Corporate Finance

Finance Roundup for Executives: May 11, 2016

Be informed, get involved, and shape the world through finance. Read's most recent headlines and standout stories.
Kerry MarunaMay 11, 2016

Standout Stories

Brand accounting… Even after his death on Jan. 21 of this year, Roger Sinclair, inaugural fellow of the Marketing Accountability Standards Board, remained a tireless critic of accounting rules governing the valuation of acquired brands.

His final article on the topic (Proposed Mega-Deal Underscores Flawed Accounting Rule) touched off a flurry of response on both sides of the issue.

Current accounting rules require companies to calculate the value of acquired intangible assets at the time of their purchase; to record that value on their balance sheet; and to test it annually for impairment. However, companies are not allowed to show in their accounting any gain in an acquired brand’s value, creating what Sinclair called “The Moribund Effect.” Read article.

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A new revenue standard… Given the sweeping changes companies will likely have to make under the new Financial Accounting Standards Board’s revenue recognition standard, they should focus on reaching out to investors to help them understand the effect of the new standard on their financial reporting, according to Wesley R. Bricker, deputy chief accountant of the Securities and Exchange Commission.

Revenue is the origin of such key performance measures as operating income, net income, and earnings per share, Bricker noted late last week at the 2016 Baruch College Financial Reporting Conference. Sales is also the starting point for important analytical ratios like margins, return on equity, and return on assets, as well as for such valuation metrics as revenue multiples and price-to-earnings, he said. Read article.

Affiliate transactions… The concept of an “arm’s-length” transaction is essential to defensible corporate governance and fundamental notions of fairness. The goal is simple: it is to ensure that the parties to such transactions are acting in their own self-interest and are free from outside influences that could distort the underlying economics of the transaction to the detriment of one of the parties involved.

Yet, so-called “affiliate transactions” — defined broadly as transactions between one party and a second party that it controls, is controlled by, or with which it is under common control — can be difficult to assess under the arm’s length construct. Fundamentally, does it even matter if an affiliate transaction is executed in an arm’s-length manner? After all, the parties to such transactions are theoretically aligned, given the control elements described above. Read article.


U.S. Unveils Anti-Money Laundering Package

The measures include requiring financial institutions to identify the beneficial owners of companies opening accounts with them.


Reader’s Sound Off: Accounting for Brands

Readers discuss a flawed accounting rule that can confuse investors about the post-deal value of companies that make acquisitions.


Investor Outreach on Rev Rec Rule Needed: SEC Official

The new revenue standard could change “not only the top line, but also the bottom line and analysis that depends on the financial statements.”


Affiliate Transactions Irk Lenders

Doing a deal with an affiliate? Existing lenders or debtholders will require assurances that the transaction is carried out in arm’s-length fashion.


Lumber Liquidators Posts Wider Loss

The company attributed a sales decline to changes in its promotional strategy and ‘continued negative consumer sentiment.’


GE to Buy Power Business From South Korean Firm

Industrial giant continues to add to its core industrial lines of business while jettisoning most of its financial services units.


Credit Suisse Posts Q1 Loss

Credit Suisse accelerated its cost-cutting efforts as adverse market conditions led to a huge drop in revenue for the investment bank’s global markets unit.


HP Launches Venture Unit to Invest in Startups

‘HP can help startups bring product to market, build their business, and scale in the global marketplace,’ said an HP exec.


N.Y. Fed, Bangladesh Bank Join Forces to Solve Cyber-Heist

The banks pledged to work together with SWIFT to solve the crime and recover the $81 million that is still missing.


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