This note, which serves as a glossary, was constructed to ease the transition of students into financial accounting courses. The glossary includes both foundational terms that are widely used and terms introduced in one or more common financial accounting cases. The terms are explained in a manner that aims to inform both novice and advanced students.
On November 20, 2015, the chief financial officer of Pfizer Inc. (Pfizer) was preparing to make a recommendation about whether to proceed with or stop merger talks between Pfizer and Allergan plc (Allergan), a pharmaceutical company with headquarters in New Jersey but tax residence in Ireland. Informal talks had been going on for almost a month, but both sides were rapidly approaching the pre-arranged deadline. The two teams had less than a week to either formally agree to proceed with a merger or walk away. Formalizing the agreement meant activating a US$400 million breakup clause that would make it costlier to call the deal off at a later date. Allergan’s Irish tax residency made this merger both attractive and concerning. While it provided the opportunity to lower Pfizer’s worldwide tax rate, the U.S. Treasury Department had recently announced regulatory changes targeting mergers that relocated a company’s tax residence to a low-tax country (called “tax inversions”). Pfizer’s legal team members were confident that the announced changes would not affect the proposed merger with Allergan. However, they were less certain about if—and when—the U.S. Treasury Department might make changes again.
An analyst at Vaux Gibson Inc., a fund that managed a portfolio of North American equities, was tasked with reviewing the fund’s holdings of Under Armour Inc. (Under Armour) and providing recommendations for the fund’s prospective investment strategy with the company. Under Armour had experienced significant revenues and bottom-line growth over the past three years, but this growth slowed significantly in 2017 and the company reported a net loss, resulting in the significant depreciation of its stock price. The analyst wondered if it was time to exit the investment, providing investors with an above-market return, or if there was still room for Under Armour to recover and grow.