An Audit Quality Inspection Scandal: Ethical Lapses in a Misguided Attempt to Alleviate Regulatory Scrutiny

In 2017, KPMG discovered that several high-ranking partners in its Department of Professional Practice (DPP) had surreptitiously obtained highly confidential information on upcoming PCAOB inspections. In obtaining this information, these KPMG partners were able to anticipate and prepare for PCAOB inspections, causing the firm’s inspection deficiency rate to plummet and its executives to tout the success of their efforts to improve audit quality. Once the firm discovered the scandal, the individuals involved were terminated, and six of them were ultimately convicted of felonies. This case study introduces students to relevant auditing standards, audit quality concepts, and facilitates discussion of a number of ethical issues. Learning objectives for this case include obtaining an understanding of the PCAOB and its inspection program, understanding audit documentation standards, demonstrating the ability to evaluate ethical issues, applying the fraud triangle in a unique setting, and assessing responsibility for the various parties involved.

Managing and Disclosing Environmental Risks: A Tale of Two Utilities

This case introduces students to the topic of contingent liabilities by examining the actual management decisions of two energy companies facing increased regulatory scrutiny over the environmental risks associated with coal ash. The case learning objectives include: (1) researching and summarizing the guidance governing the recognition and disclosure of contingent liabilities; (2) critically assessing a company’s decisions regarding the recognition and disclosure of environmental liabilities; (3) accounting for asset retirement obligations; and (4) articulating the ethical implications of a company’s management and disclosure of environmental risks from the perspectives of various stakeholders. The case is designed for use in an intermediate accounting course at the undergraduate level. Students reported improvement in their knowledge and comprehension of contingent liabilities and their appreciation for the ethical implications of accounting decisions. Students also noted that they enjoyed discussing these issues in the context of real companies facing complex environmental challenges.

Applying topic modelling and qualitative content analysis to identify and characterise ENDS product promotion and sales on Instagram

BackgroundIncreased public health and regulatory scrutiny concerning the youth vaping epidemic has led to greater attention to promotion and sales of vaping products on social media platforms.ObjectivesWe used unsupervised machine learning to identify and characterise sale offers of electronic nicotine delivery systems (ENDS) and associated products on Instagram. We examined types of sellers, geographic ENDS location and use of age verification.MethodsOur methodology was composed of three phases: data collection, topic modelling and content analysis. We used data mining approaches to query hashtags related to ENDS product use among young adults to collect Instagram posts. For topic modelling, we applied an unsupervised machine learning approach to thematically categorise and identify topic clusters associated with selling activity. Content analysis was then used to characterise offers for sale of ENDS products.ResultsFrom 70 725 posts, we identified 3331 engaged in sale of ENDS products. Posts originated from 20 different countries and were roughly split between individual (46.3%) and retail sellers (43.4%), with linked online sellers (8.8%) representing a smaller volume. ENDS products most frequently offered for sale were flavoured e-liquids (53.0%) and vaping devices (20.5%). Online sellers offering flavoured e-liquids were less likely to use age verification at point of purchase (29% vs 64%) compared with other products.ConclusionsInstagram is a global venue for unregulated ENDS sales, including flavoured products, and access to websites lacking age verification. Such posts may violate Instagram’s policies and US federal and state law, necessitating more robust review and enforcement to prevent ENDS uptake and access.

Business Model Innovation and the Rise of Technology Giants

Technology giants owe much of their success to fundamental improvements in the science and technology of information and communications technology. However, complementary advancements were also necessary, and, much as firms had to learn to incorporate electricity in the last nineteenth and early twentieth centuries, we posit that the giant platforms have learned to harness the contributions of external actors in order to grow more rapidly than would otherwise have been possible. Thus, the drivers of the dramatic rise of the tech giant platform firm can be viewed as a business model innovation as well as a technical innovation. As orchestration business models become better understood, we expect that firms in non-platform sectors are increasingly likely to adapt practices that also allow them to participate in and benefit from external value creation. At the same time, we expect regulatory scrutiny to increase as the power and reach of technology giants increases and their influence is felt across the economy.

Crystal structure of Arabidopsis thaliana HPPK/DHPS, a bifunctional enzyme and target of the herbicide asulam

Herbicides are vital for modern agriculture, but their utility is threatened by genetic or metabolic resistance in weeds as well as heightened regulatory scrutiny. Of the known herbicide modes of action, 6-hydroxymethyl-7,8-dihydropterin synthase (DHPS) which is involved in folate biosynthesis, is targeted by just one commercial herbicide, asulam. A mimic of the substrate para-aminobenzoic acid, asulam is chemically similar to sulfonamide antibiotics - and while still in widespread use, asulam has faced regulatory scrutiny. With an entire mode of action represented by just one commercial agrochemical, we sought to improve the understanding of its plant target. Here we solve a 2.6 Å resolution crystal structure for Arabidopsis thaliana DHPS that is conjoined to 6-hydroxymethyl-7,8-dihydropterin pyrophosphokinase (HPPK) and reveal a strong structural conservation with bacterial counterparts at the sulfonamide-binding pocket of DHPS. We demonstrate asulam and the antibiotics sulfacetamide and sulfamethoxazole have herbicidal as well as antibacterial activity and explore the structural basis of their potency by modelling these compounds in mitochondrial HPPK/DHPS. Our findings suggest limited opportunity for the rational design of plant selectivity from asulam and that pharmacokinetic or delivery differences between plants and microbes might be the best approaches to safeguard this mode of action.

Do Revenues Matter More Than Earnings for Initial Public Offerings?

We demonstrate that investors in initial public offering (IPO) firms value revenues and that the number of U.S. Securities and Exchange Commission (SEC) revenue recognition comment letters issued on the S-1 registration statement are positively associated with reported revenues. We also find that IPO managers report revenues opportunistically in the fiscal year just prior to the offer. In additional analysis, we find that discretionary revenues are associated with significantly higher first day IPO stock returns but significantly lower 1 year stock returns. Our results are consistent with the incentives of managers to report revenues opportunistically outweighing the higher monitoring and regulatory scrutiny pre-IPO.

Didi debacle shines light on China's new normal

Significance China’s ride-hailing major Didi was targeted by the Cyberspace Administration of China (CAC) ahead of its initial public offering (IPO) on June 30. It is complying with the ongoing cybersecurity review mandated by Beijing and is battling rumours about plans to delist from the New York Stock Exchange and go private. Impacts Current investors in Chinese tech stocks need to consider this situation as a new normal, not a departure from trend. The VIE structure will likely come under greater regulatory scrutiny, but is unlikely to be dissolved. Didi may yet delist in the United States.

Exposure to e-cigarette TV advertisements among U.S. youth and adults, 2013–2019

Introduction E-cigarette advertising has been shown to increase e-cigarette awareness and use. Although e-cigarette marketing in the early 2010s has been well-documented, little is known about how it has changed in recent years in response to the regulatory scrutiny from the FDA and the Congress to combat youth vaping epidemic. This study aims to examine the exposure to e-cigarette TV advertising among youth and adults in the U.S. from 2013 to 2019, overall and by media market and brand. Methods Quarterly data on e-cigarette TV advertising exposure, measured by target rating points (TRPs), and expenditures from 2013 to 2019 were compiled from the StradegyTM of Kantar Media. Trends of quarterly e-cigarette advertising TRPs were reported by age group, market, and brand. Results Over the study period, overall exposure to e-cigarette TV advertising was higher among adults than among youth. E-cigarette advertising TRPs and expenditures were relatively stable, despite intermittent fluctuations, between 2013 Q1 and 2017 Q1 except for a one-time dip in 2015 Q3, followed by a sharp decline in 2017 Q2 and stayed low till the end of 2018. A resurgence of e-cigarette advertising TRPs occurred in 2019 Q1, led by the advertising from JUUL, Blu, and Vuse, which peaked in the third quarter of 2019, with quarterly TRPs reaching 316.8 for youth and 1,701.9 for adults, and quarterly advertising expenditure totaling $31 million. Conclusions Significant variations, both over time and across media markets and brands, were observed for e-cigarette televised advertising between 2013 and 2019. Following a lull in TV advertising in 2017/18, major e-cigarette companies have substantially increased advertising of their products on American television since early 2019, resulting in a surge in exposure to e-cigarette advertising among both youth and adults. Our findings highlighted the importance of continued monitoring of e-cigarette advertising in the U.S.

The electoral commission, disinformation and freedom of expression

This commentary examines how the prospective electoral commission could play a role in combatting disinformation in the run-up to Irish elections. While legislative debates have pointed to the potential role of the commission in protecting elections from anti-democratic actors who disseminate false electoral claims, no clear mandate has detailed how this could manifest. This ambiguity is exacerbated by Ireland’s electoral statutory framework, which has struggled to adapt to the challenging digital realities of contemporary electoral engagement. While the emergence of disinformation and related digital exigencies represents a potential for regulatory scrutiny, this must be considered alongside Article 10 of the European Convention on Human Rights (ECHR) and Article 40.6.1 of the Irish Constitution, both of which protect the right to freedom of expression. In positing how the new commission could counter electoral disinformation, a natural starting point is to probe how such functions are shaped and limited by this fundamental right. Moreover, the reluctance of the Irish judiciary and the European Court of Human Rights (ECtHR) to accept regulatory interference with political expression means that restrictions on the dissemination of information in the run-up to elections must be treated with delicacy when shaping the commission’s potential functions in this critical area.