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New Courses on Financial ReportingMay, 2003 In the last two years, no areas of management have come under greater scrutiny than financial reporting and corporate governance. The most egregious lapses have made everyone aware of the enormous price paid by employees, investors, and the U.S. capital markets. Executives now find themselves in an era of reform: New York Attorney General Eliot Spitzer extracted $1.4 billion in fines from 12 investment banks. The Sarbanes-Oxley Act, requiring that corporate boards include a certified financial expert and adopt an ethics code for CEOs and CFOs, has been characterized as the greatest change in financial reporting since the Securities Act of 1933. The White House is significantly bolstering the Securities and Exchange Commission budget. While reform is welcome, expect confusion. When you're an executive or board member, how do you ensure that financial reporting is accurate—to the spirit, as well as the letter, of the law? It's a brave new world. And to address it, the Graduate School of Business has added to its considerable teaching emphasis on financial reporting with a new Spring MBA elective, Financial Reporting and Corporate Governance. At the same time, the School is developing an Executive Education course, Corporate Governance: Effective Oversight for Today's Board Members, to be offered to board directors in late May. "The quality of financial reporting has always been an important issue, but the cases we've seen are vivid reminders of how essential it is to have credible financial reporting," says William Beaver, the Joan E. Horngren Professor of Accounting. The Spring elective will be co-taught by Business School and Law School professors to students from both schools. It will cover securities law and the management direction needed to ensure that accounting reflects reality. The faculty members behind the course have been immersed in studying financial reporting controversies for years. The Business School team of accounting professors includes Beaver, who is a giant in the field of financial reporting and an expert witness in securities litigation; Mary Barth, a member of the International Accounting Standards Board, which aims to bring consistency to international rules; and Maureen McNichols, a leading researcher on earnings management and the incentives and biases of securities analysts. They will teach alongside Law School professors Joseph Grundfest, a former SEC commissioner and nationally known expert in securities law, and Kenneth Scott, a specialist in bank regulation and securities. For MBAs, financial reporting has been taught in the core course Introduction to Accounting for as long as anyone can remember. Global Financial Reporting and Evaluating Financial Statement Information have been around for more than two decades too. "Fifteen years ago, professors worked overtime to find examples of financial manipulation," says McNichols, who recalls one of the few cases for teaching such issues was about Harnischfeger, a heavy machinery company that cooked the books in 1984 by boosting earnings with aggressive assumptions. "By the early nineties, we saw a few more," says McNichols, who is the Marriner S. Eccles Professor of Public and Private Management. "By the late nineties, examples were everywhere," she said, recalling the 1998 case of Sunbeam, which stretched the definition of revenue so far that it resulted in the firing of CEO Al Dunlap. Boston Chicken understated bad debt expenses and exploited GAAP rules so investors couldn't see what trouble the company was in. Signature Resorts went bankrupt after understating bad loans and aggressive revenue recognition. Even blue chips like IBM came under SEC scrutiny and were warned. "I'm very impressed with how often the students are outraged at some of the things they see in the cases," says McNichols. "It bodes well for the next generation." The new Executive Education program for board members will bring together eight Business School faculty members: McNichols, Barth, Beaver, Littlefield Professor of Management Robert Burgelman, Kimball Professor of Organizational Behavior Roderick Kramer, Dean Witter Professor of Finance and Management George Parker, accounting professor Madhav Rajan, and Scully Professor of Economics D. John Roberts. Unlike the MBA elective, it does not cover law and focuses exclusively on management and reporting issues. Boards have not necessarily been oriented to think about financial reporting oversight. "The program aims to bring directors from varying professional backgrounds up to speed on issues that are essential to financial reporting credibility," says Barth, who is the Atholl McBean Professor of Accounting. —BARBARA BUELL |
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Executive Education MBA Courses Cases
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New
Courses on Financial Reporting
