Berkshire Hathaway Essay

ISSUES Warren Buffet invoked the substance-over-form concept to justify accounting for the GEICO and General Foods transactions as dividends distributions rather than sales of stock. Do you agree with Buffet that the substance of each of the proportionate redemptions was a dividend and not a sale of stock? In deciding how to account for an unusual or unique transaction for financial reporting purposes, should one consider the tax treatment applied to the transaction? Did Peat Marwick have a right to change its position on the proper accounting treatment for the stock redemptions? What factor or factors may have been responsible for Peat Marwick’s decision to change its position regarding these transactions? FACTS In 1983, GEICO announced plans to purchase several million shares of its outstanding common stock for $60 per share. Among GEICO’s largest stockholders was Berkshire Hathaway, Inc., an investment company. Executives of the two companies decided that Berkshire would tender approximately 350,000 if its GEICO shares in the stock buyback plan, which would allow Berkshire to treat the transaction as a proportionate redemption. In a proportionate redemption, the percentage equity interest of on company in a second company is maintained at the level that existed immediately before the transaction. For federal taxation purposes, the proceeds received by the investor company in a proportionate redemption are taxed as dividends by applying the effective intercorporate dividend tax rate. In 1983, that tax rate was approximately 6.9 percent. Berkshire also chose to treat the proceeds from the redemption of the GEICO stock as dividend income in its 1983 financial statements. Berkshire’s audit firm, Marwick, Mitchell & Company, approved that accounting treatment. In 1984, another company in which Berkshire had a significant equity interest,  General Foods, announced a stock buyback plan. Again, Berkshire structured the sale of stock to General Foods so that the transaction qualified as a proportionate redemption. Berkshire also opted to report the proceeds received from General Foods as dividend income in its 1984 financial statements. In late 1984, representatives of Peat Marwick told Berkshire executives that the proceeds of the General Foods stock redemption should not be considered dividend income for financial reporting purposes. Instead, Peat Marwick maintained that the transaction should be recorded as a sale of stock with the difference between the selling price and cost reported as a capital gain on Berkshire’s income statement. This treatment of the transaction was less favorable for financial reporting purposes that the option preferred by Berkshire since it did not allow the total proceeds received from General Foods to be reported as revenue. Peat Marwick’s recommendation annoyed Berkshire’s executives. The accounting firm’s next decision irritated those executives even more. Marwick insisted that Berkshire restate its 1983 financial statements to reflect the GECICO stock redemption as a sale of stock rather than as a dividend distribution. Warren Buffet, Berkshire’s CEO, discussed the GEICO and General Foods stock redemption at length in his company’s 1984 annual report. Buffet disputed Peat Marwick’s contention that the transactions should be treated as sales of stock and not as dividend distributions. He then explained why he eventually agreed to accept the audit firm’s position by saying â€Å"†¦to avoid a qualified auditor’s opinion, we have adopted Peat Marwick’s 1984 view and restated 1983 accordingly.† Buffet as confirmed that Marwick’s decision had no effect on Berkshire’s business with GEICO or General Foods, their cash, taxes, and market value and tax basis of our holdings all remain the same. However, treating the General Foods transaction as a sale of stock reduced Berkshire’s 1984 net income by 8 percent. Applying that accounting treatment to the 1983 GEICO transaction reduced Berkshire’s previously reported net income for 19 83 by 1 percent. The Wall Street Journal reported the disagreement between Berkshire  executives and Peat Marwick that evolved from the proportionate redemption transactions. When asked to comment on Buffet’s criticism of Peat Marwick in his company’s 1984 annual report, a Peat Marwick partner simply noted, â€Å"It’s the client’s prerogative to disagree. Our report speaks for itself.† Another prerogative of an audit client is to change auditors. In 1985, Berkshire retained Touche Ross & Company to audit its financial statements. As required by the Securities and Exchange Commission, Berkshire filed an 8-K statement with that federal agency to disclose the change in auditors. In that statement, Berkshire reported it was â€Å"dissatisfied† with Peat Marwick’s inconsistency regarding the proper accounting treatment for stock redemptions. AUTHORITY/ANALYSIS The substance over form accounting concept means that the economic substance of transactions and events must be recorded in the financial statements rather than just their legal form in order to present a true and fair view of the affairs of the entity. Preparers of the financial statements should use their judgment when employing the substance over form concept, which helps to derive the business sense from the transactions and events and to present them in a manner that best reflects their true essence. In some instances the legal aspects of transactions and events may have to be disregarded in order to provide more useful and relevant information to the users of financial statements. The concept of substance over form is imperative to the representation and reliability of information contained in the financial statements. A proportionate stock redemption is a transaction in which ownership interests are redeemed proportionate to the total shares outstanding. As a result, each shareholder owns the same percentage of the company after the redemption as before. Buffet was justified in recording each of the proportionate redemptions as a dividend and not as a sale of stock, because although GEICO and General Foods repurchased their stocks, Berkshire still maintained the same percentage of equity interest as it did before the transaction. Also, Buffet followed federal taxation purposes, which stated  that the proceeds received by the investor company in a proportionate redemption are taxed as dividends; therefore the transaction was recorded as dividends not sale of stock. By placing the responsibility on the preparers of the financial statements to actively consider the economic reality of transactions and events to be reflected in the financial statements, it will be more difficult for the preparers to justify the accounting of transactions in a manner that does fairly reflect the substance of the situation. According to the PCAOB’s AU Section 316.66, â€Å"†¦the auditor may become aware of significant transactions that are outside the normal course of business for the entity, or that otherwise appear to be unusual given the auditor’s understanding of the entity and its environment. The auditor should gain an understanding of the business rationale for such transactions and whether that rational (or the lack thereof) suggests that the transactions may have been entered into to engage in fraudulent financial reporting or conceal misappropriation of assets.† (PCAOB, 2002) AU Section 314.21 states that the auditors’ understanding of the entity and its environment consists of an understanding of several aspects, including industry, regulatory, and other external factors (PCAOB, 2002). Taxation would be an example of the regulatory aspect; therefore, one should consider the tax treatment when deciding how to account for unusual transactions. In the case of Berkshire Hathaway, Inc., since the IRS considers proportionate redemptions to be equivalent to dividend distributions, and the proceeds from the repurchasing of stock are taxed as dividends; to ensure consistency, the transaction should have been recorded as dividends. The PCAOB states that the auditor should recognize an adjustment to correct a misstatement in previously issued financial statements to ensure the company’s financial statements remain consistent in the auditor’s report, especially if the matter has a material effect on the financial statements (PCAOB, AU 508.16, 2004). Since Peat Marwick was the auditing firm, it had the right to change its position on the proper accounting treatment for the stock redemptions, and since Berkshire wanted to preserve the unqualified  opinion, the company complied with the auditors. In order for Peat Marwick to maintain its reputation as professional auditors and providing quality audits, the firm decided it was in their best interest to record the GEICO and General Foods transactions as sales of stock by Berkshire, rather than as the receipt of dividends. Under this accounting approach, a portion of the cost of the Berkshire’s investment in the stock of each company would be charged against the redemption payment and any gain would be reported as a capital gain, not as dividend income. This is an accounting approach only, having no bearing on taxes; although, Peat Marwick agreed that the transactions were dividends for IRS purposes. Since the change in accounting treatment reduced Berkshire’s net income by 1% and 8% in 1983 and 1984, respectively, Peat Marwick might have deemed this as material and thought it was necessary to correct the way the transactions were recorded. According to the PCAOB, in evaluating consistency of financial statements, the auditor should evaluate a change in accounting principle to determine whether: the newly adopted accounting principle under GAAP, the method of accounting for the effect of the change is in conformity with GAAP, the disclosures related to the accounting change are adequate, and the company has justified that the alternative accounting principle is preferable (PCAOB, AU 508.17A, 2004). Any of these factors may have been responsible for Peat Marwick’s decision to change its position regarding these transactions. Although recording the stock redemption as a dividend complied with taxation rules under the IRS, it may not have been in accordance with GAAP. Berkshire may not have justified that recording the stock redemption as a dividend was preferable. Although it was preferable to Berkshire, because total proceeds from General Foods would have been reported as revenue, increasing Berkshire’s net income; it may not have been preferable to all the users of Berkshire’s financial statements, because net income would have been over stated. Lastly, in Berkshire’s letter to its shareholders, it stated that the GEICO and General Foods transactions were â€Å"virtually† identical, except  that General Foods repurchased its stock over a period of time in the open market, whereas GEICO had made a â€Å"one-shot† tender offer. In the General Foods case we sold to the company, on each day that it repurchased shares, but left Berkshire’s ownership percentage unchanged. Maybe this difference triggered Peat Marwick to look back into the stock redemption, where they found discrepancies with the accounting treatments and recommended that Berkshire make adjustments to report the transactions appropriately. RECOMMENDATIONS/CONCLUSIONS After Berkshire’s 1984 audit, the company released Peat, Marwick, Mitchell & Company as its auditing firm. Berkshire reported that it was â€Å"dissatisfied† with Peat Marwick’s inconsistency regarding the proper accounting treatment for stock redemption. Corporate non-liquidating distributions to shareholders are usually treated as dividends income; however, distributions that qualify as stock redemptions are treated the same as a sale of stock by the investor to the investee. Therefore, capital gain treatment normally results. Corporate shareholders prefer stock redemptions to be treated as dividend income, because corporate shareholders received the benefits of the dividends, which are deductible and in most cases escape taxation. Qualifying stock redemption results in capital gains that are fully taxable at the corporation’s highest marginal rate. Warren Buffet employed the substance over form concept while accounting for Berkshire’s stock redemption transactions. Since the IRS considers proportionate redemptions to be equivalent to dividend distributions and are taxed accordingly, Buffet justified the accounting treatment used to record these truncations. References http://www.accountax.us/Taxation-%20Corporations%20Lecture%20V.pdf http://www.aicpa.org/Research/Standards/AuditAttest/DownloadableDocuments/AU-00314.pdf http://pcaobus.org/standards/auditing/pages/au508.aspx http://www.berkshirehathaway.com/letters/1984.html http://pcaobus.org/standards/auditing/pages/au316.aspx#au_316.52

Bismark Attack Paper

Bismarck exemplifies the best in effective leadership. While his methods may have been temporarily distasteful, his successful ends for Germany more than justified his means to achieve them. (ATTACK) Otto Von Bismarck spent 10 years working for at united Germany in an attempt to shift the balance of power in Europe. He was once quoted as saying â€Å"People don t make nations, strong leaders and wars do†, and he was more than willing to sacrifice his fellow Germans for his vision of a powerful Germany.Even with the great idea to bring Germany together, I believe it was the farthest example of the best in effective leadership. In fact based on the video and research I believe Bismarck used blackmail and temper tantrums to get his way which is not the mark Of a great and powerful leader. When the King of Prussia asked Bismarck to be his Prime Minister, he wanted Bismarck to unite all Germans under one power, and one crown. He had a parliament that wouldn't pay their military and needed a way to get allGermans from the Saxons, Bavarian and Hessians to unite and become a stronger county. Bismarck believed he was being led by God to bring all of Germany together. This to me sounds very Hitler-issue and very much like someone who is going to step on everyone in his path to get what he wants. He attacked Denmark and then Austria, even though the King of Prussia was against it. While see where his thought process was, and why he attacked to unite his country, the King was very hesitant to have â€Å"Germans shooting at Germans†.After the wars, Bismarck had what he wanted as far as national pride and Germans having a sense of country and dedication to the father land. This is where his effectiveness as a leader ends. The Prime Minister then decided to provoke France into a war. He wanted to make sure no one would try and intervene in German affairs and bring some of the smaller German states out of the nation as a whole. He then adds insult to injury by su ggesting a German prince become the new ruler of Spain, which France vehemently denied.Bismarck had become so power angry and now longer concerned with German affairs that he was blinded to what was going on. There was no need to provoke the French into a war for pointless gains. Bismarck had no need for the French territory but was more concerned with himself and his legacy than his people. Being out only for himself and provoking other countries needlessly is by no means an effective leader much less a great one.

Beauty and the Beast (Beast POV) Essays

Beauty and the Beast (Beast POV) Essays Beauty and the Beast (Beast POV) Paper Beauty and the Beast (Beast POV) Paper he added. l will not let you die but for one condition, bring your daughter here, I said. The merchant promised me that he will bring her lovely daughter in my castle. That night, I started to wonder how she looks. I think she has a silky black hair, kissable red lips, flawless fair color and rosy cheeks, I told to myself as I am having my daydream. I cant Walt to see her actually. I wanted to meet her for I know that she has a good heart like her father. Can she accept me? Can she love me? Theres so many questions on my mind. But one thing I know for sure, I want her in my life. Its not my intention to imprison her, but asking his father to bring her to Hello Anybody home? I am awaken by a very sweet voice coming from the hallway. As if a nightingale is singing. Alas, I forgot that today is the coming of my visitor! I rushed to fixed myself. I am getting excited! I put on my best robe and wear my best shoes. Now, I am ready. What are you doing here? I asked the young lady. Oh well, I am here because of my fathers promise, she replied. She is so lovely. Shes more than I thought in my dreams. I cant take away my eyes on her as she speaks. Muff will stay here, I said. Days passed, and my feelings gets stronger for her. It was so amazing how she captured my heart. At first, she refused to talk to me. I understand her. I have this monster awful head. Theres always a silence between us. But it changed. We always have a conversation now. I enjoyed her company that lead me to make my most precious decision in life: to ask her for marriage. Above me, the stars were out in full, and air was fresh with the earthy scent. I went to Belle, and held her hand. As we watched the glazing stars like specks of silver paint on a canvas, I decided to ask her. I kneeled and said, will you be mine forever? I know two things might happen: its either she will say miss, or I will receive a No. And the latter broke my heart. Life goes onthats what I believe. One day, I decided to give her a present. l want to give this to you. I know that you miss your family a lot. You can see and talk to them through this magic mirror, I said. She was surprised, I saw it on her eyes. The truth is, I felt a little awkwardness that morning. What a strange feeling! I cant speak to her, maybe because Im still broken. After few days, Belle talked to me. l need to see my father. She was crying hardly. My father is ill. He needs to see me. I never wanted to see her crying. So, I allowed her to visit her father but leaving a promise that she will come back after seven days. I became weak and lonely after she left. I truly changed a lot. I know it. And it is because of her. I appreciated everything I have because of her. I became contented and most of all, I learned how to love. Not only her, but others and myself as well. The days flashed past, and shes still not coming back. l need her back or else, I will die, I told myself. For seven days, I lived in a melancholic way. Until the terrible night has come My time has come. Dont die! Dont die! Ill marry you At these words, a miracle took place. I was revived and my ugly snout turned magically into the face of a handsome young man. How Eve been waiting for this moment! I said with Joy. l was under a curse and suffering in silence, and couldnt tell my frightful secret. An evil witch turned me to a monster and only the genuine love of a maiden willing to accept me for who I am will break the curse. And let me transform back to my real self. I never gave up my feelings for you, for I hope one day you will realize that you can love me too And I was right, I added. Can I held your hand? I asked her. Of course, she replied. For the second time around, now with all my heart, will you be mine forever? Once upon a time Len a faraway castle, there I live. I have a huge house that is now filled with happiness and love. For a long time, I am living alone. Yes, I am alone before, but not today. I now have my family that composes of my lovely wife and our children. No one wished to be with me, cared for me, and loved me until Belle came to my life. I am hopeless before, until I met my princess and we proved that fairy tales do come true.

The Darkling Thrush Essay Example

The Darkling Thrush Essay Example The Darkling Thrush Paper The Darkling Thrush Paper In the poem The Darkling Thrush, nature has a predominantly negative effect on the poet. It makes him feel depressed and isolated. Towards the end of the poem the poets mood lifts when he sees an aged thrush, frail, gaunt, and small, chirping. In the poem Neutral Tones nature is portrayed in a negative way, however, in this poem nature reflects how the poets relationship is failing rather than effects how he is feeling. In The Darkling Thrush the title begins to paint a negative picture. The word Darkling means, shrouded in darkness. Neutral Tones also refers to colour in its title. The word Neutral implies blandness and colourless emotions. There is a link between the two poems as both colours are unappealing and are surrounded by a dull negative aura. Throughout the poem The Darkling Thrush there is a sense of emptiness, desolation and loneliness, this also applies to Neutral Tones. The poet uses lots of effective language to convey this. In stanza one, Hardy talks about how all mankind that haunted nigh / Had sought their household fires. This enhances the contrast between the barren outdoors and the warm and inviting households. This also emphasises his loneliness and isolation compared to the rest of mankind. The land is portrayed as barren when the poet mentions The tangled bine stems scored the sky like strings of broken lyres, The stems of climbing plants remind the poet of strings of an old musical instrument. The fact that the poet mentions that the lyres are broken, implies that there is no sound therefore the land is empty and desolate. This effective metaphor paints a picture of how the poet is feeling. The poet uses pathetic fallacy to match the barren landscape to how the poet feels. The wind his death lament encourages the reader to picture an empty landscape where only the sound of the wind is to be heard, whistling a funeral song in mourning of the death of nature. The poet uses a lot of language associated with death to convey how his positive emotions and feelings have died. Hardy uses an effective extended metaphor using the theme of death to convey how his hope has died: The ancient pulse of germ and birth Was shrunken hard and dry, And every spirit upon the earth Seemed fervourless as I. This metaphor also adds to the desolation of the area, the word pulse refers to life which in this case is no where to be seen, the land is dead. Hardy uses some examples of religious language. He compares the landscape to religious things to convey his search for faith. He uses the word soul and evensong and carolling to describe different aspects of the surroundings. Towards the end of the poem it becomes apparent that the poets mood has lifted. The religious language enhances the fact that the poets mood has lifted and adds a hopeful note. Words such as joy and ecstatic add a hopeful note. In stanza one frost has a capital F and in stanza five Hope has a capital H this draws the readers attention to the poets change of mood. In the poem Neutral Tones nature reflects how the poet is feeling. The poet describes how the sun was white, as though chidden of God, this portrays the sun to be weak, in the poem The Darkling Thrush we also see a weak sun it is metaphorically called, The weakening eye of day. This shows how Hardys relationship with his partner like the sun, is weak and failing. Like the poem The Darkling Thrush, Neutral Tones also has language associated with death to convey the fact that his relationship is dying. The word ash depicts how his relationship is metaphorically going to burn out. The ominous bird portrays how the relationship was doomed from the start and was surrounded by a bad omen. This is a contrast to The Darkling Thrush as the little bird in it brings joy to the poet. In the poem Neutral Tones there are several colours used throughout the poem, in relation to the landscape, such as ash, gray and white, all of which are dull and bland depicting how the poet feels about his relationship. In Neutral Tones the pond represents how the relationship is still, without ripples and nothing flowing. The starving sod, which is emphasised through alliteration, portrays how the relationship is slowly dying, has no nourishment and is no longer fruitful. To conclude, the bird in both poems is of great significance. The bird in The Darkling Thrush although so old and frail has some underlying blessed Hope, which the poet doesnt have, yet longs for. The poet conveys that a spiritual force is behind the birds carolling: So little cause for carollings Of such ecstatic sound Was written on terrestrial things Afar or nigh around, The birds beautiful singing contrasts with its bleak surroundings. The bird in Neutral Tones is an ominous bird. Therefore, this bird is a contrast to the thrush. Through use of effective language the poet has conveyed in both poems how nature can both reflect and affect someones feelings.

Word Choice Exhort vs. Extort - Proofread My Paper

Word Choice Exhort vs. Extort - Proofread My Paper Word Choice: Exhort vs. Extort â€Å"Exhort† and â€Å"extort† are both verbs (i.e., action words) and similarly spelled, but neither is a word often used on a daily basis. This makes it easy to confuse them if you’re not careful. But these terms also have very different meanings, so using the wrong one in your written work would be unfortunate. To make sure this doesn’t happen, keep the following in mind. Exhort (Encourage or Urge) If you â€Å"exhort† someone to do something, you’re encouraging or urging them to follow a particular course of action. For instance, as proofreaders, we might say: Typos can look very bad to recruiters, so we exhort you to proofread your resume carefully! A passionate attempt to persuade someone in this way is known as an â€Å"exhortation.† Extort (Obtain via Force or Threats) To â€Å"extort† something is to obtain it via force, coercion, intimidation or threats. For example, we might say that a school bully â€Å"extorts† lunch money from the other children. Extortion is the slippery slope that leads from bullying to organized crime. The adjectival form of this word (i.e., used to describe actions or people that obtain something via force) is â€Å"extortive.† We’d use this term in a sentence like the following: The school bully’s extortive behavior meant she was given detention. The term â€Å"extort† is most commonly used in relation to â€Å"extortion,† which is the crime of using force or threats to extract money from a person or business. Thus, we might say that a gangster or corrupt official has â€Å"extorted† money from his or her victims. Exhort or Extort? As you can see, there’s a big difference between â€Å"exhorting† someone to do something, which implies offering advice, and â€Å"extorting† something, which implies threatening someone. Although extortion could involve exhorting someone to hand over their wallet, if you want to get technical. If you’re still not sure which term is which, it can help to think that â€Å"extortion† is â€Å"extracting† money from someone, and that both of these start with the letters â€Å"ext.† Remember: Exhort = Passionately advise or urge something Extort = Gain something using threats or intimidation

Advanced HealthCare Management Essay Example | Topics and Well Written Essays - 500 words - 1

Advanced HealthCare Management - Essay Example the organization and they help in establishing plans through which they effectively cooperate to fulfill the aims of such organizations in the most amicable ways. In health care, teams help in implementing the plans of the institutions they serve so that they offer services that can establish them quality deliverers for the benefit of their clients. Teams that are established in different organizations have different characteristic that produce significant impact on the performance of such at the individual or organizational level (Burns, Bradley & Weiner, 2012). This implies that at to ensure that a team is to produce exemplary results that will trigger the success of the organization; the teams that exist in must have a well focused on the goals. One factor that leads to good performance of a team and consequently improves the productivity of the organization is communication among the team members that are involved in establishing it. Communication ensures that team members are in a position to exchange relevant data among themselves and lead to improvement of the quality of services they offer to clients. In health care, teams ensure that all the people are in a position to supply the information about a specific field of study which turns out to be relevant to the care they give to the people to patients. On the contrary, failure in the communication results to low performance of the team because the members lack the updated information that can be of help in implementing care (Woodcock & Francis, 2008). Another characteristic of a team that has an impact on performance is the diversity that is represented by the team members who work together because they have different backgrounds. The diversity in a team can work for the improvement of a team if they work to bring together knowledge in different fields that will ensure they diversify the perspective of looking at the care. On the other hand, diversity in the group can cause conflicts that can weigh down

Capital Mortgage Insurance Corporation Essay Example | Topics and Well Written Essays - 1000 words

Capital Mortgage Insurance Corporation - Essay Example Corporate Transfer Services (CTS) is an organization dedicated to the relocation of corporate employees and the real estate functions that are associated with said transfers. The acquisition of this firm would represent a diversification of CMI into a field that would make them a more integrated real estate services company. Discussion Question #1: Prepare a negotiation strategy that can be utilized by Randall and Dolan. What is important for this section is that both Randall and Dolan have found sufficient background information on CTS. Whilst it may be the case that the employee relocation market is big (Estimated at 500,000 relocations annually) What is important to remember is that the company according to the case has â€Å"Barely even reached a break-even point† and that it is only through years of additional work of building up the business can CMI or CTS really recognize a profitable enterprise. Given the stature and experience of the CTS Board, it would seem foolish to take a ‘Hard’ or ‘Soft’ Stance on negotiation as these men (Specifically Elliott Burr) would probably not respond favorably to these strategies. As it is the case that CMI Does not want to pay the $600,000 over the book value of the business and a $400,000 over the book value was offered it is a case of trying to persuade the four CTS executives to meet CMI at a middle ground. As such a â€Å"Principled negotiation strategy† should be employed in which the four stages should be focused on identifying exactly the book value of the firm is, focus on how much CMI wants to build on CTS’ business model, identify that no matter what CTS will be getting a premium on their business and always focus the criteria on objective measures.