Financial Accounting 2

Catalog description

In Accounting 1, students learn about the four basic financial statements — their preparation and the rules of debit and credit. This course revisits those accounting topics in greater depth and from the perspective of a financial statement user. In so doing, we place particular emphasis on managerial discretion and the potential for earnings manipulation. That is, managers can use the flexibility afforded by accounting rules to allow their company’s financial statements to better communicate the underlying economics of the firm. Or, managers can potentially exploit the rules in order to manipulate earnings opportunistically. Understanding where accounting rules afford discretion helps stakeholders form opinions about the quality of the financial statements and the extent to which they appropriately reflect the underlying economic value of the entity. Along the way, we look at some “good” examples — and some “horrible” warnings — using the documents public companies file with the SEC as well as examining shareholder lawsuits where investors allege wrongdoing by companies (and often their accountants). When you have completed this course, you should understand: (1) how to use financial accounting statements and related documents to make business decisions, and (2) how business transactions affect those financial statements. Achievement of these goals requires an understanding of the basic principles that underlie accrual accounting, taught in Accounting 1, as well as an appreciation of the amount of judgment required in applying these principles. Ultimately, knowing when and how managers have discretion over the application of accounting rules (and examining when they might have incentive or ability to abuse that discretion) helps you be a better-informed investor, customer, lender or other stakeholder in the economy. Indeed, an understanding of financial accounting…