This course provides a conceptually sound and comprehensive treatment of the complex, developing, and imperfectly consistent financial reporting (i.e., accounting and...More >>
This course provides a conceptually sound and comprehensive treatment of the complex, developing, and imperfectly consistent financial reporting (i.e., accounting and disclosure) rules for financial instruments and structured financial transactions.
Two related facts provide the context for this course. First, market participants continually design new financial instruments and transactions and these new financial products often stress existing financial reporting rules. Second, the half-lives of financial reporting rules for financial instruments and transactions are short, perhaps about five years. For example, the FASB currently is engaged in major projects on financial reporting for: (1) financial instruments, with separate parts for classification and measurement and credit impairment, with final standards currently scheduled to be issued in the second half of 2014; and (2) leases, with no scheduled date to issue a final standard. The FASB also has minor projects on insurance contracts, repurchase agreements, and variable interest entity consolidation as well as research projects on hedge accounting and interest rate risk disclosures. Whether and when final standards will be issued is hard to predict, however. Substantial delays in many of these projects has occurred because the these projects were jointly conducted with the IASB beginning in 2008, but attempts to converge U.S. GAAP with IFRS since then typically have met with failure, with the boards ultimately agreeing to disagree.
Reflecting these facts, a primary goal of this course is to provide students with the intellectual tools to understand new financial reporting rules for financial instruments and transactions as they are written. Such understanding requires an awareness of the economically important features of the transactions and how these features generally are (and logically can be) only partly captured by financial reporting rules. This understanding is particularly important for auditors, who increasingly are expected to be able to understand complex accounting issues and to explain them to non-accountants.
Relatedly, a second primary goal of the course is for students to learn how to conduct GAAP research on complex accounting issues. This task involves reading the relevant GAAP rules, spending the often considerable time necessary to determine how those rules apply to the facts and circumstances of specific transactions, and addressing the ambiguity that sometimes remains regarding GAAP compliance and appropriate financial report disclosures. We will discuss problems and cases to help you learn how to conduct this research and the issues you should consider when faced with ambiguity. Auditors' career progress, legal exposures, reputations, and sense of self-worth can depend on how they (induce their clients to) resolve this ambiguity.
Often, the simplest and best way to do so is for auditors to encourage their clients to make transparent disclosures.