Accy 593: Financial Reporting
Fall 2004
UIUC
Rajib Doogar
Course home page for Accy 593: Financial Reporting, Fall 2004
- Classes meet M,W. Class times are:
- 8:00- 9:50 am 431 Armory (D1)
- 10:00-11:50 am 431 Armory (D2)
- 2:00- 3:50 pm 112 Speech & Hearing Sci(MSA)
- My office hours are M,W 4-5 pm in 225E DKH, phone: 244.8083 Also by appointment.
- Course TA: Ling Harris. Office: 434 Wohlers Hall, hours: T,R 3-4 p.m., phone: 244.8546 Also by appointment.
The syllabus (revised) Word and pdf. Note: The homework assignment is tentative. Actual assignments may be revised by notice in class. The original syllabus is here: Word and pdf.
Some useful accounting-related websites
Announcements & links to additional readings(Latest first)
A spreadsheet to help do the two "what if" problems based on Ex 2-6.
A nice presentation on the Das and Teng article. Note how the authors draw explicit attention to the implications of the article for specific accounting issues and topics. Thoughtful work. And right on time, a Sep 14, 2004 article from the WSJ on IBM ending a joint venture in Korea. What factors do you thnk might have been at work? How might the structure of the alliance have affected the participants' strategy?
Sep 8: With mergers and acqusitions coming up, here are a couple of articles about revenue reporting at Vodafone and two on franchise repurchases at Krispy Kreme and Helen of Troy (don't forget the related article posted on Sep 1). Looking further ahead, recent thinking on preferred stocks and mandatory redeeemable preferred stocks. A slew of articles on what's happening with Co-cos. Next, three articles on the dog-eat-dog world of practice: He did say he still respects his auditor..., See ya later, Pardner! and Who's the bagman? (Episode 6,219,758). And in the "true but very not likely to happen" column, this recent Alan Murray column.
Sep 1: Is it noise or is it bias that they are worried about? WSJ article on valuation of oil and gas reserves. This comes on the heels of Shell's settlement with the SEC. Stuff on Co-Cos, on FASB's classification of Stock-option related cash flows, choice of stock option valuation models, valuation of available for sale securities and last but not least, plugging a loophole related to m&a accounting. Done with the main course? In the "nothing like a little scandal for dessert" vein we have for you a series of articles on the more-bizarre-than-any-tv-reality-show farce called Hollinger Inc.: Part 1, Part 2, Part 3, Part 4 and Part 5 as well as two "what could they have been thinking" items from the pages of the NYT about the goings on at the "masters of the universe" gang aka LTCM Thing One and Thing Two. But lest you leave thinking all the news of the day is bad, perhaps in the "not-so-bad-after-all" column, this somewhat overdone story on the PCAOB's Health Inspection Report on the Big Four firms. The gory details are available at the PCAOB website (scroll to the bottom of the page). And finally, as a labor day special, some readings for the long haul:
- In the The Journal of Economic Perspectives Winter 2003 (17:1), you will find
- Burton G. Malkiel, “The Efficient Market Hypothesis and Its Critics” p. 59
- Robert J. Shiller, “From Efficient Markets Theory to Behavioral Finance” p. 83
- In the same Journal, Spring 2003 (17:2), look for
- Paul M. Healy and Krishna G. Palepu, “The Fall of Enron” p. 3
- Baruch Lev, “Corporate Earnings: Facts and Fiction” p. 27
- Joel S. Demski, “Corporate Conflicts of Interest” p. 51
- The Summer 2003 (17:3) issue has
- Brian J. Hall and Kevin J. Murphy, “The Trouble with Stock Options” p. 49
- Lucian Arye Bebchuk and Jesse M. Fried, “Executive Compensation as an Agency Problem” p. 71
- From the Journal of Economic literature, a little not-so-light reading:
- Assar Lindbeck and Mats Persson, The Gains from Pension Reform, Vol. XLI (March 2003): pp. 74–112.
- W.Scott Frame and Lawrence J. White, Empirical Studies of Financial Innovation: Lots of Talk, Little Action?, Vol. XLII (March 2004) pp. 116–144.
- Larry Samuelson, Modeling Knowledge in Economic Analysis, Vol. XLII (June 2004) pp. 367–403
- The May issue of the American Economic Review always has a lot of fun reads (ok, easy to read summaries of the state-of-the-art in various areas). For instance, you can read Marie-Eve Lachance and Olivia S. Mitchell, "Guaranteeing Individual Accounts," AER May 2003, p.257, or, in the same issue, Daniel Kahneman, "A Psychological Perspective on Economics, p. 162, and three papers on "Lessons from Enron": James Poterba, "Employer Stock and 401(k) Plans," p. 398; Guay, Kothari and Sloan "Accounting for Employee Stock Options" p. 405; Huddart and Liang "Accounting in Partnerships", p. 410. The May 2004 issue has "Social Security Financing: Facts, Fantasies, Foibles, and Follies" by Robert L. Clark, "Psychology and the Market" by Edward L. Glaeser, "Does Competition Destroy Ethical Behavior?" by Andrei Shleifer and "Toward National Well-Being Accounts" by Daniel Kahneman, Alan B. Krueger, David Schkade, Norbert Schwarz, and Arthur Stone.
Aug 24: Day 1 Readings are now available at TIS. The rest of the packet will be available on Friday. Meanwhile, some light reading for that moment when you have nothing better to do ...
July 25: Welcome! Course materials are available from TIS Bookstore, 704 S. Sixth Street, Champaign. Phone: 337-4900. Web Site: http://www.tisbook.com.
Get the readings packets for Accy493 Section D1/D2/MSA (other sections use different readings).
Try and read the first day's material before you come to class.
Exams, Quizzes and Solutions:
Items will be posted as available. See previous semester course pages (linked at the bottom of this page) for old exams and quizzes.
Homework Solutions and Daily Discussion Notes:
Day 26/27: Pensions and OPEBS
Day 24: Leases
Day 23: Leases
Day 22: Compensation II
Day 21: Compensation
Day 18: Convertibles, Dilution and EPS
Day 17: Dividends
Day 16: Equity -- Common, Preferred & Repurchases
Day 15
Day 13
Day 12
Day 9
Day 7/8
Day 5/6
Day 3/4
Day 2
Day 1
Additional readings
Important note!!
The New York Times charges users for articles over a certain age. As a member of the UIUC community, you can obtain (almost) all past New York Times articles free of charge as follows. Step 1: click on the link on this page and note the date and author's name. Step 2: Go to the Commerce Library Home Page and select "Lexis-Nexis Academic Universe". Or go directly to Lexis-Nexis. Then search either under general news or under business news by author, date and publication (It suffices to enter "New York Times" in Step 5 of the search page).
- An extremely high entry on any accountant's list of `must read' items: Art Wyatt's speech at the AAA 2003 Annual meetings on the decline of professionalism. As I see it, the old law school advice that a conscientous professional should "Find the line. Then stay away from it" is the essence of professional judgement. Since accounting is the language of business, perhaps its not so far fetched to also recall Alexander Pope's advice from a couple of hundred years ago: "In words, as fashions, the same rule will hold; Alike fantastic, if too new, or old: Be not the first by whom the new are tried, Nor yet the last to lay the old aside."
- Commentary on current issues: Read what Ed Ketz has to say on some of the most topical issues in accounting. Ed is a professor of accounting at Penn State and before you are tempted to take any of his commentary any too seriously, you should note that he was on my thesis committee. (In other words, he could have prevented it, but he let them give me a degree!) If you still think his commentary is insightful, as I find it to be, enjoy! Another person whose website I found intriguing (but have not explored fully yet) is Bob Jensen. Bob is at Trinity University and his website is, to put it simply, massive. Look at the fraud and theory sections in particular. Among other gems, a cursory investigation reveals this page. Oh the fabulous treasures the web doth provide!!
- Aggressive Accounting:WSJ report on aggressive accounting at Freddie Mac. Note the motivation of the fund's managers involves the unusual claim that the accounting rules were deficient in that they would have forced F-M to disclose "too much" profit.
- Strategy and accounting: WSJ article on strategy in lean times for possible class discussion.
- Earnings Management: Under the "So what's new Doc?" category: Three articles on GE that I used in Fall 2002: The Economist magazine ran an article on why GE is better off being broken up, while the Wall Street Journal ran stories on GE's famed earning streak and on an impending divestiture. And this from Fall 2003: FASB considers making companies tell us how they REALLY grew (to predictable responses from all concerned). And, finally, links to three readings on earnings management and expectations management: Burgstahler and Dichev 1997, Degeorge Patel and Zeckhauser 1999 and Bartov Givoly and Hayn 2002.
- Pensions: File under "that was then": Aug 15 2003 WSJ article on pension plan funding, and in the "this is now" column: from the frontline, as it happens ... more red ink forecast for US pension plans in the Pension Benefit Guarantee Corporation's Sep 4 2003 Congressional testimony. More articles: A pension primer, IASB pension accounting changes , USAir's Pension Plan and Cash Balance Plan Rule Changes. Pensions and the law of unintended consequences. ("Murphy was an optimist." Corollary # 86345a(i) to Murphy's Law.)
- Leases: Link to the Monson article on leases. This article was part of a special issue with three other pieces: an editorial overiew, a committee report and a research literature survey. You may find these additional materials quite interesting as well.
- Compensation and stock options articles: WSJ opinion piece on option accounting. NYT article on design of CEO compensation. Another NYT article on Al "Chainsaw" Dunlap's (mis)fortunes. This is an example of the more general phenomenon called "ex-post settling up." The regulator in this case simply fines the manager and puts limits on future activities. The monetary amount of the fine may not seem large but the real hurt is that the future income stream from their investment in managerial expertise is gone ... they cannot act as managers any more. And, somewhat later on same the day another NYT report on the amounts paid to Jack Welch, the former CEO of GE whose name (and claim to fame) has also come up in our class conversations. Note the range of opinions both about the requirement for disclosure, ranging from "what is legally required" to "what is desired" by some interested party. Also links to a 4 part PBS story on executive compensation plus a conversation with Bob Merton on stock options:
- Capital Structure: WSJ article on changes in accounting for some types of preferred shares. and Stock buybacks.
- Segmental Disclosure: WSJ article on GE's Segmental disclosures.
- Serving multiple paymasters: Business Week article for possible class discussion.
- CDOs and off balance sheet activity: Two interesting WSJ articles: Article 1, Article 2
Past Homepages: Spring 2004, Fall 2003, Spring 2003, Fall 2002.
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