Business A717 Accounting Theory Winter 2012 Course Outline

Business A717 Accounting Theory Winter 2012 Course Outline Accounting and Financial Management Services DeGroote School of Business McMaster University COURSE OBJECTIVES This course is designed to give an overview of topics relevant to current accounting theory, research, standard setting and practice through relevant readings and by detailed examination of various accounting models. INSTRUCTOR AND CONTACT INFORMATION Name: HT Hao E-mail: haohorn@mcmaster.ca Office: RJC 217D Office Hours: Tuesday 13:20 to 14:20 and by appointment Tel: (905) 525-9140 Ext: 20691 Class Location and class time: RJC 263 (Tuesday 14:30-17:20) Course Website: N/A COURSE ELEMENTS Credit Value: 3 Team skills: Yes Environmental: Yes Global: Yes AVENUE: Yes Verbal skills: Yes Ethical: Yes Political: Yes Participation: Yes Written skills: Yes Legal: Yes Social: Yes Case skills: Yes Regulatory: Yes Research Methodology: Yes Diversity: Yes Innovation: Yes Leadership: Yes 1

COURSE DESCRIPTION This course is about accounting, not how to account. Accounting students have been exposed to the methodology and practice of accounting need to critically examine the broader implications of financial accounting for the fair and efficient working of our economy. The objective is to give the students an understanding of current financial accounting and reporting environment, taking into account the diverse interests of both external users and management. Various professional and conceptual topics will integrate research from Accounting, Finance, and Economic journals. The journals used will be from both the academic and professional literatures. To accomplish these implied objectives, a combination of class formats will be used including lectures, the trading floor, seminars, case analysis and expert guest lecturers. Lectures will be used to develop the foundation: the accounting process and accounting models considered alternatives to GAAP. Seminars will be led by the course participants, usually in groups of three or four members, to present and develop topics related to accounting theory and the accounting environment. IFRS Case will be used to link the topics and develop linkages from the theoretical to the practical. LEARNING OUTCOMES Upon completion of this course, students will be able to complete the following key tasks: Analyze the advantages/disadvantages of the various accounting models; Assess business health/performance as implied by the various accounting models; Conduct an assessment of a given situation from a political economy perspective; Begin to understand the many perspectives from which accounting can be studied. REQUIRED COURSE MATERIALS AND READINGS Financial Accounting Theory, 5th Edition, William R. Scott, 2009. Additional materials, including research papers and notes will be posted on AVENUE EVALUATION Exam: We will have one comprehensive in-class examination on 9 th week. The exact scope and format of this examination will be announced later. Seminar Project (Individual): Each student will prepare material and lead a designated seminar of assigned paper from selected topics (paper will be assigned in class). This seminar is to consider and introduce a broad spectrum of material for class discussion. Included in the seminar will be a presentation, discussion and question period. The seminar presentation is to be a maximum of 45 minutes. All students are expected to participate in the delivery and discussion of the material. All students not presenting on a given date should be prepared to participate in classroom discussion of the topic. IFRS Case Project (Group of two): This project requires each student to write a report that provides guidance to a Canadian Corporation about all relevant issues as discussed in 2

the IFRS 1 (The First-time Adoption of International Financial Reporting Standards). The due date for this report is 11 th Class. Analyst Report Project (Individual): Each student will select and analyze a Canadian firm (the firm must be identified by the end of third class). Each student will complete an analyst report in which a trading recommendation must be made (in terms of buy, sell, or hold) and information and analysis used to input this decision must also included. Students will submit the report and make a short presentation (no more than 10 minutes) in the 13 th class. Suggested Canadian firms: Suncor, Potash, Cameco, Scotia Bank, National Bank, TD Canada Trust, Rogers, Telus, and RIM. Class Participation: Name cards are used to help give credit for your participation. You must have a name card with your full first and last name clearly written and displayed in front of you for every class. Participation in discussion aids in assimilation of concepts and is an essential part of your professional development. Classes are more interesting and intellectually stimulating if there is participation from everyone. In order for you to gain maximum benefit from discussions, it is essential that you complete assigned text material and/or readings in advance, as well as attempt assigned problems. Therefore class participation marks will be awarded on the basis of each student s contribution to discussions, and relevant questions and comments during lectures. Class participation is not equivalent to class attendance. Specifically, students who fail to participate in case discussions will receive a class participation mark of zero, regardless of regular class attendance (a separate component). Students unable to attend class should inform the instructor before class of the conflict. Components and Weights Exam 40% Seminar Project (Individual) 30% IFRS Case Report (Group) 10% Analyst Report (Individual) 10% Class Participation 10% Total 100% NOTE: The use of a McMaster standard calculator (Casio FX-991) is allowed during examinations in this course. See McMaster calculator policy at the following URL: http://www.mcmaster.ca/senate/academic/calculat.htm 3

Conversion At the end of the course your overall percentage grade will be converted to your letter grade in accordance with the following conversion scheme. LETTER GRADE PERCENT LETTER GRADE PERCENT A+ 90-100 C+ 60-64 A 85-89 C 55-59 A- 80-84 C- 50 54 B+ 75-79 F 00-49 B 70-74 B- 65 69 ACADEMIC DISHONESTY It is the student s responsibility to understand what constitutes academic dishonesty. Please refer to the University Senate Academic Integrity Policy at the following URL: http://www.mcmaster.ca/univsec/policy/academicintegrity.pdf This policy describes the responsibilities, procedures, and guidelines for students and faculty should a case of academic dishonesty arise. Academic dishonesty is defined as to knowingly act or fail to act in a way that results or could result in unearned academic credit or advantage. Please refer to the policy for a list of examples. The policy also provides faculty with procedures to follow in cases of academic dishonesty as well as general guidelines for penalties. For further information related to the policy, please refer to the Office of Academic Integrity at: http://www.mcmaster.ca/academicintegrity REQUESTING RELIEF FOR MISSED ACADEMIC WORK 1. Students may request relief from a regularly scheduled midterm, test, assignment or other course component in the following two ways: a) For absences from classes lasting up to five (5) days Students must use the MSAF (McMaster Student Absence Form). This is an on-line, selfreporting tool, for which submission of medical or other types of supporting documentation is normally not required. Students may use this tool to submit a maximum of one (1) request for relief of missed academic work per term as long as the weighting of the component is worth 29% of the final grade or less. Students must follow up with their course instructors regarding the nature of the relief within two days of submitting the form. Failure to do so may negate the opportunity for relief. It is the prerogative of the instructor of the course to determine the appropriate relief for missed term work in his/her course. If the value of the component is worth 30% or more, students must report to the APO to discuss their situation and will be required to provide appropriate supporting documentation. 4

b) For absences from classes lasting more than five (5) days Students cannot use the MSAF. They MUST report to the APO to discuss their situation and will be required to provide appropriate supporting documentation. 2. Students who wish to submit more than one request for relief of missed academic work per term cannot use the MSAF. They must report to the APO and discuss their situation with an academic advisor. They will be required to provide supporting documentation and meet with the Director. 3. The MSAF cannot be used during any final examination period. 4. Students who require accommodations to meet a religious obligation or to celebrate an important religious holiday must make their requests in writing within three weeks of the start of term to the APO. 5. Students seeking relief due to: work-related (for part-time students only) commitments; representing the university at an academic or varsity athletic event; and/or conflicts between two (or more) overlapping scheduled midterm exams, have the option of applying for special exam arrangements. Such requests must be made to the APO at least ten (10) working days before the scheduled exam along with acceptable documentation. There will be only one common sitting for the special exam. Instructors cannot themselves allow students to unofficially write make-up exams/tests. Adjudication of the request must be handled by the APO. STUDENT ACCESSIBILITY SERVICES Student Accessibility Services (SAS) offers various support services for students with disabilities. Students are required to inform SAS of accommodation needs for course work at the outset of term. Students must forward a copy of such SAS accommodation to the instructor normally, within the first three (3) weeks of classes by setting up an appointment with the instructor. If a student with a disability chooses NOT to take advantage of an SAS accommodation and chooses to sit for a regular exam, a petition for relief may not be filed after the examination is complete. The SAS website is: http://sas.mcmaster.ca POTENTIAL MODIFICATIONS TO THE COURSE The instructor and university reserve the right to modify elements of the course during the term. The university may change the dates and deadlines for any or all courses in extreme circumstances. If either type of modification becomes necessary, reasonable notice and communication with the students will be given with explanation and the opportunity to comment on changes. It is the responsibility of the student to check their McMaster email and course websites weekly during the term and to note any changes. 5

COURSE SCHEDULE Business A717 Accounting Theory Winter 2012 Course Schedule WEEK TOPIC AND ACTIVITY READING ASSIGNMENT Introduction: Overview of Accounting Theory. Class 1 Information Asymmetry (Adverse Selection and Stott, Chapters 1 and 2 January 3 Moral Hazard). Class 2 January 10 Accounting Under Ideal Conditions. The Present Value Model Under Certainty and Uncertainty. The Decision Usefulness Approach to Financial Stott, Chapters 3 and 4 Class 3 January 17 Efficient Securities Markets. Implications of Efficient Securities Markets for Financial Reporting. The Informativeness of Price. Scott, Chapters 4 and 5 Ball and Brown. JAR, 1968. Class 4 January 24 Class 5 January 31 Class 6 February 7 Class 7 February 14 The Information Approach to Decision Usefulness. Seminar Project Presentation: Papers 1, 2 and 3. The Measurement Approach to Decision Usefulness. Seminar Project Presentation: Papers 4, 5 and 6. Measurement Applications. Fama and French, Three Factors Model. Seminar Project Presentation: Papers 7, 8 and 9. Economic Consequences and Positive Accounting Theory Continue. Seminar Project Presentation: Papers 10, 11 and 12. 6 Scott, Chapters 11 and 6 (1) Schipper. Accounting Horizons, 1989. (2) John Hand. AR, 1989. (3) Abarbanell & Bushee, AR, 1998 Scott, Chapter 6 and 8 (4) Schipper and Vincent. Accounting Horizons. 2003. (5) Healy and Palepu, Accounting Horizons, 1993. (6) Nichols and Wahlen. Accounting Horizons. 2004. Scott, Chapters 8 and 9 (7) Kasznik and McEwen. AR, 1995. (8) Healy & Pelapu. JAE, 2001. (9) Sweeney. JAE, 1994. Scott, Chapter 10 and 11 (10) Healy. JAE, 1985. (11) Han and Wang. AR, 1998. (12) Murphy & Zimmerman. JAE, 1992.

WEEK TOPIC AND ACTIVITY READING ASSIGNMENT Class 8 February 28 Seminar Project Presentation: Papers 13 and 14. Review (13) Baber, Kang, and Kumar. JAE. 1998 (14) Langberg & Sivaramakrishnan. JAE 2008 Class 9 March 6 Exam Class 10 March 13 Valuation Models and Fundamental Analysis Valuation Notes Class 11 March 20 IFRS Report Class 12 March 27 Valuation Models and Fundamental Analysis Valuation Notes Class 13 April 3 Analyst Report Presentation 7

Suggested Papers for Seminar Project An Empirical Evaluation of Accounting Income Numbers. Ball, R. and P. Brown. Journal of Accounting Research, 1968 (1) Commentary on Earnings Management, Schipper. Accounting Horizons, 1989 (2) Did firms undertake debt-equity swaps for an accounting paper profit or true financial gain? John Hand. The Accounting Review, 1989 (3) Abnormal Returns to a Fundamental Analysis Strategy. Abarbanell, J. S. and B. J. Bushee. The Accounting Review, 1998. (4) Earnings Quality. Schipper and Vincent. Accounting Horizons. 2003 (5) The Effect of Firm s Financial Disclosure Strategies on Stock Prices. Healy, P., and K. Palepu. Accounting Horizons, 1993 (6) How Do Earnings Numbers Relate to Stock Returns? A Review of Classic Accounting Research with Updated Evidence. Nichols and Wahlen. Accounting Horizons. 2004 (7) To Warn or Not to Warn: Management Disclosures in the Face of an Earnings Surprise. Kasznik, R. And B. McEwen. The Accounting Review, 1995 (8) Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature. Healy, P., and K. Palepu. Journal of Accounting and Economics, 2001 (9) Debt-covenant Violation and Managers Accounting Responses. Sweeney. Journal of Accounting and Economics, 1994 (10) The Effect of Bonus Schemes on Accounting Decisions. Healy, P. The Journal of Accounting and Economics, 1985 (11) Political Costs and earnings Management of Oil Companies during the 1990 Persian Gulf Crisis. Han, J. And S. W., Wang. The Accounting Review, 1998 (12) Financial Performance Surrounding CEO Turnover. Murphy, K. And J. Zimmerman. The Journal of Accounting and Economics, 1992 (13) Accounting earnings and executive compensation: The role of earnings persistence. Baber W. R., SH. Kang, and K. R. Kumar. Journal of Accounting and Economics, 1998 (14) Voluntary Disclosures and Information Production by Analysts. Langberg N. and K. Sivaramakrishnan. Journal of Accounting and Economics, 2008 8