Reviving the Reverse Morris Trust for Mergers

Before the 1997 alteration of the law, the ground rules for structuring a Morris Trust transaction with respect to an acquisition were well understood—albeit somewhat illogical.In most cases, the trust used to work like this: First, assume that the target corporation engaged in two different busi...

By Robert Willens • July 3, 2002

There’s a Monster in Finance

The latest rash of high-profile accounting scandals is adding fuel to the debate over reporting relationships in the finance department.No longer satisfied with financial audits controlled exclusively by senior corporate executives and accounting firms, regulators and institutional investors are ...

By David Katz • July 2, 2002

Explore the Trendline➔

Tax policy shifts: What CFOs need to know to stay ahead

Discover how evolving tax policies are creating new opportunities and challenges for CFOs.

By CFO.com staff

Debt and Taxes

Who dares, wins. Companies issuing contingent convertible bonds — or “cocos” — over the past two years took a risk that the very tax benefits that made these debt instruments so attractive might prompt the Internal Revenue Service to outlaw them. Instead, in a June ruling so favorable it surprise...

By Tim Reason • July 1, 2002

Two Sides to Every Tax Story

On June 4, TRW Automotive Inc. filed an S-1 registration statement with the SEC to formally split from parent company TRW Inc. The spinoff, as expected, is conditioned on obtaining an IRS ruling that the separation is tax free both to TRW and its shareholders. Note that if the ruling cannot be ti...

By Robert Willens • June 19, 2002

Recent developments narrow the scope of Sec. 162(k)

In 1986, Halley’s comet disappointed skywatchers as the celestial mass failed to provide the brilliant display earth dwellers had hoped for. But not all stargazers missed out that year. In fact, corporate denizens following the Fifth Circuit Court of Appeals decision on the Five Star Manufacturin...

By Robert Willens • June 12, 2002

Duke, El Paso Face SEC Probe

On Friday, officials at two major energy companies—Duke Energy Corp. and El Paso Corp.—confirmed that the SEC had requested information about deals associated with the controversial “round trip” practice. Also called “wash trades,” these deals involve buying and selling power or natural gas at th...

By Stephen Taub • June 10, 2002

For Good Measure

CFOs are using what academics consider better measures in their capital-budgeting analysis. According to a recent survey, more than 85 percent say they use net present value (NPV) analysis in at least three out of four decisions.“Finance textbooks have taught for years that NPV is superior, but t...

By Alix Stuart • June 6, 2002

Is Auditor Rotation Coming?

Most everyone agrees the audit process should be improved, but hardly anyone agrees on how it should be done. The Financial Accounting Standards Board, the American Institute of Certified Public Accountants, and both parties in Congress have their own agendas, so real reform seems to be a long wa...

By Joseph McCafferty • June 5, 2002

Avoiding LBO Tax Missteps

Leveraged buyout participants that acquire the stock of a target may be able to garner tax benefits by treating the target stock purchase as an asset allocation. This is done by executing a “regular” Sec. 338 election—or in cases where the target is a member of an affiliated group, a Sec. 338(h)(...

By Robert Willens • June 5, 2002

A CFO Blacklist?

If history teaches one thing, it’s that people rarely learn anything from history.How else can you explain the existence of a corporate list that appears to be currently circulating among some sell-side analysts in New York and London? According to sources, the common denominator of the companies...

By Marie Leone • June 5, 2002

Pall Bearers

In the wake of numerous financial restatements — not to mention numerous high-profile bankruptcies — bookkeeping issues like earnings management and revenue recognition are getting a whole lot of attention these days.Maybe too much attention. As CFO.com reported in “CFOs: The New Patsies?,” finan...

By Marie Leone • June 5, 2002

EMA: Lay Away Plan

The “cookie jar” reserves approach to earnings management may crumble if new research penned by a triad of accounting professors gets the attention of regulators.The study, conducted by Mark W. Nelson and John A. Elliott of Cornell’s Johnson Graduate School of Management, and Robin L. Tarpley of ...

By Marie Leone • May 30, 2002

Stock Options: Easy as SFAS No. 123

The complaints registered about the way stock options are—or are not—accounted for seem to stem from the type of options being granted. That is, the majority of granted options are the non-variable variety. That means that both the number of shares and the purchase price are known at the grant da...

By Robert Willens • May 29, 2002

Cuckoo for Coco Puffs?

Although the issuance of securities has experienced a well-documented decline, one category that has help up well—and has in fact increased—is convertible securities. There are several well-known investment explanations for this divergence. However, the tax law seemingly served to fuel the issuan...

By Robert Willens • May 22, 2002

Tax on Stock Options May be Coming

Leave us our options.That was the resounding message sent to the IRS during a public hearing Tuesday on a proposal to levy the same Social Security, Medicare, and unemployment taxes on options that are taken out of regular paychecks.If passed, the proposal would result in a 15.3 percent tax on ex...

By Stephen Taub • May 15, 2002

Deconstructing Constructive Dividends

When preferred stock is issued for a price less than its redemption price, the difference—or the discount—may be treated as a constructive dividend. Accordingly, the discount will have to be taken into account when computing the holder’s taxable income over the term of the instrument. Important t...

By Robert Willens • May 15, 2002

Patriot Games

New rules designed to thwart money laundering and terrorist financing require companies to know their customers better than ever. And for the many financial institutions that must comply with the USA Patriot Act, that will be no small task.The new law, enacted last October in response to the terr...

By Craig Schneider • May 6, 2002

MD&A as Novella

Earlier this week, the SEC voted unanimously to require corporate filers to explain how they apply critical accounting policies in the Management’s Discussion and Analysis (MD&A) section of their financial statements.The new rule would require companies to include an Application of Critical A...

By Stephen Taub • May 2, 2002

Material Whirl

Despite the 1999 Securities and Exchange Commission guidance on materiality (SAB No. 99), companies continue to run afoul of the SEC disclosure rule by using an arbitrary threshold–usually 5 percent of revenues–as the basis for hiding transactions.The latest materiality scheme involves troubled Q...

By Marie Leone • May 1, 2002

Auditor Independence

Talk about turning lemons into lemonade. As regulators and shareholders probe Arthur Andersen LLP for suspect profits gained from violating Securities and Exchange Commission auditor independence rules, there’s at least one accounting services firm that has profited because of SEC restrictions.Th...

By Marie Leone • May 1, 2002

On the Same Page

Comparing international accounting standards (IAS) and U.S. generally accepted accounting principles (GAAP) brings to mind the old lyric about tomatoes and to-mah-toes. On paper they look almost the same, thanks to diligent efforts by standards setters to eliminate the practical differences betwe...

By Tim Reason • May 1, 2002

Reining In SPEs

Got special-purpose entities? Get cover.The off-balance-sheet structures that Enron executives apparently used to deceive shareholders and enrich themselves have become a scarlet letter in the capital markets. Just ask Adelphia Communications Corp. The cable-service provider’s credit rating was r...

By Andrew Osterland • May 1, 2002

Teetering on the Brink — But No Audit Warning

How reliable is the imprimatur of an audit firm?That’s one of the biggest questions being asked about Arthur Andersen, which signed off on Enron Corp’s financial reports the year the energy trader went bankrupt. But according to a report by Bloomberg News, Andersen’s apparent unwillingness to sou...

By Stephen Taub • April 25, 2002

Post WTO, PRC Goes After MNC’s

Eastman Kodak does not often commission a comprehensive study on one aspect of its operation in a single market. It’s a time-consuming exercise and costs a great deal. Yet earlier this year, the world’s best-known maker of film, camera and film processing equipment enlisted the help of an account...

By Lotte Chow • April 18, 2002

Auditors Get a Near-Failing Grade, Say Clients

Accountants take note: Businesses using outside auditors give your profession an overall grade that is close to failing.This is the result of an April 2002 survey of companies that purchase outside accounting services, conducted by NFO WorldGroup, a provider of research-based marketing informatio...

By Stephen Taub • April 12, 2002