AC330
Financial Accounting, Analysis and Valuation
Thursdays, 15.00, Old Theatre (OT)
Prof Name: Dr. Jose M. Carabias
Email address: j.m.carabias-palmeiro@lse.ac.uk
Office Location: Old 2.13
Office Hours: Mondays 13.00-14.55
In order to provide students with the most relevant and up to date materials, I update the course
content regularly and as such the course syllabus is always evolving. The most updated materials
will always be made available through Moodle. Any significant changes (if any) will be
communicated to you by appropriate means.
Course Description:
The course addresses the theory and practice of financial reporting from a valuation perspective.
Accounting practices are examined in the light of historical development, theories of income and
capital and other approaches to accounting theory and practice within the context of business
analysis and valuation.
Course Objectives:
Within the overall course objectives, the intended learning outcomes for this term’s module are
that at the end of the course students should have acquired an understanding of key aspects
of financial accounting and its implications for equity valuation; the ability to critically analyse
equity research reports; the ability to derive likely impacts of alternative accounting conventions
on financial statements; and the ability to relate the information in financial statements to stock
prices and stock returns.
Lectures:
The lectures are given on Thursdays 1505 to 1655 in in OLD OT (with a 10 minute break) in Weeks
1-10. In accordance with current Departmental policy, this session’s lectures WILL be videoed and
available 2 weeks afterwards. Copies of lecture slides will be available on Moodle. A visiting
lecture by a former Financial Reporting Manager at ICAEW is expected in Week 7. This course
programme and reading list covers the lectures for Lent term only, which build on (and assume
knowledge of) those given in Michaelmas term by Dr Stefano Cascino.
Classes:
Classes begin in Week 2 and run through Weeks 2-11 (with a revision class in Week 1 of Summer
term). Classes will be based on a good mix of analytical exercises, business case discussions and
students presentations and are intended to encourage live discussions and students’ class participation.
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Attendance and Absences:
• Attendance is expected and will be taken each class. You will get a warning email if you miss
two consecutive weeks. Students missing many of their classes, could be barred from taking
their summer exams.
• Students are responsible for all missed work, regardless of the reason for absence. It is also
the absentee’s responsibility to get all missing notes or materials.
Exam:
• The exam will take place during the Summer Term (ST) and will account for 80% of your
grade.
• There has been a change in the structure of this part of this course starting from this year. I
will provide a mock exam in order to familiarize students with the new structure by week 6.
Assignments:
• Introduction
- The final mark for AC330 will be composed of:
(i) 10% summative coursework (in the Michaelmas Term);
(ii) 10% summative coursework (in the Lent Term (LT); and
(iii) 80% final examination in Summer Term (ST).
- This document includes only the details of the 10% summative coursework in the Lent
Term for AC330.
• Summative Assesment
- This piece of coursework requires your team to critically evaluate the conclusions reached
in a given piece of equity research from a sell-side investment bank and present your
findings in class. More specific details about the summative assessment policies are
provided below:
i. Attendance to classes is compulsory. No mark will be awarded to students who are
absent during their presentation time.
ii. Each student will be allocated to a group and there will be 4 groups per class. Group
presentations will take place during your assigned class. Groups 1 and 3 will present
during week 8 and groups 2 and 4 during week 9. Groups have been allocated randomly. We would be looking at about 20 minutes group oral presentation and 5 minutes
’questions and answers’ per group.
iii. The relevant materials for your summative assesment will be made available within your
second course pack by the beginning of week 5.
iv. Your group powerpoint slides are to be submitted online via Moodle individually
by 9:30am on Monday of week 8. All group members need to submit the same
group powerpoint slides individually. No mark will be awarded for students who fail to
submit their group powerpoint slides on Moodle.
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v. The presentation may make use of any multimedia tools your group wish, for example interactive polls, videos, etc. Your group should aim to make the presentation as
professional, polished, imaginative and as interesting as possible.
vi. Class teachers will not accept group presentation slides handed in or emailed to them
directly. LSE’s General Academic Regulations on Late Assessment Submission apply
here. If there was an exceptional circumstances affecting the presentation and submission
of the powerpoint slides, please contact the Course Leader and Lecturer as soon as
possible.
vii. LSE’s Regulations on Assessment Offences: Plagiarism apply here. All materials used
to prepare the group presentation need to be accordingly referenced. You must ensure
that you always cite the source of information when you present an idea or point that
you have read from somewhere else, or you have produced somewhere else. Otherwise,
you might be in danger of plagiarising someone else’s or your own work. All quotations
should include page numbers and be attributed to works in the list of references.
• Formative Assesment
– You will receive early feedback on your performance by handing out a piece of written
work based on your week 3 class exercise ”Coca-Cola: Residual Income Valuation”. At
the beginning of week 2, you will receive via Moodle an excel template for you to do
your workings. There will be a specific sheet which is designed to serve as a solution
template with the key accounting constructs we will be looking for when grading your
assignment. Do not alter any of the contents of that specific sheet or otherwise
we would not be able to provide you with any feedback.
– Your excel file should be submitted online via Moodle individually by 9:30am
on Monday of week 3. Important save your file using your LSE ID number.
For example, if your LSE ID number is 201625313, save your excel file as
’201625313.xlsx’. If you fail to do so, we will be unable to provide you with
feedback. You will be explained all these at the end of class in week 2.
Course Outline:
Week
Content
Week 1
• Course Introduction
• Reading: Beaver, W.H., 1998. ”Financial reporting: an accounting revolution.” (3er Edition). Upper Saddle River, NJ: Prentice Hall. Chapters 1, 3.
Week 2
• Reformulation of Financial Statements
• Reading: Penman, Stephen H., ”Financial statement analysis and security
valuation.” (5th Edition, 2012). Chapters 8, 9.
• Class Exercise: Kansas City Zephyrs Baseball Club, Inc (Harvard Business
School)
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Week
Content
• Revenue Recognition
• Readings:
1. IFRS 15 Revenue from Contracts with Customers. https://www.ifrs.org
Week 3
2. Prakash, R. and Sinha, N., 2013. ”Deferred revenues and the matching
of revenues and expenses.” Contemporary Accounting Research, 30(2),
pp.517-548.
• Class Exercise: Coca-Cola: Residual Income Valuation (Harvard Business
School). To be submitted for formative assessment.
• Inventory: Implications for Cost of Goods Sold
• Readings:
Week 4
1. IAS 2 Inventories and IAS 41 Agriculture. https://www.ifrs.org
2. Sunder, S., 1975. ”Stock price and risk related to accounting changes in
inventory valuation.” The Accounting Review, 50(2), pp.305-315.
• Class Exercise: Arbilt Contracting Plc
Week 5
• Property, Plant and Equipment: Implications for Depreciation Expenses
• Reading: IAS 16 Property, Plant and Equipment. https://www.ifrs.org
• Class Exercise: ”High” Profits From Accounting For Cannabis Plant Inventory
(Cambridge Judge Business School)
• Recognition in the Balance Sheet: Intangibles
• Readings:
1. IAS 38 Intangible Assets. https://www.ifrs.org
Week 6
2. Trueman, B., Wong, M.F. and Zhang, X.J., 2000. ”The eyeballs have
it: Searching for the value in Internet stocks.” Journal of Accounting
Research, pp.137-162.
• Class Exercise: Depreciation at Delta Air Lines: The ’Fresh Start’ (Harvard
Business School)
Week 7
• Asset Impairments and The Move Towards Fair Value (with guest
lecturer)
• Reading: IAS 36 Impairment of Assets. https://www.ifrs.org
• Class Exercise: Facebook’s Acquisition of WhatsApp: The Rise of Intangibles
(University of Virginia Darden School)
Week 8
• Accounting for Debt
• Reading: IFRS 9 Financial Instruments. https://www.ifrs.org
• Class: Summative assessment. Groups 1,3 presentation.
Week 9
• Accounting for Leases
• Reading: IFRS 16 Leases. https://www.ifrs.org
• Class: Sumative assessment. Groups 2,4 presentation.
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Week
Content
• Value Investing
• Readings:
Week 10
1. Penman, Stephen H., ”Financial statement analysis and security valuation.” (5th Edition, 2012). Chapters 5,6
2. Sloan, Richard G., Fundamental Analysis Redux (May 9, 2018). Available
at SSRN: https://ssrn.com/abstract=3176340
• Class Exercise: H&L Pines (Ivey Publishing)
Week 11
• Class Exercise: Letsleasagen Plc
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