4AF3 – Fall 2014
Commerce 4AF3
Accounting Theory
Fall 2014 Course Outline
Accounting and Financial Management Services
DeGroote School of Business
McMaster University
COURSE OBJECTIVES
This course is designed to give an overview of topics relevant to current accounting theory,
research, standard setting and practice through relevant readings and by detailed examination of
various accounting models.
INSTRUCTOR AND CONTACT INFORMATION
Name: HT Hao
E-mail: haohorn@mcmaster.ca
Office: DSB323
Office Hours: Friday 12:30-14:00 and by appointment.
Tel: (905) 525-9140 Ext: 23984
Class Time and Location:
C01 Friday 8:30-11:20 @BSB/138
C02 Friday 14:30-17:20 @KTH/B124
Course Website: http://avenue.mcmaster.ca/
COURSE ELEMENTS
Credit Value:
Avenue:
Participation:
Evidence-Based:
3
Yes
Yes
Yes
Leadership:
Numeracy:
Innovation:
Experiential:
Yes
Yes
Yes
No
1
Global View:
Written Skill:
Group Work:
Final Exam:
Yes
Yes
Yes
Yes
IT Skill:
Ethics:
Oral Skill:
Guest Speaker:
No
Yes
Yes
No
4AF3 – Fall 2014
COURSE DESCRIPTION
This course is about accounting, not how to account. Accounting students have been exposed to
the methodology and practice of accounting need to critically examine the broader implications
of financial accounting for the fair and efficient working of our economy. The objective is to
give the students an understanding of current financial accounting and reporting environment,
taking into account the diverse interests of both external users and management. Various
professional and conceptual topics will integrate research from Accounting, Finance, and
Economic journals. The journals used will be from both the academic and professional
literatures. To accomplish these implied objectives, a combination of class formats will be used
including lectures, the trading floor, seminars, case analysis and expert guest lecturers. Lectures
will be used to develop the foundation: the accounting process and accounting models
considered alternatives to GAAP. Seminars will be led by the course participants, usually in
groups of three or four members, to present and develop topics related to accounting theory and
the accounting environment. Case study will be used to link the research topics and develop
linkages from the theoretical to the practical.
LEARNING OUTCOMES
Upon completion of this course, students will be able to complete the following key tasks:
 Analyze the advantages/disadvantages of the various accounting models;
 Assess business health/performance as implied by the various accounting models;
 Conduct an assessment of a given situation from a political economy perspective;
 Begin to understand the many perspectives from which accounting can be studied.
REQUIRED COURSE MATERIALS AND READINGS
Financial Accounting Theory, 7th Edition, William R. Scott, 2015.
Avenue registration for course content, readings and case materials
• http://avenue.mcmaster.ca
EVALUATION
 Exam: We will have one comprehensive in-class examination on 9th week
(November 7). The exact scope and format of this examination will be announced
later.
Students will form group consist of 4 students to complete three group projects.
 Group Seminar Project: Each group will prepare material and lead a designated
seminar of assigned paper from selected topics (paper will be assigned once groups
are formed). This seminar is to consider and introduce a broad spectrum of material
for class discussion. Included in the seminar project will be (1) a presentation
(15%), and (2) a discussion and question period (5%). Each group needs to submit
a soft copy of presentation materials (e.g., power-point slides) including the questions
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4AF3 – Fall 2014
discussed during presentation. The total time for seminar presentation and discussion
is to be a maximum of 40 minutes. All group members are expected to participate in
the delivery and discussion of materials of the assigned paper. All students not
presenting on a given date should be prepared to participate in classroom discussion
of the topic.
 Research in Motion Case Report: The due date for this report is 4th Class
(September 26).
 Analyst Report Project (Value Investing Approach): Each group will select and
analyze a Canadian firm (the firm must be identified by the end of third class). Each
group will complete an analyst report in which a trading recommendation must be
made (in terms of buy, sell, or hold) and information and analysis used to input this
decision must also included. Students will submit the report and make a short
presentation (no more than 10 minutes) in the 12th class (November 28).
 Class Participation: Name cards are used to help give credit for your participation.
You must have a name card with your full first and last name clearly written and
displayed in front of you for every class. Participation in discussion aids in
assimilation of concepts and is an essential part of your professional development.
Classes are more interesting and intellectually stimulating if there is participation
from everyone. In order for you to gain maximum benefit from discussions, it is
essential that you complete assigned text material and/or readings in advance, as well
as attempt assigned problems. Therefore class participation marks will be awarded on
the basis of each student’s contribution to discussions, and relevant questions and
comments during lectures. Class participation is not equivalent to class attendance.
Specifically, students who fail to participate in case discussions will receive a class
participation mark of zero, regardless of regular class attendance (a separate
component). Students unable to attend class should inform the instructor before class
of the conflict.
Components and Weights
Exam
50%
Group Seminar Project
20%
RIM Case Report
10%
Analyst Report Project
10%
Class Participation
10%
100%
Total
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4AF3 – Fall 2014
NOTE: The use of a McMaster standard calculator is allowed during examinations in this course.
See McMaster calculator policy at the following URL:
http://www.mcmaster.ca/policy/Students-AcademicStudies/examinationindex.html
Conversion
At the end of the course your overall percentage grade will be converted to your letter grade in
accordance with the following conversion scheme.
LETTER GRADE
A+
A
AB+
B
B-
PERCENT
90 - 100
85 - 89
80 - 84
77 - 79
73 - 76
70 - 72
LETTER GRADE
C+
C
CD+
D
DF
PERCENT
67 - 69
63 - 66
60 - 62
57 - 59
53 - 56
50 - 52
00 - 49
Communication and Feedback
Students who are uncomfortable in directly approaching an instructor regarding a course concern
may send a confidential email to the respective Area Chair (nainar@mcmaster.ca) or the
Associate Dean (mohde@mcmaster.ca).
Students who wish to correspond with instructors or TAs directly via email must send messages
that originate from their official McMaster University email account. This protects the
confidentiality and sensitivity of information as well as confirms the identity of the student.
Emails regarding course issues should NOT be sent to the Area Administrative Assistants.
Instructors are required to provide evaluation feedback for at least 10% of the final grade to
students prior to Week #8 in the term.
Instructors may conduct an informal course review with students by Week #4 to allow time for
modifications in curriculum delivery.
Students who wish to have a course component re-evaluated must complete the following form:
http://www.mcmaster.ca/policy/Students-AcademicStudies/Form_A.pdf
In order for the component to be re-read:
•
•
•
•
•
the component must be worth 10% or more of the final grade in the course
students pay a fee of $50 in Gilmour Hall #209 (receipt is then brought to APO)
the Area Chair will seek out an independent adjudicator to re-grade the component
an adjustment to the grade for the component will be made if a grade change of three points
or greater on the 12 point scale (equivalent to 10 marks out of 100) has been suggested by the
adjudicator as assigned by the Area Chair
if a grade change is made, the student fee will be refunded
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4AF3 – Fall 2014
ACADEMIC DISHONESTY
You are expected to exhibit honesty and use ethical behaviour in all aspects of the learning
process. Academic credentials you earn are rooted in principles of honesty and academic
integrity.
Academic dishonesty is to knowingly act or fail to act in a way that results or could result in
unearned academic credit or advantage. This behaviour can result in serious consequences, e.g.
the grade of zero on an assignment, loss of credit with a notation on the transcript (notation
reads: “Grade of F assigned for academic dishonesty”), and/or suspension or expulsion from the
university.
It is your responsibility to understand what constitutes academic dishonesty. For information on
the various types of academic dishonesty please refer to the Academic Integrity Policy, located at
www.mcmaster.ca/academicintegrity.
The following illustrates only three forms of academic dishonesty:
1. Plagiarism, e.g. the submission of work that is not one’s own or for which other credit
has been obtained.
2. Improper collaboration in group work.
3. Copying or using unauthorized aids in tests and examinations.
REQUESTING RELIEF FOR MISSED ACADEMIC WORK
Students may request relief from a regularly scheduled midterm, test, assignment or other course
component in the following two ways:
a) for missed coursework worth less than 30% of the final grade (and/or absences
lasting less than 5 days); or
b) for missed coursework worth 30% or more of the final grade (and/or absences
lasting more than five (5) days
a) For missed coursework worth less than 30% of the final grade (and/or absences
lasting less than 5 days)
Students must use the MSAF (McMaster Student Absence Form) for their first incidence of
missed coursework worth less than 30% for each term. This is an on-line, self-reporting tool, for
which submission of medical or other types of supporting documentation is normally not
required. Students may use this tool to submit a maximum of one (1) request for relief of missed
academic work per term as long as the weighting of the component is worth 29% of the final
grade or less. Students must follow up with their course instructors regarding the nature of the
relief within two days of submitting the form. Failure to do so may negate the opportunity for
relief. It is the prerogative of the instructor of the course to determine the appropriate relief for
missed term work in his/her course.
If the value of the component is worth 30% or more, students must report to the APO to discuss
their situation and will be required to provide appropriate supporting documentation.
b) For missed coursework worth 30% or more of the final grade (and/or absences
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4AF3 – Fall 2014
lasting more than five (5) days
Students MUST report to the APO to discuss their situation and will be required to provide
appropriate supporting documentation. If approved, students will be given access to the MSAF
system where they will be required to enter the details of the missed coursework for which they
were approved. Students must follow up with their course instructors regarding the nature of the
relief within two days of submitting the form. Failure to do so may negate the opportunity for
relief. It is the prerogative of the instructor of the course to determine the appropriate relief for
missed term work in his/her course.
Students who wish to submit more than one request for relief of missed academic work per term
cannot use the online MSAF tool without permission. They must report to the APO and discuss
their situation with an academic advisor. They will be required to provide supporting
documentation and possibly meet with the Manager.
The MSAF cannot be used during any final examination period.
Regarding Midterm Conflicts
Students unable to write a mid-term at the posted exam time due to the following reasons:
religious; work-related (for part-time students only); representing university at an academic or
varsity athletic event; conflicts between two overlapping scheduled mid-term exams; or other
extenuating circumstances, have the option of applying for special exam arrangements. Please
see the DeGroote Missed Course Work Policy for a list of conflicts that qualify for academic
accommodation
http://ug.degroote.mcmaster.ca/forms-and-resources/missed-course-work-policy/
Such requests must be made to the Academic Programs Office at least ten (10) working days
before the scheduled mid-term along with acceptable documentation. Instructors cannot
themselves allow students to unofficially write make-up exams/tests. Adjudication of the request
must be handled by the Academic Programs Office.
If a mid-term exam is missed without a valid reason, students will receive a grade of zero (0) for
that component.
STUDENT ACCESSIBILITY SERVICES
Students who require academic accommodation must contact Student Accessibility Services
(SAS) to make arrangements with a Program Coordinator. Academic accommodations must be
arranged for each term of study. Student Accessibility Services can be contacted by phone 905525-9140 ext. 28652 or e-mail sas@mcmaster.ca. For further information, consult McMaster
University’s Policy for Academic Accommodation of Students with Disabilities.
STUDENTS WITH DISABILITIES
Students with disabilities are required to inform the Centre for Student Development (CSD) of
accommodation needs for examinations on or before the last date for withdrawal from a course
without failure (please refer to official university sessional dates). Students must forward a copy
of such CSD accommodation to the instructor immediately upon receipt. If a student with a
disability chooses NOT to take advantage of a CSD accommodation and chooses to sit for a
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4AF3 – Fall 2014
regular exam, a petition for relief may not be filed after the examination is complete. The CSD
website is: http://csd.mcmaster.ca
POTENTIAL MODIFICATIONS TO THE COURSE
The instructor and university reserve the right to modify elements of the course during the term.
The university may change the dates and deadlines for any or all courses in extreme
circumstances. If either type of modification becomes necessary, reasonable notice and
communication with the students will be given with explanation and the opportunity to comment
on changes. It is the responsibility of the student to check their McMaster email and course
websites weekly during the term and to note any changes.
DETAILS FOR ONLINE COMPONENT
In this course we will be using WileyPlus. Students should be aware that, when they access the
electronic components of this course, private information such as first and last names, user
names for the McMaster e-mail accounts, and program affiliation may become apparent to all
other students in the same course. The available information is dependent on the technology
used. Continuation in this course will be deemed consent to this disclosure. If you have any
questions or concerns about such disclosure please discuss this with the course instructor.
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4AF3 – Fall 2014
COURSE SCHEDULE
Commerce 4AF3
Accounting Theory
Fall 2014 Course Schedule
WEEK
Class 1
Sep. 5
Class 2
Sep. 12
Class 3
Sep. 19
Class 4
Sep. 26
Class 5
Oct. 3
Class 6
Oct. 10
Class 7
Oct. 17
TOPIC AND ACTIVITY
Introduction: Overview of Accounting Theory.
Information Asymmetry (Adverse Selection and
Moral Hazard). Accounting Under Ideal
Conditions. The Present Value Model Under
Certainty and Uncertainty.
The Decision Usefulness Approach to Financial
Reporting.
Agency theory, Moral Hazard
Agency theory, Moral Hazard
Positive Accounting Theory
Corporate Governance
READING ASSIGNMENT
Stott, Chapter 1 and 2
Stott, Chapters 3 and 8
Stott, Chapters 8 and 9
Stott, Chapters 10 and 11
1. Schipper. Accounting Horizons,
1989.
2. Schipper and Vincent. Accounting
Horizons. 2003.
3. Healy. JAE, 1985.
Stott, Chapters 10 and 11
4. Sweeney. JAE, 1994.
5. Han and Wang. AR, 1998.
6. John Hand. AR, 1989.
Stott, Chapters 10 and 11
7. Murphy & Zimmerman. JAE,
1992.
8. Baber, Kang and Kumar. JAE,
1998.
Positive Accounting Theory
Earnings Management
Executive Compensation
Positive Accounting Theory
Earnings Management
Executive Compensation
Executive Compensation
Earnings Management
Rim Case Report Due
Information Asymmetry, Corporate Disclosure,
and the Capital Markets: Ball and Brown. JAR,
1968. Earnings Surprises, Abnormal Returns,
Earnings Forecast. Efficient Markets,
Value Relevance of Accounting Information
8
Scott Chapters 4 and 5
9. Kasznik and McEwen. AR, 1995.
10. Healy and Palepu, Accounting
Horizons, 1993.
4AF3 – Fall 2014
WEEK
Class 8
Oct. 24
TOPIC AND ACTIVITY
Information Asymmetry, Corporate Disclosure,
and the Capital Markets: Ball and Brown. JAR,
1968. Earnings Surprises, Abnormal Returns,
Earnings Forecast. Efficient Markets,
Value Relevance of Accounting Information
READING ASSIGNMENT
Scott Chapters 4 and 5
11. Abarbanell & Bushee, AR, 1998.
12. Nichols and Wahlen. Accounting
Horizons. 2004.
Class 9
Nov. 7
Exam
Class 10
Nov. 14
Valuation Models
Chapters 6 and 7
Valuation Notes
Valuation Models and Fundamental Analysis
Chapters 6 and 7
Valuation Notes
Class 11
Nov. 21
Class 12
Analyst Report Project Presentation
Nov. 28
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4AF3 – Fall 2014
Suggested Papers for Group Seminar Project
(1) Commentary on Earnings Management, Schipper. Accounting Horizons, 1989
(2) Earnings Quality. Schipper and Vincent. Accounting Horizons. 2003
(3) The Effect of Bonus Schemes on Accounting Decisions. Healy, P. The Journal of
Accounting and Economics, 1985
(4) Debt-covenant Violation and Managers’ Accounting Responses. Sweeney. Journal of
Accounting and Economics, 1994
(5) Political Costs and earnings Management of Oil Companies during the 1990 Persian
Gulf Crisis. Han, J. And S. W., Wang. The Accounting Review, 1998
(6) Did firms undertake debt-equity swaps for an accounting paper profit or true financial
gain? John Hand. The Accounting Review, 1989
(7) Financial Performance Surrounding CEO Turnover. Murphy, K. And J. Zimmerman.
The Journal of Accounting and Economics, 1992
(8) Accounting earnings and executive compensation: The role of earnings persistence
Baber, W.R., S.H., Kang, and K.R. Kumar, The Journal of Accounting and Economics, 1998
(9) To Warn or Not to Warn: Management Disclosures in the Face of an Earnings Surprise.
Kasznik, R. And B. McEwen. The Accounting Review, 1995
(10) The Effect of Firm’s Financial Disclosure Strategies on Stock Prices. Healy, P., and K.
Palepu. Accounting Horizons, 1993
(11) Abnormal Returns to a Fundamental Analysis Strategy. Abarbanell, J. S. and B. J.
Bushee. The Accounting Review, 1998
(12) How Do Earnings Numbers Relate to Stock Returns? A Review of Classic Accounting
Research with Updated Evidence. Nichols and Wahlen. Accounting Horizons. 2004
10