Fachspezifische Grundlagen Accounting WS 2013/14 Course Outline 1 (01.10.2013)

Lecturer: Room: Phone: Email: Office hours:

Prof. Dr. Christian Hofmann Ludwigstraße 28 RG / Room 501 089 2180 2302 [email protected] by appointment

Assistant: Room: Phone: Email: Office hours:

Viktoria Diser Ludwigstraße 28 RG / Room 523 089 2180 3233 [email protected] by appointment

Assistant: Room: Phone: Email: Office hours:

Debbie Claassen Ludwigstraße 28 RG / Room 524 089 2180 3887 [email protected] by appointment

Course Description This course considers accounting from an information content perspective. In particular, the course formalizes the concepts of uncertainty and information, and constructs a theoretical perspective that treats accounting as a source of information. Thereby, the course covers both financial and managerial accounting. The main goal of the course is to convey the economic fundamentals of accounting and provide a coherent theoretical framework for analyzing accounting rules and accounting information systems. After participating in the course, students will gain a better understanding of the economic forces that influence the value and relevance of current accounting practices. Course Structure The course consists of weekly lectures (2 SWS) and tutorials (4 SWS).

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Please pay attention to actual announcements on our website (www.iuc.bwl.uni-muenchen.de). Syllabus zu Fachspezifische Grundlagen Accounting – WS 2013/14, Seite 1

The lectures and the tutorials are held in English. During the lectures, theoretical concepts behind accounting will be taught. During the tutorials, you will learn how to apply these concepts to exercises and problems. Moreover, during the tutorials the participants will make a short presentation on an assigned topic. The presentations are intended to facilitate the discussion about the strengths and limitations of accounting analysis and to promote students’ understanding of the efficient use of accounting information. On the next pages you will find further information on topics and the organization of the lectures and tutorials. We expect you to prepare for the lecture and the tutorial. For further information, please visit www.iuc.bwl.uni-muenchen.de. Assessment The evaluation of the course consists of a 120 min. exam at the end of the semester and a short presentation during the tutorials. After successful participation in the course, 9 credit points are obtained. Exam The 120 min. exam will take place on Friday, February 7th, 2014, from 10:30 to 12:30, in the Audimax. Presentation Students are required to make a presentation of 45 min. (including discussion) in groups of 3 to 5 students during the tutorials. You will find the schedule for presentations, the topics and the corresponding literature at the end of this course outline. The presentation shall be held in English. Enrollment The students have to register for the course. Please send an e-mail to [email protected] with your name, your matriculation number and three preferences for presentation topics. We will consider your preferences if possible. You have the option to register for the course individually, or in a group of two or three students you would like to work with on the presentation. If you choose individual registration, you will be assigned to a group by the course coordinators. If you form a group with other participants of the course, please send one e-mail per group with the names and matriculation numbers of all group members. Please register for the course no later than 18.10.2013. The registration is binding and, after registration, participation in the course is obligatory. After registration and, depending on the total number of participants, the final allocation of participants to groups will take place, and each group will be assigned a topic for the presentation.

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Lecture Time slot: Room:

Tuesdays, 10:00 – 12:00 c.t. Main building / Room B 006

Class material Class material consists of a set of lecture slides, and an e-book version of “Accounting Theory: An Information Content Perspective” by J. A. Christensen and J.S. Demski (2003). Lecture slides can be found on the homepage of the Institute of Accounting & Control (www.iuc.bwl.uni-muenchen.de). The password required for downloading the slides will be provided to the students during the first lecture. The e-book is created especially for this course and contains all chapters from “Accounting Theory: An Information Content Perspective” by J. A. Christensen and J.S. Demski (2003), which will be covered during the course, including exercises. Thus, we strongly recommend purchasing the e-book. You can purchase the e-book using the following link: https://create.mcgraw-hill.com/shop/#/catalog/details/?isbn=9781121690530

Additional reading material •

Scott, W. R.: Financial Accounting Theory, 6th ed., 2012.

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Lecture Schedule No. Date

Description

E-Book

1

15/10

Introduction / The Reporting Organization

Chapters 1 & 2

2

22/10

Economic Foundations

Chapter 3

3

29/10

Accounting Foundations

Chapter 4

4

05/11

Modeling Information

Chapter 5

5

12/11

Information Use at the Individual Level

Chapter 6

6

19/11

The Accounting System as an Information Channel

Chapter 7

7

26/11

Information in a Valuation Setting

Chapter 8

8

03/12

Accounting Information in a Valuation Setting

Chapter 9

9

10/12

Chapter 10

10

14/01

Accounting and Nonaccounting Information in a Valuation Setting Information in a Managerial Contracting Setting

11

21/01

Additional Information in a Managerial Contract- Chapter 12 ing Setting

12

28/01

Conflict among Uses / Institutional Considerations

07/02

EXAM, 10:30 – 12:30 Room: Audimax

Chapter 11

Chapters 13 & 19

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Tutorial Time Slot: Room:

Wednesdays, 14:00 – 18:00 c.t. Main building / Room A 014

Tutorial Schedule No. Date

Topic

Literature

1

The Reporting Organization

Appendix to Chapter 2, Exercises 2.5, 2.6, 2.10, 2.11, 2.12

Economic Foundations

Exercises 3.5, 3.7, 3.8

30/10

2

06/11

Accounting Foundations

Exercises 4.3, 4.4, 4.7

3

13/11

Modeling Information

Exercises 5.3, 5.6, 5.8

4

20/11

Information Use at the Individual Level

Exercises 6.8, 6.11, 6.12

5

27/11

The Accounting System as an Information Channel

Exercises 7.8, 7.9, 7.10

6

04/12

Information in a Valuation Setting

Exercises 8.5, 8.6, 8.7, 8.8

7

11/12

Accounting Information in a Valuation Setting

Exercises 9.6, 9.7, 9.12

8

15/01

Information in a Managerial Contracting Setting

Exercises 11.4, 11.9, 11.14

9

22/01

Additional Information in a Managerial Contract- Exercises 12.3, 12.6, 12.7, ing Setting 12.8

10

29/01

-

-

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Schedule for Presentations

No. Date

Topic

1

30/10

-

2

06/11

(1) The Concepts of Product Cost (2) Accounting for Decision Making

3

13/11

(3) Income Measurement in Perfect Markets (4) Accounting vs. Market Value

4

20/11

(5) Information Content Perspective on Accounting (6) Income Measurement as a Source of Information

5

27/11

(7) Inference Function of the Financial Income Statement (8) Asymmetric Information in Capital Markets

6

04/12

(9) Strategic Mandatory Disclosure (10) Strategic Voluntary Disclosure

7

11/12

(11) Cheap Talk Application to Accounting (12) Foundations of the Agency Theory

8

15/01

(13) Multitask Principal-Agent Problems (14) Dynamic Performance Measurement

9

22/01

(15) Design of Accounting Information Systems with Multiple Agents (16) Communication in Principal-Agent Problems with Multiple Agents

10

29/01

(17) The Revelation Principle (18) Earnings Management and the Revelation Principle (19) Information Value in the Presence of Dual-Purpose Accounting (20) The Role of Earnings and Share Price in Compensation Contracts

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Topics for Presentation

Foundations (1) The Concepts of Product Cost •

Christensen, J. & Demski, J. S. (1995): The Classical Foundations of 'Modern' Costing, Management Accounting Research, 6(1), pp. 13–32.

(2) Accounting for Decision Making •

Christensen, J. (2010): Accounting Errors and Errors of Accounting, Accounting Review, 85(6), pp. 1827-1838.

(3) Income Measurement in Perfect Markets •

Beaver, W. H., & Demski , J. S. (1979): The Nature of Income Measurement, Accounting Review , 54(1), pp. 38-46.

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Ohlson, J. A. (1987): On the Nature of Income Measurement: The Basic Results, Contemporary Accounting Research, 4(1), pp. 1-15.

(4) Accounting vs. Market Value •

Feltham, G. A., & Ohlson, J. A. (1995): Valuation and Clean Surplus Accounting for Operating and Financial Activities, Contemporary Accounting Research, 11(2), pp. 689-731.

Modeling and Use of Information (5) Information Content Perspective on Accounting •

Liang, P. (2001): Recognition: An Information Content Perspective, Accounting Horizons, 15(3), pp. 223-242.

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Christensen, J. (2010): Conceptual Frameworks of Accounting from an Information Perspective, Accounting & Business Research, 40(3), pp. 287-299.

The Accounting System as an Information Channel (6) Income Measurement as a Source of Information •

Demski, J. S., & Sappington, D. M. (1990): Fully Revealing Income Measurement, Accounting Review, 65(2), pp. 363-383.

•

Antle, R., Demski, J. S., & Ryan, S. G. (1994): Multiple Sources of Information, Valuation, and Accounting Earnings, Journal of Accounting, Auditing & Finance, 9(4), pp. 675-696. Syllabus zu Fachspezifische Grundlagen Accounting – WS 2013/14, Seite 7

(7) Inference Function of the Financial Income Statement •

Arya, A., Fellingham, J. C., & Schroeder, D. A. (2000): Estimating Transactions Given Balance Sheets and an Income Statement, Issues In Accounting Education, 15(3), pp. 393-411.

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Arya, A., Fellingham, J. C., Glover, J. C., Schroeder, D. A., & Strang, G. (2000): Inferring Transactions from Financial Statements, Contemporary Accounting Research, 17(3), pp. 365-385.

Information in a Valuation Setting (8) Asymmetric Information in Capital Markets •

Grossman, S. J., & Stiglitz, J. E. (1980): On the Impossibility of Informationally Efficient Markets, American Economic Review, 70(3), pp. 393-408.

(9) Strategic Mandatory Disclosure •

Fischer, P. E., & Verrecchia, R. E. (2000): Reporting Bias, Accounting Review, 75(2), pp. 229245.

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Fischer, P. E., & Stocken, P. C. (2004): Effect of Investor Speculation on Earnings Management, Journal of Accounting Research, 42(5), pp. 843-870.

(10) Strategic Voluntary Disclosure •

Verrecchia, R. E. (1983): Discretionary Disclosure, Journal of Accounting & Economics, 5(3), pp. 179-194.

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Dye, R. A. (1985): Disclosure of Nonproprietary Information, Journal of Accounting Research, 23(1), pp. 123-145.

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Jung, W. & Kwon, Y. K. (1988): Disclosure When the Market Is Unsure of Information Endowment of Managers, Journal of Accounting Research, 26(1), pp. 146-153.

(11) Cheap Talk Application to Accounting •

Farrell, J., & Rabin, M. (1996): Cheap Talk, Journal of Economic Perspectives, 10(3), pp. 103118.

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Fischer, P. E., & Stocken, P. C. (2010): Analyst Information Acquisition and Communication, Accounting Review, 85(6), pp. 1985-2009.

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Information in a Managerial Contracting Setting (12) Foundations of the Agency Theory •

Holmstrom, B. (1979): Moral hazard and Observability, Bell Journal of Economics, 10(1), pp. 74-91.

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Grossman, S. J., & Hart, O. D. (1983): An Analysis of the Principal-Agent Problem, Econometrica, 51(1), pp. 7-45.

(13) Multitask Principal-Agent Problems •

Feltham, G. A., & Xie, J. (1994): Performance Measure Congruity and Diversity in Multi-Task Principal/Agent Relations, Accounting Review, 69(3), pp. 429-453.

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Holmstrom, B., & Milgrom, P. (1991): Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design, Journal Of Law, Economics & Organization, 7(2), pp. 24-52.

(14) Dynamic Performance Measurement •

Indjejikian, R., & Nanda, D. (1999): Dynamic Incentives and Responsibility Accounting, Journal of Accounting & Economics, 27(2), pp. 177-201.

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Christensen, P. O., Feltham, G. A., & Sabac, F. (2003): Dynamic Incentives and Responsibility Accounting: A Comment, Journal of Accounting & Economics, 35(3), pp. 423-436.

(15) Design of Accounting Information Systems with Multiple Agents •

Feltham, G., & Hofmann, C. (2012): Information Suppression in Multi-Agent Contracting, Review of Accounting Studies, 17(2), pp. 254-278.

(16) Communication in Principal-Agent Problems with Multiple Agents •

Hofmann, C. & Rothenberg, N. R. (2013): Interim Performance Measures and Private Information, Accounting Review, 88(5), pp. 1683-1714.

(17) The Revelation Principle •

Myerson, R. B. (1979): Incentive Compatibility and the Bargaining Problem, Econometrica, 47(1), pp. 61-73.

(18) Earnings Management and the Revelation Principle •

Dye, R. A. (1988): Earnings Management in an Overlapping Generations Model, Journal of Accounting Research, 26(2), pp. 195-235.

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Arya, A., Glover, J., & Sunder, S. (1998): Earnings Management and the Revelation Principle, Review Of Accounting Studies, 3(1/2), pp. 7-34.

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Conflict among Uses (19) Information Value in the Presence of Dual-Purpose Accounting •

Feltham, G., Indjejikian, R., & Nanda, D. (2006): Dynamic Incentives and Dual-Purpose Accounting, Journal of Accounting & Economics, 42(3), pp. 417-437.

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Arya, A., Glover, J. C., & Sivaramakrishnan, K. K. (1997): The Interaction between Decision and Control Problems and the Value of Information, Accounting Review, 72(4), pp. 561-574.

(20) The Role of Earnings and Share Price in Compensation Contracts •

Baiman, S., & Verrecchia, R. E. (1995): Earnings and Price-Based Compensation Contracts in the Presence of Discretionary Trading and Incomplete Contracting, Journal of Accounting & Economics, 20(1), pp. 93-121.

•

Bushman, R. M., & Indjejikian, R. J. (1993): Accounting Income, Stock Price, and Managerial Compensation, Journal of Accounting & Economics, 16(1-3), pp. 3-23.

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