Accy 493: Financial Reporting
Spring 2004
UIUC
Rajib Doogar

Course home page for Accy 493: Financial Reporting, Spring 2004
The syllabus: Word and pdf. Note: The homework assignment is tentative. Actual assignments may be revised by notice in class.
Some useful accounting-related websites
Announcements & links to additional readings(Latest first)

Note: The page has been reorganized (Feb 8, 2004). Links to the daily material & solutions (which change infrequently) are now listed after the daily announcements. This way the new material added each day is more easily accessible.

Announcements & current press clippings

  • Apl 6: The Adut Cready and Lopez article (Accounting Review, January 2003) is part of the readings for the restructuring module (Day 19 on the syllabus) which we will return to later in the semester. Here is a summary of issues relating to stock option accounting in MS Word and Adobe PDF (Acrobat 6.0) formats (the word document has active web links, but does not seem to format well on screen whereas the pdf file has inactive links but formats better). Finally, you may find the March 27, 2004 suurvey of retirement in the Economist magazine interesting. You can access the full text of the articles in the survey by accessing the Economist magazine through the electronic journal collection of the commerce library or here.
  • Mar 17 After a decent break from the torrid flow of articles last month, we resume normal programming with a slew of items we have discussed or will discuss in class:
  • Feb 20: Links to the Frontline documentary on tax shelters and to the Senate Permanent Subcommittee on Investigations website with more material on the tax shelter industry.
  • Feb 19: Yesterday we talked about coming up with a good understanding of the industry you are working in. What would you, as an accountant/auditor, make of this Economist article on increasingly risk bets by financial intermediaries? Can they afford not to play this game? What can you as an accountant or auditor do to protect yourself from the potential adverse consequences of business as usual in a period of increasing client business risk?
  • Feb 18: How complex can it get? See Flowchart of Enron Subsidiaries.
  • Feb 13: Economist magazine article on PBGC finances. We shall hear more about this in the next few months and discuss this towards the end of the semester as we review pension accounting.
  • Feb 13 (Friday the 13th!!): Since we are talking about M&A over the next few class, the following four readings should be very topical. First up, two WSJ articles on the strategic issues behind Comcast's bid to acquire Disney (Article 1, Article 2). Also two articles on Comcast's valuation of Disney's assets and the exchange ratio (Article 1, Article 2). The dilution issue relates to the readings for last class and the exchange ratio bit will be relevant in a couple of weeks when we do the equity section of the balance sheet.
    On to the the latest edition of "the world at large through rajib's eyes": "Across-the-aisle" support for Mankiw's comments. Basically, no real economist disagrees with Mankiw, though you can make up your own mind about Lou Dobbs who has been ranting and raving on his hourly show about this for the last couple of nights. At the same time comes this tidbit from the noted economist Hal Varian about the surprising ways of productivity growth in a dynamic economy. Talking about things can change your mind forever: Hal Varian's book Microeconomic Analysis is a staple of graduate courses in economics and I still remember the thrill of understanding his elegant exposition of the effects of price stabilization. Something totally counter-intuitive (to me, at that time, anyway) just seemed to drop out as a natural consequence of the nature of the profit function, thereby shedding light on an important economic law. Can't beat that.
    As you hear more about the so-called "job export" debate in the coming months, note the importance of framing: these types of questions are always put as "what about the 500 billion dollar deficit?" or "what about those jobs?" i.e., cast in terms of what the questioner hopes will be perceived by the audience (viewers/readers/voters) as perceived negatives. Having been softened up this way, when people are asked "what about higher prices?" usually they say "Oh well, it might not be a bad thing to have somewhat higher prices to protect American jobs." But what they have been made to forget is that higher prices mean less exchange i.e. the infamous dead-weight-loss of microeconomics 101 (a point which is *very* hard to get across on TV unless you want flip-charts, Ross Perot style). You could ask "if the Indian and Brazilians cannot afford to buy from us, how could we remain rich?" or "If the Japanese and Chinese did not want to hold dollars, how would we afford to invest as much as we do?" ... these would make it clear that we are overconsuming and overspending relative to the level of investment required to maintain our productivity edge, educate our children and assure ourselves the health care, clean air and organic food we all want. Which is pretty much the same thing, but now framed in a way that makes "us" (whoever we think "we" are) look "bad" (whatever we think *that* means). Note the following rather pointed exchange (excerpted from the transcript) which goes nowhere:
    GLASSMAN: To have real economists on the show to discuss these things. People like Katherine Mann who has done a study which shows that computer jobs are rising in the United States.

    You talked to Katherine Mann?

    DOBBS: We have talk to...

    GLASSMAN: Michael Beldon at NC State...

    DOBBS: Don't waste our time running through a litany of...

    GLASSMAN: I'm talking about facts.

    DOBBS: Here are the facts. Half a trillion dollars in a current account deficit. Hundreds of thousands of jobs being shipped overseas, as you acknowledge, by cheap labor costs.

    GLASSMAN: I don't consider it shipped overseas. That's not what's happening.

    DOBBS: You may not, that's my word. And the fact is, it is exactly what is happening and why you won't acknowledge that is beyond me. Where do you want the United States economy to be in ten years? You can't talk about jobs to retrain.

    GLASSMAN: I want it to grow 3 to 4 percent a year as it has done in the past 20 years. Partly because...

    DOBBS: And how much of the GDP do you want to be imports? How much of that GDP do you want to be imports?

    GLASSMAN: I really don't know. I think that's up to individual Americans to determine how much do they want in imports.

    DOBBS: Mr. Market...

    GLASSMAN: If they don't want to buy goods from overseas, they have that choice. If they don't want to buy Japanese cars they have that choice.
    Dr. Samuel Johnson once said "Patriotism is the last refuge of a scoundrel", but since Dobbs looks like such a nice guy, maybe we can soften that somewhat to "An unenlightened nativisim is the last refuge of the economically illiterate"?
    So what's a "real" economist? I won't dare give an answer. But I will note the (probably apocryphal) quote I have heard attributed to Paul Samuelson: "We put the mathematics into economics to take the charlatans out of it." So one definition of a real economist might be "a person who would at least be able to understand a formal economic model before disagreeing with the implications being drawn from it."
  • Feb 11: Worried about your job going to India? As we discussed in class, the only way to be rich is to stay one step ahead of the competition (so you don't have to be *really* smart, just smarter than the other guy). This NYT opinion piece puts the issues in a nutshell. Also check out some related research at The Institute for International Economics (look for papers by Mann and Kirkegaard). Now if only one of the presidential candidates would say to hell with electability and use *this* as a campaign theme, wouldn't it be more fun to watch TV? Actually everyone seems to be chewing out Greg Mankiw who did have something entirely sensible to say on this issue (Also, if you have the time, check out the latest Economic Report of The President). For another take on the whole trade issue, see Jagdish Bhagwati who, for my money is one of those names to add to your list of must-read people. Even when you don't agree with him, you always learn something and improve your own arguments. I found this summary of Bhagwati's contributions to trade economics very useful.
  • Feb 10: Seen this WSJ article on costs of compliance with SOX? Let's all strangle ourselves with red tape shall we? What does this do the overall ability of US firms to compete? If foreign firms have to comply with these regulations "to protect US investors", will they come to the US to raise capital? If they do not raise capital in the US, what happens to the dollar? What happens to the cost of national debt?
  • Feb 8: Have you seen this NYT piece on inadequate disclosure of executive compensation?.
  • Feb 4: The whole enchilada, super-sized: The United States Budget. If you are an accountant, it does not get any better than this. Data, program assessments -- check out how your government dollars are being spent using the PART (Program Review and Assessment Tool) and plans for where your dollars are going to go and why. Two takes on the budget from Washington Post and the Wall Street Journal. Note how part of the planned defense expenditures are not in the budget ... they are going to be included as part of a Supplemental Request. How do we know this little fact? Check out "How would the departments fare" (click on "Department of Defense" in the gray box). If your friendly neighborhood publicly-traded-SEC-registered-for-profit-GAAP-GAAS-abiding-private-sector-business firm pulled a stunt like this, how many of you would be on the streets calling the cops???? Actually, in case you think this is just the random ramblings of raving reporters, read a NYT article by David Walker, the Chief Accountant of the United States (actually he's called the Comptroller General, but since he's the head of the GAO, I guess he's also the Chief Accountant). Also review his more detailed presentation on the GAO website. Particularly this slide. And then we complain that our kids don't respect us. I'm not sure they should!!
  • Feb 3: From the WSJ's pages a new twist on valuing corporate OPEB liabilities ... we will come back to this later in the semester.
  • Jan 28: Talking of people's need for control, how about this article from today's New York Times on bacteria in the kitchen? Also an interesting WSJ article on auditor independence: here the client's refusal to sue the current auditor who also happens to be a former tax advisor turns out to be the cause of conjectures about independence.
  • Jan 25: File this under the "they still don't get it" category.
  • Jan 20: Welcome! Course reading packets 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 (other sections use different readings).
    For Wednesday, you should read the first day's readings before you come to class.
    • Exams, Quizzes and Solutions:

    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 2 discussion notes.
    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).
    Past Homepages: Fall 2003, Spring 2003, Fall 2002. Back to Rajib's home page