the foundation or framework for development of accounting theory and standards for governmental units.  As Poland enters the European Union, these two basic concepts can serve as a model and benchmark for further development of governmental financial reporting models within Poland and for the European Union.  The concepts of accountability and interperiod equity provide guidance for public reporting of how governmental resources have been utilized to achieve public policy and to meet expectations of the taxpayers and citizens.

Accountability in Financial Reporting and Independence in Auditing for Governmental Units in the USA
General Accounting Theory in Statu Nascendi, Cracow, Poland, 2003
By Martin, S

Accountability is the cornerstone of governmental financial reporting1.  Accountability requires a transparent view of the government's financial position so that citizens are fully informed about assets, liabilities, net fund balance, equity, or deficits, revenues, expenditures, expenses and the net financial position.  The review of and opinion upon such financial positions and reports must be made independently, free of bias, to render the public and citizenry a clear view of the government's activities and position.  Recent changes in governmental financial reporting and in the Government Accounting Office independence standards for audits have been made to increase accountability and independence.

Can the financial reporting process benefit from innovations in production process?: A historical analysis
Research Proposal
By David M. Cannon, Lori L. Koste, & Glenn A. Growe

The manufacturing industry has made immense strides in improving product quality over the last century by focusing on the creation of consistent and repeatable manufacturing processes that are designed to produce the desired level of product quality.  Over the same century, the financial statements issued by publicly-traded companies have achieved relatively small improvements in quality.  While today's financial statement preparation processes utilized far more automation than those at the turn of the last century, the fundamental underlying process is basically unchanged - ad hoc, inconsistent and non-repeatable.

This paper will compare current financial statement preparation practices with historical and current manufacturing practices.  Opportunities for improving the financial statement preparation process will be identified from the teachings of Frederick W. Taylor and Edward Demming, as well as process improvement programs such as six-sigma, and ISO 9000.

Comment on Proposed Rules to Reduce Insurance Base Rates and to Ban the Use of Credit Scoring
Submitted to the Michigan Department of Labor and Economic Growth Office of Financial and Insurance Services State of Michigan, July 30, 2004
By David M. Cannon

I wish to thank Commissioner Watters and the Office of Financial and Insurance Services for the opportunity to present this testimony in support of the proposed ban on the use of credit-based scores in insurance rating.  I testified in person on July, 21st Grand Rapids hearing and this written testimony expands on my oral testimony and raises additional issues.  This testimony should be viewed as that of a concerned consumer and taxpayer with academic credential related to the topic at hand.  My views are mine alone, and do not represent those of my employer or any other organization.

The following description of my background and motivation are intended to provide context for my remarks.  I am an Assistant Professor of Accounting and hold a Ph.D. in Business Administration with Concentration in Accounting and a doctoral minor in Management Information Systems.  My primary expertise is in the area of financial information systems and internal controls.  At GVSU, I teach the graduate and undergraduate accounting information systems course, and an undergraduate course in internal auditing.  My current research relates to information technology internal controls, specifically information technology issues associated with the Sarbanes-Oxley Act of 2002.

My interest in this area was sparked by a number of errors, omissions and ambiguities I found on my credit report prior to purchasing my current home and the problems I encountered in addressing them.  As an information technology professional I was appalled at the apparent lack of controls in the information systems of the major consumer reporting agencies (CRAs).  As an academic interested in internal controls, I was curious about the nature of such a large and complex system that could permit errors of the type that I encountered.  Casual Internet searches indicated that my experience was not an isolated event.  Further inquires found numerous academic articles provide anecdotal evidence of credit report error rates that may be expressed in double-digit percentages.

Comparative Value Relevance among German, U.S., and International Accounting Standards: A German Stock Market Perspective
Journal of Accounting Auditing & Finance, Vol. 20, No. 2 (New Series), Spring, 2005, pp 95-119.
By Bartov, E., Goldberg, S.R., & Myungsun, K.

In recent years, German companies have reported consolidated financial statement under German GAAP, U.S., GAAP, or International Accounting Standards (IAS).  Market observers, researchers and regulators have argued that financial statements prepared under the shareholder (or investor) model, such as U.S. GAAP or IAS, provide better information than financial statements prepared under the stakeholder model (German GAAP).  They further have argued that U.S. GAAP is more rigorously defined and, therefore, provides information superior to that under IAS.  We investigate comparative value relevance, measured as the slope coefficient of the returns/earnings regression.  Within our sample of German companies traded on German stock exchanges, the value relevance of U.S. GAAP - and IAS-based earnings is higher than that of German GAAP-based earnings.  Our result holds only for profit observations, suggesting that reporting regime does not have an influence on the quality of earnings in the case of loss firms.  However, we do not find a significant difference in value relevance between U.S. GAAP and IAS after controlling for self-selection.  A major contribution of this research is that, unlike prior research, we measure stock returns for all sample firms in the German stock market only, and therefore are not reliant on the perhaps strong assumption underlying prior studies of similarity of pricing across markets domiciled in different countries.

Cost Terminology in the 21st Century
Management Accounting Quarterly, Vol. 5, No. 3, Spring 2004, pp. 5-12.
By Parvez Sopariwala

Labor costs have caused both confusion and controversy in costing circles.  Labor costs were originally flexible costs, because workers were paid in proportion to the hours they worked&scheduling and union considerations have changed most labor costs into capacity-related cost, because even though many workers are paid on an hourly basis, their wages are guaranteed to be paid, at least in the short run, regardless if work is available.  For this reason, most organizations now treat labor costs as capacity related rather than flexible.

Curriculum Integration Using Enterprise Resource Planning: An Integrative Case Approach
Journal of Education for Business, pp. 93-101, Nov/Dec, 2004.
By David M. Cannon, Helen A. Klein, Lori L. Koste, & Simha R. Magal

Efforts to achieve greater curriculum integration in schools of business have included team teaching, student group projects, multidisciplinary cases, and, more multidisciplinary cases, and, more recently, the use of enterprise resource planning (ERP) systems.  Although these approaches are beneficial, they tend to be implemented on an ad hoc basis rather than through curriculum redesign.  In this study, the authors address this limitation and describe an alternative approach that makes use of a fictional company that is simultaneously developed as a case and implemented in an ERP system.  This approach offers the opportunity to achieve multidisciplinary, curriculum wide integration.

D.A. Kimbell Est.: The Courts Finally Get It Right Regarding FLPs and the Bona Fide Sale Exception
Taxes, The Tax Magazine, Vol. 82, No. 10, pp. 45-54, October, 2004
By Michael A. Yuhas & Richard W. Harris

The Fifth Circuit Court of Appeals in D.A. Kimbell Est. recently vacated and remanded a district court decision that a decedent's estate must include various assets previously transferred by the decedent to a family limited partnership under Code Sec. 2036(a).  This decision has (for the time being, at least) turned back the IRS's rolling tide of successful attacks on family limited liability companies (FLPs) under Code Sec. 2036(a).  The Fifth Circuit's rationale and decision in Kimbell brings a much-needed sigh of relief to estate planners and their clients who have implemented (or who have plans for) such vehicles for the smooth transfer of ownership and control of family businesses and other assets to younger family members.  This article argues that the Fifth Circuit's analysis nd rationale in Kimbell regarding the application of Code Sec. 2036(a) to FLPs is well-reasoned and correct in view of the intent, purpose and history of Code Sec. 2036(a).

Dispositions and Forfeitures of Nonvested Partnership Interests for Services Rendered Under Section 83
Business Entities, Vol. 7, No. 2, Mar/Apr, 2005, pp 42-50.
By Richard W. Harris

Receipt of an interest in partnership (including an LLC taxed as a partnership) in exchange for the performance of past or future services is generally a taxable event for both the service provider and the partnership.  In the event the interest received is contingent on the satisfactory performance of future services, the service partner's recognition of income, including the determination of the amount thereof, is delayed until the interest is substantially vested under Section 83(a).  Under Section 83(b), the service partner receiving the contingent interest may elect to include the receipt of the interest in income in the year received, thus avoiding the potential for a higher level of income in the future due to an increase in the value of the partnership (and therefore a higher value for the interest received) during the interim period.

ERP and curriculum integration: An integrative case approach
By David M. Cannon, Helen A. Klein, Lori L. Koste, & Simha R. Magal

Recent efforts to increase curriculum integration in business schools have been implemented largely on an ad hoc basis, rather than through curriculum re-design.  We describe an alternate approach: a fictional model company that is simultaneously implemented in SAP, allowing us to teach integrated business processes using an integrated, multidisciplinary approach.

Evaluating the "Keep-or-Drop" Decision
The Journal of Corporate Accounting & Finance, Vol. 16, No. 3, Mar/Apr 2005, pp 47-61.
By Parvez Sopariwala

Determining the relevant costs for short-term decision-making is an important part of every cost/managerial accounting textbook.  One of the decisions is the "keep or drop" decision i.e., should a company keep or drop an existing product line or department in the short term?  This article points out that keep-or-drop decisions are usually long-term decisions.  As a result, it suggests that only a segmented activity-based costing (ABC) income statement should be used for determining if a product line or department should be kept of dropped.

One for the most difficult decisions managers make concerns adding or dropping a product, service, or business unit.  These are difficulty decisions because they usually have major effects on the organization's strategy and on its stakeholders.  Consequently, managers do not make them lightly (Hilton, Maker, & Selto, 2003, p541).

FASB Update
Michigan Association of Certified Public Accountants, CPE Mega Conference, December 7, 2004
By Danko, D

A review of recent authoritative pronouncements of the Financial Accounting Standards Board as well as current topics on the FASB agenda.

Fighting Costly Health Care Fraud
The Journal of Corporate Accounting & Finance, Vol. 16, No. 4, May/June 2005, pp. 29-34.
By Stephen R. Goldberg & Stanton C. Lindquist

Financial fraud is perpetrated by individuals against organizations, by organizations against other organizations, and by other organizations against individuals.  It is estimated that all forms of financial fraud cost the U.S. economy $500-$600 billion each year.  It affects millions of individuals and thousands of organizations in the U.S. economy.  Financial fraud statistics and situations are interesting and of concern to all segments of U.S. society.  However, they are abstract and difficult to apply in day-to-day operations of an organization.  The primary purpose of this article is to present, in summarized form, the complex area of health care fraud (as a subset of financial fraud).  We identify factors that cause and common methods of perpetuating health care fraud and then suggest controls to prevent and approaches to audit.

GASB and Yellow Book Update
Michigan Association of Certified Public Accountants, West Michigan Accounting & Auditing Symposium, May 27, 2004
By Danko, D

An update of GASB standards including Statements No. 42, 41, and 40, with a discussion of GASB special report of Suggested Criterion for Effective Communication and the revised exposure draft on Post- Retirement Benefits Other Than Pensions. An update on GASB 34 and the revised Yellow Book and GAO auditing standards will also be addressed.

GASB Review
Michigan Association of Certified Public Accountants, Governmental Accounting & Auditing Conferences, October 29, 2004
By Danko, D

A review of authoritative pronouncements of the Governmental Accounting Standards Board and current topics on the GASB agenda.

Hispanics in business education: an underrepresented segment of the U.S. population
2005 AAA Annual meeting, August, 8, 2005
By Blanco, R.I., & Denise de la Rosa

As we examined the data showing the rate of participation of Hispanics in accounting education and the accounting profession in general, we came across a very dramatic picture - a low rate of participation of Hispanics in all functional areas of business education and at all levels, and in the business profession.  This gave us a strong motive to examine the current situation of Hispanics in business education, to explore the issues and reasons involved in their underrepresented numbers, and to provide recommendations to improve the presence of Hispanics at all levels in business.

How does Sarbanes-Oxley affect outsourcing?
Journal of Corporate Accounting & Finance, Vol. 16, No. 3, Mar/Apr 2005, pp 13-20.
By David M. Cannon & Glenn A. Growe

A major theme of the Sarbanes-Oxley Act (SOA) is the personal accountability of management for financial reports and the processes by which such reports are created.  Under Section 302 of the Act, the CEO and CFO are personally and legally responsible for the effectiveness of internal control over business processes and the related information systems that record, store, and process the results of such processes into financial statements.  Subsequent guidance issues by the Public Companies Accounting Oversight Board (PCAOB) explicitly not reduced by the involvement of external organizations in a company's business process (PCSOB, 2004, paragraph B19).  Section 404 of the Act requires management to include a report on the effectiveness of internal control in the annual report, and further requires the external auditor to provide assurance on the internal control report.

Inventory Valuation under SFAF 151: An Opportunity to Enhance Disclosures and Valuation Estimates
Research in Progress
By Debruine, M, Sopariwala, P

SFAS 151 amends ARB No. 43, Chapter 4 relating to Inventory Valuation and adopts the language of IAS 2 which recommends the use of normal capacity for allocating fixed production overhead and excluding cost of idle facilities and under-applied overhead from product costs. Suggesting a broadening of the IAS 2 and SFAS 151 language so as to include the cost of all idle capacity, this paper advocates the use of a supply-based overhead allocation measure, theoretical capacity, and calls for separate disclosure of the cost of all idle resources. It illustrates how this enhances a company's valuation estimate by applying an accounting-based valuation model to financial information disclosed under this alternative approach.

Liability Sharing and Debt Guarantees by LLC Members: The Related Party Issue Revisited
Passthrough Entities, November/December 2004
By Thomas J. Dickerson & Michael A. Yuhas

A recent decision by the U.S. Tax Court reminds tax payers and their counsel of the complex law surrounding the allocation of liabilities among partners for purpose of determining their tax bases in their partnership interests, i.e., their "outside basis."  In particular, the decision in IPO II is instructive in that it provides the Tax Court's view on the effect of related party guarantees on the determination of a partner's share of partnership debt.  While not discussed in the opinion, the debt allocation also affects a partner's outside basis, his ability to be allocated partnership losses, and that partner's at-risk amount.  In the analysis below, we discuss the interplay of each of these concepts.

Low Supply and High Demand for USA Accounting Graduates due to Enron and Sarbanes-Oxley Act
4th International Scientific Conference, Zhytomyr-Kramtorsk, Ukraine, May 19-20, 2005
By Susan W. Martin

Accounting is at the top of the list of graduates employers plan to hire.  The National Association of Colleges and Employers reported on April 15, 2005 that starting salaries of $43,809 have increased 3.9% over last year.  Experienced accountant pay is up 10% or more as a result of high demand.

The new requirements of the Sarbanes-Oxley Act Section 404 enacted post-Enron has created growth in the auditing services sector and the need for experienced auditors is increasing as well.  The congress of the United States enacted Sarbanes-Oxley Section 404 in the wake of the Enron collapse to tighten the review and assessment of internal controls to prevent accounting malfeasance and defrauding investors.  Section 404 requires companies to establish internal control procedures.  Some audits take 60% more time to complete to comply with the new requirements.  Experienced senior managers that can lead an audit team can expect 20% more pay than a year ago and the competition for such individuals among firms is fierce.  Forensic accountants with skills in investigative techniques to detect accounting malfeasance are sought after.  Forensic accountants have unique skills to aid in the regulatory restructuring needed.  The benefits for Sarbanes-Oxley are yet to be evaluated.  The Chief Executive Officer and Chief Financial officer of the corporation must personally sign SEC filings stating they stand behind the accuracy of the financial statements.  The criminal penalties in the law are causing company executives to err on the side of caution in contracting for significantly more auditing and accounting services from qualified Certified Public Accountant (CPA) firms to ensure compliance with Section 404 and other provisions of the Sarbanes-Oxley.  The cost of compliance with Sarbanes-Oxley is beginning to be questioned as "non-value added" yet few corporations are willing to reduce audit work in the wake of Enron and the fear of criminal penalties.  Parkway Properties in Jackson, Mississippi estimates that Sarbanes-Oxley cost $300,000 in additional costs which is about 1% of their total earnings.  A USA Today analysis of data from Audit Analytics.com showed audit fees jumped 40% in 2004 to $3.5 billion in the Standard & Poors 500 companies.  Many companies are reporting over a 100% increase in audit fees as a result of Section 404 audit work.  Smaller companies sometimes struggle with larger impacts like Priority Healthcare who had a 491% increase in audit fees of $1.1 million with $811,200 of that to comply with Section 404.  The Wall Street Journal reported many companies have seen audit fees jump 40% or more.

Management Fraud and Stock Price performance
Academy of Accounting and Financial Studies Journal, Vol. 8, No. 2, 2004
By Roger J. Best & Kurt Fanning

Corporate scandals as measured by accounting irregularities and other misdealings by management have been pervasive in recent years.  Such irregularities, however, are not new.  We collect a sample of companies that have been the subject of an Securities and Exchange Commission enforcement release and investigate wether the stocks of these companies are long-term good investments.  Specifically, we examine the three year period after the enforcement release and find that our sample has a much lower survival rate than an industry-matched group of firms.  Further, in the one year period subsequent to the enforcement release, our sample of firms experience negative returns.  Interestingly, however, our group of matched firms perform (statically) as poorly as the "fraud" firms in the year after the enforcement release.  This is consistent with contagion effects in industries where one firm is accused of fraudulent activities.

New Training Method Boosts Productivity
The Journal of Corporate Accounting and Finance, March/April 2004, Vol 15., No. 3, pp. 75-82
By Jennifer S. Goldberg & Stephen R. Goldberg

As the pace of technology development quickens, data grows exponentially.  Employees require more specialized knowledge.  The life cycle of new knowledge is shortening.  Downsizing puts added pressure on fewer individuals.  The Bureau of Labor Statistics claims that 70 percent of employer-provided training is delivered informally, such as when an employee shows another how to use a piece of equipment or find some information.  In this article, we suggest that firms consider a community-of-practice approach to addressing the challenge of effectively training and communicating with employees.  This approach can help you boost productivity, save time, and improve performance. 

SOA Compliance: Will IT Sabotage Your Efforts?
Journal of Corporate Accounting and Finance, Vol. 15. No 5, pp. 31-37, July/August, 2004
By David Cannon & Glenn Growe

The purpose of internal controls is to identify, manage, and control risks that could prevent the organization from achieving its objectives.  The information technology (IT) function designs, develops, implements, and maintains much of an organizations business processes.  Their attitudes toward risk and internal control are a major factor in the internal control environment of any organization.

This article discusses the importance of IT to the internal control environment and describes aspects of information technology professional culture that influence IT's perception of its role with respect to financial controls.  This perception of their role has implications for the internal control environment and may be inimical to compliance with the Sarbanes-Oxley Act.  We also make suggestions to address the issues that we identify.  This topic is particularly important in light of Sarbanes-Oxley initiatives in progress at most publicly traded and many non-publicly traded companies.  Major issues relating to IT and internal control are summarized in Exhibit 1.

Slash Expenses With Consumer-Driven Health Plans
The Journal of Corporate Accounting & Finance, Vol. 16, No. 3, Mar/Apr 2005, pp 3-11.
By Stephen R. Goldberg, Stanton C. Lindquist, & Dori Danko

Health-care costs continue to soar, affecting firms of all sizes.  Companies need cost relief.  So, they're now looking at consumer-driven health-care plans instead of traditional ones.  How do these innovative new plans work?  What are their advantages and disadvantages?  And what's the best way to implement them?  The authors have some answers.

Health-care costs continue to increase for firms of all sizes.  According to experts, From Spring 2003 to spring 2004, [health-care] premiums increased 11.2%.  Since 2001, premiums have increased 59%, employee contributions have grown by 57% for single coverage and 49% for family coverage, and the percentage of workers covered by their employer's health plan has fallen from 65% in 2001 to 61% in 2004.

Tax Amnesty and Compliance
General Accounting Theory II International Conference, Warsaw, Poland, June 24, 2004
By Martin, S

Many States have conducted tax amnesty programs and some have repeated these amnesty programs two, here or four times in subsequent years. The attraction of amnesty programs are to 1) generate a large amount of revenue quickly, 2) bring taxpayers back into compliance so they continue to file. This paper focuses upon early tax amnesty programs. It describes Michigan's first tax amnesty program and subsequent research that was done to determine if individual income tax amnesty participants continued to remain in compliance and file tax returns in subsequent years.

The primacy of the family entity in family-owned businesses: a new perspective on family-owned firm governance
Research proposal
By David M. Cannon

This paper proposes a new framework for the analysis of corporate governance in a family-owned business (FOB).  In this framework, the family entity is deemed to be the true residual owner of the firm.  The firm's shareholders act as nominal owners of the FOB and vote their shares for the benefit of the family.  Share ownership operates primarily as a mechanism to allocate and distribute the profits across the family entity.  Management is obligated to manage the firm for the benefit if the family rather than for its shareholders.

Trading on the Warsaw stock exchange - from reopening in 1991-2000
Journal of International Accounting, Auditing and Taxation, 13 (2004) pp, 121-134
By Denise de la Rosa, Dean Crawford, & Diana R. Franz

The polish political and economic systems have been through a period of extensive transformation.  As a result of these changes, Polish firms that had previously been state-owned were privatized beginning in 1990 and shares in these firms began trading on the Warsaw Stock Exchange (WSE) in 1991.  This paper describes the development of the WSE and Poland's accounting system.  It provides a descriptive analysis of trading on the WSE from 1991 through 2000.  The number of Polish firms listed on the WSE grew from 5 on the day trading resumed in 1991 to 265 firms by the year 2000.  As the number of listed firms increased and as the public grew more comfortable with private ownership, the volume of trading increased.  Initial trading resulted in relatively low returns followed by a speculative bubble in 1994.  After the speculative bubble bust, firms which had their financial statements audited by an international audit firm experienced growth in value while firms with local auditor declined in value.

"Accounting and Reporting for Property Tax Abatements"
Zeszyty Naukowe Akademii Ekonomicznej w Krakowie, No.511, 1998, pp. 5-12.
By Susan W. Martin

The "tax expenditure" concept was identified by S.Surrey in the 1974 federal budget act. The intent was to recognize that a significant amount of available resources can be allocated through the tax law without a corresponding budget or expenditure being recognized in the normal accounting system. In order to provide full disclosure of all public resources, tax expenditures should be measured and reported in a separate document to fully disclose the amount of such special tax credits, exemptions, rebates, abatements, etc. in terms of dollars of tax revenue foregone.

"All Aboard for the Euro"
Management Accounting, August 1998, pp. 37-41.
by Anette Estrada, Susan Martin, and Sander Wechsler

Any business with a direct investment in a European subsidiary, a joint venture, or export/import activity in Europe should have a strategic plan in place to deal with the introduction of the euro. Implementation will take place from January 1, 1999, to June 30, 2002, and the trend in many industries is to convert early. The effects of the EMU are far-reaching, and the costs and complexities associated with conversion could well exceed those of the Year 2000 for many companies. Every company affected should form a steering committee and consult with its professional advisors to determine the best possible strategy for implementation. Failure to do so could result in business disruptions and lost opportunities.

"Ascertainable Standard Restrictions on Trust Powers Under the Estate, Gift, and Income Tax"
The Tax Lawyer, Vol. 50, No. 3, Spring 1997, pp. 489-537.
By Richard W. Harris

[&] The problem for many practitioners in this area is that the criteria for determining whether a particular invasion power is subject to a properly constrained standard differ depending upon the type of tax under consideration and the jurisdiction involved. The judicially ascertainable standard concept has application in each of the various areas of estate, gift, and income taxation; however, the appropriate wording and other requirements for its implementation vary among these substantive areas. Furthermore, since trust invasion powers, including any restrictions thereon, must always be viewed in the context of local law, the same trust provision may have vastly different consequences depending on which state law applies.

"Auditing, Earnings Management, and International Accounting Issues at the Securities and Exchange Commission"
Accounting Horizons, Vol. 13, No. 3, September 1999, pp. 281-297.

Authors report on some of the efforts that are underway in the Office of the Chief Accountant (OCA) and elsewhere to help achieve objectives laid out in Chairman Levitt's speech (see http://www.sec.gov/news/speeches/spch220.txt). We also identify potential research projects that could help OCA carry out its responsibilities.

"Avoiding Double Taxation on Zero Valuation Transfers Under Section 2702"
The Practical Tax Lawyer, Vol. 12, No. 4, Summer 1998, pp. 25-35.
By Richard W. Harris

Paying taxes once on property is bad enough. Make sure your client doesn't have to pay twice.

"Avoiding the Attribution Rules in Redemptions by Estates and Trusts"
Estate Planning, Vol. 28, No. 7, July 2001, pp. 317-324.
By Richard W. Harris

When an estate or trust seeks to redeem stock it owns, the redemption may not qualify for capital gain treatment due to rules prescribing attribution of stock ownership of related parties. This article explains how some attribution can be avoided.

"B2B and Beyond"
The Journal of Corporate Accounting & Finance, Vol. 13, May/June 2002, pp. 79-80.
by Steve Goldberg and Joe Godwin

B2B is defined as the ability to harness technology to interact, transact, and collaborate with members of an organization's value chain. DeMaio demonstrates that trust, control, and security often make or break an e-business strategy. The text is written for a wide range of readers, from those with novice Internet skills to others with technical expertise.

"Building Public Trust and Optimizing Finance" (Book Review)
The Journal of Corporate Accounting & Finance, Vol. 14, Nov/Dec 2002, pp. 73-75.
by Stephen R. Goldberg and Joseph H. Godwin

Billions of dollars have been lost over the past year by those who rely on the financial capital markets. Enron and Andersen have become synonymous with financial reporting malfeasance and executive greed. At the first whiff of accounting shenanigans, the financial markets punish not only a particular companies securities, but also the securities of either other companies in the same industry or most companies trading. At best, an erosion of confidence in our financial reporting system and resulting decline in share prices has caused many individual investors to delay plans for retirement, additional education, or home purchases. At worst, investors' lifetime savings have been wiped out.

"Capacity Measurement in the Automobile Industry: the Case of General Motors"
Cost Management, March/April 2000, pp. 28-38.
By Parvez R. Sopariwala

How companies define and measure capacity utilization can lead to potentially critical ramifications in both national and international markets. In particular, it has profound implications for the long-term prosperity of the automobile industry. Inadequate use of capacity results in fixed costs being spread over fewer units of production, which leads to increased costs, ineffective use of equipment and staff, and increased market competition. For some companies, the end result of lower prices and lower profits leads to plant closings. 

"Capacity Utilisation: The Case of NWA"
Commercial Aviation Value Report, No. 66, July 2001, pp. 8-10.
By Parvez R. Sopariwala

Aircraft utilisation, as the term is ordinarily used in air transportation, refers to the time that the plane is engaged in revenue flights, and has nothing to do with how well the capacity of the plane is being utilised by filling it with revenue passengers. In short, aircraft utilisation and load factor are two different ratios altogether. However, there is a relationship between them that is important in running the airline: it can be a bad management decision to achieve high aircraft utilisation by having numerous flights even if experiencing low load factors; the fleet is kept busy, but at the expense of scheduling beyond what the traffic justifies.

"Capacity Utilization - Why and How to Account for it?"
2004 West Michigan Accounting and Auditing Symposium, Grand Rapids, May 27, 2004.
By Parvez Sopariwala Ph.D.

In a business context, capacity refers to the maximum output or producing ability of a machine, plant, division or company. 
Capacity

  • Is usually a physical measure such as # of hours etc.
  • Represents a maximum amount per use, e.g., passengers per flight
  • Depends on rate and time, e.g., passenger miles per hour
  • Has a cost

 

"Caught Red-Handed: IRS Special Assessment Power Over Persons Found with Large Amounts of Cash"
Taxes, Vol. 79, No. 8, August 2001, pp. 45-50.
By Richard W. Harris

Richard Harris reviews the IRS's special assessment powers and the rights of possessors of cash and true owners.

"Constructive Receipt of Installment Notes: A Taxing Issue for S Corporations and Their Shareholders"
Passthrough Entities, July/August 1999, pp. 41-48.
By James A. Fellows and Michael A. Yuhas

Authors discuss the implications of the constructive receipt doctrine. Code Sec. 1001 and Code Sec. 453B on installment note payments to S corporations by their Shareholders.

"Corporations & Shareholders; Use of the Installment Method in Liquidations (Part I)"
The Tax Advisor, August 2002, pp. 526-530.
by Richard W. Harris

The retroactive repeal of Sec. 453(a)(2)1 (which had barred accrual-method taxpayers form using the installment-sale method) has refocused attention on the installment-method''s benefits. In particular, Sec. 453(h) permits shareholders receiving qualified installment notes in otherwise taxable complete liquidations to use the method.

Part I of this two-part article, below, discusses shareholders' use of Sec. 453(h) and its effect on the distributing (accrual- or cash-method) corporation. Part II, in the next issue, examines the use of Sec. 453(h) by S corporation shareholders in actual and deemed asset sales and distributions of installment notes with original issue discount (OID).

"Corporations & Shareholders; Use of the Installment Method in Liquidations (Part II)"
The Tax Advisor, September 2002, pp. 590-596.
by Richard W. Harris

This two-part article addresses whether and when shareholders can use the installment method when receiving liquidating corporate distributions. Part I, in the last issued, discussed Sec. 453(h) in the context of C corporation liquidations; Part II, below, examines S corporation liquidations, original issue discount (OID) and special property sales.

"Cost Terminology in the 21st Century: Using Direct Labor Cost in a Costs vs. Resources Framework"
Management Accounting Quarterly, Spring 2004, Vol. 5, No. 3, pp. 5-12.
By Parvez Sopariwala 

Activity-based costing measures resources used for an activity by the cost driver&The resources supplied to an activity are the expenditures or the amounts spend on the activity&The difference between resources supplied and resources used is unused capacity. (Emphases authors)

Labor costs have caused both confusion and controversy in costing circles. Labor costs were originally flexible costs, because workers were paid in proportion to the hours they worked&scheduling and union considerations have changed most labor costs into capacity-related costs, because even though many workers are paid on an hourly basis, their wages are guaranteed to be paid, at least in the short run, regardless if work is available. For this reason, most organizations now treat labor costs a capacity related rather then flexible.

"D.A. Kimbell Est.: The Cours Finally Get It Right Regarding FLPs and the Bona Fide Sale Execption"
Taxes, The Tax Magazine, Vol. 82, No. 10, Oct. 2004, pp. 45-54.
By Michael A. Yuhas & Richard W. Harris

The Fifth Circuit Court of Appeals in D.A. Kimbell Est. recently vacated and remanded a district court decision that a decedent's estate must include various assets previously transferred by the decedent to a family limited partnership under Code Sec. 2036(a). This decision has (for the time being, at least) turned back the IRS's rolling tide of successful attacks on family limited liability companies (FLPs) under Code Sec. 2036(a). The Fifth Circuit's rationale and decision in Kimbell brings a much-needed sigh of relief to estate planners and their clients who have implemented (or who have plans for) such vehicles for the smooth transfer of ownership and control of family businesses and other assets to younger family members. This article argues that the Fifth Circuit's analysis and rationale in Kimbell regarding the application of Code Sec. 2036(a) to FLPs is well-reasoned and correct in view of the intent, purpose and history of Code Sec. 2036(a).

"e-Commerce Strategies for Business-to-Business Service Firms in the Global Environment"
American business Review, June 2002, pp. 111-118.
by David J. Good and Roberta J. Schultz

The future is bright for online marketing, especially in service markets where the buyers and sellers are motivated to cut costs, increase efficiency, reduce delivery time, and cultivate strong, vibrant client-seller relationships. In this environment for example, in an attempt to deliver quality products at a low cost, service marketers will increasingly look for methods to perform client selection, qualification, and selling through online placement, while developing methods to strengthen customer relationships. Faced with the opportunity to accomplish such key activities, electronic commerce has been forecasted to increase in activity from $109 billion in 1999 to $1.2 trillion in 2003 (Forrester Research, 1999) to as high as 7.3 trillion by 2004 in just the US (Gartner Group, 2000). As a comparison to other markets, the Yankee Group estimates electronic commerce for the business-to-business market will account for 9 percent of total business sales and will be worth seven times the consumer market (Silverstein, 1999).

"Estate and Gift Taxation: Valuation Discounts in Determining the Market Value of Real Estate Companies"
Real Estate Law Journal, Vol. 9, No. 3, Winter 2001, pp. 183-209.
By James A. Fellows & Michael A. Yuhas

The greatest of all human problems - death - they cannot solve. The secular mighty of the world - the tyrants, the kings, the arrogant intellectuals, the gifted men and women who think they know all the answers, the clever dons, the brilliant writers - all alike are sentenced to death from the moment of their birth, and sooner or later, that sentence is carried out. - Paul Johnson

Using discounts in valuing interests in closely held family businesses for estate and gift tax purposes is accepted practice now. And, discounts both for lack of marketability and lack of meaningful control (minority discounts) are widely accepted by the courts. Most of the disputes between the IRS ad taxpayers concern the amount of the discounts, rather then the legal rights of taxpayers to claim them.

The authors of this article offer an overview of the pertinent cases - to reveal that the taxpayer has the burden of proof in establishing the amount of any and all discounts when interests in a closely held entity are transferred by gift or by death. The IRS may no longer contest the legality of these documents, but it will almost certainly contest their magnitude.

"ETA Update"
The Tax Adviser, September 1999, pp. 681-682.
By Susan W. Martin

The IRS Office of Electronic Tax Administration was charged by the IRS Restructuring and Reform Act of 1998 with 2 primary goals: 1. electronically filing in the 2003 filing season all returns prepared electronically, and 2. electronically filing by the 2007 filing season 80% of all tax and information returns. One of the benefits for individuals e-filing is the electronic acknowledgment that the return was received and processed by the IRS-ETA.

"Evaluating the 'Keep-or-Drop' Decision"
The Journal of Corporate Accounting & Finance, March/April 2005, pp. 47-61.
By Parvez R. Sopariwala

Determining the relevant costs for short-term decision-making is an important part of every cost/management accounting textbook.  One of the decisions is the keep-or-drop decision  i.e., should a company keep or drop an existing product line or department in the short-term?  This article points out that keep-or-drop decisions are usually long-term decisions.  As a result, it suggests that only a segmented activity-based costing (ABC) income statement should be used for determining if a product line or department should be kept or dropped.

"Forward Starker Exchanges and Reverse Starker Exchanges: Consistency and Certainty Regained"
Tax Management Real Estate Journal, Vol. 17, No. 3, March 2001, pp. 59-68.
By James A. Fellows & Michael A. Yuhas

On September 15, 2000, the IRS issued Rev. Proc. 2000-37 to provide a safe harbor for "parking" transactions, which are frequently used by taxpayers to avoid structuring like-kind exchanges as reveres-Starker exchanges. Rev. Proc. 2000-37 was much anticipated by tax practioners, and represents one of the most significant developments in the past several years relating to like-kind exchanges. In light of the significance of Rev. Proc. 2000-37, the Real Estate Journal presents a second article this month reviewing Rev. Proc. 2000-37.

Before addressing Rev. Proc. 2000-37, the authors provide an overview of the rules governing more traditional deferred exchanges. The authors then turn to reverse exchanges and parking transactions and, first, analyze TAM 200039005, where the IRS considered a "failed" deferred exchange that the taxpayer attempted (unsuccessfully) to convert into a reverse exchange. The authors then review the specific terms of Rev. Proc. 2000-37, and note the various elements of the revenue procedure that draw upon existing rules in the deferred exchange regulations.

"Guaranteed LLC Debt: Does the Guarantor-Member Receive At-Risk Basis?"
Taxation, July 1999, pp. 16-25.
By Richard W. Harris and Louis H. Moran II

The past decade has seen dramatic growth in the popularity and use of LLCs as the entity of choice for active business operations, as well as for real estate activities. Where the LLC obtains a substantial portion of its operating funds from banks and other third-party lending sources - and particularly if operating losses are expected - significant (and related) issues arise concerning (1) the impact of such liabilities on the calculation of member basis in the entity under Section 752 and (2) the members' amount at risk under Section 465. One problem in this area is the current ambiguity in the law with respect to the effect that an LLC member's guarantee of third-party debt has on the amount at risk ("at-risk basis").

"How to Control Soaring Costs of Health Care"
Journal of Corporate Accounting and Finance, Vol. 13, Mar/April 2002, pp. 3-8.
by Stephen R. Goldberg and Dori Danko

Managed care is no longer a silver bullet to cure growing corporate health care costs. But innovative new trends in health care benefits can help, say the authors. And they also offer some practical strategies for managing health care costs.

"How to Handle the Threat of Catastrophe"
Journal of Corporate Accounting & Finance, Sept/Oct 2003, 35-40
By Carol Sanchez and Stephen R. Goldberg

One of the principal jobs of chief executives is to minimize risk and vulnerability to catastrophic events. Analyzing risk has become more complex since September 11, 2001. In addition to terrorism, other catastrophes can change the course of life as we know it including cyber crime, biological attacks, and the spread of diseases such as SARS. Companies must realign corporate priorities and put the security issue at the forefront, as many companies have done since the 9/11 attacks. 

"How to Operate More Effectively"
The Journal of Corporate Accounting & Finance, January/February 2005, pp. 61-63.
By David M. Cannon, Joseph H. Godwin, and Stephen R. Goldberg

Books reviewed: Moeller, Robert R., 2004 Sarbanes-Oxley and the New Internal Auditing Rules (Hobeken, NJ: John Wiley & Sons). And Frankel, Michael E.S., 2004, Deal Teams: Roles and Motivations of Key Players in Mergers, Acquisitions and Equity Investments (Boston, MA: Aspatore Books).

The books selected for review in this issue discuss how firms can operate more effectively and efficiently.  Moeller addresses how internal auditors can add value to the firm while satisfying requirements of the Sarbanes-Oxley Act (SOA).  Frankel provides insights into more effectively completing strategic transactions, such as mergers and acquisitions, by better understanding key players involved in the transactions.

"How to Profit from New Trends in Treasury Management"
The Journal of Corporate Accounting & Finance, Vol. 14, Nov/Dec 2002, pp. 3-10.
by Dori Danko, Joseph H. Godwin and Stephen R. Goldberg

Today's treasures and cash managers face numerous investment options available for excess cash. To quote one pundit, "A treasurer''s primary objective is to invest cash responsibly, which means not losing the principal and ensuring cash availability when it's needed. The trick is to recognize what the risks are, and factor them in with the costs, convenience, and yield of each investment alternative.

"Impact of Liabilities on Members' Basis in Their LLC Interest"
Journal of Limited Liability Companies, Vol. 4, No. 3, Winter 1997, pp. 107-125.
By Richard W. Harris

An LLC is a unique entity under the tax law. While it is similar to a corporation in that none of the members have personal liability for the company's debts and obligations, it is generally treated as a partnership for federal income tax purposes, and each member's basis in his LLC interest must be determined according to the rules applicable to determining a partner's basis in his partnership interest. The partnership basis rules, however, were enacted before the popularity of the LLC and do not specifically envision the situation in which none of the owners has liability for the business's debts.

This situation has the potential to result in member basis calculations that are, at times, counterintuitive. Also, the calculation of a member basis in the LLC is often a very complex process requiring a detailed investigation of the various and relative rights and responsibilities of the members under the LLC operating agreement and applicable law. This article examines the numerous considerations necessary to analyze the impact of liabilities on a member's basis in a LLC.

"Income Tax Issues on the Death of a Member of a Professional Service LLC"
Journal of Taxation, December 2003, pp. 358-371.
By Thomas L. Dickerson, James A. Fellows, and Michael A. Yuhas

LLCs generally are taxed as partnerships, but the difficult rules of Subchapter K become even more troublesome in an LLC context by virtue of the very nature of the entity.  On the death of a member of a professional service LLC, it is likely that both state law and the LLC's operating agreement will require an immediate liquidation of the decedent's interest through the mechanism of payments to the successor-in-interest.  The character and tax treatment of those payments will vary, depending on the type of assets held by the LLC, the nature of the decedent's interest, and possible interpretations of the partnership provisions. 

As is now well-known, the increasing popularity of the LLC, combined with the growth of the professional service industry, has led many service organizations to choose the LLC vehicle as their preferred tax entity.  The LLC not only permits its owners (i.e., the LLC members) to shield their personal assets from the reach of the LLC's creditors but also allows them to use the pass-through mechanism of Subchapter K.  Multiple-member LLCs treated as tax partnerships avoid the double taxation inherent with C corporations, and provide more flexibility in the arrangement of tax affairs then S corporations might provide.  

"Liability Sharing and Debt Guarantees by LLC Members: The Related Party Issue Revisited"
Journal of Passthrough Entities, Vol. 7, No. 6, November-December 2004, 39-63
By James A. Fellows, Thomas J. Dickerson, and Michael A. Yuhas

A recent decision by the U.S. Tax Court reminds taxpayers and their counsel of the complex law surrounding the allocation of liabilities among partners for purposes of determining their tax bases in their partnership interests, i.e., their outside basis.  In particular, the decision in IPO II is instructive in that it provides the Tax Court's view on the effect of related party guarantees on the determination of a partner's share of partnership debt.  While not discussed in the opinion, the debt allocation also affects a partner's outside basis, his ability to be allocated partnership losses, and that partner's at-risk amount.  In the analysis below, we discuss the interplay of each of these concepts. 

"Making More Effective Business Decisions" (Book Review)
Journal of Corporate Accounting and Finance, Vol. 13, Mar/April 2002, pp. 3-8.
by Stephen R. Goldberg and Joseph H. Godwin

Activity-Based Cast Management: An Executive''s Guide responds to increased interest in this costing system. Cokins addresses why management should use ABC/M, the basics of ABC/M, and how to implement a system. It is suggested reading for current and future managers that have responsibilities for process and cost efficiencies in virtually any type of business or other organization.

"Management Fraud and Stock Price Performance"
Academy of Accounting and Financial Studies Journal, Vol. 8, No. 2, 2004, pp. 1-8.
by Roger J. Best and Kurt Fanning

Corporate scandals as measured by accounting irregularities and other misdealings by management have been pervasive in recent years.  Such irregularities, however, are not new.  We collect a sample of companies that have been the subject of an Securities and Exchange Commission enforcement releace and investigate wether the stocks of these companies are long-term good investments.  Specifically, we examine the three year period after the enforcement release and find that our sample has a much lower survival rate than an industry-matched group of firms.  Further, in the one year period subsequent to the envorcement release, our sample of firms experience negative returns.  Interestingly, however, our group of matched firms perform (statistically) as poorly as the fraud firms in the year after the enforcement release.  This is consistent with contagion effects in industries where on firm is accused of fraudulent activities. 

"Maximizing Discounts for Both Spouses Using LLCs and FLPs"
Estate Planning, June-July 2000, pp. 33-48.
By Michael Yuhas and Carl C. Radom

Authors discuss tax planning strategies using family limited partnerships and limited liability companies. They consider how to choose the appropriate entity in planning for the estate of both spouses and provide illustrations of tax savings using FLPs and LLCs.

"Measurement of Theoretical Capacity as a First Step to Determining Practical Capacity"
Journal of Cost Management, July/August 1999, pp. 35-40.
By Parvez R. Sopariwala

The difficulty in measuring practical capacity is one reason why practical capacity is not being used widely to determine fixed overhead rates. Determining practical capacity is a two stage process: first, theoretical capacity is determined; second, it is adjusted to derive practical capacity. There are situations where theoretical capacity may not be 24 hours, 7 days a week. Theoretical Capacity should reflect the maximum that a machine can produce and not what it should produce based on demand. 

"New Training Methods Boosts Productivity"
The Journal of Corporate Accounting & Finance, March/April 2004, Vol. 15, No. 3, pp. 75.82.
By Stephen Goldberg & Jennifer Goldberg 

As the pace of technology development quickens, data grows exponentially. Employees require more specialized knowledge. The life cycle of new knowledge is shortening. Downsizing puts added pressure on fewer individuals. The Bureau of Labor Statistics claims that 70 percent of employer-provided training is delivered informally, such as when an employee shows another how to use a piece of equipment or find some information. In this article, we suggest that firms consider a community-of-practice approach to addressing the challenge of effectively training and communicating with employees. This approach can help you boost productivity, save time, and improve performance.

"Rethinking Investments in Technology"
Journal of Corporate Accounting & Finance, Vol. 13, Jul/Aug 2002, pp. 63-65.
by Stephen R. Goldberg and Joseph H. Godwin

In today's business environment of constant change, successful companies must rethink how they look at or invest in technology. Important issues arise whether a firm is investing in a sophisticated information-technology system or developing new technologically advanced products or processes for sale to others. The two books reviewed here address critical issues that arise and provide valuable advice to managers confronted with such issues.

"Revaluation of Assets for a Partnership or LLC Can Eliminate Economic and Tax Distortions"
Journal of Partnership Taxation, Fall 1998, pp. 258-277.
By Richard W. Harris

Partnerships and LLCs must account for transactions such as property contributions and distributions at fair market value, with a corresponding adjustment to the capital accounts of the partners or members. The economic imbalances and inequities of this rule can often be counteracted by revaluation of the assets of the entity. This article discusses the major considerations for deciding whether to revalue and the potential consequences of implementing this decision.


"Sarbanes-Oxley: Zmiany w ustawodawstwie USA dotyczacym nadzoru Korporacyjnego"
Ze qspolpracy z zagranica, Vol. 22, Number 78.
By Denise M. de la Rosa

Co to jest Sarbanes-Oxley?  Najprosciej mowiac, Ustawa Sarbanes-Oxley z 2002 r. to akt prawny podpisany przez prezydenta Busha w dniu 30 czerwca2002 r.  Ustawa ta powstala w zwiazku ze skandalami, ktore maily miejsce w takish gigantach, jak Enron i World Com, i byla efektem dzialan zmierzajacych do zreformowania zasad wykonywania zawodu przez ksiegowych i rewidentow.  Inwestorzy nie mogli polegac na niezaleznosci bieglych rewidentow jako dostatecznej gwarancji wiarygodnosci i prawidlowosci sprawozdan finansowych, co sklonilo ustawodawcow amerykanskich do zrewidowania przepisow regulujacych obrot papierami wartosciowymi oraz sprawozdawczosc finansowa w USA.

"Sale-Leasebacks Revisited: The Old and the New of Federal Tax Law"
Real Estate Law Journal, Summer 2002, pp. 9-39
By Michael A. Yuhas & James A. Fellows

The leasing of real estate from another party, the lessor, is certainly not a novel idea, but the creativity of financial officers and tax counsel of business entities is forever adding new twists to this ageless transaction. In particular, the recent controversy over "off-balance sheet financing," so prevalent in current events, is no stranger to real estate leases. In fact, the use of "off-balance sheet financing" in the real estate area, with the concomitant special purpose entity (SPE), has led to the creation of an entirely new typ of lease arrangement, the so-called "synthetic lease." 

"Section 179 Deduction for S Corporations and Their Shareholders"
Journal of Corporate Taxation, Summer 2000, pp. 162-182.
By Richard W. Harris

Most taxpayers are entitled to deduct part or all of the cost of Section 179 property acquired during the year up to a maximum of $20,000. The amount of the deduction is subject to numerous limitations and restrictions based on the amount of Section 179 property acquired by the taxpayer during the year, and the taxable income of the taxpayer. In addition, the deduction may be further restricted in the case of a corporation that is a member of a controlled group. Finally, in the case of an acquisition of section 179 property by an S corporation, there are limitations on the amount of the deduction imposed at both the corporate and the shareholder level.

"Shareholder Notes and Zero Tax Basis After the Peracchi Decision: Implications for Real Estate Corporations"
Real Estate Law Journal, Spring 1999, pp. 335-358.
By James A. Fellows and Michael A. Yuhas

Shareholders who form corporations do so by transferring property, and sometimes liabilities, to the corporation in exchange for corporate stock. If liabilities transferred exceed the cost basis of the property transferred, the shareholder has the taxable gain. The 9th Circuit's decision in Peracchi v. Commissioner (1998), has ignited a storm of debate concerning how to treat a shareholder's promissory note transferred to a corporation. There are numerous suggestions from the field of scholarship as to what the proper tax consequences should be. One suggestion is the "relationship solution," in which any shareholder who owned less than 50% of the corporate stock would have his or her promissory note to the corporation considered property with a tax basis equal to its face value.

"Should the Cost of Unused Capacity be Disclosed in the Financial Statements?"
Journal of Accounting and Finance Research, Winter 1999, pp. 123-131.
By Marinus DeBriune, Parvez R. Sopariwala

In an era of ever-increasing worldwide excess capacity, analysts need better information to assess the implications of a company's capacity (under) utilization. Keeping with the accounting profession's continuing desire to improve current financial disclosures, we propose that the standard setters mandate the disclosure of the cost of unused capacity. We illustrate how this disclosure provides the market with (1) an earlier warning of an impeding plant closing, (2) improved predictors of future earnings and cash flow and (3) a benchmark for evaluating management's (in)action.

"SOA Compliance: Will IT Sabotage Your Efforts?"
The Journal of Corporate Accounting & Finance, July/August 2004, Vol. 15, No. 5, pp. 31-37.
By David M. Cannon and Glenn A. Growe 

Your IT department's actions are crucial to meeting the new demands of the Sarbanes-Oxley Act (SOA). But IT people often don't recognize their critical role in implementing financial controls, warn the authors. To make matters worse, you may have additional problems, incorrect or missing systems documentation, not including IT in SOA discussions, and IT attitudes or knowledge gaps that hinder your SOA compliance. So how can you overcome these worrying difficulties?

"Standard Costing is Alive and Well at Parker Brass"
Management Accounting Quarterly, Winter 2000, pp. 12-20.
By David Johnsen and Parvez Sopariwala

Many people have condemned standard costing, saying it is irrelevant to the current just-in-time-based, fast-paced environment. Yet surveys consistently show that most industrial companies in the United States and abroad still use it. Apparently, these companies have successfully adapted their standard costing systems to their particular business environments. In addition, many academics have contributed ideas on how the standard costing system could be and has been made more responsive to the needs of companies operating in this new economy.

The Brass Products Division at Parker Hannifin Corporation (hereafter, Parker Brass), a world-class manufacturer of tube and brass fittings, valves, hose, and hose fittings, is one of the standard costing system of which we will show you some highlights.

"Stock Redemption, Attribution Rules and Related Parties: The Tax Maze for Estates and Trusts"
Taxes, The Tax Magazine, 2003, Vol. 81, pp. 25-35.

The arcane and mysterious words and phrases enshrined in the Internal Revenue Code ("the Code") are rarely understood by the general public and are challenging, at a minimum, to even the tax professional. Code Sec. 302, which deals with a corporation's redemption of its stock, provides some of those challenges to the tax professional. The complexities of the corporate redemption are enhanced when the stock redeemed is owned by an estate or trust, or one of its beneficiaries. It is the redemption of such stock that is the subject of the article.

"Strategic analysis of operating income: an extension to Horngren, Foster and Datar"
Journal of Accounting Education, 2003, Vol. 21, pp. 25-42.
By Parvez R. Sopariwala

In the 10th edition of their Cost Accounting text, Horngren, Foster and Datar introduce the concept of strategic analysis of operating income by separating a company's operating income into growth, price-recovery, and productivity components. These components are then used to evaluate the success, or lack thereof, of a company's cost-leadership or product differentiation strategies. I extend their analysis of fixed capacity costs in the following manner. First I suggest that the "long-term view" supported by activity-based costing might be more appropriate for determining the growth component instead of the "short-term view" supported by throughput costing and Goldratt and Cox in The Goal. Next, I introduce a new component called capacity underutilization into the formulation which highlights the impact of (1) changing capacity costs relating to unused capacities, (2) changes in available capacities between the years, and (3) changes in capacities used between the years.

"Striving Toward Continuous Quality Improvement: A Case Study of Saint Mary's Hospital"
Health Care Manager, 1999, pp. 33-40.
By Jaideep Motwani, Donald Klein, and Sheryl Navitskas

This case analysis is the result of a year-long study designated to identify and assess the ingredients that led to the successful implementation of a continuous quality improvement (CQI) program at Saint Mary's Hospital in Grand Rapids, Michigan. The key ingredients of success included: (1) an organizational structure and leadership commitment for identifying and improving processes, (2) use of data-based statistical and analytical tools to study processes, (3) empowerment of teams of employees to take charge of the operations of their own work tasks in improvement process, and (5) development of effective measures for monitoring improvement. The benefits of the CQI efforts at Saint Mary's have been remarkable and hospital-wide.

"Subchapter K in a Subchapter C World: Operational Issues"
Journal of Limited Liability Companies, Vol. 4, No. 3, Winter 1997, pp. 100-106.
By Richard W. Harris

Several advantages inure to the partnership or LLC from once operations commence, the most obvious of which is the flow-through nature of Subchapter K entities. However, several other distinctions exist, due to which, surprisingly, the corporate form may prove advantageous.

"Surviving Culture Clash: How to Read German Financial Statements"
Journal of Corporate Accounting and Finance, Sept/Oct 2002, pp. 41-48.
by Stephen R. Goldberg and Joseph H. Godwin

As global business expands, more US firms want to buy foreign companies - or invest in them, from alliances or extend credit to them. So US firms examine foreign companies' financial statements to gauge the risk. But cultural - as well as accounting - differences can get in the way. For example, financial statements for German companies can befuddle a US reader. What must you know to really understand them?

"The Advantages and Potential Pitfalls of Taxable Subsidiary Mergers"
Journal of Corporate Taxation, Autumn 1999, pp. 212-235.
By Richard W. Harris

The requirements, alternatives, advantages, and potential pitfalls concerning the use of a taxable state law merger with a forward or reverse triangular format to consummate a corporate acquisition are discussed.

"The Association Between Performance Plans and Capital Expenditures: A Comparison Between Early and Late Adopters"
Southern Business & Economic Journal, Vol. 21, No. 4, July 1998, pp. 265-293.
by Robert Brown and Parvez Sopariwala

While Larcker (Journal of Accounting and Economics, 1983) found a significant positive association between performance plan adoption and capital expenditures, Gaver and Gaver (Journal of Management Accounting Research, 1993), in general, were unable to replicate those results. Applying Larckers matching methodology to a larger and different sample, our results support Gaver and Gaver and not Larcker. However, using a multivariate analysis, our results support Larckers univariate analysis suggesting that univariate analyses may not always be appropriate for such studies. We also find that control variables such as investment opportunity sets, financial slack and cash dividends are associated with capital expenditures growth, though the association is time-specific and not universal.

"The Code Sec. 179 Deduction for LLCs and Partnerships"
Journal of Passthrough Entities, November-December 1999, pp. 44-48.
By Richard W. Harris

This article discusses the application of the Code Sec. 179 deduction in the context of a partnership or LLC. Author addresses the restrictions and limitations found under Code Sec. 179, as well as the potential for wasted deductions.

"The Economic Order Quantity Model and Throughput Accounting"
International Journal of Strategic Cost Management, Summer 1999, pp. 45-53.
By Marius DeBruine and Donald J. Klein

Management usually on cost cutting as the way to produce higher profits. One tool often used to minimize cost is the economic order quality (EOQ) model for making trade-off decisions. Yet profits are not necessarily maximized even when costs are minimized. The theory of constraints (TOC) redirects management's focus away from cutting costs to focus instead on enhancing throughput. TOC concepts can be used to modify the conventional EOQ model - for example, by adding the opportunity cost of current and future throughput lost - in an attempt to link the effects of local decisions on the company''s net income. The redefined EOQ model provides solutions that help "local" decision makers (e.g., managers in a particular department or business unit) contribute most effectively to the company's objective of maximizing profits. 

"The Essence of Language: Tax Consequences of a New IRS Definition for ''like-kind'' real estate"
Tax Management Real Estate Journal, Mar 2000, pp. 59-71.
By James A. Fellows and Michael A. Yuhas

As matters now stand, the existing adverse authority facing taxpayers engaging in like-kind exchanges is still Rev. Rul. 67-255 and its progeny. Like-kind exchanges of realty, and replacements of condemned realty, will generate tax-free results as long as the taxpayer does not attempt to replace unimproved land by making improvements on land the taxpayer already owns. Yet there is need for caution, and taxpayers and their counsel should be keenly aware of the potential for change here. It is certainly within the realm of possibility that within the next few years the definition of qualifying replacement property could undergo a radical change. What is less clear is whether the IRS may attempt to implement such change through new interpretations of the existing statute, or through more fundamental legislative amendments.

"The Euro and Mergers: What Are the Opportunities and Risks?"
The Journal of Corporate Accounting and Finance, Jan/Feb 2003, pp. 25.30.
By Stephen R. Goldberg, Bruce A. Benet, and David M. Cannon

Americans who want to play the M&A game on European soil should go in with their eyes wide open. The differences between the U.S. and European environments are so great that even seasoned players can feel the ground shifting unexpectedly beneath them. But to ignore the opportunities would be disastrous.

"The Euro:  How Will It Impact Your Treasury Operations?"
The Journal of Corporate Accounting & Finance, November/December 2003, pp. 35-40.
By Stephen R. Goldberg, Dori Danko, and Dennis Stovall

The impact of the euro currency conversion on treasury operations should not be underestimated.  The results are far reaching, and significantly affect operations of U.S. companies.  The 1999 Nobel Laureate in economics, Dr. Robert Mundell, noted the formation the euro as the "most important event in the International Monetary System since the U.S. dollar replaced sterling as the dominant international currency soon after the outbreak of World War I."

The Eurozone consists of the 12 countries (Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, and Spain) within the European Union (EU) that converted to the euro as their national currency.  Industry surveys regarding companies located outside the Eurozone depict these companies as not adequately preparing for full euro implementation.  This article addresses treasury and other operational issues related to the euro conversion listed in Exhibit 1. 

"The Single Member LLC or the Single-Shareholder S Corporation? A Life-Cycle Analysis of the Tax Consequences of the Chosen Path"
Journal of Passthrough Entities, May-June 2000, pp. 33-48.
By James A, Fellows and Michael A. Yuhas

James Fellows and Michael Yuhas compare and contrast the tax consequences of forming, operating, selling, and liquidating a business as either a single-member LLC or a single-shareholder S corporation.

"TRACKS The 1998 GM/UAW Strike is Over . . . but How Much Did It Cost?"
Journal of Accounting, Auditing & Finance, Vol 17, Summer 2002, pp. 259-272.
by Laurence Blose, Marinus DeBruine & Parvez Sopariwala

The General Motors/UAW strike in June-July 1998 involved a 54-day work stoppage. General Motors and automobile analysts have attempted to quantify the loss from this strike and have come up with varied numbers. The stock market analysts'' reactions to the strike, and consequently, the stock market price reaction, vary depending on which estimation method is employed. There is no real consensus among these various sources because their "economic loss" estimates rely on predictions of how many of the vehicles could not be produced and sold as a result of the strike (or recovered in future quarters). Using recent developments in the cost management literature, we determine the cost of unused capacity or the "accounting loss" suffered by General Motors during the second and third quarters of 1998. We show that General Motors may have lost about $2,332.7 million after taxes (excluding Delphi) due to the strike and an additional $1,313.8 million after taxes (excluding Delphi) due to capacity unused for other reasons. More importantly, such "accounting losses," to the extent they are not strike-related, are expected to continue each year unless the market conditions improve or the company takes action to reduce its capacity.

"Trading on the Warsaw stock exchange - from reopening in 1991-2000"
Journal of International Accounting, Auditing, and Taxation, No. 13, 2004, 121-134.
By Denise de la Rosa, Dean Crawford, and Diana R. Franz

The polish political and economic systems have been through a period of extensive transformation.  As a result of these changes, Polish firms that had previously been state-owned were privatized beginning in 1990 and shares in these firms began trading on the Warsaw Stock Exchange (WSE) in 1991.  This paper describes the development of the WSE and Polands accounting system.  It provides a descriptive analysis of trading on the WSE from 1991 through 2000.  The number of Polish firms listed on the WSE grew from 5 on the day trading resumed in 1991 to 265 firms by the year 2000.  As the number of listed firms increased and as the public grew more comfortable with private ownership, the volume of trading increased.  Initial trading resulted in relatively low returns followed by a speculative bubble in 1994.  After the speculative bubble burst, firms which had their financial statements audited by an international audit firm experienced growth in value while firms with local auditors declined in value.

"Two Views of Employee Behavior" (Book Review)
Journal of Corporate Accounting and Finance, Sept/Oct 2002, pp. 85-87.
by Stephen R. Goldberg and Joseph H. Godwin

Niven and the Picketts deal with different aspects of employee behavior. Niven addresses motivating employees to act to achieve corporate objectives. The Balanced Scorecard is a potentially powerful and important management tool that links corporate strategy to employee performance measurement. Financial Crime Investigation and Control discusses methods of identifying and preventing employee fraud.

"US Tax-Free Zone for the Electronic Commerce"
Przedsiebiorczosc a lokalny i regionalny rozwoj gospodarczy, 1999, pp. 129-134.
By Susan W. Martin

[&] Business is booming on the Internet and the staking out of the territory (websites) and links (advertising on other popular websites like Yahoo! And popular online service providers like America OnLine (AOL) harkens back to the landrush days of the wild, wild west in the USA. The www address could easily stand for the "wild, wild web". [&]

"Using Practical Capacity for Determining Fixed Overhead Rates"
Journal of Cost Management, September/October 1998, pp. 34-40.
By Parvez Sopariwala

One version of fixed overhead rate determination using practical capacity employs the capacity that the company expects to activate as the denominator. This article recommends determining the fixed overhead rate by using the maximum available capacity and not the practical capacity expected to be activated. Calculating fixed overhead in this manner may remove the impact of expected production on the fixed overhead rate, thereby providing more accurate product costs for evaluating new long-term sales opportunities.

"Vacation Pay in Asset and Deemed Asset Sales"
Business Entities, November/Detember 2001, pp. 22-33.
By Richard W. Harris and Brian J. Verhoven

In 1996 the Tax Court held in Schmidt Baking Company Inc., 107 TC 271 (1996), that an accrual method corporation was entitled to a deduction for vacation (and severance) pay in the yerar of accrual where, in order to guarantee the funding and payment of the vacation pay obligation, the corporation purchased an irrevocable letter of credit in favor of its employees within two and a half months after the end of its tax year [...]

"Web-based Testing: A Comparative Study Performance"
IBER Internation Business & Economics Research Conference, Oct 2002, pp. 1-2.
by Richard E. Veazey and Neil Rogness

Web-based testing is currently used for admittance to a professional school or certification in a learned field of study. The purpose of this study is to measure whether a signification difference exists between Web-based testing and traditional-based pencil and paper testing.

"Who Cooked the Books?"
The Journal of corporate Accounting & Finance, Jan/Feb 2003, pp. 79-81.
By Stephen R. Goldberg and Joseph H. Godwin

Book review of The Financial Numbers Game; Detecting Creative Accounting Practices (Charles W. Mulford, and Eugene Comisky) and Fraud Examination (W. Steve Albrecht). The two books reviewed address techniques to identify and investigate financial statements and employee fraud. As the reviews indicate, these books are recommended readings for and additions to the reference library of any financial or operational manager.

Proceedings

"Currency Futures Trading Strategies: An Adaptive Logic Network Approach"
New Review of Applied Expert Systems & Emerging Technologies, Vol. 2, 2001, pp. 97-108.
by Kevin Bracker, Kenneth O. Cogger and Kurt Fanning

Currency markets have been found to exhibit regularities that may present attractive trading opportunities. Specifically, today's spot price, the interest rate differential between the two countries, yield curve differentials between two countries, and currency trends have been these four factors with the use of an Adaptive Logic Network (ALN) to develop a relationsihip between these four factors and the futures price 25 days ahead. After training the ALN, it is used to forecast futures prices during a holdout period to examine if the ALN can develop a profitable trading strategy.

"Evaluation of the Impact of R&D on EPS in the Oil and Gas Industry"
Proceedings of the Academy of Accounting and Financial Studies, Vol. 6, No. 2, 2001, pp. 25-28

Investment in Research and Development (R&D) creates intagible assests with a high earning potential. Several industries have a continuous R&D program due to the competitive nature of business. Thus R&D outlays may be viewed as fixed costs necessary for firms to achieve growth in size and earnings. The impact of R&D on earnings is measured by degree of R&D leverage, a term analagous to degrees of operating and financial leverage. This paper specifically tests the relationship between changes in R&D outlays and their impact on earnings for a sample of firms within petroleum drilling, refining, and oil and gas field services industry.

The results indicate that non-U.S. firms have higher R&D intensity compared to U.S. firms. Also R&D intensity is higher for firms within the petroleum-related service firms than for petroleum refining companies. Also the firms with lower R&D intensity have demonstrate higher degree of R&D leverage implying diminishing returns at the higher end of the R&D intensity spectrum. On average, every one-percent increase in R&D outlay results in a one-fourth of one-percent increase in earnings per share.

"Should the Cost of Unused Capacity be Disclosed in the Financial Statements?"
Academy of Accounting Annual Meetings Proceedings, December, 1998.
by Marinus DeBruine and Parvez Sopariwala

In an era of ever-increasing worldwide excess capacity, analysts need better information to assess the implications of a company's capacity (under) utilization. Keeping the accounting profession's continuing desire to improve current financial disclosures, we propose that the standard setters mandate the disclosure of the cost of unused capacity. We illustrate how this disclosure provides the market with (1) an earlier warning of an impending plant closing, (2) improved predictors of future earnings and cash flow and (3) a benchmark for evaluating management's (in)action.

"Trends in Higher Education"
Proceedings - Dydaktyka XXI Wieku, City of Krakow, Poland, September 2001, pp. 93-102.
By Sue W. Martin

The "hottest" and most controversial trend in higher education in the US is distance learning. The two most common forms of distance learning are online classrooms or interactive television transmission of lectures from one live classroom to classroom at other geographic locations. The global access permitted by the internet and satellite transmission of television signals permits institutions to expand their borders for distribution of higher aducation across the world at a minimal cost.

"Understanding German Financial Statements: Surviving Culture Clash"
Proceedings of conference on General Accounting Theory, April 2003, 205-218

By Stephan R. Goldberg and Joseph H. Godwin Managers make decisions about whether to acquire, invest in, extend credit to, or establish further alliances with other companies and often look to the other companys financial statements and assess the risks associated with the prospective business relationship. Interpreting the other company's financial statements is confounded when the other company operates in a different socio-economic environment and is further confounded when financial statements are prepared according to unfamiliar standards. In this article, we discuss some of the differences in underlying environmental factors, which have influenced development of accounting standards in Germany and the U.S. and their implications for understanding financial statements. Our objective is to provide readers with greater insight into (1) the use of German financial statements for decision-making and (2) the decision framework and perspective of German managers. This insight will be useful for decision makers from any country who are confronted with a need to understand reasons for differences in accounting treatment that exist, particularly with Germany.

Page last modified November 15, 2012