...The Role of Accounting in the Financial Crisis: Lessons for the Future S.P. Kothari kothari@mit.edu 617-253-0994 and Rebecca Lester rlester@mit.edu MIT Sloan School of Management E60-382, 30 Memorial Drive Cambridge, MA 02421 December 14, 2011 ABSTRACT: The advent of the Great Recession in 2008 was the culmination of a perfect storm of lax regulation, a growing housing bubble, rising popularity of derivatives instruments, and questionable banking practices. In addition to these causes, management incentives, as well as certain US accounting standards, contributed to the financial crisis. We outline the significant effects of these incentive structures, and the role of fair value accounting standards during the crisis, and discuss implications and relevance of these rules to practitioners, standard-setters, and academics. This article is based on a presentation by Deputy Dean and Professor SP Kothari of the Sloan School of Management, Massachusetts Institute of Technology, at Baruch College on October 25, 2010. 1 Electronic copy available at: http://ssrn.com/abstract=1972354 The Role of Accounting in the Financial Crisis: Lessons for the Future I. Introduction The Great Recession that started in 2008 has had significant effects on the US and global economy; estimates of the amount of US wealth lost are approximately $14 trillion (Luhby 2009). Various causes of the financial crisis have been cited, including lax regulation over mortgage lending,...
Words: 9946 - Pages: 40
...wayne_landsman@unc.edu. May 2010 Forthcoming, European Accounting Review, 2010 We appreciate comments from seminar participants at the Bank of Spain, Rob Bloomfield, Elicia Cowins, Hilary Eastman, Gavin Francis, Christian Kusi-Yeboah, Jim Leisenring, Martien Lubberink, Richard Rendleman, David Tweedie, and an anonymous reviewer. We acknowledge funding from the Center for Finance and Accounting Research at UNC-Chapel Hill and the Stanford Graduate School of Business Center for Global Business and the Economy. Electronic copy available at: http://ssrn.com/abstract=1601519 How did Financial Reporting Contribute to the Financial Crisis? Abstract We scrutinize the role financial reporting for fair values, asset securitizations, derivatives, and loan loss provisioning played in the Financial Crisis. Because banks were at the center of the Financial Crisis, we focus our discussion and analysis on the effects of financial reporting by banks. We conclude fair value accounting played little or no role in the Financial Crisis. However, transparency of information associated with asset securitizations and derivatives likely was insufficient for investors to assess properly the values and riskiness of bank assets and liabilities. Although the FASB and IASB have taken laudable steps to improve disclosures relating to asset securitizations, in our view, the approach for accounting for securitizations in the IASB’s Exposure Draft that would require banks to recognize...
Words: 12577 - Pages: 51
...Table of Contents Page 2 III. Tropical Pool Cleaning Income Statement Page 3 IV. Tropical Pool Cleaning Balance Sheet Page 4 V. Notes to Financial Statements Page 5 VI. Reference Page 9 Notes to Consolidated Financial Statements NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1. Nature of Operations Tropical Pool Cleaning Corporation (henceforth refer to as the “Company,” “we” or “us”) provides pool cleaning, maintenance and repair services to individuals and corporations nationwide. Our headquarters are in New York City however we maintain a significant presence in Florida, California and Texas. 2. Accounting Principles and Presentation The Consolidated Financial Statements have been prepared in agreement with the United States of America GAAP regulations. 3. Use of Estimates In the preparation of financial statements estimates by managers are sometimes necessary. These assumptions are made using available data pertaining to the company’s assets, liabilities, revenue and expenses. Other areas where estimation may occur are future tax liability projections, fair value estimation and impairment calculation on investments. 4. Revenue Recognition Revenue is recognized when a service contract is signed, service is rendered, or evidence of an arrangement exists and collectability is probable. Revenues indicated are net of taxes collected for federal and state purposes and thus surrendered...
Words: 1475 - Pages: 6
...How did Financial Reporting Contribute to the Financial Crisis? Mary E. Barth & Wayne R. Landsman a a b Graduate School of Business , Stanford University , Stanford, CA, USA b Kenan–Flagler Business School , University of North Carolina at Chapel Hill , Chapel Hill, NC, USA Published online: 07 Jul 2010. To cite this article: Mary E. Barth & Wayne R. Landsman (2010) How did Financial Reporting Contribute to the Financial Crisis?, European Accounting Review, 19:3, 399-423, DOI: 10.1080/09638180.2010.498619 To link to this article: http://dx.doi.org/10.1080/09638180.2010.498619 PLEASE SCROLL DOWN FOR ARTICLE Taylor & Francis makes every effort to ensure the accuracy of all the information (the “Content”) contained in the publications on our platform. However, Taylor & Francis, our agents, and our licensors make no representations or warranties whatsoever as to the accuracy, completeness, or suitability for any purpose of the Content. Any opinions and views expressed in this publication are the opinions and views of the authors, and are not the views of or endorsed by Taylor & Francis. The accuracy of the Content should not be relied upon and should be independently verified with primary sources of information. Taylor and Francis shall not be liable for any losses, actions, claims, proceedings, demands, costs, expenses, damages, and other liabilities whatsoever or howsoever caused arising directly or indirectly in connection with, in relation to or arising out of the...
Words: 13452 - Pages: 54
...RETAIL FOOD GROUP is a leading Australian retail food brand manager, franchisor and wholesale coffee roaster. It designs, develops and manages franchise systems and is the intellectual property owner and manager of the following retail and coffee brands: Donut King, Michel’s Patisserie, Brumby’s Bakery, Esquires Coffee Houses, bb’s cafe, Evil Child, Roasted Addiqtion and Barista’s Choice. For the 6th consecutive year since Listing (in June 2006), Retail Food Group continued to deliver enhanced performance and record outcomes for stakeholders. NPAT and EPS 6 year cumulative annual growth rates (cagr) of 35.8% and 24.2% respectively, reinforces Retail Food Group as an enterprise with franchise systems, business model and revenue streams capable of significant growth. NPAT Core NPAT EPS (Basic) 30 30 25 25 20 20 15 15 10 DPS 10 5 0 5 FY07 FY08 FY09 FY10 FY11 ($m) Revenue 140 FY10 FY11 0 ($m) FY07 FY08 FY09 FY10 FY11 FY08 FY09 FY10 FY11 (cents) Net Operating Cashflows Adj. Revenue 120 25 80 20 60 15 40 Net Debt Reduction 30 100 (cents) 10 20 0 5 FY07 FY08 FY09 FY10 FY11 ($m) FY10 FY11 0 ($m) FY07 FY08 FY09 FY10 FY11 ($m) Outlets Network Sales 700 600 1200 500 1000 400 800 300 600 200 400 100 200 0 FY07 FY08 FY09 FY10 FY11 ($m) 0 FY07 FY08 FY09 FY10 FY11 FY10 FY11 ($m) ...
Words: 48420 - Pages: 194
...LO 2 LO 2, 3 LO 2, 3 LO 3 Topic Creating a trust Parties to a fiduciary entity Fiduciary tax terminology Fiduciary tax terminology Pass-through entities: incidence of tax Fiduciaries and the AMT Simple versus complex trust; personal exemptions Determining taxable income: five-step approach Distributions of appreciated property Disallowance of § 212 deductions Cost recovery deductions of a fiduciary Charitable contributions of a fiduciary Functions of DNI Computing DNI Terminating a fiduciary entity Fiduciaries and education planning Grantor trust rules Fiduciary tax compliance Fiduciary tax planning Fiduciary tax planning Attributes of simple and complex trusts Fiduciary tax formula Fiduciary AMT computations Entity accounting income Computing entity accounting income Attributes of trusts and estates Income in respect of a decedent Charitable contributions Entity cost recovery Computing DNI, taxable income Computing DNI, taxable income Separate share rule 20-1 Status: Present Edition Unchanged Modified Unchanged Modified Unchanged Unchanged Unchanged Unchanged Unchanged Unchanged Unchanged Modified Unchanged Unchanged Unchanged Unchanged Unchanged Unchanged Modified Unchanged Unchanged Modified Modified Unchanged Modified Unchanged Modified Unchanged Unchanged Modified Modified Unchanged Q/P in Prior Edition 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or...
Words: 8476 - Pages: 34
...Contents Annual Report Annual Report ABN AMRO Group N.V. 2011 Notes to the reader Introduction This is the Annual Report for the year 2011 of ABN AMRO, which consists of ABN AMRO Group N.V. and its consolidated subsidiaries. The Annual Report consists of the Managing Board report, Supervisory Board report, and the Consolidated Annual Financial Statements. Presentation of information The financial information contained in this Annual Report has been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU). This Annual Report is presented in euros (EUR), which is the presentation currency of ABN AMRO, rounded to the nearest million (unless otherwise stated). All year-end averages in the Annual Report are based on month-end figures. Management does not believe that these month-end averages present trends materially different from those that would be presented by daily averages. Certain figures in this document may not tally exactly due to rounding. In addition, certain percentages in this document have been calculated using rounded figures. As a result of the integration, the current segment reporting is still subject to minor changes. This report can be downloaded from abnamro.com For more information, please go to abnamro.com/ir or contact us at investorrelations@nl.abnamro.com ABN AMRO Group N.V. Gustav Mahlerlaan 10, 1082 PP Amsterdam P Box 283, 1000 EA Amsterdam .O. The Netherlands Telephone:...
Words: 65892 - Pages: 264
...Explain how they intend to accumulate 50% of Conrail’s shares. As of October 15, 1996 CSX Corporation (CSX) intended to merge with Consolidated Rail Corporation (Conrail) by offering a two-tier deal, structured in the following manner. CSX would purchase 90.5 million fully diluted Conrail shares by paying $92.50 per share for the first 40% of the shares (the front-end offer) and would enter a share exchange for the remaining 60% of the required shares (the back-end offer). The front-end offer would be executed in two stages. The first stage, which began the day after the merger announcement, would be a cash tender offer to acquire 17.86 million shares at $92.50 per share (accounting for 19.7% of Conrail’s acquisition shares). The second stage, which could only be executed by mid-November once Conrail shareholders decided to void the “fair value” statute under Pennsylvania law, would be to acquire another 18.4 million shares at $92.50 per share (accounting for another 20.3% of Conrail’s acquisition shares) Following shareholder approval, and successful completion of the second cash tender offer, CSX would proceed with the back-end offer through a share swap of 1.85619 CSX shares for every 1 Conrail share in addition to an extra $16 of new convertible preferred stock. This two-tier structure of paying in both cash and stock not only allows CSX to abide by Pennsylvania’s antitakeover laws, but also saves on cash spent in the transaction since only 40% of the total cost is...
Words: 301 - Pages: 2
...The standard setting process The recent, high profile accounting scandals shook the foundations of the capital markets. Financial reporting furnishes investors and other stakeholders with reliable and relevant information. In the short term unethical financial reporting resulted in loss of billion dollars, but in the long term the impact was even more severe: loss of confidence in financial reporting as reliable source of information. The following reforms aimed to restore investor confidence in financial reporting and accounting profession. They reinforced the importance of ethics in financial reporting and provided recommendation on accounting standard setting process. The following paper provides a brief discussion on standard setting organizations and process and the authoritative sources of accounting. This study also covers the objectives of financial reporting and its role in today’s economy and concludes that ethics will remain cornerstone of the accounting profession. Table of Contents Abstract 2 The standard setting process 4 Standard setting process and authoritative sources of accounting information 5 Objectives of financial reporting 6 Ethics’ role in financial reporting 6 Conclusion 7 References 10 The standard setting process The dawn of the new century brought an economic downturn. The tragic events of 9/11 and the burst of the dot.com bubble accelerated the general decline. Investors kept corporate managements under constant pressure...
Words: 1207 - Pages: 5
...ABSTRACT The research is extensively to examine he rule of accountants in Third tier government and with particular reference to Brass Local Government Area of Bayelsa State. It will cleanly stray the importance of accountants in the third-tier government which is the local government level. The functions, duties and operational system of accountants in local government system can not be over stated. The research also went further to deals on the financial control and dealing of movement of fund or finance in the local Government system. At the end of this research, the role of accountant on accountability, probity and transparent way of spending local government finds will be the Hall mark of this work as to assist accountants in the third tier of the government to acquaint with its functions. This research is also to found out some problems that face the accountant and to proffer solutions to which is to better the accounting system as profession. 1 TABLE OF CONTENT Title page…………………………………………………………………………………..i Certification ………………………………………………………………………………ii Dedication …………………………………………………………………………………iii Acknowledgment……………………………………………………………………….iv Abstract …………………………………………………………………………………….v CHAPTER ONE INTRODUCTION 1.1 Back ground of the study 1.2 Statement of problem 1.3 Objective of the study 1.4 Significance of the study 1.5 Scope and limitation of the study 1.6 Literature Review 1.7 Hypothesis 1.8 Method of Data Collection and Analysis 1.9 Definition of Terms CHAPTER...
Words: 4746 - Pages: 19
...RBI/2011-12/530 DBOD.No.BP.BC.98 /21.06.201/2011-12 May 2, 2012 The Chairman and Managing Directors/ Chief Executives Officers of All Scheduled Commercial Banks (Excluding Local Area Banks and Regional Rural Banks) Madam / Dear Sir, Guidelines on Implementation of Basel III Capital Regulations in India Please refer to the paragraph 90 (extract enclosed) of the Monetary Policy Statement 2012-13 announced on April 17, 2012. It was indicated that the final guidelines on the implementation of Basel III capital regulations would be issued by end - April 2012. It may be recalled that draft proposals on Basel III capital regulations were issued vide circular DBOD.No.BP.BC.71/ 21.06.201/ 2011-12 dated December 30, 2011. 2. The final guidelines on Basel III capital regulations are enclosed. These guidelines would become effective from January 1, 2013 in a phased manner. The Basel III capital ratios will be fully implemented as on March 31, 2018. 3. The capital requirements for the implementation of Basel III guidelines may be lower during the initial periods and higher during the later years. While undertaking the capital planning exercise, banks should keep this in view. 4. RBI is currently working on operational aspects of implementation of the Countercyclical Capital Buffer. Guidance to banks on this will be issued in due course. Besides, certain other proposals viz. ‘Definition of Capital Disclosure Requirements’, ‘Capitalisation of Bank Exposures to Central Counterparties’...
Words: 15967 - Pages: 64
...SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2011 or ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-07434 Aflac Incorporated (Exact name of registrant as specified in its charter) Georgia (State or other jurisdiction of incorporation or organization) 58-1167100 (I.R.S. Employer Identification No.) 1932 Wynnton Road, Columbus, Georgia (Address of principal executive offices) 31999 (ZIP Code) Registrant’s telephone number, including area code: 706.323.3431 Securities registered pursuant to Section 12(b) of the Act: Title of each class Common Stock, $.10 Par Value Name of each exchange on which registered New York Stock Exchange Tokyo Stock Exchange Securities registered pursuant to Section 12(g) of the Act: Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. None Yes ¨ Yes ¨ No No Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements...
Words: 87920 - Pages: 352
...Definition of 'Accounting Standard's An accounting standard is a guideline for financial accounting, such as how a firm prepares and presents its business income and expense, assets and liabilities. The Generally Accepted Accounting Principles is comprised of a large group of individual accounting standards. GAAP standards apply to financial reporting in the United States and may be eventually phased out in favor of the International Accounting Standards. 1. Generally Accepted Accounting Principles (GAAP) In the U.S., Generally Accepted Accounting Principles are accounting rules used to prepare, present, and report financial statements for a wide variety of entities, including publicly traded and privately held companies, non-profit organizations, and governments. The term is usually confined to the United States; hence it is commonly abbreviated as US GAAP or simply GAAP. However, in the theoretical sense, Generally Accepted Accounting Principles encompass the entire industry of accounting, and not only the United States. Outside the academic context, GAAP means US GAAP. Similar too many other countries practicing under the common law system, the United States government does not directly set accounting standards, in the belief that the private sector has better knowledge and resources. US GAAP is not written in law, although the U.S. Securities and Exchange Commission (SEC) require that it be followed in financial reporting by publicly traded companies. Currently,...
Words: 4381 - Pages: 18
...COMPANY 2013 ANNUAL REPORT To Stockholders Dear Stockholders, In 2013, Orchids Paper Products Company experienced record converted product net sales and total net sales levels for the second consecutive year. We continued to broaden our product offerings and experienced additional penetration into the mid/premium tier product markets. Net sales of converted products exceeded $100 million for the first time in the Company’s history. During 2013, we focused on continuing to increase sales of converted product to fully consume our parent roll capacity. Our efforts centered on new product development in both paper making and converting and combining those efforts with an effective sales and marketing plan. As a result, we continued to expand our converted product offerings into the mid/premium tier market, creating new sales opportunities which resulted in shipments of 8.2 million cases, or approximately 53,000 tons, an increase of 16.2% over case shipments in 2012. More specifically, during 2013, our net sales increased 15.4% to $116.4 million compared to $100.8 million in 2012. This included a 21.1% increase in converted product sales. Our sales of mid-tier and premium tier products comprised 37.9% of our unit net sales in 2013, compared to 15.0% in 2012 and 6.8% in 2011. We also focused considerable efforts on controlling production costs while improving quality attributes to supplement the high quality production capabilities of our converting lines. Our increased sales, along with...
Words: 35963 - Pages: 144
...Announcements Office Australian Stock Exchange Limited PO Box H224 Australia Square SYDNEY NSW 2000 Dear Sir/Madam 2010 ANNUAL REPORT Please find attached Navigator Resources Limited’s 2010 Annual Report which is being dispatched to shareholders today. A copy will also shortly be www.navigatorresources.com.au. Yours sincerely NAVIGATOR RESOURCES LTD available on the Company’s website at GERRY KACZMAREK Company Secretary Ground Floor, 45 Richardson Street WEST PERTH WA 6005 PO Box 276 WEST PERTH WA 6872 Telephone: (08) 9226 5311 Facsimile: (08) 9226 5411 Email: navigator@navigatorresources.com.au Website: www.navigatorresources.com.au ASX Code: NAV ACN: 063 366 487 2 0 10 ANNUAL REPORT SUCCESSFUL TRANSITION TO MID-TIER GOLD PRODUCER 2010 AN NUAL REPORT 2 N AV I G ATO R R E S O U R C E S L I M I T E D Corporate Directory Navigator Resources Limited ABN: 82 063 366 487 DiRectoRs & seNioR MANAgeMeNt Directors Dr Allan trench Mr David Hatch Mr gordon galt Mr Matt Healy Mr ian Macpherson Mr John shipp Senior Management Mr trevor cook Mr gerry Kaczmarek Mr Bernie Kirkpatrick Miss Michelle simson Mr ian Bignell Non-executive chairman Managing Director Non-executive Director Non-executive Director Non-executive Director Non-executive Director PRiNciPAL PLAce oF BusiNess & RegisteReD oFFice ground Floor, 45 Richardson street West Perth, Western Australia 6005 Tel: (08) 9226 5311 Fax: (08) 9226 5411 Email: navigator@navigatorresources.com.au...
Words: 37872 - Pages: 152
