Financial Accounting - FINACC (Classes)

Joanne Williams

(office # 301 - Luksic Hall , ext. 4278, williamsj@babson.edu)

Class 1 - Sep 1, 2011

SESSION 1: Overview of Financial Reporting

LEARNING OBJECTIVES

· Review the history of financial reporting, transaction analysis, and preparation of the income statement and balance sheet.

· Discuss the Financial Reporting environment, both US and International perspective, including regulatory requirements.

· Provide examples of the subjectivity of financial reporting results.

Note: Throughout FINACC, we will be using the Balance Sheet Equation (BSE), not journal entries or T Accounts. This course is designed for users of financial information, not preparers.

The balance sheet equation is: CASH + OTHER ASSETS = LIABILITIES + OWNERS’ EQUITY + REVENUE - EXPENSES

SESSION WORK

CASE: N/A

READINGS

· Easton, Wild, Halsey, McAnally Book (EWHM) – MOD 1

· Financial Reporting Basics Reading (FINACC 1 Stream folder)

· Coke/Pepsi Financials (FINACC 1 Stream Folder)

Class Notes

Started with a question:

Is accounting "True"? :p

Is accounting accurate?

Accountants would say - they (financial statements) represent the "economic substance" of the transaction.

There is a lot of subjectivity involved - which leads to different method choices. Standards like FASB and IAS.

Capitalizing the cost simply means "make it an asset".

Examples of the choice of depreciation and bad debts against accounts receivables. Subjectivity and Judgement.

These things are incorporated in the auditor report. So now the (new thing) report has a few paragraphs that comment on the choices and judgement.

Accounting also has behavioral implications for teh companies. E.g. pension policies and healthcare.

Search for 401K pension. A new form of pension that allows companies not to have a liability on the balance sheet against the pension promised.

Revenue recognition is another topic.

Example of what Bosch & Lomb when they did channel stuffing.

Another scandal - Worldcom: they capitalized the expenses. Manipulation of teh financial statements. The income statement benefits. Since no expenses show up. They were showing earnings not by business but by manipulating financial statement recording.

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Session 2: Sep 7, 2011
Points to takeaway:

• income flow ad income statement
• comparison to cash flow
• transactions translating into financial statements

Case: Sunbeam Corporation: Building Financial Statements

spreadsheet filled

Session 3: Sep 12, 2011
discussion on financial statements and cash flows

Solve problem B-39 .. page B-35 (from the book)

We are given income statement and balance sheet
(Indirect method) : Starting with Net Income
Operating activities
NI:                  85
Depreciation:   22
Amortization:   7
Loss:               5

Session 8, Sep 26, 2011
Case: Albert Dunlop and Corporation Transformation
application of ethical theories on the case
Utilitarianism - Stuart Mill: An action is right if it promotes the best consequences
*The greatest happiness for the greatest number*
Deontology - Immanuel Kant: An action is right if it is in accordance with  a correct moral rule of principle
*always treat people as an end in themselves, never merely as a means*
Character (virtue) ethics - Aristotle: An action is right if it is what a good person would characteristically do under the circumstances *Character: what virtues/vices are motivating the action?*

from all these perspectives Albert dunlop fails.
Radio clip: "should we get some ice tea"

Business ethics and selfishness - Thomas Hobbes: Man is a wolf to man