Argosy UniversityCOURSE SYLLABUS

B7670 Financial Reporting Theory

Faculty InformationFaculty Name: Dr Roberto Castaneda, CPACampus: Argosy ChicagoContact Information: 312-498-2028

Rcastaneda@argosy.eduOffice Hours:Short Faculty Bio:

Roberto Castaneda, DBA, Argosy University (concentration in accounting), MM/MBA Northwestern University’s Kellogg Graduate School of Management (concentrating in finance and marketing) and BSC from DePaul University (concentrating in accounting and marketing). Dr. Castaneda is also a certified public accountant. Dr. Castaneda has over 28 years experience in finance and accounting with companies such as American Express, McDonald’s, PepsiCo, Arthur Andersen, Price Waterhouse and Trammell Crow Consulting. Dr. Castaneda currently consults with a number of Fortune 500 companies and non-profit organizations on organizational financial literacy issues. Some of his awards and honors include “2002 Illinois Literacy Foundation” for promoting literacy in Illinois, “American Express Chairman’s Award” For Quality, and the “PepsiCo International GAAP Award” on internal controls. He is also a member of the Illinois CPA Society, AICPA Society, and Financial Executives International. Dr. Castaneda also serves as a board of director for non-profit organizations including President of the Illinois Literacy Foundation, Center for Economic Progress, and Grants Panelist for the Chicago Cultural Center.

Course description: This course will study the utility of financial statement interpretation in the strategic process of management. An intensive study and critical examination of accounting and financial reporting theories, concepts and standards; evaluations of the pronouncements of accounting standard-setters and financial reporting regulators will be an integral part of this course.

Course Pre-requisites: None

Required Textbook: Through the Argosy University eBrary collection:Riahi-Belkaoui, Ahmed. (1998). Critical financial accounting problems: Issues and solutions. Greenwood Publishing Group. ISBN: 9781567201161

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Smith, Malcolm. (2003). Research methods in accounting. Sage Publications. ISBN: 9780761971467

Recommended Readings:Needles, B.E. & Powers, M. (2007). Financial accounting. (9/e). Houghton Mifflin Company. ISBN: 978-0-618-62676-2

Course length: 7.5 Weeks

Contact Hours: 45 Hours

Credit Value: 3.0

Program Outcomes:1. Research

1.1. Performing – Design, conduct, and justify applied research in a business context using appropriate methodology

1.2. Understanding – Evaluate and apply existing theory and research to current business practice

2. Communication2.1. Oral – Present orally, complex business information that is concise, clear,

organized, and well supported in a professional manner appropriate to the business context

2.2. Written – Present in writing, complex business information that is concise, clear, organized, and well supported in a professional manner appropriate to the business context using required format

3. Critical Thinking/Problem Solving3.1. Critical thinking – Evaluate relevance of established theory to current business

practice and identify gaps in current literature 3.2. Problem Solving/Decision Making – Given a business situation, diagnose the

underlying causes of the situation, evaluate possible solutions, in relation to underlying business theory and determine and defend appropriate course of action

3.3. Information Literacy - Conduct an exhaustive literature search from a variety of sources, evaluate the credibility of the sources, and apply that information to create new knowledge

4. Team4.1. Leadership - Conduct an exhaustive literature search from a variety of sources,

evaluate the credibility of the sources, and apply that information to create new knowledge

4.2. Collaboration - Given a case study or business situation collect, assimilate, and disseminate the views of stakeholders

5. Ethics

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5.1. Ethics - Given a case study or business situations, evaluate the ethical dimensions of decision situations and personal, social, and corporate responsibility not absolved by market forces

6. Diversity6.1. Diversity - Given a case study or business situation evaluate the multicultural

dimensions of decision situations and multicultural solutions to business situations

Accounting Concentration7. Analysis

7.1. Financial Analysis - Evaluate results of accounting analyses including audit, financial, and risk analyses to determine appropriate business strategies

7.2. Systems - Evaluate effectiveness of comprehensive accounting systems in meeting the goals of an organization

Course Objectives:

1. Identify and apply current regulations that have been promulgated to ensure consistency and uniformity in financial reporting. (Program Outcomes: 1.1, 1.2, 3.1, 3.2, 5.1)

2. Apply concepts and the conceptual framework for revenue and expense recognition for financial reporting and evaluating managerial recognition and materiality arguments. (Program Outcomes: 1.1, 1.2, 2.2, 3.1, 3.2, 3.3, 7.1, 7.2)

3. Critically analyze annual reporting requirements and of financial statements relationships, transaction reporting, various audit report types, and the influence of Sarbanes-Oxley Act of 2002 on internal controls and financial reporting. (Program Outcomes: 1.2, 2.2, 3.1, 3.2, 4.1, 5.1, 7.1, 7.2)

4. Apply concepts and principles for liability recognition and reporting including, unearned revenue, incomes taxes payable, warranties and payroll related liabilities. (Program Outcomes: 1.2, 3.1, 3.2, 3.3, 4.2, 6.1, 7.1, 7.2)

5. Examine the characteristics of revenue and capital expenditures for long-lived assets including lease accounting evaluation and cash flow implications. (Program Outcomes: 1.2, 2.1, 2.2, 3.2, 3.3, 7.1, 7.2)

6. Examine the characteristics of financial reporting for the issuance of common, preferred and treasury stock transactions by identifying components of stockholders equity and contributed capital transactions. (Program Outcomes: 1.2, 2.1, 2.2, 3.1, 3.2, 3.3, 7.1, 7.2)

7. Analyze the disclosure and financial reporting requirements of extraordinary items, discontinued operations and non-recurring items as opposed to income from operations transactions. (Program Outcomes: 1.2, 2.1, 2.2, 3.1, 3.2, 3.3, 7.1, 7.2)

8. Compute and evaluate various profitability, liquidity and solvency ratio computations used in measuring financial performance. (Program Outcomes: 1.1, 1.2, 2.2, 3.2, 3.3, 4.1, 4.2, 7.1, 7.2)

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9. Critically analyze consolidated financial statement combination methods including foreign subsidiary, minority interest and goodwill transactions and reporting. (Program Outcomes: 1.1, 1.2, 2.2, 3.1, 3.2, 3.3, 3.4, 5.1, 7.1, 7.2)

10. Synthesize current literature on a topic relevant to this course and discuss any controversies or differences of opinion that exist in the literature. (Program Outcomes: 1.1, 1.2, 2.2, 3.1, 3.2, 3.3, 3.4, 5.1, 7.1, 7.2)

Assignment Table

Module Topics Readings Assignments1 Overview of financial reporting

and the evolution of GAAP Managerial and Financial

accounting differences Financial Statements and their

relationships Transaction recording,

accounting cycle and the worksheet tool

Key elements in the annual report

Utilizing AU Library Resources read: Zeff, Stephen A. (2005). The Evolution of U.S. GAAP: The Political Forces Behind Professional Standards. The CPA Journal, Vol.75 (Issue 2),  pg. 18, 12 pgs

http://www.iasplus.com/resource/0407zeffusgaap.pdf

http://www.nysscpa.org/cpajournal/2005/105/infocus/p18.htm

The financial accounting standards continue to evolve with new promulgated accounting literature similar to how business evolves to keep pace with competition. The Financial Accounting Standards Board (FASB) identifies these changes in accounting standards on its Web site. The site is open to the public for comment, disclosures of changes underway, and guidance to practitioners, educators, and students in the field of accounting.

For this assignment, you will look closely at issues discussed by practitioners at the FASB site, select one for in-depth study, and then participate with classmates in the selection of two specific issues that you will discuss in later modules.

To begin, select a public company and review the most recent 10K Item,

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Management’s Discussion and Analysis—Recent Accounting Pronouncements section. Select one of the recent accounting pronouncements addressed by the company and research it using the FASB Web site. Research how the pronouncement came about, comments letters written by other companies, and the exposure draft document.

Write a 3–4 page paper on the pronouncement that addresses the following:

How did the accounting pronouncement come about? What need did regulators address through this pronouncement?

Did the final pronouncement change from its original draft? Discuss the changes.

What were some of the comments letters written by other companies on this pronouncement? Were their concerns addressed and how?

Based on your synthesis of comment letter information and authoritative sources, what are your recommendations for proper financial

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reporting and disclosure?

2 Objectives of financial reports and Sarbanes-Oxley Act of 2002 (SOX) management certification of the financial statements implications

Consistency, conservatism and full disclosure

Merchandising businesses and internal controls

Perpetual inventory valuations and system dynamics

Utilizing AU Library Resources read the following: Sauer, R. C. (2002). Financial Statement Fraud: The Boundaries of Liability Under the Federal Securities Laws. The Business Lawyer, Vol.57 (Issue 3) pg. 955, 43 pgs

Walker, D. (2002) Integrity: Restoring Trust in American Business and the Accounting Profession.www.gao.gov/cghome/2002/acpro122.pdf

The Sarbanes-Oxley Act: A Guide to the Sarbanes-Oxley Act. http://www.soxlaw.com

Read the scenario and associated questions below. Research the pertinent issues and explain accounting options for the scenario.

You have recorded a revolving line of credit on your company’s financial statements due within the next 10 months as a long-term liability. The board of directors of the company has asked you to explain why you have done so. The company has been in default with its loan covenants, but prior to the issuance of the financial statements, the bank granted a loan waiver.

With reference to the above scenario, answer the following questions in 1–2 paragraphs each:

1. What promulgated accounting literature would you use to support your rationale?

2. What criteria should be met prior to reflecting this loan as a long-term liability?

3. Why would recording the loan as a long-term liability from a business point of view make sense, apart from compliance with promulgated

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standards?4. Write a response to the

board of directors explaining your position. Be sure to discuss how this decision can impact the company's financial position and what other long-term implications this can have on the company.

Start by reviewing FASB current accounting pronouncements. Review other organizations' GAAP disclosures in the SEC 10K and 10Q filings that you can find at the Yahoo Web site (http://finance.yahoo.com). You can find these types of disclosures in Item 7 (critical accounting estimates).

3 Managing inventories and the implications of decision making for inventory valuations

SOX’s internal control requirements for inventories

Credit policies and managing accounts receivables,

Ethics in Accounts Receivable valuation, presentation and disclosures

Notes Receivable characteristics and reporting

Credit Basics: Financial Analysis. By: Barron, Jacob. Business Credit, Mar2007, Vol. 109 Issue 3, p48-49, 2p; (AN 24262613)

Time to Act on Corporate Governance. Ernst & Young. http://www.ey.com/global/Content.nsf/Philippines/Time_to_act_on_corporate_governance

Winters, B. (2004). Choose the Right Tools for Internal Control Reporting. The Journal of Accountancy Online.http://www.aicpa.org/pubs/jofa/feb2004/winters.htm

Read the scenarios and associated questions below. Research the pertinent issues and explain accounting options for the scenarios.

GM decided to rollout a program that expanded the warranty period from three years to ten years or 100,000 miles on the purchase of its new cars to consumers.

US Cellular phone decided to provide customers with roll-over minutes. This is a program whereby, if the allotted monthly minutes are not used, the customer can use them the following month, up

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to one year.

A credit card company decides to offer a new proprietary stored value card to its customers that can be sold in stores. This is where customers add value to the company’s card and use it as the need arises to purchase good and services.

Apple computer decides to reduce the price of its new iPhone and refund those customers who purchased the phone over the previous 60 days.

Three years after the acquisition, JP Morgan Chase Bank decides to change the name of First Chicago to JP Morgan Chase. The company had initially recorded goodwill for the purchase of First Chicago, which included allocating a portion of the goodwill value to the name of the acquired company “First Chicago.”

With reference to each scenario, develop a 1–2 paragraph response for each of the following five questions:

1. Which promulgated accounting standards did the company need to consider prior to implementing the initiative? Explain your answer.

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2. When should the accounting department get involved with these initiative (before or after the decision has been made and why so)?

3. How much of a role should the accounting department play in determining the impact of these initiatives on the organization and why?

4. What steps do you think the accounting department needs to take as this new initiative is being rolled out? Explain your answer.

5. What type of financial statements and footnote disclosures on this initiative should be considered and why?

4 Evaluating and reporting liabilities

Accounting for contingencies and estimated liabilities

Decision making for long-lived assets

Fixed Asset valuation, acquisitions, dispositions, and disclosures

When True Value Really Isn't True and Fair. By: Cunningham, Colleen. Financial Executive, Jun2006, Vol. 22 Issue 5, p6-6, 1p; (AN 21216340)

EFFORT STARTED TO REVAMP LEASE ACCOUNTING. Practical Accountant, Sep2006, Vol. 39 Issue 9, p18-18, 1/5p; (AN 22232163)

Research the FASB and AICPA Web sites. On the FASB Web site, identify the promulgated accounting literature that is currently under review, in draft form, or on the EITF agenda. Identify the promulgated accounting literature that relates to goodwill and revenue recognition. After reviewing the literature, develop a 1–2 paragraph response for each of the following questions:

1. Are there any EITF or SOP pronouncements issued or underway

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and what are they? What do they address?

2. What are the major pronouncements that provide authoritative guidance?

3. Identify a current company that has addressed these issues in its financial reporting and discuss its approach. (To select a company, visit http://finance.yahoo.com/ and type the company's stock symbol and review its SEC 10K filings.)

4. How has accounting literature on this topic evolved from ARBs to FASBs?

5 Long-term liabilities and managerial decision making

Bond characteristics, issuances and valuation

Contributed capital structure, policies and performance measurements

Stock types, issuances, retirements and repurchases

BUSINESS INCOME IN ACCOUNTING AND ECONOMICS. By: Emily Chen Chang. Accounting Review, Oct62, Vol. 37 Issue 4, p636, 9p; (AN 7100204)

Revenue-Recognition Decisions: A Slippery Slope? By: Clark, Ronald L. CPA Journal, Oct2006, Vol. 76 Issue 10, p6-9, 3p; (AN 22843023)

Goodwill reporting is another prominent issue discussed by accounting practitioners and one that provides an excellent basis for research in this course.

Read the case study below. Write a 4–5 page white paper that focuses on proper accounting treatment of goodwill. Your white paper should explain the proper accounting treatment to nonfinancial managers. (Please see the downloadable document located in Doc Sharing for information on developing a white paper.)

A major Fortune 500

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company (nonregulated) acquired a smaller company for $1B three years ago. When the parent company purchased this organization, it paid a 50% premium (of the then stock price) and recorded about 35% of the purchase price as goodwill. The amount of goodwill remains a significant asset on the parent company’s books and records.

The subsidiary company is about to announce in a press release that, because of competitive pressures in the market place, it needs to reduce its current year forecasted sales and net income by 30% and 40%, respectively. The company’s executives believe this decrease will continue in future years. The CEO of the company asked you to prepare a white paper explaining to the board of directors and executive management what type of complications this would have on the company’s books and records.

1. What promulgated accounting literature should the company follow? Explain your rationale.

2. Are there any other onetime charges associated with the economic event of the decline in sales and profits? Why or why

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not?3. Other than the decline

in sales and net income, is there any impact to cash flow and why or why not?

4. Research and determine how other companies have treated this type of economic event on their books and records. What type of accounting disclosures were made, if any?

5. Should this impact be shown on the parent company's or subsidiary's books and records and why or why not? Why would any announcement need to be made to the public?

6. What would you recommend to the Board of Directors and CEO as additional steps that must be taken in accounting as part of this sales and net income decline announcement? Explain your rationale.

The following are some resources to further explore this topic:

1. Wayman, R. (n.d.). Impairment charges: The good, the bad, and the ugly. Investopedia. Retrieved September 1, 2008, from http://www.investoped

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ia.com/articles/analyst/110502.asp

2. Summary of Statement No. 142: Goodwill and Other Intangible Assets. Financial Accounting Standards Board Web site. Retrieved September 1, 2008, from http://www.fasb.org/st/summary/stsum142.shtml

3. Duffy, R. E., & Cordier, D. S. (n.d.). Goodwill impairment: The new FASB. 20th Annual Advanced Business Valuation Conference. Retrieved September 1, 2008, from http://www.bvappraisers.org/contentdocs/Conference/Goodwill_Impairment_-_Cordier___Duffy.pdf

6 Accounting for discontinued operations, extraordinary events and non-recurring items

Earnings per share, dividends and stock splits

Statement of Cash Flows, presentation, classifications and ethics

The Treatment of Non-Recurring Items in the Income Statement and their Consistency with FASB Concept Statements. By: Cameron, Alex B.; Stephens, Lynn. Abacus, Sep91, Vol. 27 Issue 2, p81-96, 16p; (AN 5117991)

"Tracking" Common Stocks and the Potential for Misuse of the Two-Class Method of Calculating Earnings Per Share. By: Maddox III, Robert L..

Read the scenario and associated questions below. Research the pertinent issues and write a 4–5 page white paper to explain accounting options for the scenario. As you develop your paper, you may discuss your findings with your peers.

XM Radio was depreciating its satellites over 20 years (total cost of $20 million for each of five satellites). It was recently discovered that the

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Management Accounting Quarterly, Autumn2002, Vol. 4 Issue 1, p16-20, 5p; (AN 11683374)

8 ways to boost your cash flow. By: Waisberg, Deena. Profit, Jun2006 Profit 100, p17-17, 2/3p; (AN 21381351)

satellites’ useful life is only seven years due to the intensity of the sun’s rays.

With reference to the scenario, answer the following questions:

1. What is the accounting implication in this situation and why?

2. What promulgated accounting standard should be followed? Provide your rationale.

3. How and when should this discovery be recorded in the financial statements of the company? Explain your response.

4. If the company issues quarterly financial statements and the discovery is made in the third quarter, should this impact be shown prospectively or retroactively and in what specific time period? Explain your response.

5. As the accountant, what would you recommend to management and why? Prepare a white paper addressing the accounting implications. Explain your rationale.

7 Performance measurement from an internal and external

Valuation methodologies matter. By: Hughes, Carl. LP/Gas,

Research the FASB and AICPA Web sites. On the

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perspective Financial analysis, ratio

computations and interpretation for profitability, solvency and organizational liquidity

Consolidated financial statements, foreign subsidiary reporting and accounting for investments and goodwill

Dec2006, Vol. 66 Issue 12, p12-12, 1p; (AN 24205714)

Accounting Consistency- Key to Stockholder Information. By: McCosh, Andrew M.. Accounting Review, Oct67, Vol. 42 Issue 4, p693, 8p, 4 charts; (AN 4511770)

Kane, G. (1997). Accounting for Transfers of Financial Assets Under SFAS No. 125 Risks and rewards are out, and control and financial components are in. The CPA Journal. http://www.nysscpa.org/cpajournal/1997/0397/features/f14.htm

FASB Web site, identify the promulgated accounting literature that is currently under review, in draft form, or on the EITF agenda. Identify the promulgated accounting literature that relates to goodwill and revenue recognition. After reviewing the literature, provide a 1–2 paragraph response for each of the following questions:

1. Are there any EITF pronouncements issued or underway and what are they? What issues do they address?

2. What are the major pronouncements that provide authoritative guidance?

3. Identify a current company that has addressed these issues in its financial reporting and discuss its approach. (To select a company, visit http://finance.yahoo.com/ and type the company's stock symbol and review its SEC 10K filings.)

4. How has accounting literature on this topic evolved from ARBs to FASBs?

8 Annual Report analytical review and investment considerations

TBD by Instructor Final Paper

Pick a topic or topics relevant to the course and conduct a

Research Paper

See below for specific discussions on the final paper due on the last day of class. Be sure to begin this

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literature review. Evaluate current issues, discuss any controversies or differences of opinion that exist in the literature and propose recommendations for the future. Cite your sources using APA format. Paper length TBD by instructor.

assignment as soon as you can as it will require in-depth research and analysis.

One report in APA style (10 pages) will be due at the end of class along with presenting your findings to the class. At the end of the readings, and select one of the accounting issues.

1. Visit the FASB website and identify what are some of the issues and the current resolution.

2. Identify a company that is currently faced with this accounting issue.

3. Examine the company’s recent 10K and 10Q SEC filings to see how the organization has addressed this issue to the users of the financial statements.

4. In your own opinion, are the disclosures adequate? What other information may need to be disclosed? With the final resolution of the FASB issue, how will this impact the company’s income statement and balance sheet?

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Identify any recommendations that you would provide to the company’s management team based on your analysis.

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Grading Criteria

Grading ScaleGrading requirements

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A 100 – 93A- 92 – 90B+ 89 – 88B 87 – 83B- 82 – 80C+ 79 – 78C 77 – 73C- 72 – 70F 69 and below

Attendance/participation 25%Weekly Assignments 20%Final paper 35%Optional 10%Optional 10%

100%

LibraryAll resources in Argosy University’s online collection are available through the Internet.  The campus librarian will provide students with links, user IDs, and passwords. 

Library Resources: Argosy University’s core online collection features nearly 21,000 full-text journals and 23,000 electronic books and other content covering all academic subject areas including Business & Economics, Career & General Education, Computers, Engineering & Applied Science, Humanities, Science, Medicine & Allied Health, and Social & Behavior Sciences.  Many titles are directly accessible through the Online Public Access Catalog at http://library.argosy.edu.  Detailed descriptions of online resources are located at http://library.argosy.edu/libweb/resources/

In addition to online resources, Argosy University’s onsite collections contain a wealth of subject-specific research materials searchable in the Online Public Access Catalog.  Catalog searching is easily limited to individual campus collections.  Alternatively, students can search combined collections of all Argosy University Libraries.  Students are encouraged to seek research and reference assistance from campus librarians.

Information Literacy: Argosy University’s Information Literacy Tutorial was developed to teach students fundamental and transferable research skills. The tutorial consists of five modules where students learn to select sources appropriate for academic-level research, search periodical indexes and search engines, and evaluate and cite information. In the tutorial, students study concepts and practice them through interactions. At the conclusion of each module, they can test their comprehension and receive immediate feedback. Each module takes less than 20 minutes to complete. Please view the tutorial at http://library.argosy.edu/infolit/

Academic Policies

Academic Dishonesty/Plagiarism: In an effort to foster a spirit of honesty and integrity during the learning process, Argosy University requires that the submission of all course assignments represent the original work produced by that student. All sources must be documented through normal scholarly references/citations and all work must be submitted using the Publication Manual of the American Psychological Association, 5th Edition (2001). Washington DC: American Psychological Association (APA) format. Please refer to Appendix A in the Publication Manual of the American Psychological Association, 5th Edition for thesis and paper format. Students are encouraged to purchase this manual (required in some courses) and become familiar with its content as well as consult the Argosy University catalog for further information regarding academic dishonesty and plagiarism.

Scholarly writing: The faculty at Argosy University is dedicated to providing a learning environment that supports scholarly and ethical writing, free from academic dishonesty and plagiarism. This includes the proper and appropriate referencing of all sources. You may be asked to submit your course assignments through “Turnitin,” (www.turnitin.com), an online resource established to help educators develop

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writing/research skills and detect potential cases of academic dishonesty. Turnitin compares submitted papers to billions of pages of content and provides a comparison report to your instructor. This comparison detects papers that share common information and duplicative language.

Americans with Disabilities Act Policy

It is the policy of Argosy University to make reasonable accommodations for qualified students with disabilities, in accordance with the Americans with Disabilities Act (ADA). If a student with disabilities needs accommodations, the student must notify the Director of Student Services. Procedures for documenting student disability and the development of reasonable accommodations will be provided to the student upon request.

Students will be notified by the Director of Student Services when each request for accommodation is approved or denied in writing via a designated form.  To receive accommodation in class, it is the student’s responsibility to present the form (at his or her discretion) to the instructor.  In an effort to protect student privacy, the Department of Student Services will not discuss the accommodation needs of any student with instructors. Faculty may not make accommodations for individuals who have not been approved in this manner.

The Argosy University Statement Regarding Diversity

Argosy University prepares students to serve populations with diverse social, ethnic, economic, and educational experiences. Both the academic and training curricula are designed to provide an environment in which students can develop the skills and attitudes essential to working with people from a wide range of backgrounds.

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