Grade 12 Accounting

Samuel Tang & Hulland Bui

 

INTRO, OVERVIEW OF TOPIC

-CEO’s, the head, the big cheese, everybody knows of them, and everybody wants to be them.

-They are easily one of the highest paid positions within a company, often times, make at least 10 times what the President of the United States makes.

-Their pay cheques are often within the millions

-There is a CEO for every company that you can imagine

-Some CEO’s that you may know are, Steve Jobs (apple), Bill Gates (Microsoft), Warren Buffet (Berkshire Hathaway), Larry Page (Google), Mark Zuckerberg (facebook).

-These people usually have more money than they can even use, however many of them are philanthropists.

 

EXAMPLES OF CEO’S AND THEIR PAY, A SMALL COMPARISON

Well first of all, executives would be paid “an executive compensation” this basically means that their pay consists of many different things combined. Such as stock options, golden parachute, bonuses, etc.

-Ted Rogers, $21.5 million

-The President, $400,000

-Steve Jobs, $1

Why is this so low?

 

MAJOR DEVELOPMENTS/AFFECTS TO THE ACCOUNTING PROFESSION

You may be wondering why there is such a huge range, and why the CEO of Apple only makes $1 a year.

(Well, in reality, Steve Jobs doesn’t actually make $1, that’s just what it says on his job description)

How else would he get his money?

(Well, sometimes they would be paid in the form of shares and bonuses)

Before SFAS 123 and all of that jazz, companies didn’t need to write down any of the salary given in the form of shares.

In 2006 the FASB required companies to expense the value of the stock options given to employees. Before that, SFAS 123 required only to state that they used stock options in the foot note and to state a fair value, because stating the stock prices would have a “negative effect” on their actual stock prices.

They didn’t put it into full effect because the dot com boom relied heavily upon stock options that they gave to their employees, because they weren’t seen as that profitable or profitable yet. Also it gave incentive to work harder, as the results would directly affect you. Some companies took the initiative of starting to put in stock option expense in order to give themselves a good rep, in light of all the companies that were being exposed for accounting fraud.

So, the problems were that CEO’s would artificially pump up their stock prices to increase their gains (if they were planning on leaving sooner).

It wouldn’t show up on the income statements.

It has its advantages when it comes to taxes as well. Certified/official stock option is not taxed, when received the option grant, this is because the number is ever fluctuating. Non-qualified stock options however are taxed.

Options Backdating, so some would state the expense as the lowest day that the stock has closed within the month.

June 15, 2005 was when companies had to start expensing stock options, which solved only one of the major problems. It was the GAAP SFAS 123(R).

The Financial Accounting Standards board (FASB) pushed the new trendy rule called the SFAS-123.  What was this rule?  This rule made all companies post their stock options as expenses on their income statement.  As of a result of this, there were net income reductions and also this gave stockholders a better glimpse of everything.

 

Work Cited:

 

Pizzigati, S.(2008, September 16) Let’s get serious about CEO pay.

Retrieved March 22, 2011 from ourfuture.org

< http://www.ourfuture.org/blog-entry/2008093816/let-s-get-serious-about-ceo-pay>

 

Knowledge @ Horton, (2006, May 3) How new accounting rules are changing the way CEO’s are getting paid.

Retrieved March 22, 2011 for Knowledge @ Horton

< http://knowledge.wharton.upenn.edu/article.cfm?articleid=1465>

 

Financial Accounting Standards Board, Summary for interpretation No.44.

Retrieved March 22, 2011 from fasb.org

< http://www.fasb.org/summary/finsum44.shtml>

 

(2004, September 21) Bill Gates Quotes:  Wealth quotations – Master of Business, Online celebrities News, Reference and Society

Retrieved on April 6^th, 2011 from money.cnn.com

< http://money.cnn.com/2004/09/21/technology/gates_pay/index.htm >

 

Williams. R (2010, August 5) Are CEO salaries out of control?

Retrieved on April 6^th, 2011 from business.financialpost.com

< http://business.financialpost.com/2010/08/05/are-ceo-salaries-out-of-control/#comments >

 

Peterson. J (2010, April 22) Are CEO salary and compensation plans of control-YES

Retrieved on April 6^th, 2011 from www.usmoneytalk.com

< http://www.usmoneytalk.com/finance/are-ceo-salary-and-compensation-plans-out-of-control-yes-904/ >

 

“CEO pay greed soars out of control while workers earn less”

Retrieved on April 6^th, 2011 from http://www.fa-ir.org

< http://www.fa-ir.org/ai/wagegap.htm >

 

Definition

• INTERNATIONAL ACCOUNTING is the international aspects of
  accounting, such matters as accounting principles and reporting practices in
  different countries and their classification; patterns of accounting
  development; international and regional harmonization, foreign currency
  translation; foreign exchange risk; international comparisons of consolidation
  accounting and inflation accounting; accounting in developing countries;
  accounting in communist countries; performance evaluation of foreign
  subsidiaries.

What is international Accounting?

• The term implies bookkeeping across national boarders.
• Companies who have their headquarter in one country and
  subsidiaries in other countries need to incorporate the financial statements of
  their subsidiaries into the “principal” financial statement of the headquarter
  which is bookkeeping across national boarders.
• Another part is the process of transforming differing
  national accounting standards into international standards that already are or
  will be relevant for every firm in the world.

Overview of the Issue

• The criteria are gradually converging with international
  accounting standards, promoting international economic exchange and capital
  flows.
• The deepening of economic globalization, national
  standards with international standards has become increasingly important
  convergence.
• The world’s major capital markets are actively explored
  and strive to achieve the set of globally recognized accounting standards convergence.
• To this end, the International Federation of Accountants
  Organization study on the adoption and implementation of international
  standards challenges encountered in the process and results are analyzed in
  detail.
• Uniform accounting help to strengthen investor confidence
  in financial information, which prompted investors to invest abroad.

Major Development

• The most important driving force in the development of
  international accounting standards is the International Accounting Standards
  Committee (IASC), an independent private-sector body formed in 1973.
• The broad objective of the IASC is to further
  harmonization of accounting practices through the formulation of accounting
  standards and to promote their worldwide acceptance.
• Shows the typical development of all fields of inquiry;
  it began with observation and is progressing toward abstraction and model
  building.

2009 Timeline: The year in review

January

Satyam scandal rocks Indian profession

• India’s biggest ever corporate fraud erupts at Satyam
  Computer Services, shaking the corporate sector and audit profession. Satyam’s
  auditor, Price Waterhouse, is investigated and two partners
• S Gopalakrishnan and Srinivas Talluri are arrested. The
  scandal leads to questions over audit firm registration, firm and partner
  rotation rules and the method used to select the auditors of large
  corporations.

BDO joins China’s ‘Top Five’

• BDO International admits Shu Lun Pan Management Corp, one
  of China’s leading domestic firms, after it ends its affiliation with Horwath
  International. The addition makes BDO becomes the largest mid-tier professional
  services firm in China.

February

Madoff fraud leads to spate of lawsuits

• Several prominent audit firms are being targeted in
  lawsuits against feeder funds to the largest Ponzi scheme in US history.
  Investors that lost money placed in Bernard L Madoff Investments Securities
  begin a spate of class actions against hedge funds and their auditors for
  failing to detect the fraud.
• Firms being investigated include KPMG, Ernst & Young
  and PricewaterhouseCoopers.

“Those are big events and to us things like that shake
confidence in accounting firms and accounting standards, and probably even the
regulators themselves.” – Crowe Horwath International CEO Frank Arford on the
impact of the Madoff fraud and Lehman collapse

March

Deloitte, PwC put bid for BearingPoint practices

• Bankrupt consultancy BearingPoint US sells off practices
  as part of a global reorganisation plan. Deloitte agrees to acquire the assets
  of BearingPoint’s North American practice valued at $350 million. PwC signs an
  agreement to acquire a portion of the North American commercial services
  practice ($25 million). PwC Japan’s advisory firm reaches an agreement to
  acquire and integrate with BearingPoint’s Japanese consulting business.

Networks strengthen presence across China

• Three international mid-tier networks, BDO International,
  Grant Thornton International and RSM International, make significant inroads
  into the Chinese market by teaming up with large reputable Chinese firms. The
  consolidation rush by the nations’ largest accounting firms is in step with the
  Chinese government’s ambitious plans for the domestic accountancy profession.

Nally appointed PwC leader

• Dennis Nally (pictured) is appointed to replace
  Samuel Di Piazza as the global chairman of Pricewaterhouse-Coopers, the largest
  accounting network in the world. Nally was the senior partner and chairman of
  PwC’s US firm.

April

Revenue growth plummets in Italy

• The Italian profession takes a dive as the economic
  downturn strikes. Market growth of 3 percent is the worst result for Italian
  firms in the past five years. Only seven out of 29 firms surveyed achieve
  double-digit revenue growth, with some firms experiencing a decline in growth,
  including the second largest firm PricewaterhouseCoopers Italy.

BDO in Hong Kong merger

• BDO McCabe Lo merges with Shu Lun Pan Horwath Hong Kong
  CPA Limited, creating the fifth largest firm on the island. The combined entity
  to operate as BDO Limited.

May

China reaffirms ‘Big 10’ plans

• The Chinese Ministry of Finance publishes plans to
  develop 5 to 10 ‘super big’ domestic public accounting firms within the next
  decade to challenge the position of the Big Four firms in China. The proposal
  aims to create three different firm sizes ‘super big’, ‘big’ and ‘small to
  medium’.

June

KPMG and PwC face legal battles Down Under

• Australia’s two largest audit firms face huge lawsuits
  following corporate collapses. Investors in the MFS Premium Income Fund launched
  a A$746 million ($671 million) claim against KPMG for failure to detect
  unsecured loans. Centro, once the second-largest shopping centre construction
  company in Australia, launches a cross-claim application in a bid to drag PwC
  into an A$1 billion class action.

BDO International ruling a good sign

• Miami court clears BDO International of paying $352
  million in punitive damages and $170 million in compensatory damages awarded
  against its US member firm BDO Seidman in the Bankest case. The outcome is
  closely monitored by the accounting profession as it attempted to establish the
  legal line of control between network administration bodies and member firms.

“The biggest negative for me was the kneejerk reaction by
some to looking at chopping staff out almost immediately as their answer to the
crisis.” BDO International chief executive Jeremy Newman on reactions to the
downturn

July

McGladrey & Pullen threatens breakaway

• McGladrey & Pullen (M&P) issues a formal notice
  of intent to terminate its administrative services agreement with H&R
  Block, threatening its relationship with RSM McGladrey. The notice period is
  210 days. H&R Block, the owner of RSM McGladrey, says the move is not in
  the best interest of M&P’s partners, employees or clients. Combined,
  McGladrey & Pullen and RSM McGladrey are the fifth-largest firm in the US.

August

Price Waterhouse comes under fire

• Sunil Talati, a former president of the Institute of
  Chartered Accountants in India, says Price Waterhouse got off lightly and
  believes the firm should be held partly accountable for the actions of its
  partners in the Satyam scandal. Jailed Price Waterhouse auditors
• S Gopalakrishnan and Srinivas Talluri await trial.

September

Mid-tier network expands in key markets

• Crowe Horwath International accelerates its push into
  important emerging markets with the addition of Crowe Horwath RCS in Brazil,
  WanLongAsia in China and Crowe Horwath HK CPA in Hong Kong. These additions
  help Crowe Horwath maintain its position as the ninth largest network in the
  world.

E&Y reaches Akai settlement

• Ernst & Young (E&Y) Hong Kong settles with the
  liquidator of Chinese consumer electronics company Akai Holdings for an
  undisclosed sum and suspends one of its partners after finding some of the
  firm’s Akai audit work could no longer be relied on. E&Y faced allegations
  it was negligent in its auditing of Akai from 1997 to 1999.

“If I had to point to one thing from 2009 from an
accounting standpoint, the greatest challenge for the profession was the whole
issue of market value accounting and the impact of that on the downturn of the
economy.” – Grant Thornton International chief executive Ed Nusbaum

October

Canadian mid-tier firms play musical chairs

• Large Canadian firms reshuffle their global affiliations.
  The market’s seventh largest firm Meyers Norris Penny (MNP) joins the Praxity
  Global Alliance from Crowe Horwath International. The national association of
  firms Collins Barrow leaves Praxity to join Baker Tilly International. MNP
  sights benefits of the association model as one driver of the move. Crowe
  Horwath International is yet to reveal a new Canadian firm.

Kreston International on network trail

• Kreston International outlines plans to become an
  accountancy network during the next three years. Kreston will implement a
  globally co-ordinated quality control monitoring programme and provide firms
  the option to use a common brand name to sign off assurance reports, which
  would satisfy the International Federation of Accountants’ definition of a ‘network’.
  In this year’s world survey, Kreston International is the 12th largest network
  with fee income of $1.64 billion.

November

Parmalat settlement a step closer

• Deloitte Global and Deloitte US offer to pay $8.5 million
  and Grant Thornton International and Grant Thornton US offer $6.5 million to
  plaintiffs to settle the long-running Parmalat lawsuit. In September, a US
  judge dismissed claims against the networks – a victory for networks attempting
  to prove they do not control the actions of their member firms.

“From a network perspective, I would say that all these
discussions about the Deloitte or the Parmalat case were quite substantial
because it showed to what extent there is or there might be a general or
overall liability for the work that is done here or there, and we have to keep
and eagle eye on that.” – Nexia International chairman Norbert Neu on the
Parmalat ruling

December

Tenon and RSM Bentley Jennison tie the knot

• Tenon Group acquires RSM Bentley Jennison to create the
  seventh largest firm in the UK.
• RSM Tenon has 3,000 staff and generates annual fee income
  of £250 million ($409 million).
• This combination helps RSM International leapfrog Grant
  Thornton International as the sixth largest accounting network in terms of fee
  income.

US firms mend differences

• In other good news for RSM, US member firms RSM McGladrey
  and McGladrey & Pullen patch up their differences and agree to continue
  their alternative practice relationship.

Impact on the accounting profession

• It would be hard for Canadians to go to other countries
  to work because the accounting standard is different in other countries.
• It would be hard for accountants from other countries to
  come and work here.
• For example in China the balance sheet they are less a
  tool of profit and loss, but an inventory of assets available to a company.
• Also in a Chinese accounting standards do not include an
  accounting of the debts that a corporation holds.

Future Outlook

• In the fragile state of the current U.S. economy, there
  may be no more important matter than investor confidence.
• People will invest in the stock market because they are
  confident in making a return on investment, something that cannot be done
  unless there is quality assurance in the world of accounting.
• Bankers, lenders, and stock brokers all rely on the
  information that is produced by corporations in the form of financial
  statements is reliable and accurate.
• This is not possible, without sound accounting and
  enforcement from agencies such as the Securities and Exchange Commission and
  the Financial Accounting Standards Board.
• But a more recent development in the world of accounting
  pertains to the convergence and gaining popularity of international accounting
  standards.
• In Canada they might change the accounting standards.
• Also they might be new principle and certain principle
  would change.
• In the future it would be easier for Canadians to go to
  different countries and other accountant to come to Canada to work
• Also there will be more way to prevent future accounting
  frauds and financial risks.

Work Cited List

International Accounting Standards: Encyclopedia of
Business and Finance. (n.d.). eNotes Literature Study Guides, Lesson Plans, and
More. Retrieved March 30, 2011, from http://www.enotes.com/business-finance-encyclopedia/international-accounting-standards

Annotated Bibliography: The Future of International
Accounting Standards. (n.d.). Home.             Retrieved
March 18, 2011, from http://wikibin.org/articles/annotated-bibliography-the-future-of-international-accounting-standards.html

China Accounting Standards. (n.d.). Wikipedia the free
encyclopedia. Retrieved April 1, 2011, from
http://en.wikipedia.org/wiki/China_Accounting_Standards

Editorial, I. (n.d.). 2009 Timeline: The year in review.
VRL Financial News – Home. Retrieved March 12, 2011, from
http://www.vrl-financial-news.com/accounting/intl-accountingbulletin/issues/iab-2010/iab-461/2009-timeline-the-year-in-rev.aspx

Global Economic Turndown: The Future Accounting Outlook.
(n.d.). Financial Meltdown – Crisis Of Governance?. Retrieved March 18, 2011,
from     www.icap.org.pk/userfiles/file/safa2009/article-5.pdf

Hausarbeit – International Accounting – an Overview.
(n.d.). Scribd. Retrieved March 30, 2011, from
http://www.scribd.com/doc/6722096/Hausarbeit-International-Accounting-an-Overview

 

What is a Ponzi Scheme?

Ponzi schemes are a specific type of investment fraud, where criminals will take money from unsuspecting victims, promising to handle their victim’s money and get great returns. In reality, they are using money from newer victims whose money they have also taken to pay back original victims. Schemers will usually offer great returns on initial investments for no risk to the investor.  Ponzi schemes can be summed up in an infamous quote by Charles Ponzi, the man that ponzi schemes are named after, “the old game of robbing Peter to pay Paul”.

Ponzi schemes usually end in three ways:

• Scheme creator runs off with money
• No new investors, leading to a collapse of the scheme
• Too many investors will ask for their return, leading to a collapse of the scheme

There are six warning signs or “red flags” the SEC, U.S. Securities and Exchange Commission, warns to look out for in order to identify a potential ponzi scheme:

• No risk guaranteed returns
• Suspiciously consistent returns that completely disregard changes in the market or stock values
• Unlicensed / unregistered sellers or firms
• Creators are shady, not open about strategies
• Paperwork has numerous errors on it, like an unbalanced balance sheet
• Difficulty getting money back

Development / Timeline

Ponzi schemes have been created ever since people needed money and have been created around the world, some notable ones are:

1880 – Sarah Howe’s “Ladies Deposits”

1920 – Charles Ponzi’s Stamp Scheme

1997 – Albania’s government backed ponzi schemes

2000 – Reed Slatkin’s Scientology Scheme

2001 – Haiti’s government advertised ponzi schemes

2007 – Lou Pearlman’s Investment schemes

2008 – Bernard Madoff, the biggest ponzi scheme in recorded history

*Through Madoff’s ponzi scheme, which went on for over 20 years, investors lost nearly 65 billion dollars, he is currently serving a 150 year jail sentence

The Impact

Accountants have failed to discover these frauds in timely manners, earning them bad reputations. An example would be that auditing firms and government checkers failed to notice Madoff’s scheme for nearly 20 years. The general population seems to think that “money managers [are] turning into money makers”.  Auditors and even government officials are constantly criticized for their inability to catch ponzi schemes and bring the creators to justice quickly enough.

The Future Outlook

Ponzi schemes will probably never stop, as long as people need money and they are smart enough and desperate enough, they will find a way to get money, whether it is through legal means or illegal ones, like creating a massive ponzi scheme. Even when a ponzi scheme is busted, the court procedures are very long and daunting, Bernard Madoff’s case is still being looked at today by the SEC, meaning less time can be spent on finding undiscovered ponzi schemes. People looking to invest their money must be cautious and learn from the past, being careful of where they place their money, if everyone is careful enough with their money, perhaps the impact of ponzi schemes can begin to decrease.

Video

An FBI video, with testimonies from victims of ponzi schemes, and advice from FBI agents can be watched here:

Frauds and How to Spot Trouble

Works Cited

Gandel, Stephen. “The Madoff Fraud: How Culpable Were the Auditors?”. Time. 17 December 2008. 7 April 2011 <http://www.time.com/time/business/article/0,8599,1867092,00.html&gt;

Margolick, David. “His Last Name Is Scheme”. The New York Times. 10 April 2005. 7 April 2011 <http://www.nytimes.com/2005/04/10/books/review/10MARGOLI.html?_r=1&ref=ponzischemes&gt;

Nasaw, Daniel. “Timeline: Key dates in the Bernard Madoff case”. Guardian.co.uk. 16 February 2011. 7 April 2011 <http://www.guardian.co.uk/business/2009/mar/12/bernard-madoff-timeline-fraud&gt;

Washington, Rudy. “Bernard L. Madoff”. The New York Times. 16 February 2011. 7 April 2011 <http://topics.nytimes.com/top/reference/timestopics/people/m/bernard_l_madoff/index.html?inline=nyt-per&gt;

“The First Ponzi Scheme”. The Washington Post. 17 December 2008. 7 April 2011 <http://voices.washingtonpost.com/washingtonpostinvestigations/2008/12/the_first_ponzi_scheme.html&gt;

“The 10 Nastiest Ponzi Schemes Ever”. Business Pundit. 15 December 2008. 7 April 2011 <http://www.businesspundit.com/the-10-nastiest-ponzi-schemes-ever/&gt;

“Ponzi Schemes”. The New York Times. 7 April 2011 <http://topics.nytimes.com/top/reference/timestopics/subjects/f/frauds_and_swindling/ponzi_schemes/index.html?scp=1-spot&sq=ponzi&st=cse&gt;

“Ponzi Schemes and Forensic Accountants”. Bella Online. 7 April 2011. <http://www.bellaonline.com/articles/art49196.asp&gt;

United States. US Securities and Exchange Commission. Ponzi Schemes – Frequently Asked Questions. 7 April 2011 <http://www.sec.gov/answers/ponzi.htm&gt;