Business Process Modeling, Activity-Based Management, And Decision Support Systems: The Case Of B&B Plumbing

This case was designed to be used as a resource for professors who are interested in using decision support systems to teach activity-based management.  Specifically, we developed the case for use with Hyperion Software’s Activity-Based Management application, formerly called NetProphet II by Sapling Corp. Professors wishing to use this, or other activity-based management software, have trouble finding non-proprietary materials for use in teaching with the software. We developed this case to address this need. Although the case was designed for use with this decision-support application, its usefulness extends beyond that for two reasons.  First, the case involves developing a business process model, first from a workflow, or engineering perspective, then overlaying that model with financial information to create the full business process model. The process model is developed independently of the software used to implement and run the model. The modeling process is important in itself because it focuses student attention on the nature of the work involved and interaction between work flow, resources, constraints, and costing.  A natural result of developing a process model is a greater appreciation for the difficulties inherent in, and the complexity involved with, making sound managerial decisions. Second, the process model can be implemented independently of the software as well. With some effort, a spreadsheet can be used to develop the appropriate formulas, flows, factors, and units of measure based on the workflow, to carry costs down to the appropriate demands. The case involves a plumbing firm, B&B Plumbing that has four lines of business.  Based on the poor operating results of one line of business, management is considering eliminating that line, but they are not sure that the current financial results for each line are indicative of that line’s true performance. Students are to develop or use the business process model for the company to assist management in making the most profitable operating decisions.  They are then to evaluate the business in light of the model and its associated constraints to maximize profits

An Empirical Examination Of Pension Rate Estimates: A Benchmark Approach

In this paper, we analyze pension rate choices for a sample of 495 firms over the thirteen-year period from 1994-2006. In recent years, articles have appeared in business publications alleging abuse of the discretion afforded to management in setting pension rates, particularly the pension discount rate and expected rate of return on plan assets. We find that pension discount rate estimates and expected rate of return estimates generally comply with the authoritative requirements, although there appears to be a smoothing effect in setting pension discount rates as well as a lag in fully reflecting economic conditions. We find evidence consistent with discount rate choice being influenced by deteriorating economic conditions, and possibly passage of the Sarbanes-Oxley Act. We also find that, in general, firms’ expected rate of return assumptions tend to reflect their long-run internal rates of return on pension assets, although the recessionary influences in the early 2000s were not fully reflected in the expected rates of return toward the end of our test period. There is also a sizeable minority of firms (approximately 27%) for which their expected rates of return on plan assets consistently overstate their actual, long-run returns

The state of Texas vs the Methodist hospital system: An accounting case study: Working paper series--99-02

Pressures to contain costs have given private hospitals the economic incentive to reduce provision of charity care services, shifting the burden onto government hospitals. Budget pressures on governmental units have produced resistance to any further shift in charity care burden. We observe in a lawsuit (State of Texas vs. Methodist Hospital System [MHS]) what appears to be a classic moral hazard situation. The government expects a certain (unspecified) level of charity care to be performed in exchange for tax exemptions; hospital management allegedly consumes perquisites and overstates reported charity care figures. Both sides use accounting numbers to defend their positions. The Case makes five contributions. First, it is relevant and flexible enough for use in several different accounting or business courses, including financial, audit, tax, not-for-profit, or ethics courses. Second, it provides students an introduction to not-for-profit accounting placed in an interesting and relevant context. Third, students must employ forensic skills, much as did the state attorney general. Fourth, the Case requires students to make several audit-related determinations, including knowledge of a client's business, fraud, and related-party transactions. Finally, as students progress through the case, they are required to consider several ethical issues

Rational Prediction Of Future Pension Expense: A Simulation Approach

Because future pension expense can have a material influence on a firm’s future earnings, financial analysts are faced with the difficult task of forecasting its impact.  The purpose of this paper is to demonstrate a model that can be used with a simulation approach to predict future pension expense and its associated uncertainties.  Because of the importance and complexity of the pension expense component in the estimate of future earnings, a simulation model acts as a powerful analytical tool that can give the analyst greater confidence as to the magnitude and variability of future pension expense

Abnormal audit fees and restatements

Hlm. 79-9

Measuring Pension Liabilities: An Examination Of The Funding Levels Of Defined Benefit Pension Plans

We examine pension funding measures and interest rate disclosures for 223 firms from the Fortune 500. Three different liability measures are used to develop funding ratios, which indicate sample firms funding condition. We then examine firms discount rate estimates and compare these estimates with their funding levels. Using chi-square tests to examine dependence between rates and funding, we determine whether over (under) funding is simply an artifact of the choice of discount rates or the result of authentic economic conditions surrounding the pension plan

An Examination Of The Economic Impact Of Pension Rate Reductions On Future Pension Expense, Earnings, And Cash Flows: A Simulation

In this paper, we develop a two-period analytical model of pension cost, which allows us to simulate pension expense and the associated earnings impact. These estimates are important because they provide information to the market, and because they are useful in estimating future cash flows or for other analytical purposes. This is especially true now, because the economic environment has deteriorated to a point that many investors perceive increased uncertainty with respect to pension plans and the effect they have on future income. Some plan sponsors have not been faced with pension plan losses for over a decade or longer, having enjoyed reduced or eliminated funding holidays as a result of high returns to pension plan assets. Given the current economic climate, however, these results (boosts to earnings due to pension credits and reduced or eliminated funding requirements) may change abruptly. In fact, several authors in the popular financial press have speculated on the impact of such fundamental changes in pension assets, liabilities and estimates. We simulate the potential results for two periods in the future based upon percentiles drawn from a sample of 1,116 firms taken from Compustat. We compute projected pension expense for the 25th percentile firm, the median firm, and the 75th percentile firm by varying the discount rates, expected rates of return, and actual asset return assumptions. Our results indicate that while the pension expense effect is large in both periods across small, mid-sized and large firms, large firms show the greatest increase in pension expense. Interestingly, however, the earnings impact is the smallest for large firms in both periods, and is not material in period one for both large and mid-sized firms. It is material for small firms. Firms with small pension plans appear to have the greatest earnings drag both one and two years into the future. In period two, all firms face significantly greater expense and earnings reductions, although again, smaller firms face the greatest impact. In addition, all firms face significantly increased cash funding requirements in order to prevent funding ratios (plan assets scaled by pension liabilities) from deteriorating. These results suggest not only future earnings reductions form pension rate changes, but also a potential cash flow impact as well