An international financial analysis project for the accounting curriculum.ABSTRACT This paper discusses a team-based international financial analysis project that was incorporated into an intermediate financial accounting course. The project requires students to: obtain financial reports for a U.S. company and a similar non-U.S company with shares traded in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. ; discuss differences in format, terminology, and methodology in the two companies' reports; discuss possible reasons for the differences and assess the potential impact of those differences on investors; compare the financial results for the two companies giving attention to the impact of the differences in accounting regime; and prepare both written and oral reports summarizing the findings. The paper discusses the pedagogical ped·a·gog·ic also ped·a·gog·i·cal adj. 1. Of, relating to, or characteristic of pedagogy. 2. Characterized by pedantic formality: a haughty, pedagogic manner. approach used, the project requirements, the grading techniques employed, the results of the project, and suggestions for incorporating the project in other classes. 1. INTRODUCTION In 1990, the Accounting Education Change Commission identified capabilities needed by accounting graduates (pages 7 and 8), among which were: * Communication skills, including the "ability to present, discuss and defend views effectively ... [and] to locate, obtain, organize, report, and use information." * Intellectual skills, including "capacities for inquiry, abstract logical thinking, inductive inductive 1. eliciting a reaction within an organism. 2. inductive heating a form of radiofrequency hyperthermia that selectively heats muscle, blood and proteinaceous tissue, sparing fat and air-containing tissues. and deductive reasoning Deductive reasoning Using known facts to draw a conclusion about a specific situation. , and critical analysis." And, * General knowledge, including "a sense of the breadth of ideas, issues, and contrasting economic, political and social forces in the world." A decade later, Albrecht and Sack (2000) noted that analytical/critical thinking skills and writing skills were ranked by practitioners and faculty as the most important priorities for accounting education (page 56), and that one of the problems with current accounting curricula was that "we do not use a global perspective to teach accounting" (page 51). The project described in this paper seeks to address the needs identified above by incorporating an international accounting research project into the traditional intermediate accounting curriculum. The project requires students to: obtain the financial statements of a U.S. company and a similar non-U.S. company with stock traded in the United States; identify, describe, and analyze major differences between the accounting principles employed by the U.S. company and those employed by the non-U.S. company; discuss possible reasons for the differences in accounting regimes; assess the potential impact of those differences on U.S. investors; compare the financial statements of the two companies; and reach a decision as to which of the two companies is a better candidate for investment. The project was used for three years in a first semester se·mes·ter n. One of two divisions of 15 to 18 weeks each of an academic year. [German, from Latin (cursus) s intermediate accounting course of 30 students at a small private liberal-arts university that emphasizes writing throughout the curriculum. 2. PROJECT OVERVIEW This section describes the goals for the project, the procedures undertaken to set up the project, the project requirements and data source information, the introductory material discussed with the students, the technical issues encountered, and the grading techniques employed. 2.1 Project goals In keeping with the desire to develop students' capabilities in the key areas identified above, the primary goals of the project were: 1) to develop students' abilities to analyze information contained in financial statements; 2) to develop students' understanding of the differences that exist between Generally Accepted Accounting Principle (GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). ) regimes and the economic environments and theoretical assumptions that give rise to those differences; 3) to develop students' abilities to organize and summarize sum·ma·rize intr. & tr.v. sum·ma·rized, sum·ma·riz·ing, sum·ma·riz·es To make a summary or make a summary of. sum information and to report that information clearly and concisely con·cise adj. Expressing much in few words; clear and succinct. [Latin conc ; 4) to develop students' abilities to present information orally and to defend positions taken; and 5) to develop students' understanding of the importance of financial information and the impact of such information on financial statement users. To achieve these goals, groups were encouraged to discuss the projects with each other to determine patterns of similarity Similarity is some degree of symmetry in either analogy and resemblance between two or more concepts or objects. The notion of similarity rests either on exact or approximate repetitions of patterns in the compared items. among companies. 2.2 Project set-up procedures During the semester, after the first examination, the instructor organized students into groups of three to four people, with each group responsible for analyzing the financial statements of one U.S. and one non-U.S. company from the same industry. Each semester, the students were allowed to vote on the industry that the class would analyze that term, with the restriction that there had to be sufficient companies in the industry so that no more than two groups would be analyzing the same U.S. company, and that each group would have a separate non-U.S. company. After choosing the industry, groups were given ten days to choose two companies to analyze, to verify that the non-US, company reported on the basis of home-country accounting principles, and to notify the instructor of the U.S. and non-U.S, companies that they wished to analyze. If more than two groups requested the same U.S. company, or if more than one group requested the same non-U.S, company, assignments were made based on a first-come, first-served “FCFS” redirects here. For the figure skating competition, see Four Continents Figure Skating Championships. This article is about a general service policy. For the technical concept, see FIFO. basis. Groups were balanced based on performance in the class to date (including performance on the first exam, quizzes, and written assignments), country of origin, gender, and status as a major or minor in accounting. (Although students were not allowed to choose group members as a whole, prior to group selection, students were permitted to indicate whether there was a person with whom they did not wish to work. Only two students indicated a negative preference during the three years.) 2.3 Project requirements and data source information Once the groups were formed, the requirements for the project were given to the students [Appendix 1]. After handing out the assignment sheet, the professor briefly commented on four online sources for financial data: the U.S. Securities and Exchange Commission (SEC) website for a list of non-U.S. companies registered with the SEC; the EDGAR Edgar or Eadgar (both: ĕd`gər), 943?–975, king of the English (959–75), son of Edmund, king of Wessex. In 957 the Mercians and Northumbrians rebelled against Edgar's brother Edwy and chose Edgar as their king. archives on the LexisNexis[R] and SEC websites for financial reports; and the Federal Reserve Bank of New York The Bank of New York, abbrieviated to BNY, was a global financial services company that existed until its merger with the Mellon Financial Corporation on July 2, 2007.[1] The bank now continues under the new name of The Bank of New York Mellon Corporation. (FRBNY FRBNY Federal Reserve Bank of New York ) website for noon-buying exchange rates, which are the currency rates typically used by companies for convenience translations. Continuing students at the university were somewhat familiar already with the SEC and LexisNexis[R] websites from their work in prior accounting classes, but most students had not explored the FRBNY website before. 2.4 Introductory material discussed with students After discussing data sources, the professor provided the students financial statement excerpts from several non-U.S, registrants not included in the study, and used the excerpts to introduce the documents (10-Ks and 20-Fs) and instruments (ordinary shares, American Depositary Receipts American Depositary Receipt (ADR) Certificates issued by a US depository bank, representing foreign shares held by the bank, usually by a branch or correspondent in the country of issue. , NYSE NYSE See: New York Stock Exchange Global Shares[R], and nonvoting foreign shares) such registrants typically employ when having shares traded in the United States. In addition, the professor briefly discussed the reporting obligations imposed upon foreign registrants in the United States and the manner in which shares might be traded, as described below. Most Canadian companies This is a list of companies from Canada.
Directory: A B C D E F G H I J K L M N O P Q R S T U V W X Y Z Current Companies have their ordinary shares traded in the United States in the same manner and using the same primary Securities and Exchange Commission (SEC) documents (10-Ks) as U.S. companies. Under the SEC's Multi-Jurisdictional Disclosure System (MJDS MJDS Multijurisdictional Disclosure System MJDS Minneapolis Jewish Day School ), Canadian companies, as a group, are afforded special consideration by U.S. regulators and currently are the only foreign registrants permitted to file 10-Ks using their home-country accounting principles, with verbal explanations of "material" differences from U.S. accounting principles. At the time of the study, 10-Ks were available on both the LexisNexis[R] and SEC websites. Non-Canadian foreign registrants typically have the option of: 1) filing their annual financial reports on the basis of U.S. accounting principles and submitting 10-Ks; or 2) filing their reports on the basis of home-country accounting principles and filing 20-Fs. For this project, students were required to select companies that reported on the basis of home-country accounting principles and, therefore, used 20-Fs. 20-Fs, like 10-Ks, contain the companies' financial statements, accompanying footnotes and supplemental data, as well as information on both the currency and GAAP basis used, and an additional footnote Text that appears at the bottom of a page that adds explanation. It is often used to give credit to the source of information. When accumulated and printed at the end of a document, they are called "endnotes." that quantitatively reconciles the earnings computed on the basis of home-country accounting principles to the earnings that would have been computed under U.S. GAAP. (The reconciliation footnote was not specifically discussed in the class introduction, as the professor preferred that students locate this footnote by themselves. All of the groups recognized the existence of this 20-F footnote within two weeks of the company approval date, and shortly thereafter, the professor discussed the nature of the footnote with the class as a whole.) At the time of the study, 20-Fs were available on the LexisNexis[R] website, but not on the SEC website. As of this writing, 20-Fs are now available on the SEC website as well. Most non-Canadian foreign registrants in the U.S. use American Depositary Receipts (ADRs) when having their shares traded in the United States. ADRs are derivative securities Derivative security A financial security such as an option or future whose value is derived in part from the value and characteristics of another security, the underlying asset. issued by a U.S. bank that holds the company's underlying shares in custody. ADRs generally pay dividends in U.S. dollars and often represent a multiple of a company's underlying domestic shares; therefore, students need to be alert to ADR ratios ADR ratio The number of foreign shares represented by one American Depositary Receipt. when analyzing earnings data to ensure that any Earnings Per Share comparisons are being made on an equivalent share basis. Because the custodian bank Custodian bank Applies mainly to international equities. Bank or other financial institution that keeps custody of stock certificates and other assets of a mutual fund, individual, or corporate client. See: Depository Trust Company (DTC) owns the underlying shares, the bank has voting rights Voting rights The right to vote on matters that are put to a vote of security holders. For example the right to vote for directors. voting rights The type of voting and the amount of control held by the owners of a class of stock. , but the ADR ADR - Astra Digital Radio purchasers do not. Some foreign registrants (particularly German companies) issue NYSE Global Shares[R], which are ordinary shares that are traded in multiple markets in the same form, with the same rights, but in each market's local currency (New York Stock Exchange New York Stock Exchange (NYSE) World's largest marketplace for securities. The exchange began as an informal meeting of 24 men in 1792 on what is now Wall Street in New York City. website, 2001). Since these shares are essentially equivalent from one market to the next, the use of global, rather than ordinary, shares typically has no impact, in and of itself, on required accounting disclosures. Many European companies It may never be fully completed or, depending on its its nature, it may be that it can never be completed. However, new and revised entries in the list are always welcome. This is a list of companies from the countries in the European Union. have corporate structures that concentrate governance Governance makes decisions that define expectations, grant power, or verify performance. It consists either of a separate process or of a specific part of management or leadership processes. Sometimes people set up a government to administer these processes and systems. in a coalition of managers, major creditors, and/or labor representatives. In order to preserve this structure, to insulate in·su·late tr.v. in·su·lat·ed, in·su·lat·ing, in·su·lates 1. To cause to be in a detached or isolated position. See Synonyms at isolate. 2. the companies from takeover concerns, to maintain home-country control and to encourage sensitivity to domestic labor and other issues, these companies often use nonvoting stock Nonvoting stock A security that does not entitle the holder to vote on the corporation's resolutions or elections. nonvoting stock when entering a second national market through an issuance not involving ADR or global shares. The use of such nonvoting shares usually has no impact on required accounting disclosures, beyond a description of the nature of the shares. Students were encouraged to obtain the financial reports from any available source. During the project, most reports came from the LexisNexis[R] website, some 10-Ks came from the SEC website, some annual reports came from company websites, and a few reports came directly from U.S. offices of the companies being studied. 2.5 Technical issues During the course of the project, representatives from each group met with the professor to discuss the differences that the group had identified and to clarify areas with which the students were unfamiliar, such as inflation adjustments, the accounting for deferred taxes, and the consolidation of foreign subsidiaries. Students were given brief introductions to these topics, and were directed to FASB pronouncements This article is a list of Financial Accounting Standards Board (FASB) pronouncements, including Statements, Concepts Statements, Interpretations, and Technical Bulletins, which are issued to provide rules and guidelines in preparing, presenting, and reporting financial statements and to textbook textbook Informatics A treatise on a particular subject. See Bible. sources for further information. 2.6 Grading The grading for the projects was broken into two parts--90 points were devoted to the written project and 10 to the oral presentation. The written projects were graded in two phases: * First, the papers were graded for composition on a pass/fail basis. Projects with excessive grammatical/mechanical/structural errors were required to be resubmitted and the project grade was docked 20 points. (Groups had the option of scheduling meetings with the professor to discuss drafts of their written analyses no less than one week prior to submission of their projects During the three years all but two groups met with the professor at least once prior to the due date, and only one group failed the composition phase). * Second, the papers were reviewed for content and graded using the following rubric RUBRIC, civil law. The title or inscription of any law or statute, because the copyists formerly drew and painted the title of laws and statutes rubro colore, in red letters. Ayl. Pand. B. 1, t. 8; Diet. do Juris. h.t. : * 84-90 points: The list of differences is acceptable and the financial information is accurate. The paper is well written and free of grammatical gram·mat·i·cal adj. 1. Of or relating to grammar. 2. Conforming to the rules of grammar: a grammatical sentence. and mechanical errors. The report addresses each of the issues specified in the requirements, uses appropriate examples to illustrate concepts discussed, and integrates the financial information with the discussion of accounting differences. The report demonstrates a thorough understanding of the nature of the differences identified, the theoretical and environmental issues underlying the differences, and the potential impact of the differences on financial statement users. * 77-83 points: The list of differences is acceptable and the financial information is accurate. The paper is well written but may have minor grammatical and mechanical errors or lack smooth transitions. The report addresses the issues specified in the requirements and demonstrates understanding, but does not fully synthesize To create a whole or complete unit from parts or components. See synthesis. the material being discussed or integrate the financial data with the discussion of differences. * 70-76 points: The list of differences is acceptable and the financial information is accurate. The paper does not have excessive grammatical or mechanical errors. The report addresses the issues specified in the requirements, but demonstrates only moderate understanding and lacks integration. * 63-69 points: The list of differences is acceptable and the financial information is accurate. The paper does not have excessive grammatical or mechanical errors, but may lack structure. The report addresses the issues specified in the requirements, but demonstrates only minimal understanding of one or more of the issues. * 0 points: The paper is unacceptable as written due to significant content errors or remaining significant grammatical/mechanical/structural errors after a first resubmission for writing. (During the three years no group failed the content phase or had a second failure for writing.) The oral presentations were graded based on the importance and relevance of the matters discussed, the professionalism of the presentation, and the responsiveness to questions. Scores ranged from 7 to 10 points. 3. RESULTS Prior to beginning the project each semester, the professor asked students to identify the differences that they believed might exist in financial statements prepared under U.S. versus non-U.S, accounting principles. Each semester, the members of the class were able to identify only six to ten differences, and the differences that were identified tended to be very general in nature, such as differences in terminology and differences in the currency employed. At the conclusion of the project, students were again asked to identify the differences that existed, and the listing filled the whiteboards in class. Many of the responses demonstrated both in-depth knowledge of specific differences and potential reasons for the differences. For example, students related foreign accounting regimes' emphasis on the productivity, rather than the liquidity, of assets to the capitalization capitalization n. 1) the act of counting anticipated earnings and expenses as capital assets (property, equipment, fixtures) for accounting purposes. 2) the amount of anticipated net earnings which hypothetically can be used for conversion into capital assets. of research and development costs. In addition, at the conclusion of the team presentations, students were able to identify general trends in industry financial performance and similarities in disclosures among both U.S. and non-U.S. companies over the periods being studied. In the reports, themselves, students did a very good job of identifying the differences in accounting regimes, and making the connection between the differences being analyzed an·a·lyze tr.v. an·a·lyzed, an·a·lyz·ing, an·a·lyz·es 1. To examine methodically by separating into parts and studying their interrelations. 2. Chemistry To make a chemical analysis of. 3. and the potential causes and effects of the differences. For example, several groups commented on the use of asset revaluations rather than historical cost numbers, the relationship to attitudes about litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. , and the relevance-reliability trade-offs involved. Students demonstrated thorough understanding of the difficulties encountered by investors when attempting to conduct comparisons, such as ratio analyses, among companies that classify clas·si·fy tr.v. clas·si·fied, clas·si·fy·ing, clas·si·fies 1. To arrange or organize according to class or category. 2. To designate (a document, for example) as confidential, secret, or top secret. and value accounts differently. (In addition, several groups specifically noted that this difficulty would arise not only when comparing U.S. and non-U.S, companies, but also when comparing various U.S. companies.) In addition, students did an excellent job of identifying key financial disclosures, analyzing trend and relationship data, and noting the importance of focusing on recurring re·cur intr.v. re·curred, re·cur·ring, re·curs 1. To happen, come up, or show up again or repeatedly. 2. To return to one's attention or memory. 3. To return in thought or discourse. versus one-time revenues and expenditures. For example, most groups analyzed trends in gross profit ratios and operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. , and many groups discussed growth in fixed assets fixed assets npl → activo sg fijo fixed assets npl → immobilisations fpl fixed assets fix npl → and trends in cash flows from operations. Finally, in the university-mandated anonymous teacher evaluations given at the end of class each semester, approximately 60% of the students commented on the projects over the three-year period. Of the students who commented, over 90% commented positively on the project, and the concerns of those who commented negatively generally related to the project being group-based. In addition, over the years, many students noted that the project had increased their understanding of U.S. accounting as well, by giving the students insight into both the reasons underlying U.S. generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting and the difficulties arising from flexibility in those principles. Overall, the project was viewed as a success by both the students and the professor. 4. DIFFICULTIES ENCOUNTERED The major difficulty encountered in this project was the typical group-project problem of free riding on the part of some team members, even though students knew that they would be evaluated by their groups at the end of the semester, with a potential reduction in grade for free riders Free rider A follower who avoids the cost and expense of finding the best course of action simply by mimicking the behavior of a leader who made these investments. . In the future, the professor intends to require groups to submit initial team contracts specifying each member's responsibilities, as well as a final log, detailing the work actually performed by each member. The contract, log, and team evaluations will form the basis for a reallocation Noun 1. reallocation - a share that has been allocated again allocation, allotment - a share set aside for a specific purpose 2. reallocation of up to 15% of the points on the project from members who fail to meet their obligations to members who exceed their obligations. In addition, to eliminate the possibility of a student contributing nothing to the project and receiving only a 15% reduction, the professor intends to allow teammates to dismiss a member who consistently fails to contribute to the project after being given written notice from both the teammates and the professor that the student's contribution is inappropriate. 5. CONCLUSION This paper has described a group-based international accounting research project that was incorporated into a traditional intermediate accounting course, but the framework given could be adapted easily to other settings, in response to the needs of a particular course. The project could be adapted to higher-level courses by focusing on differences in specialized spe·cial·ize v. spe·cial·ized, spe·cial·iz·ing, spe·cial·iz·es v.intr. 1. To pursue a special activity, occupation, or field of study. 2. accounting areas, such as the accounting for pensions, leases, or consolidations, or could be adapted for individual student use by relaxing the single industry requirement. As world economies and stock markets become more integrated, it becomes increasingly important for students to gain an understanding of both the differences that exist in national accounting regimes and the potential impact of those differences on the investors who use corporate financial reports for decision making. Financial analysis projects such as the one described in this paper can improve students' understanding of these global financial reporting issues, while enhancing students' analytical analytical, analytic pertaining to or emanating from analysis. analytical control control of confounding by analysis of the results of a trial or test. and communication skills--in the process developing, in accounting students, the core capabilities that accounting graduates will need to compete in the 21st century. APPENDIX 1 TEAM CASE REQUIREMENTS REQUIRED: WRITTEN PROJECT 1. Obtain a 20-F, 10-K, or annual report for the most recent calendar year for a non-U.S company that is registered in the United States and that prepares financial statements on a basis other than U.S. GAAP and a 10-K or annual report for a similar U.S. company in the same industry for the same time period. 2. Using the reports obtained in (1), compile To translate a program written in a high-level programming language into machine language. See compiler. a list of significant differences in format, terminology, and methodology between the two companies' reports. 3. Discuss 5 (five) of the differences identified in (2) above in detail, explaining the nature of the differences, suggesting potential reasons for the differences, and discussing the impact that the differences might have on an American investor trying to compare the financial statements of the two companies. 4. Identify 1 (one) item that you believe might be preferable in the financial statements prepared in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with non-U.S. GAAP as compared to the financial statements prepared in accordance with U.S. GAAP. State why you think the non-U.S, approach to this item is superior. 5. Identify 1 (one) item that you believe might be preferable in the financial statements prepared in accordance with U.S. GAAP as compared to the financial statements prepared in accordance with non-U.S. GAAP. State why you think the U.S. approach to this item is superior. 6. Compare the financial statements for the two companies and discuss any issues arising from the differences in accounting regime. If you were making a decision to invest in one of the two companies, which company would you choose? Why? (Note: your answer in this section need not be limited to a discussion of accounting issues. You might want to bring in issues considered in other business classes that you have taken.) Note: 1. Your analysis should include page references to the relevant portions of the financial statements, and the relevant portions of the financial statements should be highlighted. 2. Your written analysis related to requirements (3) through (6) is limited to 7 (seven) pages not including appendices ap·pen·di·ces n. A plural of appendix. , and must be typed, double-spaced, and have at least a 10-point font font or typeface or type family Assortment or set of type (alphanumeric characters used for printing), all of one coherent style. Before the advent of computers, fonts were expressed in cast metal that was used as a template for printing. . 3. The assignment is due on the date specified in the syllabus A headnote; a short note preceding the text of a reported case that briefly summarizes the rulings of the court on the points decided in the case. The syllabus appears before the text of the opinion. . REQUIRED: TEAM PRESENTATION 1. Prepare a 15 minute presentation for the class summarizing the results of your team's project. Each member of the team MUST participate in the presentation, and after the presentation you will be expected to entertain questions for 5-10 minutes from both the class and the professor. 6. REFERENCES Accounting Education Change Commission, Position Statement Number One: Objectives of Education for Accountants, American Accounting Association, Sarasota, 1990. Albrecht, W. Steve and Sack, Robert. J., Accounting Education: Charting the Course through a Perilous Future, American Accounting Association, Sarasota, 2000. Federal Reserve Bank of New York, Noon Buying Rate Directory, 2001, ftp://ftp.ny.frb.org/forex/12noon. LexisNexis[R], Business/Company Information, 2001, http://web.lexis-nexis.com/universe. New York Stock Exchange, Information and Resources: NYSE Global Shares[R], 2001, http://www.nyse.com/international/international.html. U.S. Securities and Exchange Commission, EDGAR Company Search function, 2001, http://www.sec.gov/edgar/searchedgar/companysearch.html. U.S. Securities and Exchange Commission, "Foreign Companies Registered and Reporting With the U.S. Securities and Exchange Commission, December 31, 2001 ," 2001, http://www.sec.gov/divisions/corpfin/internatl/alphabetical.htm. Dr. Marilyn Misch earned her Ph.D. at Arizona State University Arizona State University, at Tempe; coeducational; opened 1886 as a normal school, became 1925 Tempe State Teachers College, renamed 1945 Arizona State College at Tempe. Its present name was adopted in 1958. in 1999. Currently she is an assistant professor at Pepperdine University Pepperdine University is a private institution of higher learning affiliated with the Church of Christ in unincorporated Los Angeles County, California, United States. The university's location overlooks the Pacific Ocean and is adjacent to the city limits of Malibu. . |
|
||||||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion