Cases in Financial Reporting: An Integrated Approach with an Emphasis on Earnings and Persistence, Fourth Edition - Softcover

Hirst, D. Eric; McAnally, Mary Lea

Softcover

ISBN 10: 0130082066 ISBN 13: 9780130082060

Publisher: Prentice Hall, 2003

Synopsis

This collection of financial accounting cases is designed to help learners become financial statement users. Each case utilizes financial statement information (balance sheet, income statement, statement of cash flow and/or footnotes) and a number of topical questions. KEY TOPICS Readers use the financial statement information to infer and interpret the economic events underlying the numbers. Related articles taken from business publications accompany some cases, and information from the articles is incorporated into the case question material. For working professionals studying for the CFA exams.

About this title

About the Author:

D. Eric Hirst, Ph.D., is Professor at the Red McCombs School of Business at the University of Texas at Austin. He received his Ph.D. in accounting from the University of Minnesota and M.Acc. and B.A. from the University of Waterloo. He worked as a Chartered Accountant with experience in public practice. His research on auditor, investor, and analyst judgment has been published in The Journal of Accounting Research, Contemporary Accounting Research, The Journal of Financial Statement Analysis, Auditing: A Journal of Practice & Theory, The International Tax Journal, CA Magazine, Organizational Behavior and Human Decision Processes and others. At UT, Professor Hirst teaches financial accounting and financial statement analysis in the regular and executive M.B.A. programs. He was awarded the Joe D. Beasley award for teaching excellence in the M.B.A. core, the Graduate Business Council Teaching Excellence Award for Outstanding Involvement in the MBA Community, and has been on the MBA honor roll.

Mary Lea McAnally, Ph.D., CA, CIA is Associate professor of Accounting at Mays Business School at Texas A&M University. She obtained her Ph.D. from Stanford University and B.Comm. from the University of Alberta. She is a Chartered Accountant (Canada) with experience in public practice and industry. She is also a Certified Internal Auditor. Her research interests include capital markets, accounting and disclosure in regulated environments, and accounting for risk. She has published articles in The Journal of Accounting and Economics, The Journal of Accounting Research, The Accounting Review, Contemporary Accounting Research, Accounting Horizons, The Journal of Accounting, Auditing, and Finance, and Financial Analysts Journal. At Texas A&M, Professor McAnally teaches financial accounting in the M.B.A. and executive programs. She has received numerous faculty-determined and student-initiated teaching awards.

Excerpt. © Reprinted by permission. All rights reserved.:

This book is a collection of financial accounting cases designed to help you become a user of financial reports. Learning accounting is very much like learning a new language. The best way to learn arty language is to immerse yourself in the language and to converse with many people. Conversations speed up language acquisition and teach the nuances of the language. Conversations strengthen language skills and build breadth. This collection of cases creates a set of conversational opportunities. You will learn accounting by reading financial statements and by responding to topical questions about those financials. By reading and using many different companies' financial statements, you will speed-up your acquisition of accounting concepts and skills. By observing the nuances of financial reporting, you will quickly learn to speak "accounting," the language of business.

These materials bridge a void in introductory financial statement materials at both the undergraduate and the graduate level. Typically, students are required to read a textbook chapter and do some exercises to ensure concept comprehension. Assigned end of chapter material, however, is often not sufficiently challenging to students with stronger analytical abilities. Questions often focus on financial statement preparation rather than, as appropriate for many students, financial statement use. At the other extreme, unstructured discussion cases can leave students with a weak grasp of the mechanics and subtleties of financial accounting. The cases presented here fill the void.

Each case deals with a specific financial accounting topic within the context of one corporation's financial statements. Usually, a case contains financial statement information (a balance sheet, income statement, statement of cash flows, and footnotes) and a set of specific questions pertaining to one financial accounting issue. You will use the financial statement information to infer and interpret the economic events underlying the numbers. Some cases are accompanied by a related article taken from the business press. In those instances, information from the article is incorporated into the questions in the case. Some cases involve two companies within an industry and the case questions focus on intercompany comparisons of financial information. Numerous cases are based on international companies.

In this edition, the cases are found alphabetically by company name. To get a feel for the scope of the cases as a whole, we refer you to the table of contents. There, the cases are presented in a conceptual order the order we use in our courses.

WHAT MAKES THESE MATERIALS UNIQUE

These materials have a proven track record. The book was developed from the course materials used since 1991 at the University of Texas at Austin. The course (a semester-long, compulsory, first-year introductory class) has been extremely well-received by students each semester it is taught. The course consistently receives among the highest student evaluations in the UT and Texas A&M M.B.A. cores.

Several unique features distinguish this casebook:

Financial Statement Diversity—This book comprises 38 cases. We believe that you will appreciate the exposure to many different companies and quickly learn that, while financial statements do not all look the same, they can all be understood and used.

Current Financial Statements—The cases are very current; primarily dated 1995 through 2002. This affords you the opportunity to read and use pertinent and timely financial information. Some older cases have been included because they explicate a concept particularly well or because they demonstrate an uncommon trend.

International Financial Statements—Cases cover companies from Canada, France, Germany, Japan, Mexico, Taiwan, and the U.K. as well as from the U.S. Many of the U.S. companies are major multinationals. The globalization of business necessitates your facility with financial statements other than those prepared in accordance with U.S. GAAP. The international cases will help you understand some of the recent harmonization efforts between the International Accounting Standards Board and the U.S. Financial Accounting Standards Board. Some international cases require you to recast the financials to U.S. GAAP. Thus, you will become a sophisticated user of financial information.

Internet Format of Corporate Reports—Many of the financial statements, MD&A, Forms 10-K and 10-Q, and other corporate information in the casebook have been retrieved from the Securities and Exchange Commission's EDGAR database. The presentation of the material has been deliberately left consistent with the on-line presentation. If you are already accessing this type of information on-line, the presentation in these cases will be familiar to you.

Learning Objectives—Cases are prefaced with a set of learning objectives. These become your learning goals as you work through the cases. The focus of each case is made clear through these objectives.

Corporate Descriptions—Each case focuses on one or two sets of financial statements. A brief description of the companies in the case is designed to remind you that accounting information is used in specific business contexts. Reported financial accounting numbers are the result of a series of complex, professional estimates and judgments. Many of these are influenced by industry practice. Correctly reading and interpreting financial information is predicated on your awareness of a company's business and industry.

THE 'CPA' APPROACH—CONCEPTS, PROCESS, AND ANALYSIS

As in the third edition, the questions are organized in "C.P.A." order.

Concepts. The typical case begins with a set of conceptual questions. As we introduce each topic area, we want to ensure that you are familiar with the vocabulary and the broader concepts before moving into the specific application to the case-corporation. These general questions focus each case on its topic area. For example, the AMR case on leases begins with the conceptual questions "what is a lease?" New in the 4th edition is explicit reference to the concept statements of the Financial Accounting Standards board. These concept questions call for factual responses that you are likely to easily provide.

Process. Before you become a sophisticated consumer of accounting information you need an understanding of the accounting process and the basics of financial statement preparation. Thus, the second set of questions in each case focuses on the process. Process questions require you to retrieve specific information from the financial statements and to manipulate the information via calculations, journal entries, and T-accounts. It is at this point that many textbook exercises end. However, we believe that the accounting process is not the end but the means by which you will build a firm understanding of how financial accounting works the way it does.

Analysis. With a strong understanding of the concepts and a solid knowledge of the accounting cycle, you are ready for higher level analytical questions. These questions have you synthesize, analyze, interpret information and formulate and defend your opinion on accounting policies, standards, and corporate behavior. Thus, analysis questions sharpen your higher-order thinking skills. In the 4h edition, there is increased use of the DuPont model of ROE analysis across cases.

By grouping the case questions into the C.P.A. categories, the text has broad audience. Taken alone, the Concept and Process questions are perfectly aimed at undergraduate introductory financial accounting classes. Because many M.B.A. students have taken some accounting and most have had some business experience, they are better prepared to handle the Analysis questions even at the introductory level. Several topics (e.g. pensions, OPEB, marketable securities, deferred taxes) included in this edition are not typically covered in an introductory course. These can be used at the intermediate level for undergraduate and M.B.A. classes. For intermediate and financial statement analysis courses, the Concept questions can be used by your instructor to start class discussion. Taking up these questions first ensures that you are on firm ground before you tackle the more challenging Analysis questions. The full set of financial statements included with each case affords you and your class instructor the opportunity to explore issues the Analysis questions do not touch upon.

NEW IN THE 4TH EDITION

In keeping with the contemporary flavor of the earlier editions, approximately two-thirds of the cases have been either updated to more recent financial statements or are completely new. Some cases were, eliminated and others combined to reduce redundancies. All cases have been reviewed with an eye to improving their clarity. We have formally introduced a number of financial ratios and questions about management's incentives and motives in arriving at accounting choices. Over 30% of the cases now cover non-U.S. companies. These are denoted in the table of contents.

HOW TO USE THESE MATERIALS

These cases are designed to be used in conjunction with an introductory, intermediate, or financial statement analysis textbook. The order in which material is presented by your instructor does not affect the relevance of the cases. Each case stands alone and while some cases naturally precede others, there is no prescribed order.

As you use these materials, notice two main themes—earnings persistence and the quality of earnings. The first third of the cases in the book relate to the framework of financial reporting. In these cases you are acquiring skills in basic financial statement preparation, and in understanding how financial statements aid in the investment decision process. In achieving the latter, we emphasize how financial statements classify items and how such classifications are important in the prediction of the nature, uncertainty, and timing of future cash flows. Thus, we introduce the notion of earnings persistence and how it affects firm valuation. The remainder of the cases explore the accounting issues for the major financial statement line items. We place particular emphasis on the latitude and judgment management has in arriving at the reported numbers and the economic consequences of their choices. This introduces the notion of the quality of earnings. The cases are designed to help you acquire the skills necessary to identify quality of earnings issues and learn how to deal with them (for example, by restating the financials under different assumptions or accounting methods).

About this edition

• Publisher: Prentice Hall
• Publication date: 2003
• ISBN 10: 0130082066
• ISBN 13: 9780130082060
• Binding: Paperback
• Number of pages: 320