Review of Module 1

Fall 2017
Course Roadmap

1. Measuring performance—measuring period by period performance of

the firm using accrual accounting. (9 sessions)
2. Analyzing performance—analyzing performance of the firm and its sub-
units – including divisions, customers, and products – transfer pricing,
using activity based costing, quality of earnings, and financial ratios. (5
sessions)
3. Driving performance—using performance management systems to execute
strategy and manage risks. (9 sessions)
4. Communicating performance—understanding the role of boards, auditors,
analysts, institutional investors and regulators in financial reporting and
corporate governance. (5 sessions)

2
A Quick Review of Concepts,
Classes 1 through 9

FRC – FALL 2017

Kansas City Zephyrs Baseball Club

1. Role of cash accounting vs. accrual accounting

 Period performance measurement
 Jointness (sharing of economics across time or corporate units)
 Relevance vs. Reliability

2. Accounting = Economic Reality + Measurement Error + Bias

3. Introduction to many topics to be addressed more in detail later in the course:

 Revenue recognition
 Capitalization vs. Expense
 Conservatism
 Matching
Chemalite

1. Systematic relationships between Balance Sheet, Income Statement,

and Statement of Cash flows

2. Accounting Equation: A = L + E

3. Basic Journal Entries

4. Introduction to manufacturing inventory (RM, WIP, FG)

Accounting for the iPhone at Apple

1. Revenue recognition criteria

2. Implications for profitability

3. What options exist if you believe that accounting

standards do not faithfully represent your business?
 Non-GAAP (pro-forma) reporting
 Possible to lobby to change accounting standards
Accounting Turbulence at Boeing

1. Asset recognition criteria

2. Flow of manufacturing costs

 Raw materials  WIP  Finished Goods

3. Cost of Goods Sold using Program Accounting vs. Unit Cost

4. How does accounting help communicate business strategy?

5. How does accounting help create accountability?

Netflix: Valuing a New Business Model

1. Expense recognition

2. Depreciation/Amortization
 How are assets consumed (and expensed)?
 Implications on the profitability of the firm

3. Off Balance Sheet Items

 Footnotes
Accounting for Political Risk at AES

1. Accounting for risk

 Assessing/Measuring risk
 Representing risk in accounting statements

2. Asset impairment

3. Accounting for bad debts

Accounting for Nuclear Power Provisions at RWE

1. Liability recognition criteria

2. Setting up provisions
 Accounting for long-term obligations

3. Present value calculation

4. How does accounting help to assess future business performance?

Mike Mayo Take on Citigroup

1. Creation of deferred tax assets and liabilities

2. Requirements for consumption of DTA and DTL

3. Profitability signaling

4. How does accounting help to assess future business

performance?
Land Securities Group: Choosing Cost or Fair Value on
Adoption of IFRS

1. Assets valuation:
 Fair Value
 Cost Model
 Revaluation Model
 Relevance and Reliability