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LOYOLA MARYMOUNT UNIVERSITY
College of Business Administration
COURSE OUTLINE – FALL 2004
COURSE:
MBAJ 698-01
SS Accounting Ethics & Corporate Governance
PROFESSOR:
Dr. Steven M. Mintz, CPA
TELEPHONE:
338-8791
OFFICE HOURS:
MW: 11:00am – 1:00pm
W:
5:00pm – 7:00pm
AND BY APPOINTMENT
E-MAIL ADDRESS:
OFFICE:
Hilton # H311
smintz@lmu.edu
TEXTS AND RECOMMENDED MATERIALS:
Required Texts:
1. The Financial Numbers Game: Detecting Creative Accounting Practices, by
Mulford & Comiskey, John Wiley & Sons (Publishers), 2002.
2. A Blueprint for Corporate Governance: Strategy, Accountability, and the
Preservation of Shareholder Value, by Kaen, American Management
Association (AMACOM) (Publishers), 2003.
Recommended Materials:
1. The Wall Street Journal (Highly recommended).
2. Business Week.
Recommended Websites:
1. www.aicpa.org
2. www.calpers-governance.org
3. www.cfenet.com
4. www.cfo.com
5. www.corpgov.net
6. www.ecgi.org
7. www.fasb.org
8. www.nysscpa.org
9. www.pcaobus.org
10. www.sec.gov
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Grading Distribution
Course Grading
A = 93-100
A- = 90-92
B+ = 87-89
B = 83-86
B- = 80-82
C = 70-79
Midterm Exam
Group Case =
Term Paper =
SEC Assignment =
Final Exam =
Total =
20%
20%
25%
15%
20%
100%
LEARNING OBJECTIVES FOR ACCOUNTING ETHICS
& CORPORATE GOVERNANCE
This is a multidisciplinary course that draws on one’s knowledge of accounting, business,
corporate governance and ethics. The course objectives are as follows:
1. To understand the role of accounting in society and, in particular, how a
company’s financial statements depict its financial health.
2. To understand the role of the independent audit in providing assurance about the financial
health of a company.
3. To be able to identify earnings management techniques that can be used to portray
a level of profitability and financial position that may not be warranted.
4. To know what are the ethical obligations imposed on accountants and auditors in
the performance of their professional services.
5. To understand the role of the modern corporation in society and the claims to
corporate resources of the shareholders and other stakeholders.
6. To know what are the elements of a corporate governance system and how
corporate governance techniques protect the interests of the shareholders and
other stakeholders.
7. To work in a group setting to analyze an ethical dilemma in accounting and be
able to make a classroom presentation.
8. To know how to conduct independent research on earnings management issues
related to the recent accounting scandals and write a paper on your findings.
9. To be able to research issues on the SEC website related to financial institutions
and how they were involved in the recent accounting scandals.
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Student Commitment
Responsible behavior is a must in this course. This means all students should adhere to the
following top ten list of ethical practices:
10. Think about the material being presented by engaging yourself in reflective learning.
Ask yourself:
 What does it mean?
 How does it relate to other course material?
 What is its purpose? That is, how does it help to present fair and accurate financial
statements and protect the public interest?
9. Read each chapter before it is discussed in class. Come prepared. Be ready to answer
questions asked of you.
8. Participate in class discussions. Raise your hand. Ask questions. You’ll learn more that
way and enjoy the classes.
7. Come to class on time and don’t leave early. I realize from time to time outside activities
may prevent you from living up to this expectation. Please clear any such occasions with
me in advance. It’s a matter of respect and responsibility.
6. Work independently on all individual assignments and, of course, examinations. You’ll
learn more and make your professor happy.
5. Complete assignments regularly. Group discussion and consultation is an effective way to
learn the material and develop answers to homework questions but you must hand in your
own work.
4. Attend classes consistently and take all examinations. Make-up exams will not be given
except for unusual and/or emergency-type situations.
3. For the group project, be sure to participate in your group’s discussions. Don’t let the
other members do your work for you. Pull your own weight.
2. Write your own term paper. This is an individual project not a group activity. Don’t
even think of buying a term paper on the internet.
1. Be respectful of each other, your professor, and the learning environment created in the
classroom. I pledge to act the same way towards you.
Group Case Project
There are four case studies to choose from. The class will be divided into groups. To a limited
degree, you will be able to select group members and cases although the final case assigned to
your group will be based on accommodating as many students’ first or second preferences as
possible.
Case Assignment
To make a 15-20 minute presentation summarizing the facts of the case, stakeholders and ethical
issues, and responding to the specific question at the end of the case. All students must
participate in the group presentation.
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Selections of Cases from the Following to be handed Out
1.
2.
3.
4.
Edvid, Inc.
Imperial Valley Thrift & Loan
Sweat Hog Construction Company
Creative Toys, Inc.
Term Papers/Topic Areas: All Students
A 10-15 page term paper should be written on one of the following accounting scandals:
1.
2.
3.
4.
5.
Adelphia
Enron
Global Crossing
Health South
Parmalat
6. Rite Aid
7. Sunbeam
8. Tyco
9. WorldCom (MCI)
10. Xerox
The following issues should be discussed and other issues relevant to your case should be added:








Describe the accounting fraud(s) in detail.
What were the effects on the company’s financial statements? Over what period of time?
Who were the main perpetrators of the fraud?
How was the fraud detected and disclosed to the SEC?
What was the role of the external auditors?
What was the role of the audit committee and board of directors?
Did the corporate governance systems fail? Why or why not?
What recommendations do you have to avoid similar frauds in the future? Be specific.
Class Presentations on the Settlement between the SEC and Financial Institutions Related
to Accounting Scandals Including Enron and WorldCom: MBA Students Only
A 15-20 presentation should be made that explains the settlement agreement between the SEC
and financial institutions (www.sec.gov) that result from their role in facilitating accounting
scandals at companies such as Enron and WorldCom. In your presentation it is important to
touch upon the following issues, at a minimum:






A description of the role of the institutions that led to the SEC’s investigation and how
the actions of these companies affected the marketplace during the scandals.
Why there is a conflict between the financial analysis and investment banking roles of
financial institutions.
What did they do? Why did they do it?
Examples of how these conflicts played out in the accounting scandals.
The stakeholders that were affected by the actions of financial institutions.
The terms of the settlement between the SEC and financial institutions.
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
Your opinion on whether the changes embodied in the SEC settlement go far enough to
prevent any future Enron and WorldCom situations, and whether these changes truly
protect the public investor’s interests.
COURSE OUTLINE – HOMEWORK ASSIGNMENTS
Date
W, 9/1
W, 9/8
W, 9/15
W, 9/22
W, 9/29
W, 10/6
W, 10/13
W, 10/20
W, 10/27
W, 11/3
W, 11/10
W, 11/17
W, 11/24
W, 12/1
W, 12/8
W, 12/15
Topics
Overview & Orientation
The Role of Accounting & Auditing
Earnings Management: Institutions & Regulation
Earnings Management: Techniques &
Financial Reporting Effects
Creative Accounting: Income & Cash Flow Effects
Discussion about Ethics in Accounting
Group meetings on ethics cases
Video presentation
Midterm Exam
Ethical Challenges to Financial Institutions
Group meetings on ethics cases
Ethics case presentations
Corporate Governance and Financial Markets
Corporate Governance: Valuation, Investment &
Financing Issues
Presentations on Financial Institutions/SEC
Video presentation
Corporate Governance: Executive Compensation,
Board of Directors and Shareholder Rights
Corporate Governance in the International
Environment: UK, Germany & Japan
Discussion of accounting scandals
Discussion about final exam
Assignment
To be handed out
Mulford pages 1-56
Mulford pages 57-158
Final Exam
AMACOM Text
Mulford pages 159-278
Mulford pages 279-378
Case assignments
---------Mulford Text
To be handed out
All student group presentations
AMACOM pages 1-55
AMACOM pages 57-116
MBA group presentations
AMACOM pages 117-186
AMACOM pages 187-210
Term Papers Due
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Explanation of Material Covered in Topics
Date(s)
9/8
Specific Material Covered
Purpose of financial statements
Role of auditing and ethics in accounting
Proper income determination
 Revenue recognition principle
 Matching
9/15&22
Techniques of earnings management
 Premature revenue recognition (Tyco)
 Improper cost allocation (WorldCom)
 Use of off-balance sheet transactions (Enron)
 Improper disclosures (all)
Pressures on top management
 Financial analysts’ expectations
 Meet or exceed budgets
 Get the stock price up
 Executive stock options
 Debt covenants
Institutional response
 Role of financial analysts & investment bankers
 SEC Response
 Sarbanes-Oxley Act (SOA)
 Public Company Accounting Oversight Board (PCAOB)
9/29
Cash flow effects
Pro forma earnings
Role of the audit committee
Internal controls – Section 404 of SOA
PCAOB audit standards
10/20
Corporate governance: elements and functions
 Agency theory
 Stakeholder theory
Audit and non-audit fees
Responsibilities of corporation to shareholders
 Institutional investors
 Shareholder rights
11/3&10
Valuing corporate stock
Investment alternatives
Shareholder conflict
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 With managers
 With creditors
Informational asymmetry
11/24
CEO pay packages
Abusive earnings manipulation
Mergers & acquisitions
Board of director responsibilities
 Board liabilities
 Board member insurance
Maximizing shareholder wealth
12/1
Corporate governance systems outside the U.S.
 UK
 Germany
 Japan
International corporate governance: Convergence or diversity?
The Parmalat scandal