GLG News by Accounting, Finance, and Tax Professors (US)

Anthony CatanachDirectorDI2 Associates, LLC

Will Aether’s Tax Loss Assets “Ever” Be Realized?

September 22, 2006

Analysis of:Aether Tax-Loss Assets May Not Carry Forward | online.wsj.com

A common financial “urban legend” is the idea that tax net operating losses generated by one company can be “purchased” and used by another entity to reduce future tax liabilities. Unfortunately, in most cases, this simply is not the case. This commentary debunks this legend and provides insight into Aether Holdings’ tax loss position.

Gil ManzonAssociate ProfessorTRUSTEES OF BOSTON COLLEGE

FIN 48: New tax(ing) accounting: Overview and some likely effects

September 13, 2006

Analysis of:FASB Interpretation Number 48 | www.fasb.org

Overview

FIN 48 provides guidance for tax reporting for firm years starting after 12/15/06. It will result in the deferred recognition of tax benefits associated with tax positions that are viewed as aggressive (not “more likely than not” to be sustained or sustained at amounts sought following (presumed) review by tax authorities).

FIN 48 specifies a two-step process for evaluating tax positions for recognition and measurement. First, firms must determine whether it is more likely than not that a given tax position will be sustained upon examination. Second, for those tax positions determined to be more likely than not to be sustained, firms must estimate the amount of the tax benefit that is more than 50% likely to be realized. A liability has to be recorded for tax positions that are not viewed as sufficiently likely to be sustained so as to be recognized and those positions are that are not expected to be sustained at the levels filed for tax purposes. As well, a table must be prepared and reported in the footnotes to the financial statements summarizing the aggregate value of “unrecognized tax benefits.”

Thomas KleinManaging MemberKleinCPA PLLC

Impending Homebuilder Impairment Charges Make Bad Situation Worse

August 2, 2006

Analysis of:Builders get caught in squeeze on land values | www.azstarnet.com

The softening housing market is putting a strain on homebuilder earnings.  To make matters worse, many homebuilders are poised to record impairment charges on their recent land purchases, which will further strain earnings.  These charges are required when the expected return on these land investments is less than the current recorded value on the company's balance sheet.  Therefore, homebuilders with significant land purchases over the past 12 to 24 months will be impacted the most.

Thomas KleinManaging MemberKleinCPA PLLC

How Stock Repurchase Programs Create Economic Value for Shareholders

August 2, 2006

Analysis of:Microsoft Reports Fourth Quarter Results and Announces Share Repurchase Program | biz.yahoo.com

The initiation of a stock repurchase program suggests that the company believes its shares are undervalued. Furthermore, it is, in effect, a tax efficient way of purchasing company stock on behalf of its shareholders.

Robert KempProfessorUniversity of Virginia - CC

The Reality of Accounting versus Economics - Pensions

July 12, 2006

Analysis of:Business Objects to FASB's Plan for Measuring Future Pension Costs | www.accountingweb.com

1. Paul Miller is correct when he highlights the political nature of accounting standards.
2. The bottom line is simple. The issue is what do financial analysts want reported? The issue is not what financial statement preparers want to report.
3. If a firm is a going concern, the PBO is the correct measure of the future economic obligation of the firm.

Robert KempProfessorUniversity of Virginia - CC

Lucent - Watch Out for Lucent's Pensions

July 12, 2006

Analysis of:Lucent slides on profit outlook | money.cnn.com

1.    The drop in Lucent's profit is worse than reported.  Lucent's profit is being driven primarily by it's pension accounting.  Lucent pension accounting, in compliance with current US generally accepted accounting principles, is not a cost.  It is a negative cost, or a profit enhancing activity.
2.    Financial analysts should look at Lucent's operating cash flow, not Lucent's accrual net income.

Robert KempProfessorUniversity of Virginia - CC

Pension Accounting: The simple need to disclose reality

June 29, 2006

Analysis of:FASB, Employers Class on Pension Metric | www.cfo.com

FASB is currently revising its pension standards.  The debate is furious but mystifying.

What is needed is full disclosure of all aspects of a company's pension program.

Robert KempProfessorUniversity of Virginia - CC

Pensions - The need for US GAAP to equal economic reality

June 15, 2006

Analysis of:Execs letters Rip FASB Pension Draft | www.cfo.com

1.    I agree with Nitish Grover and most observers that current US GAAP does not reflect economic reality regarding pensions.

2.    I believe the proposed revisions to US GAAP are an improvement, particularly regarding the balance sheet.

3.    I do not believe the proposed revisions to US GAAP go far enough regarding the income statement.

Eli BartovProfessorNEW YORK UNIVERSITY

Stock option grants' backdating and stock prices

April 21, 2006

Analysis of:Next CO2 Worry: Less Absorption | online.wsj.com

Anecdotal and academic evidence indicates stock option grants’ backdating has been widespread in recent years. Many companies have already acknowledged the occurrence of backdating. Others will announce soon. Stock prices responded negatively when companies announce backdating has occurred. There is little doubt that many companies that had been engaged in backdating are yet to acknowledge the problem. However, based on publicly available information investors should be able to identify quite accurately companies that had been engaged in this practice.

Eli BartovProfessorNEW YORK UNIVERSITY

Proposed change in pension accounting and its consequence

April 6, 2006

Analysis of:FASB's Exposure Draft on Postretirement Benefit Plans | www.fasb.org

The new standard will require a company:

a. To recognize in its statement of financial position the overfunded or underfunded status of a defined benefit postretirement plan measured as the difference between the fair value of plan assets and the benefit obligation. For a pension plan, the benefit obligation would be the projected benefit obligation; for any other postretirement benefit plan, such as a retiree health care plan, the benefit obligation would be the accumulated postretirement benefit obligation.

b. To recognize as a component of other comprehensive income, net of tax, actuarial gains and losses and the prior service costs and credits that arise during the period but pursuant to FASB Statements No. 87, Employers’ Accounting for Pensions, and No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions, are not recognized as components of net periodic benefit cost. Amounts recognized in accumulated other comprehensive income would be adjusted as they are subsequently recognized as components of net periodic benefit cost pursuant to the recognition and amortization provisions of Statements 87 and 106.

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