Advances in Accounting Education: Teaching and Curriculum Innovations, Volume 7 (Advances in Accounting Education Teaching and Curriculum Innovations)

ADVANCES IN ACCOUNTING EDUCATION TEACHING AND CURRICULUM INNOVATIONS i ADVANCES IN ACCOUNTING EDUCATION TEACHING AND...

Author: Bill N. Schwartz | J. Edward Ketz

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ADVANCES IN ACCOUNTING EDUCATION TEACHING AND CURRICULUM INNOVATIONS

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ADVANCES IN ACCOUNTING EDUCATION TEACHING AND CURRICULUM INNOVATIONS Series Editor: Bill N. Schwartz and J. Edward Ketz Volume 1: Volume 2–6:

Edited by Bill N. Schwartz and David E. Stout Edited by Bill N. Schwartz and J. Edward Ketz

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ADVANCES IN ACCOUNTING EDUCATION TEACHING AND CURRICULUM INNOVATIONS VOLUME 7

ADVANCES IN ACCOUNTING EDUCATION TEACHING AND CURRICULUM INNOVATIONS EDITED BY

BILL N. SCHWARTZ Silberman College of Business, Fairleigh Dickinson University, USA

J. EDWARD KETZ MBA Faculty Director, Smeal College of Business, The Pennsylvania State University, USA

Amsterdam – Boston – Heidelberg – London – New York – Oxford Paris – San Diego – San Francisco – Singapore – Sydney – Tokyo iii

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r 2005 Elsevier Ltd. All rights reserved. This work is protected under copyright by Elsevier Ltd, and the following terms and conditions apply to its use: Photocopying Single photocopies of single chapters may be made for personal use as allowed by national copyright laws. Permission of the Publisher and payment of a fee is required for all other photocopying, including multiple or systematic copying, copying for advertising or promotional purposes, resale, and all forms of document delivery. Special rates are available for educational institutions that wish to make photocopies for non-profit educational classroom use. Permissions may be sought directly from Elsevier’s Rights Department in Oxford, UK: phone (+44) 1865 843830, fax (+44) 1865 853333, e-mail: [email protected]. Requests may also be completed on-line via the Elsevier homepage (http://www.elsevier.com/locate/permissions). In the USA, users may clear permissions and make payments through the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA; phone: (+1) (978) 7508400, fax: (+1) (978) 7504744, and in the UK through the Copyright Licensing Agency Rapid Clearance Service (CLARCS), 90 Tottenham Court Road, London W1P 0LP, UK; phone: (+44) 20 7631 5555; fax: (+44) 20 7631 5500. Other countries may have a local reprographic rights agency for payments. Derivative Works Tables of contents may be reproduced for internal circulation, but permission of the Publisher is required for external resale or distribution of such material. Permission of the Publisher is required for all other derivative works, including compilations and translations. Electronic Storage or Usage Permission of the Publisher is required to store or use electronically any material contained in this work, including any chapter or part of a chapter. Except as outlined above, no part of this work may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission of the Publisher. Address permissions requests to: Elsevier’s Rights Department, at the fax and e-mail addresses noted above. Notice No responsibility is assumed by the Publisher for any injury and/or damage to persons or property as a matter of products liability, negligence or otherwise, or from any use or operation of any methods, products, instructions or ideas contained in the material herein. Because of rapid advances in the medical sciences, in particular, independent verification of diagnoses and drug dosages should be made. First edition 2005 British Library Cataloguing in Publication Data A catalogue record is available from the British Library. ISBN-10: 0-7623-1269-6 ISBN-13: 978-0-7623-1269-6 ISSN: 1085-4622 (Series)

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CONTENTS LIST OF CONTRIBUTORS

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CALL FOR PAPERS

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WRITING GUIDELINES

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EDITORIAL REVIEW BOARD STATEMENT OF PURPOSE

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ASSESSING STUDENT LEARNING AND GROWTH THROUGH AUDIT RISK SIMULATIONS Brian Patrick Green and Thomas G. Calderon

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MOTIVATING STUDENT INTEREST IN ACCOUNTING: A BUSINESS PLANNING APPROACH TO THE INTRODUCTORY MANAGEMENT ACCOUNTING COURSE Noah P. Barsky and Anthony H. Catanach Jr.

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DEVELOPING PRACTICAL SKILLS WITH THE ACCOUNTANT–CLIENT PRIVILEGE Steven V. Campbell and Marcia S. Niles

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MULTI-ENTITY PARTNERING IN ACCOUNTING EDUCATION: NARROWING THE GAP BETWEEN THE PROFESSION AND ACADEMIA O. Whitfield Broome and Michael H. Morris

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CONTENTS

ESTIMATING THE RATINGS OF JOURNALS OMITTED IN PRIOR QUALITY RATINGS David F. Bean and Richard A. Bernardi

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AN APPROACH TO TEACHING ETHICAL DECISIONMAKING IN ACCOUNTING: ANALYZING THE MORAL ISSUE Deborah Leitsch and Pete Simmons

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SCREENING CRITERIA FOR ACCOUNTING POSITIONS: AN UPDATE OF THE JOHNSON AND JOHNSON STUDY Carol J. Normand and Richard Cummings

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RAISING STUDENTS’ ETHICAL SENSITIVITY WITH A VALUE RELEVANCE APPROACH Michael P. Coyne, Dawn W. Massey and Jay C. Thibodeau

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USE OF ERP SOFTWARE IN ACCOUNTING: A TEACHING NOTE Mahendra Gujarathi

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IS PBL AN IMPROVED DELIVERY METHOD FOR THE ACCOUNTING CURRICULUM? Cynthia D. Heagy and Constance M. Lehmann

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THE EFFECTS OF GENDER, MENTAL IMAGERY, AND POWERPOINTTM PRESENTATION ON STUDENT ATTITUDES Hossein Nouri and B. Douglas Clinton

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BEST PRACTICES IN ACCOUNTING PROGRAM ASSESSMENT: EXECUTIVE SUMMARY, AAA TEACHING AND CURRICULUM COMMITTEE ON BEST PRACTICES IN ACCOUNTING PROGRAM ASSESSMENT Thomas Calderon, Brian Patrick Green and Michael Harkness

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A WRITING-IMPROVEMENT MODULE FOR ACCOUNTING EDUCATION David E. Stout and Joseph J. DaCrema

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THE FINANCIAL STATEMENT APPROACH TO TEACHING INTERMEDIATE ACCOUNTING David W. Cornell and J. Gregory Bushong

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IDEAS ON GLOBALIZING THE INTERMEDIATE ACCOUNTING COURSES Robert Bloom and Mark Myring

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LIST OF CONTRIBUTORS Noah P. Barsky

Department of Accountancy, College of Commerce and Finance, Villanova University PA, USA

David F. Bean

Hagan School of Business, Iona College NY, USA

Richard A. Bernardi

Gabelli School of Business, Roger Williams University, RI, USA

Robert Bloom

Boler School of Business, John Carroll University, OH, USA

O. Whitfield Broome

McIntire School of Commerce, University of Virginia, VA, USA

J. Gregory Bushong

Department of Management and Accountancy, University of North Carolina at Asheville, NC, USA

Thomas G. Calderon

School of Accountancy, University of Akron, OH, USA

Steven V. Campbell

Department of Accounting, University of Idaho, ID, USA

Anthony H. Catanach, Jr

Department of Accountancy, College of Commerce and Finance, Villanova University, PA, USA

B. Douglas Clinton

Department of Accountancy, Northern Illinois University, IL, USA

David W. Cornell

Henry W. Bloch School of Business and Public Administration, University of Missouri – Kansas City, MO, USA

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LIST OF CONTRIBUTORS

Michael P. Coyne

Department of Management, Bucknell University, PA, USA

Richard Cummings

Department of Accounting, University of Wisconsin – Whitewater , WI, USA

Joseph J. DaCrema

Department of English, Villanova University, PA, USA

Brian Patrick Green

Department of Accounting and Finance, University of Michigan-Dearborn, MI, USA

Mahendra Gujarathi

Department of Accountancy, Bentley College, MA, USA

Cynthia D. Heagy

School of Business, University of Houston – Clear Lake, TX, USA

Constance M. Lehmann

School of Business, University of Houston – Clear Lake, TX, USA

Deborah Leitsch

Accounting and Finance Department, Goldey-Beacom College, DE, USA

Dawn W. Massey

Charles F. Dolan School of Business Fairfield University, CT, USA

Michael H. Morris

Mendoza College of Business, University of Notre Dame, IN, USA

Mark Myring

Miller College of Business, Ball State University, IN, USA

Marcia S. Niles

Department of Accounting, University of Idaho, ID, USA

Carol J. Normand

Department of Accounting, University of Wisconsin – Whitewater, WI, USA

Hossein Nouri

School of Business, College of New Jersey, NJ, USA

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List of Contributors

Pete Simmons

School of Business, Argosy University, FL, USA

David E. Stout

Department of Accounting and Finance, Youngstown State University, OH, USA

Jay C. Thibodeau

Department of Accountancy, Bentley College, MA, USA


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CALL FOR PAPERS Advances in Accounting Education is a refereed, research annual whose purpose is to meet the needs of individuals interested in the educational process. Articles may be non-empirical or empirical. Our emphasis is on pedagogy, and articles MUST explain how teaching methods or curricula/programs can be improved. We publish more articles than the other accounting education journals; we average around 13 to 14 per issue. Non-empirical papers should be academically rigorous. They can be thought pieces (e.g., anecdotal experiences with various pedagogical tools, position papers on particular issues, or historical discussions with implications for current and future efforts). Reasonable assumptions and logical development are essential. The papers must place the topic within the context of the course or program and discuss any relevant tradeoffs or policy issues. For empirical reports sound research design and execution are critical. Articles must develop a thorough motivation and literature review (possibly including references from outside the accounting field) to provide the basis for the efforts and place the study in a solid context.

SUBMISSION INFORMATION Send one hard copy by regular mail (including any research instruments) with a $35 submission fee. By email send two files; one with a copy but without a cover page and one solely with a cover page. Manuscripts should include a cover page, listing all authors’ names and address (with telephone numbers, fax numbers and e-mail addresses). The authors’ names and addresses should not appear on the abstract. To assure an anonymous review, authors should not identify themselves directly or indirectly. References to unpublished working papers or dissertations should be avoided.

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CALL FOR PAPERS

Submit manuscripts to: Non-empirical Bill N. Schwartz School of Business and Economics Visiting Professor, School of Accountancy and MIS, De Paul University 1700 Mishawaka Avenue South Bend IN 46634-7111 [email protected] 574-520-4292

Empirical Anthony H. Catanach College of Commerce and Finance Villanova University Villanova, PA 19085-1678 [email protected] 610-519-4825

WRITING GUIDELINES 1. Each paper should include a cover sheet with names, addresses, telephone numbers, fax numbers, and e-mail address for all authors. The title page also should include an abbreviated title you should use as a running head (see item #six below). The running head should be no more than 70 characters, which includes all letters, punctuation and spaces between words. 2. The second page should consist of an Abstract of approximately 150– 200 words. 3. You should begin the first page of the manuscript with the manuscript’s title. Do not use the term ‘‘Introduction’’ or any other term at the beginning of the manuscript. Simply begin your discussion. 4. Use uniform margins of 1 1/2 inches at the top, bottom, right, and left of every page. Do not justify lines, leave the right margins uneven. Do not hyphenate words at the end of a line; let a line run short or long rather than break a word. Type no more than 25 lines of text per page. 5. Double space among all lines of text, which includes title, headings, quotations, figure captions, and all parts of tables. 6. After you have arranged the manuscript pages in correct order, number them consecutively, beginning with the title page. Number all pages. Place the number in the upper right-hand corner using Arabic numerals. Identify each manuscript page by typing an abbreviated title (header) above the page number. 7. We prefer active voice. Therefore, you can use the pronouns ‘‘we’’ and ‘‘I.’’ Also, please avoid using a series of prepositional phrases. We strongly encourage you to use a grammar and spell checker on manuscripts before you submit to our journal. 8. All citations within your text should include page numbers. An appropriate citation is Schwartz (1994, p. 152) or Ketz (1995, pp. 113–115). You do not need to cite six or seven references at once, particularly when the most recent references refer to earlier works. Please try to limit yourself to two or three citations at a time, preferably the most recent ones. xv

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9. You should place page numbers for quotations along with the date of the material being cited. For example: According to Beaver (1987, p. 4), ‘‘Our knowledge of education researchy and its potential limitations for accountingy .’’ 10. Headings: Use headings and subheadings liberally to break up your text and ease the reader’s ability to follow your arguments and train of thought. First-level headings should be upper-case italics, bold face, and flush to the left margin. Second level headings should be in bold face italics, flush to the left margin with only the first letter of each primary word capitalized. Third-level headings should be flush to the left margin, in italics (but not bold face), with only the first letter of each primary word capitalized. 11. You should list any acknowledgments on a separate page immediately after your last page of text (before the Notes and References Sections). Type the word ‘‘Acknowledgment,’’ centered, at the top of a new page; type the acknowledgment itself as a double-spaced, single paragraph. 12. You should try to incorporate endnote/footnote material into the body of the manuscript. When you have notes, place them on a separate section before your references. Begin notes on a separate page, with the word ‘‘Notes’’ centered at the top of the page. All notes should be double-spaced; indent the first line of each note five spaces. 13. Your reference pages should appear immediately after your ‘‘Notes’’ section (if any) and should include only works cited in the manuscript. The first page of this section should begin with the word ‘‘References’’ centered on the page. References to working papers are normally not appropriate. All references must be available to the reader; however, reference to unpublished dissertations is acceptable. 14. You should label TABLES and FIGURES as such and number them consecutively (using Arabic numerals) in the order in which you mention them first in the text. Indicate the approximate placement of each table/ figure by a clear break in the text, inserting: TABLEðorFIGUREÞ 1 ABOUT HERE set off double-spaced above and below. Tables should be placed after your References section: figures should follow tables. Double-space each table/figure and begin each on a separate page. 15. Parsimony is a highly desirable trait for manuscripts we publish. Be concise in making your points and arguments.

Writing Guidelines

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16. Sample Book References Runkel, P. J. and J.E. McGrath. 1972. Research on human behavior. A Systematic guide to method. New York: Holt, Rinehart and Winston. Smith, P. L. 1982. Measures of variance accounted for: Theory and Practice. Pp. 101–129 in Statistical and methodological issues in psychology and social science research, edited by G. Keren. Hillsdale, NJ: Erlbaum. 17. Sample Journal References Abdolmohammadi, M. J., K. Menon, T. W. Oliver, and S. Umpathy. 1985. The role of the doctoral dissertation in accounting research careers. Issues in Accounting Education: 59–76. Thompson, B. 1993. The use of statistical significance tests in research: Bootstrap and other methods. Journal of Experimental Education 61: 361–377. Simon, H.A. 1980. The behavioral and social sciences. Sciences (July): 72–78. Stout, D. E. and D. E. Wygal. 1994. An empirical evidence of test item sequencing effects in the managerial accounting classroom: Further evidence and extensions. Pp. 105–122 in Advances in Accounting, vol. 12, edited by Bill N. Schwartz. Greenwich, CT: JAI Press.


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EDITORIAL REVIEW BOARD Joseph H. Anthony Michigan State University Richard E. Baker Northern Illinois University Bruce H. Biskin American Institute of CPAs Anthony H. Catanach Villanova University Alan A. Cherry Loyola Marymount University Stanley W. Davis Indiana University/Purdue University Fort Wayne James W. Deitrick University of Texas-Austin Bruce Dehning Chapman University Rajib Doogar University of Notre Dame Mary S. Doucet California State UniversityBakersfield

Thomas P. Edmonds University of AlabamaBirmingham Terry J. Engle University of South Florida Carol M. Fischer St. Bonaventure University Michael J. Fischer St. Bonaventure University Dann G. Fisher Kansas State University Timothy J. Fogarty Case Western Reserve University Taylor W. Foster III New Mexico State University Mary Anne Gaffney Temple University Marshall A. Geiger University of Richmond Michael H. Granof University of Texas-Austin xix

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EDITORIAL REVIEW BOARD

Brian Patrick Green University of Michigan-Dearborn

James J. Maroney Northeastern University

Daryl Guffey Clemson University

Alan G. Mayper University of North Texas

Julie H. Hertenstein Northeastern University

Steven M. Mintz Claremont McKenna College

Joe Ben Hoyle University of Richmond

Alfred J. Nanni Babson College

Mohamed E. A. Hussein University of Connecticut

Richard L. Ott Kansas State University

James P. Jennings St. Louis University

Carl Pacini Florida Gulf Coast University

Connie Esmond Kiger Ohio University Thomas E. King Southern Illinois UniversityEdwardsville James M. Kurtenbach Iowa State University

Ann B. Pushkin West Virginia University Alan Reinstein Wayne State University Robin W. Roberts University of Central Florida

Linda M. Lovata Southern Illinois UniversityCarbondale

Linda V. Ruchala University of Nebraska-Lincoln

Timothy J. Louwers Madison James University

Timothy J. Rupert Northeastern University

Susan A. Lynn University of Baltimore

David H. Ryan Temple University

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Editorial Review Board

Georgia C. Saemann University of Wisconsin, Milwaukee Michael S. Schadewald University of Wisconsin, Milwaukee Paul A. Shoemaker University of Nebraska-Lincoln

Carol F. Venable San Diego State University Martha L. Wartick University of Northern Iowa Richard A. White University of South Carolina David D. Williams The Ohio State University

Julie S. Sobery Southern Illinois UniversityCarbondale

Donald E. Wygal Rider University

Kevin D. Stocks Brigham Young University

Douglas E. Ziegenfuss Old Dominion University

C. William Thomas Baylor University


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STATEMENT OF PURPOSE Advances in Accounting Education is a refereed academic journal whose purpose is to meet the needs of individuals interested in the educational process. We publish thoughtful, well-developed articles that are readable, relevant, and reliable. Articles may be non-empirical or empirical. Our emphasis is pedagogy, and articles MUST explain how teaching methods or curricula/programs can be improved. Non-empirical manuscripts should be academically rigorous. They can be theoretical syntheses, conceptual models, position papers, discussions of methodology, comprehensive literature reviews grounded in theory, or historical discussions with implications for current and future efforts. Reasonable assumptions and logical development are essential. Most manuscripts should discuss implications for research. For empirical reports sound research design and execution are critical. Articles should have well articulated and strong theoretical foundations. In this regard, establishing a link to the non-accounting literature is desirable. Replications and extensions of previously published works are encouraged.

REVIEW PROCEDURES Advances in Accounting Education will provide authors with timely reviews clearly indicating the review status of the manuscript. The results of initial reviews normally will be reported to authors within eight weeks. Authors will be expected to work with an Editor who will act as a liaison between the authors and the reviewers to resolve areas of concern.

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ASSESSING STUDENT LEARNING AND GROWTH THROUGH AUDIT RISK SIMULATIONS Brian Patrick Green and Thomas G. Calderon ABSTRACT Although there are several available cases that might be used to expose students to risk assessment simulations, there is little evidence that students who are exposed to this type of pedagogy actually realize its intended benefits; yet to facilitate change and continuous improvement, faculty members should understand whether their innovations contribute to students’ learning. This paper describes how we addressed that issue. Applying direct and indirect course-embedded assessment techniques, we observe students’ increased learning, confidence, and judgment skills as a result of using a fraud risk assessment simulation in an auditing class. The findings indicate that students believe that reality-based simulations add significant value to their learning, and provide a positive learning experience. Student-perceived learning and growth is consistent across varying demographic backgrounds. This is important because it indicates that the simulation-based pedagogy moves all students toward achieving the set learning objectives, regardless of their previous backgrounds. Using a direct measure of learning, we compare students’ pre- and post-simulation risk assessments with experts’ assessments. Students’ post-simulation assessments of the severity of risk were

Advances in Accounting Education: Teaching and Curriculum Innovations, Volume 7, 1–25 Copyright r 2005 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 1085-4622/doi:10.1016/S1085-4622(05)07001-X

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BRIAN PATRICK GREEN AND THOMAS G. CALDERON

closer to those of practitioners than the pre-simulations that indicate learning through their improved judgment skills. This direct assessment method mirrors the indirect assessment tool, confirming actual learning and development of risk assessment skills that may contribute to the student’s success in practice.

INTRODUCTION Some have recommended that the pedagogical component of accounting programs, among other things, should focus students’ attention on critical aspects of accounting practice and create learning situations that engage students in active problem solving (Accounting Education Change Commission (AECC), 1993; Albrecht & Sack, 2000), so as to develop judgment and critical thinking skills among accounting majors. Educators often recommend cases and simulation-based pedagogical tools to develop those skills. Cases and simulations require students to assimilate unstructured information and use multiple sources of data to define, analyze, and solve business problems. Cases as well as reality-based simulations that require the use of multiple information sources can expose students to a wealth of critical, non-traditional material that enhance the value of their academic work and prepare them for professional practice (Bailey, 1994; Dugan, Gup, & Samson, 1991; Kullberg et al., 1989). Risk assessment leading to the detection of management fraud is a significant area in which academics can employ reality-based simulations to assist student learning by improving specific judgment and critical thinking skills. Many conjecture that students who participate in realistic risk assessment experiences increase their ability and confidence in making judgments about the existence of fraud. Indeed, a common learning objective of simulation pedagogy in auditing is to improve students’ judgment skills and to help them build confidence in their work. Although there are several available cases to expose students to risk assessment simulations, there is little evidence that students who are exposed to this type of pedagogy actually learn as well as realize its intended benefits. To facilitate change and continuous improvement, faculty members must understand whether their innovations contribute to students’ learning. The purpose of this paper is to document students’ perceptions of their growth in learning, confidence, and judgment as a result of using a fraud risk assessment simulation in an auditing class. We measure indirect

Assessing Student Learning and Growth

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course-embedded assessment techniques by comparing changes in pre- and post-student evaluations that assess various student perceptions. We directly measure student learning by comparing changes in students’ pre- and post-simulation risk assessments to that of the experts. The intent of this comparison is to determine if exposure to risk simulations moves students’ assessments toward those of the experts. Using direct and indirect outcome assessments to evaluate the impact of a major course activity is vitally important for course and program improvement and is a critical element of the Association to Advance Collegiate Schools of Business (AACSB) accreditation process (AACSB, 2004b). Therefore, we expect that readers will benefit from the approach used to implement and assess the learning outcomes produced by the reality-based auditing simulation described in the paper.

BACKGROUND The purpose of the AACSB’s Assurance of Learning Standards (2004a) is to assess a school’s accomplishments in its core activities. Specifically, accreditation seeks to assure that accounting departments are achieving the learning goals they establish for students in their programs. The assessment of student learning is essential in curriculum management. Measuring student learning demonstrates accountability and assures external stakeholders that the organization has achieved its learning goals (AACSB, 2004a). Specific learning goals operationalize a school’s mission by describing the knowledge, skills, and abilities expected from students who successfully complete a program. The AACSB and other accreditation agencies expect faculty and administrators to report, analyze, and use assessment data to demonstrate accountability, improve student learning, and strengthen the quality of programs. Learning outcomes are observable behaviors that demonstrate achievement of intended learning objectives. Such learning outcomes are the primary focus of effective assessment. Accounting programs can assess achievement of learning outcomes directly or indirectly assessed through course-embedded assessment techniques (AACSB, 2004a). The faculty could utilize these techniques in required courses to assess learning objectives such as knowledge, skills, and abilities in specific areas of the accounting program (AACSB, 2004b). Direct measures of student learning, such as cases and simulations, seek to provide unambiguous evidence of student learning and the value added by a course or program. Indirect measures of student

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learning, such as interviews and surveys, ask the student about their perceptions and learning experience. Within an undergraduate program, students should acquire a wide range of knowledge and skills required for success in their business careers (AACSB, 2004a). DeMong, Lindgren, and Perry (1994) discussed student outcomes that are important and relevant to accounting programs. One outcome identified by DeMong et al. (1994), ‘‘intellectual skills,’’ includes audit judgments and risk assessments skills that go beyond a simple mechanical process. Risk assessment is an essential skill in both the accounting and auditing fields. In particular, a significant component of modern audit theory and practice presumes that auditors ought to have abilities and judgment skills in assessing the risk of misstatements. The profession has recognized expertise in assessing this type of risk as a required competency for over a decade. Such expertise is particularly important for identifying financial statement misstatements caused by management fraud, which is a very significant issue in auditing (American Institute of Certified Public Accountants (AICPA), 2002). Despite its importance, there is a significant dearth of fraud risk assessment skills among practicing accountants and auditors, particularly at the entry level. After a thorough examination of the problem, the National Committee on Fraudulent Financial Reporting (Treadway, 1987) called for a joint effort among academics, public accountants, the Securities Exchange and Commission (SEC), and business to reduce the potential for fraudulent financial reporting. The committee suggests that ‘‘education can influence present or future participants in the financial reporting systems by providing knowledge, skills, and ethical values that potentially may help prevent, detect, or deter fraudulent financial reporting’’ (p. 15). Nine years later, the 1995–1996 annual report of The Public Oversight Board (1996) identified financial statement fraud as the most serious problem faced by today’s profession. Specifically, they state that: No problem confronting the profession is as demanding or as difficult to resolve, as the problem of management fraud and its detection by auditors. Before the turn of the century both auditors and users of audited financial information regarded the detection of fraud as one of the primary purposes of the audit. For many reasons the profession has moved from acceptance of that purpose to view its role in detecting fraud as secondary to other purposes of audits. In contrast, the public has continued to regard fraud detection as an important goal of the audit processy . The board believes that, to a greater extent than it now does, the profession must accept responsibility for the detection of management fraudy . This undertaking should be broad in scope and include the development of guidance to facilitate the analysis of both financial data and nonfinancial factors that may be indicative of management fraud (p. 7).


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Fraud risk assessment continues to be a critical professional issue. In a recent report, the Panel on Audit Effectiveness (2000) recommended a ‘‘forensic-type’’ fieldwork stage in all audits to increase the likelihood that auditors will be able to detect fraud and to serve as an implicit deterrent to management fraud. This sentiment is further echoed in the recent Statement on Auditing Standard (SAS) Number (No.) 99, Consideration of Fraud in a Financial Statement Audit, as well as SAS No. 53 (AICPA, 1988) and SAS No. 82 (AICPA, 1997). The current standard focuses on continuous risk assessment throughout the audit process. SAS No. 99 (AICPA, 2002) requires the auditor to collect information to identify and assess factors that affect the risk of a material misstatement due to fraud. The standard’s fraud triangle classifies risk factors as incentives and pressures, opportunities, and attitudes and rationalizations. Furthermore, the auditor needs to document and respond to these risk factors, considering a company’s programs and controls. The standard also describes requirements for analytical procedures, brainstorming, and a focus on professional skepticism.

SIMULATION-BASED PEDAGOGY With continued calls for college and university accountability, assessment has moved toward demonstrating student learning, and the ability to apply knowledge that leads to a successful career (Wolf, 1992). Prior research on learning outcomes indicates that pedagogy does affect how well students learn. Techniques that focus on application and practice used in a simulated setting were reported as the most effective (Wren, Buckley, & Michaelsen, 1994). Michlitsch and Sidle (2002) report that faculty view small group projects and cases as the most effective direct course-embedded measures of student learning. Yet, accounting professors are less likely to use small group projects or case simulations than other areas within a traditional business school, such as finance, marketing, or management. Accounting faculty members tend to focus more on exams as an embedded course outcome measure (Michlitsch & Sidle, 2002). Michlitsch and Sidle (2002) conclude that faculty members employ embedded course measures that are more useful to assigning grades than assessment of learning outcomes. Their finding reflects Banta (1996), who concluded that various outcome assessment techniques are ignored because of faculty’s belief that student grades (such as those on exams alone) adequately reflect learning outcomes. More recently, Calderon, Green, and Harkness (2004) report that indirect embedded course assessment measures, such as student evaluations and recent graduate surveys, dominate

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faculty choice of assessment methodology. In contrast to earlier studies, Calderon et al. (2004) also report that one-half of accounting faculty use projects and cases as a direct-embedded course assessment of learning. Pedagogies, such as simulations have the potential to be effective significantly in achieving learning outcomes for judgment and risk assessment. In this study, we examine students’ perceptions, learning, and professional growth after participating in a simulation-based pedagogy conducted in the undergraduate audit course. This pedagogy exploits reality-based simulations to help students learn and apply auditing methodologies to fraud risk assessment. Because of space limitations, the full text of the simulation, along with teaching notes and solutions are available from the authors upon request. Though a firm specific risk model has not been adapted, the simulation design is consistent with the fraud risk assessment guidance described in SAS No. 99. A reality-based simulation expands upon a case approach in several ways. First, this simulation uses only actual information that would have been available to the auditors. Second, students are placed into audit teams, consistent with practice, facilitating the brainstorming activities required by SAS No. 99. Third, student audit teams obtain the actual information, and document risk assessment decisions under the same time lines they would have experienced in practice. The simulation runs over several weeks. Students must complete a risk assessment exercise during a simulated planning stage before they receive the fieldwork stage of the simulation. Finally, the students obtain plausible explanations to risk factors and answers, to other inquiries from the professor who role-plays management positions. There were several motivations for originally developing and using this fraud risk simulation pedagogy in the auditing course. Professional auditing standards emphasize and focus on risk assessment. Risk assessment is the thread that connects each stage of an audit methodology and it serves as the key to planning the nature, timing, and extent of audit procedures performed during the audit (AICPA, 1983). Nonetheless, time constraints in a traditional auditing course often limit dedicated coverage of risk assessment to a single class session or less. Lectures based upon textbook coverage focus on guidance and theory related to risk assessment. This traditional approach does not provide students with opportunities to engage in learning beyond rote memorization and perhaps with a basic understanding of theory and concept. When instructors apply the traditional textbook-based lecture as the dominant approach to teaching in a professional discipline, it may marginalize application, judgment skills, and critical thinking (Harris, 1993). The implication is that students in a traditional one-semester


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undergraduate auditing course, in which textbook-based lectures are the dominant pedagogical approach, do not have the opportunity to apply and think critically about the audit risk model, particularly as it relates to fraud risk assessment. This creates a wide gap between the theory that students learn in the traditional auditing course and the application of that theory in practice. In addition to the above motivations, a simulation-based pedagogy that efficiently adds realism to risk assessment is one method of tying audit theory to audit practice by developing students’ judgment skills. This approach to teaching also engages and challenges students to learn at the level of application and critical thinking rather than at the rote memorization or comprehension level (Bloom, Krathwohl, & Masia, 1956). Therefore, goals of the simulation include insuring that: (1) students gain experience and have a good understanding of how to identify and assess quantitative and qualitative red flags that may signal fraud; (2) students gain experience and understand how to apply the auditing standard (SAS No. 99) that provides guidance on fraud risk assessment; (3) students demonstrate increased confidence in applying the tools used to assess fraud risk; and (4) students demonstrate increased confidence in their judgment. After developing an earlier version of the simulation for a single semester, the instructor noted several direct benefits. Students appeared to have longer in-class discussions about both risk assessment and application of audit procedures. In general, they participated in class more frequently and with increased confidence. Student responses to instructor questions and class discussions among students demonstrated a greater depth of understanding; however, the instructor’s observations were only anecdotal evidence of the simulation’s benefits to the students. Because of the above observations, the study uses the simulation for all audit sections, without a traditional problem and lecture section as a control group. Faced with the potential benefits of the fraud risk simulation, the authors felt that teaching a control group of students with a less effective method would be unethical. However, the absence of a control group is clearly a limitation of this study. Before introducing reality-based simulations, it is essential to cover several fundamental concepts and issues. Pre-simulation course coverage should include such topics as gaining an understanding of the client (new and continuing clients), preliminary analytical procedures, the audit risk model, and SAS No. 99. This insures that students gain knowledge and appreciation of

8


fundamental issues related to risk assessment and the related auditing implications. After student exposure to SAS No. 99, instructors should introduce students to the overall audit process. This exposure ought to emphasize the relationships among understanding the control environment, testing controls, and substantive testing. An accounting information systems (AIS) course with strong modules on internal control and risk assessment is a helpful prerequisite to the auditing course. This prior exposure to fundamental internal control and risk assessment concepts can enhance the student’s experience with the simulation. Class time devoted to simulations may be a concern for many faculty members. This issue might be addressed in two ways. First, instructors may leverage the content of the AIS course to reduce the amount of time spent on fundamental internal control and risk assessment concepts. Second, instructors may leverage information technology to enhance the efficiency and effectiveness of contact time in the classroom. As an example, instructors may be able to increase class time spent on simulations by asking students to post their questions about material presented in class to a mailing list or to use synchronous online chat. We have found that many questions that students ask in class could be effectively answered through a mailing list. Synchronous chat is usually less effective and not as efficient as the mailing list. Most students’ questions tend to have repetitive, common themes. We have made effective use of archiving students’ e-mailed questions and associated responses in a read-only folder and making it easily accessible online. This read-only ‘‘common question’’ folder with responses can then be used as a quick reference for students. Periodic reviews of the folder can also help in making case revisions, providing feedback to students, and in making general course improvement. Other on-line resources, such as quizzes, class notes, and slides, might help to free up classroom time. We have found that the use of a few simple online tools greatly assist in managing and monitoring student learning, as well as reducing our own workload. To understand whether a simulation-based pedagogy can achieve its intended objectives, we designed an assessment study that responded to the following issues: (1) Do reality-based simulations increase students’ understanding of fraud risk assessment? (2) Do reality-based simulations increase students’ understanding in applying professional standards? (3) Does student course satisfaction increase with the use of reality-based simulations?


9

(4) Do students perceive a learning benefit from using reality-based simulations? (5) Does participating in reality-based simulations move students’ risk assessments towards assessments made by experts?

EXPERIMENTAL METHOD The Sample The study took place at a mid-western, regional, non-residential university with about 9,100 students (1,000 in the business school). The sample consisted of six undergraduate auditing sections taught between the fall 2000 and fall 2003 semesters (f/00, w/01, f/01, w/02, w/03, and f/03). Each section averaged 28 students per section. Usable survey results were available for 29, 26, 32, 18, 24, and 25 students, respectively, giving a final sample size of 154 students. At this university, auditing is offered once a semester; the same tenured instructor taught each section of the senior auditing course. He assessed student performance through three exams, a major active learning case, attendance of four outside professional activities (speakers, Beta Alpha Psi meetings, and professional associates), and class participation (positive contributions to class discussion and preparedness for class). The simulation discussed in this study made up 15 percent of the student’s final class grade. The Survey and Simulation We administered two surveys, acting as indirect embedded course assessment tools, to students during the semester. The instructor presented the pre- and post-simulation surveys to the students as part of the overall student evaluation process. It is common for faculty to employ self-generated mid-term evaluations in this instructor’s department. Framing the pre- and post-surveys as part of the normal course evaluation process should help in minimizing any possible Hawthorne effect (students’ change in performance because of observation in an experiment). Calderon et al. (2004) report that students generally have a negative reaction to participating in assessment activities but participation can be improved by including the assessment measure as a normal activity of a course. Though there are always concerns about the integrity of students’ self-evaluation of their learning, prior

10


literature does support both the reliability and validity of this study’s student responses. Evidence from the literature strongly suggests that students can validly assess the extent of their own learning, the value they attach to learning, and the extent to which assignments contribute to their understanding of a topic (Green, Calderon, & Reider, 1998; Seldin, 1993; Marsh, 1987). The first survey, administered during week six of a 15-week semester, asked students to indicate their level of understanding of risk assessment, confidence in their ability to assess risk, and satisfaction with course pedagogy. At this point in the semester, students had an exposure to preliminary analytical procedures, the audit risk model, audit planning, SAS No. 99, reportable conditions, and financial statement fraud. The teaching method consisted of traditional topic lectures, a discussion of the guidance provided by SAS No. 99, and homework review. Since there was only one section of auditing per semester, all students participated in the simulation as a normal part of the course. The six semesters included in this study exploited a similar methodology; however, the four earlier simulations were based on SAS No. 82, while the two most recent simulations were based on SAS No. 99. In addition, the instructor had developed three variations of the fraud scenarios, using different company names, key personnel, financial statement information, and industries. Having multiple fraud scenarios allows the instructor to alternate simulations between semesters, minimizing information transfer between semesters. The instructor introduced the simulation requirement during the semester’s first class meeting as one of several items that would comprise the students’ grade. To further minimize any potential Hawthorne effect, the instructor always referred to the simulation as a common requirement of the course, and not as a unique or special learning tool. The faculty member dispensed the pre-case survey to the students after exposure to SAS No. 99 (or the current fraud standard). The students delivered all surveys to the department secretary to assure confidentiality of response. Students worked on part one of the simulation ‘‘Evidence Gathered During Audit Planning’’ during weeks six and seven of the semester. Part one focused on fraud risk assessment during audit planning. Students formed audit teams of three to four members, but turned in individual responses to the simulation’s questions. The faculty member supplied to the students qualitative and quantitative evidence gathered during the planning stage of the audit. The information included a company history, general ledger balances and four prior years’ financial statement balances, auditor observations made during the planning stage, and other evidence. Concurrent with the out-of-class simulation, in-class topics


11

included gaining an understanding of the control environment, testing internal controls, and the effects on other audit testing. These topics tended to both complement and reenforce the simulation scenarios faced by students. After completion and grading of the first half of the case, students received part two, concentrating on continuous risk assessment during the fieldwork stage. This part of the case extends over weeks nine and ten of the semester. In total, the students worked with the simulation over a 4 week period. Each part of the case required students to identify risk factors, assess a level of risk, and respond to the level of risk. Students then completed a post-case survey that replicated the items in the pre-case survey. We embedded a direct learning measure in the course during semester 6, comparing 25 students’ pre- and post-simulation risk assessments to those of 28 experts. To assure anonymous responses, the department’s secretary collected all pre- and post-case surveys. The instructor received the pre- and post-responses, identified only by the last four digits of a student’s social security number, during week one of the following semester. We calculated indirect learning assessment scores by subtracting students’ pre-case responses from the post-case responses. We computed a paired t-test to examine the statistical significance of pre- and post-case mean differences, univariate correlation analysis to evaluate the relationship between student demographics and their self-reported learning enhancements, and pooled t-tests for the direct learning assessment to compare both students pre- and post-risk assessments to that of experts. We expect students’ post-case risk assessments will be closer to assessments made by experts, than their pre-case assessments.

RESULTS Demographics One hundred and fifty-four students from six audit sections participated in the reality-based simulation. The mean grade point arrange (GPA) for the combined sample was 3.295 (a 2.8 GPA is required to enter this University’s business school). The aggregate sample had 66 males and 88 female students. Ninety-five of these students had participated in accounting/auditing internships. The proportions of students having full-time, part-time, and no employment were equal among the sections. Students spent an average of 4.6 h analyzing the simulation material, with no statistically significant

12


differences across the sections. There was a 50 min, non-significant difference between the fall and winter semesters. One possible cause for the difference in time could be that the case had already been used in the prior semester. This would have given students from the winter semester opportunity to discuss case results with the fall semester’s class; however, this advantage does not seem to be a plausible explanation since we alternated the case scenarios between semesters. If there were significant contamination between groups, we would also expect to see the winter sections earn greater points on the case than the fall sections. While the fall sections earned an average of about 43 points out of 50 on the case, the following winter sections averaged a lower 42 points. As with prior demographics, the between groups difference of about one point was not significant. Overall, there were no significant differences among section demographics.

Understanding Fraud Risk Assessment The first research question asks whether reality-based simulations increase students’ understanding of fraud risk assessment (see Table 1, Panel A). Students responded to each question in Panel A using a seven-point Likert scale, with a higher assigned value indicating a higher level of understanding. Individual learning indicators increased from a low of 0.636 to a high of 1.564. All increases were significant at the po0.001 level. Overall, the results of the indirect assessment tools suggest that students improved their understanding of fraud risk indicators significantly after exposure to the simulation. Learning improvements were not uniformly high in all areas. The item with least improvement, albeit statistically significant at the 1 percent level, is students’ understanding of how management fraud affects financial statements. This item, however, has the highest pre-simulation rating of 5.34 and a post-simulation rating of 5.97. This suggests that although students may already possess an understanding of the effects of fraud on financial statements prior to the simulation, they were still able to enhance their learning through the simulation. The greatest gain involved understanding how to use qualitative red flags in risk assessment. Not only do students indicate an increased ability to identify risk factors, but once identified, they understand the relative importance of the factors. Since we are using a sample of accounting students, it is interesting to see that the greatest increase in understanding related to qualitative factors. The stereotypical accounting

Mean Differences between Pre- and Post-Learning Indicators: Indirect Assessment Tool.

Indirect Learning Indicators Panel A: Understanding of fraud risk assessment

Panel B: Understanding and application of auditing standards

Panel C: Course satisfaction

Panel D: Learning Benefit

Post

Pre

Change

1 I have a good understanding of how management fraud can affect financial statements 2 I have a good understanding of how to identify quantitative red flags that may signal fraud 3 I have a good understanding of how to use quantitative red flags to assess fraud risk 4 I have a good understanding of how to identify qualitative red flags that may signal fraud 5 I have a good understanding of how to use qualitative red flags to assess fraud risk 6 I am familiar with the auditing standard that provides guidance on fraud risk assessment

5.97

5.34

0.636

5.66

4.31

1.351

5.45

4.00

1.454

5.65

4.22

1.428

5.58

4.02

1.564

5.77

4.47

1.305

7 I understand how to apply the auditing standard that provides guidance on fraud risk assessment 8 I am satisfied with the teaching methods used in this class 9 I am satisfied with the cases used in this class 10 The cases used in this class helped me learn 11 I am confident that I can apply the tools learned in this class to assess fraud risk cases 12 This class has helped me to develop my professional judgment 13 This class has helped me to apply both qualitative and quantitative data in decision making

5.63

4.33

1.299

6.01

5.44

0.571

5.74 5.88 5.74

4.83 4.79 4.99

0.909 1.091 0.753

5.92

5.07

0.851

5.91

4.93

0.981


Table 1.

Note: pre ¼ mean student learning indicator scores prior to assigning the case; post ¼ mean student learning indicator scores after completing the case; change ¼ mean difference between learning indicator scores before and after the case; paired t-tests showed that all differences between pre- and post-learning indicator scores are statistically significant (p-value o0.001).

13

14


student tends to have stronger quantitative analysis skills, and it is often more challenging to strengthen their qualitative analysis skills. Within a traditional 4-year undergraduate program, there may be a maturation effect as students progress through the program from one semester to the next. In our case, students taking the course during the fall were more likely to be first semester seniors, while winter classes comprised more second semester seniors. We examined the data for maturation effects by testing the differences in learning growth between fall and winter student groups. Specifically, we applied a two-sample t-test to compare each section’s pre- and post-simulation responses, as well as the pre-post change. While academic growth and maturity over time may enhance students’ abilities and judgment skills as they relate to quantitative and qualitative risk factors, the data did not support that observation. We found no statistically significant differences between the responses of students who took the course in fall and those that took it in winter.

Understanding Professional Standards The next two survey items (Table 1, Panel B) respond to the research question ‘‘Do reality-based simulations increase students’ understanding in applying professional standards?’’ Students responding to the pre-test indicate that they are somewhat familiar with fraud-related professional guidance and its application (aggregate mean of about 4.38). Students’ responses show that the simulation helped them to become more familiar with the professional standard that provides guidance on fraud risk assessment and its application. There were no between group differences for the fall and winter sections for this area. Similarly, there were no between group differences between SAS No. 82 groups who completed the simulation and the SAS No. 99 groups. While SAS No. 99 has increased the complexity of fraud risk assessment, student results still appear consistent with those who completed the simulation under SAS No. 82. This is true even though the current standard added new requirements such as brainstorming, increased professional skepticism, and the assumption of fraud under certain conditions.

Course Satisfaction and Perceived Learning The remaining survey questions ask whether students’ course satisfaction (Table 1, Panel C) and learning (Table 1, Panel D) increased with the use of


15

reality-based simulations. While students generally agreed (5.44) that they were satisfied with the instructor’s teaching methods, the post-case assessment increased to a strongly agree (6.01). Student satisfaction with teaching methods was the single highest rated learning indicator. Students also indicated that they were satisfied with the use of the case. The mean rating of 5.88 mirrored their response to whether the case helped them learn. This equality in level of agreement is important since it is indicative of a high degree of association between student learning and student satisfaction (correlation coefficient, 0.71).

Factors Associated with Learning Growth We examined several pair-wise univariate correlation coefficients to assess whether the learning enhancements reported by students were being driven by factors other than the simulation (e.g., demographics). Results reported in Table 2 show that most of the univariate pair-wise correlation coefficients are not statistically significant. Of the 117 comparisons shown in Table 1, only six are statistically significant at the 5 percent level or lower when no adjustment is made for the number of pair-wise comparisons. However, when an adjustment is made for the large number of pair-wise comparisons, the correlations shown in Table 2 are not statistically significant at the 5 percent level. This suggests that the pre-post process is the factor that is driving the enhancement in the learning indicators observed in Table 1. This should be expected with a good learning process. All students should benefit from the process, with demographics playing no significant part in the level of learning that takes place.

A Direct Measure of Learning Outcomes The primary survey instrument focuses on indirect outcome measures, in which students self-report their achievement and perceptions of the simulation’s benefits. While there is support for students’ self-assessment mirroring actual performance, a direct measure of learning outcomes would increase the reliability of the research. One of the objectives of the simulation is to improve an audit student’s ability to assess risk under the framework of SAS No. 99. To measure this learning outcome, we compared students’ risk assessments to a group of seasoned auditing professionals,

Item Description

Correlations between Learning Indicators and Demographic Variables. GPA

SEMTO

STUDY

PREP

0.030

0.127

0.106

0.107

0.108

0.053

0.005

0.142

0.141

0.105

0.072

0.086

0.004

0.034

0.088

INTERN

NOEMP

PTEMP

FTEMP

0.065

0.028

0.026

0.022

0.177

0.173

0.012

0.161

0.046

0.134

0.111

0.191

0.067

0.234

0.015

0.116

0.175

0.130

0.125

0.042

0.151

0.002

0.004

0.063

0.201

0.201

0.222

0.028

0.220

0.028

0.070

0.054

0.032

0.038

0.095

0.090

0.003

0.074

0.069

0.099

0.034

0.040

0.066

0.034

0.145

0.001

0.123

0.031

0.053

0.034

0.029

0.019

0.143

0.061

0.028

0.081

0.089

0.122

0.023

0.041

0.075

0.086

0.011

0.115

0.130

0.074

MF


I have a good understanding of how management fraud can affect financial statements I have a good understanding of how to identify quantitative red flags that may signal fraud I have a good understanding of how to use quantitative red flags to assess fraud risk I have a good understanding of how to identify qualitative red flags that may signal fraud I have a good understanding of how to use qualitative red flags to assess fraud risk I am familiar with the auditing standard that provides guidance on fraud risk assessment I understand how to apply the auditing standard that provides guidance on fraud risk assessment I am satisfied with the teaching methods used in this class I am satisfied with the cases used in this class

16

Table 2.

0.095

0.021

0.015

0.035

0.035

0.075

0.055

0.122

0.130

0.030

0.113

0.069

0.081

0.117

0.068

0.008

0.067

0.012

0.053

0.024

0.019

0.006

0.078

0.025

0.015

0.037

0.023

0.068

0.086

0.006

0.110

0.027

0.118

0.114

0.222

0.070

Note: cell entries are Pearson correlation coefficients; GPA ¼ grade point average; SEMTO ¼ number of semesters left to graduate; STUDY ¼ hours per week spent studying for this class; PREP ¼ number of hours spent preparing this case; INTERN ¼ had an internship; NOEMP ¼ not currently employed; PTEMP ¼ currently employed part-time; FTEMP ¼ currently employed full-time; MF ¼ gender: Shaded areas are statistically significant (p-valueo0.05).


The cases used in this class helped me learn I am confident that I can apply the tools learned in this class to assess fraud risk cases This class has helped me to develop my professional judgment This class has helped me to apply both qualitative and quantitative data in decision making

17

18


assuming that a group of seasoned professionals would more accurately assess client risk than novice students. We developed a risk assessment instrument using the eleven sub-categories listed in SAS No. 99’s appendix for the fraud triangle, randomizing the order of these risk factors on the survey to reduce any ordering effect. We administered the instruments as a single direct learning assessment device, minimizing any possible Hawthorne effect. The instrument’s instructions stated that each factor was to be considered independent of the other 10 factors. The simulation presented the eleven risk factors under three client scenarios: (1) a long-term client (7 years) without prior audit problems, (2) a newer client without prior audit problems (2 years), and (3) a long-term client with a prior year audit problem (going concern issue). We sent the instrument to 41 partners from the Big-4, who attended a Global Accounting Firm conference during October 2003. Twenty-eight partners (68 percent), averaging just over 20 years of public accounting experience, responded to the instrument. Nineteen of the professionals were either global managing or major office partners, four were directly involved in risk management, while five held other partner titles. Since SAS No. 99 is a relatively new standard, we used the survey as a learning outcome measure for the 25 students only in the fall, 2003 audit course. We issued the student fraud risk assessment survey as part of the evaluation instrument minimizing the possibility of a Hawthorne effect. We assessed risk on a seven-point Likert scale, in which seven indicates a high level of assessed risk, four a moderate level, and one indicates a low level of risk. Table 3 and Fig. 1 present the aggregate risk assessments made by experts and students. Students completed the survey before and after the fraud simulation project. If effective, the simulation experience should improve students’ ability to assess the risk of fraud, which would be indicated if student post-survey assessments of risk moved toward that of a group of experts, relative to student pre-survey assessments. While we did not expect the students’ assessment abilities to equal that of experts, some movement towards seasoned judgment should occur. We compared students’ pre-assessments to the group of experts, and students’ post-assessments to the group of experts. See Table 3 and Fig. 1. For the pre-simulation survey, students assessed the severity of each risk lower than the expert group for all 33 factors (11 factors over three scenarios). Student assessment was significantly different for 21 of the 33 factors at po0.05. Students consistently assessed risk significantly lower for ‘‘a large portion of the current year’s expenses are based on management estimates’’ under all three conditions at po0.0001. This high level of significance

Comparing Students’ Pre- and Post-Simulation Risk Assessments to Experts (Mean Responses): Direct Assessment Tool.

Student n ¼ 25; Expert n ¼ 28 1 ¼ low risk, 4 ¼ moderate risk, 7 ¼ high risk 1 Your client has returned to profitability after a recent 30-month economic downturn in the industry 2 The board of directors meets infrequently 3 A large portion of the current year’s expenses are based on management estimates 4 The chair of the board of directors holds a 30 percent interest in the company 5 Your client has not addressed prior ‘‘reportable conditions’’ (significant internal control issues reported by the auditor during the prior year) 6 Last year, your audit firm had frequent disputes with the client relating to their revenue recognition policies 7 Last year the SEC investigated your client for its revenue recognition

Seven Year Client

Two Year Client

Going Concern Client

Pre

Post

Expert

Pre

Post

Expert

Pre

Post

Expert

2.76

3.72

3.62

3.92

4.60

4.58

5.33

5.48

5.69

3.72

4.28

5.46

4.32

5.28

5.73

5.24

5.68

6.27

4.64

4.56

5.88

5.00

5.28

6.31

5.64

5.76

6.58

4.04

4.32

5.38

4.64

5.12

5.81

5.16

5.48

6.15

5.68

5.64

6.04

5.52

6.20

6.46

6.40

6.32

6.65

5.08

5.32

6.42

5.36

5.88

6.54

6.08

6.28

6.73

5.52

5.92

6.31

6.2

6.16

6.42

6.36

6.48

6.88


Table 3.

19

Student n ¼ 25; Expert n ¼ 28 1 ¼ low risk, 4 ¼ moderate risk, 7 ¼ high risk

Two Year Client

Going Concern Client

Pre

Post

Expert

Pre

Post

Expert

Pre

Post

Expert

5.64

5.08

6.35

5.64

5.72

6.46

6.04

6.04

6.46

5.13

5.36

6.12

5.20

5.52

6.23

5.84

6.04

6.58

4.32

4.36

4.85

5.48

5.36

5.19

5.68

6.08

6.19

4.28

4.80

5.80

5.40

5.64

6.08

5.88

6.04

6.54

4.62

4.85

5.66

5.15

5.52

5.98

5.79

5.97

6.43

Note: all comparisons, except those shaded, are significant at p-valueo0.05; shaded items are not statistically significant. Two separate t-tests were performed. First, students’ pre-simulation risk assessments were compared to the group of experts. Second, students’ post-simulation assessments were compared to the group of experts.


practices. The investigation is still ongoing 8 The CFO and controller have resigned during the current year 9 Your client’s sales and profit forecast appear unrealistic in light of current economic conditions 10 Your client has entered into a new debt agreement with its bank. The bank requires your client to maintain a current ratio of at least 1.5. The industry average is a current ratio of 1.3 11 The majority of the compensation for the company’s president and CEO is based on quarterly income and stock price results Simple Mean Client Risk (Sum of Factors/11)

Seven Year Client

20

Table 3. (Continued )

21

Assessing Student Learning and Growth Comparative Risk Assessment - 7-Year Client 7

Risk Assessment

6 5 4 3

Pre Post

2

Expert

1 0 1

2

3

4

5

6

7

8

9

10

11

Item Number Comparative Risk Assessment -2-Year Client 7.00

Risk Assessment

6.00 5.00 4.00 3.00 2.00

Pre Post Expert

1.00 0.00 1

2

3

4

5

6

7

8

9

10

11

Item Number Comparative Risk Assessment - Going Concern Client 8.00

Risk Assessment

7.00 6.00 5.00 4.00 Pre Post Expert

3.00 2.00 1.00 0.00 1

2

3

4

5

6

7

8

9

10

11

Item Number

Fig. 1.

Comparative Risk Assessment (Average Risk Scores). Refer to Table 3 for Item Numbers.

22


also occurred for ‘‘the majority of the compensation for the company’s president and CEO is based on quarterly income and stock price results’’ under conditions of a long-term client and ‘‘the board of directors meets infrequently’’ under conditions of a long- or short-term client. The post-simulation survey shows students’ risk assessments have moved toward the experts for 25 of the 33 factors, compared with student presimulation assessments. One of the remaining eight post-assessments did not change from the students’ pre-assessment survey (the CFO and controller have resigned). Two of the remaining seven assessments (client has not addressed prior reportable conditions and the client is in violation of a debt covenant) were not significantly different from the experts assessment for either students pre- or post-simulation assessments. Movement in student assessments reduced the pre-simulation assessments from 21 of 33 significant differences to post-simulation significant differences of only 17 of the 33 factors. It is important to note that the 12 factors that were not significantly different before the simulation remained non-significant after the simulation. The above results obtained from the direct learning outcome measures suggest that students may have refined their risk assessment abilities because of the simulation experience. These direct learning measures mirror the results obtained from the earlier indirect outcome assessments.

CONCLUSIONS The purpose of this paper was to document student learning, perceptions of learning, confidence, and growth in judgment skills as a result of using a fraud risk assessment simulation in the first undergraduate auditing class. We also document course-embedded direct and indirect assessment procedures and results that show that the simulation approach achieved its intended learning objectives. In particular, using an indirect pre- and postself-assessment of students’ learning, the results show that the simulationbased pedagogy contributed to improvements in students’ understanding of fraud risk assessment, students’ ability to apply professional standards, and students’ confidence in their own professional judgments. Direct assessment methods confirm actual learning and development of risk assessment skills that will contribute to students’ success in practice. The simulation-based pedagogy also increased students’ satisfaction with the course and with their level of learning. Our study shows that students


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believe that reality-based simulations add significant value to their learning and add realism to the classroom. Further, students’ perceived that learning and growth is consistent across varying demographic backgrounds. This second finding is important because it indicates that the simulation-based pedagogy moves all students towards achieving the set learning objectives, regardless of their previous backgrounds. Our paper describes the use of a simulation-based pedagogy for teaching fraud risk assessment at a single university. We do not know whether the results documented in the paper could be replicated at a different institution. Therefore, additional research is needed to provide evidence that the method would work at other institutions. Future research should pay particular attention to the specific factors that drive student perceptions and attitudes so as to provide a better understanding of the conditions under which simulations work or do not work in the classroom. Similarly, additional research is also needed to document whether a simulation-based methodology would work in teaching other topics in auditing. Full benefits from this specific simulation may also be limited for students not exposed to an AIS course. However, other simulations, depending on subject matter may not face the same limitation. Other limitations include the lack of a control group. While the study’s results indicated studentperceived learning and benefits, the magnitude of these benefits cannot be precisely measured without a control group. As with all cases and simulations, time and resource limitations will limit the instructor’s ability to replicate a perfectly realistic scenario. Though in a perfect world, exposing students to the mass amount of information faced in a professional engagement would be more realistic, this approach is simply not practical for one of many topics covered in a single semester.

REFERENCES Accounting Education Change Commission (AECC). (1993). Evaluating and rewarding effective teaching. Issues Statement No. 5, April, Torrance, CA: AECC. Albrecht, W. S., & Sack, R. J. (2000). Accounting education: Charting the course for a perilous future. Sarasota, FL: American Accounting Association. American Institute of Certified Public Accountants (AICPA). (1983). Audit risk & materiality in conducting an audit (AU 316). Statement on Auditing Standards Number 47. New York, NY: American Institute of Certified Public Accountants. American Institute of Certified Public Accountants (AICPA). (1988). The auditors’ responsibility to detect and report errors and irregularities. Statement on Auditing Standards Number 53. New York, NY: AICPA.

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American Institute of Certified Public Accountants (AICPA). (1997). Consideration of fraud in a financial statement audit. Statement on Auditing Standards Number 82. New York, NY: AICPA. American Institute of Certified Public Accountants (AICPA). (2002). Consideration of fraud in a financial statement audit. Statement on Auditing Standards Number 99. New York, NY: AICPA. Association to Advance Collegiate Schools of Business (AACSB). (2004a). The assurance of learning standards. Standards 15–21. St. Louis, MO: AACSB. Association to Advance Collegiate Schools of Business (AACSB). (2004b). Eligibility procedures and standards for accounting accreditation. St. Louis MO: AACSB. Bailey, A. R. (1994). Accounting education: Gradual transition or paradigm shift. Issues in Accounting Education, 9(1), 1–10. Banta, T. W. (1996). Faculty involvement in assessment: Why is it so hard to achieve? Assessment Update, 8(5), 3–15. Bloom, B. S., Krathwohl, D. R., Masia, B. B. (1956). Taxonomy of educational objectives: The classification of educational goals. Handbook 1. New York, NY: McKay. Calderon, T., Green, B. P., & Harkness, M. (2004). Best practices in accounting program assessment. Sarasota, FL: American Accounting Association. DeMong, R. F., Lindgren, J. H., Jr., & Perry, S. E. (1994). Designing an assessment program for accounting. Issues in Accounting Education, 9(1), 11–22. Dugan, M. T., Gup, B. E., & Samson, W. D. (1991). Teaching the statement of cash flows. Journal of Accounting Education, 9(1), 33–52. Green, B. P., Calderon, T. G., & Reider, B. P. (1998). A content analysis of teaching evaluation instruments in accounting departments. Issues in Accounting Education, 13(1), 15–30. Harris, I. (1993). New expectations for professional competence. In: L. Curry & J. Wergin (Eds), Educating professionals: Responding to new expectations for competence and accountability. San Francisco, CA: Josey-Bass Publishers. Kullberg, D., Groves, R. J., Gladstone, W. L., Horner, L. D., Scanlon, P. R., O’Malley, S. F., Cook, J. M., & Kangas, E. A. (1989). Perspectives on education: Capabilities for success in the accounting profession. New York, NY: Arthur Andersen & Co., Ernst & Whinney Arthur Young, Peat Marwick Main & Co., Coopers & Lybrand Price Waterhouse, and Deloitte Haskins & Sells, Touche Ross Available at: http://aaahq.org/AECC/big8/cover.htm. Marsh, H. W. (1987). Students’ evaluations of university teaching: Research findings, methodological issues, and direction for future research. International Journal of Educational Research, 11, 253–388. Michlitsch, J. F., & Sidle, M. W. (2002). Assessing student learning outcomes: A comparative study of techniques used in business school disciplines. Journal of Education for Business, 77(3), 125–130. Panel on Audit Effectiveness. (2000). Report and recommendations, panel on audit effectiveness. Stamford, CT: Public Oversight Board (Available at www.pobauditpanel.org). Public Oversight Board. (1996). Annual report/1995–1996. New York, AICPA: Public Oversight Board. Seldin, P. (1993). The use and abuse of student ratings of professors. Chronicle of Higher Education, 39(46), A40. Treadway, J. T., Chairman. (1987). Report of the National Commission on Fraudulent Financial Reporting. National Commission on Fraudulent Financial Reporting, Washington, DC.


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Wolf, R. A. (1992). CSU and assessment-second down and eight yards to go: A view from the line of scrimmage. In: Institute of Teaching & Learning (Ed.), Assessment practices and experiences in the California State University (pp. 73–80). Institute for Teaching and Learning, Office of the Chancellor, The California State University, 400 Golden Shore, Long Beach, CA 90802-4275. Wren, D., Buckley, M., & Michaelsen, L. (1994). The theory/applications balance in managing pedagogy: Where do we stand. Journal of Management, 20(1), 141–157.


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MOTIVATING STUDENT INTEREST IN ACCOUNTING: A BUSINESS PLANNING APPROACH TO THE INTRODUCTORY MANAGEMENT ACCOUNTING COURSE Noah P. Barsky and Anthony H. Catanach, Jr. ABSTRACT Introductory management accounting courses traditionally emphasize cost accounting topics rather than the critical role that information plays in decision making suggest that creatively redesigning the introductory management accounting course may help to reverse recent declines in accounting enrollments. The education literature also indicates that business simulations motivate student learning and may actually impact the desirability of a particular college major serial case pedagogy, the authors developed a fundamentally different delivery approach for the introductory management accounting course: the Business Planning Model (BPM). The BPM reengineers the managerial principle course in several ways: (1) it adopts a proactive management perspective that addresses strategy, risk, and process in a business planning context; (2) it relies on a serial case to introduce its unique course content and also reinforces topical coverage through a semester-long business planning simulation; (3) it uses basic consumer retail examples that leverage stuAdvances in Accounting Education: Teaching and Curriculum Innovations, Volume 7, 27–63 Copyright r 2005 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 1085-4622/doi:10.1016/S1085-4622(05)07002-1

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NOAH P. BARSKY AND ANTHONY H. CATANACH Jr.

dent business experiences in service industries, and (4) its focus on analysis and decision making de-emphasizes cost accounting topics that the profession finds less critical today. Students report that the BPM gives them an appreciation for the value of information, improves certain key business skills, and increases their interest in accounting as a field of study.

INTRODUCTION During the past decade, professional bodies such as the American Institute of Certified Public Accountants (AICPA, 2000) and the Institute of Management Accountants (IMA, 1999) have criticized accounting education for not meeting the needs of practice. Albrecht and Sack (2000) propose that curricula problems may be contributing in declining accounting enrollments. In fact, they suggest that redesigning the introductory management accounting course from a cost accounting perspective to one that ‘‘creatively captures topics that focus on using information to make decisions’’ may help reverse the downward trend in accounting majors. This paper describes a creative reengineering of introductory management accounting that relies on the Business Planning Model (BPM) to prepare undergraduate business students for their subsequent coursework and professional careers. Influenced by Brewer’s (2000) ‘‘new framework’’ for teaching management accounting, as well as Adams, Lea, and Harston (1999) serial case approach to the introductory managerial course, the authors incorporated three distinct pedagogical components into the BPM to address planning, control, and decision-making themes in a business planning context. These components consist of a serial case that introduces students to managerial accounting topics across ten content modules, a set of mini-cases that reinforces topical coverage in each of the content modules, and a semesterlong simulation that allows students to apply the tools and techniques learned in both the content modules and mini-cases while preparing a comprehensive business plan for a start-up enterprise. Fig. 1 illustrates the BPM and its three components. Students completing the BPM introductory managerial course report that it gives them an appreciation for the value of information, it provides them with a basic understanding of business processes and the related risks, and it is effective in developing risk assessment, critical thinking, and oral communication skills. Assessment results further suggest that the BPM motivates students to study accounting.

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Motivating Student Interest in Accounting

Planning

Topical Content Modules

Serial Case

Mini-Cases

Control

Business Planning Simulation

Decision-Making

Fig. 1. The Business Planning Model. Note: The BPM introduces students to three fundamental themes of management accounting (planning, decision-making, and control) in a business planning context using the following pedagogical tools: A serial case that unfolds over ten topical content modules introduces students to management accounting topics. Mini-cases reinforce topical content introduced to students in the serial case and content modules. The business planning simulation allows students to apply the management accounting tools and techniques learned in the content modules while preparing a business plan for a start-up enterprise.

The remainder of this paper consists of four sections: (1) the motivation for changing the introductory management accounting course; (2) a detailed description of the BPM, including its educational objectives, general approach, and pedagogical resources; (3) a discussion of assessment results; and (4) a concluding summary, with recognition of limitations of the approach.

MOTIVATION FOR CHANGE Market Forces Technology has dramatically redefined the traditional role of the accounting and finance function from one of the record-keeping and external reporting to one that provides stakeholders with timely relevant information for evaluating strategic initiatives. The IMA (1999) asserts that students should view accountants as business partners rather than simply ‘‘scorekeepers,’’ and encourages ‘‘accounting educators to develop changes in the accounting curriculum’’ that reflect the two most critical work activities for management accountants today: strategic planning and process

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improvement, ‘‘neither of which is generally taught in the accounting curricula’’ (IMA, 1999, p. 9). Similarly, the AICPA’s Core Competency Framework expects accounting professionals in the 21st century to possess a ‘‘broad business perspective’’ in addition to technical competencies, and to function as valued business advisors (AICPA, 2000). However, Albrecht and Sack (2000) note that meaningful curriculum change has been limited to date. In fact, Boër (2000) indicates that procedural mindsets continue to color managerial accounting education. In many cases, the value of accounting information to the management process appears motivated by instructor use of product-costing examples, despite the United States’ transition from a manufacturing to a service-based economy (Brewer, 2000; Boër, 2000). The traditional course perspective is particularly troubling given assertions by Adams et al. (1999), Maher (2000), and Saemann and Crooker (1999) that introductory accounting courses can influence student selection of accounting as a major. Recently, Brewer (2000) proposed an innovative framework for management accounting education that addresses three critical business decision contexts: management of products, services, and customers; business process management; and personnel management. In his framework, these three themes pervade every course (including the introductory course), and for strategic issues constitute the primary learning objective. Consistent with Brewer’s structure, Adams et al. (1999) recommend using a serial-case approach in the introductory managerial course to help students understand fully the systems, processes, and integrated nature of business. The BPM is a variation of Adams et al.,’s serial-case approach that attempts to integrate traditional managerial accounting and business topics by emulating the actual strategic planning, resource management, and performance measurement activities commonly found in business enterprises. Workplace realism also is a major focus of the AICPA’s new computer-based Uniform CPA Examination, which intends to test knowledge and skills that are actually ‘‘found on the job.’’ Since simulations, research, and a multi-disciplinary perspective will play roles in the new exam, the BPM incorporates all three in delivering the course. Institutional Environment To appreciate adequately a curriculum change like the BPM, one must understand the institutional environment that prompted its development (Albrecht, Clark, Smith, Stocks, & Woodfield, 1994; Rebele et al., 1998). The affected institution is a highly competitive, four-year, Catholic university


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located in the Northeastern U.S. The college of business, which enrolls approximately 405 undergraduate students per class, does not offer a Ph.D. program, but does offer evening and executive MBA programs, a Master of Science in Taxation, and a Master of Science in Accounting and Business Consultancy. Mean Scholastic Aptitude Test scores and high school grade point averages for incoming undergraduate students are now 1237 and 3.65, respectively. The college’s strategic plan calls for an adaptive problem-solving learning environment. Consequently, most classes meet twice per week for 75 min during the 15-week semester. The college also provides all students with laptop computers to encourage technology use. The accounting program graduates approximately 100 students per year, most of whom accept entrylevel positions with Big 4 and other large international accounting firms. The college offers the introductory management accounting course during the sophomore year. Prior to taking the class, students must complete a traditional financial accounting principles course that generally is taught following a user rather than a preparer approach. Students also must take a basic economics course, but faculty do not require the course to operate the BPM. Prior to the BPM’s development, introductory management accounting was a traditional, textbook-driven course that emphasized cost accounting topics in a manufacturing setting. In fact, the topical coverage for the introductory course was virtually indistinguishable from the cost accounting course offered to accounting majors, although presumably the level of coverage was not as deep. The traditional course encouraged individual student’s performance and little collaborative learning. As with many institutions, accounting majors in the college continued to decline. It became clear to many in the department that the introductory management accounting course needed to be overhauled to support the strategic plan, reflect recent changes in the U.S. economy, better meet the needs of all business majors (not just accountants), and halt declining accounting student enrollments.

THE INTRODUCTORY MANAGEMENT ACCOUNTING COURSE REVISION General Course Objectives The changing nature of business and the accounting profession over the past decade has significant implications for curriculum. According to the IMA’s 1999 Practice Analysis of Management Accounting, ‘‘traditional’’ management accounting activities are declining, with strategic planning, financial

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and economic analysis, customer and product profitability, and process improvement, now considered most critical for company success. Russell, Siegel, and Kulesza (1999) note that businesses are relying heavily on crossfunctional, team-based decisions that require knowledge of strategy, products, and process. Khan, Cianciolo, and Peacock (2000) and Coppage and French (2002) argue that management accounting education should be ‘‘reengineered’’ to better reflect the IMA Practice Analysis. Given these market expectations, as well as the college’s strategic plan, the authors adopted five broad educational objectives for the BPM: (1) provide students with an understanding of basic business and management accounting processes, (2) introduce risk assessment and its relation to business strategy, (3) promote critical thinking, reasoning, and analysis, (4) develop oral and written communication skills, and (5) foster teamwork. As illustrated in Fig. 1, the BPM relies on three pedagogical tools to accomplish its objectives. Similar to the Business Events Systems Approach employed by Brigham Young University (Albrecht et al., 1994), the Managerial Serial Case Pedagogy (Adams et al., 1999), and the Business Activity Model (Catanach, Croll, & Grinaker, 2000), this revised introductory management accounting course uses a serial case that unfolds over 10 content modules to introduce students to fundamental management accounting tools and techniques. The BPM then uses mini-cases to reinforce content presented in both the modules and related serial case discussions. Finally, a semester-long business planning experience creates a relevant business context that highlights the value of accounting information and introduces students to skills they will need in their upperdivision coursework and careers. The simulation presents accounting in a business context (Basu & Cohen, 1994; Knechel & Rand, 1994) and makes students active participants in the learning process as they solve unstructured problems that require the use of multiple information sources (AECC, 1990). Basu and Cohen (1994) suggest that such an approach may favorably affect students’ choice of major. The BPM also promotes teamwork through smallgroup, collaborative learning and fosters a problem-based learning environment (Boud & Fellitti, 1997; Johnstone & Biggs, 1998) in which students actively participate in the learning process. Table 1 summarizes the BPM’s five broad goals and related action plans.

A Business Planning Context Business planning is an ongoing, continuous, and iterative activity that serves a broad range of business purposes, including control and decision

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Table 1.

Business Planning Model Educational Objectives.

Goals

Action Plan

Provide students with an understanding of basic business and management accounting processes

Present managerial accounting and business issues to students in familiar business contexts. Integrate such issues with other business topics including strategic planning, resource management, and performance measurement. Classroom activities and semester-long business planning exercises reinforce topical content and the value of management accounting information

Introduce risk assessment and its relation to business strategy

Encourage students to identify and assess the underlying risks associated with various business decisions. Highlight the role of management accounting information in managing business risk. Apply models developed by major professional service firms to business risks facing both start-up businesses and established companies

Promote critical thinking, reasoning, and analysis

Encourage students to think like ‘‘experts’’ by requiring them to deal with ambiguity and uncertainty in classroom simulations that mirror the ‘‘real world.’’ Daily classroom discussions and periodic mini-cases require students to focus on insight and problem solving and analysis, rather than data creation and manipulation

Develop oral and written communication skills

Require students to communicate professionally (both orally and in writing) during a continuous business planning simulation. Students individually complete mini-cases and teams develop a marketquality business plan. Classroom discussions and business plan presentations directly address oral communication skill development

Foster teamwork

Students work in three or four person teams throughout the semester to develop goalsetting, interpersonal, and timemanagement skills required in today’s business environment

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making, which relates to the future operations of a firm. Consequently, business planning offers an ideal context for introducing students to management accounting and has several distinct pedagogical advantages. First, the business planning experiences of the serial case’s fictitious company from start-up through the first two years of operations create a sense of realism for students that motivates student learning and distinguishes the course from other classes. Second, business planning topics reinforce the demand for accounting information by linking traditional management accounting content to broader business issues. Finally, the semester-long simulation integrates and reinforces the topical content more than simply assigning an end-of-semester project. As Cummings, Bennett, and Normand (2001) argue, active learning assignments offer students valuable opportunities to ‘‘practice’’ and develop the communication, analytical, technology, and teamwork skills expected from entry-level professionals. Topical Coverage The BPM adopts a broad business perspective and covers several subjects new to the introductory course including strategy, risk assessment, and basic business processes. This approach is consistent with Khan et al.’s (2000) call for a curriculum based on the top-ranked ‘‘most critical’’ work activities listed in the IMA Practice Analysis. To address these relevant, contemporary issues at the introductory course level, the BPM necessarily excludes topics more specific to the accounting major that are generally covered in more advanced courses (e.g., transfer pricing, variable and absorption costing, etc.). Table 2 illustrates how the BPM’s coverage compares with Khan et al.’s (2000) recommendations. The BPM’s innovative topical coverage makes a number of unique contributions to the introductory management accounting course, which are summarized in Table 3. The Business Planning Model: Emphasizes proactive, rather than reactive management as it presents topical content. Unlike some traditional courses that focus exclusively on accounting tools needed to solve an existing problem, this model also highlights the use of management accounting information in planning operations to avoid future difficulties. Encourages students to develop their evaluation and decision-making skills, thus dispelling the notion that management accountants simply accumulate data and let others make decisions. Students actively analyze

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Table 2.

BPM Topic Comparison.

Topical Coverage Recommendationsa

BPM Topical Coverage and Timing

Long-range strategic planning

Business strategy fundamentals (Week 1)

Information needs of customers Management control systems

Fundamental business processes (Week 2)

Building financial models for decision making

Business performance measures (Week 2)

Cost behavior Cost–volume–profit analysis

Profit planning (Weeks 4–5)

Short-range planning/budgeting Long-range budgeting Capital budgeting/time value of money

Forecasting tools and techniques (Weeks 6–7) Budgeting fundamentals (Weeks 8–9) Analyzing and using budgets (Week 10)

Performance evaluation

Performance evaluation and decision making (Week 11)

Return on investment and residual income Relevant costs for decision making Note: Additional topics covered by the BPM include business processes and risk (Week 3) and analyzing costs at the customer and product level (Week 12). Time value of money is covered in three required courses at our institution: Principles of Financial Accounting, Principles of Finance, and Business Mathematics and is the only topic suggested by Khan et al. (2000) that is not covered in the BPM. a Recommendations based on the 1999 IMA Practice Analysis.

financial results, make decisions, and plan future operations using management accounting tools. Introduces process, risk, and strategy to the introductory management accounting classroom, not only to meet the markets’ needs, but also to link management accounting to upper-division coursework in other business disciplines. Since the introductory managerial course often is the last accounting class for many non-accounting majors, the BPM attempts to motivate the need for management accounting information in their respective disciplines, hopefully leaving students with a more realistic and favorable impression of the accountants’ advisory role in the workplace. For accounting majors, the BPM provides sufficient ‘‘traditional’’ coverage to prepare them for cost accounting, while highlighting accounting’s advisory role to other business functions. Relies heavily on examples from service industries rather than manufacturing enterprises, an approach that is consistent with the dominant role that service industries play in the U.S. economy.

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Table 3.

Unique Characteristics of the BPM’s Topical Coverage.

Unique Course Topics

Serial Case

Mini-Cases

Business Plan Simulation

Proactive management

Budgeting examples show how managers project business results, allocate resources, and communicate future goals and objectives. Weeks 8–9, 10

Student teams develop a donut shop’s master budget and assess the credibility of a backpack maker’s operating budget. Weeks 8–9, 10

Students identify business risks, develop action plans for value chain activities, and create and justify budgets. Weeks 3, 8–9, 10

Evaluation and decision making

Serial case uses financial and nonfinancial measures to evaluate performance and business decisions. Weeks 2, 4–5, 6–7, 11

Students analyze financial results, conduct profit planning, and evaluate decision options. Weeks 2, 4–5, 6–7, 11

Students use financial ratios, breakeven, sensitivity, and other analyses in their business plans. Weeks 2, 4–5, 6–7, 11

Process

The value chain framework introduces students to basic business processes and their effects on business planning and results. Weeks 2, 3

Student teams document a local firm’s business processes and describe their effects on financial results. Weeks 2, 3

Teams describe the key processes in their company’s business value chain. Weeks 2, 3

Risk

Serial case introduces the need for risk assessment and related management strategies. Week 3

Students discuss the process risks encountered in a private high school’s operations. Week 3

Teams identify risks and suggest management strategies in their business plan. Week 3

Strategy

Students learn what role strategy plays in running a business. Week 1

Students evaluate a retail bookstore’s strategy and information needs. Week 1

Students craft strategy, mission, and goals for a startup enterprise. Week 1

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Table 3. (Continued ) Unique Course Topics

Service industry orientation

Serial Case

Mini-Cases

Business Plan Simulation

A service firm (i.e., landscaping company) introduces management accounting topics. Weeks 1–12

Mini-cases use firms in the education, transportation, and food service industries. Weeks 3, 4–5, 6–7, 8–9, 11

Teams can choose to develop business plans in service industries. Weeks 1–15

Note: Week references relate to semester time period during which topics are introduced. See Tables 6–8 for additional information on class activities.

Content Delivery Framework Brewer (2000) proposes that management accounting curricula emphasize three central themes: (1) managing products, services, and customers; (2) managing processes; and (3) managing people. The BPM adopts Brewer’s structure to deliver the topical content outlined by Khan et al. (2000). Table 4 illustrates how the BPM’s topical coverage and class activities relate to Brewer’s framework. As does its topical coverage, the BPM’s delivery approach also makes a number of unique contributions to the introductory management accounting course. These are summarized in Table 5. The Business Planning Model: Incorporates student friendly business contexts that include basic consumer and retail examples that leverage students’ business experiences as customers and front-line employees. Rather than obscuring the value that management accounting delivers by using overly detailed, large company examples in industries to which few students can relate, the BPM focuses on everyday, basic consumer businesses like hardware stores and pizza shops. Includes an integrated serial case component that introduces and unifies topical content across ten learning modules. The case illustrates the planning, control, and decision-making issues confronting a small landscaping company during the first two years of operations. Requires student experiential learning in the completion of both mini-case assignments and business plan activities. Student exercises are designed to simulate ‘‘real world’’ activities, rather than a textbook-driven learning environment.

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Table 4.

The BPM and Brewer’s (2000) Framework. General Business Context

Managing products, services and customers

Managing processes Topical coverage Business strategy Strategic planning The value chaina The balance scorecarda Business performance Measuresa Risk assessment Class activities Students identify and analyze strategy, processes, performance, and business risks of local businesses Weeks 1–3 Students draft concept proposal, including mission statement, business description, and risk analysis

Topical coverage Profit planninga Basic cost conceptsa Cost behavioura Product costinga Cost-volume-profit analysisa Revenue and cost forecastinga Class activities Mini-cases include cost and CVP analyses for a private school, a leisure bus service, and an airline

Activity orientationb,c Weeks 4–7 Students develop market analysis and describe basic business processes

Managing people Topical coverage Budgeting fundamentalsa Variance analysisa Differential analysisa Responsibility centersa The balanced scorecarda Activity-based costinga Class activities Teams create a budget, critique projections, review a ‘‘make-orbuy’’ decision, and analyze product costs for various firms Weeks 8–12 Students prepare start-up budget and pro-forma financial statements and finalize business plans and presentations

a

Traditional topical coverage reflective of Hilton (1999) and Atkinson et al. (1997). The BPM does not recover variable and absorption costing, transfer pricing, and advanced cost allocation topics. b The business planning simulation occurs throughout the semester with class discussion of each period that integrates the topical coverage with business plan assignments and deadlines. As with Adams et al.’s (1999) serial case model, the BPM’s simulation is intended to give students an appreciation for the systems, processes, and integrated nature of business and their coursework. Tables 6–8 details the topical coverage across 10 learning modules. c The remaining weeks of the semester (13–15) are devoted to final business plan review and discussion, as well as to student presentations.

Emphasizes the development of research skills. Students must actually visit businesses to collect data. They must also utilize market-based resources to support their research, analysis, and writing activities during the course of their various business planning assignments.

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Table 5.

Unique Characteristics of the BPM’s Content Delivery Approach.

Unique Delivery Characteristics

Implementation

Student friendly business contexts

The BPM’s components rely heavily upon consumer and retail contexts with which students can relate (i.e., grocery stores, pizza shops, schools, etc.). Familiar business settings capture and sustain student attention and allow them to focus on key business issues and management accounting topics without having to learn about a new business or industry

Integrated serial case

This BPM component provides an ongoing, common scenario that introduces, integrates, and unites topical content across ten learning modules. A landscaping firm’s first two years of operations illustrate the importance of key management accounting topics: planning, control, and decision making

Experiential learning

Several mini-case assignments require student teams to visit local businesses to collect data and analyze their operations. Students also create a business plan for a start-up enterprise in an industry of their own choice and present it to visiting business professionals

Research skills

Students must utilize library and Internet-based business resources to analyze markets and industries, develop pro forma financial statements, and evaluate financial ratios. Mini-case assignments reinforce the value of utilizing data from credible market sources

Intellectual independence

Students must rely on initiative and insight to gather and analyze credible market data in developing their business plans and completing mini-cases. Students cannot simply refer to textbooks for ‘‘correct’’ answers

Fosters intellectual independence as students must rely on initiative and insight to address business planning issues, rather than simply referring to a textbook for answers. The delivery of technical material occurs over the first 12 weeks of the course via an alternating series of short lectures based on ten content modules (mini-lectures of 15–20 min in length) and discussions of short minicases (usually one page in length). The BPM serial case, an unfolding story about a landscaping business, introduces content material, highlights the

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complexity of running a business, and reinforces the value of information to business decisions in a setting that students understand and appreciate. Daily class activities are discussion based and often require teamwork. These activities provide students with sufficient fundamental knowledge of managerial accounting topics to complete business planning assignments throughout the semester. Each class session emphasizes specific business planning issues to motivate topical content and link them to simulation activities. Brewer’s framework provides unifying themes that reinforce the relevance of specific topics throughout the semester. Managing Products, Services, and Customers During the first three weeks of the semester, students learn how basic business processes support strategy and deliver value to customers. Topical coverage addresses strategic planning, shareholder wealth and value creation, the value chain, and risk assessment. The BPM uses the Balanced Scorecard to show how companies measure performance when evaluating strategy execution, business process management, and resource utilization. Table 6 describes the topical coverage and specific class assignments used in weeks 1–3. The serial case and mini-lectures prepare students for active learning exercises that require them to visit local businesses (e.g., supermarkets, hardware stores, etc.) to observe and document basic business processes and related performance measures. BPM assignments also provide students with the tools and techniques needed to complete their first business planning simulation requirement: a written concept proposal for a start-up business. As part of this exercise, each student team must prepare a mission statement, strategy description, and risk assessment to support a new business in an industry of their choice. Managing Processes The next four weeks of the course focus on how accounting information is applied to manage business processes. Topical coverage addresses basic cost concepts, cost estimation techniques, breakeven analysis, and business decision making. Mini-cases and class activities require students to apply these concepts in identifying cost drivers at an academic institution, completing breakeven analysis for a leisure bus line, and estimating costs for an airline. The serial case illustrates how managers conduct business risk assessment and develop sales and cost forecasts. Students use what they learn from

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Table 6. Topic/Week Business strategy fundamentals

Week 1

Fundamental business processes

Week 2

Business performance measures

Week 2 Business processes, and business risks

Week 3

BPM Topical Coverage Managing Products, Services, and Customers. Content Materials

Business Planning Application

Topical coverage: Business strategy fundamentals; stakeholder perspectives; strategic planning; the Balanced Scorecard. Strategic planning, mission statements, and goal setting provide the context to introduce stakeholder information needs Serial case: A fictitious landscaping business begins operations and struggles with information needs related to strategy and running the business Mini-case: Students consider the value of management accounting information as a bookstore manages the competing interests of stakeholders

Student teams develop an initial business concept, mission statement, and description for a start-up business

Topical coverage: Business forces; the value chain; the Balanced Scorecard. Discuss forces affecting business and customer value, as well as the role of planning and information in measuring and managing business process effectiveness Serial case: Explores value chain activities Mini-case: Student teams visit a local business to gather information about strategy, business processes, and performance measures

Teams analyze the market and competition facing their startup enterprise

Topical coverage: Financial statements and ratio analysis. Business processes are linked to financial statements outcomes and the financial dimension of the Balanced Scorecard. Students learn how to use ratios to evaluate key business processes Serial case: Illustrates the use of ratio analysis Mini-case: Students evaluate a local firm’s financial performance

Students research industry ratios using library resources and reference materials

Topical coverage: Value drivers; financial, human and physical resources; business risk. Discuss the inherent risks of key business activities that consume resources and drive financial performance. The Balanced Scorecard integrates these critical topics Serial case: Provides examples of business processes, value drivers, and risks Mini-cases: Students identify business activities, risks, and cost drivers for a school and evaluate their personal risk tolerance

Students identify risks facing their start-up business and suggest risk management strategies

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Table 7.

BPM Topical Coverage Managing Processes.

Topic/Week(s)

Content Materials


Profit planning

Topical coverage: Cost behavior; cost-volumeprofit (CVP) analysis; breakeven analysis. Topics are presented in a business–planning– context

Student teams identify costs and perform CVP and breakeven analysis for their business plan

Weeks 4–5

Serial case: Illustrates profit planning tools and techniques Mini-cases: Students help college administrators to properly classify cost behavior. They also help a consulting firm identify issues affecting a leisure transit company’s profit plan

Forecasting tools, and techniques

Topical coverage: Sales forecasting; cost estimation techniques. Shows how common statistical methods like correlation and regression analysis are used in revenue/ expense forecasting and CVP analysis Serial case: Illustrates how customer demand and price affect revenue forecasts Mini-case: Students perform statistical analysis on cost data, analyze a firm’s cost structure and incorporate their results in a profit plan for an airline

Weeks 6–7

Student teams develop a sales forecast and cost estimates for their start-up enterprise

mini-lectures, assignments, and mini-cases to complete the business planning simulation’s second requirement: a market analysis that includes an evaluation of competition, customers, and core business processes, as well as a preliminary sales–cost–profit structure for their start-up enterprise. This analysis requires students to integrate the information needed to manage basic business processes with the demands of delivering products and services to customers. Table 7 describes the topical content and class assignments for weeks 4–7. Managing People Consistent with the third and final theme of Brewer’s (2000) framework, the BPM introduces students to traditional management accounting tools that are employed to manage people. Topical coverage addresses profit planning,


43

flexible budgeting, variance analysis, and responsibility centers. Students learn how managers use the Balanced Scorecard’s financial and non-financial dimensions to measure performance and make business decisions. Minicases reinforce the topical content as students prepare a master budget for a donut shop, assess the credibility of a backpack manufacturer’s budgets, provide guidance for a pizza shop’s make-or-buy decision, and estimate a manufacturer’s product cost using activity-based-costing techniques. Table 8 describes the topics covered during weeks 8–12 and the related active learning assignments. Class assignments during this course segment prepare students for the third requirement of their business planning simulation: a start-up budget, pro forma financial statements for their business supported by sensitivity analyses, and a detailed written discussion of their projections and related assumptions. To prepare this budget, students must use the market analysis prepared in week 2 to generate a credible sales forecast, estimate resource requirements using industry sources found in their research, and prepare pro forma financial statements using the skills acquired in their introductory financial accounting course. Utilizing instructor feedback, students revise their previous team submissions (concept proposal, week 1; market analysis, week 2; and preliminary budget, week 9) to create a complete business plan. To facilitate this process and extend the simulation’s realism, BPM students apply commercial business planning software to format and structure their plans. With 2 weeks left in the semester, student groups submit their final plan to the instructor in both electronic and hardcopy form. To emphasize the importance of market quality work, the instructor can grade business plans using guidelines adapted from the U.S. Small Business Administration.

Student Presentations During weeks 13 and 14 of the semester, student teams each deliver a 20-min presentation of their plan to the class and invited members of the academic or professional community (e.g., recruiters, alumni, other faculty). Each audience member (students and invited guests alike) evaluates the presentations based on delivery quality (accuracy, completeness, relevance, professionalism), use of visual aids, and application of course concepts. Students must attend other teams’ presentations and ask questions to the students who are presenting. To promote participation, student audience members are graded on their questions and comments. This open discussion

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Table 8.

BPM Topical Coverage Managing People.

Topic/Week(s)

Content Materials


Budgeting fundamentals

Topical coverage: Types of budgets; developing master, sales, and operating budgets; capital budgeting. Students learn how budgets help managers to communicate strategy and allocate resources Serial case: Illustrates the development of an integrated master budget Mini-case: Students prepare operating, cash flow, and financial statement budgets for a local donut shop

Student teams prepare startup and operating budgets for their start-up business

Topical coverage: Assessing budget credibility; flexible budgeting; variance analysis. Discusses budget credibility using sensitivity, ratio, and variance analysis. Serial case: Illustrate variance analysis and its potential benefits Mini-cases: Requires students to integrate CVP tools with budgeting and variance analysis to assess performance

Students perform sensitivity and ratio analyses on their budgets to evaluate the credibility of their financial projections

Topical coverage: Responsibility centers; cost–benefit analysis; the Balanced Scorecard. Performance evaluation and decision making is illustrated using responsibility centers and make-or-buy and special order decisions. The Balanced Scorecard integrates financial and non-financial performance measures Serial case: Illustrates performance measures as well as cost–benefit analysis Mini-case: Cost–benefit analysis is performed in a make-or-buy decision context

Student teams evaluate e-business models and determine if they are appropriate for their business idea

Topical coverage: Production costs and flows; job and process costing; overhead allocation; activity-based costing. Discusses job order and process costing as well as overhead allocation using both traditional and activity-based costing techniques

Teams compute margins for their products/services, compare them to industry averages, and find opportunities for process improvement

Weeks 8–9

Analyzing and using budgets

Week 10

Performance evaluation, and decision making

Week 11

Analyzing costs at the customer and process level

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Table 8. (Continued ) Topic/Week(s)

Week 12

Content Materials


Serial case: Illustrates how job and process cost analyses can yield cost-reduction opportunities Mini-case: Students compare product costs using activity-based costing with ‘‘traditional’’ overhead allocation for a manufacturer

format usually results in rigorous, student-led question-and-answer sessions that stimulate critical thinking and promote the oral communication skills expected in professional business settings. Students in the audience also must complete detailed evaluation forms for each presentation. These response sheets provide the instructor with insight into whether students grasp the themes of the course. The semester closes with a review, course evaluations, and a comprehensive individual final exam. Instructional Resources To facilitate classroom adoption and implementation, the BPM provides four instructional delivery tools: (1) a set of innovative content materials; (2) a comprehensive, daily instructor guide; (3) PowerPoint slides; and (4) professional business planning software. Table 9 summarizes these instructional resources. A set of specially designed and integrated educational materials supports each of the BPM’s ten topical areas. These materials include technical readings and definitions, a comprehensive serial case, mini-cases, business planning simulation exercises, and references to related Internet resources. The BPM’s serial case is particularly innovative. The increasingly complex business issues that this fictitious company encounters from start-up through the first few years of its operations provide realistic examples that demonstrate the relevance of each topic in a context that undergraduate business students can easily understand and appreciate. One-page mini-cases provide students with the opportunity to apply and discuss managerial accounting topics in a variety of realistic business contexts. A business planning activity also reinforces course content and serves as a component of the planning simulation that yields a formal plan. By linking technical content with business planning

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Table 9. Resource Content materials (Tables 6–8)

BPM Instructional Resources. Description

Technical readings on managerial accounting topics Continuous, integrated serial case provides examples of topical coverage Links to relevant topical web sites Mini-cases that require students to identify and analyze business issues and present practical business solutions. Mini-cases reinforce readings and lectures, stimulate classroom discussion, and allow instructors to provide feedback on the content, conciseness, and clarity of student writing Business planning exercises link topical content to the course simulation

Instructor’s guide

Contains a detailed ‘‘script’’ of the content and timing of daily class activities, sample questions to stimulate student discussion as well as solutions, and standardized grading keys for all course requirements. Also included are course administration forms that are useful in managing group assignments and deadlines

PowerPoint slides

PowerPoint slides supplement each learning module and facilitate classroom mini-lectures

Business planning software

The BPM uses the academic version of a CD-ROM based software program (Business Plan Pro developed by Palo Alto Software) to provide guidance and examples on formatting and structure necessary to develop a business plan and related presentation

activities, the materials also convince students the importance of management accounting information to business planning in general. While planning a start-up entity’s operations may not be ideal for illustrating the complexities associated with planning, control, and decision making in large established companies, it does provide a tractable context in which students can apply the management accounting tools and techniques they have learned. A detailed instructor manual also supports the BPM’s delivery. This daily class guide summarizes each class day’s objectives and activities, outlines required readings and handouts, reviews student assignments, and provides comprehensive ‘‘scripted’’ guidance on how to conduct each BPM class. PowerPoint slides also are available for instructor use in mini-lectures or to promote classroom discussion. Finally, to enhance the realism of the educational experience and to focus students on plan content rather than format during their business planning simulation, the BPM uses Business


47

Plan Pro, one of many commercially available and inexpensive business planning software tools. This Microsoft Office compatible software provides instructional guidance, examples, formatting, and the structure necessary to develop market quality plans and presentations.

IMPLEMENTATION CONSIDERATIONS As with any curriculum change, potential BPM adopters should consider a number of important faculty, student, and resource issues before proceeding with implementation. Faculty Communication and Coordination The BPM’s general business focus and active-learning orientation provide accounting programs with great flexibility in tailoring the approach to their own institution’s unique environment. However, to ensure successful implementation, BPM instructors should meet at least weekly to ensure consistency in course delivery and grading across multiple sections. Such meetings are useful in addressing unexpected issues and interpretations that students may raise, and often mitigate any faculty resistance to adopting such a non-traditional educational approach. BPM adopters also should consider the potential impact that this approach may have on other courses in the business school curriculum. Faculty should communicate to their colleagues and program administrators that the course continues to deliver traditional managerial accounting topics, and merely introduces ‘‘non-accounting’’ topics to set a context for learning management accounting. The BPM’s effect on subsequent cost accounting courses cannot be ignored. Therefore, BPM faculty also should meet with cost instructors to coordinate coverage. Student Concerns Ironically, students often present some of the largest hurdles to curriculum change. When the BPM is first implemented, students may initially complain about course rigor, the lack of lectures, and the open-ended nature of many assignments. One effective way to overcome these concerns is to emphasize how the course prepares students for internship and job interviews by providing them with a tangible product that they can showcase to recruiters. Once students get a feel for the BPM, most are very receptive to the high

48


degree of team-based interaction, the ‘‘realism’’ of the business planning simulation, and the perceived benefits of the course. Faculty also should be aware that, as with any rigorous course, the BPM’s student workload may present conflicts for students with numerous teambased courses, employment, extracurricular activities, or commuting issues. Faculty can address such concerns by managing the degree of ambiguity or rigor introduced in the business planning simulation. For example, instructors can provide ‘‘hints’’ to students that assist them in completing the BPM’s simulation. Instructors also can direct students to specific business planning web sites or library research materials, rather than requiring them to find these resources on their own. Such concessions, however, may sacrifice some student learning. Alternatively, if considered too rigorous for second year undergraduate students, some colleagues at other institutions have suggested that the BPM structure and content also lends itself to delivery in an undergraduate advanced managerial class, a senior-level capstone accounting course, or an MBA introductory managerial class.

Other Administrative Issues Historically, BPM instructors have chosen to assign 50 percent of each student’s course grade based on individual performance according to the following allocation: 31 percent for in-class examinations (a mid-term and a final), 13 percent for mini-case written summaries, and 6 percent for periodic class quizzes on assigned readings). The other half of the student’s grade consists of 40 percent for the group-prepared business planning simulation components and 10 percent for class discussion and team participation. Exams are similar to those given in traditional managerial courses, consisting of a mix of computational problems and multiple-choice questions. To discourage ‘‘free riding’’ on the business plan simulation, instructors also include in exams short answer questions that require students to display an in-depth understanding of each phase of their team’s own unique business planning simulation. BPM instructors usually have offered it in class sections ranging from 20 to 60 students. Some instructors have found that class sizes of 25–30 are optimal for promoting discussion and facilitating instructor evaluation of individual classroom participation and grading of business plans and minicases. Two 75-min sessions per week is ideal for delivering the BPM as shorter classes often prove inadequate for stimulating and sustaining classroom discussion and completing some classroom activities.


49

ASSESSMENT The authors originally developed the BPM concept in the fall of 1998, and developed, tested, and revised course materials during the subsequent two years. Formal assessment began in the spring of 2001. Instructors have applied both traditional classroom evaluations and formal assessment instruments delivered to both students and practicing professionals to evaluate the BPM. During the spring semester of 2001, students had three enrollment alternatives for the introductory managerial course. Two BPM sections were open to any business major, two additional BPM sections were available exclusively to non-accounting majors, and another six non-BPM sections (‘‘traditional’’ managerial course approach) were open to any business major. Student registration materials did not mention the BPM, did not identify any differences in teaching approaches for any of the course sections offered, and were scheduled at identical morning and afternoon time periods. All non-BPM sections were taught in the newly refurbished business school building, while BPM classes were held in older, less technology equipped facilities. The two BPM instructors (i.e., the authors) employed identical materials in delivering the course, while non-BPM classes were taught by award-winning instructors who relied on a leading management accounting textbook and approach to deliver a more traditional class.

Student Demographics Ultimately, 93 students enrolled in the four BPM sections assessed: 50 in the mixed major sections and 43 in the non-accounting major sections. The BPM students were almost all sophomores of Caucasian descent who had finished high school in the top 20 percent of their class. Additionally, almost none of the students were transfer students or from a foreign country, and virtually all identified English as their primary language. BPM sections also were predominantly male (60.22 percent). Table 10 provides additional demographic data.

Traditional Classroom Evaluations The university’s standardized, lecture-based, teaching evaluations provide only limited insight into the effectiveness of the BPM, since evaluations of

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Table 10.

BPM Student Demographics.

Demographic Item

BPM Mixed N ¼ 50

BPM Non-Acct N ¼ 43

All BPM Sections N ¼ 93

Mean age

19.38

19.56

19.46

Gender Female Male

40.00% 60.00%

39.50% 60.50%

39.78% 60.22%

Highest degree intend to pursue Bachelor Master Doctoral (Ph.D., Ed.D., M.D., etc.)

4.00% 82.00% 14.00%

9.30% 65.10% 25.60%

6.45% 74.19% 19.36%

3.19

3.14

3.17

1226.40

1259.51

1241.32

Mean undergraduate GPA to date Mean SAT Semesters of high school accounting None One More than one

82.00% 16.00% 2.00%

72.10% 9.30% 18.60%

77.42% 12.90% 9.68%

Average grade in previous accounting or bookkeeping classes A B C Below C

38.00% 38.00% 18.00% 6.00%

28.60% 38.10% 26.20% 7.10%

33.70% 38.04% 21.74% 6.52%

32.00%

41.90%

36.56%

Average hours employed per week in semester None or less than five Between five and ten More than ten

68.00% 16.00% 16.00%

46.50% 23.30% 30.20%

58.07% 19.35% 22.58%

Average hours studied outside of class per week During the semester Less than five Between five and twenty More than twenty

12.00% 80.00% 8.00%

18.60% 74.40% 7.00%

15.05% 77.42% 7.53%

3.19

3.23

3.20

Previous extern or internship experience in accounting, consulting, or financial services

Final course grade (Average GPA on 4.0 scale)

Note: Mixed sections refer to those with students of all business majors. The Non-Acct section included students whose declared major was other than accounting.


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the traditional non-BPM sections were not available for comparison. Student evaluations for the Course Materials and Assignments ranged from 4.3 to 4.7 (on a 5-point scale, with 5.0 being the highest) across all BPM sections. Student ratings for Quality of Instruction ranged from 4.7 to 4.9, while the BPM’s Degree of Challenge ranged from 4.8 to 5.0. For Degree of Learning the BPM student ratings ranged from 4.6 to 4.9. According to the university-reporting system, these scores exceeded the group averages for all other courses in the Department and College. More recently, another instructor who adopted the BPM for his class reports a dramatic rise in teaching evaluation ratings: quality of instruction, amount of learning, and amount of rigor all increased by approximately one full point on a 5-point scale. Student comments from the traditional evaluations suggest that the BPM is very demanding and time-consuming. However, students do indicate that the business plan simulation is a valuable learning experience. Students seem to particularly appreciate the practical application of managerial accounting tools to ‘‘real world’’ scenarios. Informal Assessment At both scholarly and professional meetings, the BPM has generated significant discussion as to how it could be implemented at both educational institutions and in professional organizations. In fact, during the past year alone, five universities have committed to using the BPM in the coming year, four at the undergraduate level and one in a graduate MBA program. Students value the BPM so highly that they have even written articles about it in the university student newspaper. Formal Assessment To evaluate better the BPM’s effectiveness in achieving its goals, students completed pre- and post-semester questionnaires to determine whether this innovative teaching approach in any way altered their perceptions of learning or accounting in general. Pre- and post-semester questionnaires were identical except for differences in verb tense. Management level representatives from the Big 4 professional services firms together with several senior college administrators also provided assessment feedback based on their observations of end-of-semester student business plan presentations. Detailed feedback received from these parties on the course’s five objectives (see Table 1) is summarized in Tables 11–15.

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Table 11. Semester-End Student and Professional Responses Overall Course Mission Evaluation. BPM Mixed N ¼ 50


Student survey statements This course helped me to gain an appreciation for the value of information

4.56

4.65

Open-ended student response question How effective was the course in helping students to develop the skill sets necessary to succeed in your business?

3.76

3.83

Open-ended professional response question Do you think the Business Planning Model helps students to develop the skill sets necessary to succeed in today’s dynamic business environment? All respondents answered ‘‘yes’’ to this question. They viewed the BPM as developing ‘‘real world’’ business skills, specifically the multiple skill sets necessary to deal with a dynamic business environment Note: Mixed sections refer to those with students of all business majors. The Non-Acct section included students whose declared major was other than accounting. Student perceptions were evaluated using a 5-point Likert scale with 1 being ‘‘strongly disagree’’ and 5 signifying ‘‘strongly agree.’’ Open-ended student responses were coded using a 5-point Likert scale with 1 being ‘‘not very effective’’ and 5 signifying ‘‘extremely effective.’’

General Student and Professional Perceptions Overall, BPM sections generally agree that the course gives them an appreciation for the value of information (see Table 11). However, BPM students appear rather neutral on whether the course helps in developing the skill sets necessary to succeed in business. These neutral student responses are in contrast to those of practicing professionals, who were unanimous in their evaluation that the BPM develops needed business skills.

Business Process, Risk Assessment, and Critical Thinking Perceptions BPM sections appear to agree strongly (ratings exceed 4.5) that the course provides them with a basic understanding of business processes, introduces them to the importance of business risk, and requires them to think critically about business issues (see Tables 12 and 13). As before, practicing

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Table 12.

Semester-End Student and Professional Responses.

Panel A: Business Process Course Objective Student survey statements This course provided me with a basic understanding of business processes Open-ended student response question How effective was the course in providing students with an understanding of basic business processes?

BPM Mixed N ¼ 50


4.62

4.56

3.94

3.93

Open-ended professional response question Do you think the Business Planning Model provides students with a fundamental understanding of basic business processes? All respondents answered ‘‘yes’’ to this question. These observers attributed their positive reply to their belief that participating in the planning process from start to finish (i.e., the full business model) was important in understanding basic business processes. They applauded the BPM for highlighting the ‘‘interconnectivity’’ of basic business skills Panel B: Risk Assessment Course Objective Student survey statements This course introduced me to the importance of business risk Open-ended student response question How effective was the course in introducing students to risk assessment and its relation to business strategy?

4.52

4.60

3.72

3.64

Open-ended professional response question Do you think the Business Planning Model introduces students to risk assessment and its relation to business strategy All respondents answered ‘‘yes’’ to this question. These observers noted that the BPM’s simulation forced students to integrate risk management with financial applications. They were particularly impressed with the extensive research done by students, as well as their ability to consider alternatives and defend positions during their presentations Note: Mixed sections refer to those with students of all business majors. The Non-Acct section included students whose declared major was other than accounting. Student perceptions were evaluated using a 5-point Likert scale with 1 being ‘‘strongly disagree’’ and 5 signifying ‘‘strongly agree.’’ Open-ended student responses were coded using a 5-point Likert scale with 1 being ‘‘not very effective’’ and 5 signifying ‘‘extremely effective.’’

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Table 13.

Semester-End Student and Professional Responses Critical Thinking Course Objective. BPM Mixed N ¼ 50


Student survey statements This course required me to think critically about business issues

4.76

4.88

Dimension group meansa Change in dimension group means from start of semester

3.52 0.02

3.46 0.08

Open-ended professional response question Do you think the Business Planning Model promotes critical thinking, reasoning, and analyses (i.e., ability to solve diverse and unstructured business problems)? All respondents answered ‘‘yes’’ to this question. They noted that the business planning simulation forced students to address a variety of specific business issues from beginning to end. They viewed the question and answer sessions (and prior brainstorming meetings) as important in helping students to think and respond effectively Note: Mixed sections refer to those with students of all business majors. The Non-Acct section included students whose declared major was other than accounting. Student perceptions were evaluated using a 5-point Likert scale with 1 being ‘‘strongly disagree’’ and 5 signifying ‘‘strongly agree.’’ Open-ended student responses were coded using a 5-point Likert scale with 1 being ‘‘not very effective’’ and 5 signifying ‘‘extremely effective.’’ a Students were asked four questions about their general decision-making ability, their attitudes toward ambiguity and uncertainty, and whether the course required significant memorization. The mean responses for each of the four questions were then averaged to yield the group mean for the critical thinking dimension.

professionals are unanimous in their view that the BPM is successful in achieving its course objectives.

Communication Skill Perceptions Students agree that the BPM improves their business writing abilities (see Table 14). Although BPM students appear neutral on the course’s effectiveness in developing oral communication skills (ratings range from 3.93 to 4.10), further analysis reveals that the BPM appears to increase student’s perceptions of their oral communication abilities during the semester. Changes in group means suggest that the BPM has a positive influence on

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Table 14.

Semester-End Student and Professional Responses Communication Skill Course Objective. BPM Mixed N ¼ 50

Student survey statements As a result of this course, I am a better business writer Oral communication dimension group meansa Change in dimension group means from start of semester Written communication dimension group meansb Change in dimension group means from start of semester Open-ended student response question How effective was the course in helping students to develop oral communication skills (i.e., the ability to make formal and informal presentations and to listen effectively)?


4.24

4.43

3.93 0.24***

4.10 0.23***

3.35

3.40

0.03

0.15**

3.00

2.84

Open-ended professional response question Do you think the Business Planning Model helps students develop oral communication skills (i.e. the ability to make formal and informal presentations and to listen effectively)? All respondents answered ‘‘yes’’ to this question. They viewed the BPM’s required business plan presentation as a good tool to build public speaking and presentation skills. These observers also noted that the post-presentation ‘‘question and answer’’ sessions forced students to think and respond effectively while ‘‘on the spot’’ Note: Mixed sections refer to those with students of all business majors. The Non-Acct section included students whose declared major was other than accounting. Student perceptions were evaluated using a 5-point Likert scale with 1 being ‘‘strongly disagree’’ and 5 signifying ‘‘strongly agree.’’ Open-ended student responses were coded using a 5-point Likert scale with 1 being ‘‘not very effective’’ and 5 signifying ‘‘extremely effective.’’ ** *** , Statistically significant at the 0.05, and 0.01 levels, respectively. a Students were asked four questions about their ability to communicate orally, whether they believed oral presentations reflected their knowledge of a subject, and their perception of the importance of oral communication in business. The mean responses for each of the four questions were then averaged to yield the group mean for the oral communication dimension. b Students were asked four questions about their writing ability and enjoyment of the process, whether they believed writing assignments are an important way to learn, and their perception of their performance on objective vis-a`-vis essay examinations. The mean responses for each of the four questions were then averaged to yield the group mean for the written communication dimension.

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Table 15.


Semester-End Student and Professional Responses Team and Group Learning Course Objective. BPM Mixed N ¼ 50

Student survey statements Dimension group meansa Change in dimension group means from start of semester Open-ended student response question How effective was the course in helping students to develop team work skills?


3.98 0.03

3.93 0.06

3.20

3.65b

Open-ended professional response question Do you think the BPM helps students to develop teamwork skills? All respondents answered ‘‘yes’’ to this question. They noted that the BPM forces students to interact and develop team skills in order to prepare a quality business plan. Observers also applauded the BPM for introducing students to task management when part of an integrated team Note: Mixed sections refer to those with students of all business majors. The Non-Acct section included students whose declared major was other than accounting. Student perceptions were evaluated using a 5-point Likert scale with 1 being ‘‘strongly disagree’’ and 5 signifying ‘‘strongly agree.’’ Open-ended student responses were coded using a 5-point Likert scale with 1 being ‘‘not very effective’’ and 5 signifying ‘‘extremely effective.’’ a Students were asked five questions about their attitudes toward working in teams and group learning in general. These questions addressed such issues as the effectiveness of group exercises to learn technical material, their ability to get work done in groups, and their preferences for individual or group learning experiences. The mean responses for each of the five questions were then averaged to yield the group mean for the group learning dimension. b ANOVA results indicate a significant difference (at 0.05 or lower level in a two-tailed test) in end-of-semester responses between the BPM mixed and BPM non-accountant student groups.

student perceptions on the oral communication dimension. Professionals that viewed the BPM’s required business plan presentations again are unanimous in that it helps to develop oral communication skills. The BPM does not, however, appear particularly effective at increasing student perception of their writing abilities. For both BPM sections, in fact, student responses are quite neutral, ranging from 3.35 to 3.40. Only in the non-accountant BPM section there were significant increases in perceived writing ability noted when evaluated on group mean basis.


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Team and Group Learning Perceptions Unlike all of the other course objectives, the results indicate differences between the mixed and non-accountant BPM sections on the effectiveness of the course in helping students to develop team-work skills (see Table 15). In fact, the non-accountant BPM students rate the course almost a half point higher than the mixed BPM section. As with all of the other course objectives, practicing professionals are unanimous in the support of the BPM as a useful approach in developing teamwork skills.

Accounting Motivation Perceptions To examine how the BPM’s innovative approach affects student perceptions of accounting, the authors compared BPM student attitudes toward accounting with those of three sections students enrolled in a traditional introductory managerial course. As noted previously, teachers of the traditional course were award-winning instructors, who adopted a widely recognized introductory text for the course. All student sections recognize the accounting career for its challenging nature. As indicated in Table 16, only the BPM sections show increases in student perceptions during the semester on any of the accounting motivation dimensions. In fact, the traditional course sections report declines in perceptions on all accounting motivation dimensions except challenge. This evidence appears to confirm Albrecht and Sack’s (2000) concerns that the introductory course may be a factor in accounting enrollment declines. The mixed BPM section students report increased perceptions as to interest in accounting as a primary field of study, plans to take additional accounting courses, and the importance of management accounting in decision making. Even the non-accountant BPM section students report increases in plans to take other accounting courses in the future. The changes in the group means appear to confirm effectiveness of the BPM (vis-a`-vis the traditional course) in changing student mindsets toward accounting. A stronger test of the BPM’s effectiveness in motivating students toward accounting is whether it can influence student choice of major or minor. Table 17 provides evidence suggesting that it can, particularly when compared to the traditional course. The authors asked students their intended major and minors at the beginning and end of the course and tested student responses as to final major selections for accuracy against college major/

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Table 16.

Semester-End Student Responses: Accounting Motivation Dimension.

Survey Statements

I am very interested in pursuing accounting as a primary field of study

BPM Mixed N ¼ 50 2.82 (+)*

I consider myself motivated to learn more about the field of accounting

3.68 (+)

I plan to take other accounting courses in the future Knowledge of management accounting is important in making business decisions

2.14 (+) 3.04 (+)

Non-BPM Mixed N ¼ 75 2.97 ( ) 3.32 ( )***

3.44

2.93

3.17

(+)*

(+)***

( )***

4.66

4.33

4.39

(+) A specialization in accounting develops business insights


***

4.18 (+)

(+) 4.16 (+)

An accounting career is likely to be less challenging than most others in businessa

1.63 ( )

( )

Dimension group meansb Change in dimension group means from start of semester

3.86 0.14*

3.44 0.31***

1.95

( )* 4.27 ( ) 1.86 (+) 3.71 0.17***

Note: Mixed sections refer to those with students of all business majors. The Non-Acct section included students whose declared major was other than accounting. Non-BPM sections were taught by award winning instructors following a traditional introductory managerial course model. Student perceptions were evaluated using a 5-point Likert scale with 1 being ‘‘strongly disagree’’ and 5 signifying ‘‘strongly agree.’’ Open-ended student responses were coded using a 5-point Likert scale with 1 being ‘‘not very effective’’ and 5 signifying ‘‘extremely effective.’’ (+)( ) Signifies direction of change in statement response from the beginning to end of the semester. Statistical results reflect a paired comparison t-test of whether the mean change in student responses from the start of the semester to the end is significantly different from zero. * *** , Statistically significant at the 0.10 and 0.01 levels, respectively. a Statement phrased negatively to evaluate consistency of responses within the construct dimension. For negatively phrased questions student responses were transformed prior to averaging with responses to positively phrased questions, so that mean responses for the dimension could be statistically evaluated. For example, a student rating of 2 for a negatively phrased question is reported as 4 for computing group means. b The mean responses for each of the six accounting motivation questions were averaged to yield the group mean for the accounting motivation dimension.

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Table 17.

BPM Effect on Accounting Major and Minor Selection.

Accounting majors at start of course Accounting minors at start of course Total majors/minors at start of course Increase in majors during semester Increase in minors during semester Total increase (decrease) in majors/minors Decrease in majors Decrease in minors Total decrease in majors/ minors Net increase in majors/minors Accounting majors at end of course Accounting minors at end of course Total majors/minors at course end % net change in accounting majors Net change in accounting majors as a percent of original non-accounting majors % net change in accounting minors Net change in accounting minors as a percent of original non-accounting majors and minors % net change in accounting majors and minors Net change in accounting majors and minors as a percent of original nonaccounting majors and minors

BPM Mixed N ¼ 50


Non-BPM Mixed N ¼ 75

All Sections N ¼ 168

11

1

27

39

1

0

2

3

12

1

29

42

4

6

2

12

9

5

3

17

13

11

5

29

(3) (1) (4)a

0 0 0

(3) (2) (5)b

(6) (3) (9)

9 12

11 7

0 26

20 45

9

5

3

17

21

12

29

62

9.09%

600.00%

3.70%

15.38%

2.56%

14.29%

2.08%

4.65%

50.00%

466.67%

800.00%

N/A

21.05%

11.90%

2.17%

11.11%

75.00%

1100.00%

0.00%

47.62%

23.68%

26.19%

0.00%

15.87%

Note: Mixed sections refer to those with students of all business majors. The non-acct section included students whose declared major was other than accounting. The non-BPM section was taught by award winning instructors following a traditional introductory course model. a Majors switched to minors and vice versa; none of the students abandoned accounting. b All of these students abandoned accounting entirely; none switched to accounting majors or minors.

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minor reports. Accounting majors and minors increased on a net basis in all BPM sections, while remaining constant in the traditional course. Particularly troubling is the loss of 5 students from the accounting discipline entirely in the traditional, non-BPM course. Overall, the BPM approach increased accounting majors and minors 153 percent within the BPM sections and over 48 percent in all sections. Given the significant role that the business planning simulation plays in the BPM, these results appear to confirm Basu and Cohen’s (1994) contention that accounting major choice can be influenced by the use of simulations.

Results Summary Students perceive that the BPM meets its stated course objectives on most dimensions at the end of the course. Observations and feedback provided by practicing professionals suggest that the course objectives, structure, and delivery approach are consistent with current market expectations in accounting and business consulting. Finally, the revised introductory managerial accounting course appears to address concerns about enrollment declines being caused by the introductory course by actually motivating students to study accounting, and in some cases even major in accounting.

POTENTIAL LIMITATIONS Albrecht and Sack (2000) and Rebele et al. (1998) suggest that no curriculum innovation can be considered a ‘‘one-size-fits-all’’ proposition for all accounting programs. Consequently, this paper must acknowledge several potential limitations for those instructors considering adopting the BPM. First, since the BPM has only been delivered at the university where it was developed, student demographics and a variety of other issues should be considered that potentially could limit its effectiveness at other implementing institutions (Barsky & Catanach, 2001). Next, the BPM has only been tested in classes that average 28 students. Since this approach requires student teamwork and faculty time to review work and provide feedback, it may not be viable at institutions where large class sections are the norm or that lack meaningful teaching support. Additionally, the BPM initially requires a large time commitment and significant preparation by adopting faculty to insure its successful and lasting implementation. Therefore, accounting program coordinators should carefully consider how faculty can


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be encouraged to adopt and maintain the BPM. Finally, with respect to the assessment issue, Tables 16 and 17 only offer limited insights into student perceptions of differences between the BPM and a more traditional introductory management accounting course. We did not compare student performance under the two instructional approaches since the goals of each are arguably different, for the BPM focuses on the value of information in contrast to the cost accumulation emphasis of the traditional course.

CONCLUSION Management accounting has changed significantly over the past decade and now offers many new opportunities to transfer real-life business problems to the classroom (Boër 2000; Maher, 2000). The BPM is a course-level, undergraduate business curriculum innovation that is consistent with the outcomes-based, competency-driven structure advocated by Herring and Williams (2000). Moreover, this model directly addresses the expanded set of competencies expected of today’s business professionals (IMA, 1999; AICPA, 2000). The BPM attempts to instill in undergraduate business students an appreciation for business information and managerial decision-making tools by using a business planning context that adopts, synthesizes, and integrates topical material that is consistent with the IMA’s 1999 Practice Analysis. This approach requires students to consider managerial accounting issues as they experience actual strategic planning, resource management, and performance measurement issues in a serial case, mini-cases, and a business planning simulation. The BPM allows students to see the value of information across multiple business contexts and instills in them an appreciation for the complexities associated with planning, control, and decision making. The BPM transforms the introductory managerial accounting course from a textbook-driven, cost accounting experience to a business-focused, student-centered, outcomes-oriented approach. The BPM differs from the traditional model in a number of ways. The expanded set of competencies demanded by today’s market motivates the course’s educational objectives. Students also develop a ‘‘hunger’’ for management accounting information and an understanding of its technical aspects as they learn relevant tools and techniques in a business planning context. Finally, classroom activities rely on a highly interactive, student-led, problem-based learning approach, rather than lecture-based technical problem solving.

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Assessment results for this new model indicate that students perceive it to meet its stated objectives. Moreover, practicing professionals are unanimous in their confirmation of the BPM’s relevance in developing a contemporary skill set. Finally, this single institution’s experience in increasing accounting majors and minors with the BPM suggests that the model may offer insights helpful to others in addressing enrollment declines in the introductory course. As business continues to demand employees that can think, analyze, communicate, and work in teams, while displaying technical competency, innovations like the BPM can help prepare undergraduate students for tomorrow’s challenging commercial opportunities.

ACKNOWLEDGMENTS The authors gratefully acknowledge the financial support and resources provided by the Institute of Management Accountants Faculty Development Grant Program and Villanova University that enabled this curriculum change. The authors also thank Barney Cargile, Mohamed Hussein, Anne Lillis, Garry Marchant, Richard Newmark, Shelley Rhoades-Catanach, Steve Wells, and workshop participants at Marshall University, the University of Melbourne, the University of Nevada Las Vegas, the University of Western Ontario, the Boston Accounting Research Colloquium at Bentley College, and the AAA’s 2001 Southwest Regional and Annual Meetings for comments and suggestions received on earlier drafts of this paper. Research assistance from Tanya Pace and Neil Purtill also is appreciated.

REFERENCES Accounting Education Change Commission (AECC). (1990). Objectives of education for accountants: Position statement no. 1. Issues in Accounting Education, 5(2), 307–312. Adams, S. J., Lea, R. B., & Harston, M. (1999). Implementation of a serial-case pedagogy in the introductory managerial accounting course. Issues in Accounting Education, 14(4), 641–656. Albrecht, W. S., Clark, D., Smith, J., Stocks, K., & Woodfield, L. (1994). An accounting curriculum for the next century. Issues in Accounting Education, 9(2), 401–425. Albrecht, W. S., & Sack, R. J. (2000). Accounting education: Charting the course through a perilous future. Sarasota, FL: American Accounting Association. American Institute of Certified Public Accountants (AICPA). (2000). AICPA core competency framework for entry into the accounting profession. New York, NY: AICPA (http:// www.aicpa.org/edu/corecomp.htm).


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Atkinson, A., Banker, R., Kaplan, R., & Young, S. M. (1997). Management accounting (2nd ed.). Englewood Cliffs, NJ: Prentice-Hall. Barsky, N. P., & Catanach, A. H., Jr. (2001). Perception is reality. Management Accounting Quarterly, 3(1), 22–32. Basu, P., & Cohen, J. (1994). Learning to learn in the accounting principles course: Outcome assessment of an integrative business analysis project. Journal of Accounting Education, 12(4), 359–371. Boër, G. (2000). Management accounting education: Yesterday, today and tomorrow. Issues in Accounting Education, 15(2), 313–334. Boud, D., & Fellitti, G. (1997). The challenge of problem-based learning. London: Kogan Page. Brewer, P. (2000). An approach to organizing a management accounting curriculum. Issues in Accounting Education, 15(2), 211–235. Catanach, A. H., Jr., Croll, D. B., & Grinaker, R. L. (2000). Teaching intermediate financial accounting using a business activity model. Issues in Accounting Education, 15(4), 584–603. Coppage, R. E., & French, G. R. (2002). Restructuring management accounting education. Journal of Cost Management, 16(2), 40–45. Cummings, B., Bennett, R. E., & Normand, C. J. (2001). Meeting the challenge: The university accounting program corporate America needs. Management Accounting Quarterly, 2(2), 4–13. Herring, H. C., III, & Williams, J. R. (2000). The role of objectives in curriculum development. Journal of Accounting Education, 18(1), 1–14. Hilton, R. W. (1999). Managerial accounting (4th ed.). Boston, MA: Irwin McGraw-Hill. Institute of Management Accountants (IMA). (1999). Counting more, counting less: Transformations in the management accounting profession. Montvale, NJ. Johnstone, K. M., & Biggs, S. F. (1998). Problem-based learning: Introduction, analysis, and accounting curricula implications. Journal of Accounting Education, 16, 407–427. Khan, Z. U., Cianciolo, S. T., & Peacock, E. (2000). A plan for reengineering management accounting education based on the IMA’s practice analysis. Management Accounting Quarterly, 1(2), 36–41. Knechel, W. R., & Rand, R. S., Jr. (1994). Will the AECC’s course delivery recommendations work in the introductory accounting course? Some preliminary evidence. Journal of Accounting Education, 12(3), 175–191. Maher, M. W. (2000). Management accounting education at the millennium. Issues in Accounting Education, 15(2), 335–346. Rebele, J. F., Apostolou, B. A., Buckless, F. A., Hassell, J. M., Paquette, L. R., & Stout, D. E. (1998). Accounting education literature review (1991–1997), Part I: Curriculum and instructional approaches. Journal of Accounting Education, 16(2), 179–245. Russell, K., Siegel, G., & Kulesza, C. (1999). Counting more, counting less. Management Accounting Quarterly, 1(1), 28–34. Saemann, G. P., & Crooker, K. J. (1999). Student perceptions of the profession and its effects on decisions to major in accounting. Journal of Accounting Education, 17(1), 1–22.


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DEVELOPING PRACTICAL SKILLS WITH THE ACCOUNTANT–CLIENT PRIVILEGE Steven V. Campbelly and Marcia S. Niles ABSTRACT Laws controlling accountant–client communications influence the integrity of the accountant–client relationship. Rule 301 of the American Institute of Certified Public Accountants (AICPA) Code of Professional Conduct encourages open and frank communication by imposing an ethical duty to maintain client confidences. Many states have codified this ethical duty, but some states have gone even further, protecting accountant–client communications by granting an accountant–client testimonial privilege. Eighteen states now recognize an accountant–client testimonial privilege in civil judicial and administrative proceedings. This paper provides instructors with the resources needed to bring the topic of privileged communications into the classroom. First, recognizing many instructors who lack background information, it reviews the origins and meaning of the accountant–client privilege and identifies certain limitations set by the courts. The section on Exhibit provides a student introduction to the topic. This instructional resource explains privileged communication to the students on a basic level and demonstrates why it is relevant to practicing accountants. This paper also presents a research project focusing on the long-standing controversy surrounding the accountant–client privilege and alerting students to the importance of Advances in Accounting Education: Teaching and Curriculum Innovations, Volume 7, 65–80 Copyright r 2005 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 1085-4622/doi:10.1016/S1085-4622(05)07003-3

65

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STEVEN V. CAMPBELL AND MARCIA S. NILES

knowing whether a privilege exists in their state jurisdiction. The research project brings to light accountant liability issues and the potential impact of an accountant–client privilege on accountant–client communications.

DEVELOPING PRACTICAL SKILLS WITH THE ACCOUNTANT–CLIENT PRIVILEGE In auditing and tax practice situations arise in which the accountant must act to protect client communications from compelled public disclosure. Particularly in the taxpayer compliance area the accountant must be proactive in protecting confidential client communications or face significant liability exposure. Prudent practice may require restructuring the accountant–client relationship into an accountant–attorney–client relationship wherein all accountant–client communications and remunerations first pass through an attorney. The attorney–client privilege is then invoked to shield the accountant–client communications from compelled public disclosure in judicial and administrative proceedings. In certain circumstances accountant–client communications may be protected from compelled public disclosure by an accountant– client privilege; however, unlike the attorney–client privilege which exists in the common law of all 50 states and the federal government, the accountant–client privilege is statutory in nature and exists in various forms in only 18 states. This paper presents an overview of the accountant–client privilege and offers a research project suitable for an existing auditing, tax, or business law course. Instructional materials include selected legal cases for classroom discussion and a student guide in the section on Exhibit. This is the first comprehensive review of the accountant–client privilege to appear in the accounting literature. The next section of the paper provides background information on the accountant–client privilege both in the state and federal courts. The following section presents the research project and gives application suggestions. Concluding remarks follow and the section on Exhibit contains the student guide.

THE ACCOUNTANT–CLIENT PRIVILEGE Like all testimonial privileges, the accountant–client privilege is rooted in a personal relationship the law seeks to encourage. Specifically, courts and

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The Accountant–Client Privilege

administrative bodies do not compel a person in a privileged relationship to testify or otherwise give evidence in a judicial or quasi-judicial proceeding without the consent of the person holding the privilege. The intent is to create an expectation of privacy in the relationship that fosters free and open communication between the parties. The older testimonial privileges trace their origins to the common law. These include the husband–wife privilege, the attorney–client privilege, the doctor–patient privilege, and the priest–penitent privilege. The accountant–client privilege is more recent in origin and does not exist in the common law. It is a statutory privilege, designed to foster an atmosphere in which a client can freely discuss highly confidential and personal financial affairs without fear of disclosure (McNair v. State of Nevada, 1994). At the time of this writing, 18 states had accountant–client privilege statutes. Table 1 lists these states and gives their citations. Several accountant–client privilege statutes date back to the first half of the twentieth century: Louisiana 1908, Michigan 1929, Florida 1931, Tennessee 1939, Georgia and Illinois 1943. The accountant–client privilege always has been controversial. In 1968, 16 states and the Commonwealth of Puerto Rico had accountant–client privilege statutes. In subsequent years,

Table 1. Jurisdiction Arizona Colorado Florida Georgia Idaho Illinois Indiana Kansas Louisiana Maryland Michigan Mississippi Missouri Montana Nevada Pennsylvania Tennessee Texas

Citations to Accountant–Client Privilege Statutes. Accountant–Client Privilege Statute ARIZ. REV. STAT. ANN. y 32–749 COLO. REV. STAT. y 13-90-107 FLA. STAT. y 473.316 GA. CODE y 43-3-32 IDAHO CODE y 9-203A ILL. REV. STAT. ch. 225 y 450/27 IND. CODE y 25-2.1-14-2 KAN.STAT.ANN. y 1-401 LA. REV. STAT. ANN. y 37:86 MD. [OCC. PROF.] CODE ANN. y 9-110 MICH. COMP. LAWS y 339.713 MISS. CODE ANN. y 73-33-16 MO. REV. STAT. y 22:326.151 MONT. REV. CODES ANN. y 37-50-402 NEV. REV. STAT. y 49-185 63 PA. CONS. STAT. y 9.11a TENN. CODE ANN. y 62-1-116 TEX. [OCC] CODE ANN. Title 5, y 901.457

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several jurisdictions including Iowa, Kentucky, New Mexico, and Puerto Rico repealed their accountant–client privilege statute, while other jurisdictions including Idaho, Indiana, Kansas, Montana, and Texas enacted accountant–client privilege statutes. Most recently, Texas enacted an accountant–client privilege statute in 1999. Accountant–client privilege statutes vary in language and scope. As Table 2 suggests, there are some common provisions. Of the 18 current accountant–client privilege statutes seven codify the accountant’s ethical duty of confidentiality, thirteen provide for a client waiver, and four explicitly except criminal cases. In states where the statutory language does not include these exceptions, the courts have not been reluctant to create them. Courts have held the client cannot invoke the accountant–client privilege in fraud or criminal cases (Dixon v. Bennett, 1987), in a shareholders’ derivative suit (Neusteter v. District Court, 1984), and when the interest being protected is the accountant’s, rather than the client’s (Ernst & Ernst v. Underwriters National Assurance Co., 1978). Because privilege statutes hinder the search for truth, courts generally apply rules of strict construction (United States v. Bowman, 1966).

Table 2.

Common Characteristics of Accountant–Client Privilege Statutes. Confidentiality Requirement

Arizona Colorado Florida Georgia Idaho Illinois Indiana Kansas Louisiana Maryland Michigan Mississippi Missouri Montana Nevada Pennsylvania Tennessee Texas

Client Waiver Provision

X

Criminal Case Exception

Ethics Investigation Exception

X

X

X X X X X

X X

X X X

X X X X X X X X X

X X

X X X X X X X X X

Accountant Defense Exception

X X

X

X X X

X X X

X X


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There is no accountant–client privilege under federal law; however, the Taxpayer Bill of Rights (1998) changed the status of many tax accountants by granting federally authorized tax practitioners a testimonial privilege similar to that enjoyed by attorneys. This privilege applies only in noncriminal tax matters before the Internal Revenue Service (IRS), the Federal Tax Court, and the U.S. District Courts. Also, federal courts sitting in states with an accountant–client privilege statute generally give effect to the state law privilege in both diversity and non-diversity cases; however, Rule 43(a) of the Federal Rules of Civil Procedure requires federal courts apply state law privileges only in non-diversity cases (cases in which all parties to the litigation are residents of the state).

THE RESEARCH PROJECT Teaching Objectives and Classroom Use This paper extends the accounting literature by providing instructors an effective tool for presenting the accountant–client privilege topic in the classroom. In this section, we present a legal research project focusing on the accountant–client privilege. Students must understand basic principles of professional ethics, federalism, and civil procedure to complete this project; therefore, we recommend using it at either the advanced undergraduate or graduate levels. Business law is perhaps the most natural setting for classroom use; however, with slight modifications it suits advanced tax and auditing courses as well. Exhibit 1 presents the research project we used in a graduate business law course. Core competencies accountants need to be successful (AICPA, 1998, 2000) include research skills and critical thinking skills (the ability to transform information into knowledge and bring the necessary insight to bear on strategic decisions). These competencies are the focus of Exhibit 1. One benefit of a research project format is the ability to modify the assignment to accommodate different learning objectives and different time constraints. For example, the first requirement in Exhibit 1, having the student identify five states with an accountant–client privilege statute, could be shortened or lengthened by changing the number of states. Identifying accountant–client privilege statutes is challenging and requires careful reading because the statutory language is sometimes subtle. Often the word ‘‘privilege’’ is not used explicitly.

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Exhibit 1.

Accountant–Client Privilege Research Project.

Prepare a research memorandum addressing the following issues: 1. Identify five states that recognize an accountant–client privilege. 2. For each state jurisdiction you have identified in (1) provide: a. A complete citation to the privilege statute b. A copy of the statute c. Date and discuss all amendments to the statute d. Discuss any available legislative history e. Discuss the leading case law interpreting the statute (cite and discuss all major precedents) f. Discuss whether the state courts have limited the scope of the privilege (what are the limits on the availability of the privilege?). 3. Discuss the policy considerations for and against the accountant–client privilege. 4. Do federal courts recognize an accountant–client privilege? a. Discuss Rule 43(a) of the Federal Rules of Civil Procedure b. See, Mass. Mut. Life Ins. Co. v. Brei. 311 F. 2d 463, 465–466 (2d Cir. 1962) c. See, United States v. Kovel. 296 F.2d 918, 921 n.2 (2d Cir. 1961); United States v. Culver, 224 F. Supp. 419 (D. Md. 1963) d. See, FTC v. St. Regis Paper Co., 304 F. 2d 731 (7th Cir. 1962); Falstone v. United States, 205 F F. 2d 734, 739 (5th Cir. 1953) e. See, Colton v. United States. 306 F. 2d 633 (2d Cir. 1963). 5. Compare and contrast the accountant–client privilege and the accountant’s work–product privilege. 6. Do the jurisdictions you have identified in (1) recognize a work–product privilege? 7. Do federal courts recognize an accountant work–product privilege? a. See, United States v. Arthur Young & Co., 677 F. 2d 211 (2d Cir. 1982) b. See, United States v. Arthur Young & Co., 104 S. Ct. 1495, 79 L. Ed. 826 (1984). 8. Discuss the policy considerations for and against recognition of a work–product privilege. 9. What effect, if any, do these privileges have on the relationship between the accountant and client?

Requirement 2 involves researching the application and scope of the five statutes identified in requirement 1. It begins by having the student research the legislative history and evolution of the statute and concludes by having the student research the case law. Requirements 1 and 2 are the primary focus of this project and require the most student time. We estimate the entire project should take a graduate student about 5–20 h to complete. After completing requirement 2, the student should be able to research a statute using the tools available in a law library; also, the student should have acquired the knowledge necessary to think critically about the accountant–client privilege. Requirement 3 requires critical thinking by having the student extract, organize, and present the public policy arguments for and against the accountant–client privilege. Case decisions often contain public policy


71

arguments and by completing requirement 2, the student already should be aware of several public policy arguments. At the very least, the cases the student has encountered in requirement 2 will cite other cases containing public policy arguments. Thus, little additional legal research should be necessary to complete requirement 3. Public policy considerations often weigh against the accountant–client privilege because it presents a legal barrier in the search for truth. ‘‘For more than three centuries it has now been recognized as a fundamental maxim that the publicyhas a right to every man’s evidence. When we come to examine the various claims of exemption, we start with the primary assumption that there is a general duty to give what testimony one is capable of giving.’’ (Wigmore, 1961, s.2192) But public policy considerations also weigh in favor of the accountant–client privilege because it encourages an atmosphere of open and honest communication between accountant and client. ‘‘The purpose of the accountant–client privilege is to insure an atmosphere wherein the client will transmit all relevant information to his accountant without fear of any future disclosure in subsequent litigation. Without an atmosphere of confidentiality the client might withhold facts he considers unfavorable to this situation thus rendering the accountant powerless to adequately perform the services he renders.’’ (McNair v. State of Nevada, 1994, s.578) In their responses to requirement 3, students frequently identify individual privacy as a public policy consideration weighing in favor of the accountant–client privilege; the case law does not support this argument. After completing requirement 3, the student should understand why the accountant–client privilege is controversial. Requirement 4 addresses the accountant–client testimonial privilege in the federal courts. Except for federally authorized tax practitioners, no accountant–client privilege exists under federal law. However, federal courts generally have held Rule 43(a) of the Federal Rules of Civil Procedure requires application of state statutory privileges in both nondiversity cases (all parties reside in the state) and diversity cases (all parties do not reside in the same state). Although the reasoning behind these decisions varies, most federal courts addressing the privilege issue have concluded a testimonial privilege is a substantive right, and therefore, the state law is honored. Requirement 4 directs the student to Rule 43(a) of the Federal Rules of Civil Procedure and certain leading case law precedents addressing the accountant–client privilege in the federal courts. Beyond reading these case law decisions, the student needs to perform little additional legal research to complete this requirement. The objective is to expose students to issues raised by federalism, conflicting laws, and the independence of the federal judiciary.

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A good student response to requirement 4 would discuss the testimonial privilege afforded communications between taxpayers and federally authorized tax practitioners under the Taxpayer Bill of Rights, IRS Restructuring and Reform Act of 1998, 26 USC 7525: With respect to tax advice, the same common law protections of confidentiality which apply to a communication between a taxpayer and an attorney shall also apply to a communication between a taxpayer and any authorized tax practitioner to the extent the communication would be considered a privileged communication if it were between a taxpayer and an attorney.

Federally authorized tax practitioners include attorneys, certified public accountants, enrolled agents, and enrolled actuaries providing tax advice. This privilege may be asserted in any non-criminal tax proceeding before the IRS, as well as in noncriminal tax proceedings in the federal courts where the IRS is a party. Requirement 4 is particularly appropriate for a business law course. Requirements 5–8 address the work–product privilege using the same structure as was used for the testimonial privilege. These requirements are optional and involve the same skills as requirements 1–4, specifically: requirements 6 and 7 focus on research skills; requirements 5 and 8 focus on critical thinking skills. Beyond reinforcing the same skills as the earlier requirements, requirements 5–8 have the learning objective of distinguishing the work–product privilege from the accountant–client privilege. Requirement 5 has the student compare and contrast the accountant–client privilege with the accountant’s work–product privilege. Both privileges are statutory in origin, and therefore, not as broadly applied as the older common law privileges, and both are intended to promote confidentiality in accountant–client communications, but the basic natures of the accountant– client privilege and the work–product privilege are different. The accountant–client privilege applies to communications between the client and the accountant, either advice given by the accountant to the client, or information given to the accountant by the client. In contrast, the work– product privilege applies to documents the accountant has prepared in performance of his or her regular duties. Often this information is never shared with the client. The accountant–client privilege belongs to the client; the work–product privilege belongs to the accountant. Requirement 6 has the student research the jurisdictions identified in requirement 1 to determine if they have a statute establishing a work– product privilege. By contrasting the subtle differences between the work– product privilege and the accountant–client privilege, students better


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understand the scope of both privileges and appreciate the importance of confidentiality in all aspects of client work. Generally, states recognizing an accountant–client privilege also provide statutory protection for the accountant’s working papers and work product. Additionally, several states that do not recognize an accountant–client privilege do provide statutory protection for work product. The following language is typical of these statutes: All statements, records, schedules, working papers, and memoranda made by a certified public accountant or public accountant incident to or in the course of professional service to clients, except reports submitted to a client, shall be and remain the property of the certified public accountant or public accountant, in the absence of an express agreement between the certified public accountant or public accountant and the client. Arizona Revised Statutes Sec. 32-744.

Requirement 7 asks whether federal courts recognize a work–product privilege and directs the student to a leading precedent on this issue, United States v. Arthur Young (1984), a case in which the United States Supreme Court held the accountant would be required to produce audit work papers the Court determined were not protected by any work–product privilege. Federal courts thus do not recognize an accountant work–product privilege; however, as discussed above, federal courts generally will apply state statutory privileges in civil non-tax cases. It is unclear whether the privilege granted federally authorized tax practitioners under 26 USC 7525(a)(1), includes work product. Requirement 8, which requires identification of the policy considerations for and against the work–product privilege, can be answered in much the same way as requirement 3 because the policy considerations for and against the work–product privilege are similar to the policy considerations for and against the accountant–client privilege. All evidentiary privileges, including the work–product privilege, frustrate the fact finding process by shutting out material and relevant information. Their sole justification is the ‘‘protection of interests and relationships which, rightly or wrongly, are regarded as of sufficient social importance to justify some incidental sacrifice of facts needed in the administration of justice’’ (Wigmore, 1961, s.2285). The work– product privilege seeks to protect the integrity of the accountant–client relationship and encourage people to make use of professional accounting services. Furthermore, by placing the waiver of the privilege under the control of the accountant, rather than the client, the law is reinforcing the principle of independence between accountant and client. Requirement 9 considers the influence of the accountant–client privilege and the work–product privilege on the accountant–client relationship. Most

74


senior level accounting students are familiar with accountant liability for fraud or professional negligence, but few have considered the accountant’s liability exposure for failing to keep client confidences. Even fewer realize responding to a subpoena or testifying in court without the client’s consent waives the accountant–client privilege and creates liability exposure to the client. In responding to requirement 9, the student must reflect on how client communications would differ in a state with an accountant–client privilege versus a state without an accountant–client privilege. A good response would recognize the relationship between accountant and client could, and probably should, be affected by whether or not a state recognizes these privileges. In a state where no privilege exists, the client would be hesitant to divulge information that could be deemed questionable for fear of subsequent disclosure in an administrative or judicial proceeding. Such behavior could be contrary to the client’s best interest because the information the client believes to be of a questionable nature might actually benefit the client and make the accountant’s work more useful. With a privilege in place the information flows more freely, allowing the accountant to provide more effective and useful service. Thus, the existence of an accountant–client privilege or a work–product privilege has significant implications for the level of openness in the accountant–client relationship.

Application Suggestions This project is appropriate for individual or group assignments. We assigned Exhibit 1 individually to eight graduate students in a business law class at a medium-sized Association to Advance Collegiate Schools of Business International (AACSB) accredited, urban university. Our students had approximately four weeks to complete the project. At the beginning of each class meeting during this period time was allotted to monitor student progress and answer student questions. Typically, these class discussions would take less than 10 min per class and they usually focused on legal research methodology issues. On the due date, the students submitted a research memorandum to the instructor for grading. This project accounted for 20 percent of the students’ overall course grade. Grading time was approximately 25 min per student. Although we assigned the project individually, our classroom discussions suggested it also would work well as a group assignment. Interpersonal communication skills could then be assessed along with the research and critical thinking skills already discussed. Group assignments should have


75

controls to insure each student does the legal research involved in the project. One option would be to assign different parts of the project sequentially over the four-week period. Students could perform parts of the project individually as homework assignments, and then meet in groups to discuss their answers and reach a consensus on a group memorandum. This technique allows the instructor to supervise the group interactions while also monitoring individual student effort. It is essential each student get handson experience finding and reading the statutes and cases. Regardless of individual or group format, the class should discuss the privileged communications topic when the instructor assigns the research project. This discussion should last approximately 20 min and both should define the accountant–client privilege and address the requirements of the research project. The student guide in the section on Exhibit provides students with an introduction to the accountant–client privilege and can serve as a starting point for the classroom discussion. Another discussion technique is using case law to illustrate the applications and limitations of the privilege. Exhibit 2 contains synopses of leading case law precedents that can lead to lively classroom discussions. The cases in Exhibit 2 lend themselves to different applications. For example, Roberts, v. Chaple (1988) and United States v. Arthur Young & Co. (1984) would work particularly well in a tax class; Chevron Chemical v. Deloitte and Touche (1992) and Pepsico v. Baird, Kurtz and Dobson (2002) would work well in an auditing class. In the initial classroom discussion, the instructor should address the research tools available to the students. Getting the students into the law library is paramount, and therefore, the instructor needs to be familiar with available library resources. We assumed our graduate business law students would conduct their legal research using digests and other traditional law library resources; however, we found that most of the students did their legal research through Westlaw, an electronic database available in most law libraries. Using Westlaw made the identification process more efficient and students were inclined to demonstrate their computer research skills by identifying more than five jurisdictions with an accountant–client privilege. If students have access to Westlaw or a similar database, we recommend modifying requirement 1 by having the student identify all state jurisdictions with an accountant–client privilege statute. Requirement 2 then can have the student select five of these states for a more detailed analysis. Often the traditional research methods will reveal precedents missed by a computer search. Therefore, even though students have access to a computer research facility, the instructor should encourage learning how to use head notes and the various legal digests available at the law library.

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Exhibit 2.

Synopses of Selected Cases for Classroom Discussion.

In Chevron Chemical v. Deloitte and Touche (1992) the attorney for American Fuel and Supply Company, a closely held corporation, asserted Touche Ross should not disclose a material error discovered by the client subsequent to issuance of the financial statements due to accountant–client privilege; the auditor compromised by allowing disclosure to a single large financial statement user. Another financial statement user, Chevron Chemical, successfully sued Touche Ross on the grounds it did not inform Chevron of the material misstatement. In Pepsico v. Baird, Kurtz and Dobson (2002), the outside accounting firm for a Pepsi bottler asserted accountant–client privilege to avoid releasing quality control assessments prepared by the outside accountants as an advisory service. Pepsi wanted the information as evidence in support of terminating the bottler’s bottling agreement. The Eighth Circuit Court of Appeals ruled the Illinois accountant–client privilege only applied to communications made in connection with external financial statement audits and not to communications made in connection with management advisory services. In Roberts v. Chaple (1988), the court ruled that the accountants were liable for voluntarily revealing client financial information to the IRS without obtaining the client’s consent. The accountants did not wait for a subpoena or summons before disclosing the privileged information. In United States v. Kovel (1961), the court extended the attorney–client privilege to cover client communications with an accountant to the extent the accountant furthers communications between an attorney and client. The Kovel ruling created the possibility of strategically using of attorneys to protect accountant–client communications. In United States v. Arthur Young & Co. (1984), the Supreme Court held the Internal Revenue Service had the right to access tax working papers created by Arthur Young & Co. irrespective of the accountant–client privilege. (This case predates the recently enacted privilege for federally authorized tax practitioners.)

At the due date, we suggest dedicating the entire class period to a discussion of the project and the accountant–client privilege. This discussion is also the time to get feedback from the students on their experience and recommendations. Overall, our students found that this exercise was challenging and worthwhile. The most common student error was in the over-identifying privilege statutes. Specifically, certain students failed to distinguish an accountant–client privilege statute from the mere codification of the accountant’s ethical duty of confidentiality. Over half the states have codified the accountant’s ethical duty of confidentiality, but only seven of these states (see Table 1) incorporate the duty of confidentiality into their privilege statute. The close association between the duty of confidentiality and the accountant–client testimonial privilege is confusing to students and to correctly solve requirement 1, they must read the statutes and case law meticulously.


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CONCLUSION This paper provides instructors with a tool for taking the accountant–client privilege topic into the classroom. Other techniques, such as a case study or a moot court assignment, may be better suited to the learning goals of certain courses, but a research project has the advantages of realism and flexibility. Specifically, this project takes students into the law library to research an issue facing accounting practitioners. It is a legal research primer, directing the students to key legal issues and case law, but still leaving them room to roam. Students soon realize the benefit of acquiring basic legal research skills. The research project format accommodates graduate or undergraduate business law, tax, and auditing courses, and by modifying its requirements, can accommodate different time constraints.

EXHIBIT. THE ACCOUNTANT–CLIENT PRIVILEGE: A STUDENT INTRODUCTION Auditors and tax practitioners often receive client information in confidence; Rule 301 of the AICPA’s (2003) Code of Professional Conduct states an accountant in public practice, ‘‘y shall not disclose any confidential client’’ information without the specific consent of the client. There are exceptions to the Rule. For example, it does not apply to ‘‘compliance with a validly issued and enforceable subpoena or summons.’’ Although all professional accountants operate under this broad ethical mandate not to disclose client confidences, accountants in 18 states have a status similar to that enjoyed by attorneys and clients or doctors and patients. Specifically, in these 18 states an accountant–client privilege statute protects confidential communications between an accountant and a client from compelled disclosure in judicial and administrative proceedings. Subject to the limitations discussed below, courts cannot compel accountants in these states to testify or otherwise give evidence regarding confidential client communications. A subpoena attempting to discover such communications is not ‘‘enforceable’’. Although a state may recognize an accountant–client privilege, it does not mean the state protects all accountant–client communications from disclosure. There are limitations and exceptions contained in the statutes and the case law of all 18 states recognizing an accountant–client privilege. It is important practicing accountants know the limitations of the privilege in their jurisdiction because the scope of the privilege varies from state to

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state. By understanding the privilege law in their particular state, accountants can avoid liability exposure from unwittingly disclosing client confidences in judicial and administrative proceedings.

BALANCING COMPETING INTERESTS The accountant–client privilege balances two competing public interests. First, there is the public interest in fostering free and open communication between accountants and their clients. Ideally, clients should be able to approach their accountant without fearing what is said could be used against them in a court proceeding. Without such an atmosphere of confidentiality a client might withhold facts, thereby rendering the accountant unable to adequately advise the client and perform accounting services. Conversely, there is the public interest in having all evidence heard, including what the client knew and when he knew it. The judicial process is a search for truth and all evidence bearing on a particular issue should be considered. However, the accountant–client privilege frustrates the search for truth by shielding relevant evidence from judicial consideration. This protection has lead many courts to apply the doctrine of strict construction when interpreting accountant–client privilege statutes. Under the doctrine of strict construction, the courts have crafted several exceptions to the accountant–client privilege. For example, the crime–fraud exception exempts participation in a criminal enterprise from the privileges protection. Similarly, courts liberally apply the doctrine of waiver to the accountant–client privilege. Under the doctrine of waiver, once a communication is disclosed to a third party, it loses its privileged status. Courts have used the following criteria to further limit the scope of the accountant– client privilege: The accountant–client privilege protects confidential communications between an accountant and client that do not further a fraud or crime and that are kept confidential. The privilege applies only if: (1) the holder of the privilege is, or sought to become, a client; (2) the accountant (a) is a licensed professional, or a subordinate; who (b) was acting as an accountant at the time of the communication; (3) the communication was made (a) without the presence of strangers;


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(b) for the purpose of securing accounting services; and (c) not for the purpose of committing a crime or fraud; and (4) the privilege has been (a) claimed; and (b) not waived by the client. The accountant–client privilege protects communications between the accountant and client, not the subject of those communications. Thus, a client can refuse to testify regarding what was discussed with the accountant by invoking the accountant–client privilege, but the client cannot refuse to testify regarding facts within the client’s personal knowledge. Stated differently, the act of communicating facts to the accountant does not shield those facts from discovery. It is the communication that is privileged, not the facts underlying the communication. Also, the parties communicating must have intended the communication to be confidential at the time it was made or the privilege is lost. Even when the parties make the communication in confidence, the privilege may be waived by subsequent disclosure to a third person. A waiver is a voluntary relinquishing of the privilege by the holder and may occur even when the client neither understands nor intends this to be the effect. The accountant and client must take care to avoid situations likely to lead to a waiver of the privilege.

CONCLUSION Given the tension between competing policy interests, the accountant–client privilege is likely to remain a controversial legal doctrine. The uncertainties surrounding how courts will interpret and apply the doctrine in the future reduce its effectiveness. If a testimonial privilege is to serve its intended purpose of fostering open and frank communication, there must be a high degree of predictability in its application. As the Supreme Court has stated, ‘‘An uncertain privilege, or one which purports to be certain but results in widely varying application by courts, is little better than no privilege at all’’ (Upjohn v. United States, 449 US 383, 389, 1981).

REFERENCES American Institute of Certified Public Accountants (AICPA). (2000). AICPA core competency framework for entry into the accounting profession. New York, NY: AICPA. Available on the World Wide Web at: http://www.aicpa.org/edu/corecomp.htm.

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American Institute of Certified Public Accountants (AICPA). (1998). CPA vision project – 2011 and beyond. New York, NY: AICPA. Available on the World Wide Web at: http:// www.aicpa.org/vision/index.htm. Chevron Chemical v. Deloitte and Touche. (1992). 483 N.W.2d 314 (Wis.App). Dixon v. Bennett (1987). 72 Md. App. 620, 531 A.2d. 1318 (Ct. Spec. App). Ernst & Ernst v. Underwriters National Assurance Co. (1978). 178 Ind. App. 77, 381 N.E.2d 897 (Ind. App). McNair v. State of Nevada. (1994). 110 Nev. 1285, 885 P.2d. 576. Neusteter v. District Court. (1984). 675 P.2d 1 (Colo.) Pepsico v. Baird, Kurtz and Dobson. (2002). 305 F.3d 813 (8th Cir.). Roberts v. Chaple. (1988). 369 S.E.2d 482 (Ga.App). Taxpayer Bill of Rights. (1998). 26 USC y 7525. United States v. Arthur Young. (1984). 104 S. Ct. 1495, 79 L. Ed. 826. United States v. Bowman. (1966). 358 F.2d 421 (3d Cir.). Wigmore, J. (1961). 8 Wigmore on evidence (3rd ed.). New York: McNaughton.

Student Resources American Institute of Certified Public Accountant (AICPA). (2003). Professional standards. New York, NY: AICPA. Upjohn v. United States. (1981). 449 US 383, 389.

MULTI-ENTITY PARTNERING IN ACCOUNTING EDUCATION: NARROWING THE GAP BETWEEN THE PROFESSION AND ACADEMIA O. Whitfield Broome and Michael H. Morris ABSTRACT Since the mid-1980s, multiple organizations have issued warnings about the growing gap between academia and the accounting profession and suggested that only quick and definitive action can save accounting education. One way to reduce the gap is for universities to partner with a business organization to deliver a dedicated program or curriculum. This study examines the history of cooperative education programs and reports on one such program in accounting. The paper provides details regarding the first five years of operation for the multi-entity partnership among the University of Notre Dame (UND), the University of Virginia (UVA), and Ernst & Young LLP (E&Y), along with the benefits and challenges arising from it. Given the longevity of this collaboration, the commingling of two universities with an accounting firm, and projections for expansion in partnering activities, this paper discloses the structure and results of a program which may be of interest to others contemplating or participating in partnerships of some form. At a time when the profession is undergoing unprecedented levels of change, partnerships with business entities may be

Advances in Accounting Education: Teaching and Curriculum Innovations, Volume 7, 81–107 Copyright r 2005 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 1085-4622/doi:10.1016/S1085-4622(05)07004-5

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O. WHITFIELD BROOME AND MICHAEL H. MORRIS

more important than ever for faculty members to maintain the currency and relevance of accounting education.

MULTI-ENTITY PARTNERING IN ACCOUNTING EDUCATION: NARROWING THE GAP BETWEEN THE PROFESSION AND ACADEMIA Multiple sources in recent years have warned of the growing gap between academia and the accounting profession. The American Accounting Association (AAA, 1986, p. 169), after studying accounting practice, called for broadening the narrowly focused accounting curriculum and indicated that accounting education needed to make major adjustments. The accounting professional services firms (AECC, 1989, p. 1) also called for change and provided $5 million to the Accounting Education Change Commission for funding experimentation in accounting programs. The Institute of Management Accountants in three separate studies (IMA, 1994, 1996, 1999) called for adjustments to accounting education to meet the needs of industry. In addition, the American Institute of Certified Public Accountants issued its Vision Project (AICPA, 1998), which identifies core competencies necessary for success as a Certified Public Accountant (CPA) and called for changes in accounting education. After noting a 20–25 percent decline in the number of accounting graduates in the late 1990s and concerns about the overall quality of the remaining accounting students, the AAA, AICPA, IMA and the (then) Big 5 accounting firms commissioned a study (Albrecht & Sack, 2000) to determine causes. Although strong competition from the finance and information systems disciplines and low starting salaries for traditional assurance services jobs were no doubt contributing factors to the student decline, the strong conclusion of the study, as evidenced by practitioner views, is that the accounting educational model is broken and obsolete. The authors discuss six major categories of problems with accounting education, including (1) narrow and outdated curricula, (2) rule-based, memorization, test-for-content pedagogy, (3) too much focus on content at the expense of professional skill development, (4) failure to leverage technology, (5) lack of adequate faculty development, and (6) lack of strategic change. PricewaterhouseCoopers (2003, p. 8) recently questioned the value of master’s degrees in accounting because of vital areas in which a university

Multi-Entity Partnering in Accounting Education

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education falls short of delivering the understanding and skills sufficient for audit work. In particular, the shortfalls include an understanding of what it means to be professional, communication skills, problem-solving skills in ambiguous circumstances, and failure to inculcate a commitment to continuous individual and collaborative learning. In a message to the AAA, Wilson (2003, p. 1) acknowledged that recent developments have aggravated the gap, and he called on the academy to identify and address the gaps by working closely with the profession. Several articles (Gabbin, 2002; Jeffords, Scheidt, & Thibadoux, 2000; Novin & Meonske, 2001) specifically called for partnerships between academics and practitioners to reduce the gap. In addition, accreditation standards for accounting (AACSB, 2004, Standard 36) require all academic unit faculty members to demonstrate sufficient ongoing professional interaction. The standards suggest that experiences should relate to the faculty’s teaching areas and be sufficiently recent to provide insights into issues related to current practice. Typically, universities adjust to change at a snail’s pace, which magnifies the gap when the profession is undergoing dramatic levels of change. One way to develop focused and relevant programs for the profession and to stimulate faculty development is to partner with a business firm to deliver a dedicated program or curriculum. A carefully structured partnership is likely to reduce the gap between academia and practice and allow academia to adjust more quickly to changes taking place in the profession. This paper reports on a partnership between two universities and a professional services firm. A partnership between university faculty members and practicing professionals provides for focus and faculty development to better address the needs of the profession. For one university to partner with another university provides perspective and comparative experiences in delivering the educational program. The multi-entity partnership is not without challenges, but the partnership discussed in this paper addresses the gap discussed above and the synergies that result offer numerous benefits to the students, the business firm, the faculty members, and the universities involved in the partnership. The next section provides a brief history of partnering and some projections of future partnering between industry and academia in the accounting profession. We then present the details of one such program along with the benefits arising from the multi-entity partnership. The study examines the challenges in implementing and operating the program, and the paper concludes with the observations and suggestions for future collaborative efforts.

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GAP CONTROL: COLLABORATIVE EDUCATION PROGRAMS As pointed out by Roach (1999, p. 152), businesses and schools have been involved with each other since the late 1800s, although public calls for education reform acted as a catalyst to formalize the relationship. For example, after becoming convinced that students could not effectively learn many professional concepts and skills in the classroom, Herman Schneider, an engineering professor at the University of Cincinnati, initiated a formal educational program in 1906 that required professional experience (see Sovilla, 1998, p. 19). In 1909, the Polytechnic School of the YMCA Evening Institute (which later became Northeastern University) established a similar program. Sovilla (1998, p. 20) traces the history of collaborative education and reports that by 1956, 60 other institutions had followed this path. Although initially developed to enhance education, the Higher Education Act of 1965, an initiative of President Lyndon Johnson’s ‘‘War on Poverty,’’ linked cooperative education to a form of financial aid. At its peak in 1986, 1,012 colleges and universities (one-third of all U.S. post secondary educational institutions) reported having co-op programs. Today, about 2 to 3 percent of all college students participate in co-op programs at more than 900 colleges and universities nationwide (see Bruns, 1999, p. 41). The traditional cooperative education model generally involves one academic institution with a diverse group of employers. Academic institutions often establish such relationships with students in temporary or part-time employment. Many parallel collaborative educational programs exist today that are driven by the needs of the employer for full-time employees. Universities meet the demands for training and education of working adults by night and weekend courses and by synchronous and asynchronous internet courses. Flexible, convenient, and efficient for-profit degree programs (like Apollo Group, Inc., DeVry Inc., and Calliber Learning Network) also satisfy employee needs at employer sites around the country. Olian (2002, p. 23) estimates that 2,000 corporate universities exist today and predicts that the number will swell to 3,700 by 2010 to provide necessary training and education to their employees. Although a few have gained the power to grant their own degrees (like the Arthur D. Little Business School), most have not, suggesting that new opportunities for collaboration will spring up. Since long-term employment security appears to be less likely in the future, employers need to offer opportunities to obtain accredited degrees, which readily travel with the employee, to attract the best and brightest employees


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today. Meister (1998, p. 201) reports that 40 percent of corporate universities expect to start creating degree programs through collaborative efforts with institutions of higher education. Recent research has confirmed the value of work experience in the accounting education process. In an international empirical study of accounting students, Ferguson, Richardson, and Wines (2000, p. 160), found strong evidence supporting the role that work experience provides in educating students about the auditing function and the auditor’s role and responsibilities. The study also suggests that students may enhance the probability of completing their professional examinations if they have some practical experience. In addition, new organizations specifically focused on cooperative education now facilitate such partnerships. As Franks (1998, p. 68) points out, the World Association for Cooperative Education (WACE) is an international organization dedicated to advancing and developing work-related education around the world. In addition, Cenquest, an e-learning company, has been playing matchmaker for companies and universities. This firm also specializes in assessment tools to measure the benefits of such programs (see Carnevale, 2002, p. A36). With these forces in place and the budgetary crisis-sweeping institutions of higher education, Phoenix (2002, p. 108) predicts that a majority of institutions will enter partnerships with business in the near future. Mangan (2001, p. A23) also has indicated that collaboration between business schools is growing, although creating an alliance among business schools is much harder than working with corporations. Two or more business schools often form alliances when a single business school might not be able to satisfy the needs of one business. Mangan also notes that many alliances operate only one or two years until the sponsor loses interest. The program described in this paper is one of the early collaborative efforts in accounting between two business schools that addresses the needs of one professional services firm while granting a master’s degree in accounting. Since neither institution could go it alone at the anticipated volume, both universities have delivered a dedicated master’s degree for the last five years to help recruit and educate primarily non-accounting undergraduate business students for work in the Assurance and Advisory Business Services practice of E&Y. The recent execution of a new contract extended the program for three more years. Given the longevity of this collaboration, the commingling of two universities with an accounting firm, and projections for expansion in partnering activities, this paper discusses the structure and results of the program, which may be of interest to others contemplating

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or participating in partnerships of some form. The next section describes the program, curriculum, results, and main challenges of the collaboration. We believe an understanding of the associated costs and benefits will be applicable to a variety of future academic/business partnerships.

YOUR MASTER PLAN (YMP) Program Description The idea for the program was conceived in discussions between a managing partner at E&Y and a UND faculty member about how to address the tight supply of accounting majors in 1997. Shortly thereafter, E&Y approached UND and UVA and asked the universities to structure a program on a very tight time line. In the fall of 1998, the three entities began serious discussions about starting the program in the summer of 1999. Faculty members met in October 1998 to gather input regarding the concept. In late October, faculty members at each university gave their general support. After the deans gave their approval, discussions with central administrators commenced. Soon thereafter, all parties signed the contract establishing the program, and E&Y began an internal and external marketing effort to recruit students for the program. A preliminary design of the curriculum at each institution was available by the end of December 1998, and the universities selected and issued contracts to instructors. With each contract extension, faculty members provided their input, and support for the program was overwhelmingly positive at each university. Faculty members value the many non-financial benefits outlined later in this paper, appreciate the opportunity for extra compensation from teaching in the program, and recognize that funds provided by the YMP program allow administrators to make competitive research grants to faculty members. One of the early tests in launching the program was to convince top university administrators that a customized master’s degree for one employer was consistent with each university’s mission. Once this challenge was met, each administrative team devoted much effort to craft a revenue and expense plan acceptable at the university and college levels. One of the important elements to have at this stage is leadership who has vision, commitment, and confidence in the outcome. An additional challenge was to have universities move as quickly as businesses in the implementation phase. All three organizations had to move in lock step fashion, which required leadership to push through critical decisions, to hire staff, and to make

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preparations. This leadership ranged from faculty task forces, to department chairs, deans, and vice presidents. Table 1 provides a demographic breakdown of the students enrolled in the YMP Program during the first five years of the program for each university. Although each student can request to attend either university, Table 1 suggests similarity of total number of students (392 and 397), average undergraduate grade point average (GPA) (3.55 and 3.50), and average Graduate Management Admission Test (GMAT) score (605 and 603) for UND and UVA, respectively. UVA has enrolled a few more female students while the majority of UND participants have been male, with each school reflecting similar percentages of nonwhites. Over the first five years of the program, the diversity of enrolled students increased significantly, while the breakdown of Table 1.

Cumulative Student Demographics at UND and UVA for the Classes of 2000–2004. UND

Total number of students Gender of students Male Female Ethnicity of students: (# and % of total) Asian or Pacific islander Black or African American Hispanic White American Indian or Alaskan native Other/did not responda Total Undergraduate Major (# and % of total) Accounting Finance Other business Economics Non business or economics Total Average GPA Average GMAT score a

UVA

392

397

218 174

195 202

28 37 44 261 0 22

7.1% 9.4 11.2 66.6 0.0 5.6

44 62 20 261 2 8

11.1% 15.6 5.0 65.7 0.5 2.0

392

100.0%

397

100.0%

75 183 86 38 10

19.1% 46.7 21.9 9.7 2.6

68 190 97 37 5

17.1% 47.9 24.4 9.3 1.3

397

100.0%

392 3.55 605

100.0%

3.50 603

The students who did not respond to the ethnicity question were primarily international students.

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undergraduate major has remained relatively constant. Finance was clearly the major for the largest number of students entering the YMP Program with just under 50 percent of the students, followed by accounting with slightly under 20 percent of the students. Other business majors comprised 20–25 percent, economics represented just under 10%, and other majors accounted for less than 3%. E&Y recruited students for the program from more than 150 different universities, with Brigham Young University, the University of Florida, Arizona State, Michigan State, Boston College, Illinois, and Penn State providing the most students to the YMP Program for the first five years of operation. The universities deliver the program in two intense summers, along with a distance learning component during the nine months between summers. The students become E&Y employees at the beginning of the first summer, and E&Y assigns them to spend full-time studying each summer. The nonaccounting majors take undergraduate accounting courses in an ‘‘Accounting Immersion Program’’ during the first half of the first summer. The undergraduate accounting majors join them in mid-July, and the combined groups begin 30 credit hours of graduate courses leading to the M.S. in Accountancy Degree. Between summers the students serve clients for E&Y, with released time for the distance-learning classes. With feedback from students and suggestions from E&Y professionals, a steering committee of faculty and staff keeps the curriculum relevant and current. Students receive special care and attention, with courses in this program devoted exclusively to E&Y professionals. Tenured or tenure-track faculty members at each institution teach more than 75 percent of YMP courses. Being in residence full-time, each summer guarantees students personal contact with faculty members. Experienced teaching assistants, recruited and hired following graduation from our other master’s in accountancy programs, hold group and individual tutoring sessions to address the students’ immediate learning needs. Even when the students are away from campus between the two summers, the distance-learning courses are highly interactive, with questions answered by a second instructor via the Internet, as the primary instructor conducts the class in the synchronous sessions. E&Y gives each student a laptop computer, and each university has wired classrooms and dorm rooms so that students can readily interact with each other, contact faculty members, or utilize course materials on the Web anytime inside or outside the classroom. E&Y assigns one resident technical support person for each campus to keep the student and faculty computers operating efficiently.


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UVA and UND negotiated contracts with E&Y for an initial three-year term, a two-year extension, and a subsequent three-year extension. Both universities worked together to establish common terms (tuition charges, contract length, etc.) for the contract with E&Y, but each academic institution determined its own internal revenue sharing (between department, college, and university), faculty and staff compensation arrangements, and program administrative structure. To allow E&Y flexibility in the recruiting process due to the rapidly changing nature of the profession, the most recent contract with E&Y included a tuition structure that adjusts to class sizes between 50 and 100 students at each site. Contracts also typically include exit payments for discontinuance by E&Y prior to the end of the contract extension. Since participation in the YMP Program is not part of normal faculty responsibilities, the universities establish separate contracts for each faculty member invited to teach in the program. Teaching assistants receive separate appointments, and since virtually all teaching assistants move into permanent jobs following summer duties, turnover is nearly 100 percent each year. The two universities implemented a similar curricular structure in spite of unique faculty strengths, unique technology infrastructures, and different organizational designs, without any noteworthy differences in implementation or student performance. The fact that such different organizational entities were able to achieve the same degree of success suggests that public/ private university type is not a key ingredient to forming a partnership with a business entity. In addition, although this partnership resulted in a full M.S. in Accountancy program at each academic institution, collaborations of reduced size and scope could be created to reduce the gap between academia and the profession. Educational institutions could offer a similar program to multiple smaller business entities. Efficiencies in the number of sections and the number of faculty members exist in the 35–50 student range, but universities could simultaneously serve several business entities. Universities could offer programs for regional rather than national firms, or provide educational programs for a single office rather than a network of offices. Although such designs start resembling executive development programs, they retain many of the gap-reducing or academic/practitioner teamteaching benefits described below, even if they offer a cluster of classes or a single class rather than an entire program. Although each university continues to operate as a separate legal contracting party with E&Y, a great sense of cooperation and communication exists between the universities. Each academic institution maintains

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complete control over the curriculum and admission process, but faces precisely the same issues as the other university. As a result, the universities have implicitly become close partners in the triangular agreement. Representatives of all three parties hold meetings twice yearly, with open discussion of issues from admission and curriculum to faculty and operations. As might be expected, administrators at each university obtain the synergistic effects of partnership arising from the sharing of information and experiences.

YMP Curriculum Curriculum committees at each university monitor and assess the YMP curriculum. Each curriculum has unique course names and credit hours to best match existing courses or faculty specialties at each institution (see Table 2). The curriculum at UND has a greater finance component, and UVA has more accounting content. Since each academic institution has a separate contract with E&Y, no effort has been made to make the programs identical. In fact, the slight differences have allowed the YMP Program some flexibility. For example, students recruited from states requiring more accounting content to sit for the CPA exam are directed to the UVA Program. When initiated, the programs delivered distance-learning courses using video conferencing to 24 sites throughout the U.S., but the courses now use interactive instruction software for synchronous sessions delivered directly to students’ laptop computers. The synchronous sessions allow for two-way communication for questions and answers, and use of electronic discussion groups. The distance-learning courses also include asynchronous delivery of learning materials via CDs, with on-line testing and office hours. The YMP programs do not include E&Y training programs or CPA review courses for credit. Direct comparison of the YMP curriculum with other graduate programs at UVA or UND is somewhat problematic because of the specialized nature of the other programs. UVA offers a Master of Science in Accounting – Tax Consulting Program, and UND has a tax track in an open-enrollment M.S. Program, neither of which is directly comparable to the assurance and advisory business service design of the YMP Program. The financial track in UND’s open-enrollment M.S. Program has similar objectives to the YMP Program and provides a curriculum structure for highlighting the similarities and differences with the YMP Program.

Your Master Plan Class of 2004 Curriculum Outline. UND

Accounting immersion program

Core program Summer session, 2003

Fall semester, 2003 (Distance learning)

Year 2003 Financial accounting and reporting Accounting for decision making and control Auditing and assurance services Federal taxation

Credit hours

UVA

Credit hours

Year 2003 Financial accounting standards Strategic cost management

6 3

2 1.5

Tax factors in business decisions

3

Mergers and acquisitions

3

3

Business processes and cost management Taxes and business strategy

3

Basic assurance services/special topics in accounting Advanced assurance services

3

3

Accounting information systems

3

Business law II

3

International finance and accounting Total credit hours offered in 2003 Accounting credit hours offered in 2003

3

Total credit hours offered in 2003 Accounting credit hours offered in 2003

4.5 2

22 19

Year 2004 Spring semester, 2004 (Distance learning)

None

Summer session, 2004

Topics in financial measurement & disclosure

3


Table 2.

24 24

Year 2004 Advanced business law

3

Business risk and controls

1.5

91

92

Table 2. (Continued ) UND

Credit hours

Business analysis & valuation using F/S. Advanced assurance services Advanced accounting information systems International financial and risk management Investment management

3

Accounting policy

2.5

3 3

Business advisory services Financial statement analysis

2.5 2

3

Managing and accounting for mergers & acquisitions Managing and accounting for financial risk Total credit hours offered in 2004 Accounting credit hours offered in 2004

3.5

Total credit hours offered in 2004 Accounting credit hours offered in 2004

18 12

Total UND upper level accounting credit hours in 2004 Total UND credit hours

31 40

Total UVA upper level accounting credit hours in 2004 Total UVA credit hours

Credit hours

3.0 18 11 35 42


3

UVA


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The open-enrollment M.S. Program provides options (tax or financial track) and flexibility (electives, cross-listed courses in the MBA Program), which are not part of the YMP Program. Since the YMP Program utilizes proprietary databases, only E&Y employees can take YMP courses at each institution. In addition, since the compressed summer format of the YMP Program does not coincide with other course offerings, YMP students cannot take electives from the open-enrollment programs. As a result, the YMP curriculum has no electives and a no waive policy for courses. Other than differences in flexibility, the curriculums of the open-enrollment and YMP Programs at UND are quite similar. Students in the YMP Program have a mandatory work requirement between the two summer sessions. Because the YMP students are permanent employees, E&Y assigns each student to audit teams and evaluates performance similar to any other employee. They also receive typical E&Y training. This experience cannot be duplicated by a summer internship. The YMP Program also provides an environment where almost all students at each institution live together in the dorms during the summers. Such close association outside of class provides more opportunities for group study, group case-based learning, and career-based networking.

Program Results Since five classes have graduated, a preliminary assessment of the program is possible. While each university admitted approximately 50 students in the first class and jumped to 100 students in the second class, each has now settled on 75 students per class. All three parties to the contract feel this size is close to the optimum from an academic, administrative, and E&Y human resource perspective. Each university has the flexibility to admit 100 students each summer, so there are no plans to expand beyond current capacity. The quality of the students also has improved slightly over the first five years of the YMP Program. The annual GMAT average rose from 590 for the first class to 606 for the class of 2004, while the average GPA for those admitted during this period has been maintained at 3.55. The GMAT average of 606 for the last graduating class is significant for two reasons. Frecka and Nichols (2004, p. 175) report that the worldwide average GMAT for all test takers was 527 in 2000–2001, and for students enrolled in master’s in accounting programs over the 1998–2001 period the average GMAT was 586. Thus, it can be asserted that the academic qualifications of YMP students, as measured by the GMAT, are well above

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average and above the typical student enrolled in master’s in accounting programs. Graduates from the YMP Program provide a diverse workforce (i.e., educational background, ethnicity, and international experience) for the profession, which increasingly requires problem solvers to bring a broader perspective to a complex and global marketplace. For example, E&Y has reported that over 50 percent of the 320 students starting the program for the last two summers speak more than one language compared to 18 percent for other E&Y employees in the United States. In addition, 65 percent of that group lived, worked, or studied in another country, and 13 percent were on employer-sponsored visas. Such efforts have enhanced the diversity of the student body at UND and UVA. Having a diverse set of students with international experience has elevated classroom discussion relative to less diverse classrooms by broadening the range of issues considered in problemsolving settings. The program is unique in that it primarily recruits non-accounting majors to the accounting profession. Thus, this program avoids competing directly with M.S. accounting programs for accounting majors and, as the GMAT scores suggest, is successful in obtaining talented students. In addition, each of the YMP graduates signs a three-year expense recovery agreement, which commits them to stay with E&Y for three years after graduation. Thus, the firm’s contract with these employees enhances their retention percentages, which are reportedly twice as high as those for their non-YMP E&Y peers. Because students appreciate the educational opportunity from the YMP Program, potential long-term effects not only may include higher retention, but, enhanced boomerang effects, where employees that do choose to leave E&Y may return to the firm later in their career. Finally, E&Y has reported anecdotally that YMP participants, most of whom do not possess an undergraduate foundation in accounting, are providing value-added accounting services to clients at a level at least consistent with non-YMP participants. Scott (2003, p. 30) has suggested that with the right attributes (enthusiastic, knowledgeable, and experienced teachers; active-learning and close relationships in the classroom; and meaningful, in-class group assignments), intensive courses yield equivalent and sometimes superior learning outcomes when compared to matched traditional-length courses. To investigate this issue, we look to the open-enrollment M.S. in Accountancy programs at each university. As mentioned earlier, the UND open-enrollment program provides a more relevant student assessment comparison with the YMP Program. Although learning outcomes were not investigated directly, UND

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sent surveys to all UND M.S. in Accountancy alumni, including four graduating classes of the open-enrollment program and three graduating classes of the YMP Program, to assess perceptions of learning outcomes. Although the response rate was quite different, (33% and 22% for the openenrollment and YMP programs, respectively), the final sample size is approximately the same for each program. Table 3 presents the results from the survey. Since the mean values on a scale from 4 (strong disagreement) to +4 (strong agreement) were positive for each question and each program, the average responses in each case showed agreement with each statement and

Table 3.

UND M.S. Alumni Survey ( 4 indicates Strong Disagreement, 0 indicates Neutral, +4 indicates Strong Agreement). Open-enrollment (n ¼ 54)

1. I am satisfied with M.S. experience at UND 2. Program quality was high 3. I would enroll again 4. My technical accounting knowledge was substantially enhanced 5. The program improved my business understanding 6. The program improved my theoretical understanding of accounting 7. The program improved my accounting research skills 8. The program allowed me to compete well with peers from other programs 9. The program was very competitive 10. Course content was current and relevant 11. The program was innovative

YMP Program (n ¼ 49)

T-statistic for difference

Mean

Std. Dev

Mean

Std. Dev

3.04

1.12

3.02

1.33

0.07

3.02 2.98 2.65

1.25 1.65 1.59

2.96 2.86 2.92

1.37 1.49 1.22

0.23 0.40 0.96

2.93

1.18

2.94

1.33

0.05

2.85

1.34

2.92

1.29

0.25

2.91

1.19

2.20

1.44

2.66

3.09

1.25

2.76

1.38

1.29

1.65

1.62

2.49

1.60

2.63

2.91

1.38

3.16

1.28

0.97

2.02

1.46

2.67

1.26

2.42

Significance from zero at the 0.05 level. Significant differences between programs at the 0.05 level.

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were significantly different from zero (neutral) at the 0.05 level. The last column in Table 3 measures the significance of the differences in the average responses of the two programs. Both programs reflect similar levels of satisfaction with the M.S. experience (1), quality (2), and desire to enroll again (3). In addition, the programs were quite similar in terms of improvement of accounting knowledge (4), business understanding (5), understanding of accounting theory (6), ability to compete with peers (8), and currency and relevance (10). Statistically significant differences between the programs surfaced on three dimensions. Respondents rated the YMP Program as significantly more competitive (9) and more innovative (11), but provided less improvement in accounting research skills (7). The research component has been enhanced in the YMP Program subsequent to this study, by providing encouragement and assistance to faculty members with the E&Y technology through individual and group instruction. Assignments and group projects now require students to more actively explore the E&Y knowledge databases, which faculty members find more integrated and more efficient to use than the conglomeration of stand alone databases available to most universities. Self-reported survey responses from the open-enrollment program (n ¼ 54) and YMP program (n ¼ 49) regarding CPA Examination results suggest that 71 percent of the open-enrollment alumni have passed the exam compared to 43 percent for the YMP alumni. Readers should exercise caution in using these measures to directly compare the two programs for several reasons. The open-enrollment program has had one additional graduating class and consequently more time to pass the exam. The openenrollment program also had a smaller percentage of alumni indicating they either did not sit for the exam or have not passed a single part (15 percent for the open-enrollment program compared to 33 percent for YMP), had a GMAT average (645) significantly higher than the YMP Program (605), and consists of all undergraduate accounting majors. Since students come into the YMP Program from a variety of undergraduate majors, we also investigated performance in the YMP Program by examining differences by academic background. We compiled the average cumulative GPA for M.S. in Accountancy courses by undergraduate major for each graduating class in Table 4. Clearly, the non-accounting majors have much more ground to cover to obtain an M.S. in Accountancy Degree, but they receive more attention from faculty members and teaching assistants. About one percent of the students left the program for substandard academic performance, and these students have all been non-accounting undergraduates. However, as Table 4 reflects, accounting or business

M.S. in Accounting Grade Point Averages by Undergraduate Major. M.S. Grade Point Average Class of 2000

Business undergraduate major Accounting Business administration/management Finance International business Marketing MIS Total for business Non-business undergraduate major Economics Psychology/social science/others Total for non-business

Class of 2001

Class of 2002

Class of 2003

UND Mean (n) Std. Dev

UVA Mean (n) Std. Dev







3.49 (8) (0.191) 3.63 (4) (0.120) 3.63 (21) (0.144) 3.54 (2) — 3.62 (2) — — — 3.59 (38) (0.151)

3.44 (8) (0.223) 3.70 (4) (0.075) 3.44 (26) (0.232) 3.76 (1) — 3.28 (5) (0.373) — — 3.45 (44) (0.254)

3.62 (18) (0.193) 3.63 (11) (0.177) 3.52 (45) (0.155) 3.59 (2) — 3.38 (2) — 3.35 (2) — 3.56 (80) (0.180)

3.54 (14) (0.222) 3.38 (9) (0.224) 3.52 (46) (0.210) 3.34 (3) (0.117) 3.47 (5) (0.169) 3.29 (1) — 3.49 (78) (0.212)

3.54 (12) (0.299) 3.57 (22) (0.187) 3.50 (40) (0.229) 3.57 (6) (0.289) 3.53 (1) — 3.51 (4) (0.274) 3.53 (85) (0.231)

3.44 (16) (0.203) 3.43 (11) (0.282) 3.50 (47) (0.214) 3.49 (4) (0.318) 3.39 (7) (0.166) 3.24 (1) — 3.47 (86) (0.224)

3.46 (15) (0.241) 3.60 (7) (0.193) 3.53 (39) (0.263) 3.68 (2) — 3.45 (2) — 3.27 (3) (0.167) 3.51 (68) (0.250)

3.32 (16) (0.224) 3.54 (15) (0.180) 3.50 (34) (0.217) — — — — 3.55 (3) (0.317) 3.47 (68) (0.227)

3.54 (5) (0.204) 3.60 (3) (0.128) 3.56 (8) (0.172)

3.27 (4) (0.180) 3.36 (1) — 3.29 (5) (0.161)

3.53 (7) (0.206) — — 3.53 (7) (0.206)

3.46 (6) (0.205) — — 3.46 (6) (0.205)

3.51 (6) (0.192) 3.49 (3) (0.154) 3.50 (9) (0.171)

3.58 (7) (0.199) 3.65 (2) (0.163) 3.60 (9) (0.185)

3.53 (6) (0.074) 3.78 (3) (0.150) 3.61 (9) (0.157)

3.48 (13) (0.234) — — 3.48 (13) (0.234)


Table 4.

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undergraduate majors do not perform consistently better than non-accounting or non-business undergraduate majors. In fact, at the 0.05 level, there is no statistically significant difference between business and non-business undergraduate majors for any graduating class for either university. The results suggest that even though 80% of the students are non-accounting undergraduate majors and about 10% are non-business undergraduate majors, there are no unique academic performance issues between the subgroups.

Business Expertise At the beginning of the YMP Program, partners from E&Y visited with each faculty member teaching in the program to provide experience or expertise to enhance course content and delivery. Such efforts continue to the present, with technology training seminars that encourage the use of the E&Y technology database and with speakers who assist with course delivery. Through E&Y webcasts, seminars, and meetings, faculty members learn about marketplace developments immediately. Recent topics have included the effect of the Sarbanes–Oxley Act on E&Y and an in-depth analysis of the global assurance market for the periods prior and subsequent to the Andersen implosion. The immediate disclosure of the pressures being exerted on businesses has allowed faculty members to better understand and more quickly adjust to change in their specialty areas. The close working relationship with E&Y also has enhanced recruitment (and retention) of some of the best teachers for the YMP Program. E&Y has been very generous in supplying expertise from practice and in providing training and access to confidential knowledge databases for faculty members. Faculty members who are outside the accounting department and not teaching in the YMP Program also have attended the seminars and used the information for Management Information Systems course development at UND and Business Advisory Services course development at UVA. Personnel at E&Y also have identified the most useful technology tools for each course in the YMP curriculum, to encourage incorporation in the classroom exercises. Examining several specific examples will demonstrate how the association with E&Y has enhanced curricula. In an advanced assurance services course at UND, the student’s main project is to prepare and present a client business model, to identify and discuss risks of potential earnings management and fraud, and to identify and discuss actual or potential economic shocks affecting the company. An E&Y client of the student’s choice is the focus of the project, thereby allowing the students to leverage from proprietary E&Y


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data and sources, which add value in ways that non-YMP students simply do not have access. A second gap-closing example from UND is reflected in a course on business processes. A faculty member from UND has traveled to an E&Y office on multiple occasions to plan the course with an E&Y partner. The E&Y partner visits the classroom and uses proprietary software to teach students to analyze the risks as part of the firm’s global audit methodology. After the E&Y partner and the UND faculty member help students in drawing the process map for an E&Y client, assistance from E&Y databases helps students to identify the critical business processes and to flag sensitive areas that can have a large potential impact on the financial statements. Students benefit by analyzing company operations across silos to assess risk and improve process controls. Having an experienced practitioner with valuable software as part of the instructional team to analyze actual clients provides the students with a richer and more relevant learning environment than would otherwise be available. A third UND example is a new requirement, which directs students to complete an academic paper near the end of their client-serving work between summer sessions. One of the most important benefits of the YMP Program is the synergistic learning effect of scholarship and work experience. The intent of the paper is to have the students reflect on their experiences as related to academic coursework, issues of integrity, or information technology impediments. A faculty member directs the student reflection to assure sufficient depth, proper focus, and to enhance writing ability. The academic program during the second summer also benefits from a learning environment, which is enriched by the sharing of recent client-serving experiences. The business risk and controls course at UVA uses E&Y materials and E&Y expertise to teach students how to assess business strategies and associated risks. A team that includes a business communications instructor works with the students as they prepare a major written report on an E&Y client, followed by a formal oral presentation. The experience gained from working with E&Y and the materials have made this course a real-world experience for the YMP students and have also enhanced the business risk and controls course taught in UVA’s open enrollment program. Also at UVA, a Business Advising Course serves as the capstone course in the second summer. This course culminates in a Client Advising Project (CAP) in which the students create and present an ‘‘outside-of-the-box’’ strategic recommendation for either an existing or prospective E&Y client. E&Y has enhanced the course in two ways. The first is the ‘‘CAP Coach’’ program. Three recent YMP graduates are jointly selected by UVA and

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E&Y to return to campus for 10 days to mentor the current students. They serve as role models, experts, motivators, supporters, and trainers to the CAP teams. The second enhancement centers on the students’ oral presentations. Selected E&Y partners, managers, and seniors attend the CAP presentations, where they ask questions and provide extensive, qualitative feedback on the students’ performance. Other Outcomes Delivery in a compressed format with distance-learning components has provided an experimental setting for study of delivery methods and learning outcomes, thus furnishing invaluable lessons for instructors. Experimentation with cases, presentations, and lectures have forced faculty members to consider ways to be more efficient, which has caused them to consider the most direct ways to learning. Such streamlining has led naturally to challenges about the methods used during the 15-week semesters. Faculty members report that they have gained knowledge about delivery, which will cause them to eliminate inefficient methods in their non-YMP teaching. Students also have suggested that learning in a distance-learning format is more difficult and challenging than face-to-face interaction. Having a variety of delivery formats (CDs, live instruction, teleconference, and video conference) in the distance-learning component of the YMP Program also has allowed each university to study student perceptions about the effectiveness of each method. Although a long history of educational research (see Meyer, 2003, p. 2) suggests that no significant difference exists in student achievement with web-based or in-person delivery, our surveys reveal a clear preference for live classes. Students also ranked video components (either in CD or video-conferencing format) higher than teleconferencing (two-way synchronous interaction without video). As a result, the universities reduced YMP distance-learning delivery over time and expanded offerings while students remain on campus. In the distance-learning portion, the asynchronous (CDs) components maintain video clips of the instructor and lecture material. The YMP Program also has produced reasonably high levels of satisfaction at each university from the student participants in surveys conducted by E&Y. Table 5 shows that students rated course content and faculty availability/approachability at or above 4.0 on a 5.0 scale for the programs at each university. What is most important to us is that students indicated that they would recommend the YMP Program to a friend (4.6–4.7 on a 5.0 scale). The program also has allowed students to jumpstart their careers. Feedback from E&Y identifies several advantages to the students and to the firm.

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Table 5.

Student Participant Feedback From E&Y Survey Results Class of 2004 regarding Summer 2003.

I found the content of the Accounting Immersion Program courses valuable If I had questions or concerns, I felt comfortable talking to university faculty in the Accounting Immersion Program I felt there was enough opportunity for contact with university faculty in the Accounting Immersion Program I found the content of the master’s courses valuable If I had questions or concerns, I felt comfortable talking to university faculty in the master’s program I felt there was enough opportunity for contact with university faculty in the master’s program I would recommend the YMP Program to a friend

UND (Average Response n ¼ 56)

UVA (Average Response n ¼ 58)

4.3

4.6

4.2

4.6

4.0

4.2

4.0 4.2

4.1 4.3

4.1

4.2

4.6

4.7

Note: 1 ¼ Strongly disagree; 2 ¼ Disagree; 3 ¼ Neutral; 4 ¼ Agree; 5 ¼ Strongly agree.

Successful completion of the 15-month program results in an M.S. in Accountancy Degree, provides nine months of valuable client-serving work experience (between summers), and assists with meeting the CPA certification requirements. In addition, the program allows the participants to develop a valuable national network of other professionals to learn from and consult with about complex issues. Students live in dorms with other E&Y professionals for two summers. They develop close working relationships with students in their own class and spend one summer with the class ahead of them and one summer with the class behind them, providing networking opportunities with more than 200 E&Y professionals. The program administrators strive to mix the various classes in the dorms, to rotate students in class sections, and to design interaction at social functions that maximize networking possibilities and mutual learning. For a typical accounting professional not proceeding through this program, such networking would take years to achieve. The unique recruiting track of employees through the YMP Program relative to those outside the YMP Program raises issues regarding the attitude toward the program and participants within E&Y. Resentment or special identification is largely mitigated by an overriding emphasis by E&Y on performance, which puts all employees on the same footing regardless of

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educational path. In addition, YMP participants are widely disbursed throughout the firm and are a relatively small portion of the total workforce, somewhat diluting the YMP identification in individual offices.

Challenges and Other Issues Independence One of the important lessons we learned is that academia can develop a very close relationship with a business organization without selling one’s soul. Although UVA and UND designed and offered the program for the employees of only one entity, the academic institutions have maintained their independence and control. In planning the program, the academic leaders at each university encouraged the accounting departments to proceed cautiously and to ensure that such a program was right for each university. Consistent with the implementation of such goals, E&Y recruits the students interested in the YMP Program, but each university must approve their admission prior to establishment of the employment contract. Under this system, the universities admit approximately 75 percent of the E&Y recruits initially identified for the YMP Program. Occasionally, a student rejected by one university is accepted by the other because of slightly different admission models. Although UND and UVA confer with each other and receive suggestions from E&Y, each institution is solely responsible for admissions and course development. The relationship between the two universities and E&Y has not perceptibly affected relationships with other Big 4 CPA firms. All continue to actively recruit students at the two universities and all continue to provide financial and other support. We have not observed any decline in contact or cooperation between accounting faculty members and other Big 4 partners and recruiters. 150 H Requirement As with any program designed to meet state CPA educational requirements for 150 hours, UVA and UND continue to exercise care to meet the varying state requirements of the student population served by the program. For the YMP Program, E&Y recruits employees for offices across the United States, Canada, and the Dominican Republic. As a result, the universities needed to make adjustments to the initial curriculum, including the addition of a business law course, the addition of an international business course, and increasing the number of accounting hours. The curriculums dropped


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courses such as Negotiation and Communication from the initial design in favor of more accounting hours and offered supplemental courses in the interim to address state requirements. Taxable Income Another issue is the variation in taxable income that can result from differing state requirements and the program’s relationship to the employment contract. For classes considered a minimum requirement for the job or for classes required for students to sit for the CPA exam, employer assistance provided for tuition, room and board, and travel expenses is taxable to the student. Differing state requirements result in wide variations in student taxable income, causing program administrators to consider equity, cash flow, and behavioral issues (such as students’ shopping for certification in tax-friendly states). For example, E&Y has created zero-interest loans to assist with the cash crunch caused by the income tax impact of education benefits on YMP students. Teaching vs. Research Operating a program of this nature creates a natural tension between the teaching and research missions of each university. Because of the importance to new faculty members of having blocks of time to do research, particularly in the summer, the YMP Program attempts to have greater participation by senior faculty members. In some cases at UVA, junior faculty members are allowed to ‘‘in-load’’ their YMP Program teaching in order to free-up one semester during the academic year for research. Since the program is offered in two sessions each summer, faculty members typically teach in only one-half of the summer, allowing a block of time for research and other academic pursuits. Student Stress The simultaneity of becoming an E&Y employee and a student in one of the universities creates added pressure for students. Obtaining an M.S. in Accounting is a condition of employment. Students who struggle academically may be dismissed from the university, which also triggers termination by E&Y. The linkage creates significant stress for the students and requires close monitoring of academic performance by program administrators. Changing Economic Conditions Varying economic conditions have presented a challenge to the program. At the beginning of the YMP Program, the economy was strong, the number of

104


accounting majors was down, and a common feeling was that something had to be done to recruit the best and brightest students to the accounting profession. Shortly after the program began, the economy soured, reducing opportunities for the undergraduates and lowering revenue growth for the professional services sector. Recruiters placed renewed emphasis on recruiting unique talent. A continuing challenge to a program so intimately tied to the profession is to adjust to the rapidly changing economic environment and to maintain relevance in a new accounting landscape that is not yet clearly visible. Continued Marketing To recruit topnotch students from across North America required a significant marketing effort. E&Y has invested sizable resources in marketing the YMP Program internally to their own recruiters and to making universities and faculty members aware of this educational opportunity. With about 800 participants currently either matriculating through the program or having graduated, contacts are now in place with first-hand knowledge to target universities and faculty members across North America. In this way, success breeds success, but it remains a significant challenge to keep the program visible enough to attract the type of talent necessary to accomplish the program’s goals. Distance Learning Given the short, 15-month duration of the YMP Program, the universities are not able to offer all the courses during the summer months. Each university delivers the courses, which are most easily taught via CDs and limited interactive sessions (Business Law and International Finance and Accounting) while the students are serving clients from offices throughout the country. Delivering the distance-learning courses provides challenges as a result of rapidly changing technology and software. The program has experienced three changes in the delivery technology in the first five years of the program. Adapting to technology changes, delivering courses during the pressurized accounting busy season, and structuring classes for delivery in the distance-learning format have been challenges for students and faculty members alike. Computer Needs In the design phase for the YMP Program, it was apparent that the students would need access to the E&Y computer network in order to receive and send electronic communications through the firm, to access knowledge


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databases, and to file time reports. The students also needed access to the E&Y network in the classroom. The solution was to wire the classrooms for direct access to E&Y. Day-to-day student computer problems continue to present challenges, but on-site E&Y technical personnel address these problems immediately during the summer months at each university. Since E&Y provides this assistance for all of its employees, there is no additional cost to UND or UVA.

SUMMARY AND CONCLUSIONS The multi-entity partnering arrangement described in this paper provides advantages for the academic institutions, the students, and the accounting profession. The YMP Program provides students with a quality educational opportunity by combining theory with practice through client-serving experience between academic summer sessions. Students also have the chance to enhance their careers and knowledge through accelerated networking possibilities. With an M.S. in Accountancy Degree and the potential for CPA certification, students acquire educational credentials that they can carry with them the rest of their lives. The academic institutions benefit from sharing each other’s experiences and maintain relevance, currency, and innovation by working closely with a professional services firm. And finally, E&Y is better able to attract and retain a diverse and talented workforce, many of whom might not otherwise enter the accounting profession. Sharing the details of this educational program along with information about the associated results and challenges should allow for better assessment of partnering as a means of reducing the gap between the profession and academia. Recent contract extensions for this partnership suggest that the benefits have exceeded the costs for each organization, even in very difficult economic conditions. At a time when the profession is undergoing unprecedented levels of change, an academic/business partnership is more important than ever for universities to maintain relevance.

ACKNOWLEDGMENTS We thank participating personnel at Ernst & Young for their support and feedback on this paper. We also thank two anonymous reviewers and especially Co-Editor Bill N. Schwartz for helpful comments on earlier versions of the manuscript.

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REFERENCES AAA Committee on the Future Structure, Content, and Scope of Accounting Education. (1986). Future accounting education: Preparing for the expanding profession. Issues in Accounting Education, 11(Spring), 168–195. AACSB. (2004). Eligibility procedures and standards for business accreditation. St. Louis, MO: The Association to Advance Collegiate Schools of Business International. AECC. (1989). Perspectives on education: Capabilities for success in the accounting profession. Sarasota, FL: American Accounting Association. AICPA. (1998). CPA vision project: Focus on the horizon. New York, NY: American Institute of Certified Public Accountants. Albrecht, W. S., & Sack, R. J. (2000). Accounting education: Charting a course through a perilous future. Sarasota, FL: American Accounting Association. Bruns, M.-J. (1999). How cooperative education can benefit your organization. Ohio CPA Journal, 58(Jan–Mar), 40–42. Carnevale, D. (2002). Colleges tailor online degrees for individual companies. Chronicle of Higher Education, 48(29), A36. Ferguson, C. B., Richardson, G. D., & Wines, G. (2000). Audit education and training: The effect of formal studies and work experience. Accounting Horizons, (June), 137–167. Franks, P. J. (1998). The world association for cooperative education: Filling a need for a strong global partnership. The Journal of Cooperative Education, 33(Winter), 68–72. Frecka, T. J., & Nichols, W. D. (2004). Characteristics of master’s in accountancy degree programs. Issues in Accounting Education, 19(May), 165–188. Gabbin, A. L. (2002). The crisis in accounting education. Journal of Accountancy, (April), 81– 86. IMA. (1994). What corporate America wants in entry-level accountants. Montvale, NJ: Institute of Management Accountants. IMA. (1996). The practice analysis of management accounting: Results of research. Montvale, NJ: Institute of Management Accountants. IMA. (1999). Counting more, counting less: Transformations in the management accounting profession. Montvale, NJ: Institute of Management Accountants. Jeffords, R., Scheidt, M., & Thibadoux, G. M. (2000). Securing the future. Journal of Accountancy, 189(February), 49–53. Mangan, K. (2001). Top business schools try collaboration over competition. Chronicle of Higher Education, 47(43), A23. Meister, J. (1998). Corporate universities. New York: McGraw Hill Companies Inc. Meyer, K. A. (2003). No significant difference is old news. Distance Education Report, 7(April), 2–6. Novin, A. M., & Meonske, N. (2001). Partnership between practitioners and accounting faculty: Opportunities and obstacles. The National Public Accountant, 46(April), 17–19. Olian, J. (2002). Management education at risk. Report of the Management Education Task Force to the AACSB International Board of Directors. St. Louis, MO: The Association to Advance Collegiate Schools of Business International. Phoenix, D. A. (2002). Education partnerships – the way of the future? Journal of Biological Education, (Summer), 108–109. PricewaterhouseCoopers. (2003). Educating for the public trust – The PricewaterhouseCoopers position on accounting education. New York, NY: PricewaterhouseCoopers LLP.


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Roach, T. D. (1999). Corporate relationships with business education programs. The 21st century: Meeting the challenges to business education. Reston, VA: National Business Education Association. Scott, P. A. (2003). Attributes of high-quality intensive courses. New Directions for Adult and Continuing Education, 2003(Spring), 29–38. Sovilla, S. (1998). Co-op’s odyssey. ASEE Prism, 8(January), 18–23. Wilson, G. P. (2003). President’s message. Accounting Education News, 31(Summer), 1–12.


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ESTIMATING THE RATINGS OF JOURNALS OMITTED IN PRIOR QUALITY RATINGS David F. Bean1 and Richard A. Bernardi ABSTRACT Many articles rate the journal publication quality of individuals, departments, PhD programs, and universities. A concern common to most recent surveys and studies of accounting journals is that only about one-third of the accounting journals in Cabell appear in the resultant journal quality ratings. We address this void by developing an objective model that generates a quality rating for journals that are not present in prior surveys. We examine nine articles that report journal quality ratings during the 30-year period between 1974 and 2003 and represent the perceptions of 3,228 colleagues concerning the quality of accounting journals. Our parsimonious model proposes that a journal’s quality rating is a function of the age, acceptance rate, and classification of the journal as academic or professional. The model is particularly useful in approximating the quality of journal publications for accounting faculty seeking tenure/promotion and/ or for institutions working toward The Association to Advance Collegiate Schools of Business (AACSB) accreditation.


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DAVID F. BEAN AND RICHARD A. BERNARDI

Many accounting programs use journal quality ratings to rank PhD programs by their graduates’ publication rates (Hasselback & Reinstein, 1995, pp. 76–77; Jacobs, Hartgraves, & Beard, 1986, p. 179) and to rate faculty by their PhD graduation year (Hasselback, Reinstein, & Schwan, 2003, pp. 102–104; Campbell & Morgan, 1987, p. 41). However, a review of these ratings reveals that only about one-third of the accounting journals in Cabell (2004) appear in the findings of the prior studies examining quality ratings of accounting journals. The presence of such a large gap is disconcerting. High-quality specialized journals may be underrepresented in prior surveys and these surveys may not address the information needs of many accounting programs, non-PhD granting programs in particular. Journal quality ratings are part of formal assessments in academia, and the omission of a major portion of the academic community and their publication outlets should be a cause for serious concern. Many accounting faculty members may not be familiar with newer and specialty journals irrespective of their inherent quality, which may result in their omission from quality ratings (Morris, Cudd, & Crain, 1990, p. 48; Schwartz, 1984, p. 98). For example, Advances in Accounting Behavioral Research, which we use as an example in this paper has been published since 1998 and does not appear in prior journal ratings. Journals can and do experience status change over time as they build their reputations (Hall & Ross, 1991, p. 180); consequently, colleagues whose research focus is in non-traditional specialty areas may not receive timely recognition for their efforts. Our objective is to provide a credible and parsimonious model that is useful for rating accounting journals that do not appear in recent surveys on journal quality. Given the time constraints and other burdens that colleagues and administrators experience, the variables in the model must be readily available and require a minimum of effort to obtain them. We examine nine articles that rate journal quality published between 1974 and 2003. Our analyses exclude journal quality ratings that are not from survey data.

USES OF PUBLICATIONS IN ACADEMIA Teaching and Research Institutions expect faculty to be active and effective researchers and teachers. In general, faculty members are increasing their research and publications (Trieschmann, Dennes, Northcraft, & Niemi, 2000, p. 1132; Dey,

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Estimating Journal Ratings

Milem, & Berger, 1997, p. 316). Institutional isomorphism appears to be occurring in higher education where there is an increasing allocation of time and effort to a research agenda (Milem, Berger, & Dey, 2000, p. 474). A reasonable inference is that the shift is, in at least some part, due to increasing emphasis and valuation being placed on research. Dey et al. (1997, p. 316) find that publication productivity is increasing for all institutions of higher education. In accounting, career advancement is more closely related to research activity than teaching ability and service (Lee, 1995, p. 252; Cargile & Bublitz, 1986, p. 175). A natural consequence of valuing research is the necessity of rendering a quality assessment on the research itself.

Mission and Objectives Although many studies examine the perception of journal quality, the increasing number and variety of journals and the meaning that different institutions attach to these publications are problems that are not easily resolvable (Milne & Vent, 1988, p. 139). We are unaware of any universally agreed upon method of determining a quality rating for accounting journals. To a large extent, institutions have different missions and have expectations that their faculty will publish in journals that are appropriate to these missions (Jolly, Schroeder, & Spear, 1995, p. 54). Most colleges and universities publish and publicize formal mission statements that enable them to distinguish themselves from their peers and appeal to niche markets. The variety of research/publications in the accounting literature reflects the diversity in institutional missions (Schroeder, Payne, & Harris, 1988, p. 2; Schwartz, 1984, p. 108; Windal, 1981, p. 657). The overly general dichotomy of research and teaching institutions appears to be ill suited to the pace and reality of changes occurring in higher education. Faculty at large state institutions tend to publish across all groups of journals (Bublitz & Kee, 1984, p. 57). Many faculty members at non-doctoral granting institutions may self-select an environment with lower publishing expectations (Campbell & Morgan, 1987, p. 40). For example, faculty teaching undergraduates may publish fewer articles and publish them in non-academic journals and/or in journals with lower quality ratings due to constraints in their working/teaching environment (Andrews & McKenzie, 1978, p. 138). An institution’s mission confers acceptance of a particular research/ publishing agenda (Schroeder et al., 1988, p. 2). Hasselback, Reinstein, and

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Schwan (2000, p. 83) note that in an environment where research demands are increasing and the number of specialized journals continue to grow, there is a need for better benchmarks of research. The AACSB (2004, p. 24) accreditation guidelines indicate that: Faculty contributions in the aggregate are expected to reflect the school’s mission. For example, faculty members at schools that award doctoral degrees should produce discipline-based scholarship; faculty members at schools with a primary mission focus on teaching should impact learning and pedagogical research by creating instructional research and instructional materials; faculty at schools with a mission focus on application should make contributions to practice by producing materials suitable for practitioners.

Institutions use research/publication activity as an index of their overall reputation and as a strategy to strengthen their stature (Hasselback & Reinstein, 1995, pp. 62–63). Thus, there is an inherent need to develop and maintain the notion that there is a hierarchy of journals in accounting. To the extent that an ‘‘upper tier’’ grouping of highly rated journals exists, either in fact or in perception, it is indeterminate whether any institutional dominance in such journals is due to a ‘‘club’’ mentality, qualitative aspects of submissions, resources available, level of interest, etc. In general, accounting authors serve a diverse audience, and it is difficult to reflect this diversity in a necessarily restrictive survey of journal quality ratings (Windal, 1981, p. 657).

Promotion Accounting faculty members believe that research and resultant publications are necessary for promotion regardless of the nature of the institution (Campbell, Gaertner, & Vecchio, 1983, p. 86). The specificity of this criterion varies both on an institutional and mission basis among and between institutions of higher education. Surveys that rate journal quality as well as informal institutional assessments, suffer from an inherent bias of respondents toward different journals (Todorov & Glanzel, 1988, p. 54). Several studies report that elite accounting programs dominate the editorial boards of some journals (Lee, 1999, p. 248, 1997, p. 11; Panozzo, 1997, p. 475). Some resulting consequences of this inbreeding may be a strong resistance to new paradigms, new methodologies, and new research areas. Publication requirements for promotion also vary among and between institutions: quantity of publications, a percentage distribution among types of research, a distribution with quality criteria, etc. The introduction of journal quality as an assessment variable is problematic for many institutions as

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journal quality ratings may be unavailable for some or all of their faculty’s journal publications. These issues are particularly troublesome for institutions having and/or seeking AACSB accreditation due to the emphases on ‘‘continuous improvement’’.

Necessity of an Objective Model Rating Journal Quality Many institutions need to assess the quality ratings of journals for purposes of promotion, tenure and compensation as well as for documenting the stature of the program. The use of an institution’s faculty to generate journal quality ratings is fraught with bias. Surveys that rate journal quality are superior; however, survey respondents also reflect their personal prejudices and self-interest. Additionally, surveys contain dating issues that arise from an infrequency of administration and publication. For instance, up until Ballas and Theoharakis (2003), the most recent survey rating the quality of accounting journals was Jolly et al. (1995), whose rankings do not include many newer accounting journals. A need for a credible model that assesses the quality rating of a journal obviously exists. Ideally, the model should be objective, parsimonious, and require a minimum expenditure of resources. The hypothesis section that follows discusses the variables that we believe satisfy the preceding criteria. We then test these variables against the existing surveys of journal quality ratings that appear in the accounting literature.

RESEARCH HYPOTHESES ON JOURNAL QUALITY Overview We intended our research to develop a parsimonious model for approximating journal ratings that is useful to colleagues and/or administrators. An inherent assumption in the creation of the model is that resources available for quality assessment are scarce. For instance, some editors only send out articles after they have read them – passed their initial scrutiny. We were not able to determine whether or not these editor-review rejections are counted in the journal’s acceptance rate. Thus, any variable within the model must be readily available/accessible with minimal effort. Our research hypotheses examine the effect of journal age, acceptance rate, and classification as either professional or academic on the quality ratings of

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accounting journals. We believe that these three variables are easily accessible to all parties. Acceptance rates and professional/academic status are available in Cabell’s. While a journal’s age is not available in Cabell’s, it is available from the journal’s website. Given the research activity on the notion that there is some ‘‘hierarchical’’ rating of journals, either explicitly stated or implied, a necessary and intended consequence is that there is a grouping of journals that accounting faculty view as ‘‘prestigious.’’ Some programs maintain formal lists that place journals in quality tiers (Van Fleet, McWilliams, & Siegel, 2000, p. 847). Anecdotal evidence (e.g., casual conversations at academic conferences) confirms that the prestige/rating of accounting journals continues to play an important role in evaluating faculty publications and faculty prestige at many institutions (Hall & Ross, 1991, p. 161). Faculty publications are a byproduct of scholarly activity and the quantity and/or quality of an institution’s faculty’s journal publications, whether intended or not, signal the quality of an institution to some stakeholders (Jacobs et al., 1986, p. 179).

Journal Age The number of journals appearing in the rating of journal prestige has grown considerably over time; there continues to be an increasing specialization among accounting academics, and correspondingly of journals. For example, while Benjamin and Brenner (1974, p. 362) rated 24 journals, Jolly et al. (1995, p. 50) rated 59 journals, and the most recent issue of Cabell’s (2004, pp. i–iv) lists over 150 publishing opportunities. The recent explosion of specialty journals (Fogarty & Ravenscroft, 2000, p. 410) creates difficulties in assigning quality ratings as many specialty journals have little familiarity beyond those individuals and groups having an interest in the area (Howard & Nikolai, 1983, p. 770; Schroeder et al., 1988, p. 12; Brown & Huefner, 1994, p. 224). Consequently, the number one journal in a particular area of specialization could rank toward the bottom of journal quality ratings or not appear on the list due to a lack of interest and/or familiarity by those assigning the rating. During the late 1980s and early 1990s, there was a dramatic increase in the number of specialized accounting journals (Schwartz, 1984, p. 107). Onethird of the 40 journals rated by Hasselback and Reinstein (1995) have initial publication dates subsequent to 1985. The higher the number of journals, the less likely there is familiarity with and the more difficult it

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becomes to assess the quality of individual journals (Brown & Huefner, 1994, p. 224) – especially newer journals. Consequently, our first research hypothesis is (all hypotheses are stated in their alternate form): H1. Quality ratings of journals will be positively associated with a journal’s age. Journal Acceptance Rates Acceptance rates, which are self-reported, vary among journals and may be a factor in assessing journal prestige (Windal, 1981, p. 657). Hall and Ross (1991, p. 168) note that: ‘‘In general, journals classified as academic were more likely to have a blind review process, longer articles, a lower acceptance rate, an academic sponsor, a submission fee, lower publication frequency, and theoretical or empirical content.’’ Windal (1981, p. 657) indicates that: ‘‘those [journals] with lower acceptance rates should receive a higher weight in any evaluation of publication effort’’, which leads to our second research hypothesis: H2. Quality ratings of journals will be inversely associated with a journal’s acceptance rate. Professional versus Academic Journals Publications in what survey ratings indicate may be lower quality journals do not necessarily indicate lower quality; it may be a consequence of bias against certain topics and/or methodologies (Hall &Ross, 1991, p. 174). At doctoralgranting institutions, faculty may attribute more prestige to theoretical–empirical journals than faculty at masters- and- bachelor-granting institutions (Howard & Nikolai, 1983, p. 771). Furthermore, evidence suggests that faculty who publish in ‘‘top tier accounting journals’’ appear to be negatively biased in their assessments of the merits of other journals (Morris et al., 1990, p. 54). Milne and Vent (1988, p. 97) note in their study of publications in the 1981–1984 time period that faculty promoted at institutions not accredited by the AACSB primarily published in non-academic journals. In general, professional journals are more likely to have shorter articles, be sponsored by a professional organization, and have a higher publication frequency (Hall & Ross, 1991, p. 168). Consequently, our final research hypothesis is: H3. Quality ratings will be lower for journals classified as professional journals.

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RESEARCH DESIGN The data in Table 1 show the demographic characteristics of each of the nine studies occurring in the period 1974 to 2003. These studies represent the opinions of 3,228 accounting faculty (i.e., the sum of the samples in Table 1) from a variety of institutions located in the United States and Canada. One of our concerns with Hasselback and Reinstein (1995, p. 71) and Hasselback et al.’s (2003, p. 100, 2000, p. 84) studies is that, while they take the ratings for the majority of their list from other studies, they estimate the ratings of other journals. For instance, six of the journals on the Hasselback and Reinstein (1995, p. 71) list do not appear on the journal quality ratings of either Hull and Wright (1990, pp. 88–89) or Jolly et al. (1995, pp. 53–54). Hasselback and Reinstein estimate the quality ratings for these six journals using a clustering procedure and by comparing the ‘‘acceptance rates and the qualities of [these] accounting journals’’ appearing in other sources. Consequently, these studies do not appear in our analysis. Our research examines three independent variables: (1) journal age (AGE), (2) the journal’s acceptance rate (ACCEPT), and (3) whether the journal is a professional or academic journal (PROF/ACAD). Our AGE variable comes from the Internet, where the date of the journal’s first volume appears. In our model, we examine each of the nine accounting surveys that rate journal quality. We subtract the year of the first volume from the study’s publication year to provide a relative age for the journal at that point of time. Table 1.

Research Providing Journal Ratings.

Authors

Ns

Nj

Characteristics of Sample

Ballas and Theoharakis (2003) Jolly et al. (1995) Brown and Huefner (1994)

794 389 181

58 59 44

Smith (1994)

176

93

Hall and Ross (1991) Hull and Wright (1990) Schroeder et al. (1988) Howard and Nikolai (1983) Benjamin and Brenner (1974)

408 278 549 311 142

60 79 80 46 24

92.4% PhD at AACSB schools Faculty & chairs at AACSB schools Full & associate professors from BusinessWeek’s 40 Best MBA Programs Faculty & chairs in the Accounting Faculty Directory AACSB terminally qualified faculty US faculty with earned PhD or LLM All professors at AACSB schools US faculty with earned PhDs Faculty & chairs at AACSB schools

Note: N s ; the number of subjects; N j ; the number of journals.

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The journal’s acceptance rate, which is self-reported data from the editor of each journal, comes from one of ten editions of Cabell’s (1978, 1981, 1985, 1988, 1990, 1999, 1994a, b, 2000) Directory of Publishing Opportunities (between 1978 and 2004) (hereafter referred to as Cabell’s). One of the challenges in this study is that Cabell’s uses a range for acceptance rates; consequently, our ACCEPT variable is the mid-point value of Cabell’s range for a journal’s acceptance rate. In the authors’ opinion, Cabell’s provides what we believe to be a fair and reasonable measure for a journal’s acceptance rate. More importantly, Cabell’s is widely available, user friendly, and quickly accessible to decision-makers in academia. Many journals do not explicitly disclose their exact acceptance rates, and some journals screen submissions and reject manuscripts without sending them out for review; editors may or may not use these early rejections in the computation of acceptance rates. If a survey article rating journals occurs between editions of Cabell’s, we use a timeweighted average of the mid values for the ACCEPT variable. For example, the Hall and Ross (1991) study appears between the 1990 and 1994 editions of Cabell’s; consequently, the journal’s 1991 acceptance rate is three-fourths (one-fourth) of their 1990 (1994) acceptance rate. A journal’s status as professional or academic (PROF/ACAD) comes from the audience appearing in Cabell’s description or by their classification in either Hasselback et al. (2003, p. 101) or Milne and Vent (1988, p. 96). In our analysis, professional (academic) journals appear as one (zero). The dependent variable in our research is the overall journal ratings appearing in the studies in Table 2. While some of these studies use a Likert scale for rating journal quality, others use a more sophisticated method (i.e., a magnitude-estimation scale in Howard and Nikolai (1983, p. 765)). In a magnitude-estimation scale, participants indicate the relative value of a journal based on an anchor journal (e.g., the Journal of Accountancy in Howard and Nikolai’s study). These authors believe that using the magnitude-estimation procedure allows ‘‘the use of more rigorous statistical procedures in any subsequent analysis.’’

ANALYSIS Our first task is an adjustment of the Brown and Huefner (1994, pp. 236–237), Schroeder et al. (1988, p. 7), and Benjamin and Brenner (1974, p. 362) studies so that the higher scores reflect higher journal ratings. For example, The Accounting Review has a rating of 1.07 in Brown and Huefner (1994, p. 236). Our transformed score is 2.87 ([4 1.07]/1.02). For the purpose of this

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Table 2.

Transpositions of Scales Used in Prior Research.

Authors (Year) Ballas and Theoharakis (2003) Jolly et al. (1995) Brown and Huefner (1994) Smith (1994) Hall and Ross (1991) Hull and Wright (1990) Schroeder et al. (1988) Howard and Nikolai (1983) Benjamin and Brenner (1974)

Study’s Scale

Scale Transposition

Ranked 1–40 Relative: TAR 4-point Likert 9-point Likert Relative: JOA/TAR Relative: JOA 4-point Likert Relative to JOA 5-point Likert

T score ¼ Index5 /4.10 T score ¼ Rating=0:68 T score ¼ ½4 Rating=1:02 T score ¼ Rating=5:00 T score ¼ Rating=100 T score ¼ Rating=100 T score ¼ ½4 Rating=2:17 No transformation required T score ¼ ½4 average=1:97

Note: T score ; the transformed score; JOA, the Journal of Accountancy; TAR, The Accounting Review; ARP, the journals Average Rank Position (Ballas & Theoharakis, 2003).

research, we adjust the rating of the journals in each study so that the Journal of Accountancy has a score of 1.00. The process establishes a similar orientation for analyses purposes and also allows us to longitudinally compare the coefficients of our three variables. The data in Table 2 show the transformations that are necessary to adjust the journal ratings. Our research hypotheses examine the affect of journal age, acceptance rate, and classification as either professional or academic on journal quality ratings in prior studies. The models in Table 3 are the output of nine separate regressions (i.e., one for each study). The data in Table 3 demonstrate the relative consistency of the nine models over the 30-year period in our study. Not all publications in each article (Table 1) appear in the modeling process. Proceedings are not present because they do not appear in Cabell’s. Additionally, several journals do not appear in Cabell’s and are not present in the final samples. For example, while Schroeder et al. (1988, p. 6) (Hull & Wright, 1990, p. 78) list 80 (79) publications in their ratings (Table 1), Cabell’s provides acceptance data on only 39 (42) of Schroeder et al.’s (Hull & Wright’s) publications (Table 3). We use the model for all nine studies in Table 3. The model is significant for all studies and explains between 22.7% (Schroeder et al., 1988) and 46.5% of the variation (Howard & Nikolai, 1983) in journal ratings. For six of the studies, the age of the journal is significant (H1); in fact, ratings increase by 0.01 for each year of journal publication. The journal’s acceptance rate is also significant in four of the studies (H2). Finally, all nine models show that ratings reflect a reduction of approximately 0.40 of a point if the journal is professional rather than academic (H3).

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Table 3.

Regression Model for Journal Rating in Nine Studies.

Study

Intercept

Ballas and Theoharakis (2003)

1.21 0.0001 1.10 0.0001 1.27 0.0001 1.18 0.0001 0.87 0.0001 1.22 0.0001 1.04 0.0001 0.92 0.0001 1.04 0.0001

Jolly et al. (1995) Brown and Huefner (1994) Smith (1994) Hall and Ross (1991) Hull and Wright (1990) Schroeder et al. (1988) Howard and Nikolai (1983) Benjamin and Brenner (1974)

Prof/Acad 0.42 0.0921 0.27 0.0001 0.88 0.0009 0.20 0.0001 0.30 0.0002 0.50 0.0002 0.13 0.0302 0.43 0.0002 0.34 0.0095

Age 0.01 0.0201 0.00 0.0175 0.01 0.0178 0.00 0.9681 0.01 0.0033 0.01 0.0212 0.00 0.7361 0.01 0.0060 0.01 0.3535

Accept 0.02 0.0017 0.00 0.0671 0.01 0.2473 0.01 0.0849 0.00 0.1312 0.00 0.4504 0.01 0.0462 0.00 0.8371 0.01 0.3395

AdjR2 0.313 (40) 0.416 (54) 0.296 (42) 0.463 (45) 0.302 (68) 0.352 (42) 0.227 (40) 0.465 (31) 0.401 (18)

Note: X.XX, variable’s coefficient; X.XXXX, variable’s significance; (XX), number of journals in the model. Shaded areas not significant.

In earlier model versions, we considered the percentage of invited articles and the number of issues each year for the journal. While we expected a demand effect for the number of issues and an adjustment for the percentage of invited articles, these variables are not significant in any of the nine models and do not appear in our final model. Finally, tests for multicollinearity reveal no problems. While we provide a separate model for each of the nine prior studies on journal ratings, we suggest using the model developed from the most recent data for the purpose of predicting the ratings of journals not in Ballas and Theoharakis (2003, pp. 630–632). We provide the other eight models as supporting evidence of our findings and to set our model into the context of prior research in this area. Our model intentionally relies on objective measures that are readily available to decision makers.

Testing Our Model We test our model comparing the rankings of 10 journals that Jolly et al. (1995, pp. 53–54) did not rank to these journals’ rankings in Ballas and

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Theoharakis (2003, pp. 630–632). These journals include: Accounting and Finance, Accounting Education: An International Journal, Advances in Accounting Information Systems, Advances in Management Accounting, the British Accounting Review, the European Accounting Review, the Journal of Cost Management, the Journal of International Accounting, Auditing and Tax, Management Accounting Research, and the Review of Accounting Studies. Table 4 provides the rankings and ratings for the accounting journals on Jolly et al. list. Table 4 also indicates our predictions for the rating for the 10 journals Jolly et al. do not list (i.e., the highlighted data) using the model from Jolly et al. (Table 3). We list the ratings and rankings from Ballas and Theoharakis. The data in Table 4 indicate several large differences between the earlier rankings by Jolly et al. and the most recent rankings by Ballas and Theoharakis. For instance, there are large differences between the rankings of the journals included in both studies: the Journal of Corporate Taxation (a minimum of 18 places lower), Research on Accounting Regulation (a minimum of 10 places lower), and Accounting Horizons (nine places higher). Similarly, there are large differences for the journals whose rank we predict and their rank in Ballas and Theoharakis: Accounting and Finance (18 places lower), Journal of International Accounting, Auditing and Tax (17 places lower), and the Journal of Cost Management (14 places higher). For the journals Jolly et al. list but Ballas and Theoharakis (2003) do not list, we use a rank of 41 (i.e., one ranking higher than the last journal Ballas and Theoharakis list) to compute the absolute difference. One must keep in mind that there is an eight-year difference between the Jolly et al. and Ballas and Theoharakis ratings. Another consideration is the difference in the range of ratings between the upper 20 journals and the lower 20 journals in any of the recent journal rankings. Using Jolly et al.’s ratings, there is a 0.58 (1.64 – 1.06) point spread between the Journal of Accounting Research (1) and Issues in Accounting Education (19). For the lower 20 journals, there is only a 0.16 (1.05 – 0.89) point spread (i.e., approximately one-fourth the size for the top 20 journals) between the National Tax Journal (21) and the Accounting Educators’ Journal (40). Additionally, the positioning of lower 20 journals appears to be more fragile than those in the top 20 positions. While all of the top 20 journals on Jolly et al.’s list are on Ballas and Theoharakis’s list, seven of the bottom 20 journals (e.g., 35%) from Jolly et al. do not appear in Ballas and Theoharakis. While one can categorize journals into various groupings by thirds, quarters, etc., the preceding discussion presents a cautionary note. Although

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Table 4. Comparison of Rankings Using a Model From Jolly et al. (1995) to Predict Rankings in Ballas and Theoharakis (2003). JSS (1995) Rank

Rate

Accounting Journals Ranked by Jolly et al. (1995)

B&T (2003) Rank

Rate

23 24 25 26 27 28 30 31 32 34 33 35 36 37

1.64 1.51 1.48 1.30 1.21 1.19 1.18 1.18 1.18 1.17 1.14 1.14 1.14 1.10 1.10 1.10 1.10 1.09 1.08 1.06 1.06 1.05 1.05 1.04 1.04 1.04 1.04 1.03 1.01 1.01 1.00 1.00 0.99 0.96 0.95 0.94 0.92 0.92 0.91 0.90 0.89

2 3 1 5 4 9 8 7 10 31 22 13 27 6 11 25 12 17 28 15 14 21 36 38 35 39 30 NR 18 26 16 24 19 29 NR 23 NR 33 NR 40 NR

2.22 1.93 2.31 1.75 1.84 1.26 1.38 1.51 1.24 0.64 0.85 1.10 0.69 1.60 1.18 0.72 1.12 0.95 0.67 1.03 1.09 0.86 0.52 0.51 0.54 0.49 0.65 NR 0.90 0.71 1.00 0.74 0.90 0.65 NR 0.74 NR 0.57 NR 0.48 NR

38 39

0.88 0.87

Journal of Accounting Research Journal of Accounting and Economics The Accounting Review Accounting Organizations and Society Contemporary Accounting Research Journal of the American Taxation Assoc Journal of Accounting, Auditing & Finance Auditing: A Journal of Practice & Theory Journal of Accounting and Public Policy Accounting and Finance Journal of Business Finance and Accounting Journal of Management Accounting Research British Accounting Review Accounting Horizons Behavioral Research in Accounting Journal of Taxation Review of Accounting Studies Journal of Accounting Literature European Accounting Review Abacus Issues in Accounting Education National Tax Journal Accounting Education: An Int. Journal Advances in Accounting Inform Systems Advances in Management Accounting Journal of Int. Accounting, Auditing and Tax Management Accounting Research Journal of Corporate Taxation Accounting and Business Research Accounting, Auditing and Accountability Journal of Accountancy Journal of Accounting Education Advances in Accounting Int. Journal of Accounting Ed. and Research Research on Accounting Regulation Critical Perspectives on Accounting Advances in International Accounting Advances in Taxation Management Accounting Tax Advisor Research in Governmental and NFP Accounting Accounting Historians Journal Advances in Public Interest Accounting

32 NR

0.61 NR

1 2 3 4 6 7 8 8 11 13 13 15 15 15 18 19 19 21

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Table 4. (Continued ) JSS (1995) Rank

40 41 42 43 44 45 46 47 48

Rate

0.87 0.87 0.84 0.83 0.83 0.82 0.81 0.81 0.79 0.79

Accounting Journals Ranked by Jolly et al. (1995) Accounting Educators’ Journal Internal Auditor Government Accountants Journal Journal of Cost Analysis The CPA Journal EDP Auditor Taxation for Accountants Taxes – The National Tax Magazine Accountancy Journal of Cost Management

B&T (2003) Rank

Rate

37 NR NR NR NR NR NR NR NR 34

0.51 NR NR NR NR NR NR NR NR 0.55

Note: Highlighted Rate – the projected rating from the model derived from Jolly et al. (1995). Highlighted Rate – the journals Jolly et al. did not list, which Ballas and Theoharakis include in their ratings. B&T Rate – the ratings for Ballas and Theoharakis using the transposition formula in Table 2. NR – not rated/ranked by Ballas and Theoharakis.

a journal may appear in a particular grouping, the difference in assigned quality rating between that journal and either the top or bottom journal in that grouping may not be significant. For instance, the four journals whose rating (rank) we predicted at 1.04 (22) using the model from Jolly et al.’s data rank between 30 (Management Accounting Research) and 39 (Journal of International Accounting, Auditing and Tax) in Ballas and Theoharakis. A similar example from Jolly et al. is the 0.06 (0.95 – 0.89) point difference between the 31st journal (Research on Accounting Regulation) and the 40th journal (Accounting Educators’ Journal). Given the eight-year difference between the studies, the change in rankings for journals listed in both studies and the smaller range of rating points in the lower 20 journals’ ratings, we believe our model for journal rating has validity.

DISCUSSION Some might criticize this research as becoming dated with the publication of a new study using actual survey data. This criticism has some merit; however, as time passes and more journals appear, the most recent survey becomes outdated. The model provides a continuing methodology that can estimate the journal quality rating for any journal appearing in Cabell’s at any time. More importantly, because our model uses only objective


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measures, the resultant journal quality ratings are not subject to the prejudices/bias of individuals and/or groups. If one examines the three studies that occur in 1994 and 1995, the most striking point is that all three produce similar models after the data are standardized to the Journal of Accountancy rating of 1.00. This is especially relevant because the samples come from a variety of sources: faculty and department chairs of AACSB accredited schools (Jolly et al., 1995, p. 51), full and associate professors from Business Week’s 40 Best MBA Programs (Brown & Huefner, 1994, p. 227), and a random sample of faculty and department chairs from the Accounting Faculty Directory (Smith, 1994, p. 4). One of the goals of this research is to develop a model that is useful and credible for rating the quality of journals that do not appear in prior surveys. Our analysis indicates that the model (Formula 1) generated from Ballas and Theoharakis (2003) data provides a starting point in this process. Quality rating ¼ 1:207 þ 0:010 AGE 0:024 ACCEPT 0:417 PROF=ACAD

ð1Þ

While many academics may believe that lower acceptance rates associate with higher quality ratings (Windal, 1981, p. 657), the data in our research (Table 3) suggest that this attitude represents a relatively recent phenomenon. Acceptance rates are significant in three of the four most recent studies; additionally, the order of magnitude of the coefficients of all three independent variables remains fairly constant during the entire 30-year period under review. Our interpretation of changes in significance levels of the independent variables over time is that quality assessments are becoming more sophisticated. The models for the earlier studies begin to include the journal’s age as the rating schemes became more sophisticated. Finally, in the latest models, journal acceptance rates began to impact the rating hierarchy. The movement from one- to three- factor models suggests that a maturing process is occurring over the 30 years of journal ratings that we examine. Hasselback et al.’s (2003, pp. 108–115) study names the 10 most prolific authors in each PhD year group. In nearly all year groups in which authors have had their PhDs for at least 10 years, being named as one of the top-10 prolific authors is also a strong indication that these individuals are also in the top-10 percent of the 5,721 assistant, associate, and full professors teaching accounting at US institutions. One of the potential uses of Hasselback et al.’s research naming the top-10 prolific authors is for faculty

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promotions. We concur with the statement of Hasselback et al. (2000, p. 88): ‘‘We believe it is much easier for a decision-maker to ‘count’ articles published in certain journals than to make quality adjustments for each article written.’’ One of the major benefits of our model is that the necessary variables are readily available, accessible, and it is easy to use. The model can establish and/or accumulate quality points for the purposes of promotion, evaluation, etc. A dean and/or chair may establish a point system for various components of faculty evaluations. As an example, a dictum for meeting the publishing criteria for tenure may require accumulating a minimum total of ‘‘X’’ journal quality rating points, with the rating points being computed from the model in this study. Using the Ballas and Theoharakis (2003) study the computation of journal quality rating points is as follows (Table 5) for a theoretical case: Similar quality point rating targets can be set for promotion, ongoing evaluation, etc. Some administrators may choose to expand the model to refocus research publication efforts toward specific areas in their mission statement and/or objectives by awarding additional rating quality bonus points for publications in these areas. Limitations of the study include the geographic aspect as the results are for North America surveys only and may not be generalizable to other locations. Editors self-reported their acceptance rates to Cabell and may or may not be accurate. The model is intentionally parsimonious and includes

Table 5.

Possible Publication Evaluation Sheet.

Journal

The Accounting Review The Journal of Accountancy Advances in Accounting Behavioral Research Issues in Accounting Education Total Journal Quality Rating Points

Quality Rating

Number of Articles

Total Score

2.31 1.00 0.68

1 2 2

2.31 2.00 1.36

1.09

3

3.27 8.94

Note: The quality ratings for Accounting Review, Journal of Accountancy, and Issues in Accounting Education use our transposition formula from Table 2 for Ballas and Theoharakis (2003). The quality rating for Advances in Accounting Behavioral Research is from our model Ballas and Theoharakis (2003) shown in formula 1. These ratings/scores are not adjusted for coauthored articles.

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variables that require minimal resources to obtain. Additional and more costly variables may result in a superior model.

NOTES 1. The lead and second authors collaborate on many research projects and alternate lead author responsibilities. Both authors contribute equally to all of their joint works.

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Campbell, D. R., Gaertner, J., & Vecchio, R. P. (1983). Perceptions of promotion and tenure criteria: A survey of accounting educators. Journal of Accounting Education, 1(1), 83–92. Campbell, D. R., & Morgan, R. G. (1987). Publication activity of promoted accounting faculty. Issues in Accounting Education, (Fall), 28–43. Cargile, B. R., & Bublitz, B. (1986). Factors contributing to published research by accounting faculties. The Accounting Review, 61(1), 158–178. Dey, E. L., Milem, J. F., & Berger, J. B. (1997). Changing patterns of publication productivity: Accumulative advantage or institutional isomorphism. Sociology of Education, 70(4), 308–323. Fogarty, T., & Ravenscroft, S. (2000). Making accounting knowledge: Peering at power. Critical Perspectives on Accounting, 11, 409–431. Hall, T. W., & Ross, W. R. (1991). Contextual effects in measuring accounting faculty perceptions of accounting journals: An empirical test and updated journal rankings. In: B. N. Schwartz (Ed.), Advances in accounting (Vol. 9, pp. 161–186). Greenwich, CT: JAI Press. Hasselback, J. R., & Reinstein, A. (1995). Assessing accounting doctoral programs by their graduates’ research productivity. In: B. N. Schwartz (Ed.), Advances in accounting (Vol. 13, pp. 61–86). Greenwich, CT: JAI Press. Hasselback, J. R., Reinstein, A., & Schwan, E. S. (2000). Benchmarks for evaluating the research productivity of accounting faculty. Journal of Accounting Education, 18, 79–97. Hasselback, J. R., Reinstein, A., & Schwan, E. S. (2003). Prolific authors of accounting literature. In: P. M. J. Reckers (Ed.), Advances in accounting (Vol. 20, pp. 95–125). Amsterdam, Netherlands: Elsevier. Howard, T. P., & Nikolai, L. A. (1983). Attitude measurement and perceptions of accounting faculty publication outlets. The Accounting Review, 58(4), 765–776. Hull, R. P., & Wright, G. B. (1990). Faculty perceptions of journal quality: An update. Accounting Horizons, 4(1), 77–89. Jacobs, F. A., Hartgraves, A. L., & Beard, L. H. (1986). Publication productivity of doctoral alumni: A time-adjusted model. The Accounting Review, 61(1), 179–187. Jolly, S. A., Schroeder, R. G., & Spear, R. K. (1995). An empirical investigation of the relationship between journal quality ratings and promotion and tenure decisions. The Accounting Educators’ Journal, 7(2), 47–68. Lee, T. (1995). Shaping the U.S. academic accounting research profession: The American Accounting Association and the social construction of a professional elite. Critical Perspectives on Accounting, 6, 241–261. T. Lee (Ed.). (1997). The editorial gatekeepers of the accounting academy. Accounting, Auditing and Accountability Journal, 10(1), 11–30. Lee, T. (1999). Anatomy of professional elite: The executive committee of the American Accounting Association 1916–1996. Critical Perspectives on Accounting, 10, 247–264. Milem, J. F., Berger, J. B., & Dey, E. L. (2000). Faculty time allocation: A study of change over twenty years. Journal of Higher Education, 71(4), 454–475. Milne, R. A., & Vent, G. A. (1988). A quartile analysis of the five-year publication productivity of promoted accounting faculty. The Accounting Educators’ Journal, 2(1), 137–156. Morris, J. L., Cudd, R. M., & Crain, J. L. (1990). The potential bias in accounting journal ratings: Evidence concerning journal-specific bias. The Accounting Educators’ Journal, 3(1), 46–55.


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Panozzo, F. (1997). The making of the good academic accountant. Accounting, Organizations and Society, 22(5), 447–480. Schroeder, R. G., Payne, D. D., & Harris, D. G. (1988). Perceptions of accounting publications outlets: A further analysis. The Accounting Educators’ Journal, (Fall), 1–17. Schwartz, B. N. (1984). An investigation of publications in accounting journals 1970–1982. Journal of Accounting Education, 2(2), 97–110. Smith, L. M. (1994). Relative contribution of professional to the field of accounting. The Accounting Educators’ Journal, (Spring), 1–31. Todorov, R., & Glanzel, W. (1988). Journal citation measures: A concise review. Journal of Information Science, 14(1), 47–56. Trieschmann, J. S., Dennes, A. R., Northcraft, G. B., & Niemi, A. W., Jr. (2000). Serving multiple constituencies in business schools: M.B.A. program versus research performance. Academy of Management Journal, 43(6), 1130–1141. Van Fleet, D. D., McWilliams, A., & Siegel, D. S. (2000). A theoretical and empirical analysis of journal rankings: The case of formal lists. Journal of Management, 26(5), 839–861. Windal, F. W. (1981). Publishing for a varied public: An empirical study. The Accounting Review, 56(3), 653–658.


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AN APPROACH TO TEACHING ETHICAL DECISION-MAKING IN ACCOUNTING: ANALYZING THE MORAL ISSUE Deborah Leitsch and Pete Simmons ABSTRACT Ethics is a common objective of accounting courses. Instructors frequently teach ethics through lecture and case studies. Studying moral issues in accounting typically focuses on identifying the affected stakeholders and professional code violations. While studying professional codes of conduct is important in accounting education, most ethics instructional approaches fail to consider the characteristics of moral issues and their influences on moral decision-making. Therefore, the purpose of this paper is to introduce a different approach to ethics education. This approach integrates Jones’ (1991, Academy of Management Review, 16(2), 366–395.) theoretical issue contingent model (p. 370) and encourages students to think about the moral intensity of the ethical issue. Accounting curricula can incorporate the moral intensity approach through the case–method to enhance accounting students’ moral decision-making capabilities. This paper describes a framework which accounting instructors can use in existing accounting courses. First, this paper discusses moral decisionmaking approaches in the existing literature. The second section presents


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DEBORAH LEITSCH AND PETE SIMMONS

the issue contingent model, including a discussion of each step. The final section suggests how to integrate the framework into an accounting course using a case–method approach.

Ethics and the development of the professional code of conduct have always been important to the accounting profession. Since 1917, when the American Association of Public Accountants (AAPA) adopted its first code of ethics, the quality of professional service being provided to the public has been an important concern (Higgins, 1962, p. 30). In 1987, as a result of several fraudulent financial reporting cases, organizations such as the National Commission on Fraudulent Financial Reporting (The Treadway Commission) (1987) suggested that personal values and codes of conduct were important deterrents of unethical activities. They urged educators to place an increased emphasis on ethical issues in all business and accounting courses. Recently, the accounting profession has identified certain skills (competencies and values) that it believes accountants need to develop in order to meet the demands of the future. In 2000, to better address the profession’s future in an ever changing business environment, the American Institute of Certified Public Accountants (AICPA) published The CPA Vision Project (the Vision) that identified integrity as a core value that CPAs must possess in order to meet the challenges of the future (AICPA, 2000a). The AICPA went further, developing The AICPA Core Competency Framework for Entry into the Accounting Profession in 2000 to help educators achieve the skills identified in the Vision. Barry Melancon, President of the AICPA, notes that ‘‘ythe Framework is a fundamental starting point for the creation of a new, opportunity-filled accounting profession’’ (AICPA, 2000b, p. 1). An important area in this framework, addressed in the area of personal competencies, is the ability of accounting professionals to demonstrate commitment towards integrity and ethical behavior (AICPA, 2000b). Integrating ethics, through lecture and case studies, has become a common objective in accounting courses. Studying moral issues in accounting typically focuses on identifying the affected stakeholders and professional code violations (Armstrong, Ketz, & Owsen, 2003, p. 6). While studying professional codes of conduct are important in accounting education, most ethics instructional approaches fail to consider all the characteristics of moral issues and their influences on moral decision-making.

An Approach to Teaching Ethical Decision-Making in Accounting

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The purpose of this paper is to introduce a different approach to ethics education. This approach integrates the theoretical issue contingent model proposed by Jones (1991, p. 370) and encourages students to think about the moral intensity of the ethical issue. Jones’ (1991) model is a descriptive approach to understanding ethics by examining how individuals actually make moral decisions. He believes that moral intensity is an important concept that significantly influences all aspects of an individual’s decisionmaking process. Sims (2002, p. 397) notes that teaching business ethics should provide both a theoretical and experiential framework that students can use to evaluate various types of moral situations. Instructors can integrate the moral intensity approach through case–method studies to enhance accounting student’s moral decision-making capabilities. First, this paper will discuss moral decision-making approaches in the existing literature. The second section presents the issue contingent model, including a discussion of each step. The final section suggests how to integrate the framework into an accounting course using a case–method approach.

EXISTING MORAL DECISION-MAKING APPROACHES Many professional accountants belong to the AICPA, the Institute of Management Accountants (IMA), or the Institute of Internal Auditors (IIA). The AICPA’s Code of Professional Conduct, initially developed during the early part of the 20th century, provides guidance and rules to all members in public practice (AICPA, 2004). Likewise, the IMA’s and the IIA’s Codes of Ethics provide guidelines for ethical conduct for member accountants (IMA, 2004; IIA, 2004). Each code identifies principles such as professional responsibilities, integrity, objectivity, independence, due care, and confidentiality. Violations of these codes may result in criminal actions, loss of one’s certification, or both. A major emphasis of the AICPA’s and the IMA’s code of Professional Conduct is that ethical awareness is a professional responsibility, requiring accountants to exercise moral sensitivity and judgment in their professional activities. Consequently, these codes provide guidance to members in assessing issues facing the accounting professional. The principles, such as independence or integrity, are tools for evaluating potential code violations (Oddo, 1997, p. 295). In instances where the moral conflict is clear, the codes of conduct give the accountant a method to recognize and respond to

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various situations. Where the ethical conduct is less clearly defined, accountants must use other tools to help them make decisions that are for the welfare of the society. This assumes a totalitarianist approach. The existing literature suggests several approaches to ethical decision-making in accounting. These normative approaches advocate exposing accountants to rules, either utilitarian (the end justifies the means) or deontological (obligations, rights, and duties) concepts. These theoretical ideas guide the accountant faced with ethical conflict in arriving at morally acceptable decisions. Through thorough analyses the accountant can use these concepts to look at ethical issues and ethical decisions from various perspectives. Langenderfer and Rockness (1989, p. 68) suggest an eight-step process that accounting students can use as a framework to analyze moral issues that may arise in their careers. This approach emphasizes moving away from concentrating on accounting rules and regulations alone by using an eightstep model, integrating deontological and utilitarian elements. The steps are: (1) state the facts, (2) state the ethical issues and the stakeholders involved, (3) identify the norms, principles, and values of the conflict, (4) present alternative courses of action, (5) state the best course of action consistent with norms, principles, and values, (6) identify the consequences of each possible course of action, (7) discuss the acceptable courses of action with an outside observer, (8) make the decision (Langenderfer & Rockness, 1989, p. 68). Instructors can use the eight-step model with case studies that include moral conflicts involving technical accounting issues. Armstrong (1990, p. 182) points out several weaknesses in the eight-step method and make some suggestions to improve it. She notes that the method should place more emphasis on the professional guidance offered in existing accounting codes (AICPA, IMA, IIA). For example, considering the principles of integrity and objectivity when faced with a moral conflict should help the accountant make more ethical decisions. Armstrong (1990, p. 182) also notes that while accountants should be aware of consequences, stakeholders, values, principles, and norms, they need greater guidance by integrating these considerations within the decision framework. Simply thinking about them may not lead to ethical decision-making. Finally, she urges that students need to understand the principles behind the codes of conducts, along with the accountant’s responsibility to society (Armstrong, 1990, p. 189). The American Accounting Association (AAA) (1990, p. 1) published a set of ethics cases and decision-framework to enhance ethics education in accounting courses. The cases along with teaching notes provide educators with materials to help sensitize students to ethics issues they may encounter


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in the workplace. In addition, students can use the decision-framework to evaluate the ethics conflict in the case and decide an appropriate course of action. The AAA framework for analyzing moral conflicts: (1) determine the facts – what, who, where, when, how, (2) define the ethical issue(s), (3) identify major principles, rules, values, (4) specify the alternatives, (5) compare values and alternatives: see if the decision is clear, (6) assess the consequences, (7) make your decision. This approach is very similar to the eightstep approach suggested by Langenderfer and Rockness (1989, p. 182). Similarly, Trevino and Nelson (2004, pp. 94–100) suggest a linear approach they believe useful in moral decision-making: (1) gather the facts, (2) define the ethical issues, (3) identify the affected parties (the stakeholder), (4) identify the consequences, (5) identify the obligations, (6) consider your character and integrity, (7) think creatively about potential actions, and (8) check your gut. This approach integrates the theories of consequentialism (focusing on the consequences), deontology (focusing on duties, obligations, and principles), and virtue ethics (focusing on integrity). The approaches presented above offer some useful tools for moral decision analysis. However, an important aspect of the moral decision process receiving less attention involves an assessment of the specific issues, the components of these issues, and their relevance to the decision-maker. Many of the theoretical ethical models assume that individuals utilize the same decision processes regardless of the nature or importance of the issues (Jones, 1991, p. 372). For example, these models assume that individuals utilize the same cognitive processes regardless of whether the issue involves the theft of a paper clip or the distortion of financial data. Marshall and Dewe (1997, p. 522) note that the individual’s assessment of a particular situation is a critical determinant in the individual’s interpretation and ultimately influences the ethical decision process.

THE PROPOSED FRAMEWORK What we propose, based primarily on Jones’ (1991, p. 370) ideas, is a method that emphasizes analyzing the ethical conflict and its moral intensity in terms of multiple components. This framework integrates Jones’ (1991) descriptive approach to decision-making into a normative approach for analyzing moral conflict. It focuses on how individuals should make moral decisions according to a set of well-defined steps. While it is important to observe that a decision is unethical, it is also important to understand the reason, why? (Kleindorfer, Kunreuther, & Schoemaker, 1993, p. 11). By

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integrating descriptive and normative analysis, this framework provides insight into the moral decision processes individuals actually use and can suggest why a particular situation is unethical using moral intensity components as guidelines. The proposed framework consists of four steps: identify the moral issue(s), analyze the characteristics of the moral issue(s), identify and assess all possible courses of action, and recommend the appropriate decision. Step 1: Identify the moral issue(s). Students should think about the important issue(s) in the moral conflict. Frequently, this thinking involves looking beyond the surface of the issue. Many moral conflicts involve multiple ethical issues. In accounting, the student should realize that moral issues may violate professional, corporate, and personal principles. For example, Joan is pressured by her boss to manipulate earnings to help the company secure a large bank loan. In this situation, one ethical issue focuses on the fact that this action would violate generally accepted accounting principles (GAAP). On a corporate level, Joan, as the subordinate, must decide if she will comply or disregard her supervisor’s directive. Finally, on a more personal basis, an ethical issue exists relating to the values of honesty and loyalty. Step 2: Analyze the characteristics of the moral issue(s). The next step stresses that when people make decisions, they consider the characteristics of the moral issue. Jones (1991, p. 370) outlined six of the components of moral intensity as independent variables (magnitude of consequences, social consensus, concentration of effect, probability of effect, temporal immediacy, and proximity) affecting all four stages (moral sensitivity, moral judgment, moral intentions, and moral behavior) of Rest’s (1986) model of moral decision-making. First, magnitude of consequences is the sum of the harms or benefits felt by victims that arise from the moral or immoral act. Second, social consensus refers to the degree to which people agree an action is (un)ethical. Third, probability of effect is the likelihood that the act will in fact take place and cause harm or benefit. Fourth, temporal immediacy is defined as the perceived length of time between the act and its consequences. Fifth, concentration of effect relates to the inverse function of the number of people affected by an act of constant level of magnitude. Sixth, proximity refers to how close (socially, culturally, physically) the victim is to the decisionmaker. Jones (1991, p. 379) suggests that each of the four stages of moral decision-making are influenced not only by the previous stage but also by the components of moral intensity.


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The proposed framework is comprised, then, of questions that can stimulate thinking about the various characteristics of the ethical conflict. Students can use the questions as cues or ‘‘tools’’ to reduce ambiguity and enhance understanding of the moral conflict that the decision-maker faces in each ethical situation. Many accounting issues lack the moral intensity of life and death situations. For example, an unethical financial reporting situation may be justified by other firms (social consensus), harm a large number of potential investors (concentration of effect), and benefit a client (proximity). However, further analysis can suggest that the situation involves a significant (material) amount of money (magnitude of consequences) and the probability of the harm occurring is quite high (probability of effect). Therefore, the framework helps students to develop a strategy for reasoning through these issues. Analyzing all of the characteristics of the moral issue permits the decision-maker to look at the moral conflict more completely and understand the potential pitfalls. This knowledge can be used to understand why a situation contains an ethical conflict and perhaps guide and improve moral decision-making. The framework questions appearing in Fig. 1, adapted by the authors from previous studies (Singhapakdi, Vitell, & Kraft, 1996, p. 254; May & Pauli, 2000, p. 99), are open-ended. This type of questioning permits students more freedom in their responses and, hopefully, adds additional insight into the decision-making process. 1. Magnitude of consequences. Will the consequences of this action have a significant impact on the stakeholders? According to Jones (1991, p. 374), magnitude of consequences is ‘‘the sum of the harms done to victims of the questionable moral action.’’ This moral intensity component is a critical factor coming from the utilitarianism philosophy perspective, which focuses on the results of a decision. This philosophy appears in much of the business and economic literature (e.g. Davis, Johnson, & Ohmer, 1998, p. 375). The perceived harm of a particular moral issue may influence the ultimate moral decision. Because the potential consequences of an act often can be complex and far-reaching, they are often difficult to quantify and estimate. Again, clarifying the consequences through classroom discussion may help. The magnitude of consequences component recognizes that moral issues are classified according to how significant the potential harms are (Jones, 1991, p. 374). In an accounting context, the magnitude of consequences would be the amount of harm (or benefit), typically translated into dollars, the users of the financial information (statements) would incur.

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STEP QUESTIONS

RESPONSES

1.

Identify each of the moral issue(s) - List the moral conflict(s). - Identify any violations of accounting principles. - Does there appear to be any violations of corporate and / or personal values?

2.

Analyze the characteristics of the issue: Will the consequences of this action have a significant impact on the stakeholders? Will others, such as co-workers or the accounting profession, support this action? What are the chances that the action will cause any harm? When will the consequences of this action actually be felt? State the individuals that will be affected by the consequences of this action. How will the consequences of this action impact individual(s) close to the company; such as coworkers, stakeholders? Identify and assess relevant courses of action - List the relevant courses of action in this situation - Consider the impact that each course of action will have on stakeholders

3.

4.

Recommend an appropriate decision. - Does this decision take into account professional and personal responsibility? -

What effect will this decision have on society as a whole? Additional comments on this case.

Fig. 1.

Framework for Analyzing Business Decisions.

Jones (1991, p. 374) noted that the inclusion of magnitude of consequences as a component of moral intensity is based on observing human behavior and empirical evidence. For example, he stated that an act that would cause death would have a greater magnitude of consequence than the one that would cause minor injuries. While many moral actions result in small consequences to other individuals, more serious consequences should become a signal in the moral decision-making process. Fritzsche (1988, p. 920) noted a link between more serious consequences in marketing and ethical judgments. Similarly, Weber (1990, p. 699) found in issues where the magnitude of consequences was higher, moral reasoning was also at a higher level.


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Students should identify every possible consequence, large and small, they perceive in a particular situation. Oftentimes, students overlook moral conflicts where the consequences appear small. As Karcher (1996, p. 1034) points out, these actions can become more serious as the situation develops. By focusing on why we might dismiss a consequence, we become more aware of the possibility that we may do so. 2. Social consensus. Will others, such as co-workers or the accounting profession, support this action? The social consensus related to a moral issue refers to the degree of social agreement about the good or evil of a particular act (Jones, 1991, p. 375). For instance, in ethical situations, individuals often look to their referent groups (co-workers or colleagues) for approval or disapproval. Davis et al. (1998, p. 374) noted that social consensus sometimes can supply the rationalization for rather than the endorsement of an unethical act. For example, while most students would agree that cheating on an exam is unethical, they may use the social consensus that everyone does it to justify their behavior. This question refers to whether others in the accounting profession would support the action. For example, social consensus may be high if an action (decision) results in a clear violation of GAAP. The accounting profession itself acts as a significant referent for public and private accountants. Such factors as professional standards, codes of conduct, behavioral guidelines, internal controls, team auditing, peer reviews and regulations all work together to enhance ethical behavior in accounting situations (Stanga & Turpen, 1991, p. 741). In addition, professional affiliation and peer pressure aid the accountant in everyday practice (Rest & Narvaez, 1994). In this respect, the professional society acts as an authoritative figure that guides and expects ethical behavior among its members. Students should be aware of how others would view an action in question. Depending upon the situation, they may look to co-workers, the business community, or the profession for approval or disapproval. Recognizing how others would view the moral action and realizing whether they would support the decision can provide them with a clearer understanding of where ambiguity is present. Some moral situations involve serious issues that need to be reported. According to Duska and Duska (2003, p. 151), whistle-blowing for the purpose of preventing unnecessary harm, illegal or immoral, is acceptable. Therefore, understanding social consensus can help students realize that at times reporting unethical action is required to uphold professional standards.

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3. Probability of effect. What are the chances that the action will cause any harm? According to Jones (1991, p. 375), probability of effect refers to the probability that the act in question will take place and will cause harm or benefit. In other words, what is the likelihood that the consequences of the action will, in fact, occur? If the probability that an act will occur is low, the intensity of the issue will be less than if the probability is high (Jones, 1991, p. 375). Likewise, if the probability that a particular action will cause harm is high, the moral intensity will be high. Ketchand, Morris, and Shafer (1999, p. 264) note that the probability of effect of a questionable accounting practice will be lower if users of financial statements have other information on which they can rely. Therefore, the total information available may affect this component. This question also asks the reader to estimate the expected effect of the action. In an accounting context, the probability of effect is influenced by the likelihood that stockholders rely on the financial statements, and the probability they sustain substantial monetary losses. Probability of effect, then, is a major factor associated with moral intensity. In analyzing moral situations, students should identify consequences that have a high as well as a low probability of occurring. We often consider events that have a higher probability of occurring as more morally intense. However, as the situation develops those events that appear to have a remote chance of occurring may in fact become more realistic (Karcher, 1996, p. 1034). 4. Temporal immediacy. When will the consequences of this action actually be felt? Temporal immediacy refers to the length of time between the present and the beginning of the consequences of the questionable act (Jones, 1991, p. 376). In most cases, the moral intensity of the situation is lower when the length of time before the individual feels the consequences is longer. A very long time period enhances the opportunity for intervention and resolution of the problem, therefore reducing the urgency of the problem (Jones, 1991, p. 376). For example, relying on misrepresented financial statements for an immediate pending business purchase has a higher temporal immediacy and increases the likelihood that the stakeholders will suffer. In comparison, if the business purchase were to occur at year-end or 5 years from now, the influence of temporal immediacy may be much lower that misrepresented financial statements would harm the stakeholders, at least at the present time.


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This component requires students to estimate the length of time between the present and the beginning of the consequences. This requirement may be very difficult given their lack of business experience. Instructors can give students some insights by suggesting examples from real-world events to clarify this difficult concept. They also can once again point out an individual’s tendency to adjust actions based on this trait. 5. Concentration of effect. State all the individuals who will be most affected by the consequences of this action. The concentration of effect of a moral act refers to an assessment of the number of individuals affected by an act of a given magnitude (Jones, 1991, p. 377). This question asks the respondent to identify all the individuals who may be impacted by a given action. Sometimes, the fewer the number of individuals an unethical action affects, the higher is the level of moral intensity. For example, a significant loss spread among a large number of stockholders would be perceived as less morally intense than if it were spread among a few stockholders. Jones (1991, p. 377) noted that individuals may perceive that cheating a corporation out of money has less of a concentration of effect than cheating an individual out of the same amount of money. Again, a decision-maker may view an action as more unethical if it hurts one individual rather than a group of individuals (Carlson, Kacmar, & Wadsworth, 2002, p. 19). Similarly, Ketchand et al. (1999, p. 254) suggested that an auditor may be less likely to subordinate his judgment if only a few, as opposed to many, stakeholders are affected by a moral decision. Students often consider only the more obvious individuals affected by a moral conflict. The stakeholders in fact, can include shareholders, management, employees, community members, and society. In the classroom, the instructor can use current events to assess the number of individuals potentially impacted by a moral decision. The instructor can also discuss what an individual decision-maker should do to counteract the perception. 6. Proximity. How will the consequences of this action impact individual(s) close to the company; such as co-workers or stakeholders? Proximity refers to the perception of nearness (social, cultural, psychological, or physical) that an individual has for victims (beneficiaries) of the questionable act (Jones, 1991, p. 376). This question asks the respondent to think about all of the individuals that will be affected by the unethical action and how close they are to the issue. Situations involving others who are close in proximity, either socially, culturally, psychologically, or physically possess a higher moral intensity than those situations in which people are more distant (Jones, 1991, p. 376).

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The proximity question also looks more specifically at the manner in which the action will affect co-workers. Davis et al. (1998, p. 375) noted that the role of personal proximity relates to the common belief that personal association or relationships demand special privileges. They noted as personal proximity narrows, strong attachments contribute to feelings of moral obligation. On the other hand, as the distance increases, the individual may feel less of a moral obligation and the moral intensity may diminish (Davis et al., 1998, p. 375). For example, an auditor who develops a close relationship with a client may be more willing to act as the client requests. In fact, the AICPA Code of Professional Conduct discourages this type of relationship because it may impair the auditor’s independence. Students should consider each individual that they believe will be affected by a moral conflict and try to determine their proximity to the situation. When students stress this principle by addressing this question, they may alter their decision-making processes and allow them to confront this potential bias. Step 3: Identify and assess the most relevant courses of action. In this step the accountant should list the most relevant courses of action and evaluate them in relation to the pertinent accounting principles, regulations, and their personal values. The decision-maker should step back and think about professional and personal responsibility. For example, going along with suggested changes to accounting procedures that are not in conformance with GAAP may violate the principles of competence and integrity. Step 4: Recommend the appropriate decision. The final step is to recommend a decision. The accountant even may use empathy to become more aware that the action may cause harm. Intuition also may be extremely important in making sound business decisions. If an accountant feels uncomfortable about a decision, this may be a cue that she/he is facing an ethical conflict.

INTEGRATION OF THE FRAMEWORK All business students need to be exposed to ethical situations they eventually may encounter in the workplace. Due to the recent accounting scandals, instructors should sensitize students to the unique and ambiguous nature of moral issues in accounting. This section describes how to integrate the framework into accounting courses (see Fig. 1). In order to incorporate ethics material effectively, we introduce an ethics module early in the semester. The first chapter of most accounting textbooks


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sets the stage for the course and introduces the main topics of study. We incorporate an ethics model at this time so that students can become familiar with the framework for later assignments. The ethics module covers understanding the role of the professional accountant, public expectations of professions and the professional accountant, sources of ethics guidance, and the framework for analyzing ethical situations. After discussing the role, expectations, and sources of guidance for professional accountants, we present the framework for making moral decisions. We teach moral intensity by integrating it into the framework. We begin introducing the framework by talking briefly about decisionmaking. We ask students to think about recent decisions they have made (buying a car or renting an apartment). Through this example, we discuss the steps that they encountered in arriving at their decision. Next, we distribute the framework and look for similarities in each step. In the first step of the framework students identify each of the moral issue(s) in the particular ethical conflict. We also ask them to identify any violations of accounting principles, codes of conduct, and of personal values. This step usually elicits a lot of student responses, as sometimes opinions vary, as we discuss apparent and not so apparent conflicts. The second step of the framework involves analyzing the characteristics of the issue. We begin by defining and providing examples of each of the components of moral intensity. For example, magnitude of consequences refers to the amount of harm, typically translated into dollars in accounting, of a particular act. We discuss the magnitude of the losses involved in the financial scandals associated with Enron and Worldcom. We also discuss the pitfalls of the moral intensity components. For example, many consequences appear small; however, they can become more serious as the situation develops (Karcher, 1996, p. 1034). Misclassifying an obligation by calling it a lease may be an indication that this is only one of many more serious misclassification problems. Many moral situations are very complex and the potential effects are farreaching. For example, proximity refers to the perceptions of nearness an individual has for the victims of a questionable act. An accountant may underrate an isolated incidence of reporting higher expenses than incurred on an expense report because they perceive that the stakeholders are not proximate to the decision-maker. However, they may discover later that the situation is more serious and the effects also will harm employees who happen to be stockholders in the company. Therefore, it is important for students to consider the moral intensity component in light of the potential effect on all individuals involved.

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Finally, in some situations the accountant lacks the ability to interpret a given situation and realize that a moral conflict is present. For example, social consensus refers to the degree to which people agree that a particular action is in fact unethical. An accountant may rationalize a situation (everyone else is doing it) involving an inappropriate change in the annual budget to secure a large bank loan. In this case, examining the components of moral intensity may reinforce the unethical nature of a situation. In the third step of the framework, we ask students to identify and assess relevant courses of action. For each course of action, we ask them to consider the impact it will have on the stakeholders involved. This step also requires students to review the details of the case and extend their thinking beyond the current situation at hand. In the last step of the framework students recommend the appropriate decision. We ask students to carefully deliberate and come up with a recommendation that will take into account professional as well as personal responsibility. In addition, we ask them to consider what effect the decision will have on society as a whole. We present a sample case, adapted from Kimmel, Weygandt and Kieso (2004, p. 217), and framework below (see Fig. 2). We have limited the answers to the framework questions as more complete answers are beyond the purpose of this paper. The four-step framework outlined here for studying moral issues in accounting has several benefits. First, students become aware of the ambiguous nature of many ethical issues that they may face in the working world. Second, the framework offers students a different approach to analyzing ethical conflict. This approach hopefully will enhance their sensitivity toward ethical issues and help them in future accounting courses. Third, students realize that they can examine moral issues from different perspectives (corporate, professional, and personal levels). Fourth, students become aware of the ‘‘situation-specific’’ biases present in ethical decision-making. Fifth, they develop skills for analyzing moral situations that can be used in the workplace. Sixth, they begin to realize that they need to consider multiple components when analyzing ethical issues and that each should be given careful attention.

CONCLUSION This paper suggests an approach to studying ethical decision-making in accounting courses. The approach emphasizes analyzing the moral intensity of


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Case example and Framework Davito Company is a pesticide manufacturer. Its sales declined greatly this year due to the passage of legislation outlawing the sale of several of Davito’s chemical pesticides. During the coming year, Davito will have environmentally safe and competitive replacement chemicals to replace these discontinued products. The Company expects sales in the next year to greatly exceed those of any prior year. Therefore, the decline in this year’s sales and profits appears to be a one-year aberration. Even so, the company president believed that a large dip in the current year’s profits could cause a significant drop in the market price of Davito’s stock and make it a takeover target. To avoid this possibility, he urges Emma Karr, controller, in making this period’s year-end adjusting entries to accrue every possible revenue and to defer as many expenses as possible. The president says to Emma, “We need the revenues this year, and next year we can easily absorb expenses deferred from this year. We can’t let our stock price be hammered down!” Emma didn’t get around to recording the adjusting entries until January 17, but she dated the entries December 31 as if they were recorded then. Emma also made every effort to comply with the president’s request. (Kimmel, Weygandt and Kieso, 2004, 217)

Fig. 2.

Case Example and Framework.

ethical issues and utilizes a case–method approach. Integrating Jones’ (1991) descriptive model into a normative framework for analyzing ethical conflict offers the decision-maker the opportunity to identify the cause or reasons why the situation is unethical. In addition, the framework offers guidelines or steps to hopefully help the decision-maker choose the correct (moral) action. By analyzing the aspects of moral intensity, students become familiar with a different tool useful for examining real-world moral conflicts in the work

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setting. Hopefully, this approach will help to reduce unethical behavior in the accountants of the future. Step 1: Identify each of the moral issue(s) The moral conflicts included in this case involve the company falsifying the records, hiding finances in incorrect accounts, and inflating the company stock prices. These actions violate the accounting principles of honesty and integrity in reporting misleading information. Finally, neither the president nor Emma is being honest to themselves, the company or the public. Step 2: Analyze the characteristics of the issue: Will the consequences of this action have a significant impact on the stakeholders? Presenting a false report on the status of the company will create the numbers in the financial information that will please the stockholders. This report will be significantly different from the truthful information of poor sales. These consequences may be far-reaching since stockholders may decide to sell their stock if they find out that the company is engaging in fraudulent accounting practices. Likewise, prospective investors many decide not to buy stock if they find out about the company practices. In addition, these actions are a short-term fix that could develop into a longterm problem if sales do not recover in the following year. Will others, such as co-workers or the accounting profession, support this action? Co-workers may support the decision to discourage a take over of the company. However, others should not support this decision due to the immoral and unethical conduct. Also, this action can have repercussions that could have a negative affect for the entire company. The accounting profession should be appalled about this type of action because falsely adjusting financial information can cause harm to a company but also reflect poorly on the business and accounting profession. What are the chances that the action will cause any harm? The chances are high that the action will harm the company. Investors aware of the legislation will suspect wrong doing if the company reports abnormal profits. In fact this type of action may be easily overlooked and not harm the company if they recover as they predicted. However, ethical behavior is not about the fact that by chance it does not harm, but is about doing the right thing whether it has consequences or not. When will the consequences of this action actually be felt? The stakeholders will feel the consequences of this action in both the shortterm and the long-term. First, they will feel the consequences at year-end


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when the books are closed. In addition, they will suffer in the long-term if the next year isn’t as promising as it is predicted. State the individuals that will be affected by the consequences of this action. The individuals that could be affected by these consequences would be any stakeholder, any company employee, and anybody that is directly or indirectly affected by the company’s day to day business operations. In addition, the reputation of the company would most likely be negatively affected by the action. How will the consequences of this action impact individual(s) close to the company; such as co-workers and stakeholders? The consequences can jeopardize co-workers’ jobs and their ability to find other work. Workers salaries could drop, stock prices may decrease, employees could loose their jobs, and the company could possibly suffer bankruptcy as a result of the action. In addition, stakeholders will be financially impacted. They make important decisions based upon the reports they receive from the company they invest in. With incorrect information stakeholders may make decisions that have unrecoverable financial damage. 3. Identify and assess relevant courses of action. First, Emma should insist that these actions are unethical and is unable to carry out the task. Second, Emma can comply with the task; however, if the company gets caught she will be assisting in an unethical activity. Third, Emma could look for another job and at least not be associated with the company any longer. In general, society would be negatively affected as a whole by this action. 4. Recommend an appropriate decision. The appropriate decision is not to comply with the president’s wishes. Emma needs to consider her professional and personal responsibility because it is her duty to do what is right. She has the professional responsibility to maintain integrity and objectivity in her position. Likewise, she needs to be honest to herself as an accountant. This decision will also have a positive effect on society because the financial information will represent the actual sales of the company for the year.

REFERENCES American Accounting Association (AAA). (1990). Ethics in the accounting curriculum: Cases & readings. Florida: American Accounting Association. American Institute of Certified Public Accountants (AICPA). (2000a). CPA vision project. Retrieved March 1, 2004 from http://www.cpavision.org/vision.htm

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American Institute of Certified Public Accountants (AICPA). (2000b). Core competencies framework. Retrieved March 18, 2004 from http://www.aicpa.org/edu/corecomp.htm American Institute of Certified Public Accountants (AICPA). (2004). Code of professional conduct. Retrieved August 20, 2004 from http://www.aicpa.org/about/code/index.htm Armstrong, M. (1990). Professional ethics and accounting education: A critique of the 8-step method. Business & Professional Ethics Journal, 9, 181–191. Armstrong, M., Ketz, J., & Owsen, D. (2003). Ethics education in accounting: Moving toward ethical motivation and ethical behavior. Journal of Accounting Education, 21, 1–16. Carlson, D., Kacmar, K., & Wadsworth, L. (2002). The impact of moral intensity dimensions on ethical decision making: Assessing the relevance of orientation. Journal of Managerial Issues, 14(1), 15–30. Davis, M. A., Johnson, N. B., & Ohmer, D. G. (1998). Issue-contingent effects on ethical decision making: A cross-cultural comparison. Journal of Business Ethics, 17, 373–389. Duska, R. F., & Duska, B. S. (2003). Accounting ethics. MA: Blackwell Publishing. Fritzsche, D. J. (1988). Personal values: Potential keys to ethical decision making. Journal of Business Ethics, 14, 909–922. Higgins, T. G. (1962). Professional ethics: A time for reappraisal. Journal of Accountancy, 113(3), 29–35. Institute of Internal Auditors (IIA) Code of ethics. Retrieved August 20, 2004. http://www.theiia.org/iia/index.cfm. Institute of Management Accountants (IMA) Code of ethics. Retrieved August 20, 2004. http:// www.imanet.org/ima/index.asp. Jones, T. M. (1991). Ethical decision making by individuals in organizations: An issue-contingent model. Academy of Management Review, 16(2), 366–395. Karcher, J. (1996). Auditors’ ability to discern the presence of ethical problems. Journal of Business Ethics, 15, 1033–1050. Ketchand, A. A., Morris, R. E., & Shafer, W. E. (1999). An analysis of the role of moral intensity in auditing judgments. Research on Accounting Ethics, 5, 249–269. Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2004). Financial accounting tools for business decision making. New York: Wiley. Kleindorfer, P., Kunreuther, H., & Schoemaker, P. (1993). Decision sciences: An integrative perspective. UK: Cambridge University Press. Langenderfer, H., & Rockness, J. (1989). Integrating ethics into the accounting curriculum: Issues, problems, and solutions. Issues in Accounting Education, 4(1), 58–69. Marshall, B., & Dewe, P. (1997). An investigation of the components of moral intensity. Journal of Business Ethics, 16, 521–530. May, D. R., Pauli, K. P. (2000). The role of moral intensity in ethical decision making: A review and investigation of moral recognition, evaluation, and intention. Academy of management meeting in Toronto, CA. National Commission on Fraudulent Financial Reporting (The Treadway Commission). (1987). Report of the National Commission on Fraudulent Financial Reporting. Oddo, A. (1997). A framework for teaching business ethics. Journal of Business Ethics, 16, 293– 297. Rest, J. R. (1986). Moral development: Advances in research & theory. New York: Praeger. Rest, J. R., & Narvaez, D. (1994). Moral development in the profession. New Jersey: Lawrence Erlbaum Associates.


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Sims, R. (2002). Business ethics teaching for effective learning. Teaching Business Ethics, 6, 393– 410. Singhapakdi, A., Vitell, S. J., & Kraft, K. L. (1996). Moral intensity and ethical decisionmaking of marketing professionals. Journal of Business Research, 36, 245–255. Stanga, K. G., & Turpen, R. A. (1991). Ethical judgments on selected accounting issues: An empirical study. Journal of Business Ethics, 10, 739–747. Trevino, L., & Nelson, K. (2004). Managing business ethics: Straight talk about how to do it right. New York: Wiley. Weber, J. (1990). Managers’ moral reasoning: Assessing their responses to three moral dilemmas. Human Relations, 43(7), 687–702.


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SCREENING CRITERIA FOR ACCOUNTING POSITIONS: AN UPDATE OF THE JOHNSON AND JOHNSON STUDY Carol J. Normand and Richard Cummings ABSTRACT Despite the changing nature of the accounting profession, students expect accounting educators to accurately advise them concerning the knowledge and skill sets needed for successful accounting careers. To provide updated guidance to accounting educators concerning screening criteria actually being used by employers, this paper replicates an exploratory study undertaken in 1993 by Johnson and Johnson (1995). This study reviews classified newspaper advertisements and Internet position-announcements for initial screening criteria. Findings, of interest to accounting educators include: Graduate degree expectations have changed from a requirement in 1993 to a preference in 2003. The CPA (certified public accountant) certification is still the most requested certification. Work experience required for entry-level positions is a continuing trend that suggests the importance of internships.


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CAROL J. NORMAND AND RICHARD CUMMINGS

Employers value both industry work experience and public accounting work experience across all three regions investigated in this study. Computer skills requested by employers now include a wider array of software such as communication software and databases/ERPs. Employers more often requested communication and organizational skills in 2003 than in 1993.

INTRODUCTION In the last 10 years, the nature of the accounting profession has changed in many ways. Employers now expect accountants to have a grasp of the big picture of business rather than just keeping the books. New technologies have altered the ways in which data are processed and stored and, thus, have changed the ways in which accountants and auditors perform their professional activities. Additionally, because of the financial frauds uncovered at companies such as Enron and WorldCom, discovering fraud as well as ethical decision-making have become important responsibilities of professional accountants. In addition to these changes, by 2003 over 40 states required CPA (Certified Public Accountant) examination candidates to have 150 hours of coursework before sitting for the examination (AICPA, 2003). Although these states do not specifically require the completion of a graduate degree, students and employers might associate additional education with a salary premium and, thus, the 150-hour requirement could impact the percentage of entry-level accounting positions that require CPA certification (Boone & Coe, 2002; Miller, 2003). Despite all these changes, students expect accounting educators to advise them accurately concerning the knowledge and skill sets they need for successful accounting careers. Currently, accounting educators can find guidance for advising in numerous published position statements, white papers, and articles that supply very specific lists of the skills and abilities entry-level accountants need to succeed.1 Researchers also have explored criteria employers say they use when hiring accounting professionals (Kirsch, Leathers, & Sneed, 1993; Ahadiat & Smith, 1994; Schmutte, 1998; Burnett, 2003; Dillon, Parkash, & Pelfrey, 2004). Little research, however, has investigated what criteria are actually employed by organizations in their hiring processes and whether these criteria have changed over the past decade. Knowing what criteria are actually used in hiring processes and how these criteria have changed in the past 10 years

Screening Criteria for Accounting Positions

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would help accounting educators to advise their students appropriately for opportunities in the current business environment. Compounding the problem of what hiring criteria employers are actually using is the fact that organizations apply different criteria at various stages of the hiring process (Krzystofik & Fein, 1988; Pasewark, Strawser, & Wolkerson, Jr., 1988; Harcourt, Krizan, & Merrier, 1991). Those stages include the initial screening of applicants, interviewing, offering second interviews, and making a job offer. Additionally, measuring changes in hiring process criteria over a 10-year period is challenging especially if the investigators include small and medium organizations in the study. Finding archival company data about job descriptions or position announcements over time is difficult to locate because of the short period of time companies usually retain data of this type. Even anecdotal information is hard to obtain because of the difficulty of finding enough individuals who actually hired accounting graduates over a period of time for the same firm. To provide some guidance to accounting educators concerning criteria actually being used by employers, Johnson and Johnson (1995) completed an exploratory study in which they reviewed classified newspaper advertisements for accounting positions for initial screening criteria. In this study, the authors data in 1993 by reviewing classified newspaper advertisements for accounting positions. These authors stated that given the limitation of space in the advertisements, it is reasonable to assume employers would include only those screening criteria that are most important to their organizations. Although no empirical research has been undertaken to support the presumption that the content of advertisements reveals the actual screening criteria used by employers, articles that give guidance to employers writing such advertisements support the assumption. Tom Peters states that, when writing want ads, employers should ask for what they want in terms a 12-year old would understand (Peters, 1999). Other authors state that effective recruitment advertisements should be designed to attract only a select number of highly qualified candidates (McGinty, 1992; Kent, 2001). To provide accounting educators with some guidance concerning the actual screening criteria that organizations currently utilize for accounting positions, this paper provides a 10-year update of the findings reported by Johnson and Johnson as well as an expanded analysis of current employer screening criteria. Each of the paper’s sections explores one of the five screening criteria identified by Johnson and Johnson: education, professional certification, work experience, software and computer skills, and

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communication, organizational, and interpersonal skills. For each of the five specific screening criterion: we replicate the methodology of the Johnson and Johnson study comparing 1993 and 2003 data;2 we analyze advertisements published in three newspapers east of the Mississippi River, four newspapers west of the Mississippi River, and one paper covering the New York City area; and we examine the screening criteria listed in Internet position announcements grouped by the three geographic areas. We treat New York City separately because of the number of print advertisements and Internet position announcements collected for that geographic area.

METHODOLOGY The Johnson and Johnson study looked at advertisements published on various Sundays in March 1993 in the Chicago Tribune, New York Times, and Washington Post. To compare the 1993 findings reported by Johnson and Johnson with current data, we collected and analyzed 222 advertisements printed in these three papers. To gather the data needed for the analyses by geographic areas, we obtained advertisements published on various Sundays in March 2003 from five additional newspapers: Atlanta Journal Constitution, Dallas Morning Star, Denver Post, Los Angeles Times, and San Francisco Chronicle. We selected these additional five newspapers because they represented the largest population centers in the geographic regions. Internet position announcements have become a widely used method of advertising open professional positions. Accordingly, we also examined Internet position announcements posted on RobertHalf.com during the appropriate time periods in March for each of the eight newspaper markets. Although there are other Internet job-search sites and many corporations post position announcements on their own websites, RobertHalf.com was appropriate for this study because it had position announcements for all eight population centers covered by the newspapers during the time period examined and is a nationally known job search website. This study evaluated a total of 339 print advertisements and 285 Internet position announcements. These advertisements and announcements represented job searches by businesses, CPA firms, and government/not-forprofit agencies. Table 1 presents the frequency distributions for the types of employers and the positions they advertised in the newspapers by geographic area. Table 2 presents the same information for the Internet position announcements. As indicated in Table 1, newspaper advertisements for

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Table 1.

Frequency Distributions for Newspaper Advertisements: Employer Types and Accounting Positions. East Region

West Region

New York City

Bus CPA NFP Total (%) Bus CPA NFP Total (%) Bus CPA NFP Total (%) 1 2 3 4 5 6 7 8 9 10 11 12

Staff accountant Senior accountant Accounting manager Staff auditor Audit senior/manager Internal auditor Assistant controller Controller/VP-finance Tax accountant Cost accountant Financial analyst Forensic accountant

49 9 12 1 3 1 6 29 1 4 17 —

2 1 — 1 2 — — — 1 — — —

18 — 6 — — 1 — 4 — — 4 —

69 10 18 2 5 3 6 33 2 4 21 —

39.8 5.8 10.4 1.2 2.9 1.7 3.5 19.1 1.2 2.3 12.1 —

16 5 5 2 0 3 1 13 1 1 9 —

3 1 — — 1 — — — 2 — — —

6 2 2 — — 3 — 6 — — 4 —

25 8 7 2 1 6 1 19 3 1 13 —

29.1 9.3 8.1 2.3 1.2 6.9 1.2 22.1 3.5 1.2 15.1 —

11 8 7 — 2 5 4 11 — 1 8 —

2 — — 2 3 — — — 1 — — 1

7 1 1 1 — — — 3 — — 1 —

20 9 8 3 5 5 4 14 1 1 9 1

25.0 11.2 10.0 3.8 6.2 6.2 5.0 17.5 1.3 1.3 11.2 1.3

Total

132

7

34 173 100% 56

7

23

86 100% 57

9

14

80 100%

businesses, CPA firms, and not-for-profit/government agencies constituted 72.3%, 6.8%, and 20.9% of the total sample, respectively. Table 2 indicates that for the Internet position announcements, businesses, CPA firms, and not-for-profit/government agencies constituted 84.9%, 10.5%, and 4.6% of this total sample, respectively. Except for the ‘‘forensic accountant’’ category, the positions reported duplicate the configuration of positions used by Johnson and Johnson. These 11 positions are: staff accountant, senior accountant, accounting manager, staff auditor, audit senior/manager, internal auditor, assistant controller, controller/financial vice-president, tax accountant, cost accountant, and financial analyst. Because the frequency distribution of the advertised accounting positions could impact the analyses of the five screening criteria, we conducted Student’s t-tests to assess whether these distributions are the same for the newspaper advertisements and Internet position announcements in each geographic region. There are no significant differences among the frequency distributions of positions advertised in the newspapers in all three geographic areas (East/West: 0.179; East/New York: 0.395; West/New York: 0.668). Additionally, there are no significant differences between the frequency distributions of positions advertised in the newspapers and the Internet in each geographic area (East: 0.346; West: 0.781; New York: 0.134). Student’s t-tests,

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Table 2. Frequency Distributions for Internet Position Announcements: Employer Types and Accounting Positions. East Region

West Region

New York City

Bus CPA NFP Total (%) Bus CPA NFP Total (%) Bus CPA NFP Total (%) 1 2 3 4 5 6 7 8 9 10 11 12

Staff accountant Senior accountant Accounting manager Staff auditor Audit senior/manager Internal auditor Assistant controller Controller/VP-finance Tax accountant Cost accountant Financial analyst Forensic accountant

19 15 10 2 1 3 1 5 1 2 8 —

1 2 1 1 2 — — — 1 — — —

1 — 2 — — — — — — — 1 —

21 17 13 3 3 3 1 5 2 2 9 —

26.6 21.5 16.5 3.8 3.8 3.8 1.3 6.3 2.5 2.5 11.4 —

19 17 7 — 1 8 2 18 2 5 5 —

1 3 — 1 2 — — — 7 — — —

1 1 1 — — 1 — 1 — — 2 —

21 20.0 21 20.0 8 7.6 1 0.9 3 2.9 9 8.6 2 1.9 19 18.1 9 8.6 5 4.7 7 6.7 — —

10 17 9 2 9 9 — 7 11 3 14 —

2 1 — — — — — — 5 — — —

— — — — — — — 1 — — 1 —

12 18 9 2 9 9 — 8 16 3 15 —

11.9 17.8 8.9 2.0 8.9 8.9 — 7.9 15.8 3.0 14.9 —

Total

67

8

4

79 100% 84

14

7

105 100% 91

8

2

101 100%

however, did indicate a significant difference in the frequency distributions of positions advertised in the Internet announcements between the East and West regions (p ¼ 0:056) as well as for the East region and New York City (p ¼ 0:002). The analysis, however, found no significant difference between the frequency distributions for positions advertised in the Internet announcements in the West region and New York City (p ¼ 0:153). All tables in the appendix display the data and the descriptive statistics for the five screening criteria. These tables present the data for both newspaper advertisements and Internet position announcements by geographic region.

FINDINGS OF THE CURRENT STUDY Education Requirements As shown in panel one of Table 3, the education criteria used for screening candidates for accounting positions in Chicago, New York City, and Washington DC have changed between 1993 and 2003. A review of these data indicates that in 2003, 8-percent of the employers advertising positions in the 11 job categories did not overtly state a degree requirement or imply a degree requirement by requiring CPA certification. This observation did not

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Table 3.

Comparison of Historical and Current Data (Chicago, New York City, and Washington, DC Newspapers Only). 1993 (%) 2003 (%) (%) Change

Panel one: degree requirements Undergraduate accounting degree required Undergraduate degree with strong accounting emphasis Undergraduate degree with no specification Undergraduate implieda Graduate degree required Graduate degree preferred No degree stated

50 7 31 n/a 12 n/a n/a

39 12 15 17 0 9 8

11 +5 16 +17 12 +9 +8

Panel two: employer certification requirements Cost accountant Controller/Finance VP Auditor senior/manager Financial analyst Accounting manager Internal auditor Assistant controller Staff accountant Senior accountant Staff auditor Tax Accountant

0 31 57 10 15 40 18 9 22 35 44

50 75 78 31 35 57 33 16 17 0 0

+50 +44 +21 +21 +20 +17 +15 +7 5 35 44

Panel three: computer skills listed by employers (So that 1993 and 2003 data can be compared, percentages are of the total number of newspaper advertisements that listed computer skills not the entire sample.) Spreadsheet 56 83 +27 Word processing 8 32 +24 Accounting packages 16 29 +13 ERP programs 0 12 +12 Databases programs 8 19 +11 Presentation programs 0 7 +7 Mapping programs 0 2 +2 Internet skills 0 1 +1 Graphics programs 3 0 3 PC/DOS 42 0 42 Panel four: other skills listed by employers Effective communication Strong organizational skills Interpersonal skills Ethics a

15 7 5 n/a

Positions required a CPA but did not mention a degree requirement.

20 11 12 2

+5 +4 +7 +2

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occur in the 1993 data. Additionally, the number of employers willing to accept candidates with any undergraduate degree decreased 16 percent. Employers specifically requiring an undergraduate accounting degree also decreased 11 percent between 1993 and 2003. This 11 percent decrease in employers specifically requiring an undergraduate accounting degree is more than offset by the 17 percent of employers that specifically requested a CPA designation but did not state a degree requirement. This criteria configuration did not exist in the 1993 data and presumably reflects the fact that the150-hour CPA requirement was in effect in Illinois and Washington, DC in 2003 but not in 1993.3 Presumably, these employers are implying that they require at least an undergraduate degree with a significant amount of accounting coursework by requiring a CPA designation. Although the number of employers implicitly requiring at least an undergraduate accounting degree has increased between 1993 and 2003, the number of employers requiring a graduate degree has gone from 12 percent in 1992 to zero in 2003. In 2003, 9 percent of employers in this sample instead stated a preference for a graduate degree. Further analysis indicated that this pattern of stating a preference for a graduate degree rather than requiring one appears in all data sets collected for this study. At the time of this study, the 150-hour requirement was in effect in the District of Columbia, Georgia, Illinois, California, and Texas but not in Colorado and New York. Further analysis of the expanded data set collected for this study found that none of the accounting firms that advertised positions in the newspapers examined indicated a preference for a graduate degree and only one position in the Western area required an advanced degree. This firm was advertising a staff accountant position. Two tax positions that were advertised on the Internet by Western area CPA firms required a graduate degree, while four CPA firm positions advertised on the Internet indicated a preference for an advanced degree (one staff accountant, one audit senior/ manager, one accounting manager, and one tax accountant).

Professional Certification Requirements As seen in panel two of Table 3, between 1993 and 2003, the number of advertisements requiring certification increased for eight position categories and decreased for three categories. Of the three positions for which the certification requirement decreased (senior auditor, staff auditor, and tax accountant), two are specifically associated with CPA firms. A staff auditor


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is an entry-level CPA firm position while a senior auditor is normally a position that requires at least 2 years of work experience. The positions showing an increase in the number of employers requiring a CPA designation4 are positions that are found in corporations as well as CPA firms and, except for the staff accountant and cost accountant positions, are not considered entry-level positions. Apparently, many organizations do expect employees to obtain certification to advance in their careers. Further analysis of the expanded data set collected for the three regions indicate, although the percentage of employers specifically stating a certification requirement as a screening criteria has increased for most positions, a large percentage of the total number of employers are not identifying certification as a hiring criteria in either newspaper advertisements (about 60%) or Internet position announcements (about 48%). For the newspaper advertisements, the CPA firms indicating no certification screening criteria were advertising for five staff accountants, three staff auditors, two senior accountants, three tax accountants, and one forensic accountant. The CPA firms that did state a certification screening criteria were advertising for two staff accountants, two senior accountants, four audit senior/managers, and one tax accountant. For the Internet position announcements, the CPA firms indicating no certification screening criteria were advertising for two staff accountants, two staff auditors, two senior accountants, one audit senior/manager, and four tax positions. The CPA firms that did state a certification screening criteria were advertising for two staff accountants, four senior accountants, three audit senior/managers, one accounting manger, and nine tax positions. Apparently, CPA firms themselves are divided upon the appropriate certification screening criteria for staff accountants, tax positions, and senior accountants.

Work Experience Requirements In the 1993 Johnson and Johnson study, the percentage of advertisements requiring work experience for individual position categories was not reported. Based on the aggregate data that were reported in that study, the desire for additional employee experience has increased from 10 years ago. According to information that was published in the 1995 article, 75 percent of the advertisements reviewed specified experience as a screening criterion while, in 2003, 82 percent of the advertisements in Chicago, New York, and Washington, DC newspapers stated such a criteria. Further analysis found

158


that this pattern of stating a preference for work experience appeared in all data sets collected for the current study. A review of the newspaper data collected for the three regions found that a higher percentage of employers in the Eastern region, Western region, and New York City indicated that they preferred industry experience (21.4%, 18.6%, and 30.0% respectively) to public accounting experience (2.3%, 6.9%, and 13.7% respectively). Additional analysis also found that, for the newspaper advertisements, the CPA firms not indicating a work experience screening criteria were advertising for two staff accountants and two audit senior/manager positions. The CPA firms that did state a work experience screening criteria were advertising for five staff accountants, three staff auditors, two senior accountants, four audit senior/managers, four tax accountants, and one forensic accountant position. For the Internet position announcements, the percentage of employers in each of the three regions indicating a preference for industry and for public accounting experience was similar in each of the regions. Further analysis found that the CPA firms not indicating a work experience screening criteria were advertising for one senior accountant, one audit senior/manager, and one tax position. The CPA firms that did state a work experience screening criteria were advertising for five staff accountants, two staff auditors, five senior accountants, three audit senior/managers, one accounting manager, and 12 tax accountant positions. The importance of internships, thus, might be indicated because many of the newspaper advertisements and Internet position announcements listing work experience as a screening criterion were for entry-level positions.

Software and Computer Skills Requirements Although over 50 percent of the advertisements in the Chicago, New York, and Washington, DC newspapers in 1993 explicitly mentioned computer skills, that percentage decreased to 38 percent in 2003. However, as shown in panel 3 of Table 3, the demand for almost all software skills has increased from 10 years ago among those employers who did identify computer skills as a screening criterion. This increase has occurred because employers who did list computer skills in 2003 tended to list more than one in each advertisement and employers appear to be much more specific about the type of computer skills required for their positions. As shown in Table 3, the only computer skills that decreased as screening criteria are graphics programs and PC/DOS skills. The decrease in the need


159

for skills in specific graphics programs might reflect the increased graphics capacity of other types of software, such as presentation programs. The decrease in required ability with PC/DOS apparently reflects the increased use of operating systems like Microsoft Windows and OS X in the past 10 years. Interestingly, in the current study, no employer listed knowledge of operating systems as a screening criterion. A further analysis of the entire data set collected found that skill with a spreadsheet program was the most required computer skill in all data sets. In New York City newspaper advertisements, the second most requested computer skill was with accounting packages. Only one of the New York positions requiring this skill identified the accounting package with which candidates should be familiar – that advertisement identified MAS 90 as the accounting package used. Among the other seven data sets, one Eastern region newspaper advertisement identified MS TaxPro and one Western region newspaper advertisement identified MAS 90 as the programs with which candidates should be familiar. The rest of the advertisements and Internet position announcements did not state a specific accounting software preference. Among Eastern region and Western region newspaper advertisements placed by CPA firms, one position announcement in each region identified skill in both spreadsheet and word processing software as screening criteria (a senior accountant and an accounting manager position, respectively). Among the Internet position announcements placed by CPA firms, only one accounting manager position announcement identified computer skills as a screening criterion. This position announcement identified both spreadsheet and accounting software skills as screening criterion; however, the announcement did not identify an accounting software package.

Communication, Organizational, and Interpersonal Skills Requirements Over the last 20 years, the professional skills (such as effective communication, organizational, and interpersonal skills) that are consistently cited in reports as requirements for success in the accounting profession are apparently slowly becoming a larger focus of employer’s stated screening criteria. A review of data presented in panel 4 of Table 3 indicates that the percentage of newspaper advertisements in Chicago, New York, and Washington, DC requiring each skill set has increased slightly between 1993 and 2003. In both the 1993 and 2003 samples, however, effective communication was the skill set most identified as a screening criterion. Additionally, in 2003, 2 percent of the total number of newspaper advertisements in Chicago, New York City, and

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Washington, DC included ethics as a screening criterion; none of the advertisements examined in 1993 included this screening criterion. Further analysis of the data set collected for the three regions found that effective communication skill was the most required other skill set in all of the data sets. Interestingly, although a total of five newspaper advertisements and seven Internet position announcements identified ethics as a screening criterion, CPA firms advertised for none of these positions. Additionally, unlike computer skills requirements, not all CPA positions listed two other skills as screening criteria. Among newspaper advertisements, one senior accountant position in the Western region listed both communication and interpersonal skills as screening criteria while the one forensic accountant position in New York City required communication and organizational skills. Among Internet position announcements, only an audit senior/manager CPA position announcement in the Western region required both organizational and interpersonal skills.

CONCLUSIONS AND LIMITATIONS Despite all the changes that have occurred and are occurring in the accounting profession, accounting educators should accurately advise students concerning the knowledge and skill sets they need for successful accounting careers. This study, a replication of the Johnson and Johnson 1993 study, provides some guidance to accounting educators concerning screening criteria actually being used by employers. Findings of this study that are of interest to accounting educators include: Graduate degree expectations have changed from a requirement in 1993 to a preference in 2003. The CPA certification is still the most requested certification. Work experience required for entry-level positions is a continuing trend that suggests the importance of internships. Employers value both industry work experience and public accounting work experience across all three regions investigated by this study. Computer skills requested by employers now include a wider array of software such as communication software and databases/ERPs. Employers more often requested communication and organizational skills in 2003 than in 1993. Analysis of the 2003 data also found that employers in all data sets analyzed are implicitly indicating the necessity of an undergraduate degree


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with significant accounting coursework by requiring a CPA designation. Although employers in this sample apparently value the CPA designation, they are not requiring employment candidates to have graduate degrees. Analysis of all data sets found that employers across the nation are indicating a preference for a graduate degree but are not requiring it. Additional research is needed to explore this finding because it is of particular importance to accounting educators as they create curricula designed to meet the 150-hour requirement and provide advice to students concerning appropriate academic careers. Because this finding occurred in all data sets, it might support the position taken by Miller (2003, p. 212) that ‘‘academic programs still greatly outstrip public accounting’s interest in hiring master’s degree holders, despite the legislation.’’ This finding, however, must be interpreted cautiously because only 23 newspaper advertisements from CPA firms and 30 CPA firm Internet position announcements were found during the time period of the study. A different finding could have resulted in a larger pool of CPA firms. Initially not listing a graduate degree preference would allow employers to attract a larger pool of applicants for the screening process. When the hiring decision is made, however, an individual with a graduate degree might be hired over one with only an undergraduate degree. Comparison of 1993 and 2003 data show that fewer positions required a CPA designation for senior accountant, staff auditor, and tax accounting positions. This finding also must be interpreted cautiously. During the time period of this study, several states were implementing the 150-hour requirement and, thus, experienced a reduction in the number of accounting graduates for a short period of time. This gap may have led employers to hire individuals who have obtained only 4-year degrees with the intention of helping them attain the necessary additional hours of college credit while working. This anomaly could explain the decrease in CPA certification required for entry-level positions. Finally, it should be noted that in the western region and New York City, more Internet position announcements were collected than newspaper advertisements during March 2003. Accounting educators must alert students to the fact that they cannot ignore this position-advertising channel especially in tight economic times. Employers are using the Internet in their search for qualified accounting position candidates and students must include these services in their job searches. Of course, these findings are based on the assumption that the newspaper advertisements and Internet position announcements that were analyzed presented reasonably complete screening criteria. The authors could not find

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any empirical research to support that assumption. Additionally, because of cost pressures, some employers may have omitted one or more criteria important to their positions. The screening criteria could be driven by the media channel selected and not the required skill set for the position. Because we reviewed only one newspaper and one web site in each city, the findings might not represent the entire accounting job market in each city. Other publications, commercial web-sites, or the web-sites of employers themselves might contain varying configurations of screening criteria for each city. Future research might explore whether there is a difference in screening criteria for specific job markets between multiple electronic or print sources in the same geographic area. Another limitation of this study is that the organizations publishing the newspaper advertisements and Internet position announcements remained anonymous. Some advertisements and announcements could be for the same position. Because we could not identify individual firms, we are unable to detect differences in screening criteria for local, regional, and multinational CPA firms. Finally, this study includes newspaper advertisements and Internet position announcements available in March. Screening criteria may differ during various times of the year. For example, many CPA firms primarily recruit staff accountants in the fall on college campuses. Future research could determine whether screening criteria are different in the fall when organizations traditionally recruit on campuses. By reviewing both newspaper advertisements and Internet position announcements, however, the findings of this study do support the position taken in the plethora of position statements and white papers that have been published in the last 20 years – employers expect an accounting professional to have a firm grasp of accounting specific knowledge as indicated by the stated degree requirements. Additionally, the wide variety of software listed by employers indicates how profoundly computers have affected the accounting profession. Employers also expect accountants to be functional members of the organization’s management team through a familiarity with software packages that cut across organizational lines (databases and ERP systems), organizational skills, and communication skills. All of these findings provide some guidance to accounting educators as they prepare their students for successful accounting careers in the twenty-first century.

NOTES 1. Some of these publications include the American Accounting Association (AAA)s Bedford Report (AAA Committee on the Future Structure, Content and


163

Scope of Accounting Education, 1986); the Perspectives on Education by Arthur Andersen & Company et al. (1989); the 1994 Institute of Management Accountants (IMA) and Financial Executives Institute (FEI) joint position statement entitled What Corporate America Wants in Entry-Level Accountant; and the AICPA Core Competency Framework for Entry Into the Accounting Profession (AICPA, 1999). 2. The actual database compiled for the 1993 study was not available to the current researchers. Comparisons were made based on findings reported in the published paper. 3. Although New York enacted the 150-hour requirement in 1998, the law will not become effective until August 1, 2009. 4. In this sample, all of the certification requirements listed in the advertisements stated the CPA designation. Only two of the advertisements indicated a willingness to accept a CMA or a CPA designation. One of these advertisements was for a cost accountant while the other was for a corporate staff accountant.

REFERENCES Ahadiat, N., & Smith, K. J. (1994). A factor-analytic investigation of employee selection factors of significance to recruiters of entry-level accountants. Issues in Accounting Education, 9(1), 59–79. American Institute of Certified Public Accountants. (1999). The AICPA core competency framework for entry into the accounting profession. New York: AICPA. Arthur Andersen & Company, Arthur Young, Coopers & Lybrand, Deloitte Haskins & Sells, Ernst & Whinney, Peat Marwick Main & Co., Price Waterhouse, & Touche Ross. (1989). Perspectives on education: Capabilities for success in the accounting profession. New York: Arthur Andersen et al. Boone, J. P., & Coe, T. L. (2002). The 150-hour requirement and changes in the supply of accounting undergraduates: Evidence from a quasi-experiment. Issues in Accounting Education, 17(3), 253–268. Burnett, S. (2003). The future of accounting education: A regional perspective. Journal of Education for Business, 78(3), 129–134. Committee on the Future Structure, Content, and Scope of Accounting Education (The Bedford Committee). (1986). Future accounting education: Preparing for the expanding profession. Issues in Accounting Education, 1(1), 160–195. Dillon, G. J., Parkash, M., & Pelfrey, S. (2004). Attributes of accounting graduates desired by CPA and corporate recruiters. The National Accounting Journal, 6(1), 19–28. Harcourt, J., Krizan, A. C., & Merrier, P. (1991). Teaching resume content: Hiring officials’ preferences versus college recruiters’ preferences. Business Education Forum, 47(4), 13–17. Institute of Management Accountants.. (1994). What corporate America wants in entry-level accountants. Montvale, NJ: IMA. Johnson, L. M., & Johnson, V. E. (1995). Help wanted – accountant: What the classifieds say about employers’ expectations. Journal of Education for Business, 70(3), 130–134. Kent, C. H. (2001). Write effective ads to recruit managers. Contractor Magazine, 48(1), 34. Kirsch, R. J., Leathers, P. E., & Sneed, K. C. (1993). Student versus recruiter perceptions of the importance of staff auditor performance variables. Accounting Horizons, 7(4), 55–69.

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Krzystofik, A. T., & Fein, R. (1988). Does your firm use the right approach in hiring campus recruits? Journal of Accountancy, 166(5), 83–88. McGinty, R. (1992). Using student perceptions and job characteristics to recruit recent graduates. Review of Business, 14(1), 38. Miller, P. B. W. (2003). The five-year program debate continues: An updated analysis of the supply of and demand for master’s degrees in accounting. Issues in Accounting Education, 18(2), 211–220. Pasewark, W. R., Strawser, J. R., & Wilkerson, J. E., Jr. (1988). Empirical evidence on the association between characteristics of graduating accounting students and recruiting decision of accounting employers. Issues in Accounting Education, 3(2), 388–401. Peters, T. (1999). Connoisseur of talent. Forbes, 163(7), 93. Schmutte, J. (1998). Student and public accounting firm recruiter attitudes toward the desirability of student characteristics: A longitudinal study. Journal of Accounting Education, 16, 429–461.

APPENDIX. DATA FOR FIVE SCREENING CRITERIA Tables A1–A5.

East Region

West Region

New York City

Bus CPA NFP Total (%) Bus CPA NFP Total (%) Bus CPA NFP Total (%) Panel one: newspaper advertisements 0 None 1 Undergraduate: accounting 2 Undergraduate: strong accounting emphasis 3 Undergraduate: no specification 4 Undergraduate: implied 5 Graduate degree: required 6 Graduate degree: preferred

1 55 19 24 19 1 13

1 2 1 — 3 — —

2 16 7 5 3 — 1

4 73 27 29 25 1 14

2.3 42.2 15.6 16.7 14.5 0.6 8.1

3 16 10 12 5 1 9

3 — — 1 2 1 —

— 11 4 4 — — 4

6 27 14 17 7 2 13

7.0 31.4 16.3 19.8 8.1 2.3 15.1

9 17 5 5 15 1 5

4 3 — 1 1 — —

1 6 — 2 3 — 2

14 26 5 8 19 1 7

17.5 32.5 6.2 10.0 23.7 1.3 8.8

132

7

34

173 100

56

7

23

86 100

57

9

14

80 100

Panel two: internet position announcements 0 None 4 1 Undergraduate: accounting 27 2 Undergraduate: strong accounting emphasis 18 3 Undergraduate: no specification 2 4 Undergraduate: implied 3 5 Graduate degree: required — 6 Graduate degree: preferred 13

— 6 — 0 1 — 1

— 1 1 1 — — 1

4 34 19 3 4 — 15

6 31 18 11 9 1 8

2 5 — — 4 2 1

— 4 1 1 1 — —

8 40 19 12 14 3 9

13 21 5 10 22 1 19

3 — — 2 1 — 2

— — — — — — 2

16 21 5 12 23 1 23

67

8

4

84

14

7

91

8

2

5.1 43.0 24.0 3.8 5.1 — 19.0

79 100

7.6 38.1 18.1 11.4 13.3 2.9 8.6

105 100


Education Requirements Data.

Table A1.

15.8 20.7 5.0 11.9 22.8 1.0 22.8

101 100

165

East Region Bus

NFP

West Region Total (%)

advertisements 83 3 47 4 1 — 1 — — —

23 10 1 — —

109 61 2 1 —

132

34

173

7

Panel two: internet position announcements 0 None 29 4 1 1 CPA 35 4 3 2 CPA or CMA 1 — — 3 CPA or CIA 2 — — 4 CIA or GSA — — — 67

8

4

34 42 1 2 — 79

63.0 35.2 1.2 0.6 — 100 43.0 53.2 1.3 2.5 — 100

New York City

Bus

CPA

NFP

31 25 — — —

4 3 — — —

11 10 1 1 —

46 38 1 1 —

56

7

23

86

48 32 3 — 1

4 9 — 1 —

5 2 — — —

57 43 3 1 1

84

14

7

105

Total (%)

53.4 44.2 1.2 1.2 — 100 54.3 41.0 2.9 0.9 — 100

Bus

CPA

NFP

34 23 — — —

7 2 — — —

10 4 — — —

51 29 — — —

57

9

14

80

44 42 2 3 —

3 5 — — —

— 2 — — —

47 49 2 3 —

91

8

2

101

CMA: Certified Management Accountant; CIA: Certified Internal Auditor; GSA: General Services Administration

Total (%)

63.7 36.3 — — — 100 46.5 48.5 2.0 3.0 — 100


Panel one: newspaper 0 None 1 CPA 2 CPA or CMA 3 CPA or CIA 4 CIA or GSA

CPA

166

Professional Certification Requirements Data.

Table A2.

Work Experience Requirements Data. East Region

West Region

New York City

Bus CPA NFP Total (%) Bus CPA NFP Total (%) Bus CPA NFP Total (%) Panel one: newspaper advertisements 0 None required 1 Industry 2 Public accounting 3 Supervisory 4 Industry or public 5 Experience required but preference not stated

30 31 2 3 65 1

2 2 — — 3 —

5 4 2 — 22 1

132

7

34

Panel two: internet position announcements 0 None required 11 1 Industry 10 2 Public accounting 7 3 Supervisory 3 4 Industry or public 36 5 Experience required but preference not stated — 67

2 — 4 — 1 — 8

— 1 — 1 2 — 4

37 37 4 3 90 2

21.4 21.4 2.3 1.7 52.0 1.2

13 9 3 1 29 1

1 2 2 — 2 —

3 5 1 1 13 —

17 16 6 2 44 1

173 100

56

7

23

13 16.4 11 13.9 12 15.2 4 5.1 39 49.4 — — 79 100

5 14 9 1 55 — 84

2 — 11 — 2 — 14

— 2 — — 5 — 7

19.8 18.6 6.9 2.3 51.2 1.2

5 16 5 1 30 —

1 1 6 — 1 —

— 7 — — 7 —

6 24 11 1 38 —

86 100

57

9

14

80 100

6 5.7 16 15.2 20 19.1 1 0.9 62 59.1 — — 105 100

10 23 14 — 44 — 91

— — 7 — 1 — 8

— 2 — — — — 2

10 9.9 25 24.7 21 20.8 — — 45 44.6 — — 101 100

7.5 30.0 13.7 1.3 47.5 —


Table A3.

167

Software and Computer Skills Requirements Data.

East Region (n ¼ 173) Bus

Bus

CPA

NFP

1 1 — — — — — — —

10 3 3 4 1 1 — — —

East Region (n ¼ 79) CPA NFP

Panel two: internet position announcements Spreadsheets 14 Word processing 6 Accounting package 8 Databases 8 ERP 4 Presentation software 1 Project management software 3 Mapping software — Internet/network — Total announcements requiring computer skills

— — — — — — — — —

1 — 3 1 — — — — —

Total (%)

59 28 20 19 8 6 — — 2

34.1 16.2 11.6 11.0 4.6 3.5 — — 1.2 71 (41.0)

Total (%)

15 6 11 9 4 1 3 — —

19.0 7.5 13.9 11.4 5.1 1.3 3.8 — — 22 (27.8)

West Region (n ¼ 86)

New York City (n ¼ 80)

Bus

CPA

NFP

Total (%)

Bus

CPA

NFP

Total (%)

10 8 5 3 2 4 — — —

1 1 — — — — — — —

7 3 2 3 — 1 — 1 —

18 20.9 12 14.0 7 8.1 6 7.0 2 2.3 5 5.8 — — 1 1.2 — — 26 (30.2)

14 2 5 — 4 1 — 2 —

— — — — — — — — —

6 2 3 2 — 1 — — —

20 25.0 4 5.0 8 10.0 2 2.5 4 5.0 2 2.5 — — 2 2.5 — — 25 (31.3)

West Region (n ¼ 105) Bus CPA NFP Total (%)

Bus

22 10 8 7 6 1 2 — —

13 8 2 3 15 — — — 1

1 — 1 — — — — — —

1 1 1 — — — — — —

24 22.9 11 10.5 10 9.5 7 6.7 6 5.7 1 10.0 2 1.9 — — — — 32 (30.5)

New York City (n ¼ 101) CPA NFP Total (%)

— — — — — — — — —

— — — — — — — — —

13 12.9 8 7.9 2 2.0 3 3.0 15 14.9 — — — — — — 1 1.0 29 (28.7)

Note: Totals are not provided because some positions listed more than one computer skill. Percentages are of the total sample for each data set.


Panel one: newspaper advertisements Spreadsheets 48 Word processing 24 Accounting package 17 Databases 15 ERP 7 Presentation software 5 Project management software — Mapping software — Internet/network 2 Total advertisements requiring computer skills

168

Table A4.

Other Skill Requirements Data.

East Region (n ¼ 173) Bus Panel one: newspaper advertisements Effective communication 24 Strong organizational skills 15 Interpersonal skills 10 Ethics 4

CPA

NFP

— — — —

8 3 6 —


Total (%)

32 18 16 4

Total advertisements requiring other relevant skills

18.5 10.4 9.2 2.3

Bus CPA NFP

12 3 5 —

CPA

NFP

Panel two: internet position announcements Effective communication 15 2 1 Strong organizational skills 4 — — Interpersonal skills 8 — 1 Ethics 1 — — Total announcements requiring other relevant skills

4 3 — —

45 (26.0)

Bus CPA NFP

Total (%)

17 6 6 —

9 7 11 —

14 9 11 1

19.8 7.0 7.0 —

22.8 5.1 11.4 1.3 21 (26.6)

3 1 — —

2 1 1 1

Bus CPA NFP Total (%)

25 8 9 6

1 1 1 —

4 — — —

30 28.6 9 8.6 10 9.5 6 5.7 35 (33.3)

17.5 11.3 13.8 1.3

24 (30.0)


Total (%)

18 4 9 1

Total (%)

22 (25.6)

East Region (n ¼ 79) Bus

1 — 1 —

New York City (n ¼ 80)

New York City (n ¼ 101) Bus CPA NFP Total (%)

7 2 4 —

— — — —

— — — —

7 2 4 —


Table A5.

6.9 2.0 4.0 — 10 (9.9)

Note: Totals are not provided because some positions required more than one other skill.

169


170

RAISING STUDENTS’ ETHICAL SENSITIVITY WITH A VALUE RELEVANCE APPROACH Michael P. Coyne, Dawn W. Massey and Jay C. Thibodeau ABSTRACT This paper introduces a new approach to raising students’ ethical sensitivity. This new ‘‘Value Relevance Approach’’ (VRA) employs active instructional techniques to demonstrate the costs (benefits) associated with acting in an unethical (ethical) manner. Using a within and between subjects, pre/post-test design, we (1) assess the effectiveness of the VRA in affecting students’ ethical sensitivity and (2) compare the effectiveness of the VRA in affecting students’ ethical sensitivity to that of a traditional learning approach (TLA). The results indicate that ethical sensitivity improves for subjects in the VRA condition and also improves to a greater extent than for subjects in the TLA condition, suggesting that the VRA is more effective than a TLA in promoting ethical sensitivity among students.

INTRODUCTION The recent financial statement restatements made by corporate giants such as Enron, WorldCom, and Tyco have contributed toward perhaps the biggest Advances in Accounting Education: Teaching and Curriculum Innovations, Volume 7, 171–205 Copyright r 2005 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 1085-4622/doi:10.1016/S1085-4622(05)07008-2

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MICHAEL P. COYNE ET AL.

loss of investor trust that has ever occurred in the United States since the stock market crash of 1929 (Eichenwald, 2002, p. 3.1). Much of the responsibility for the current crisis has been placed squarely on the backs of accounting professionals (Byrnes, McNamee, Brady, & Lavelle, 2002, p. 44; Eichenwald, 2002, p. 3.1; Nelson, 2002, p. C1). While the passage of the Sarbanes-Oxley Act of 2002 lays a foundation to restore investor confidence, the behavior of individuals must change if the law is to have its desired effect (Harvard Law Review, 2003, p. 2123; Report of the National Commission on Fraudulent Financial Reporting, 1987). Indeed, the importance and value of personal integrity has become increasingly salient within the prevailing investment information marketplace. Consider remarks recently made by S. Scott Voynich, chairman of the e.g., American Institute of Certified Public Accountants (AICPA), who commented (Tie, 2003, p. 57) that ‘‘Competence can be purchased anywhere, but without integrity and objectivity, you don’t have value.’’ In a recent ‘‘advertorial,’’ PricewaterhouseCoopers (PWC, 2003, p. 9) echoed Voynich’s sentiment, stating, ‘‘Rules, regulations, laws, concepts, structures, processes, best practices, and even the most progressive use of technology cannot ensure public trust. This can only come about when people of integrity are committed to doing the right thing.’’ It has become clear that for society to restore trust and credibility to the investment information marketplace, it must assure the integrity of accounting professionals. One way to impact the moral fabric and integrity of accounting professionals is by raising their ethical sensitivity while they are college students. Ethical sensitivity, an individual’s ‘‘ability to recognize that a situation has ethical content when it is encountered’’ (Shaub, 1989, p. 7), is a necessary antecedent to an individual’s consideration of a situation from an ethical perspective (cf., Myyry & Helkama, 2002, p. 35). Accordingly, improving students’ ethical sensitivity can foster the development of their cognitive framework in a way that helps to facilitate the students’ identification of ethical dilemmas that they encounter as they progress through their career. The development of such a framework is consistent with the cognitivedevelopmental perspective, which suggests that since the ethical decision process is cognitive in nature, it is subject to development (Kohlberg, 1969). Educators have a responsibility to help ‘‘the next generation of business leaders to act with integrity and principle’’ in completing their duties (PWC, 2003, p. 15). For some time, accounting researchers e.g., American Accounting Association Committee on the Future Structure, Content, Scope of Accounting Education (The Bedford Committee), 1986, p. 179; Fischer & Rosenzweig, 1995, pp. 440–441; Kerr & Smith, 1995, p. 993; Williams, 2003,

Raising Students’ Ethical Sensitivity with a Value Relevance Approach

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p. 15) have suggested improving the moral fabric of accountants, starting with their ability to identify ethical dilemmas (i.e., their ethical sensitivity). However, there has been criticism regarding the manner in which accounting educators have attempted to reach this goal. For example, Kerr and Smith (1995, p. 998) criticized accounting textbooks for their singular emphasis on professional ethics codes. In addition, unlike other resources Kerr and Smith discuss (e.g., case problems, videotape presentations, educational novels, etc.), textbooks lack content regarding actual ethical issues and dilemmas, suggesting that an emphasis on ethical codes and rules will not be enough to prepare accounting professionals to restore trust and credibility to the investment information marketplace. The profession needs an innovative approach to raising ethical sensitivity. In this paper, we introduce and provide theoretical support for a new pedagogical approach, the ‘‘Value Relevance Approach’’ (VRA), to improve the ethical sensitivity of accounting students. The VRA focuses on the substantial costs (benefits) of unethical (ethical) behavior, as demonstrated through the use of relevant, real-world ethical vignettes and stories. In so doing, the VRA acknowledges the benefits of sharing the consequences associated with relevant, real-life vignettes/stories in helping to impart critical knowledge (Lavelle & Borrus, 2004, p. 88). In the education psychology literature, using relevant, real life vignettes and stories has long been acknowledged as an excellent manner in which to impart knowledge (McWilliam, Kersgard, Hedrick, & Vance, 1996, p. 4). Indeed, Simmons (2001, p. xvii) refers to stories and vignettes as ‘‘the oldest tool of influence in human history.’’ And, in the accounting education literature, Stewart (1997) describes narratives as a powerful approach in teaching ethics. The results of an experiment administered to 208 students from three universities provide support for the effectiveness of the VRA in raising students’ ethical sensitivity. Specifically, for subjects in the VRA condition, the results indicate a higher ethical sensitivity after the VRA intervention, suggesting that the VRA is effective in promoting ethical sensitivity among students. Further, subjects in the VRA condition improved their ethical sensitivity to a greater extent than subjects in the traditional learning approach (TLA) condition, suggesting that the VRA is more effective in promoting ethical sensitivity than the TLA. Taken together, these results provide support for the effectiveness of the VRA in raising students’ ethical sensitivity. We organize the remainder of this paper into five sections. The next section presents a review of the literature investigating the development of ethical sensitivity. The second section discusses the VRA in detail, providing

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theoretical support for the approach and developing the research hypotheses, followed by the research method. Section four presents the results. Finally, conclusions, implications, and limitations of this study are described.

LITERATURE REVIEW The vast majority of studies investigating the development of ethical sensitivity in accounting have their foundation in the cognitive-developmental perspective, most of which rely on Rest’s (1979, 1994) model of ethical action (see, e.g., Jones, Massey, & Thorne, 2003; Louwers, Ponemon, & Radtke, 1997 for reviews of the literature). The cognitive-developmental perspective generally focuses on the cognitive and developmental nature of the reasoning structures that precipitate ethical decisions or choices (Kohlberg, 1969). Thus, according to the cognitive-developmental perspective, the ethical decision process is cognitive in nature and, like other cognitive abilities, is subject to development. According to Rest’s (1979, 1994) model of ethical action, there are four components to the ethical decision process: (1) identification of an ethical dilemma; (2) formulation of ethical judgment; (3) determination of an intention to act ethically; and (4) ethical action/behavior. Of particular importance in affecting the behavior of accounting students is component (1), students’ ability to identify situations as having an ethical component and thereby initiate the ethical decision process (i.e., their ethical sensitivity) (Armstrong, Ketz, & Owsen, 2003, p. 4; Jones et al., 2003, p. 46; Mayper, Hoops, Pavur, & Merino, 1999, pp. 5–8; Shaub, 1989, p. 7). Simply stated, ‘‘[b]efore one can act ethically, one must understand that an ethical issue exists’’ (Armstrong et al., 2003, p. 4).1 Additionally, several researchers indicate that ‘‘intensity’’ affects individuals’ ability to identify ethical dilemmas in general (Jones, 1991, p. 380; Rest, 1983, p. 559) as well as in accounting (Karcher, 1996, p. 1045; Mayper et al., 1999, p. 8). Intensity, ‘‘the extent of issue-related ethical imperative in a situation’’ (Jones, 1991, p. 372), is a multi-dimensional construct comprising six components: the magnitude of consequences, the degree of social consensus, the probability that harm will occur, temporal immediacy, proximity of harm to the target, and the concentration of effect. In accounting, Karcher (1996, p. 1045) finds that subjects are more likely to identify an issue as an ethical dilemma if the legal or professional consequences are severe. Thus, research results highlight the important association between


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the magnitude of consequences and accountants’ ability to identify ethical dilemmas. To date, very little research in accounting has focused on improving component (1) of Rest’s (1979, 1994) model of ethical action, the ability to identify ethical dilemmas (i.e., ethical sensitivity) (see Armstrong et al., 2003 for a review of the literature). That is, despite calls for increased attention to improving ethical sensitivity (The Bedford Committee, 1986, p. 186; Report of the National Commission on Fraudulent Financial Reporting, 1987, p. 82), only one empirical study investigates whether ethical sensitivity improves as a result of an educational intervention. Fulmer and Cargile (1987, p. 216) report that although accounting students exposed to the AICPA Code of Professional Conduct perceive ethical issues more frequently than other business students, they do not choose different actions as a result of differences in their ethical perceptions. Thus, results in Fulmer and Cargile (1987) indicate, as Armstrong et al. (2003, p. 5) state, that simple exposure to the AICPA Code of Professional Conduct ‘‘may be necessary, but not sufficient, to change students’ ethical behavior.’’ Because of the dearth of studies in the area, however, it is unclear what educational interventions might better improve ethical sensitivity and result in changes in students’ behavior. There has been considerable debate in the accounting literature about the appropriate mechanisms that should be employed in affecting individuals’ overall ethical decision process (e.g., Kerr & Smith, 1995; Langenderfer & Rockness, 1989; Loeb & Rockness, 1992; Ponemon, 1993). On one hand, accounting educators might employ traditional learning approaches that are passive in nature (e.g., student reading or student note-taking from instructor lecture). On the other hand, accounting educators might employ more contemporary learning approaches that are active in nature (e.g., case analysis and discussion or student role play). Of relevance to the current study, Kerr and Smith (1995) discuss the various pedagogical devices available for educators in presenting ethical issues and provide two important suggestions. First, Kerr and Smith (1995, p. 989) recommend, ‘‘When using case problems to present ethical issues, attention could also be given to the disastrous personal consequences of unethical behavior.’’ This sentiment was echoed by Sarah B. Teslick, executive director of the Council of Institutional Investors who acknowledged the difficulty of teaching corporate ethics and suggested that ‘‘case studies exploring the consequences of real-life behavior’’ can be an effective mechanism to impart change (Lavelle & Borrus, 2004, p. 88). This supports the important role of the magnitude of consequences in ethics training (cf., Karcher, 1996, p. 1045).

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Second, Kerr and Smith (1995, p. 992) recommend a focus on realistic ethical dilemmas students may encounter in the workplace, suggesting the use of ‘‘Current articles on ethics [that] pique students’ interest and reinforce the timeliness and significance of [the issue].’’ This recommendation highlights the important role of using relevant cases in ethics training.

THE VALUE RELEVANCE APPROACH Based on the foregoing discussion, there are important links between (1) the severity of the consequences and identification of an ethical dilemma and (2) the use of relevant cases and vignettes and training to enhance individuals’ ability to identify an ethical dilemma. Accordingly, we propose a new approach focusing on ‘‘value’’ and ‘‘relevance,’’ the VRA, to improve accounting students’ ability to identify an ethical dilemma. We discuss each in turn.

Focus on Value The first tenet of the VRA emphasizes the notion that ‘‘value’’ is impacted by both ethical and unethical behaviors.2 That is, acting in an ethical manner enhances a business professional’s value in today’s knowledge and relationship-based economy. On the other hand, unethical behavior (e.g., fraudulent financial reporting) will often lead to substantial human and financial costs to individuals, organizations, and society at large. The information value chain perspective helps to establish the relationship between value and ethical as well as unethical behavior. According to this perspective, the value-added role of an accounting professional is to deliver critical knowledge at the point-of-need for upper managers and investors with ‘‘trustworthiness and unbreachable integrity’’ (Elliott, 2000, p. 83). If the character dimension of an accounting professional has been tarnished by an unethical action, the knowledge provided by that professional is not likely to be trusted by senior management and investors. Thus, the value of such an accounting professional decreases because of the unethical action. Indeed, over the past couple of years, numerous highly regarded CEOs have gone on record to emphasize the value premium presently associated with high integrity, high ethics professionals (e.g., Brennan, 2002). In short, to maximize their value, professionals must have trust. If this trust is ever broken as a result of an unethical action – whether in or outside of a work-related situation – it is unlikely that any associate would ever trust that individual as


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a business professional. And, in an economy where the primary value drivers are knowledge and relationships (Elliott, 2000, p. 83), this lack of trust clearly results in a loss in value.

Focus on Relevance The second tenet of the VRA emphasizes the importance of ‘‘relevance’’ when imparting knowledge about ethical sensitivity. That is, the VRA features relevant cases (i.e., timely vignettes), presenting them using relevant approaches (i.e., an active learning approach coupled with feedback). For example, one approach that might be considered under the VRA would be to have students take a ‘‘current-events ethics quiz’’ cold (i.e., without any prior study) and then provide them with feedback about their answers. Such a quiz might require that students formulate independent estimates of the costs of a real life example of unethical behavior and then receive feedback about the accuracy of their responses. An important feature of the VRA is its use of timely, real-world examples in the learning activity. For more than a decade, there have been calls for accounting educators to bring ‘‘practical reality’’ into the classroom (Albrecht & Sack, 2000, p. 51; Arthur Andersen et al., 1989; Knechel, 2000, p. 709). These calls apparently have merit as empirical results also suggest the importance of linking classroom experiences to real-world events (e.g., Etnier, 1983, p. 155; Mohrweis, 1993, p. 391). In the ethical domain, Rest and Narvaéz (1994, p. 217) suggest that successful ethics interventions help subjects develop a ‘‘cognitive framework of understanding.’’ By including real-world events in the VRA, we believe that the VRA helps the students to draw connections between actual unethical (ethical) behavior and the costs (benefits) of that behavior, thereby promoting the development of the students’ cognitive framework for understanding the magnitude of the costs of ethical misdeeds. In this way, we believe inclusion of real-world events in the VRA to be an important element for assisting students in successfully bridging the gap between the classroom and real-world practice. Additionally, the VRA uses two relevant approaches, the first of which is its application of an active learning strategy. According to Bonwell and Eison (1991, p. 2), active learning is defined as ‘‘instructional activities involving students in doing things and thinking about what they are doing.’’ The pedagogical value of active learning activities has been well documented in higher education in general (e.g., Bonwell & Eison, 1991) and in accounting

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education (e.g., Ferguson, Richardson, & Wines, 2000; Groomer, Mohrweis, & Ward, 1992; Krumwiede & Bline, 1997; Pillsbury, 1993). It is not surprising, then, that calls continue for accounting faculty to ‘‘design educational experiences for students that require them to be active, independent learners and problem solvers rather than passive recipients of information’’ (The Bedford Committee, 1986, p. 187; see also: AECC, 1990; Albrecht & Sack, 2000). By asking students to take an ‘‘ethics quiz’’ without any prior preparation, the VRA would require students actively to connect an example of unethical behavior with the costs of such behavior. We believe that use of such an active learning approach in the VRA is important for furthering students’ ethics education. Finally, the VRA also incorporates the use of timely and accurate feedback to complete the learning experience. In the example provided, students taking the ‘‘ethics quiz’’ would be provided with timely information about the accuracy of their estimates made during the quiz (i.e., outcome feedback). In general, results of prior research suggest that outcome feedback is effective for improving generic decisions involving a simple criterion outcome (e.g., Balzer, Doherty, & O’Connor, Jr., 1989, p. 412) as well as decisions in an accounting context (e.g., Bonner & Walker, 1994, p. 173; Emby, Gelardi, & Lowe, 2002, p. 87; Hirst, Luckett, & Trotman, 1999, p. 286; Tuttle & Stocks, 1998, p. 104). In the ethical domain, Rest and Narvaéz (1994, p. 217) suggest the importance of ‘‘integrating direct experience with reflection’’ as an additional factor important for development of subjects’ cognitive framework of understanding. As applied to the current study, the instructor utilizes the feedback incorporated in the VRA to focus subjects on the costs and benefits associated with a real ethical dilemma. As such, it allows the students to integrate direct experience with reflection and, theoretically, should enhance subjects’ cognitive framework for understanding ethical issues. Given the theoretical support for the features embodied in the VRA discussed above, we anticipate that the VRA intervention will result in an improvement in students’ ethical sensitivity. Further, we anticipate that the VRA intervention will result in a greater improvement in students’ ethical sensitivity than an intervention based on a TLA. These expectations give rise to Hypotheses 1 and 2: Hypothesis 1. The VRA will result in a significant increase in students’ ethical sensitivity. Hypothesis 2. The VRA will result in a significantly greater increase in students’ ethical sensitivity than a TLA.


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RESEARCH METHOD Participants and Task Our sample includes 208 accounting majors (sophomores through fifth-year students) from three private universities in the Eastern United States. Of the total, 70, 58, and 80 were students at Universities 1, 2, and 3, respectively. Subjects’ participation in the study was voluntary. However, to encourage participation, instructors afforded extra credit points (e.g., 2 percentage points added to their raw final examination grade) to all subjects participating in the experiment. Subjects completed a six-task experiment that included (1) a pre-experimental questionnaire to elicit demographic information as well as subjects’ general awareness of and attitudes toward accounting scandals prior to the experiment; (2) a pretest questionnaire to assess ethical sensitivity at the outset of the experiment; (3) the VRA intervention or the TLA intervention; (4) a distracter task (an unrelated survey); (5) a post-test questionnaire to assess ethical sensitivity following the intervention; and (6) a postexperimental questionnaire to elicit subjects’ comments about the experiment as well as their general awareness of and attitudes toward accounting scandals following the experiment. We randomly assigned approximately one-half of the subjects to each of the VRA and TLA conditions in task 3 (the intervention). Appendices 1–6 contain hard-copy samples of the experimental task materials.3

Measures of Ethical Sensitivity Ethical sensitivity is an individual’s ability to identify a situation as having an ethical dimension and thereby initiate the ethical decision process (Armstrong et al., 2003, p. 4; Jones et al., 2003, p. 46; Myyry & Helkama, 2002, p. 35). A key feature of ethical sensitivity is an affective aspect – awareness that one’s actions affect others (Rest, 1994, p. 23). Thus, to the extent individuals are more perceptive to others, they will be more ethically sensitive. Prior research generally has measured ethical sensitivity by assessing whether or not an individual recognized that a particular issue had an ethical dimension (e.g., Abdolmohammadi & Owhoso, 2000; Karcher, 1996; Shaub, Finn, & Munter, 1993). However, when an intervention is used, as in the present context, the possibilities of demand effects complicate any posttest measure of an individual’s recognition or lack of recognition that a

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particular issue has an ethical dimension. Therefore, we do not employ this measure of ethical sensitivity. Instead, we use Forsyth’s (1980) Ethics Position Questionnaire to assess changes in subjects’ ethical sensitivity, based on the work of Shaub and his colleagues. Shaub (1989) argues that because those who are strong relativists believe that moral absolutes cannot be relied upon in making ethical decisions, they are less likely to learn the norms guiding professional behavior, such as those prescribed in a code of conduct. As a result, strong relativists lack knowledge of professional guidelines and thus are less sensitive to the ethical dimension of the situations they encounter. Thus, Shaub et al. (1993) posit and find a significantly negative association (at a correlation of 0.160) between relativism and ethical sensitivity. Shaub (1989) also argues that because those who are strong idealists believe that doing the right thing will necessarily produce positive consequences, they are more likely to focus on the affective aspect of their actions. Accordingly, Shaub et al. (1993, p. 154) hypothesize a significantly positive association between idealism and ethical sensitivity. However, results in Shaub et al. (1993, p. 163) actually controvert their hypothesis, as they found a marginally negative relationship between idealism and ethical sensitivity (at a correlation of 0.077). Thus, while idealism and ethical sensitivity should, theoretically, bear a positive relationship, empirical results suggest that the opposite may be true. Following Shaub et al. (1993), we use changes in an individual’s measures of relativism and idealism from Forsyth’s (1980, p. 178) Ethics Position Questionnaire as proxies to assess that individual’s change in ethical sensitivity. In other words, we associate decreases in subjects’ relativism scores with increases in ethical sensitivity and changes in subjects’ idealism scores with increases in ethical sensitivity.4 In addition, because prior research (Karcher, 1996, p. 1043) has found that age is a significant factor impacting an individual’s ethical sensitivity, we control for age when analyzing differences in the measures of ethical sensitivity between subjects.

Overview of the Intervention As discussed previously, approximately one-half of the subjects participated in each the VRA and TLA conditions of the experiment (task 3). The VRA condition of the experiment consists of an active learning activity. Without any advance preparation on their part, we ask students in the VRA condition to provide answers to questions on an ‘‘ethics quiz’’ by formulating


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estimates for the costs of unethical behavior associated with real ethical lapses. Following the students’ attempts at responding to the quiz, we provide them with feedback about the answers to the questions on the quiz. In contrast, students in the TLA condition take part in a more passive learning activity. That is, students in the TLA condition read a summary about the costs of unethical behavior associated with recent ethical lapses.

The VRA Condition Recall that the two major elements of the VRA are the approach’s focus on value and emphasis on relevance. To incorporate features inherent in both of these elements, we developed an ‘‘ethics quiz’’ that, in the experiment, allowed us to: (1) Focus the students’ attention on the impact of unethical behavior on value; and (2) Incorporate timely, real-world cases that both: a. engage the students (i.e., utilize an active learning activity); and b. provide the students with feedback. In the current business environment, there were a number of real-world ethical irregularities involving major corporations from which to choose material for the VRA condition. We chose the majority of our real-world questions from the highly publicized Enron/Andersen, WorldCom, and Martha Stewart ethical scandals because our experiences suggested that students would have some general familiarity with these scandals, yet would not necessarily know the specific costs of the unethical behavior (e.g., loss in company market value or loss in jobs). We then chose a number of other, even more recent ethical accounting scandals that, at the time, were lesspublicized than those involving Enron/Andersen, WorldCom, and Martha Stewart to elicit responses across ethical scandals covering a wide spectrum of publicity (e.g., Xerox and Kmart). The quiz asked students a series of questions related to the Enron, WorldCom, and Martha Stewart cases that focused on the financial and human consequences of these scandals (see Appendix C). The questions attempted to provide students with a sense of what was ‘‘gained’’ or ‘‘lost’’ from the unethical behavior by estimating various losses (e.g., market value, jobs, etc.). After completing the quiz, we gave students feedback about the answers to the questions posed in the quiz (see Appendix D).

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It is important to note that although the particular ethical scandals we chose to include may be current now, in time they will not be. Recall, however, that a key feature of the VRA is its incorporation of timely, realworld events that assist students in linking actual unethical behavior to the costs of those misdeeds. Consequently, the particular quiz we developed is simply one example of a learning activity that could be used in the VRA.

The TLA Condition As is typical of traditional-learning approaches, the learning activity embodied in the TLA condition was more passive in nature. In the TLA condition, the researchers provided students with a written summary that briefly discussed the Enron/Arthur Andersen, WorldCom, and Martha Stewart scandals. The written summary focused on the financial consequences (e.g., loss in company market value) and the human consequences (e.g., loss of jobs) related to these scandals. The document also listed a series of less publicized accounting scandals (e.g., Xerox and Kmart). Overall, the content in the written summary was identical to that provided in the feedback about the answers to the ethics quiz in the VRA condition (see Appendix E).

RESULTS Demographic Information The sample consisted of 208 accounting majors from three private institutions in the Eastern United States. To assess the robustness of the VRA across a wide spectrum of students, we drew accounting majors from the sophomore through fifth-year levels and randomly assigned them to the experimental (VRA) condition (101 subjects) and control (TLA) condition (107 subjects). Overall, there were 112 males (54%) and 96 (46%) females in the sample. The students ranged in age from 19 to 56 (mean age of 23.1 years old). In addition, the percentage of students who had taken an ethics course was also quite similar (44% of students in the VRA group and 43% of students in the TLA group). Table 1 presents a summary of the sample – by experimental condition – for each of the demographic characteristics, as well as for pretest relativism scores and pretest idealism scores. There were no statistically significant differences in any of the demographic characteristics between the VRA and TLA conditions.

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Additionally, Table 1 presents a summary of responses to two questions that focused on determining subjects’ general awareness of and attitudes toward the relevant accounting scandals prior to the experimental treatment. Overall, the responses indicate that, prior to the experimental treatment, the groups’ awareness of the accounting scandals as well as their attitudes regarding the seriousness of the accounting scandals were uniform. Specifically, students in each group were able to name the same number of companies involved in the relevant accounting scandals prior to the experimental treatment (i.e., 2.7). And, only 2% of students in each group believed that the Table 1.

Descriptive Statistics.

Characteristic

Females Number Percent Age in yearsa Mean Range Those who took an ethics course Number Percent Pretest Relativismb Mean S.D. Pretest Idealismb Mean S.D. Pretest number of companies students named as being involved in ethics scandals in the last 2 years (Average) Pretest percentage of students indicating that the accounting scandals were not a serious problem Number Percentage Sample composition Number Percent a

All Subjects (VRA & TLA)

Experimental Subjects (VRA)

Control Subjects (TLA)

96 46

48 48

48 45

23.1 19–56

22.6 19–52

23.5 19–56

90 43.5

44 44

46 43

5.07 1.17

5.00 1.22

5.11 1.10

6.33 1.28

6.37 1.11

6.29 1.39

2.7

2.7

2.7

4 2

2 2

2 2

208 100

101 49

107 51

Note that one subject in the TLA condition did not report his or her age. Experimental subjects’ relativism (idealism) scores were not statistically different from control subjects’ relativism (idealism) scores at p40:70 (p40:86).

b

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accounting scandals were not a serious problem. The remainder thought the accounting scandals were either a serious or very serious problem.

Results of Hypothesis Testing To demonstrate that the VRA was effective in raising students’ ethical awareness, we calculated relativism and idealism scores for each subject from both the pre- and the post-experimental Ethics Position Questionnaires (Forsyth, 1980, p. 178). These scores were then used to complete a within-subjects analysis of the treatment group and a between-subjects analysis comparing the treatment group to the control group. Each of these analyses is now presented in turn. Within-Subjects Analysis To complete the within-subjects analysis, we compared scores for subjects in the VRA condition from both the pre- and post-test Ethics Position Questionnaires for relativism and idealism using paired samples t-tests. For comparative purposes, we also compared pre- and post-test relativism and idealism scores for subjects in the TLA condition using paired samples t-tests. As shown in Table 2, there are no significant changes for either relativism or idealism scores for subjects in the TLA condition (at p ¼ 0:921 and 0.323, respectively). For students in the VRA condition, as expected, the relativism rating mean score decreased from 5.00 on the pre-experimental questionnaire to 4.78 on the post-experimental questionnaire. A paired sample t-test comparison of these means indicates that this decrease was significant (one-tailed p ¼ 0:009), suggesting that the VRA improved students’ ethical sensitivity. A graphical illustration of the change in pre- and post-test relativism scores across experimental conditions is shown in Fig. 1. The idealism scores for subjects in the VRA condition also changed, from 6.38 on the pre-experimental questionnaire to 6.50 on the post-experimental questionnaire. A paired sample t-test of these means indicates that this increase was marginally significant (two-tailed p ¼ 0:088), which further suggests that the VRA affected students’ ethical sensitivity. A graphical illustration of the change in pre- and post-test idealism scores across experimental conditions is shown in Fig. 2.5 Importantly, to place the efficacy of the TLA and the VRA results in context, we calculate the effect-size gains of both treatments and compare them to the effect-size gains for other ethics interventions of similar length. Effect size is an indicator of the power of the treatment. For each independent

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Table 2.

Within Subjects Analysis: Paired Samples t-Tests (H1).

Panel A: Subjects in the TLA Condition Mean (S.D.) Pretest Score

Relativism Idealism

Expected Relationship (Pretest: Post-test)

5.11 (1.10) 6.29 (1.39)

¼ ¼

Mean (S.D.) Post-test Score

t

5.11 (1.30) 6.35 (1.5)

0.10 0.99

Two-tailed p-value

0.921 0.323

Panel B: Subjects in the VRA Condition Mean (S.D.) Pretest Score

Relativism Idealism a

Expected Relationship (Pretest: Post-test)

5.00 (1.22) 6.37 (1.11)

4 6¼

Mean (S.D.) Post-test Score

t

4.78 (1.42) 6.50 (1.25)

2.40 1.70

p-valuea

0.009 0.088

One-tailed p-value for relativism; two-tailed p-value for idealism.

5.2 TLA 5.1

VRA

5 4.9 4.8 4.7 4.6 Pretest

Fig. 1.

Post-test

Relativism Score: Comparison of Value Relevance Approach to a Traditional Learning Approach.

treatment group, effect size for that treatment is represented by the difference between the mean of the pretest and the post-test divided by the pooled standard deviation (i.e., the weighted average standard deviation within the

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MICHAEL P. COYNE ET AL. 6.55 6.5

TLA VRA

6.45 6.4 6.35 6.3 6.25 6.2 6.15 Pretest

Fig. 2.

Post-test

Idealism Score-Comparison of Value Relevance Approach to a Traditional Learning Approach.

groups of the study) (c.f., Rest & Thoma, 1986, pp. 76–78). Importantly, in a meta-analysis of short-term ethics interventions, Rest and Thoma (1986, p. 84) report effect-size gains of about 0.09 for interventions with time horizons comparable to this study (i.e., between 30 and 60 min) up to and including interventions lasting three weeks. In the present study, subjects in the TLA condition experienced small effect-size gains in both their pre- to post-relativism scores (0.01) and their pre- to post-idealism scores (0.09). Thus, effect size gains in the TLA condition in this study are similar to Rest and Thoma (1986, p. 84). In contrast, for the VRA condition, the effect-size gains for relativism and idealism were 0.26 and 0.18, respectively. Given these results, there is strong support for H1.6 Between-Subjects Analysis To complete the between-subjects analysis, we first tested whether there were any differences between the pre-experimental relativism and idealism scores for subjects in the VRA condition as compared to those for subjects in the TLA condition. This step is important because it establishes that across the treatment and control groups, the subjects’ ethical sensitivity was the same before the experimental treatment. As shown in Table 1 and discussed previously, the pretest relativism (idealism) score for subjects in the VRA condition of 5.00 (6.37) was not significantly different from the pretest relativism


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(idealism) score for subjects in the TLA condition of 5.11 (6.29) (p ¼ 0:464 for relativism, p ¼ 0:618 for idealism). Accordingly, we proceeded with our between-subjects analysis, the results of which appear in Table 3. Given the statistical similarity of the subjects’ ethical sensitivity before the experimental treatment, we performed an ANCOVA to assess whether, after controlling for pretest scores and age, subjects’ relativism (idealism) scores in the post-test could be attributed to the experimental condition. In the ANCOVA for relativism, both covariates, pretest relativism score and age, are significant (at p ¼ 0:000 and 0.003, respectively). In addition, the experimental condition is significant at p ¼ 0:025: Supplementary analysis finds that on average, subjects in the experimental group experienced a decrease in their relativism score of 0.22 while, on average, relativism scores for subjects in the control condition were virtually unchanged (i.e., increase of 0.01). This result implies that the VRA was more effective than a TLA in increasing the ethical sensitivity of students (as reflected by decreasing relativism scores) and provides support for H2. In the ANCOVA for idealism, the covariate pretest idealism score is significant ðp ¼ 0:000Þ; however, the covariate age and the experimental condition are not significant (p ¼ 0:374 and 0.557, respectively). Supplementary analysis finds that on average, subjects in the experimental group experienced an increase in their idealism score of 0.13 while, on average, idealism scores for subjects in the control condition increased by 0.07. Although in the correct direction, this result was not statistically significant.7 Taken together, one result (i.e., ethical sensitivity as measured by relativism) suggests that the VRA improved students’ ethical sensitivity while one result (i.e., ethical sensitivity as measured by idealism) does not. Accordingly, the results in this study provide partial support for H2.

Supplemental Analysis of Responses to the Pre- and Post-Questionnaires To provide supplemental evidence in support of the effectiveness of the VRA, we also analyzed several of students’ pre- and post-questionnaire responses (see Appendix A and Appendix F). A brief discussion of the significant results now follows. The detailed results are presented in Table 4. Question 5: Student Assessments about the Financial Costs of Unethical Behavior Question 5, which appeared only on the post-questionnaires, asked students whether the financial cost of unethical behavior was greater or less than they

Between Subjects Analysis: ANCOVA Results for Subjects in the VRA versus the TLA Conditions (H2).

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Table 3. Panel A: Relativisma Source of Variation Covariate (pretest relativism) Covariate (age) Experimental conditionb Explained Residual Total

Sum of Squares

df

Mean Square

F

Two-tailed p-value

236.37

1

236.37

375.21

0.000

5.55 3.20

1 1

5.55 3.20

8.81 5.08

0.003 0.025

257.74 127.88 385.62

3 203 206

85.91 0.63

136.38

0.000

Panel B: Descriptive Statistics for Differences in Relativism (nexperimentals, ncontrols)

Mean Pre- to Post-Difference in Relativism for Experimentals (S.D.) 0.22 (0.91)

+0.01 (0.70)

Panel C: Idealismc Source of Variation Covariate (pretest idealism) Covariate (age) Experimental conditiond Explained

Sum of Squares

df

Mean Square

F

Two-tailed p-value

552.78

0.000

279.41

1

279.41

0.40 0.18

1 1

0.40 0.18

287.10

3

287.10

0.794 0.346 189.33

0.374 0.557 0.001


(101,107)

Mean Pre- to Post-Difference in Relativism for Controls (S.D.)

102.61 389.71

203 206

0.51

Panel D: Descriptive Statistics for Differences in Idealism (nexperimentals, ncontrols)

(101,107)

Mean Pre- to Post-Difference in Idealism for Experimentals (S.D.)

Mean Pre- to Post-Difference in Idealism for Controls (S.D.)

+0.07 (0.69)

+0.13 (0.74)

Model: Post-test relativism score ¼ b0+b*1 pretest relativism score+b*2 age+b*3 experimental condition+e. The covariate-adjusted means are 5.07 for the TLA condition and 4.82 for the VRA condition. c Model: Post-test idealism score ¼ b0+b*1 pretest idealism score+b*2 age+b*3 experimental condition+e. d The covariate-adjusted means are 6.39 for the TLA condition and 6.44 for the VRA condition. a

b


Residual Total

189

Dependent Variable

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Table 4.

ANCOVA Results for Pre- and Post-Questionnaire Analysis.

Source of Variance

F

Two-tailed p-value

62.52

0.000

3.92 1.71

0.049 0.192

Comments

Panel A: Question 1 – Student Knowledge of Accounting Scandals Companies named

Covariate (preexperimental score) Covariate (age) Experimental condition

Not significant, but greater increase in VRA (1.5) versus TLA (1.2)

Panel B: Question 5 – Student Assessments about the Financial Costs of Unethical Behavior Financial cost

Covariate (age) Experimental condition

0.05 3.65

0.827 0.061

82% of VRA thought cost greater versus 68% of TLA

Human cost


0.39 0.19

0.533 0.664

Panel D: Question 7 – Student Surprise about the Costs of Unethical Behavior Surprised


0.14 109.65

0.708 0.000

79% of VRA surprised versus 19% of TLA surprised


Panel C: Question 6 – Student Assessments about the Human Costs of Unethical Behavior


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originally expected. We based the data for analyzing this question on three possible responses the students could have given (i.e., greater, same or less cost than expected).8 To assess whether the experimental treatments differentially affected student ethical sensitivity and, thus, their assessment of the financial cost of unethical behavior, we performed an ANCOVA. In our ANCOVA, the students’ post assessment of the financial cost of unethical behavior (greater, same or less) was the dependent variable; the treatment (VRA or TLA) was the independent variable; and age was the covariate. As shown in Table 4 (Panel B), our ANCOVA revealed that the covariate age was not significant ðp ¼ 0:827Þ and the experimental condition was marginally significant ðp ¼ 0:061Þ: Further analysis reveals that, on average, 82% of the subjects in the experimental group reported the financial cost was greater than they thought, whereas in the TLA condition, 68% responded that the effect was greater. These results suggest the VRA heightened student awareness of the financial costs of unethical behavior to a somewhat greater extent than the TLA. Question 7: Student Surprise about the Costs of Unethical Behavior Question 7 also appeared only on the post-questionnaires. It asked students whether they were surprised by the cost of unethical behavior. We based the data for analyzing this question on two possible responses the students could have given (i.e., yes or no). To assess whether the experimental treatments differentially affected student ethical sensitivity and, thus, their surprise at the cost of unethical behavior, we performed an ANCOVA. In our ANCOVA, the students’ surprise at the cost of unethical behavior (yes or no)9 was the dependent variable; the treatment (VRA or TLA) was the independent variable; and age was the covariate. As shown in Table 4 (Panel D), although the covariate age was not significant ðp ¼ 0:708Þ; the experimental condition was significant ðp ¼ 0:000Þ: Further analysis reveals that, on average, only 19% of subjects in the control group reported they were surprised by the information in the study, while 70% of subjects in the VRA condition reported being surprised. These results underscore the superior effect of the VRA, when compared to the TLA, in sensitizing students to the costs of unethical behavior.10

DISCUSSION This paper introduces an innovative approach to raising students’ ethical sensitivity. This new VRA uses an active instructional technique to

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demonstrate the costs associated with acting in an unethical manner and the benefits of acting in an ethical manner. In addition to introducing and providing theoretical support for the VRA, we also tested whether this approach is more effective than a TLA in raising the ethical sensitivity of students. Overall, as hypothesized, the results indicate that the VRA was effective in raising the ethical sensitivity of students. Evidence of the effectiveness of VRA is provided in three ways. First, a within-subjects analysis revealed that the ethical sensitivity of students exposed to the VRA increased significantly when assessed via relativism and marginally significantly when assessed via idealism. At the same time, there was no significant change in the ethical sensitivity of students exposed to the TLA (whether assessed via relativism or idealism). Second, results from a between-subjects analysis indicate that the ethical sensitivity of students exposed to the VRA increased, but the results were only significant when assessed via relativism (idealism results were not significant). Third, for a series of measures calculated from the pre- and post-questionnaire responses, additional evidence suggests the VRA was more effective than the TLA in sensitizing students to the number of companies involved in the accounting scandals and the costs of unethical behavior. Most notably, as compared to subjects in the TLA condition, many more subjects in the VRA condition expressed surprise by the actual costs of unethical behavior. Three key implications follow from these findings. First, the results suggest that in the near term, VRA shows promise for increasing students’ sensitivity to ethical issues. This result is significant because improving students’ ethical sensitivity, which precedes initiation of their ethical decision process (Armstrong et al., 2003, p. 4) can help students develop cognitive frameworks that can help them identify and resolve the ethical dilemmas they may encounter as they progress in their careers. Because we find that students are more sensitive to ethical issues following the VRA, VRA is a promising training tool for educators to add to their accounting-ethics curriculum. Future research may also explore the effect and effectiveness of the VRA on practicing Certified Public Accountants (CPAs). Second, a key feature of the VRA is its incorporation of current, realworld events. For example, the quiz we used in the VRA condition in this study included events that are now current, but that in time will not be. Accordingly, our results underscore the need for educators to update their courses to reflect reality (cf., Albrecht & Sack, 2000, p. 51; Arthur Andersen et al., 1989; Knechel, 2000, p. 709). Future research could, however, assess the long-term effect on ethical sensitivity of using the VRA.


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Third, our results provide evidence to support the theoretical arguments presented in Shaub et al. (1993). Namely, that increases in ethical sensitivity are associated with increases (and not decreases) in subjects’ idealism. Interestingly, while significant changes in relativism scores were apparent following the short-term VRA intervention, changes in subjects’ idealism scores were less pronounced. Accordingly, future research may explore the effect and effectiveness of the VRA over a longer term, particularly as it relates to idealism scores for practicing CPAs. In this paper, we chose to feature losses that relate to unethical behavior as a way of raising ethical awareness. As an extension of testing the VRA, future researchers might feature benefits that relate to ethical behavior or compare whether featuring losses as opposed to benefits is more effective at impacting ethical behavior. In addition, future research can address the differential effect of various types of losses or benefits, such as whether personal losses or benefits have a greater or lesser effect on ethical behavior than societal losses or benefits. Finally, although the results we attained might be limited by factors that are idiosyncratic to this particular study (e.g., using convenience samples, self-reported measures, and one example for the VRA), we believe the VRA approach can have wide usefulness. Indeed, we designed the VRA for application to any level of students, undergraduate and graduate. In addition, others might utilize the approach in any accounting class. The key, we believe, is for a faculty member to incorporate the salient features of the VRA into a learning activity: (1) focusing the students’ attention on the market value effects of unethical behavior; and (2) incorporating timely, real-world cases that: (a) engage the students by utilizing an active learning activity; and (b) provide the students with timely feedback. Thus, by utilizing the VRA we believe faculty can improve students’ ethical sensitivity and then, perhaps we, as educators, can help our students to stay on the straight and narrow. By doing so, it is possible that we can help to reduce the apparent decline in the moral fabric of our students and, ultimately, of accounting professionals.

NOTES 1. The focus of the current study is on ethical sensitivity, which ultimately underlies ethical behavior. Ethical behavior is behavior that complies with a generally accepted code of conduct (whether formal or informal) and is distinct from both moral behavior and legal behavior. Moral behavior is behavior that complies with an

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individual’s own conceptions of right and wrong, while legal behavior is behavior that complies with local, state or federal laws. 2. We use the term ‘‘value’’ instead of ‘‘severity of the consequences’’ in the present study because value is a more neutral term that allows for the possibility of either positive or negative consequences related to ethical or unethical behavior. 3. Because of their tangential relationship to the study, we do not include the distracter task surveys as an appendix. Copies are available by request made to Dawn W. Massey, the corresponding author. 4. Because Shaub et al.’s (1993) results for idealism were contrary to the authors’ theoretical arguments and expectations, we do not presuppose a direction for changes in subjects’ idealism scores. Rather, if different, the direction of the change in subjects’ idealism scores from the pretest to the post-test in this study will provide additional evidence to support or refute Shaub et al.’s (1993) seemingly contrary results. 5. Further analysis of the data by school also supports the results reported for the overall sample. That is, at each school, pretest relativism (idealism) scores were higher (lower) than post-test relativism (idealism) scores. 6. We also analyzed pre-post differences on an item-by-item basis for questions 11–20, on the EPQ for the VRA group using a MANCOVA. Also, to assess the relative importance of each dependent variable, post hoc univariate F tests were completed for each of the responses to questions 11–20. The results of this post hoc analysis revealed that the responses to question 19 (F ¼ 4.54, p ¼ 0.034) and question 20 (F ¼ 6.74, p ¼ 0.010) were significant, while the response to question 14 (F ¼ 3.517, p ¼ 0.062) was marginally significant. The responses to all of the remaining questions were not significant. Overall, the results of the MANCOVA suggest that the responses to questions 14, 19, and 20 were the main contributors to the significant result for relativism reported in Table 3. 7. As a test of sensitivity, we also conducted the relativism and idealism analyses using the difference between each subject’s pre- and post-relativism and idealism scores, respectively, as the dependent-variable measure (instead of using pretest relativism or idealism score as a covariate). The results were substantively the same. In addition, to ensure that school-by-school differences were not affecting our results, we reran the ANCOVAs by including a variable for ‘‘school.’’ Results of this analysis were substantively the same as those obtained without the ‘‘school’’ variable. Importantly, we did not obtain significance on the ‘‘school’’ variable, suggesting that school-by-school differences were not affecting our results. 8. Ninety-nine students in both the VRA and TLA conditions provided an answer to this question. Ten students gave inappropriate responses that we purged from the data. 9. One hundred students in both the VRA and TLA conditions provided an answer to this question. Eight students gave inappropriate responses that we purged from the data. 10. It should be noted that for Question 9, we could not conduct any meaningful analysis because subjects’ responses varied significantly and many comments could not be coded in terms of a positive or negative response. For example, 22 students (19 in the VRA Condition and three in TLA condition) commented on the Martha Stewart case even though there was no question in the post-experimental questionnaire that


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asked directly about the case. In contrast, only 6 students commented on the Enron/ Arthur Andersen Case. Also, we were unable to draw any definitive conclusions from Question 2 because, prior to the experiment, only 2% of the subjects in each treatment condition considered the problem ‘‘not serious.’’ Therefore, calculating any meaningful measure of change in student’s attitudes on this issue was not possible.

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APPENDIX A. PRE-EXPERIMENTAL QUESTIONNAIRE Please answer the following: Gender_________________ Age___________________ Major________________ Accounting courses taken_____________________ Undergraduate class (first year, sophomore, junior, etc.)_______________ G.P.A. ________________ 1. Name any companies that you know were involved in accounting scandals during the past two years. 2. How serious of a problem do you think that these accounting scandals are? 3. Have you ever taken an ethics course or a course that focuses largely on ethics? a.) If so, what was the name of the course? b.) When was the course taken? c.) Briefly describe the topics that were covered in the course?


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APPENDIX B. ASSESSMENT OF ETHICAL SENSITIVITY (USING FORSYTH’S ETHICAL POSITION QUESTIONNAIREa;b ) Questionnaire You will find a series of general statements listed below. Each represents a commonly held opinion and there are no right or wrong answers. You will probably agree with some items and disagree with other. We are interested in the extent to which you agree or disagree with such matters of opinion. Please read each statement carefully. Then indicate the extent to which you agree or disagree with such matters of opinion by placing in front of the statement the number corresponding to your feelings, where: 1 ¼ Completely Disagree 2 ¼ Largely Disagree 3 ¼ Moderately Disagree

4 ¼ Slightly Disagree 5 ¼ Neither Agree nor Disagree 6 ¼ Slightly Agree

7 ¼ Moderately Agree 8 ¼ Largely Agree 9 ¼ Completely Agree

— 1. A person should make certain that their actions never intentionally harm another even to a small degree. — 2. Risks to another should never be tolerated, irrespective of how small the risks might be. — 3. The existence of potential harm to others is always wrong, irrespective of the benefits to be gained. — 4. One should never psychologically or physically harm another person. — 5. One should not perform an action which might in any way threaten the dignity and welfare of another individual. — 6. If an action could harm an innocent other, then it should not be done. — 7. Deciding whether or not to perform an act by balancing the positive consequences of the act against the negative consequences of the act is immoral. — 8. The dignity and welfare of people should be the most important concern in any society. — 9. It is never necessary to sacrifice the welfare of others. — 10. Moral actions are those which closely match ideals of the most ‘‘perfect’’ action.

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— 11. There are no ethical principles that are so important that they should be a part of any code of ethics. — 12. What is ethical varies from one situation and society to another. — 13. Moral standards should be seen as being individualistic; what one person considers to be moral may be judged to be immoral by another person. — 14. Different types of moralities cannot be compared as to ‘‘rightness.’’ — 15. Questions of what is ethical for everyone can never be resolved since what is moral or immoral is up to the individual. — 16. Moral standards are simply personal rules which indicate how a person should behave, and are not to be applied in making judgments of others. — 17. Ethical considerations in interpersonal relations are so complex that individuals should be allowed to formulate their own individual codes. — 18. Rigidly codifying an ethical position that prevents certain types of actions could stand in the way of better human relations and adjustment. — 19. No rule concerning lying can be formulated; whether a lie is permissible or not permissible totally depends upon the situation. — 20. Whether a lie is judged to be moral or immoral depends upon the circumstances surrounding the action. a

This instrument was used for both the pretest assessment of ethical sensitivity (task 2) and the post-test assessment of ethical sensitivity (task 5). b The idealism score is obtained by taking the mean of items 1 through 10. The relativism score obtained by taking the means of Items 11 through 20. Original Source: Forsyth (1980).


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APPENDIX C. ETHICS QUIZ GIVEN TO SUBJECTS IN THE VRA CONDITION Please read the following and fill in what you feel is an appropriate answer for each of the seven questions. Arthur Andersen’s annual revenue from its client, Enron, was approximately $55 million per year ($25 million audit and $30 million for consulting). In 2002, Arthur Andersen was found guilty of obstruction of justice in relation to its dealing with Enron. Various clients chose to leave Andersen before and after the verdict and the firm ceased doing public audits on August 31, 2002. 1. What do you think was the total revenue of Arthur Andersen that was lost as a result of the Enron scandal _______________? 2. How many jobs were lost at Arthur Andersen in the U.S. alone as a result of the scandal? WorldCom allegedly hid $4 billion in expenses over a series of years and was forced to file for bankruptcy in July of 2002? 3. Its drop in company market value since the scandal became public was approximately_______? 4. The jobs losses since the scandal occurred are approximately? 5. The estimated amount of retirement savings that was lost by employees as a result of the WorldCom bankruptcy was Martha Stewart, the president and CEO of Martha Stewart Living, sold $227,000 worth of ImClone stock in late 2001. She was subsequently accused in early 2002 of insider trading. 6. Since the accusations have become public, the price of her company’s stock has gone down substantially and she has personally lost approximately _________dollars? 7. Which of the following companies have been accused of accounting irregularities? Circle as many as you feel are applicable. a. AOL Time Warner b. Bristol Meyers c. Global Crossing d. Halliburton

e. Health South f. Kmart g. Merck h. Qwest Corporation i. Xerox

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APPENDIX D. FEEDBACK REGARDING ANSWERS FOR ETHICS QUIZ GIVEN TO SUBJECTS IN THE VRA CONDITION Answers to the questions posed in the preceding pages appear (in bold) below: Arthur Andersen’s annual revenue from its client Enron was approximately $55 million per year ($25 million audit and $30 million for consulting). In 2002, Arthur Andersen was found guilty of obstruction of justice in relation to its dealing with Enron. Various clients chose to leave Andersen before and after the verdict and the firm ceased doing public audits on August 31, 2002. 1. What do you think was the total revenue of Arthur Andersen that was lost as a result of the Enron scandal _______________? $9 billion. The $55 million in Enron revenue represented less than 1% of the company’s total revenue. 2. How many jobs were lost at Arthur Andersen in the U.S. alone as a result of the scandal? 28,000 in the United States. This represents virtually their entire workforce except around 500 people who are doing final cleanup and will likely be losing their jobs in the next year. WorldCom allegedly hid $4 billion in expenses over a series of years and was forced to file for bankruptcy in July of 2002. 3. Its drop in company market value since the scandal became public was approximately_______? $50 billion 4. The jobs losses since the scandal occurred are approximately 23; 000 people ðapproximately 25% of the work forceÞ


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5. The estimated amount of retirement savings that was lost by employees as a result of the bankruptcy was $1 billion Martha Stewart, the president and CEO of Martha Stewart Living, sold $227,000 worth of ImClone stock in late 2001. She was subsequently accused in early 2002 of insider trading. 6. Since the accusations have become public, the price of her company’s stock has gone down substantially and she has personally lost approximately _________dollars? $400 million 7. Which of the following companies have been accused of accounting irregularities? Circle as many as you feel are applicable. a. AOL Time Warner b. Bristol Meyers c. Global Crossing d. Halliburton e. Health South

f. Kmart g. Merck h. Qwest Corporation i. Xerox

All of the above companies have been accused of accounting irregularities.

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APPENDIX E. CASE WRITE UP GIVEN TO SUBJECTS IN THE TLA CONDITION Please Read the Following: Arthur Andersen’s annual revenue from its client Enron was approximately $55 million per year ($25 million audit and $30 million for nonaudit services). In 2002, Arthur Andersen was found guilty of obstruction of justice in relation to its dealing with Enron. Various clients chose to leave Andersen before and after the verdict and the firm ceased doing public audits on August 31, 2002. The total revenue of Arthur Andersen that was lost as a result of the Enron scandal was $9 billion. The $55 million in Enron revenue represented less than 1% of the company’s total revenue. 28,000 jobs were lost at Arthur Andersen in the U.S. alone as a result of the scandal. This represents virtually the entire U.S. workforce except for approximately 500 people who are doing final cleanup and will likely be losing their jobs within the next year. WorldCom allegedly hid $4 billion in expenses over a series of years and was forced to file for bankruptcy in July 2002. Its drop in company market value (since the scandal became public) was approximately $50 billion. The number of jobs lost since the scandal occurred are approximately 23,000 people (approximately 25% of the work force). The estimated amount of retirement savings that was lost by employees as a result of the bankruptcy was $1 billion. Martha Stewart, the president and CEO of Martha Stewart Living, sold $227,000 worth of ImClone stock in late 2001. She was subsequently accused in early 2002 of insider trading. Since the accusations have become public, the price of her company’s stock has gone down substantially and she has personally lost approximately $400 million dollars. In addition to the companies discussed above, the following other companies have been accused of accounting irregularities in the recent past: AOL Time Warner Global Crossing Health South Merck

Bristol Meyers Halliburton Kmart Qwest Corporation Xerox


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APPENDIX F. POST-EXPERIMENTAL QUESTIONNAIRE Please answer the following: 1. Name any companies that you know were involved in accounting scandals during the past two years. 2. How serious of a problem do you think that these accounting scandals are? 3. Did your answer to Question 2 change after completing this exercise? 4. If so can you explain why? 5. Was the financial cost of unethical behavior greater or less than you originally expected? 6. Was the human cost of unethical behavior greater or less than you originally expected? 7. Were you surprised by any of the costs associated with the unethical behavior? 8. If you have any other thoughts about these materials, feel free to share them now.


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USE OF ERP SOFTWARE IN ACCOUNTING: A TEACHING NOTE Mahendra Gujarathi ABSTRACT This teaching note reports the results of Enterprise Resource Planning (ERP) technology use on the understanding of the accounting cycle in an intermediate accounting course. Students performed a variety of bookkeeping tasks using commercially available ERP software, Great Plains Dynamics. Although ERP does not require transaction processing by the users, our results suggest that student understanding of the accounting cycle improved significantly after the ERP-based exercise. Responses to a student questionnaire also indicate that students appreciated and enjoyed the educational experience.

INTRODUCTION Business schools are increasingly using technology in their curricula in response to the demand by professional accounting bodies and employers that accounting students be equipped with technology skills relevant to their discipline. However, it is not clear whether such a use promotes the understanding of underlying concepts and principles of the discipline (King, Premkumar, & Ramamurthy, 1990, p. 643). In the context of accounting


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MAHENDRA GUJARATHI

education, Boyce (1999, p. 200) noted that the evidence on whether computer use has a positive impact on student performance is limited and somewhat conflicting. While the studies on pedagogical benefits of technology deployment in the mainframe and microcomputer environment are inconclusive, such studies in the Enterprise Resource Planning (ERP) environment are only beginning to emerge. This teaching note reports the results of a test of the effects of applying technology in an ERP environment on the understanding of the accounting cycle in an intermediate accounting course. Using Great Plains Dynamics, an ERP system employed by more than 32,000 small and medium businesses, I asked students to process a set of transactions, perform year-end accounting procedures, and prepare financial statements. To test whether students’ conceptual understanding improved, I administered a 30-min test containing objective questions on the accounting cycle before and after students completed the ERP assignment. The results indicate a statistically significant improvement in the scores from the pre- to the post-test. Results of the questionnaire administered to assess student satisfaction with the ERP exercise also indicate a high level of selfefficacy. While the positive experience with the ERP assignment suggests a continuing need for accounting educators to harness the potential of emerging technologies, there is a need for additional and more rigorous experiments to establish firmly the association between the use of technology and understanding of accounting concepts. The next section of this note traces the evolution of the use of technology in accounting curricula in different environments. It demonstrates the mixed findings in the literature about the educational benefits of technology deployment and presents a rationale for a study in the ERP environment. Following that, I provide a rationale for the selection of the topic (the accounting cycle) and software (Great Plains Dynamics) for the experiment. I then describe the test of understanding of accounting cycle. This is followed by a discussion of the results of a student questionnaire and of the implications for accounting educators. The final section of the note presents the conclusions.

LITERATURE REVIEW Initial experimentation of accounting educators with the application of instructional technology involving the use of mainframe computers indicated mixed results on student achievement (McKeown, 1976; Abraham,

Use of ERP Software in Accounting

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Loughrey, & Whalen, 1987; Needles, 1983). As the use of microcomputers in business spread, accounting educators employed spreadsheets, practice sets, and general ledger software programs for instruction. While this relieved the computational burden for students, it was unclear whether it saved time and improved performance. Helmi (1986, p. 106) noted the time required for designing spreadsheets to be a primary disadvantage. Togo and McNamee (1995, p. 156) and Kalbers (1984, p. 163) raised the concern that the application of pre-designed spreadsheet (template) or canned software (such as a computerized practice set) made it possible for students to complete the computer project without understanding the accounting principles. Friedman (1981, p. 142) noted that intermediate accounting students completing homework assignments with the aid of pre-written computer programs earned significantly higher AICPA Achievement Test scores than those who did not use the computer. Abraham et al. (1987, p. 1) concluded that the use of computerized practice sets resulted in a positive change in the student attitude towards accounting. In the decision-making context, King et al. (1990, p. 656) found that the computer-supported group outperformed the non-computer group on both accuracy and quality of decision performance. Fetters, McKenzie, and Callaghan (1992, p. 85), utilizing computers for teaching leases and price-level accounting, found no support for the concern of intermediate accounting educators that the introduction of computers would hinder students’ ability to learn accounting concepts. Contrary to these views, Alkafaji and Schroeder (1986, p. 22), Dickens and Harper (1986, p. 143), and Greer, Stocker, and Skousen (1991, p. 14) found that the improvement in the test scores of the computer group was higher, but statistically not significant. Beaman, O’Connell, and Smyrnios (1995) noted that the use of a commercial accounting package did not enhance students’ understanding of accounting concepts beyond that demonstrated by students from traditional lectures, tutorials, or class workshops. More recently, several business schools have started acquainting their students with ERP systems. Some textbooks (for instance, Hartman, Harper, Knoblett, & Reckers, 2000) and software (for instance, Reckers, David, & Maccracken, 2003) also introduce accounting students to the ERP systems. ERP systems allow organizations to automate and integrate its diverse functions and generate the necessary information for strategic and dayto-day decision making. Whether the incorporation of ERP systems in curricula promotes understanding of accounting concepts is interesting to examine because such understanding is not explicitly evoked from the ERP users. In contrast to student-designed spreadsheets or computerized practice sets, ERP software does not require identification of the debits and credits of

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a transaction. The user simply inputs the data (such as customer ID, products sold, unit cost, markdown percentage, etc.) from the source documents (such as sales invoice). Thereafter, the program takes care of the transaction processing and updates all reports including the financial statements. While this feature is desirable in the real world to enable personnel with varied functional backgrounds and training to use the ERP system, its effect on the student understanding of accounting concepts is understandably a concern of accounting educators.

RATIONALE FOR THE ASSIGNMENT AND SOFTWARE SELECTED Coppage and Baxendale (1988, p. 47) suggest that for technology to have a meaningful impact, computer exercises should reinforce the learning of accounting concepts taught in a particular course. I designed an ERP-based accounting cycle assignment in an intermediate accounting class in the Fall 2000 semester.1 I chose the accounting cycle as the topic because its understanding is necessary for students to appreciate the effects of economic transactions and events on financial statements. A sound understanding of the topic is also critical for students to do well in the intermediate and subsequent financial accounting courses. Greer et al. (1991, p. 3) and Togo (1991, p. 74) have also identified the accounting cycle as an example of an integrative topic suited for computer use. Although several institutions have formed alliances with large ERP software vendors, such as SAP, I felt that the instructor and student effort to understand a large system and apply it for financial reporting purposes would not be effective; therefore, I chose Great Plains Dynamics – an ERP system that is employed extensively by corporations and requires minimal training to install and use, is affordable,2 and allows for the possibility to use the software from home.3 The objective of using the software in the course was to reinforce the relationships between accounting data, processes, and information in a real-life context. Given the focus of my institution (a large degree-granting AACSB-accredited business college with a recognized MSA program) to prepare graduates for the entry-level professional positions in private and public accounting, the exercise of understanding the accounting process in an ERP environment fitted the goals of the intermediate course well. Students performed maintenance for inventory sales prices and costs, recorded a set of 24 transactions, performed the month-end procedures,


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prepared adjusting entries, performed a bank reconciliation, adjusted perpetual inventory records, and printed financial statements. I adapted the assignment from Arens and Ward’s Computerized Accounting Using Great Plains Dynamics (1999) with one exception. To ensure that students do their own work, each student had a different set of adjustments. The exercise carried 15% of the semester grade. The percentage hopefully provides incentive for the students to take the assignment seriously and to reward them for the time needed to complete the project.

TEST OF UNDERSTANDING OF THE ACCOUNTING CYCLE To test whether the students’ understanding of the accounting cycle improved, I administered a 30-min pre-test on the accounting cycle in the class after covering the relevant chapter from the textbook.4 The test consisted of objective questions that required students to present journal entries and computations, answer multiple-choice questions, and identify the effect (overstatement, understatement, or no effect) of errors on financial statement items. The test of 35 points covered five major subject areas: principles of double-entry bookkeeping (2 points), cash versus accrual accounting (8 points), adjusting and closing journal entries (11 points), the accounting equation and format of financial statements (6 points), and identification of the effect of errors on financial statements (8 points).5 The test emphasized conceptual understanding of the accounting process rather than just the mechanical aspects of it. Although I asked students to put their names on the test, I told them that it would be a non-credit test, the performance of which would have no effect on their final grade.6 After administering the pre-test, I handed out the ERP assignment and explained the requirements. Students had three weeks to complete the assignment. At the end of the class during which the ERP assignment was turned in, I gave a similar test (with slightly different numbers, names, and order of questions). I again informed students that the test was given for research purposes and their performance on it would have no effect on their course grade. I did not have a definitive expectation about the direction of the scores between the pre- and post-test. With the added motivation of working with a real-world software, and reduced drudgery of debits and credits and other procedural aspects of the accounting cycle, the scores in the post-test could be expected to improve. On the other hand, since the

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students needed to input information that was far removed from debits and credits (except in the case of adjusting entries); it was also possible that their understanding of the accounting cycle might not necessarily improve.

RESULTS Table 1 summarizes the results of the pre- and post-test.7 Since one student each was absent on the date of the pre- and post-test, I dropped their scores from both, reducing the sample size to 28. The average score on the pre-test was 16.0. I gave the same test to 31 students in another section of intermediate accounting course that did not use the ERP software. The results for this holdout sample (average ¼ 16:33; standard deviation ¼ 7:83) are not statistically different from the sample on the pre-test. This indicates that the level of understanding the accounting cycle in the experimental group before the ERP exercise was similar to that of the holdout sample. Of the 28 students who took both the tests, scores of 23 students went up from the pre- to post-test, and scores of five students went down. The points earned (out of 35) ranged between 3 and 29 on the pre-test, and between 3 and 33 on the post-test. The highest percentage improvement was 41% (from 34% to 75%), and the highest percentage decline in the scores was 16% (from 31% to 15%). The overall results indicate that the average improvement (14.82%) in the scores from the pre-test to the post-test is significant (p ¼ 0:002) in the test of differences in the means of matched pairs. The average improvement was not statistically different between male and female students, students with or without prior exposure to the general ledger software, or between part- and full-time students. These findings suggest that a specific student profile is not driving the results.

Table 1.

Maximum possible points Average points Standard deviation Maximum Minimum N

Results of the Pre- and Post-Test. Pre-Test

Post-Test

35 16.0 (46%) 9.3 29.0 3.0 28

35 21.2 (61%) 9.8 33.0 3.0 28

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Table 2.

Results of the Pre- and Post-Test by Topical Area.

Topical Area a

Principles of double-entry bookkeeping Cash versus accrual accounting Adjusting and closing entriesa Effect of errors on financial statementsa Accounting equation and format of financial statements Total

Max. Points

Pre-Test

Post-Test

2 8 11 8 6 35

0.3 4.0 4.8 4.6 2.4 16.0b

1.1 3.9 7.1 5.9 3.3 21.2b

a

For these items, the results in the post-test are statistically higher than the pre-test at the 5% level. b The numbers do not add up due to rounding error.

Table 2 presents the analyses of the results of pre- and post-test by topical area. For the four areas on the test that carried six or more points each, I found statistically significant improvement in two (adjusting and closing entries, and effect of errors on financial statements). The two areas in which the improvement was not significant were ‘accounting equation and format of financial statements’ and ‘cash versus accrual accounting’. If one assumes that areas such as error analysis require deeper accounting understanding, the results indicate an improvement in the conceptual understanding of accounting. The reasons for improvement in the post-test scores remain unknown. The excitement for exposure to a state-of-the-art technology can result in added student motivation to complete the assignment thoroughly and thoughtfully. It is also possible that since each student had a different set of adjustments, he or she was alert throughout the process of completing the exercise. Another reason for the improved scores might be students’ preparation for the mid-term examination; however, given the anxiety for completing the assignment and given that the mid-term exam was two weeks away from the date of the post-test, this possibility seems unlikely. Since the pre-test was not handed back or discussed in class, it is unlikely that the reason for improved performance on the post-test was students’ prior exposure to the questions.

STUDENT FEEDBACK ON THE ASSIGNMENT Students received a questionnaire to assess their satisfaction with the ERP exercise. The questionnaire requested biographic information and asked

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15 questions on a 5-point scale (strongly agree (1) to strongly disagree (5)) to provide their overall rating of the software (excellent (1) to poor (5)), and to give descriptive answers to several other questions. The responses to the questionnaire tabulated in Table 3 indicate that the students were able to use the software on their own without much difficulty (question 1, mean ¼ 1:78) and received the necessary support from the instructor (question 9, mean ¼ 2:06). They considered the cost of the software reasonable, given the learning benefits derived (question 5, mean ¼ 2:28). Most students were glad that they were exposed to the commercially used ERP software (question 3, mean ¼ 1:78) and felt that the assignment improved their understanding of the accounting information system (question 6, mean ¼ 2:17). However, they were neutral about exploring additional features of the software on their own (question 4, mean ¼ 3:22). The response to question 11 (mean ¼ 2:28) indicates students’ perception that the use of the software extended their understanding of the accounting cycle beyond that covered in the textbook. Similarly, their confidence to handle another accounting software package seems to have increased (question 12, mean ¼ 2:29) because of the ERP assignment. Responses to question 13 (mean ¼ 1:67) show that students strongly agreed that the use of software packages such as Great Plains Dynamics in other accounting courses would be useful. Responses to question 14 (mean ¼ 4:11) indicate that students strongly disagreed that the traditional method of learning accounting cycle would have been better than the use of the Great Plains Dynamics assignment. Question 15 (mean ¼ 1:47) indicates that students would strongly recommend a close friend to enroll in the section using the software (rather than traditional techniques) for the learning of the accounting cycle. The overall rating of the software was good, as indicated by the mean rating of 2.17. On an average, students spent 10.2 hours to complete the assignment. In the responses to qualitative questions, many students noted that the ERP assignment increased their comfort level with a computerized ERP package and that the software was helpful in their understanding of how the information from the source documents manifests itself in the financial statements. The feature of the software that students liked the least was difficulty in correcting errors.8 I also examined whether student perceptions about the ERP assignment differed depending on gender (male or female), prior exposure to general ledger software (yes or no), and student status (full time or part time). The differences were not statistically different at the conventional (5%) level except in a few questions.

Student Feedback on Great Plains Dynamics Software.

Biographic Data Student status: Gender distribution: Exposure to general ledger software:

Full-time Male Yes

18 (60%) 17 (57%) 17 (57%)

Question (Scale: 1 ¼ Strongly Agree to 5 ¼ Strongly Disagree)

1 2 3 4 5 6 7 8 9 10 11 12

12 (40%) 13 (43%) 13 (43%)

Mean

Standard Deviation

1.78 2.17 1.78

0.81 0.71 0.73

3.22

0.94

2.28

0.89

2.17

0.71

3.67

1.14

2.17

0.92

2.06 1.94

0.73 0.94

2.28

0.83

2.29

0.85

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I was able to use the software on my own without much difficulty. The amount of work required for the software was justified based on the learning derived. I am glad to have been exposed to a commercially used ERP software such as Great Plains Dynamics. I plan to work more on my own to explore additional features and facets of the Great Plains Dynamics software. I think that the cost of the software (and accompanying textual materials) was worth the learning benefits I derived from it. Completing the Great Plains Dynamics assignment improved my understanding of the accounting information system. In addition to the take-home assignment given in the course, there should have been an inclass exam testing of the understanding of the software and accounting systems. It was a good idea to assign different adjusting entries (and amounts) to different students in the class. Instructor provided adequate support and direction in using the software. 15% of the course grade was an appropriate weight for the software given the effort and time required. The use of the software supplemented my understanding of the accounting cycle beyond that covered in the textbook. Having been exposed to the Great Plains Dynamics software, my confidence to handle another business/accounting software package has gone up.

Part-Time Female No


Table 3.

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Table 3. (Continued ) Question (Scale: 1 ¼ Strongly Agree to 5 ¼ Strongly Disagree)

13 14

15

16 17

Standard Deviation

1.67

0.59

4.11

0.58

1.47

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I think that the continued use of software packages such as Great Plains Dynamics in other accounting courses would be useful. Considering the time and effort spent and the understanding of accounting cycle derived from the software, I would have been better off learning accounting cycle from the textbook chapter, the class coverage of it, and some other outside source (i.e. practice set, outside supplemental readings, etc.) rather than from the Great Plains Dynamics software. A close friend of yours asks for your valued advice. She/he has an option of registering in either the section of the course that uses the software (the one you used) to learn the concepts of accounting cycle, or the section where such concepts would be covered in the traditional style (classroom lecture and discussion, but no software). Would you recommend your friend to register for the section that uses the software that you used? What is your overall rating of the software experiment? (Mean ¼ 2:17; Std. dev: ¼ 0:51) Excellent (1) Good (2) Satisfactory (3) Unsatisfactory (4) Poor (5) The approximate time it took for you to complete the assignment was—hours. (Mean ¼ 10:2 h; Std. dev: ¼ 2:4 h)

Mean


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IMPLICATIONS ERP systems are becoming increasingly prevalent in corporations for automation of business functions and generation of appropriate reports. Accounting instructors can impart a sense of ‘real world’ in their classrooms by adapting ERP assignments. Exposure to an ERP system not only enhances job prospects for students but also appears to improve their understanding of accounting cycle. Students develop familiarity with the source documents and obtain a pragmatic view of pervasiveness of accounting across different business processes. Instructors can further reinforce and develop students’ knowledge of ERP systems by applying the software in other modules of intermediate accounting (receivables management, for example) and in other courses such as cost accounting (to demonstrate, for example, the use of ERP in job costing, budgeting, and planning). Faculty commitment and time is necessary for the experimentation to succeed. It is crucial that the faculty be conversant with the software and develops a list of transactions consistent with the time expected for students to spend on the ERP assignment. If the class size is large, it is a good idea to assign a graduate assistant to demonstrate the software in a computer lab to interested students and for answering student questions on the assignment. This will greatly reduce student anxiety and free up the instructor’s time. Specifying a different set of adjustments to each student is a good idea to ensure student learning and independent work. Responses to question eight (mean ¼ 2:17) in the questionnaire indicate that students not only did not mind but also liked the individually specified assignments. The instructor should also emphasize that technology cannot substitute for critical professional judgments in areas such as valuation, recognition, and disclosure. An important item for instructors considering the use of ERP software is the time required to complete the assignment in addition to the heavy workload of the intermediate course. This might call for offering a separate one-credit or non-credit ERP module prior to an intermediate course, or using the ERP assignment in other courses such as the principles or systems courses. If the principles course is primarily a user-oriented course taken by all majors, it might not be an appropriate platform for incorporating the ERP assignment. On the other hand, a systems course would be a good forum to incorporate the ERP assignment (with enhancements such as the evaluation of the strengths and weaknesses of the controls embedded in the software) since much of that course focuses on transaction processing.

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CONCLUSIONS Given the significant financial and non-financial resources required for integrating technology into accounting courses, a legitimate concern of many accounting instructors is the use of technology for its own sake instead of promoting the learning outcomes of the course (Rebele, 2000, p. 1). Faculty members are increasingly employing ERP exercises in accounting curricula to expose students to software that simulates the real-life business environment. Such experimentation with technology provides an interesting opportunity to study the association between ERP assignments and the understanding of accounting concepts because ERP systems significantly remove the users from identifying debits and credits or from making journal entries. The results indicate that the understanding of the accounting cycle improved significantly between the pre- and post-test. Moreover, the ERP exercise exposes students to business transactions in a way that emphasizes business process. Compared to Coppage, Sriram, and Baxendale (1995, p. 11), who concluded that computer assignments enhanced the student perception of understanding of accounting, these results are stronger because they are also based on a measure of performance rather than student perception alone. Responses to the student questionnaires also indicate a high level of student satisfaction with the ERP exercise. Students perceived an improvement in their understanding not only of the accounting information system but also of the accounting cycle beyond that covered in the textbook. The enhancement in students’ confidence to handle other business and accounting software packages, and their strong endorsement that such packages be used in other accounting courses, denotes the success of this experiment. The students’ evaluation of teaching may also reflect the success of this ERP experiment. Compared with the same course taught in the previous semester by the same instructor (but without the use of ERP software), the average for the question ‘whether the course improved the understanding of subject matter’ increased from 4 to 4.38 (on a 5-point scale). Similarly, ‘overall rating for the instructor effectiveness’ increased from 3.94 in the previous semester to 4.21 in the semester in which ERP package was used. In interpreting these results, limitations of the study – especially of small sample size and the lack of a control sample – need to be kept in mind. The present research reports the use of an ERP system in only one course at one institution. Replicating it at other institutions and in different courses will strengthen the generalizability of results. In addition to increasing the sample size, random assignment of students to two groups (treatment and

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control) would add rigor to the study and enhance reliability of its conclusions. Another interesting avenue for future research would be a comparative assessment of the effectiveness of different educational tools (ERP, spreadsheets, databases, etc.) for enhancing the conceptual understanding of accounting.

NOTES 1. In prior semesters, the course primarily used problem-solving and discussion approach. Students also analyzed a financial reporting case that required a search of computerized databases of accounting literature such as Financial Accounting Research System (FARS). 2. The educational cost of full-function software and instruction manual was around $33 for each student. 3. Several part-time students in the course were unable to be on campus during non-class hours. 4. Togo and McNamee (1995) have suggested that computer projects should be assigned after the subject material has been presented to the students. 5. A copy of the test instrument is available upon request. 6. The graded test was neither handed back nor discussed in the class. 7. The time constraint and the length of the test was designed such that even the better performers on the pre-test had a room for improvement in the post-test. 8. For internal control considerations, Great Plains Dynamics does not allow the user simply to erase the effects of a posted transaction. Instead, a correcting entry needs to be made, a feature that many students found unnecessary or inconvenient. This perhaps could be attributed to the concern of students to let the instructor not know the mistakes that they have made before reaching the right answer.

ACKNOWLEDGEMENTS The author is grateful to editor Ed Ketz, two anonymous reviewers, Professors Brian MacIver, Jim Hunton, and David Schwarzkopf, participants in the 2002 GBDI International Conference, 2003 Northeast AAA Meeting, and 2003 AAA National Meeting for their comments on the earlier versions of this paper. Research assistance of Lisa Nau, Esther Rothstein, and David Sandler is gratefully acknowledged.

REFERENCES Abraham, E., Loughrey, C., & Whalen, H. (1987). Computerized practice set in introductory financial accounting. Issues in Accounting Education, 2(1), 1–12.

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Alkafaji, Y., & Schroeder, N. (1986). Manual vs. computerized practice sets: A test for differences. Journal of Accounting Education, 4(2), 19–25. Arens, A., & Ward, D. D. (1999). Computerized accounting using great plains dynamics. Okemos, MI: Armond Dalton Publishers, Inc. Beaman, I., O’Connell, B., & Smyrnios, K. (1995). The effect of using a computer accounting package on student understanding of accounting concepts. Paper presented at the Accounting Association of Australia and New Zealand Annual Conference, La Trobe, University of Melbourne, Australia. Boyce, G. (1999). Computer-assisted teaching and learning in accounting: Pedagogy or product? Journal of Accounting Education, 17(2/3), 191–220. Coppage, R., & Baxendale, S. (1988). Developing a master plan for integrating the computer into the accounting curriculum. Kent/Bentley Review, IV(Fall), 43–59. Coppage, R., Sriram, R., & Baxendale, S. (1995). Perceived effectiveness of integrating computers into an accounting curriculum. Accounting Educators’ Journal, VIII(2), 1–11. Dickens, T., & Harper, R. (1986). The use of microcomputers in intermediate accounting: Effects on student achievement and attitudes. Journal of Accounting Education, 4(1), 124–146. Fetters, M., McKenzie, J., & Callaghan, D. (1992). Does the computer hinder accounting education? An analysis of some empirical data. Issues in Accounting Education, 6(2), 61–85. Friedman, M. (1981). The effect on achievement of using the computer as a problem-solving tool in the intermediate accounting course. The Accounting Review, LVI(1), 137–143. Greer, D., Stocker, H., & Skousen, C. (1991). Integrating commercial microcomputer general ledger software into the first college accounting course. Kent/Bentley Journal, VII(Fall), 1–16. Hartman, B. P., Harper, R. M., Knoblett, J. A., & Reckers, P. M. (2000). Intermediate accounting (3rd ed). Cincinnati, OH: South–Western College Publishing. Helmi, M. (1986). Integrating the microcomputer into accounting education. Approaches and pitfalls. Issues in Accounting Education, 1(1), 102–111. Kalbers, L. P. (1984). Electronic spreadsheets: Powerful and flexible educational tools. Journal of Accounting Education, 2(2), 163–168. King, W., Premkumar, G., & Ramamurthy, K. (1990). An evaluation of the role and performance of a decision support system in business education. Decision Sciences, 21(3), 642–658. McKeown, J. C. (1976). Computer-assisted instruction for elementary accounting. The Accounting Review, 51(1), 123–130. Needles, B. E. (1983). The role of microcomputer in accounting education. Accounting Instructor’s Report, (April), 1–2. Rebele, J. E. (2000). Technology: What can and should it be used for. The Accounting Educator. (The Newsletter of the Teaching and Curriculum Section, American Accounting Association). IX(3). Reckers, P., David, J. S., & Maccracken, H. (2003). Introduction to accounting, business processes, and ERP. Cincinnati, OH: South–Western College Publishing. Togo, D. F. (1991). Acquiring an overview of accounting as an information system for planning, control, and reporting: A spreadsheet approach. The Journal of Information Systems, 5(2), 73–77. Togo, D., & McNamee, A. (1995). Computer integration into the accounting curriculum: Learning benefits, problems and guidelines. Journal of Accounting Education, 13(2), 149–158.

IS PBL AN IMPROVED DELIVERY METHOD FOR THE ACCOUNTING CURRICULUM? Cynthia D. Heagy and Constance M. Lehmann ABSTRACT One purpose of this paper is to explain how problem-based learning (PBL) can be used as a teaching method in accounting courses. We introduced this method in a graduate and an undergraduate accounting information systems (AIS) course. Another purpose is to attempt to validate the learning value of PBL to determine whether it is an improved delivery method for the accounting curriculum. For this purpose, we compared the performance of students in a class with PBL on basic knowledge questions to the performance of students in a class without PBL at both the undergraduate and graduate levels. Accounting education research has called for a reorientation in the delivery methods of accounting curriculum, suggesting students be given ‘‘real-world’’ examples. PBL claims to meet this educational objective, and the AICPA has advocated its use for teaching core competencies. Although PBL has existed for decades in medicine and other disciplines, educators disagree whether PBL imparts the basic knowledge essential to professional success, particularly in the sciences. Several studies in the medical field have shown that performance on basic knowledge exams did not differ significantly between students in PBL and traditional curriculum. Our validation tests found similar results. Advances in Accounting Education: Teaching and Curriculum Innovations, Volume 7, 221–251 Copyright r 2005 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 1085-4622/doi:10.1016/S1085-4622(05)07010-0

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Our experience suggests that the introduction of PBL in an AIS course does not negatively affect the acquisition of basic knowledge by undergraduate or graduate accounting information system students and can lead to greater student satisfaction with the course. Therefore, while PBL may not be an improved delivery method for the AIS course, it may be an attractive alternative.

1. INTRODUCTION One purpose of this study is to explain how problem-based learning (PBL) can be used as a teaching method in accounting courses. We implemented PBL in a first, survey accounting information systems (AIS) course. Concerned educators have called for a reorientation in the content and delivery methods of accounting curriculum (e.g., AECC, 1990; Albrecht & Sack, 2000; American Accounting Association, 1986; Arthur Andersen et al., 1989; Bonner, 1999; Francis, Mulder, & Stark, 1995; Knechel, 1992; Libby, 1991; Saudagaran, 1996). Some educators feel students are not exposed to ‘‘real-world’’ examples and are not being taught the skills required for success in the accounting profession. Albrecht and Sack (2000) encourage more group work because this teaches leadership and group-interaction skills. PBL claims to overcome the shortfalls emphasized in the above studies and may provide an alternative method for the acquisition of basic knowledge and the development of skills necessary to solve real-world problems. The AICPA (1999) recommends using this technique to teach core competencies. Many curricula have successfully implemented PBL, including medicine, nursing, and veteriWhelannary medicine, as well as in business disciplines such as management and statistics (Delisle, 1997; Jones, 1996; Norman & Schmidt, 2000; Schmidt, 1998; Schmidt et al., 1996; van de Wiel, Boshuizen, & Schmidt, 2000; Whelan–Berry, 2000) . Another purpose of this study is to attempt to validate the learning value of PBL to determine whether it is an improved delivery method for the accounting curriculum. For this purpose, we validated the benefits of PBL by comparing our revised class (PBL) to a traditional class (NO PBL). The AIS course at our university is traditionally taught using a lecture format with in-class activities such as software teaching labs, in-class demonstrations, and internal control games. The university requires this course at the undergraduate level and at the graduate level for students who have never had an AIS course. We compared student performance on basic knowledge

Is PBL an Improved Delivery Method?

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multiple-choice exam questions for PBL sections and NO PBL sections at the undergraduate level and also between PBL and NO PBL sections at the graduate level. Having taught AIS for 20 years and having tested and revised the multiple-choice questions (MCQs) over several semesters, one of the authors wrote the questions. These comparisons indicated no significant differences in performance when PBL was used in the AIS course. In addition, we reviewed students’ responses to a PBL-type case included in the final exam for the graduate students (both groups) and found that while the average score for the PBL group was higher than the NO PBL group, the difference was not significant. These results are consistent with some of the PBL literature, which suggests it is necessary for PBL to be incorporated into the entire curriculum to be successful (Dochy, Segers, van den Bossche, & Gijbels, 2003; Schmidt, 1998; Schmidt et al., 1996) and requires overcoming students’ initial concerns regarding issues such as how a PBL approach in the course will affect their grades (Whelan-Berry, 2002). Another possible explanation is that this is the first course in the accounting curriculum to use a PBL approach and it might take longer for the benefits of the PBL approach to appear in student performance (e.g., Dochy et al., 2003; Schmidt et al., 1996). Interestingly, a survey taken by the undergraduate students at the end of the PBL semester indicated the students thought the cases and case discussions helped them understand the chapter concepts and increased their satisfaction with the course. (We did not administer the survey to the graduate students – a regrettable oversight on our part.) This study has the potential to contribute to the improvement in accounting education in several ways. First, it provides guidance to instructors who wish to make their classes more interactive and less lecture oriented. The challenge to present the material in a meaningful manner requires that educators find ways to make the material ‘‘real.’’ PBL engages students in situations that are open ended and related to ‘‘real-world’’ accounting issues, which will prepare them for dealing with the challenges in the profession for which the ‘‘answers’’ are not always precise or unambiguous. Students can work through these cases in a protected environment. A PBL approach may stimulate interest in accounting, motivate students to learn, and provide students and new accounting graduates with an understanding of the role that accounting professionals play in the business world. Second, this study attempts to validate the learning value of incorporating PBL in an accounting course by testing hypotheses and a research question with empirical data. The results of this study can take educators one step further as we explore different delivery methods to determine which are

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most effective for teaching basic accounting concepts and the wide range of technical knowledge necessary for future success in the profession. We organize the rest of this paper as follows: the background section chronicles the call for new delivery methods in accounting education and describes the PBL teaching approach; Section 2 conveys our experience with using PBL and develops the validation hypotheses and research question; Section 3 discusses the validation tests; and the last section provides guidance for implementing PBL in the accounting curriculum.

2. BACKGROUND 2.1. New Delivery Methods in Accounting Education The call for a reorientation in the content and delivery of accounting education dates back to 1986. First, the American Accounting Association’s Committee on the Future Structure, Content, and Scope of Accounting Education (1986) recommended the primary objective of accounting education should be students’ ‘‘learning to learn.’’ Then in 1989 a white paper (‘‘Perspectives on Education: Capabilities for Success in the Accounting Profession’’) and a financial commitment by the then Big-Eight accounting firms called for changes in accounting education to instill capabilities that students would need in practice, e.g., creative problem-solving skills (Arthur Andersen et al., 1989). This group stated that, to develop the needed capabilities in students, accounting education would require a complete reengineering to include defining objectives, content, design, and methodology. The financial commitment of the Big Eight enabled the creation of the Accounting Education Change Commission (AECC) and its funding of 12 grants to colleges and universities for curriculum change initiatives. In its ‘‘Objectives of Education for Accountants: Position Statement No. One,’’ the AECC (1990, pp. 4–5) posited: The overriding objective of accounting programs should be to teach students to learn on their own. y Students must be active participants in the learning process, not passive recipients of information. They should identify and solve unstructured problems that require use of multiple information sources. Learning by doing should be emphasized. Working in groups should be encouraged.

The AECC stressed the importance of developing the ability to identify problems and opportunities, search out the desired information, analyze and interpret the information, and reach a well-reasoned conclusion.


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Understanding the process of inquiry in an unstructured environment is an important part of learning to learn. Francis et al. (1995) further addressed the process of ‘‘learning to learn.’’ By far, the strongest call for reorientation in the content and delivery methods of accounting educating came from Albrecht and Sack (2000) in ‘‘Accounting Education: Charting the Course through a Perilous Future.’’ Students, the authors note, are not given enough ‘‘real-world’’ examples. The authors recommend delivery methods move away from lecture toward approaches that convey critical knowledge, skills, and abilities. A way to implement this is, for example, to employ cases that teach dealing with uncertainty and using analytical skills. Bonner (1999), Knechel (1992), Libby (1991), and Saudagaran (1996) also encourage the use of cases in accounting education. Albrecht and Sack insist pedagogy should include elements of group work to teach leadership and working together.

2.2. Problem-Based Learning An instructional method that claims to meet the educational objectives of the above studies is PBL. Barrows and Tamblyn (1980, pp. 191–192) characterize PBL as follows (emphasis added): 1. A problem situation is encountered first in the learning sequence, before any preparation or study has occurred. 2. The problem situation is presented to the student in the same way it would be presented in reality. 3. The student works with the problem in a manner that permits his/her ability to reason and apply knowledge to be challenged and evaluated, appropriate to his/her level of learning. 4. Needed areas of learning are identified in the process of working with the problem and are used as a guide to individualized study. 5. The skills and knowledge acquired by this study are applied back to the problem to evaluate the effectiveness of learning and to reinforce learning. 6. The learning that has occurred in working with the problem and in individualized study is summarized and integrated into the student’s existing knowledge and skills. Because the instructor should present the problem situation to the student in the same way it would be presented in reality, an appropriate case is one that is loosely structured and has no ‘‘correct’’ answer. The theory of PBL posits that by researching and investigating information on their own,

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students will understand the material better and will retain what they learn. Hence, the instructor becomes a discussion facilitator, helping and advising, rather than providing easy answers (White, 1996). The textbook no longer drives the course, but instead merely serves as one source of information. A common misconception is that PBL follows only one methodology. In reality, teachers can implement PBL in many different ways in a course or curriculum (Debessay, 2003). Barrows (1986) defines six types of PBL, ranging from an approach in which faculty members include cases in the lecture for illustrative purposes to the ‘‘reiterative problem-based’’ approach, requiring students to evaluate information resources applied in their self-directed study and then return to the original case to see how they might have better reasoned their way through it. Outside of medicine, PBL adopters also employ different variants. For example, studies such as Raine and Collett (2003) discuss three different examples of the PBL cases for undergraduate astrophysics programs, some of which are completed during one class period. At Samford University in Alabama, the undergraduate business PBL curricula include PBL problems that cover several concepts over several weeks (Whelan-Berry & Marshall, 2000). Given these differences in implementation, judging the success or failure of PBL is problematic. This uncertainty leads researchers to suggest that PBL is not a panacea for knowledge acquisition (e.g., Colliver, 2000; Doig & Werner, 2000; Glew, 2003). Accounting educators may mistakenly believe PBL means lecturing on chapter material and then working in teams to solve a case that deals with the chapter’s topics. However, this traditional case approach does not encourage students to discover the concepts on their own or work through the steps to determine how to use the concepts. The cases-based-on-lecture approach [one of Barrows’ (1986) PBL variants] does not provide an opportunity for the learning process to occur in real-world type situations. Instead of actively solving the problem themselves, students follow the instructor’s example to solve the problem.

2.3. PBL in Various Disciplines Many fields, such as medicine and nursing, have had success with the PBL approach (e.g., reviews such as Doig & Werner, 2000; Norman & Schmidt, 2000; Prince et al., 2003; Schmidt, 1998; Schmidt et al., 1996; van de Wiel et al., 2000). The medical school at McMaster University, Ontario, first introduced this approach in the mid-1960s (Delisle, 1997, p. 5). Approximately


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150 medical schools worldwide, about 10% of the total, have adopted PBL (Spencer & Jordan, 1999). In medicine, much of the shift to PBL resulted from research conducted in Europe by Henk Schmidt and his colleagues (Boshuizen & Schmidt, 1992; Schmidt, 1998; Schmidt & Boshuizen, 1993a, b; van de Wiel et al., 2000) and in Canada by Vimla Patel and her colleagues (e.g., Patel & Groen, 1986; Patel, Evans, & Kaufman, 1990; Patel, Evans, & Groen, 1989; Patel, Groen & Scott, 1988). Studies have found that students who studied in a PBL curriculum were more likely to be primary care physicians, to see fewer patients (i.e., spending more time with the patients they examine), and to bill the insurance companies for smaller amounts (Schmidt, 1998). Requiring students to diagnose cases early in their medical education exposed them to the complexities of the ‘‘real world,’’ and encouraged clinical (as opposed to biomedical) thinking. In addition to its widespread use in medical schools, PBL has been welcomed by many disciplines as a way to encourage meaningful discussion and self-directed, lifelong learning. Variations of the PBL approach occur in areas as diverse as astrophysics (Raine & Collett, 2003), pharmacology (Michel, Bischoff, zu Heringdorf, Neumann, & Jakobs, 2002), anthropology (White, 1996), and business (Whelan-Berry & Marshall, 2000). Although PBL has existed for decades in medicine and other disciplines, educators still disagree as to whether PBL or integrated curricula impart the basic knowledge essential to professional success, particularly in the sciences (e.g., Dochy et al., 2003; Doig & Werner, 2000; Glew, 2003; O’Neill, 2000; Prince et al., 2003). In addition, there are disagreements regarding the proper measures of the knowledge gained with a PBL approach (e.g., basic or factual knowledge versus application of skills or clinical knowledge). For example, Glew (2003) suggests that basic science knowledge may suffer because of the instructors’ limited depth of knowledge; however, students may perceive that their basic knowledge is adequate (Doig & Werner, 2000). Results on national exams have been mixed after implementation of PBL programs (e.g., Aaron et al., 1998; Blake, Hosokawa, & Riley, 2000; Colliver, 2000; Dochy et al., 2003; Prince et al., 2003).

2.4. PBL in Accounting Education The AICPA (1999) recommends the use of PBL to teach core competencies. Proponents of PBL say students can better build their knowledge and skills through solving real problems or answering important questions as opposed

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to working abstract exercises (Delisle, 1997, p. 2). Indeed, outside the classroom, people obtain knowledge and skills by solving real-world problems. Prior accounting literature (Debessay, 2003) urges accounting educators to consider PBL as a pedagogy that will better prepare accounting professionals for the challenges of the 21st Century. Edmonds, Edmonds, and Mulig (2003) also encourage accounting educators to experiment with PBL. Their work describes PBL and discusses the research related to PBL effectiveness as addressing skill development in the medical, engineering, and legal disciplines. Moreover, these authors describe an implementation strategy for using PBL in the introductory accounting courses. They identify several problems they encountered in using PBL and provide remedies that have been successful. Milne and McConnell (2001) also urge accounting educators to consider PBL. Their article provides an extensive review of the developments of PBL, describing an idealized PBL format, outlining the learning rationale for such an approach and presenting empirical evidence from the medical literature on the effectiveness of the PBL approach. To our knowledge, Phillips and Vaidyanathan (2003) and Breton (1999) are the only studies at the time of this writing to offer empirical evidence as to the effectiveness of using PBL in an accounting course. Breton compared the traditional lecture model to PBL in an accounting theory course using test scores as a measurement. On a question in the form of a case and on a theoretical question, the two groups differed significantly with the PBL group outperforming the lecture group. However, on a technical question, the groups did not differ. The results of the Phillips and Vaidyanathan study found students’ case analysis performance was initially enhanced when a lecture precedes a case in an introductory accounting course; however, performance on a second case was significantly better when students had previously learned in an environment in which the first case came before the lecture.

2.5. PBL in the AIS Course Teaching the ‘‘survey’’ AIS course has historically been a challenge. As Raval (1991) concludes, ‘‘The characteristics of the course, compared to those of other accounting courses, are nonconforming in nature.’’ Instructors in non-AIS courses tend to emphasize procedures and rules, whereas AIS teachers tend to emphasize systems and processes. To reinforce the systems concepts introduced in the survey course, instructors typically employ an integrated approach of lecture plus hands-on


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activities. These activities generally include accounting, spreadsheet, and database management systems software. The Compendium of Classroom Cases and Tools for AIS Applications (American Accounting Association Information Systems Section, 2003 and 2004) illustrates some appropriate activities. Most accounting students will not specialize in information systems, but many will be auditors who evaluate accounting systems or may be part of a user group or consulting team convened to design and implement a system for their employer or a client. The role of the accountant in the design and implementation of a system (whether a simple accounting information system or an enterprise-wide system) has historically been to identify necessary internal controls and security measures and to detail the accounting information needed for report generation. With the advent of information systems that provide much non-accounting information for use by managers, the role of the user/auditor/consultant accountant has expanded. The accountant must understand the role of information in day-to-day decisions made by management. The accountant’s role is to aid in the design of a system that provides relevant, timely, and concise information to managers. Meeting the demands of auditing, designing, and implementing effective accounting systems requires that students have a wide range of technical knowledge and problem-solving skills. Given the success of PBL in other disciplines, this teaching approach may prove successful for AIS students. Certainly, the nature of PBL cases (i.e., relatively unstructured with no ‘‘right’’ answer) fits the AIS environment. Based on studies such as Schmidt et al. (1996), however, initial student performance on exams might not show improvement until after several semesters in a mixed- or PBL-based curriculum (e.g., Albanese & Mitchell, 1993; Dochy et al., 2003).

3. OUR EXPERIENCE WITH PBL We introduced PBL into some of the undergraduate and graduate AIS classes at our university, which requires the undergraduate AIS class of all accounting majors and students generally take it during their senior year. We require the graduate course of all accounting majors who have not had an AIS course. These courses have traditionally followed an integrated approach with lecture and hands-on activities. This integrated approach encourages active learning, shown in some studies to aid in the development of complex skills (Bonner, 1999). The in-class activities are software teaching labs, e.g., Visio, Access, Peachtree; a ‘‘baseball game’’ activity that addresses

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internal controls (Pillsbury, 1993); and a human computer demonstration, which follows the ‘‘life’’ of a sales transaction through the system and its effect on the various data files. The in-class activities have been well received by the students as evidenced by favorable comments on course evaluations. This experience suggested to us that the use of PBL cases might further enhance the learning experience for students. Homework assignments require the use of flowchart, database management system, spreadsheet, and accounting software. The majority of the class is taught in a traditional classroom setting and some class time is spent in a teaching lab for instruction in each of the required software packages used in the course. Each section of an AIS course has 15–30 students, allowing some flexibility on the part of the instructor for group work. Most students are nontraditional, commuter students who work in full-time positions while attending school. Their work experiences provide a rich resource for class discussion regarding the application of the concepts in the textbook material. Because we were the only instructors in our school to utilize PBL and because we were using it for the first time, we implemented PBL at one of the more elemental levels as described by Barrows (1986). This version of PBL required students to solve short, unstructured real-life cases at the beginning of the 3-hour class period, prior to the lecture portion of the class. We drew on class discussion of the answers to the case questions to identify needed areas of learning and directed the lecture for that class period. Some of the cases came from the textbook and were complex ‘‘real-life’’ situations that did not have clear-cut answers. Cases appeared at the beginning of the chapters (without questions following) and were there as ‘‘scenarios’’ to illustrate the relevance of the chapter material. We developed questions for use in the classroom discussions. The authors created other cases used and included two to four questions for the groups to answer. Appendix A presents an example of one of the cases (and related questions) adopted in the class. This case had the students act in the role of a consultant to the manager of a movie rental chain. The case asked student groups to make recommendations regarding the formatting and coding of managerial reports to monitor activity. At the second class meeting, students formed their own groups of three to four people based on where they were sitting. The groups did not change unless a group was reduced to a single person through student withdrawals from the class. (See the Guidelines section for a better way to create the groups.) A typical class agenda was as follows. At the beginning of each class, students gathered into their assigned groups to work on the case. The


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instructor handed out the case and allowed the groups approximately 15 minutes to work on the case (depending on the case and the number of questions following). Each group developed its responses to each of the case questions. One student in the group was the ‘‘scribe’’ who recorded the responses. The students in each group had to justify their recommendations and reach consensus. Once this was completed, the groups came together to discuss the case for approximately 15 minutes. The instructor facilitated this discussion. The instructor did not provide specific answers but offered guidance and encouraged participation. Part of the case discussion required students to identify areas of the chapter material they did not fully understand so that the instructor could try to reduce confusion and explain the concepts. The instructor then focused the class lecture for the chapter material on those areas addressed in the case, as well as areas where the students requested clarification. For example, it became clear during the discussion of the example case in Appendix A that the students did not understand what an exception report was used for and what kind of information it would contain. Therefore, the lecture that followed included an expanded discussion of the purpose and format of an exception report. At the end of the class, the instructor collected the written responses to the case. Each response listed the names of the team members who were present. The instructor read the responses, wrote comments to the students, assigned a grade (maximum 10 points), and returned the graded cases the following class period. We were interested in how the PBL approach affected the students’ acquisition of basic knowledge and their satisfaction with the course. Based on previous research regarding performance after the initial institution of a PBL curriculum and the ‘‘expertise level’’ (defined as number of years in medical school) of the students tested (e.g., Dochy et al., 2003; Schmidt et al., 1996), we tested the following validation hypothesis for the undergraduate groups: H1. Basic knowledge exam scores of undergraduate AIS students who receive instruction that includes PBL cases with the lecture/activities format will be below the scores of undergraduate AIS students who receive instruction in a lecture/activities format. Because graduate students typically have more work experience and maturity than undergraduate students, they may respond differently to the PBL method. We suggest that their outside experience or previous knowledge might merge well with the PBL-type approach to improve basic (factual) knowledge and skills application, since a basic assumption of PBL is the

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importance of prior knowledge (e.g., Raine & Collett, 2003) and the ‘‘expertise level’’ of the students (e.g., Dochy et al., 2003; Michel et al., 2002; Schmidt et al., 1996). Therefore, we tested the following validation hypothesis for the graduate groups: H2. Basic knowledge and written case scores of graduate AIS students who receive instruction that includes PBL cases with the lecture/activities format will be higher than the test scores of graduate AIS students who receive instruction in a lecture/activities format. Studies such as Michel et al. (2002) and Doig and Werner (2000) have shown that PBL is associated with greater motivation, enjoyment, and satisfaction by the students. Students in PBL groups rate their course higher with regard to enhancing overall understanding and consistently rate their learning experience higher with regard to increased interest and knowledge. Incorporating PBL in the curriculum improves student satisfaction with basic instruction. Therefore, the following research question is addressed: RQ1. Do AIS students who received instruction in a PBL format report that the approach enhanced their learning experience?

4. VALIDATION TESTS We compared exam scores on common MCQs in the NO PBL group to exam scores in the PBL group for both the undergraduate and the graduate courses. For the undergraduate course, we also analyzed the results of a survey completed at the end of the course by students in the PBL group. For the graduate course we also analyzed the students’ responses to a short case on their final exam (both groups).

4.1. Undergraduate Course The PBL group ðn ¼ 42Þ came from two sections taught in fall 2002. The NO PBL group ðn ¼ 30Þ came from two sections, one taught in fall 2001 and one in spring 2002. One of the authors taught all the sections and used the same textbook. The instructor dispensed three exams to the two groups. We compared student performance only for those common MCQs, which were written by one of the authors and tested and revised over several years of teaching the


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AIS course. We used the multiple-choice format for two reasons. First, major portions of the professional certification exams (e.g., CPA, CMA, CISA) employ the multiple-choice format to test basic (factual) knowledge; so while we hope the students will develop skills related to critical thinking and analysis, they still need to have basic knowledge of AIS to become certified in the profession. Several studies in the medical field have shown that performance on basic knowledge (multiple-choice) exams did not differ significantly between students in PBL or integrated curriculum versus those in a ‘‘traditional’’ curriculum (e.g., Aaron et al., 1998; Blake et al., 2000; Prince et al., 2003). Second, by using the multiple-choice format, we did not bias the results toward the PBL group. These questions tend to test technical knowledge, an area where PBL has sometimes been found lacking (e.g., Albanese & Mitchell, 1993; Dochy et al., 2003; Schmidt, 1998; Schmidt et al., 1996), because the skill sets taught in a PBL curriculum might not transfer to basic-knowledge exams until after they had several semesters with the approach. In addition, if this method is meant to enhance learning, students must succeed on traditional exams (Colliver, 2000; Prince et al., 2003). In the initial analysis, we controlled for semester, time of day (4 p.m. on Tuesdays or other), and major (Accounting and Finance, Accounting, or other). We included semester, because the NO PBL and PBL groups came from sections taught during different semesters. Semester, time of day, and major were not significant predictors of student performance on the exams, so we dropped these variables from further analysis. Table 1, Panel A, shows the percentage scores on common MCQs for each of the three exams. Common MCQs totaled 38 for exam 1 (covering such introductory topics as the definition of an accounting information system, accounting system documentation, essential elements and activities of an accounting system, data flows, reporting principles, and coding methods), 27 for exam 2 (covering topics such as business processes and relational databases), and 37 for exam 3 (covering internal controls, paperless accounting systems, and systems design and implementation). The Cronbach’s a statistics for exams 1, 2, and 3 were 0.74, 0.71, and 0.65, respectively, which indicates an adequate level of reliability. The scores used for the analysis were in percentage form. Table 1, Panel B, presents frequencies for undergraduate students according to teaching approach, major, gender, and time of class. Over 88% of the students were either accounting majors (83.3%) or accounting/finance majors (5.6%). The majority of students were female (77.8%), and most students attended a 3-hour Tuesday afternoon class (65.3%).

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Table 1.

Descriptive Statistics-Undergraduate Course.

Panel A: Exam scores N

42 30

Raw mean/std. dev.

Percenta mean/std. dev.

Raw mean/std. dev.


Raw mean/std. dev.


26.119/4.634 26.200/5.423

0.687/0.122 0.689/0.143

20.310/3.475 20.533/4.117

0.752/0.129 0.760/0.152

24.119/5.890 23.300/6.193

0.652/0.159 0.630/0.167

Panel B: Frequency tables Frequency

Percent

42 30

58.3 41.7

Total

72

100.0

Major Accounting and finance Accounting Other

4 60 8

5.6 83.3 11.1

Total

72

100.0

Gender Male Female

16 56

22.2 77.8

Total

72

100.0

b

Teaching approach

PBL (Fall 02) NO PBL (Fall 01 and Spr 02)


PBL NO PBL

Exam 3 Scores (37 common questions)



14 47 11

19.4 65.3 15.3

Total

72

100.0

a

For both groups, exams 1 and 2 were significantly correlated, but exam 3 was not correlated to either exam 1 or 2. Teaching approach refers to PBL (PBL cases and related discussion, lecture and in-class activities) and NO PBL (more lecture and the same in-class activities as PBL group).

b


Time Mon.–Wed. 10 am Tuesday 4 pm Monday 7 pm

235

236


To test validation Hypothesis 1 for the undergraduate students, we performed univariate ANOVA. The dependent variables for the ANOVA were the percentage test scores for each of the three tests (PERTEST1, PERTEST2, PERTEST3). As shown in Table 2, the use of PBL or NO PBL approaches was not significantly associated with performance on the exams. This suggests a rejection of H1, and indicates that the students in the PBL classes did no worse (and no better) than those in the NO PBL classes on basic knowledge questions. Table 2.

Univariate Analysis of Variance – Undergraduate Course.

Source

Type III Sum of Squares

df

Mean Square

F

Sig.

1 1 1 70 72 71

0.000 33.173 0.000 0.017

0.005 1934.665 0.005

0.946 0.000 0.946

1 1 1 70 72 71

0.001 40.044 0.001 0.019

0.062 2071.555 0.062

0.804 0.000 0.804

1 1 1 70 72 71

0.009 28.744 0.009 0.026

0.324 1086.712 0.324

0.571 0.000 0.571

Panel A: Test 1 percentage scores Tests of between-subjects effects Dependent variable: PerTest1 Corrected model Intercept PBL vs. NO PBL Error Total Corrected total

0.000 33.173 0.000 1.200 35.304 1.200

Panel B: Test 2 percentage scores Tests of between-subjects effects Dependent variable: PerTest2 Corrected model Intercept PBL vs. NO PBL Error Total Corrected total

0.001 40.044 0.001 1.353 42.468 1.354

Panel C: Test 3 percentage scores Tests of between-subjects effects Dependent variable: PerTest3 Corrected model Intercept PBL vs. NO PBL Error Total Corrected total

0.009 28.744 0.009 1.852 31.595 1.860

Note: PERTEST1: Percentage of questions correct on test 1; PERTEST3: Percentage of questions correct on test 3; PERTEST2: Percentage of questions correct on test 2.

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Appendix B shows the survey with questions about the use of cases that we administered to the undergraduate PBL group to evaluate students’ perceptions of the course. We administered this survey as part of the last exam and tallied the results after recording the grades. The results of the survey, shown in Table 3, suggest the undergraduate students in the PBL group felt the use of cases to start the class discussions somewhat increased their satisfaction with the course. The results also indicate the in-class cases and the use of small groups for development of the case responses somewhat enhanced students’ understanding of the chapter concepts. The students in the PBL group ranked computer labs, homework

Table 3.

Survey Results – Undergraduate Course.

Scoring Scale

N

Mean

Standard Deviation

Question 1: Rate computer labs, homework assignments, cases, class discussion, textbook, exams, and student presentations as to learning experience. 1 2 3 4 5

Least beneficial Less beneficial Neither Somewhat beneficial Most beneficial

LABS HOMEWORK CLASS DISCUSSION CASES TEXTBOOK EXAMS PRESENTATIONS

42 42 41 42 42 42 42

4.286 4.262 4.098 3.810 3.786 3.690 3.357

0.636 0.767 0.831 1.110 1.116 1.000 1.186

Question 2: The in-class cases helped me understand the chapter concepts. Question 3: The use of small groups for development of the case responses enhanced my understanding of the chapter concepts. Question 4: The use of cases to start the class discussion increased my satisfaction with this class. 1 2 3 4 5

Strongly disagree Question 2 Disagree somewhat Question 3 Neither agree nor disagree Question 4 Agree somewhat Strongly agree

42 42 42

3.929 3.929 3.857

0.997 1.045 1.280

Question 5: I found this course to be more difficult than my other accounting courses. 1 2 3 4 5

Strongly disagree Question 5 Disagree somewhat Neither agree nor disagree Agree somewhat Strongly agree

42

3.976

0.0897

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assignments, and class discussion as more beneficial to their learning than the PBL cases.

4.2. Graduate Course The PBL group ðn ¼ 48Þ came from two sections taught during the spring 2003 semester, and the NO PBL group ðn ¼ 24Þ from one section taught in fall 2003. One of the authors taught the PBL group while another author taught the NO PBL group. These instructors used the same textbook and course materials and similar in-class activities. Table 4, Panel A, shows the percentage scores on common MCQs for each of the three exams. The exams covered the same topics as the undergraduate exams. The Cronbach’s a statistic for exams 1, 2, and 3 were 0.69, 0.66, and 0.57, respectively, which is considered an adequate level of reliability. Table 4, Panel B, presents frequencies for graduate students according to teaching approach, major, gender, and time of class. Approximately 57% of the students were accounting majors. The majority of students were female (55.6%), and most students attended a 3-hour Tuesday afternoon class (38.9%). We tested the second validation hypothesis regarding graduate students with univariate ANOVA on the percentage test scores for each of the three tests (PERTEST1, PERTEST2, PERTEST3). As shown in Table 5, there were no significant associations with individual test scores. This is consistent with some of the medical literature (e.g., Blake et al., 2000; Colliver, 2000; Aaron et al., 1998), wherein performance by students in a NO PBL year compared to students in the first year of a conversion to PBL curriculum suggested there were no differences in performance on basic (i.e., factual) knowledge MCQs. Because there are no significant differences for the undergraduate students on multiple-choice exam scores, the authors wanted to determine whether a different testing method would make a difference. Therefore, the final exam (Test 3) for the graduate students in the PBL and the NO PBL groups also included a short case with two questions. The case and questions were similar to the PBL cases used throughout the semester in the PBL group. Appendix C presents this case. While the PBL group scored higher on the case questions than the NO PBL group, the scores on the two questions whether taken individually or combined were not significantly different (Table 6). Again, these results are similar to those of Aaron et al. (1998), wherein PBL and NO PBL groups’ scores did not differ on written research exam questions, providing additional support for the rejection of H2.

Descriptive Statistics – Graduate Course.

Panel A: Exam scores N

PBL NO PBL

48 24




Raw mean/std. dev.


Raw mean/std. dev.


Raw mean/std. dev.


31.042/4.332 33.000/3.036

0.796/0.111 0.846/0.088

32.408/3.753 33.458/2.637

0.855/0.100 0.880/0.074

26.458/3.707 27.750/3.926

0.678/0.100 0.712/0.101

Panel B: Frequency tables Percent

Teaching Approach PBL (Spring 03) NO PBL (Fall 03)

48 24

67.0 33.0

Total

72

100.0

Major Accounting MIS MBA Other

41 11 10 10

56.9 15.3 13.9 13.9

Total

72

100.0

Gender Male Female

32 40

44.4 55.6

Total

72

100.0

239

Frequency b


Table 4.

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Table 4. (Continued ) Panel B: Frequency tables Percent

Time Monday 7 pm Tuesday 4 pm Thursday 4 pm

20 28 24

27.8 38.9 33.3

Total

72

100.0

a

For the PBL group, the percentage scores of exams 2 and 3 were significantly correlated. For the NO PBL group, all three of the percentage exam scores were significantly correlated. b Teaching approach refers to PBL (PBL cases and related discussion, lecture and in-class activities) and NO PBL (more lecture and the same in-class activities as PBL group).


Frequency

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Table 5. Univariate Analysis of Variance – Graduate Course. Source

Type III Sum of Squares

df

Mean Square

F

Sig.

0.040 43.144 0.040 0.719 48.312 0.760

1 1 1 70 72 71

0.040 43.144 0.040 0.010

3.927 4199.127 3.927

0.051 0.000 0.051

0.011 48.175 0.011 0.569 54.241 0.580

1 1 1 70 72 71

0.011 48.175 0.011 0.008

1.306 5924.397 1.306

0.257 0.000 0.257

0.018 30.912 0.018 0.658 34.901 0.675

1 1 1 70 72 71

0.018 30.912 0.018 0.009

1.868 3289.798 1.868

0.176 0.000 0.176

Panel A: Test 1 percentage score Tests of between-subjects effects Dependent variable: PERTEST1 Corrected model Intercept PBL vs. NO PBL Error Total Corrected total Panel B: Test 2 percentage score Tests of between-subjects effects Dependent variable: PERTEST2 Corrected model Intercept PBL vs. NO PBL Error Total Corrected total Panel C: Test 3 percentage score Tests of between-subjects effects Dependent variable: PERTEST3 Corrected model Intercept PBL vs. NO PBL Error Total Corrected total

Note: PERTEST1: Percentage of questions correct on test 1; PERTEST3: Percentage of questions correct on test 3; PERTEST2: Percentage of questions correct on test 2.

5. DISCUSSION Is PBL an improved delivery method for the accounting curriculum? The evidence from our experience suggests that a PBL approach in the AIS course did not improve the acquisition of basic AIS knowledge by undergraduate or graduate students, nor was it detrimental. And although the

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Table 6.

Statistics for Case on Graduate Exam. Raw Scores

PBL NO PBL

Question 1 mean/std. dev.

Question 2 mean/std. dev.

Questions 1 & 2 mean/std. dev.

1.02/0.98 0.79/1.10

2.13/1.25 1.88/1.42

3.15/1.77 2.67/2.08

Note: None of the scores differed significantly between the groups.

Breton (1999) and Phillips and Vaidyanathan (2003) studies found that students exposed to PBL performed better in accounting theory and introductory accounting courses on case questions, we did not find this to be true for the case questions by our graduate AIS students. One possible explanation for our results may be due to the fact that the ‘‘non-traditional’’ graduate students at our university bring with them extensive amounts of prior practical knowledge that allow them to apply the basic knowledge acquired in the AIS course. Another possible explanation, based on prior medical school research, is that more time is needed to realize the full potential of PBL in a curriculum (e.g., Dochy et al., 2003; Schmidt et al., 1996). The delay in observing the benefits from a PBL approach arises from the need for students and instructors to adjust to the new approach. Based on our initial experience, we suggest PBL may be more effective if it is implemented throughout the accounting curriculum rather than in only one course, as suggested by Schmidt (1998), Schmidt et al. (1996), and others (e.g., Dochy et al., 2003). Also, perhaps the widespread use of hands-on activities by AIS instructors mitigates any significant contribution that PBL makes to this course. If carefully designed and administered, these activities can instill AIS knowledge and develop problem-solving skills by encouraging students to process information in an active way. Schmidt et al. (1996) contends that it is more important for faculty to integrate book information and real-life experience in the classroom than the particular method of integration. Notwithstanding our results, undergraduate students thought the cases and case discussions enhanced their learning, and instructors enjoy the PBL approach once they have acted as tutors according to studies such as Albanese et al. (1993). Therefore, the addition of the PBL cases may be an alternative to some of the other hands-on activities applied in the AIS courses.


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6. GUIDANCE FOR IMPLEMENTING PBL IN THE ACCOUNTING CURRICULUM Based on our experience with a PBL implementation, we learned several lessons to share with first-time implementers. Start slowly. We tried using a case every class at first, and found the students felt burdened and wanted the cases to count for a larger portion of their grade. We then moved to having about 6–7 cases a semester worth 10 points each, dropping the lowest score (in case they missed one). These 60 points represent 12% of their total grade (60/500 total points). The students catch on quickly (especially graduates), and after you get more ‘‘into it,’’ it becomes fun for everyone with lots of laughter! The students got a chance to know one another, and the instructor got to know the students better, too. Faculty evaluations may suffer if one employs too many cases because the students feel as if they have to do all the ‘‘work.’’ We found that the student evaluation scores for group activities were more positive after we cut down the number of cases to about 6–7 (from 14 or 15). Use a deck of playing cards to randomly assign students to groups. We found that a group of 3–4 students is optimal. To effect a random assignment, determine how many groups you will have in a class. Take enough playing cards out of a deck so that you can walk around the class and let students draw one card. If, for example, you will have eight groups of four students, take all four aces, kings, queens, jacks, tens, nines, eights, and sevens. Shuffle the deck before handing out the cards. Trying to assign the groups in advance in an effort to equalize the mix of each group can get messy because people drop or miss class. Then your careful organization to try to spread strengths/specialties is all for naught! Use interesting but short cases. One way to supplement your cases it to offer students an extra credit opportunity by allowing them to write a case (with questions and potential answers) based on either their experience or a fictional experience at the end of the semester. The case has to be on any of the topics covered in class. Students get really excited about this, as by the end of the semester, they are familiar with what the instructor is looking for. If you use student-written cases, give the authors credit. Get the discussion going. Start by summarizing the case. Then choose one group to start the answer to question one. (You might pass out one card to each group and let the group with the highest card give its answer to the first question.) If the question is something like ‘‘List the files that might be associated with this process’’ or ‘‘List the control weaknesses of the case company,’’ ask each group to come up with 2–3 items, or divide it so that all

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the groups have at least one chance to give answers. Write the answers given on the board or a flip chart to prevent repeats. The group with the next highest card starts the answer to the second question, and so on. After the groups run out of answers, the instructor compares their answers from the board with those of the answer key. Often, (especially graduate students) will think of issues the instructor had not though of, which can be added to the answer key. Limit the discussion time. It is easy to let the case discussion go too long. This is okay, as long as it ties in with your planned lecture. You can determine areas the students do not understand during the discussion, but that means you have to be able to add to your lecture in that area ‘‘on the fly.’’ After using PBL a couple of semesters, we were able to find that there were common areas the students did not ‘‘get’’ easily – for example, the concept of exception reports. Then you can prepare more lecture material on exception reports, anticipating that the students would not have grasped the concept. Only facilitate. This is hard to do at first, but after the first few cases, the students will probably want you to keep quiet so that they make their comments! Do not be disappointed if you end up doing most of the talking for the first case or two. Graduate students do not seem to have as much problem-working cases from the first day, but undergraduate students do. Get all students to participate in case discussions. At the end of the semester, the students rate their group members’ participation throughout the semester. This information can be included in the calculation of the grade for the cases. We found that most of the groups were happy with their members. If there are problems, encourage students to talk to the instructor so that issues can be worked out during the semester. Since the work is all done in the classroom and the groups are relatively small, we did not have much problem with ‘‘free riders.’’ In addition, call on different individuals in a group so that they do not always use the same spokesperson. After a case or two, the shy students want to take a stab at being the spokesperson since the environment is set up to be positive. Try to turn around an ‘‘incorrect’’ answer. Sometimes, this can be challenging, but at least with the cases having several potential ‘‘correct’’ answers, you can usually tie everything together. Grade the cases. Take up and review each group’s written case response with everyone’s name on it. (Only those present to help in the discussion are listed.) Write feedback on the responses and return them to the groups at the beginning of the next class. Of course, since all answers have been discussed before the groups hand in their responses, they may add to what they originally had on their sheets. Most of the time, they all get their 10 points and they seem to get more ‘‘into’’ the cases as the semester goes on.


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To make this exercise worth the effort to the students, the case grades should represent from 10% to 20% of the total grade. Prepare students for this new approach. At the beginning of the semester emphasize your goals for this work (e.g., to promote teamwork skills, to force preparation for class, to tie what they are learning to their work experience, etc.) Use a questionnaire such as the one in Appendix B at the end of each semester. A questionnaire will let you know whether you motivated students by the PBL approach and their satisfaction level with the course. In addition, you watch the trends in motivation and student satisfaction from one semester to the next.

ACKNOWLEDGMENTS The authors wish to thank Wong Hoi Hui for his invaluable assistance. We would also like to thank Victor Willson and William Shadish, as well as the participants in the workshop at the University of Houston-Clear Lake, for their helpful comments and suggestions. Data from this study are available from the first author.

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Perspectives on education: Capabilities for success in the accounting profession. New York: Arthur Andersen & Co., Arthur Young, Coopers & Lybrand, Deloitte Haskins & Sells, Ernst & Whinney, Peat Marwick Main & Co., Price Waterhouse, and Touche Ross. Barrows, H. S. (1986). A taxonomy of problem-based learning methods. Medical Education, 20, 481–486. Barrows, H. S., & Tamblyn, R. M. (1980). Problem-based learning: An approach to medical education. New York: Springer Publishing Company. Blake, R. L., Hosokawa, M. C., & Riley, S. L. (2000). Student performances on step 1 and step 2 of the United States medical licensing examination following implementation of a problem-based learning curriculum. Academic Medicine, 75(1), 66–70. Bonner, S. E. (1999). Choosing teaching methods based on learning objectives: An integrative framework. Issues in Accounting Education, 14(1), 11–41. Boshuizen, H. P. A., & Schmidt, H. G. (1992). On the role of biomedical knowledge in clinical reasoning by experts, intermediates and novices. Cognitive Science, 16(2), 153–184. Breton, G. (1999). Some empirical evidence on the superiority of the problem-based learning (PBL) method. Accounting Education, 8(1), 1–12. Colliver, J. (2000). Effectiveness of problem based learning curricula. Academic Medicine, 75, 259–266. Debessay, A. (2003). Application of problem-based learning (PBL) in accounting. The Accounting Educator Newsletter of the Teaching and Curriculum Section of the American Accounting Association, 12(2), 1–7. Delisle, R. (1997). How to use problem-based learning in the classroom. Alexandria, VA: Association for Supervision and Curriculum Development. Dochy, F., Segers, M., van den Bossche, P., & Gijbels, D. (2003). Effects of problem-based learning: A meta-analysis. Learning and Instruction: The Journal of the European Association for Research on Learning and Instruction, 13(8), 533–568. Doig, K., & Werner, E. (2000). The marriage of traditional lecture-based curriculum and problem-based learning: Are the offspring vigorous? Medical Teacher, 22(2), 173–178. Edmonds, C. D., Edmonds, T. P., & Mulig, E. V. (2003). Using problem-based learning to promote skill development in the accounting classroom. Working paper. Francis, M. C., Mulder, T. C., & Stark, J. S. (1995). Intentional learning: A process for learning to learn in the accounting curriculum. Accounting Education Series 12. American Accounting Association. http://aaahq.org/AECC/intent. Glew, R. H. (2003). The problem with problem-based medical education – promises not kept. Biochemistry and Molecular Biology Education, 31(1), 52–56. Heagy, C. D., Nash, J. F., & Courtney, H. M. (1999). The design, selection, and implementation of accounting information systems (4th ed.). Houston: Dame Publications, Inc. Jones, D. (1996). What is PBL? DCDPBL Faculty Development Institute Forum, San Diego State University. http://edweb.sdsu.edu/clrit/learningtree/PBL. Knechel, W. R. (1992). Using the case method in accounting instruction. Issues in Accounting Education, 7(2), 205–217. Libby, P. A. (1991). Barriers to using cases in accounting education. Issues in Accounting Education, 6(2), 193–213. Michel, M. C., Bischoff, A., zu Heringdorf, D. M., Neumann, D., & Jakobs, K. H. (2002). Problem- vs. lecture-based pharmacology teaching in a German medical school. NaunynSchmiedeberg’s Archives of Pharmacology, 366(1), 64–68.


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Milne, M. J., & McConnell, P. J. (2001). Problem-based learning: A pedagogy for using case material in accounting education. Accounting Education, 10(1), 61–82. Norman, G. R., & Schmidt, H. G. (2000). Effectiveness of problem-based learning curricula: Theory, practice and paper darts. Medical Education, 34, 721–728. O’Neill, P. A. (2000). The role of basic sciences in a problem-based learning clinical curriculum. Medical Education, 34, 608–613. Patel, V. L., & Groen, G. J. (1986). Knowledge based solution strategies in medical reasoning. Cognitive Science, 10, 91–116. Patel, V. L., Evans, D. A., & Groen, G. J. (1989). Reconciling basic science and clinical reasoning. Teaching and Learning in Medicine, 1(3), 116–121. Patel, V. L., Evans, D. A., & Kaufman, D. R. (1990). Reasoning strategies and the use of biomedical knowledge by medical students. Medical Education, 24(2), 129–136. Patel, V. L., Groen, G. J., & Scott, H. M. (1988). Biomedical knowledge in explanations of clinical problems by medical students. Medical Education, 22, 398–406. Phillips, F., & Vaidyanathan, G. (2003). Moving from lecture-based instruction to problembased learning: Should case materials precede or follow lectures? Paper presented at American Accounting Association 2003 annual meeting, Honolulu, Hawaii. Pillsbury, C. M. (1993). Systems softball: An interactive, group game for teaching internal control evaluation. Issues in Accounting Education, 6(1 (Spring)), 128–138. Prince, K. J. A. H., van Mameran, H., Hylkema, M., Drukker, J., Scherpbier, A. J. J. A., & van der Vleuten, C. P. M. (2003). Does problem-based learning lead to deficiencies in basic science knowledge? An empirical case in anatomy. Medical Education, 37, 15–21. Raine, D., & Collett, J. (2003). Problem-based learning in astrophysics. European Journal of Physics, 24(2), S41–S46. Raval, V. (1991). Perspectives on students’ teaching evaluations of AIS courses. Journal of Information Systems, 5(Fall), 62–72. Saudagaran, S. M. (1996). The first course in accounting: An innovative approach. Issues in Accounting Education, 11(1 (Spring)), 83–94. Schmidt, H. G. (1998). Problem-based learning: Does it prepare medical students to become better doctors? Medical Journal of Australia, 168(9), 429–432. Schmidt, H. G., & Boshuizen, H. P. A. (1993a). On acquiring expertise in medicine. Educational Psychology Review, 5(3), 205–221. Schmidt, H. G., & Boshuizen, H. P. A. (1993b). On the origin of intermediate effects in clinical case recall. Memory and Cognition, 21(3), 338–351. Schmidt, H. G., Machiels-Bongaerts, M., Hermans, H., ten Cate, T. J., Venekamp, R., & Boshuizen, H. P. A. (1996). The development of diagnostic competence: Comparison of a problem-based, an integrated, and a conventional medical curriculum. Academic Medicine, 71(6), 658–664. Spencer, J. A., & Jordan, R. K. (1999). Learner centered approaches in medical education. BMJ, 318(8 May), 1280–1283 http://bmj.com/cgi/content/full/318/7193/1280. van de Wiel, M. W. J., Boshuizen, H. P. A., & Schmidt, H. G. (2000). Knowledge restructuring in expertise development: Evidence from pathophysiological representations of clinical cases by students and physicians. European Journal of Cognitive Psychology, 12(3), 323–355. Whelan-Berry, K. (2002). Implementing problem-based learning in business. Birmingham, AL: Samford University Press. Whelan-Berry, K. S., & Marshall, J. B. (2000). Undergraduate business education and problembased learning. PBL Insight, 3(1), 7 10–11.

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White, H. B., III (1996). Dan tries problem-based learning: A case study. In: L. Richlin (Ed.), To improve the academy, (Vol. 15, pp. 75–91). Stillwater, OK: New Forums Press and the Professional and Organizational Network in Higher Education.

APPENDIX A. EXAMPLE OF A PBL CASE Samantha Williams founded Ottawa Video several years ago. The single store prospered so that she now owns three local stores. Each has a full-time manager who hires students and others to work on a part-time basis. Every week Samantha forwards advance notices of forthcoming videos to each store manager. Store managers submit purchase requests to Samantha, who consolidates them and places the orders. As managers perceive the desirability of adding to the existing inventory of particularly popular films, these are added to the weekly purchase requests and Samantha places a consolidated purchase order. When store managers notice that films are no longer being rented, those films are placed on sale. When her first store opened, Samantha selected a Chartered Accountant (the Canadian equivalent of a U.S. CPA) to maintain her accounting records and handle all payroll and bill paying. (In many countries, CAs are the equivalent of U.S. CPAs.) She gets a monthly income statement from the CA around the 10th of each month that shows total sales broken down by type and a detailed balance sheet. Although these are useful to gauge her progress and Samantha has no criticism of the accounting reports, she has a feeling that she is unable to monitor store operations as closely as was possible when she had only one store.

Questions: 1. What reports would you recommend for Samantha to help her monitor her stores’ operations? 2. What format would you recommend for those reports (e.g., by cost center, function, etc.) and why? 3. What kind of coding system would you recommend for the inventory of movies? 4. What types of exception reports would allow Samantha’s managers to monitor their inventories? Source: Adapted from C. Heagy, J. Nash, and H. Courtney (1999).

Course questionnaire (5 points if all five questions have responses). Please be honest. Your responses will be kept confidential and will not affect your grade. 1. For each item below, please circle how beneficial it was to your learning experience on a scale of 1 (least beneficial) to 5 (most beneficial).

Computer labs Homework assignments Cases Other class discussion (besides the lecture) Textbook Student presentations

Most Beneficial

Somewhat Beneficial

Neither

Less Beneficial

Least Beneficial

5 5

4 4

3 3

2 2

1 1

5 5

4 4

3 3

2 2

1 1

5 5

4 4

3 3

2 2

1 1


APPENDIX B. SURVEY OF STUDENTS

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Strongly Disagree 1

Somewhat Disagree 2

Neither Agree Nor Disagree 3

Somewhat Agree 4

Strongly Agree 5

Somewhat Disagree 2

Neither Agree Nor Disagree 3

Somewhat Agree 4

Strongly Agree 5

4. The use of cases to start the class discussion (as opposed to a straight lecture format) increased my satisfaction with this class. Strongly Disagree Somewhat Disagree Neither Agree Nor Disagree Somewhat Agree 1 2 3 4

Strongly Agree 5

5. I found this course to be more difficult than my other accounting courses. Strongly Disagree Somewhat Disagree Neither Agree Nor Disagree 1 2 3

Somewhat Agree 4

Strongly Agree 5


3. The use of small groups for development of the case responses enhanced my understanding of chapter concepts. Strongly Disagree 1

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Please circle your degree of agreement/disagreement in general with the following statements. 2. The in-class cases helped me understand the chapter concepts.


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APPENDIX C. CASE ON GRADUATE FINAL EXAM Elise Minichello built her Wall Street investment brokerage firm almost single handedly. She had increased annual revenues from $80 million to $600 million over a 10-year period. Minichello had an uncanny knack for knowing when to get into a market and when to get out. An article in a leading business magazine described Minichello as ‘‘someone who is really comfortable with risk and is the envy of all of us who wish we had been born lucky.’’ However, her luck ran out in 2000. For years, her controller Bruce Berlin had been advising her that the control environment needed to be improved. Minichello understood the need for checks on accounting accuracy and control of assets. The accounting information system was first-rate and was operated by competent people. Procedures for handling cash and entering transaction data were virtually faultless. Extensive vault facilities had been installed for storing investment instruments, and armed security guards patrolled the building. But Minichello was unwilling to spend money on improving the control environment. Her response to Berlin’s recommendation was, ‘‘Margins are slim in the finance world. If I bought ‘insurance’ for everything that could go wrong, I would be out of business. I have to live with risk, and so must the company.’’ Unfortunately, the control environment was her undoing. Richard Duffy, the corporate treasurer, embezzled $45 million of investors’ funds. Over 18 months, he used his knowledge of EFT (electronic funds transfer) codes to shift the money to offshore bank accounts. Unknown to Minichello, he ‘‘earned’’ an additional $12 million in fees for laundering drug money through the brokerage. Three days before his schemes were discovered, he boarded a plane to Argentina. Subsequent investigations showed that he had been charged once before with embezzlement but had been acquitted for lack of evidence. When interviewed by CNN at his new home in Buenos Aires, Duffy said that he had learned about effective risk taking from his former boss. She was fortunate to be able to take risks legally; he had fewer opportunities and had to do it any way he could. He was sorry to have upset Minichello because he liked her and still considered her an important role model. Questions: 1. What types of information reporting could have allowed Minichello to detect Duffy’s fraudulent activities? (Include examples of the reports.) 2. What recommendations would you make to Minichello regarding proper control activities assuming the firm survived the embezzlement?


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THE EFFECTS OF GENDER, MENTAL IMAGERY, AND POWERPOINTTM PRESENTATION ON STUDENT ATTITUDES Hossein Nouri and B. Douglas Clinton ABSTRACT The purpose of this study is to examine the effects of gender, use of mental imagery, and presentation mode on student attitudes toward class presentations and the instructor in an accounting context. Prior research suggests that many different possibilities exist regarding main effects, complex interactions, and their interpretations among these variables. We apply moderated regression analysis using contingency hypotheses to provide evidence regarding how presentation mode (PowerPointTM or non-PowerPointTM) affects student attitudes toward both presentations and the instructor differently by gender. Results of an experiment conducted in managerial accounting classes show that female students with a greater application of mental imagery reported less positive attitudes overall than male students toward presentations and toward the instructor. However, when we used PowerPointTM presentations, females reported attitudes toward the instructor and presentation that were more positive than males in non-PowerPointTM sections. Moreover, PowerPointTM presentation does not appear to adversely affect other students. Overall, the implication of our results for educators is that instruction Advances in Accounting Education: Teaching and Curriculum Innovations, Volume 7, 253–275 Copyright r 2005 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 1085-4622/doi:10.1016/S1085-4622(05)07011-2

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HOSSEIN NOURI AND B. DOUGLAS CLINTON

appears to benefit significantly from the use of PowerPointTM presentation for some students in the accounting principles classroom.

INTRODUCTION In recent years, the use of PowerPointTM presentations has significantly increased in the delivery of accounting courses. Most accounting textbooks provide ancillary materials that often contain hundreds of PowerPointTM slides for instructors to employ in topical lectures. Many researchers seem to believe the intuitive argument that PowerPointTM presentations are beneficial. For example, Basile and D’Aquila (2002, p. 137) stated, y in-class use of educational technology helps faculty capture student attention and allows for a greater variety of presentation methods. As a result, students are less bored, more motivated, and likely to learn more.

Some prospective students have thought accounting courses uninteresting and difficult. Educational media involving color, animation, and multiple illustration formats (e.g. PowerPointTM presentations) may provide one avenue for changing this impression. This perception could be the reason instructors have increased the use of PowerPointTM; nonetheless, the profession should study whether these perceptions are correct. Student attitudes are important since they can impede or support the ability and willingness to learn. Student evaluations of instructors and presentation mode, in turn, could reveal student attitudes that may impede or support learning. Therefore, we are encouraged to investigate what affect the surge in the use of PowerPointTM may have on students’ attitudes. A few prior studies (e.g. Alavi, 1994; Avila, Biner, Bink, & Dean, 1995; Basile & D’Aquila, 2002; Beets & Lobingier, 2001) have emphasized the importance of attitudes toward both presentations and the instructor given different presentation methods. Accordingly, this study examines the effects of educational media (i.e. PowerPointTM) on student attitudes toward several factors specific to the classroom presentation and the instructor. Our study is different from the prior studies in that we examine interaction among gender, mental imagery, and PowerPointTM presentation on students’ attitudes, while prior research has only investigated the effect of media in general on student attitudes. In addition, the analysis is specific to students taking an accounting principles course.

Effects of Gender, Mental Imagery, and PowerpointTM Presentation

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Using a quasi-experimental design that incorporates moderated regression analysis, this study varied the presentation format (with and without PowerPointTM) for multiple sections of Accounting Principles II classes and measured affective subject responses via a questionnaire. We present results of analysis testing multiple contingency hypotheses involving the impact of gender, PowerPointTM presentation, and use of mental imagery on student attitudes toward both the presentations themselves and toward the instructor. Results show that female students with a greater use of mental imagery felt they had a lower level of understanding of presentations and expressed a lower amount of interest in presentations in an accounting principles classroom than male students overall. However, where the same type of students (i.e. female with a high propensity to use mental imagery) were included in a section in which the instructor used PowerPointTM presentations, they reported that they had a greater level of understanding of the presentations and expressed a greater amount of interest in the presentations in an accounting principles classroom presentation than male students in similar (but non-PowerPointTM) sections. Similar affective findings extend to student attitudes toward the instructor. The next section presents a brief background and review of the literature central to the multiple variables and interactions examined here. Theory explaining variable inclusion and contingency hypotheses quickly follows. The method, results, and discussion sections are then presented.

BACKGROUND PowerPointTM Presentation Recent years have evidenced a significant use of PowerPointTM presentation in accounting classrooms. Clark (1983) argued that students might have positive attitudes toward a presentation because of novelty in the classroom. The issue of novelty likely has less of an impact today. Nowaczyk, Santos, and Patron (1998), assessing semester-long student perceptions of multimedia in an introductory behavioral statistics course, reported that media technology made the class presentation and discussion more interesting. On the other hand, McInnes, Pyper, Van Der Meer, and Wilson (1995), using students taking a three-term course in management accounting, reported that computer-aided learning actually had an adverse effect on student interest in accounting. Avila et al. (1995) cited Biner, Dean, and Mellinger (1994) who suggested that there is an important link between attitudes and

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learning in that positive student attitudes can result in increased student motivation and learning and decreased student absence and attrition. Although Avila et al. (1995) found significant results on attitudinal measures, they found no overall significance for performance results. Beets and Lobingier (2001) reported similar results finding no significant effects on exam performance or attendance; however, they did find significantly higher performance results when student preferences regarding type of presentation (i.e. chalk, overhead, or PowerPointTM) were satisfied. In opposition to this recent evidence, we can compare Clark’s (1983) conclusion that students often inadvertently prefer media that result in less learning for them. There are clearly conflicting views and conflicting research findings regarding the use of PowerPointTM type presentations and their effects on student attitudes. Bryant and Hunton (2000) claim that media-comparison studies have generally been considered uninterpretable, and they emphasize the equivocality of prior results with the Thompson, Simonson, and Hargrave (1992, p. 19) comment that ‘‘y for every study that shows the new medium is better, another study shows the opposite.’’ Basile and D’Aquila (2002, p. 138) claim that prior ‘‘y studies have been limited in primarily two respects. They have neither (a) focused sufficiently on student attitudes, a factor that can influence student learning (Everett & Drapeau, 1994), nor (b) kept pace with the rapid changes in technology y .’’ This study extends prior research by examining the interaction among gender, use of mental imagery, and PowerPointTM type presentations on student attitudes. In the following sections, we discuss these variables. Gender Differences and the Use of Mental Imagery Moran (1993, p. 156) describes mental imagery as ‘‘y the capacity to represent in the mind experiences of things that are not physically present y .’’ Solso (1991, p. 267) similarly refers to mental imagery as ‘‘y a mental representation of a nonpresent object or event.’’ Paivio and Harshman (1983, p. 462) refer to mental imagery as imaginal habits and preferences, as well as abilities (as opposed to verbal traits). In measuring mental imagery, Moran (1993, p. 158) supports the use of Paivio and Harshman’s individual differences questionnaire (IDQ) stating that ‘‘y imagery control skills are important variables in research on ‘mental practice.’’’ Examples of the use of mental imagery in everyday cognition provided by Kosslyn (1990) as cited by Moran (1993, p. 163) include a variety of applications such as, y problem solving (e.g. forming cognitive maps for navigation purposes), mental practice (e.g. forming an image of a swimming stroke), memory improvement (e.g. trying to


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remember a name by forming an image of someone’s face), and emotional or motivational inducement (e.g. using imagery to inculcate a relaxed state when under stress).

Fe´ry (2003) offered that the practice of mental imagery is essentially a learning procedure to help the learner who wants to practice an activity but is unable to do so. The mental imagery construct may in some sense elide closely with presentation format; and, since both of these variables are used in this study, it is necessary to make a distinction between the two. As described previously, mental imagery is a skill used in learning that takes place within the mind of the learner-subject. In contrast, presentation format is external to the learner-subject but may or may not present images to the subject and, regardless of format, likely plays a role in stimulating additional mental images. For example, words used by the instructor during a lecture can elicit mental images that may facilitate learning from the learner-subject, just as the presentation of an image by the instructor might elicit learning. The important expectation is that the presentation mode chosen by the instructor can better facilitate learning for those learner-subjects who prefer the method of learning employed. Kozma (1991) expressed the view that learning is influenced by attitudes toward technology-enhanced presentation by appealing to learner preferences regarding the way information is presented and processed. This view encourages the examination of how students use mental imagery in cognitive processing. Recent studies that have examined the use of mental imagery often refer to Harshman and Paivio (1987), whose study is titled ‘‘Paradoxical sex differences in self-reported imagery.’’ The paradox they refer to is the results achieved in their study that were contrary to the expectation, based on prior research in psychology (e.g. Harris, 1978; Maccoby & Jacklin, 1974), that males use mental imagery more effectively than females. Based primarily on findings that males are more proficient on pencil and paper tests requiring mental rotation or transformation, researchers tended to assume male superiority in use of mental imagery. These pencil and paper tasks originally attempted to provide objective measures of ability to use mental imagery. Other studies found consistently more and better use of mental imagery by females (e.g. Hiscock, 1978; White, Ashton, & Brown, 1977). These studies often used measures of mental imagery vividness. The most recent study in accounting education that examines the effects of mental imagery is Butler and Mautz (1996). Unfortunately, they omit gender effects highlighted by Harshman and Paivio (1987) that may render incomplete the interpretation of their study. Our study also differs from

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Butler and Mautz (1996) in that we use an experiment that spans an entire semester (as opposed to a shorter cross-sectional time period).

HYPOTHESES Basile and D’Aquila (2002) emphasize the mixed results of prior studies citing multiple sources (e.g. Abraham, Loughrey, & Whalen, 1987; Alkafaji & Schroeder, 1986; Coulter & Strykler, 1994; LaBonty, 1989; Folk, 1998; Wilkinson & Echternacht, 1998). These mixed results suggest that whether or not student attitudes are affected by the use of instructional technology in general is unclear. This ambiguity also applies to PowerPointTM presentations. Harshman and Paivio (1987) highlighted gender preferences with clear distinctions between the ways that male versus female students employed mental imagery in learning. Regarding technology in general, Shuell and Farber (2001) found that females consistently rated the use of technology for learning and classroom instruction less positively than males. They also noted that female students seemed to need more personal interaction than males for the purpose of learning. Guan, Wang, Gable, and Young (1998) found that female students had higher attitude scores than males regarding multimedia classrooms. There were no interactions between gender and course type and no significant differences across three courses and two classrooms. In terms of attitudes toward the instructor, Ogunyemi and Ikegula (1998) found that female students gave better ratings than male students overall, and female instructors received better ratings on items that they claimed were related to female attributes. These included presentation style, teaching aids, illustrations, and choice of media. Accordingly, we examine whether presentation format during an entire semester interacts with gender and use of mental imagery to affect student attitudes toward presentation. The related null hypothesis is: H1. There is no interaction effect among gender, presentation mode (i.e. PowerPointTM versus traditional format), and use of mental imagery in affecting student attitudes toward class presentations. Researchers have examined whether educational technology in classroom presentations promotes a favorable attitude toward the instructor (Butler & Mautz, 1996; Bushong, 1998). Butler and Mautz (1996) report a significant difference in student attitudes toward the instructor between control and experimental groups for the factors ‘‘style of the speaker’’ and ‘‘informativeness.’’ Their results suggest that the multimedia group showed a more


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positive attitude toward the speaker than the group receiving the traditional presentation. On the other hand, using an experiment during a regular class period, Bushong (1998) reports the students in non-PowerPointTM groups felt that the presenter was more enthusiastic about the presentation than students in PowerPointTM groups. Our study examines the effect of a semester-long series of PowerPointTM presentations, as contingently interacting with gender and use of mental imagery on student attitudes toward the instructor. The related null hypothesis is as follows. H2. There is no interaction effect among gender, presentation mode (i.e. PowerPointTM versus traditional format), and use of mental imagery in affecting student attitudes toward the class instructor.

METHOD We apply a quasi-experimental design involving four sections of an Accounting Principles II course. Two sections took place in the fall semester and another two sections in the spring semester. All sections occurred in the morning. The presentation for the two fall sections (control group) utilized traditional, text-based, black-and-white visual aids (overhead transparencies). The presentation for the two spring sections (treatment group) employed PowerPointTM presentations that provided multicolor visual aids, including graphics and animation. There were 74 students (44 male and 30 female) in the two sections of the fall semester and 68 students (34 male and 34 female) in two sections of the spring semester. These students comprise the control and treatment groups, respectively. Because all students did not complete the questionnaires or only completed them partially, the final sample consisted of 52 students in the traditional classes (28 male and 24 female) and 64 in the PowerPointTM classes (30 male and 34 female). The students in the control and treatment groups had similar attributes. Most importantly, their overall GPA and use of mental imagery for the two groups were not statistically significantly different from each other. All students were full-time students between the ages of 18 and 21. There were also no significant differences noted for the other demographics between the two student groups. These variables include age, grade in Accounting Principles I, and gender. The attempt to ensure the equality of the two groups is very important to placing confidence in the results of our study given that random assignment was not possible. Although random assignment of students to sections or semesters was not controllable, the experimenters had

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no a priori expectation that the self-selection that took place during the enrollment process would impact the results of the study. The same instructor taught all sections. Two morning sections for each semester were run back to back twice a week. Each session lasted 80 min. The faculty member required the same textbook for both semesters. He used the PowerPointTM slides that came with the textbook. (See www.mhhe.com/ business/accounting/ainsworth/powerpoint.mhtml, Chapter 20 for a typical PowerPoint presentation used in the course.) The institution in which the experiment was conducted is a 4-year liberal arts college located in the northeastern United States. Entering freshmen have an average SAT score of 1,240 and are, on average, graduated in the top 10% of their high school class.

Dependent Variables and Factor Analysis This study examines attitudes toward the presentation and toward the instructor. The role of attitudes in learning is essential. As mentioned previously, attitudes affect ability and willingness to learn, student motivation, student absence, and attrition. Presentation style could impede positive attitudes – the primary focus of this study. Attitudes toward technologyenhanced presentation influences learning by appealing to learner preferences (Kozma, 1991). Moreover, the evaluation of the instructor can reveal attitudes that may impede learning. Students may find difficulty separating their attitudes toward the presentation from their attitudes toward the instructor. At the end of the semester we administered a questionnaire similar to that employed by Butler and Mautz (1996), Pei and Reneau (1990), and Steinbart and Accola (1994). A second experimenter administered the questionnaire and assured students that the instructor would not see the results until after the instructor handed in the grades for the course. In this questionnaire, subjects evaluated the class presentation and instructor, respectively, for 10 characteristics (Butler & Mautz, 1996; Oppenheim, Kydd, & Carroll, 1981). The 10 characteristics related to the class presentation were: well documented, strong, enjoyable, concise, entertaining, easy to follow, professional, clear, stimulating, and interesting. The 10 attributes related to the instructor were: prepared, concise, professional, clear, inspiring, understandable, credible, interesting, strong, and effective in his use of supporting materials. In addition, seven other items dealing with the efficiency and effectiveness of the instructor appeared in the questionnaire. Subjects rated


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each characteristic and attribute on a seven-point Likert-type scale ranging from 1 (strongly disagree) to 7 (strongly agree). Similar to the Butler and Mautz (1996) results, initial principal factor analysis of subjects’ responses to the 10-item class presentation questionnaire revealed two factors with eigenvalues greater than 1.0, accounting for 65.5% of the observed variation in attitudes. This was followed by a varimax rotation to facilitate interpretation of the underlying factors. We label the two factors understandability and interesting. The two factors had internal consistency reliability coefficients of 0.83 and 0.88, respectively. Table 1 exhibits the factor loadings. We employed a similar procedure to analyze the 17-item questionnaire regarding attitudes toward the course instructor. One question dealt with time efficiency, so it was dropped from factor analysis. (Including time efficiency in the factor analysis did not allow for an interpretable factor solution. Thus, we dropped it from the factor analysis and used a separate item measuring attitude toward the instructor.) The initial principal factor analysis of the remaining 16 items yielded three factors with eigenvalues greater than 1.0 that accounted for 62.7% of the observed variation. After a varimax rotation, the three factors are informativeness, effectiveness, and preparedness. The three factors had internal consistency reliability coefficients of 0.86, 0.84, and 0.78, respectively. The results of the factor loadings are presented in Table 2. Two questions deal with time efficiency and overall performance. The respective items are ‘‘The instructor uses class time efficiently’’ and ‘‘Overall, I would rate the instructor’s teaching effectiveness in this course as y .’’ We Table 1. Variable

Well-documented Strong Concise Easy to follow Professional Clear Enjoyable Entertaining Stimulating Interesting

Factor Loadings of Attitudes toward the Presentation. Factor 1

Factor 2

Understandability

Interesting

0.87 0.65 0.68 0.73 0.69 0.70 0.30 0.26 0.17 0.02

0.07 0.40 0.15 0.19 0.14 0.42 0.81 0.80 0.83 0.90

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Table 2.

Factor Loadings of Attitudes toward the Instructor.

Variable

Concise Clear Inspiring Understandable Interesting Strong Effective in use of materials Receptive and responsive to student Challenging course work materials Course materials to help learning Challenge student to think Prepared Professional Presenting in well-organized fashion Well-prepared for each class Credible

Factor 1

Factor 2

Factor 3

Informativeness

Effectiveness

Preparedness

0.64 0.82 0.54 0.83 0.58 0.66 0.23 0.25 0.11 0.21 0.43 0.08 0.27 0.03 0.07 0.30

0.05 0.06 0.47 0.28 0.52 0.37 0.67 0.51 0.59 0.85 0.69 0.00 0.06 0.44 0.49 0.27

0.49 0.36 0.17 0.11 0.03 0.26 0.31 0.45 0.29 0.04 0.09 0.78 0.74 0.67 0.69 0.47

utilize a seven-point scale to measure time efficiency (1 ¼ strongly disagree; 7 ¼ strongly agree). We also measure overall performance with a Likert scale, with anchored endpoints such that 1 ¼ poor and 7 ¼ excellent: Covariates and Independent Variables To control for subject attitudes toward class presentation and instructor that were potentially attributable to the grade they received in the course, subjects’ total exam grades for the first and second midterms serve as covariates. These grade covariates were not significant in any of the analyses; thus, we dropped them and we present the results without these covariates. The first independent variable, presentation mode, represented the course delivery system (i.e. traditional versus PowerPointTM). As mentioned earlier, in the traditional section of the course, the instructor’s presentations involved text-based, black-and-white visual aids, while the section using PowerPointTM involved multicolor visual aids that included graphics and animation in the presentations. The second independent variable was the gender of subjects. The third independent variable of the study was the subjects’ use of mental imagery. To promote comparability with Butler and Mautz (1996),


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we chose to use an identical operationalization and measurement of the mental imagery variable. We accomplished this task through the individual differences questionnaire (Harshman & Paivio, 1987; Paivio & Harshman, 1983) administered at the beginning of the semesters. Forty items from this instrument deal with mental imagery constructs (Paivio & Harshman, 1983). Prior empirical studies (e.g. Butler & Mautz, 1996; Cohen & Saslona, 1990; Olson, Eliot, & Hardy, 1988; Overby, 1990) have supported this instrument. The scale measures the use of mental imagery to think, remember, solve problems, and imagine described events. The coefficient a for this scale was 0.81, which reflects a reliability level that is consistent with prior studies (e.g. Hiscock, 1978). Statistical Analyses This study uses moderated regression analysis (MRA). This technique investigates the interactive effects of multiple factors and provides interpretation of both main effects and interaction terms. This technique employs hierarchical regression analysis with a multiple-model approach and the centering of continuous variables to achieve interpretable coefficients for both main factor and interaction effects (Aiken & West, 1992; Hartmann & Moers, 1999). To examine the study’s hypotheses, we set up regression models with dummy variables. The dependent variables are the extracted factors as discussed earlier and the explanatory variables are gender, presentation mode, and use of mental imagery. Since all explanatory variables except use of mental imagery are dichotomous, the use of dummy variables was considered appropriate (Hardy, 1993). Gender takes ‘‘zero’’ for male and ‘‘one’’ for female. Presentation mode is ‘‘zero’’ for traditional presentation and ‘‘one’’ for PowerPointTM presentation. We centered use of mental imagery around its mean to minimize potential multicollinearity problems (Aiken & West, 1992). Specifically, Aiken and West (1992, p. 119) recommend centering continuous variables when testing interaction between categorical and continuous variables. Hartmann and Moers (1999) note that when continuous variables are centered in a regression model with interaction terms, the coefficients of both the main effects and interaction effects are interpretable. Centering continuous variables requires deducting each observed value from the mean of the continuous variable distribution to arrive at a centered variable format. The new mean of this centered variable would be zero although the standard deviation of the distribution would remain the same. Hardy (1993, p. 9) suggests that ‘‘y before we actually code the data for some number of categorical variables, we must choose our reference

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groups,’’ the groups we want to serve as the comparison points. We chose male in the traditional class presentation with zero use of mental imagery as our reference group because prior research suggests that males generally use less and poorer mental imagery than females (Harshman & Paivio, 1987). Since we want to investigate whether PowerPoint presentation has any effect on females who generally show better mental imagery, we believe this reference point is appropriate. To test the study hypotheses, we ran three separate regression analyses, one without interaction terms, one with two-way interaction terms, and one with three-way interaction terms. We only report the three-way interaction regression model. As Hardy (1993, p. 35) notes, the meaning of the main effects changes when interaction terms are introduced into the regression analysis with dummy variables.

RESULTS Table 3 shows the descriptive statistics. Panel A displays a presentation of basic statistics (i.e. number of observations, theoretical and actual variable range, mean, and standard deviation) for the variables measured by the questionnaire. This includes the two-factor presentation attitude measures identified in Table 1, the three-factor instructor attitude measures identified in Table 2, and the two additional instructor attitude measures for time efficiency and overall evaluation. Panel B of Table 3 presents correlations to show that, on an average, there is a significant correlation between gender and mental imagery. Females have a positive (mean ¼ 1:22) and males a negative ( 1.22) use of mental imagery. An ANOVA model was used to examine how the use of mental imagery differs between the genders and the presentation modes in the study. Gender and presentation mode serve as factors in the analysis with use of mental imagery as the dependent variable. The results indicate that only the main effect of gender was significant (po0:01). This result is consistent with Paivio and Harshman’s (1983) findings that females employ mental imagery more than males.

Tests of Hypotheses To test the hypotheses of the study, the following moderated regression model was used:


Table 3.

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Descriptive Statistics.

Panel A Variables

N

Theoretical Range

Actual Range

Mean Standard Deviation

Minimum Maximum Minimum Maximum Mental imagerya Understandability Interesting Informativeness Preparedness Effectiveness Time efficiency Overall evaluation

116 116 116 116 116 116 116 116

20 6 4 6 4 5 1 1

20 42 28 42 28 35 7 7

16.33 20.00 4.00 18.00 20.00 16.00 2.00 3.00

6.67 42.00 28 42.00 28.00 35.00 7.00 7.00

0.00 33.97 15.97 31.31 26.02 29.43 6.17 5.76

4.907 5.408 5.532 5.558 1.879 3.983 1.057 0.957

Panel B: Correlations SEC SEC GENDER UMI SECUMI SECGEN GENUMI SECGENUMI

1.000 0.069 0.068 0.051 0.580 0.103 0.118

GENDER UMI SECUMI SECGEN GENUMI SECGENUMI

1.000 0.251 0.103 0.644 0.295 0.131

1.000 0.597 0.104 0.461 0.368

1.000 0.139 0.511 0.611

1.000 0.055 0.203

1.000 0.829

1.000

SEC ¼ POWERPOINT or NON-POWERPOINT; GENDER ¼ MALE or FEMALE; UMI ¼ USE OF MENTAL IMAGERY SCORE; SECUMI ¼ SEC UMI; SECGEN ¼ SEC GENDER; GENUMI ¼ GENDER UMI; SECGENUMI ¼ SEC GENDER UMI: a This variable is centered around its mean.

Model:Students’attitudes ¼ b0 þ b1 SEC þ b2 GENDER þ b3 UMI þ b4 SECnUMI þ b5 SECnGENDER þ b6 GENDERnUMI þ b7 SECnGENDERnUMI where SEC is Course section reflecting the presentation mode (0 ¼ Traditional; 1 ¼ PowerPointTM); GENDER the Gender of subjects (0 ¼ Male; 1 ¼ Female); and UMI the Use of mental imagery.

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Student Attitudes toward Presentation The two factors of understandability and interesting measured student attitudes toward class presentations through questionnaire responses. Table 4 and 5 contain the results of the regression models with respect to understandability and interesting, respectively. We first tested whether including interaction terms into the models results in a statistically significant improvement to the fit of the models. The incremental F (Hardy, 1993, p. 24) tests for the two-way, interactive regression model versus the model without any two-way interaction terms were not significant for either of the two factors. The incremental F tests for the three-way interactive regression model versus the two-way interactive model produced statistics that were both significant at F ¼ 18:182 for understandability (po0:001) and F ¼ 5:191 for interesting (po0:01). Thus, inclusion of the three-way interaction terms added to the explanatory power of the regressions and suggests that the three-way interaction model should be used for further analysis. The overall F tests for both models are significant (F ¼ 5:880; po0:001 for understandability and F ¼ 3:441; po0:05 for interesting). The constant in Table 4 is the reference point referred to earlier (i.e. the average understandability score of male students in the traditional sections with zero use of mental imagery). The coefficient for the gender and use of mental imagery interaction term is significant (po0:001) and estimates the Table 4. Moderated Regression Analysis of Understandability on Gender, PowerPointTM Presentation, and Use of Mental Imagery. Variables CONSTANT SEC GENDER UMI SECUMI SECGEN GENUMI SECGENUMI

Coefficients

Std Error

33.182 2.119 1.733 0.176 0.043 1.563 2.260 2.572

0.940 1.280 1.630 0.124 0.228 2.029 0.512 0.603

Beta

0.196 0.161 0.160 0.023 0.132 0.869 0.844

t-Statistic

Significance

35.302 1.656 1.063 1.419 0.189 0.770 4.413 4.264

0.000 0.101 0.290 0.159 0.851 0.443 0.000 0.000

R-square ¼ 0:276; adjusted R-square ¼ 0:229: SEC ¼ POWERPOINT or NON-POWERPOINT; GENDER ¼ MALE or FEMALE; UMI ¼ USE OF MENTAL IMAGERY SCORE; SECUMI ¼ SEC UMI; SECGEN ¼ SEC GENDER; GENUMI ¼ GENDER UMI; SECGENUMI ¼ SEC GENDER UMI:


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Table 5. Moderated Regression Analysis of Interesting Score on Gender, PowerPointTM Presentation, and Use of Mental Imagery. Variables CONSTANT SEC GENDER UMI SECUMI SECGEN GENUMI SECGENUMI

Coefficients

Std Error

18.759 2.943 2.124 0.463 0.404 0.462 0.854 1.494

1.022 1.391 1.772 0.135 0.248 2.205 0.557 0.656

Beta

0.266 0.193 0.411 0.213 0.038 0.321 0.479

t-Statistic

Significance

18.359 2.116 1.198 3.439 1.627 0.209 1.533 2.278

0.000 0.037 0.233 0.001 0.107 0.835 0.128 0.025


difference in the understandability of female subjects with better use of mental imagery from their male counterparts after controlling for all other variables in the model. The results show that female students with higher use of mental imagery reported lower understandability than their male counterparts. The significant coefficient of three-way interaction (po0:001) in Table 4 rejects H1 and suggests that female students with better use of mental imagery in the PowerPointTM section perceive higher understandability than their male counterparts in the traditional section. The constant in Table 5 shows the average interesting score of male students in the traditional sections. The coefficient for section is significant (po0:05) and estimates the average effect of PowerPointTM presentation on interesting, after controlling for all other variables in the model. This result suggests that the PowerPointTM presentation mode has been perceived by the students as less interesting than the traditional presentation mode. The coefficient for mental imagery is significant (po0:01) and estimates that students with better use of mental imagery, after controlling for all other variables in the model, have found class presentations more interesting. None of the two-way interaction terms is significant. The significant coefficient of three-way interaction (po0:05) in Table 5 rejects H1 and suggests, similar to the results for the understandability variable, that female students with greater use of mental imagery in PowerPointTM sections perceive higher interesting score than their male counterparts in the traditional section.

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Overall, the results provide support for H1. The results indicate that female students with better use of mental imagery in the PowerPointTM sections perceived higher understandability and interesting scores with regard to class presentation than their male counterparts.

Student Attitudes toward the Instructor H2 deals with subject attitudes toward the course instructor. Results of hypothesis testing for the five dependent variables related to the instructor are discussed next. Table 6 reports the results of regression analysis with respect to informativeness of the course instructor. The incremental F test for the two-way interactive regression model versus the model without the interaction terms was not significant at a conventional a level (p40:05). The incremental F tests for the three-way interactive regression model versus two-way interactive model produced an F statistic of 8.869 (po0:01), which was significant. Thus, inclusion of the three-way interactive term added to the explanatory power of the regression. In addition, the overall F test for the model is significant (F ¼ 3:334; po0:01). The constant in Table 6 shows the average informativeness score of male students in the traditional section with zero use of mental imagery. The significant coefficient for mental imagery suggests that students with better use of mental imagery, after controlling for all other variables in the model, have found the course instructor more informative. None of the other two main effects are significant. The coefficient for the gender and use of mental imagery interaction term is significant (po0:01) and estimates the difference in scores of females with better use of mental imagery from their male counterparts on informativeness of the instructor. The results show that female students with higher use of mental imagery found the instructor less informative than their male counterparts. The significant coefficient of the three-way interaction (po0:01) in Table 6 rejects H2 and suggests that female students with better use of mental imagery in the PowerPointTM section found the instructor more informative than their male counterparts in the traditional section. Overall, the results show that students with better use of mental imagery have, on an average, perceived the course instructor to be more informative. Female students with higher use of mental imagery found the instructor less informative than their male counterparts. Also, female students with better


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Table 6. Moderated Regression Analysis of Informativeness on Gender, PowerPointTM Presentation, and Use of Mental Imagery. Variables CONSTANT SEC GENDER UMI SECUMI SECGEN GENUMI SECGENUMI

Coefficients

Std Error

33.777 2.286 2.178 0.344 0.251 2.049 1.848 1.968

1.029 1.402 1.786 0.136 0.250 2.222 0.561 0.661

Beta

0.205 0.197 0.304 0.132 0.168 0.692 0.629

t-Statistic

Significance

32.810 1.631 1.220 2.538 1.005 0.922 3.295 2.978

0.000 0.106 0.225 0.013 0.317 0.359 0.001 0.004


use of mental imagery in the PowerPointTM section found the instructor more informative than their male counterparts in the traditional section. The results of regression models with respect to effectiveness of the course instructor indicated that the incremental F test was not significant for the comparison of either the two-way interactive regression model versus the model without the interaction terms or the three-way interactive regression model versus the two-way interactive model. In addition, the overall F-tests for none of the models were significant. Therefore, the results suggest that we cannot reject H2 and there are no effects for presentation mode, gender, use of mental imagery, or their interactions on student attitudes toward effectiveness of the instructor. The results of regression models with respect to preparedness of the course instructor are presented in Table 7. The incremental F test showed no significance for the comparison of either the two-way interactive regression model versus the model without the interaction terms or the three-way interactive regression model versus the two-way interactive model. Since the overall F-tests for all models are significant (po0:01) but no incremental F-tests are significant, we consider only models without interaction terms appropriate for further analysis. The results in Table 7 show that the coefficient for section is significant (po0:05). That is, after controlling for gender and use of mental imagery, students believed that the instructor was more prepared in the PowerPointTM presentation section than the traditional section. The results also

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Table 7. Moderated Regression Analysis of Preparedness on Gender, PowerPointTM Presentation, and Use of Mental Imagery. Variables CONSTANT SEC GENDER UMI

Coefficients

Std Error

Beta

t-Statistic

Significance

25.284 0.846 0.534 0.082

0.292 0.330 0.339 0.035

0.225 0.143 0.214

86.581 2.561 1.577 2.370

0.000 0.012 0.118 0.020

R-square ¼ 0:143; adjusted R-square ¼ 0:120: SEC ¼ POWERPOINT or NON-POWERPOINT; GENDER ¼ MALE or FEMALE; UMI ¼ USE OF MENTAL IMAGERY SCORE.

show that, after controlling for other variables in the model, students with better use of mental imagery perceive the instructor to be more prepared (po0:05). There is no difference between the genders for preparedness of the instructor. Overall, the results suggest that students in the PowerPointTM section and with better use of mental imagery believe the instructor is more prepared. No differences were found between genders on the instructor’s preparedness. The results of regression models with respect to time efficiency of the course instructor showed that the incremental F-test was not significant for the comparison of either the two-way interactive regression model versus the model without the interaction terms or the three-way interactive regression model versus the two-way interactive model. In addition, the overall F-tests for none of the models were significant. Therefore, the results suggest that there are no effects of PowerPointTM presentation, gender, use of mental imagery, or their interactions on student attitudes toward the time efficiency of the course instructor. The results of regression models with respect to overall evaluation of the course instructor are presented in Table 8. The incremental F-test for the twoway interactive regression model versus the model without the interaction terms was not significant. The incremental F-test for the three-way interactive regression model versus the two-way interactive model equals 10.866 (po0:01), which was significant. Thus, inclusion of the three-way interactive term added to the explanatory power of the regression. In addition, the overall F-test for three-way interactive model is significant (F ¼ 2:255; po0:05). Therefore, this model is appropriate for further analysis. The constant for model three in Table 8 shows the average overall evaluation score of male students in the traditional section with zero use of mental imagery. The coefficient for gender and use of mental imagery


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Table 8. Moderated Regression Analysis of Overall Evaluation on Gender, PowerPointTM Presentation, and Use of Mental Imagery. Variables

Coefficients

CONSTANT SEC GENDER UMI SECUMI SECGEN GENUMI SECGENUMI

6.055 0.258 0.072 0.024 0.034 0.091 0.287 0.386

Std Error 0.183 0.248 0.317 0.024 0.044 0.394 0.099 0.117

Beta

0.135 0.038 0.126 0.103 0.043 0.625 0.717

t-Statistic

Significance

33.178 1.037 0.227 1.018 0.759 0.230 2.889 3.296

0.000 0.302 0.821 0.311 0.450 0.819 0.005 0.001


interaction is significant (po0:01) and estimates the difference in scores of females with better use of mental imagery from their male counterparts on overall evaluation of the instructor. The results show that female students with higher use of mental imagery evaluated the instructor’s overall performance at a lower level than their male counterparts. The significant coefficient of three-way interaction (po0:01) in Table 8 requires rejection of H2 and suggests that female students with better use of mental imagery in the PowerPointTM section evaluated the instructor at a higher overall performance rate than their male counterparts in the traditional section. Overall, the results show that female students with higher use of mental imagery evaluated the instructor at a lower score than their male counterparts. In addition, female students with better use of mental imagery in the PowerPointTM section evaluated the instructor higher than their male counterparts in the traditional section.

Summary of Student Attitudes toward the Instructor The findings indicate that gender, use of mental imagery, PowerPointTM presentation, and their interactions had no effects on student attitudes toward effectiveness and time efficiency of the course instructor. Students in the PowerPointTM section and with better use of mental imagery reported that the instructor was more prepared. Female students with higher use of

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mental imagery reported the instructor to be less informative and provided a lower overall evaluation of the instructor than their male counterparts. Finally, female students with higher use of mental imagery in the PowerPointTM section reported the instructor was more informative and provided a higher overall evaluation of the instructor than their male counterparts in the traditional section.

DISCUSSION Our results reflect the conclusion that PowerPointTM presentations may have a significant ability to correct for negative attitudes of female students with a high use of mental imagery by increasing understanding, making lectures more engaging (interesting), and increasing the perception of overall effectiveness of the instructor. This conclusion is also consistent with prior research (e.g. Butler & Mautz, 1996) suggesting that avoiding PowerPointTM presentation is not necessarily beneficial to male students or those students that are not especially prone to the use of mental imagery. That is, our findings did not reflect lower attitudinal ratings from students in general who were denied their learning preference of low use of mental imagery, who were male, or who possessed both attributes. Speculation explaining the one-sided beneficial directional effects of PowerPointTM presentation tend to center on the reasoning that students who do not prefer mental imagery information contained in PowerPointTM presentations can merely ignore that information. However, students who tend to prefer learning using the PowerPointTM style are otherwise denied essential information for achieving beneficial learning outcomes. This suggests important implications for recommending the use of PowerPointTM presentations in the classroom. Based on our findings, instruction appears to benefit significantly from the use of PowerPointTM presentation for some students in the accounting principles classroom. This appears to have obvious implications for studentteaching evaluations as well. Attitudes toward the instructor were also generally more positive when PowerPointTM presentations were used. Thus, based on the results of our study, we suggest that the effects of PowerPointTM presentation appear to be either neutral or universally positive on student attitudes; however, this conclusion should be considered in light of the limitations of our study. Our study is subject to the usual limitations that apply to experimental procedures including generalizability to other contexts. Also, the


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quasi-experimental method (including non-random assignment) employed in the study is subject to the threat of inherent differences between the control and treatment groups that are fundamental to the groups but of which the experimenter is unaware. We hope to have mitigated these threats by the careful choice and inclusion of covariates in the analysis and testing for demographic differences. Also, as described by Paivio and Harshman (1983), females describe superior use of mental imagery in support of memory functions while males describe superior use of mental imagery in support of problem solving. Accordingly, it is difficult to know which of these functions is more important to learning in accounting since both functions appear to be important. Follow-on studies could investigate the efficacy of employing PowerPointTM presentations selectively in the classroom to support these functions. Gender approaches to mental imagery and learning appear to be present in our study. However, the complex nature of the interaction of these items, like most interactions, may be difficult to fully understand – even given contingency hypotheses using moderated regression analysis. Regardless of the endeavors of future researchers, we believe that the use of technology in the accounting classroom is certainly destined to increase. Already there appears to be a ubiquitous presence of PowerPointTM presentation in accounting ancillaries and widespread use of PowerPointTM presentation in the accounting classroom. The good news is that results of our analysis suggest that this trend is beneficial.

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McInnes, W. M., Pyper, D., Van Der Meer, R., & Wilson, R. A. (1995). Computer-aided learning in accounting: Educational and managerial perspectives. Accounting Education, 4(4), 319–334. Moran, A. (1993). Conceptual and methodological issues in the measurement of mental imagery skills in athletes. Journal of Sport Behavior, (September), 16(3), 156–170. Nowaczyk, R. H., Santos, L. T., & Patron, C. (1998). Student perception of multimedia in the undergraduate classroom. International Journal of Instructional Media, 25(4), 367–383. Ogunyemi, O. A., & Ikegula, T. N. (1998). The effects of gender and students’ expected course grades on faculty evaluation. Louisiana Educational Research Journal, 13(2), 23–50. Olson, D. L., Eliot, J., & Hardy, R. C. (1988). Relationships between activities and sex-related differences in performance on spatial tests. Perceptual and Motor Skills, 67(August), 223–232. Oppenheim, L., Kydd, C., & Carroll, V. P. (1981). A study on the effects of the use of overhead transparencies on business meetings. Working Paper, Wharton Applied Research Center of the University of Pennsylvania. Overby, L. Y. (1990). A comparison of novice and experienced dancers’ imagery ability. Journal of Mental Imagery, 14(Fall/Winter), 173–184. Paivio, A., & Harshman, R. (1983). Factor analysis of a questionnaire on imagery and verbal habits and skills. Canadian Journal of Psychology, 37(4), 461–483. Pei, B. K. W., & Reneau, J. H. (1990). The effects of memory structure on using rule-based expert systems for training: A framework and an empirical test. Decision Sciences,(Spring), 263–286. Shuell, T. J., & Farber, S. L. (2001). Students’ perceptions of technology use in college courses. Journal of Educational Computing Research, 24(2), 119–138. Solso, R. L. (1991). Cognitive psychology (3rd ed.). Boston: Allyn & Bacon. Steinbart, P. J., & Accola, W. L. (1994). The relative effectiveness of alternative explanation formats and user involvement on knowledge transfer from expert systems. Paper presented to AIS Research Symposium (February 3–5). Phoenix, AZ. Thompson, A. D., Simonson, M. R., & Hargrave, C. P. (1992). Educational technology: A review of the research. Washington, DC: Association for Educational Communications and Technology. White, K.D., Ashton, R., & Brown, R.M.D. (1977). The measurement of imagery vividness: Normative data and their relationship to sex, age, and modality differences. British Journal of Psychology, 68, 203–211. Wilkinson, K., & Echternacht, L. (1998). Internet homework activities and traditional homework activities: The effects on achievement, completion time and perception. Delta Pi Epsilon Journal, 39(1), 214–230.


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BEST PRACTICES IN ACCOUNTING PROGRAM ASSESSMENT: EXECUTIVE SUMMARY, AAA TEACHING AND CURRICULUM COMMITTEE ON BEST PRACTICES IN ACCOUNTING PROGRAM ASSESSMENT$ Thomas Calderon, Brian Patrick Green and Michael Harkness ABSTRACT When developing and implementing an assessment program, administrators and faculty confront the enormous task of defining the program goals, identifying specific objectives, and selecting effective assessment methods. $

Committee Members: Thomas Calderon (University of Akron) Co-Chair; Brian Patrick Green (University of Michigan-Dearborn) Co-Chair; Paul Bayes (East Tennessee State University); Mike Harkness (University of Michigan-Dearborn); Leslie Kren (University of Wisconsin-Milwaukee); Mark Mitschow (SUNY-Geneseo); Lynda Murray Jackson (Delaware State University); Kathleen Sinning (Western Michigan University); and Terry Ward (Middle Tennessee State University).


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Often faculty members and administrators who face these challenges lack access to a coherent knowledge base on effective assessment. This paper presents an executive summary of a two-year project by the Best Practices in Accounting Program Assessment Committee of the American Accounting Association’s (AAA) Teaching and Curriculum Section. The summary discusses the evolution of assessment, assessment processes, and such assessment challenges as motivating faculty and selecting appropriate measurement metrics for assessment. It also includes a set of eight normative best practice criteria as well as descriptions and comments on three best practice examples. In addition, data from a comprehensive survey offer broad insight into accounting programs’ assessment practices. An analysis of the survey data identifies 19 practices that distinguish between accounting programs that are more effective in closing the loop and those that are less effective. Successful programs use a methodical approach to gather, analyze, and report assessment information to stakeholders. Assessment results drive dialog about student learning, lead to opportunities for program improvement, and set the stage for continuous improvement.

INTRODUCTION When developing and implementing an assessment program, administrators and faculty confront the enormous task of defining the program goals, setting specific learning objectives, and selecting effective assessment methods. Often faculty members and administrators who are charged with this task do not have a coherent knowledge base to draw from, and they pursue their task with little insight into what works or does not work. Completed in 2003, the Teaching and Curriculum (T&C) Section of the American Accounting Association (AAA) formed a committee charged with the task of examining the assessment process and identifying ‘‘best’’ assessment practices in accounting programs. In May 2004, the T&C published the results of their two-year study in a monograph titled Best Practices in Accounting Program Assessment (Calderon, Green, & Harkness, 2004). The overall purpose of the monograph is to provide practical ideas that faculty and administrators can apply to guide the assessment of their accounting programs. In this paper, we discuss the evolution of assessment, the assessment process, and such assessment challenges as motivating faculty and selecting appropriate measurement metrics. We offer a set of eight normative best practice criteria derived from the literature and present descriptions and comments on three best practice cases. In addition, we examine results

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from a comprehensive survey that provide broad insight into accounting programs’ assessment practices. We use data from our survey to identify 19 practices that distinguish between accounting programs with more effective and less effective assessment experiences.

EVOLUTION OF PROGRAM ASSESSMENT Accounting program assessment provides assurance that the learning goals and objectives of a program are being achieved and that faculty members and administrators have processes in place to improve continuously students’ learning experience. It entails establishing mission appropriate program learning goals and objectives, selecting relevant measurements, setting performance expectations, measuring and monitoring students’ learning relative to expectations, reporting and discussing results, and taking action to continuously improve student learning. During the 1980s and 1990s, assessment emerged as a process that universities could employ to improve the quality of learning outcomes. Assessment of learning in higher education gained prominence during the late 1980s and early 1990s as state legislatures and federal government agencies embraced assessment as a vehicle for ensuring greater accountability and a refocus on student learning as a core mission of colleges and universities (Gaither, 1995; Nichols, 1995; Jarvis, Holford, & Griffin, 1999). As a result, assessment came to focus on the learning value provided by the educational process rather than the nature of institution’s infrastructure and inputs used in pursuing the university’s mission. Currently, AACSB and several other accreditation agencies focus on institutional commitment to mission, requiring institutions to have in place assessment programs that focus on student learning. Thus, assessment of the quality of student learning has become a major criterion for regional as well as AACSB accreditation. Currently, accreditation is the principal driver of assessment activities in accounting departments and other professional disciplines at colleges and universities. Assessment, however, works best when it is viewed as a continuous, long-term process designed to improve the quality of student learning outcomes at an institution.

THE ASSESSMENT PROCESS Assessment of student learning is a multistep process that includes mission statement development, definition of goals and objectives, curriculum

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alignment, determination of assessment methods and measurements, setting expectations, collecting and evaluating evidence, and reflecting on and using assessment data to identify opportunities to improve student learning. The assessment process begins with the accounting program’s mission, which leads to broad learning goals and specific learning objectives. Learning goals reflect the values and expectations of the accounting department and are not specified in measurable terms. For example, a department’s learning goal could be ‘‘our graduates will have effective written communication skills.’’ A specific learning objective describes an observable behavior that somebody can monitor, measure, and examine. Measurement in the context of assessment may not be as precise and conclusive as measurement in physical sciences. Instead, we often utilize surrogates as evidence of student learning. Thus, a learning objective for the broad goal of ‘‘effective communication skills’’ could be ‘‘our students will present a research paper on a current practice issue in accounting.’’ This objective specifies exactly what students will do to demonstrate that they have effective oral communication skills. However, the statement that students ‘‘will present a research papery’’ does not describe how one will measure learning. Identifying measurement methods is usually a subsequent step in the process. Nonetheless, the nature of the objective will invariably provide some insight into how faculty and administrators will collect and measure evidence about student learning. Two measurement approaches have emerged over time – direct and indirect. A direct measurement of learning focuses on evaluating actual work done by students. For example, a direct measurement of students’ oral communication skills involves faculty evaluation of actual student presentations. In this context, faculty could obtain evidence about student learning by developing a set of characteristics (or traits) that students who make such presentations should demonstrate. For example, the faculty might determine that desirable traits for such presentations should include (a) a clear introduction, (b) logically organized content, (c) content that identifies the accounting practice issues and demonstrates an understanding of them, (d) effective use of a presentation tool, (e) poise and good body language, (f) clearly audible speech, and (g) a clear conclusion. Such traits would serve as a measurement rubric to assess students’ oral communication skills. A rubric is merely a coherent set of guidelines that establishes how an instructor will grade students’ work. The accounting faculty at the University of Akron have developed comprehensive assessment rubrics for each learning objective in their programs. Such rubrics are powerful tools for establishing learning expectations, gathering evidence, measuring learning, and providing feedback to students.


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The indirect approach to measurement reflects an opinion about learning and does not involve an examination of actual work done by students. Use of a measurement instrument that predicts or explains learning may serve as an indirect measurement approach. Surveys of alumni and employers, student satisfaction surveys, attitude surveys, and such psychometric measures as personality type indicator and tests of critical thinking are all examples of indirect measures. The committee completed the best practice project prior to the AACSB’s assurance of learning standards, which requires an emphasis on direct measures of student learning. Prior AACSB standards did not employ the distinction between direct and indirect measures. Thus, many of the best practice accounting programs made extensive use of such indirect measurements as alumni surveys, employer surveys, exit surveys, Educational Benchmarking Institute surveys of student satisfaction, employer survey of internship experience, and students’ evaluation of teaching. Schools that used direct measurements employed ETS’ Major Field Test, in-house developed pre/post-tests, and capstone projects. Though the concern is student learning, the assessment programs at many best practice schools and the entire sample of newly AACSB accredited and reaffirmed programs made no distinction between assessment of student learning and evaluation of institutional effectiveness. Effective assessment requires faculty to align learning goals and objectives with the curriculum. This alignment implies that faculty will identify each learning objective and determine the specific courses in the curriculum in which students will learn and develop the underlying skills. A curriculum alignment matrix or grid is a useful tool for this process. Schools using this tool (e.g., the University of Texas at El Paso) will list learning objectives as rows and courses as columns in a two-dimensional matrix. Each course that contributes to a specific objective contains an X in the appropriate cell (intersection of an objective – i.e., row – and a course – i.e., column – in the matrix) or with a brief description of how the course contributes to student learning and development of that objective. Evidence collection is a critical part of the assessment process. This is the point at which the school actually examines student work to obtain direct evidence of student learning or conducts surveys to obtain indirect evidence. Whether the method is direct or indirect, it is necessary that the program defines its goals and objectives before identifying assessment methods and measurements. Additionally, it is important to plan the execution of the assessment, who will be responsible, and the timing of the assessment activities. Some best practice programs conduct some of their assessment

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activities as part of a class. Known as course-embedded assessment, this approach to gathering assessment evidence is efficient and almost guarantees student participation. The final part of the process – using the evidence to initiate learning improvement opportunities – closes the loop. This process of closing the loop means that the program has completed all fundamental activities in the assessment process and is now ready to employ the evidence to initiate course and curriculum changes. Closing the loop addresses the most fundamental goal of assessment – it assures that assessment leads to program improvement. All accounting programs included in the best practice monograph reported that they were able to close the loop. A program that reports it was able to close the loop does not necessarily imply that it has a perfect assessment system. It merely means that it was able to go through the full feedback loop with at least one of its assessment activities.

THE CHALLENGES OF PROGRAM ASSESSMENT The program assessment literature highlights several major challenges faced by administrators and faculty when designing, operating, and evaluating assessment programs. These challenges include motivating faculty and students to embrace assessment efforts, selecting appropriate assessment metrics, assigning responsibility for assessment, interpreting assessment results, and using assessment results for program improvements. We discuss these challenges below.

Motivating Faculty As a prerequisite, any effective assessment program must have the direct interest and trust of faculty members (Demong, Lindgren, & Perry, 1994). An effective assessment program links various direct benefactors and external stakeholders to a series of measurable outcomes that indicate an organization’s level of success in satisfying each group’s needs. Thus, it is vital that faculty and administrators reach a consensus on the key goals, objectives, measurement metrics, and targets for the accounting program, which will resonate with stakeholders and communicate goal achievement unambiguously. Experience has shown that faculty at many institutions have not embraced assessment. Faculty members view assessment as an activity that is


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linked to the accreditation review process, and not an imperative to improve student learning. Indeed, the assessment programs found in the best practice cases included in the monograph (Calderon et al., 2004) grew out of the accreditation process. Often faculty members are ambivalent, indifferent, or resist assessment activities (Nichols, 1995). Factors contributing to these attitudes include a lack of clarity of the meaning, processes, and consequences of assessment; the possibility of structural incompatibility between the privileges of tenure and the potential for assessment to shift the locus of control from tenured faculty to administrators and bureaucrats; the tendency for faculty to view administrative innovations with skepticism; and conflicts between emerging managerialism in academia and the professional orientation of faculty (Fogarty, 2004). We briefly discuss each factor identified by Fogarty (2004) in the remainder of this section.

Tenure and Academic Freedom The award of tenure is seen as the granting of autonomy for faculty to practice education, as a faculty member desires. Given this level of freedom, tenure can reduce the influence of any managerial tool that is perceived as minimizing classroom autonomy or imposing an external governance regime on classroom activities. Thus, tenure can make program assessment very challenging to implement and administer. Administrators can address this challenge by systematically engaging and involving faculty in all phases of program assessment, with the goal of making assessment one of the shared values of the accounting program.

Faculty as Independent Contractors Faculty members are professionals, and they are often more committed to their professions than to their place of employment. With this type of conflict, it is not uncommon for faculty to view themselves as independent contractors relative to the educational institution they serve. This creates the potential for divergence between what is good for the institution and the personal and professional interests of the individual faculty member. Program assessment requires faculty and administrators to focus attention on the needs of the academic unit and its students, identify and pursue the unit’s goals, and improve the unit’s programs. The emphasis on the unit’s needs could be lopsided and could also inadequately address potential

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conflicts between the faculty members’ professional interests and the goals of the academic unit. Faculty members will resist changes to the status quo if they do not view assessment activities as beneficial to their personal and professional interests as well as those of the academic unit. Thus, assessment could become a routine to be challenged rather than an innovation to promote dialogue, change, and continuous improvement. Insufficient Evidence Because of their training, faculty members are empiricists and skeptics. As a result, before changing their minds and behavior, they will insist upon documented support for the proposed changes. Defining what constitutes ‘‘quality education’’ remains elusive despite years of effort to do so. Assessment programs, by their nature, possess implicit or explicit constructs about what constitutes quality in the classroom. Many constructs are nebulous and are not supported by adequate empirical evidence, thus dampening faculty enthusiasm for assessment. Given the nature of this challenge, solutions require some compromise. In particular, faculty members must be willing to work with adequate rather than ideal or perfect constructs. Furthermore, administrators must be willing to build consensus on acceptable constructs among the faculty rather than dictate the assessment program. Assessment Workload Program assessment could require significant additional time commitments from faculty. Just how much depends upon the scope and design of the proposed program. This additional work presents a large obstacle when asking faculty to assume new responsibilities. The willingness of faculty to assume additional time commitments, with little administrative support, depends on the value faculty places on the incremental gains of an assessment program. Skillful administrators can manage this challenge effectively by encouraging faculty members to employ such classroom embedded assessment activities as case analyses, simulations, role plays, projects that require oral and written communication, and application development. Ambiguity of Assessment Proponents of assessment emphasize its formative objectives – specifically the use of assessment data as a catalyst for program improvement; however,


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at many institutions, assessment is a top–down administrative innovation that originates with the dean or program chair as part of the accreditation process. Despite its formative value, faculty members are by nature skeptical of such administrative innovations as assessment, and many suspect an alternative agenda. Assessment can be a powerful control device that provides a standardized view of complex phenomena, which facilitates comparisons that are potentially detrimental to some faculty members. The challenge is to convince faculty that the control aspects are not the dominant drivers of assessment, and that the intent is to benefit all stakeholders by continuously monitoring and improving the accounting program.

SELECTING MEASUREMENT METRICS It is generally agreed that faculty and administrators must use multiple measures to assess a program’s outcomes and identify opportunities for improvement. McCoy, Chamberlain, and Seay (1994) found that accounting departments used several metrics, including performance in senior seminars, responses to alumni surveys, scores on critical thinking skills tests, content area, and graduate school entrance exams. Such measures are popular but may ignore the interest of such external stakeholders as employers. Kimmell, Marquette, and Olsen (1998) found that surveys of alumni and employers often assessed how accounting programs contribute to the interest of the external stakeholder. Others (Kimball, 1998; Herring & Izard, 1992; AECC, 1990) argue for measurement of outcomes related to communication, problem solving, critical thinking, and analysis skills. Overall, there are many different metrics used to measure a program’s success. In this section, we identify and briefly discuss assessment metrics used by AACSB accreditation programs based on a review of a sample of programs that recently received either AACSB initial accreditation or reaffirmation.

Metrics Used in AACSB Accreditation Reports The Committee reviewed 10 accreditation reports out of the 47 reports filed by schools receiving initial AACSB accreditation or reaffirmation in 2000 and 2001. We initially identified 100 assessment metrics from these reports. Using a Delphi approach, we shortened the list to include metrics identified as the most useful in communicating the performance and outcomes of an accounting department. The final inventory of assessment metrics covered

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five categories of learning outcomes, processes, and inputs required to achieve program goals and objectives. The five categories, which mirrored pre-2003 AACSB accreditation standards, included: mission and objectives, curricula, faculty composition and development, intellectual contributions, and instructional resources and responsibilities (AACSB, 2001). Measurement metrics used in the context of the AACSB’s mission and objectives standards focus on the overall accounting program relative to college and university requirements. We observed that external recognition of a program (e.g., U.S. News and World Report) and SWOT analyses by an advisory board are summative measures, so we recognized them as the two important outcome indicators within the context of the mission and objectives guidelines. The two measures provide long-term evidence relating to accomplishment of a program’s mission and objectives, and can demonstrate the quality of the program as viewed by external parties. The metrics classified within the context of the AACSB’s standards on students include several items that can be identified with individual students or students as a group. Within this category, we identified two items as input measures: standardized national test scores and high school class ranking. Three metrics classified as output indicators: measures of alumni achievement such as managers and partners of CPA firms and comparable alumni achievement with corporations and other organizations; certification exam pass rates; and alumni and employer survey measures used to determine student’s critical thinking, writing, and communication skills. Except for certification exam pass rates, each metric provides indirect evidence of student learning. Curricula measures reflect the core mission of teaching. We identified four items as best practice metrics related to curricula: analysis of curriculum integration, surveys, program review, and pre/post-tests. While some of these metrics could provide evidence of student learning or help in shaping the learning environment, only one (pre/post-tests) provides direct evidence of student learning. Horizontal and vertical analysis of curriculum integration and periodically surveying graduate students and alumni regarding educational experiences are input measures. Analysis of curriculum includes syllabi review, based on Bloom’s Taxonomy, to determine the cognitive learning level addressed in a course and the linkages that exist between different courses at various levels of the program. Such curricula alignment activities allow faculty to determine how and where in the accounting program key concepts are covered, and the cognitive level at which coverage is accomplished. Another measure (output) was periodic program review, which entails evaluation and revision of the curriculum to provide assurance to stakeholders that program


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goals and objectives are satisfied. As part of a detailed program review, faculty and administrators examine the curriculum to assess the relevance of concepts, knowledge, and skills taught in the program. They also demonstrate that the program achieves its objectives and creates value for internal and external stakeholders. An important goal of program review is to assess the relevance of program and course goals, and to determine the extent to which the stated learning goals and objectives are achieved. One growing practice used to assess learning outcomes utilizes a pre/ post-test design to assess learning outcomes. Several programs design inhouse tests that are administered at the start and end of the undergraduate accounting program. The practice begins with initial testing to establish a benchmark, and the post-test determines the learning growth that resulted from the student’s exposure to the program. There are several limitations, including the challenge of establishing desirable thresholds for learning value added as well as difficulty of using such tests to shed light on the specific areas of strength and weakness in students’ learning. Nonetheless, use of a pre/post-test design can produce highly relevant insight into the contribution of a course or an entire program to a student’s knowledge and skills. The best practice metrics identified under faculty composition and development focus on the role of faculty in both education and professional processes. The committee identified two faculty input measures: percent of classes taught by faculty having relevant accounting experiences and percent of classes taught by tenure-track faculty involved in research. Because accounting is a professional discipline that derives much of its relevance from practice, these two metrics are indicative of the likelihood that students receive a high quality, relevant educational experience. We identified publications in academic, professional, and educational journals as a single metric in the intellectual contributions category as a best practice item to support university, college, and department missions. On the surface, this metric provides assurance that faculty members are experts in the areas that they teach and that they are intimately familiar with major research and pedagogical issues in the field. Metrics classified within the instructional resources category consist of both financial and nonfinancial items that provide insight into the adequacy of the resource base employed in delivering the curriculum and pursuing the goals of the program. The best practice metrics in this area are dollars of state support allocated to the accounting department, number of classrooms wired for technology, comparison of dollars of state support allocated to the accounting department with previous years, and trends in external funding of classrooms. All four selected items are input measures.

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IDENTIFYING BEST PRACTICES IN ACCOUNTING PROGRAM ASSESSMENT In essence, accounting program assessment involves identifying a program’s learning goals and expectations, verifying that actual performance is consistent with expectations, providing feedback, and using the entire process to develop a knowledge base that serves as a catalyst for improving student learning. Using the assessment literature as a guide, we identified the following eight best practice criteria for accounting program assessment: 1. Assessment activities focus on a coherent portfolio of shared learning outcomes that align with the mission, goals, and objectives of the accounting program. 2. Assessment involves collection of quantitative and qualitative data through the use of well-defined processes that are likely to have continuity. 3. Because assessment data and information are stored in a systematic manner, university officials can retrieve, process, and report relevant information. 4. Data and information generated by the assessment program can engage faculty, administrators, and stakeholders (where appropriate) in discussions about student learning in the accounting program. 5. The assessment program involves and engages more than just a single faculty member and has the support of the faculty. 6. There is evidence that university officials utilize assessment data and that the assessment program has motivated (or is very likely to motivate) improvement in accounting programs. 7. The assessment program has clear leadership and commitment and support by senior administrators. 8. Program improvement is an overarching, unambiguous goal of assessment. While the above are characteristics that accounting departments should seek to emulate, we do not expect that all accounting programs (even those that are AACSB accredited) will at the present time demonstrate the degree of success implied by these criteria. Assessment implementation exists at different levels that span awareness to mature implementation, and progress from one level to another can be slow (Higher Learning Commission, 2002). Applying the best practice criteria as a framework, we developed a web survey to gather information about the assessment practices of accounting programs. We sent e-mails requesting participation to 685 accounting program administrators at colleges and universities in the United States listed


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in Hasselback’s faculty directory in spring 2002. Our response rate was 15%. Our goal was to document the assessment practices used by accounting programs, identify best practices, and highlight practices that distinguish between accounting departments with effective and less effective assessment programs. In the remainder of this section, we report descriptive statistics that offer insight into accounting program assessment practices, and identify practices that distinguish and characterize departments with effective assessment programs.

Setting Program Level Goals and Objectives On a program planning level, survey results showed that most accounting programs (79%) have a written mission statement and program goals and objectives (77%) with over half (57%) reporting articulation with the departments’ mission statement. It is evident that, while most accounting programs actively define their mission and what they are trying to accomplish, nearly half (43%) are not translating the mission statement into measurable objectives that align with their mission. Furthermore, most respondents indicated that they set no performance targets or expectations for their program objectives. This is a significant issue since setting expectations and comparing of expectations to actual achievements are vital processes in program assessment (Angelo, 1995). Ordinarily, employer and other stakeholder input are vital in defining the mission, program goals, and competencies expected of students (Frederickson & Pratt, 1995; AACSB 2001, 2004). Not surprisingly, our results show that faculty members provide the primary input into defining the department’s mission and program objectives, while other interested stakeholders appear to supply little input into setting program goals and objectives.

Setting Course Level Goals and Objectives Program level goals and objectives define the outcomes that accounting programs are attempting to produce (Green, Calderon, Gabbin, & Habegger, 1999; Calderon, Gabbin, & Green, 1996). Program goals must filter down through individual courses to offer students the prerequisite opportunities to develop and learn desired skills and abilities. While this type of alignment is a necessary activity in the assessment process, we found that it is not a coherent process in most accounting programs. Two thirds (66%) of

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the responding programs neither have written learning goals for individual courses nor encouraged faculty to develop measurable cognitive learning objectives for their courses. It is noteworthy that only 34% of the programs say that they require written learning objectives; yet, 69% say they review course objectives. While other explanations are possible, we interpret this to imply that, at least mentally, faculty and administrators have expectations of how each course should contribute to program goals. Nonetheless, current AACSB guidelines require a more formal connection between program goals and course goals.

Program Assessment Methodologies Part of the assessment implementation process involves selecting appropriate assessment methods and determining when, where, and how often to use them (Stivers, Campbell, & Hermanson, 2000). Table 1 presents commonly used program assessment methodologies and their frequency of use. Respondents reported employing an average of four different assessment methods, mainly indirect evidences of student learning. More than half (51%) of the respondents do not utilize standardized exams to measure learning. Of those programs using standardized exams, the ETS Major Field Test was the most popular. The most common assessment method reported by respondents was the success of recent graduates at securing employment (77%), followed by professional exam pass rates (74%), surveys of graduating students (71%), and alumni surveys (71%) at least every 5 years. Most programs emphasize indirect assessment measures.

Course Assessment Methodologies Table 2 presents commonly used course assessment methodologies and their frequency. The most frequently employed measures of course effectiveness are student evaluations of teaching (81%), followed by surveys of recent graduates (60%), and faculty reviews of course syllabi (55%). Thirty-seven percent (37%) reported reviewing syllabi on an on-going basis. Surprisingly, less than 50% of the respondents apply direct measures of students’ classroom performance in their assessment program. Of these measures, they used student projects most often (49%), followed by course grades (47%), and common exams (34%). While such course-embedded assessments represent an efficient way to obtain evidence about student learning, there is

Program Assessment Methodologies. Type

Not used (%)

How Often Each semester (%) 1–2 Years (%) 3–5 Years (%) 5+ Years (%)

Standardized exams ðn ¼ 103Þ Direct Accounting aptitude test Achievement test for accounting graduates College basic academic subjects exam Watson–Glaser critical thinking appraisal ETS major field test Department developed exams Student exit surveys ðn ¼ 96Þ Alumni surveys ðn ¼ 94Þ Employer surveys ðn ¼ 92Þ Student portfolios ðn ¼ 80Þ Employment levels of recent graduates ðn ¼ 77Þ Salary levels of recent graduates ðn ¼ 80Þ Professional exam pass rates ðn ¼ 90Þ Practical professional exercise ðn ¼ 69Þ Capstone project ðn ¼ 82Þ

Indirect Indirect Indirect Direct Indirect Indirect Direct Direct Direct

51 6 3 3

29 29 56 85 23 34 26 81 100

9 3

24 4

26

38 2 0 6 40 29 26 11

29 25 16 9 35 36 43 9 No

Does the department use a comprehensive set of performance measures? ðn ¼ 87Þ Kaplan and Norton’s balanced scorecard A set of key success indicators that stem from the mission and goals of the program A set of key success indicators mandated by the university A set of key success indicators mandated by the college

71%

2 2 5

2 17 5

Yes 29% 1 10 10 3

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Note: Average number of assessment sources used to assess program goals and objectives ðn ¼ 62Þ is 4.

2 27 23


Table 1.

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Table 2.

Course Assessment Methodologies. How Often

Are teaching portfolios created by each faculty member? Are course instructional portfolios created for each course? Are course assessment devices reviewed by faculty peers not teaching the class? Are course syllabi reviewed by faculty peers?

n

Not used or required (%)

Each semester (%)

Annually (%)

Biannually (%)

97

53

5

17

26

96

71

8

12

97

65

3

14

3

15

94

45

9

20

8

17

Promotion/ contract review (%)

9

Course grades Student projects and cases Student portfolios Standardized exams Common course exams Student evaluations Recent graduate surveys Employer surveys

Number using

%

49 50 6 19 35 84 62 34

47 49 6 19 34 81 60 33


Methods used to measure effectiveness of individual courses at meeting learning objectives ðn ¼ 103Þ


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always the danger that such assessments will not be sufficiently focused on the program’s goals and specific objectives. Considering that most departments do not have coherent curriculum alignment process in place, lack of focus on program goals is a distinct risk. In addition, neither the AACSB nor the regional accreditation bodies normally consider course grades as evidence of accomplishing a program’s learning goals.

Determining Effectiveness of Program Assessment While each accounting program has its own specific goals and objectives, each strives to offer technical accounting skills and general business knowledge and to develop communication, leadership, problem solving, and organizational skills. Accounting departments may use a variety of assessment practices to monitor program effectiveness, improve current programs, and satisfy accreditation requirements (Hindi & Miller, 2000); however, the effectiveness of these assessment practices may vary considerably depending on the inherent quality of the practice and on how diligently the assessment program is conceived and administered. To categorize accounting departments with differential levels of effectiveness in their program assessment, we asked respondents to identify the type of impact assessment has made on their accounting programs. We divided respondents into three reporting groups – those who reported a positive effect, those who indicated a neutral effect, and those who indicated no effect. We based group membership on the self-reported effect of assessment on student retention, better recruiting, increased student success in the accounting program, and increased student success after graduation. Nineteen elements, presented in Table 3, emerged as contributing to the greatest positive effects on the accounting program.

ASSESSMENT IN PRACTICE Program assessment is an evolutionary process for any institution interested in meaningful self-examination and a necessary element for continuous improvement of accounting programs. As noted in the opening paragraph of this paper, administrators and faculty must confront the enormous task of defining program goals and selecting effective assessment methods. A review of the assessment practices of accounting departments that display some degree of effectiveness on the best practice criteria is an invaluable contribution. We present three examples in this section of the paper – Niagara

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Table 3.

1. 2. 3. 4. 5.

6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19.

Practices that Distinguish between Effective and Less Effective Assessment. Survey Question

w2

p

Number of different sources of assessment information Course goals and objectives reviewed by faculty peers as part of a systematic process Course assessment devices (exams, projects, etc.) reviewed by faculty peers not teaching the class Course syllabi reviewed by faculty peers Use student evaluations to measure the success of individual courses at meeting their student learning objectives Recent graduate surveys used to measure course at meeting learning objectives Practical Professional Exercise used to measure success at meeting learning objectives Out of classroom experiences are used when assessing student learning outcomes Assessment questions to be investigated are defined in a written plan Have a written research plan and methodology for the assessment program Distribute assessment data to stakeholders as a basis for course and curriculum development Assessment data stored where faculty can access and independently review the data and reports Assessment data stored on department website Assessment results communicated via written reports How often the assessment data systematically compared to program objectives Proportion of faculty participating in assessment activities Provide incentives for faculty members to use assessment data as a basis for pursuing practical experience Systematically analyze assessment data to provide an understanding of what students are learning Mandatory participation documented in official correspondence to students

17.6407 23.6448

0.0241 o 0.001

11.4525

0.0219

12.8313 4.0756

0.0121 0.0435

9.2467

0.0184

3.8630

0.0494

15.7836

o0.0001

8.2394

0.0041

8.9896

0.0112

9.9675

0.0016

7.5247

0.0232

4.9293 14.3046 19.9765

0.0264 0.0002 0.0005

10.0834

0.0390

6.1721

0.0457

28.0311

o0.0001

6.9833

0.0082

University, U.S. Air Force Academy, and University of Texas at El Paso. None of these examples demonstrate all eight normative best practices criteria or all of the empirical criteria that we identified. Instead, they provide examples of departments that have had significant success and closed the loop in certain aspects of program assessment.


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Assessment at a Newly Accredited Business School: Niagara University Niagara University is a small, private university in Western New York, founded in 1856 by the Congregation of the Mission (Vincentian order of Catholic priests). In 2001, the University’s College of Business received its initial AACSB accreditation. A significant requirement of that accreditation was a comprehensive student outcomes assessment process, based in part on the interconnectivity of the University and College’s missions and their outcome goals. The accreditation process also involved a transformation of the College from a hierarchical to a participative total quality culture. Decision making had generally been top–down. The new culture requires faculty initiative. Individual faculty members have had more voice in decision making and have taken greater personal interest in the performance of the department and the college as a whole. This has enabled faculty to determine appropriate desired outcomes and measurements, and changes in response to assessment are made more easily. The fundamental goal of the assessment program is to improve the quality of Niagara University’s graduates and its academic programs through continuous improvement. As an accredited institution, the Niagara University College of Business is required to assess outcomes on a regular basis. This assessment process helps monitor whether the college is achieving its goals, improving its performance, staying current in the fields of business and education, and improving quality. Setting Goals The outcomes assessment process is derived from the goals of the department stemming from the university, college, and department missions, as well as the university’s strategic plan. Stakeholders of the College of Business are involved in a collaborative process of designating desired outcomes. These stakeholders include graduating seniors, alumni, co-op employers, employers of graduates, MBA graduates and their employers, and the college’s business advisory council. In developing the assessment process, the accounting department developed six goals stemming from its mission, and then identified eight measurable student-learning outcomes for the undergraduate program. The student-learning outcomes for the undergraduate program include: 1. Students should possess knowledge necessary for a position in the accounting profession. 2. Students should be able to communicate effectively. 3. Students should be able to think critically.

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4. Students should possess good computer skills. 5. Students should develop an understanding of ethical responsibility and the consequences of business decisions. 6. Students should develop leadership and teamwork skills. 7. Students should develop multicultural and global awareness. 8. Students should be able to interact effectively with members of the business community. Assessment Responsibilities The Quality and Assessment Committee (QAC) coordinates quality systems within the college and performs the majority of outcome assessment processes. The QAC also monitors faculty activities in teaching, research, and service. The QAC develops assessment tools, or matches current tools, with desired outcomes and is responsible for administering surveys, analyzing data, and interpreting and disseminating results. Assessment Methods The College uses several assessment methods, including alumni surveys, internship employer surveys, a test of core knowledge, Educational Benchmarking Institute (EBI) surveys, and student evaluations. The Alumni Survey covers most of the student learning outcomes identified in the undergraduate programs, including occupational skills, ethics, communications skills, teamwork, and necessary business knowledge. The college surveys every two or three years. The university internship and co-op program uses the Internship Employer Evaluation Survey, which has been modified by the College to reflect its student learning outcomes. The employers of internship students respond to the survey as part of the internship program evaluation. Test of Core Knowledge (developed by the QAC) evaluates students in the Introduction to Management course. This is a sophomore level class and thus provides early evidence of our students’ progress. The core exam covers the content of six basic courses taken in the freshman and sophomore years. The Accounting Department has a set of required core courses providing the fundamental business skills required for competency, and knowledge and retention are monitored through this test. The EBI’s Student Satisfaction Survey is a survey administered to all graduating seniors every two to three years. The EBI survey measures student satisfaction for all areas of student collegiate experience, including quality of instruction, faculty responsiveness and fairness, breadth of curriculum, extracurricular activities, and placement services.


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The QAC conducts student evaluations (Student Course Evaluation of Teaching Effectiveness) of teaching effectiveness for all courses every semester including an analysis of the data. Reporting Assessment Results The QAC committee provides feedback to the department via the department chair. Assessment data reside in a document library with accreditation-related materials. Challenges Among the primary challenges are buy-in from the faculty, linking assessment data to a specific time period, and budget constraints. Instruments used in the outcomes assessment process that address individual faculty performance are sources of contention when their purposes or relevance were unclear. The primary example of this would be the Student Course Evaluation Survey. The faculty and administrators revisit its content almost yearly, as relevance, interpretability, and link to valid assessment are debated. When the faculty are wary of the measures being applied, their willingness to participate becomes somewhat tempered; however, when the faculty is convinced that relevant measures are being used for assessment, and the objectives of outcomes assessment are valid, the process results in effective feedback and continuous improvement. The interdepartmental nature of the QAC and the bottom-up approach to assessment are vital for maintaining support from the faculty. Gathering information from various stakeholders may give conflicting information pertaining to different time periods. Furthermore, aspects of the assessment program are costly, and continuing the process is not always the top budgetary priority for the College or the University. Observations The utilization of student, alumni, and employer surveys enables Niagara University to view student accomplishments from multiple perspectives. Outcome assessment is an evolving process requiring measures that provide meaningful feedback and systematic analysis to identify issues before they become serious problems. One danger (not previously examined in the literature) we observed in the Niagara case is a post-accreditation slump. Energy expended during the accreditation process and changes in administration led to a post-accreditation malaise and a temporary breakdown in the assessment process. The assessment process resumed because of cultural changes that led to a faculty-driven process.

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Accounting Program Assessment at the United States Air Force Academy, Department of Management The Academy is the nation’s youngest federal service academy. The management major is one of 32 majors and 5 minors offered by the Academy. The Management Department does not currently offer disciplinary majors or specializations, such as accounting. The Commission of Colleges and Universities of the North Central Association of Colleges and Secondary Schools (NCA) first accredited the Academy’s degree program in 1959 and the AACSB awarded the Department of Management, and the management major, a 5-year unconditional accreditation in 2001. The Department of Management’s Vision and Mission Statement provide the context and direction for program development, administration, and continuous improvement efforts. A change in the Department’s leadership, an Academy-wide self-evaluation in preparation for NCA reaccreditation, a decision to pursue AACSB Accreditation, and an emphasis on ‘‘best’’ business practices in the federal government led to the most recent update to the Vision and Mission Statement. The primary drivers of the assessment process at United States Air Force (USAF) included (a) revised mission and vision statements that articulated values for the development of department outcomes; (b) the department’s consistent emphasis on assessment and continuous improvement; (c) the need to focus assessment on the department’s revised vision and mission statements; and (d) increasing faculty commitment to, and involvement in the assessment process. Assessment Responsibilities The organizational structure of the Department of Management does not follow the typical functional divisions found at most Universities. The responsibility for the assessment program resides with a Director of Assessment who reports directly to the Department of Management Head (equivalent to a Dean). The Director of Assessment is responsible for the development and maintenance of the assessment program, as well as marshalling institutional support services and resources for the assessment program. Expected Benefits The Department of Management, as part of an undergraduate teaching institution, focuses on teaching and student learning. The Director of Assessment reports the results from each measurement metric to the entire department and expects these reports to drive curriculum and course development.


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A secondary benefit of the assessment program is central to the Department of Management’s AACSB accreditation goal. As a central element of the accreditation process, the assessment activities have led to improved operational efficiency, better assessment of student learning and teaching, and a focus on continuous improvement.

Significant Assessment Activities The Department of Management does not offer discipline-specific concentrations, thus the assessment program focuses on the management degree as a whole. The assessment program includes the following instruments: Undergraduate Satisfaction Survey evaluates the graduating student’s level of satisfaction with the management major, the curriculum, teaching, advising, and student support, and is benchmarked with selected schools of business. Major Field Test in Business, a content exam developed by Educational Testing Service (ETS), assesses the curriculum against recognized management education and business administration content. Academy Course Critiques (Student Course Evaluations) measures student’s perceptions regarding course content and instruction. Focus Groups an in-depth understanding about graduating senior’s perceptions of the major including strengths and weaknesses, initial expectations, skills gained, impressions of the department, and the treatment they received. The focus groups consist of 12–19 management majors and are held every spring semester. Focus Groups – Accounting Courses provide an understanding of the student’s perceptions of the accounting courses. Every semester, focus groups consisting of 12–15 randomly selected students currently enrolled in accounting courses are asked a standard set of questions and responses are compared across semesters. Management Graduate Survey assesses the graduate’s perceptions about the management major and the skills they received. Specific areas of assessment include usefulness of skills learned and satisfaction with mentoring, curriculum, teaching, advising, and the faculty. Other assessment indicators used: J Stakeholder interviews J Number of management majors J Number of publications/presentations J Number of consultations

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Reporting Assessment Results Department faculty, appropriate committees and departments (e.g., curriculum committee and advising department) learn the results from these assessment devices as the results become available. The variety of instruments provides multiple measures of faculty and student performance across multiple dimensions. Faculty can then compare the assessment data to department goals in a required department-wide performance review in which the data are discussed and priorities for improvement are established. Observations The Department of Management desires continuous improvement in its curriculum. The use of multiple sources of assessment information has allowed them to implement improvements in curriculum and the assessment program. Nonetheless, except for the ETS major field test, the primary emphasis is on indirect evidence of student learning. A major strength of Academy’s assessment program is its structured focus group sessions with graduating seniors and students in accounting courses. These focus group sessions have enabled the Academy to identify very significant opportunities to strengthen student learning.

Accounting Program Assessment at the University of El Paso Driven by a university mission to provide broad access to quality higher education for the border region, the College of Business Administration and the Department of Accounting have earned separate AACSB accreditations. To accomplish this goal, assessment processes necessary to evaluate the research, teaching, and service functions were created at the university, college, and department levels. As with the previous two examples, the assessment program at the University of Texas El-Paso (UTEP) is mission-driven, which begins with a well-defined institution mission and is translated into specific department goals. Based on these departmental goals, faculty and administrators set and measure assessment goals. Setting Goals The assessment process at UTEP Accounting Department derives from the broader university mission to provide quality higher education to the citizens of El Paso and the surrounding region; prepare students to function effectively in society; and contribute to the quality of life in the community


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and region. Using UTEP’s mission, the Accounting Department defined five departmental goals: 1. To provide a BBA degree that prepares graduates for entry into professional and managerial positions, lifelong learning, and success. 2. To provide a Master of Accountancy degree enabling career advancement in the accounting profession. 3. To provide for the concurrent awarding of a BBA and MAcc to give students with a background for success in the accounting field and to satisfy the requirement for CPA certification in Texas. 4. To provide intellectual contributions that improve the application of existing knowledge, that enhance the delivery of instruction and that extend the boundaries of knowledge. 5. To provide service meeting the needs of students, the university, alumni, community, faculty, and academia. To measure these goals the UTEP Accounting Department defined the goals of its assessment program as the determination of how well the department achieves specified objectives to meet its goals and to improve continually the product it provides to students, the university, the college, alumni, community, and academia. Responsibility for Assessment The Instructional Evaluation and Effectiveness (IEE) Committee comprised of department faculty are responsible for the assessment program with input from the Department Chair and faculty. The Department’s assessment activities focus on two general categories of outcomes for undergraduate and graduate programs: the effects of departmental programs on student performance in real-world settings and departmental pedagogical practices that promote improvement in student performance. These categories provide multiple sources of evidence indicating the achievement of specific outcomes using metrics deemed to indicate success in reaching program objectives and to provide evidence of changes over time. Sources of Assessment Data To measure the effect of department programs on student performance, the department employs the following data sources and instruments: Alumni surveys, mailed annually to graduates five, three, and one year out from graduation, assess their perceptions about how well they have been prepared by UTEP. The university contrasts these survey results with

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prior surveys to assess department success in preparing graduates for the profession. Employer surveys, mailed to employers known to hire UTEP graduates, gather additional evidence of department effect on student performance. The college surveys employers biannually to elicit feedback on student preparation for the profession and comparative assessments of UTEP graduates to graduates of other institutions. Internship employer survey provides feedback from professionals supervising internship students with respect to job performance and competency skills (communication, teaming, leadership, etc.). The department also applies a series of quantitative summary statistics for comparative performances of UTEP students. These include: J CPA exam results J University grade point statistics J University generated student satisfaction survey results J Comparative performance of accounting majors in BBA capstone course J Comparative employment statistics To measure improvements in the department programs, faculty members peruse the following data sources and instruments: Department supplemental survey gathers feedback from current students concerning class format, delivery and engagement methods, course materials, types of homework assigned, and exam relevance and format. Student focus groups, conducted by UTEP’s Center for Effective Teaching, target accounting majors to gather information that is difficult to quantify concerning the student’s educational experience and departmental pedagogical practices. Syllabi reviews by faculty examining the correspondence between departmental pedagogical practices, program content, and the university, college, and department missions, goals, and program objectives. Reporting Assessment Results Once assessment data have been gathered, the IEE collects, analyzes, and summarizes the data for dissemination, discussion, and evaluation by the department faculty and chairman at an annual faculty assessment meeting. Faculty members receive the assessment results in the following format: 1. continuous improvement goals for the period; 2. department’s contribution to the general education of UTP students;


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3. assessment measures used during the period; 4. assessment program results by program; 5. a discussion of how assessment results are to be used for program improvements; and 6. additional concerns regarding upcoming planning and evaluation processes. Observations The goal of the assessment program is the achievement of desired outcomes originating from ongoing planning and evaluation processes, to adapt to a changing environment, and initiate responsive changes to departmental programs. While the program does not emphasize direct measures of student learning, the stated goal is to focus on what the literature refers to as authentic or performance-based assessment – i.e., assessment based on substantive experiences that simulate ‘‘real-world’’ situations (Muraki, Hombo, & Lee, 2000). Since this case was written, the department has refocused their assessment methods to emphasize authentic assessment of student learning. In many ways, UTEP has been able to close the loop. The UTEP Accounting Department, using multiple sources of assessment information, has seen several meaningful program changes and improvements including student employment exceeding expectations, increased student exposure to global, social, legal, regulatory, environmental, and ethical issues, increased emphasis on core competencies such as communication, statistical, and computer skills, and a perception by student that their analytical and problemsolving have been substantially increased.

SUMMARY Developing and implementing an effective assessment program requires administrators and faculty to define the program goals and select effective assessment methods. Many faculty members and administrators lack access to a coherent knowledge base on effective assessment. The above executive summary discusses the findings of a two-year project conducted by the Best Practices in Accounting Program Assessment Committee of the AAA’s Teaching and Curriculum Section. The summary discusses the evolution of assessment, assessment processes, and such assessment challenges as motivating faculty and selecting appropriate measurement metrics for assessment. It also includes a set of eight normative best practice criteria as well as descriptions and comments on three best practice examples. In addition,

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data from a comprehensive survey offer broad insight into accounting programs’ actual assessment practices. An analysis of the survey data identified 19 practices that distinguish between accounting programs that are more effective in closing the loop and those that are less effective. Accounting programs with effective assessment practices align their curriculum with their program objectives, broad goals, and mission. They articulate course and program goals clearly and in an internally consistent manner. Faculty, administration, and other stakeholders are active in the process, defining program goals and objectives as new programs are created or because of changes in the learning environment. Program objectives are embodied in the curriculum and the overarching focus is on student learning. These objectives are formalized in a written plan that includes operational details for assessment. Best practices also pay particular attention to the quality of the educational process, and are deliberate and systematic in the collection and evaluation of evidence about program and course quality. They monitor evidence of student learning as well as the educational processes that drive student learning on a consistent basis, allowing for regular feedback to faculty. A key feature of a system is the presence of a feedback mechanism in which outputs become the catalyst for changes in the operation of the system. Assessment results serve as input in the feedback loop. Best practice programs provide an effective process for reporting results to faculty and other stakeholders, and make the data available in forms that facilitate review and dialog. An integral part of this feedback process is the review of the assessment data in light of program objectives, and to obtain an overall understanding of student learning. Successful programs use a methodical approach to gather, analyze, and report assessment information to stakeholders. Assessment results drive dialogue about student learning, lead to opportunities for program improvement, and set the stage for continuous improvement.

ACKNOWLEDGMENTS We wish to acknowledge the work of the many authors who contributed to the Best Practices in Accounting Program Assessment monograph on which this paper is based. In particular, we wish to thank Linda A. Kidwell and William Peek for their case on Niagara University, Kevin J. Davis, Steve G. Green, Kurt A. Heppard, William W. Jennings, and James K. Lowe for their case about assessment at the U. S. Air Force Academy, and Pat Eason, Sid Glandon, Raymond Zimmermann, Gary Braun, and Mary Stevens for


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their write-up about the University of El Paso. Finally, we thank Paul Bayes and Tim Fogarty for their comments on the overall project.

REFERENCES AACSB. (2001). Standards for business accreditation ðFebruary 14Þ. St. Louis, MO: AACSB International Available at http://www.aacsb.edu/accreditation/standards.asp. Last accessed July 26, 2004. AACSB. (2004). Eligibility procedures and standards for business accreditation ðJanuaryÞ. St. Louis, MO: AACSB International Available at http://www.aacsb.edu/accreditation/ standards.asp. Last accessed July 26, 2004. Accounting Education Change Commission (AECC). (1990). Objectives of education for accountants, Position Statement Number One. Sarasota, FL: American Accounting Association, Reprinted in Issues in Accounting Education (Fall), pp. 307–312. Angelo, T. A. (1995). AAHE Bulletin (November), 7; also available at http://www.aahe.org/ assessment/assess_faq.htm. Last accessed July 29, 2002. Calderon, T. G., Gabbin, A. L., & Green, B. P. (1996). A framework for encouraging effective teaching. Harrisonburg, UA: Center for Research in Accounting Education, James Madison University. Calderon, T. G., Green, B. P., & Harkness, M. (2004). Best practices in accounting program assessment. Sarasota, FL: American Accounting Association. Demong, R. F., Lingren, J. H., Jr., & Perry, S. E. (1994). Designing an assessment program for accounting. Issues in Accounting Education, 9(1), 11–27. Fogarty, T. J. (2004). Why faculty resist assessment. In: T. G. Calderon, B. P. Green & M. Harkness (Eds), Best practices in accounting program assessment. Sarasota, FL: American Accounting Association. Frederickson, J. R., & Pratt, J. A. (1995). A model of the accounting education process. Issues in Accounting Education, 10(2), 229–268. Gaither, G. H. (1995). Assessing performance in an age of accountability: Case studies. San Francisco: Jossey-Bass. Green, B. P., Calderon, T. G., Gabbin, A. L., & Habegger, J. (1999). Perspectives on implementing a framework for evaluating effective teaching. Journal of Accounting Education, 17(1), 71–98. Herring, H. C., III, & Izard, D. (1992). Outcome assessment of accounting majors. Issues in Accounting Education, 7(1), 1–17. Higher Learning Commission. (2002). Assessment of student academic achievement: Levels of implementation. Addendum to the handbook of accreditation (2nd ed.), (March). Chicago, IL: HEC. Hindi, N., & Miller, D. (2000). A survey of assessment practices in accounting departments of colleges and universities. Journal of Education for Business, 75(5), 286–290. Jarvis, P., Holford, J., & Griffin, C. (1999). The theory and practice of learning. London: Kogan Page. Kimball, B. (1998). Practitioner methodology for entry-level hiring assessment: Issues for academic outcomes assessment. Journal of Education for Business, 73(3), 168–171. Kimmell, S. L., Marquette, R. P., & Olsen, D. H. (1998). Outcome assessment programs: Historical perspective and state of the art. Issues in Accounting Education, 13(4), 851–868.

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A WRITING-IMPROVEMENT MODULE FOR ACCOUNTING EDUCATION David E. Stout and Joseph J. DaCrema ABSTRACT Professional groups (such as the American Institute of Certified Public Accountants (AICPA)) as well as employers want accountants who can write clearly, concisely, and coherently. This paper discusses a one-hour, writing-improvement module that teachers can use in the accounting classroom. The module consists of a set of PowerPoint slides as well as a writing-improvement resource included as the appendix to this paper. This resource consists of 10 tips designed to address writing problems that the authors have observed jointly over the past 25 years, encompassing: agreement (e.g., verb–tense agreement); sentence construction (e.g., sentence fragments); faulty modifiers (misplaced and dangling); apostrophes; restrictive and non-restrictive clauses (i.e., ‘‘that’’ versus ‘‘which’’); commas; active versus passive voice; misused words (e.g., ‘‘affect’’ versus ‘‘effect’’); economy and appropriateness; and writing organization. Along with these 10 dimensions we provide examples of correct and incorrect writing while keeping the discussion as informal as practicable. The writing resource also includes references, both print and web-based, which the interested student (or faculty member) can consult for additional understanding of these topics. The paper includes feedback from students in three MBA managerial accounting sections reflecting Advances in Accounting Education: Teaching and Curriculum Innovations, Volume 7, 307–328 Copyright r 2005 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 1085-4622/doi:10.1016/S1085-4622(05)07013-6

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their perceived value of the writing resource. This feedback, which is positive, supports the use of the resource by other accounting faculty members.

A WRITING-IMPROVEMENT MODULE FOR ACCOUNTING EDUCATION For a long time, accounting educators and professionals have felt that grammatical incorrectness, imprecision, and verbosity are widespread and serious problems in accountants’ writing. At the same time, accounting instructors to a large extent are uncomfortable with the task of writing instruction, either because it is not within their expertise or because they are unwilling to commandeer instruction time from their primary discipline. (Indeed, the matter of expending institutional resources, including classroom time, on writing instruction recently prompted Cleaveland and Larkins (2004) to suggest a web-based solution.) In this paper, we discuss a one-class writing-improvement module that one of the co-authors has developed and used successfully in an MBA managerial accounting course. A key component of the module is the ‘‘writing-improvement resource’’ (see the appendix), a tool that we believe addresses writing problems in ways that are painless to the accounting instructor and attractive to the accounting student. First, the resource offers ‘‘ten tips’’ for effective writing in an informal fashion that we think both students and instructors will find appealing. From our experience, these 10 tips address what are perhaps the most common problems in accountancy writing. Second, by limiting the number of writing problems to 10, we hope that the resource avoids overwhelming accounting students with grammatical instruction and yet deals with writing issues they are most likely to face.

Writing and Accounting There are cogent reasons for concern about accountancy writing. For example, a recent survey (Alsop, 2003) of 2,191 MBA recruiters showed that respondents ranked ‘‘communication and interpersonal skills’’ as the top attribute for evaluating MBA programs and the graduates of these programs. This result was confirmed by a follow-up survey of 2,849 MBA

A Writing-Improvement Module for Accounting Education

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recruiters (Alsop, 2004). Undergraduate business-student recruiters expressed similar sentiments in a survey conducted by the Calloway School of Business and Accountancy, Wake Forest University (2004). For its part, the American Institute of Certified Public Accountants (AICPA) in its Core Competencies Framework (1999) included ‘‘communication’’ as one of seven ‘‘personal competencies’’ required of entry-level accountants. (The revised Uniform CPA Examination (AICPA, 2003), in fact, tests written communication skills ‘‘through the use of short constructed-response questions.’’) Many accountants feel that recognizing the importance of correct writing in accounting has not been accompanied by a consequent improvement of writing skills. Christensen and Rees (2003) provide survey evidence from AICPA and IMA members regarding the importance of 32 communication skills and the level of respondent satisfaction with how well universities prepare entry-level accountants in these areas. Of the 32 skills, the second and third ratings, in terms of overall importance, were ‘‘uses correct grammar in both spoken and written communication’’ and ‘‘writes well – clearly, concisely, correctly, and completely.’’ Christensen and Rees argue (p. G2) that accounting teachers must pay more attention in the curriculum to English and writing skills, and that faculty evaluations of written and oral assignments should include a critique of the proper use of English. Another – and perhaps more alarming – statistic comes from Ulrich, Michenzi, and Blouch (2003), who asked individuals from a national sample of CPA firms to rate 19 professional skills on their importance and on how effectively the business curricula developed these skills. These professionals ranked ‘‘Writing’’ No. 3 of 19 in terms of perceived importance, but No. 18 in terms of ‘‘effectiveness of the business curriculum in developing these skills.’’ And awareness of the deficiencies of business writing is not confined within the walls of the business community. Sam Dillon of the New York Times (2004) reports: A recent survey of 120 American corporations y by the National Commission on Writing, a panel established by the College Board, concluded that a third of employees in the nation’s blue-chip companies wrote poorly and that businesses were spending as much as $3.1 billion annually on remedial training. (Section A, p. 23)

Educational Responses In grappling with ways to mediate the perceived need for correct writing and the wide failure to address this need, we reviewed the literature concerned with classroom writing instruction in accounting. Here, we found a variety

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of proposals and experiments. But, because most of these initiatives were either resource-intensive or time-intensive, they have received very little (or sustained) implementation over the years. Outside the classroom can be found brief articles on improving accountancy writing, like Elizabeth Danziger’s excellent ‘‘Writing in Plain English’’ (1997), and Max Messner’s ‘‘The Write Stuff: How to Prepare Effective Reports’’ (2003). Since these pieces are aimed at the practitioner, however, they contain no supporting guidance for the classroom instructor. Rebele (2002, p. 22) intimates these problems when he writes that ‘‘accounting educators need new approaches for improving students’ writing skills,’’ approaches that yet involve y a return to the basics and spending some time teaching the students how to write. This may be distasteful or unacceptable to some accounting educators who believe that their students should already know how to write. Well, they don’t and we have a choice: either continue wasting time by just giving writing assignments or spend time teaching and reinforcing basic writing principles and tools.

A Writing-Improvement Module for Accounting Education For the past three semesters, one of the co-authors has been delivering a one-hour ‘‘writing-improvement module’’ as part of the MBA managerial accounting course he teaches. (A full class meeting is 2 h and 40 min long, 6:00 PM–8:40 PM.) This module consists of a set of PowerPoint slides (available upon request to David E. Stout) and the materials for students summarized in Table 1. All materials for the module other than the PowerPoint slides are accessible to students prior to class via WebCT. Though the instructor has not done so in the present case, other accounting instructors might assign, as element of the module, the material prepared by Powell (1995), who deals with the problem of effective tone in business writing and focuses on the rhetorical elements of purpose, voice, and style. She provides numerous examples of problems, and recommended solutions in each of these three areas. The accounting professor has found it convenient to cover the ‘‘writingimprovement module’’ at the tail-end of a class session in which he administers an exam, typically about one-third of the way into the semester. The instructor begins the in-class presentation with the PowerPoint slides; these contain selected quotes taken from Alsop (2003, 2004) and Dillon (2004), the report prepared by the Calloway School of Business and Accountancy (2004), the AICPA Core Competency Framework (1999), and the surveys completed by Morgan (1997), Christensen and Rees (2003), and Ulrich et al.

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Table 1.

Sample Writing-Improvement Module.

This agenda is for one of 16 meetings (each meeting is 2 h and 40 min, 6 PM–8:40 PM) of an MBA managerial accounting class: Exam No. 1 (90 min) Improving writing skills (60 min)

Text chapters 1–4, inclusive Read: ‘‘Writing-improvement resource: Ten Tips for improving business writing’’ Read: ‘‘SEC plain English writing handout’’ (by Reinstein & Houston, 2004) Read: Dillon (2004), NY Times article

N/A Word document

Word document

Word document

1. The ‘‘Writing-improvement resource: Ten writing tips for improving business writing’’ is reproduced as the appendix to this paper. The ‘‘SEC plain English writing handout’’ consists of material taken from the SEC (1998) and included as the appendix to Reinstein and Houston (2004). 2. The instructor posted all the three writing-related files listed above to the WebCT page for his course. Thus, students are expected to access, download, and read these three items prior to class. 3. In class, the instructor uses a set of PowerPoint slides (available upon request to David E. Stout) to (a) motivate student interest in the topic by providing quotes from Alsop (2003, 2004), Dillon (2004), and others; and (b) illustrate items covered in the two writing resources provided to the students (i.e., the ‘‘Writing-improvement resource: Ten tips for improving business writing’’ and the ‘‘SEC plain English writing handout’’). The instructor concludes the in-class session by distributing a one-page feedback/assessment form, which students complete and return to the instructor prior to the closing of class. (Feedback obtained from administering this evaluation form to three separate MBA managerial accounting classes is provided in Tables 2 and 3 of this paper.) 4. In terms of traditional material not covered in the course, in favor of the writing material described above, the instructor loses approximately 1 h (of 40) of class time – 2.5% of the available class time.

(2003) – all designed to generate student interest in the topic and to reinforce the importance of communication skills for success in business. After this introductory material, the instructor discusses with students selected topics from the writing-improvement resource (see the appendix), using PowerPoint slides to illustrate grammatically incorrect sentences and associated corrections. For the most part, students in the course are part-time evening students. The institution at which the instructor teaches, located in an urban setting in the mid-west, is AACSB-accredited. The syllabus for his course clearly states that ‘‘development of communication skills is an important educa-

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tional objective of the managerial accounting course you are taking,’’ and outlines the means by which he plans to enhance these skills: Communication Skills: Successful businesspeople possess strong communication skills. Thus, a goal of this course is to help hone these skills. I do this in three ways: (1) by devoting a portion of a class meeting to coverage of a writing-improvement module (consisting of two learning resources in the form of ‘‘tips’’ for improving business writing – see syllabus); you are encouraged to use these resources in this course, other courses, and in your day-to-day writing (2) by requiring at the end of the term (for the final exam) an in-class presentation by each team of students (3) by providing on each of the two in-class exams during the semester some openended (e.g., short-essay) questions.

The Writing-Improvement Resource for Accounting Education The writing-improvement resource presented in the appendix to this paper, and included in the module, covers the following 10 topics: agreement (e.g., verb–tense agreement); sentence construction (e.g., sentence fragments); faulty modifiers (misplaced and dangling); apostrophes; restrictive and nonrestrictive clauses (i.e., ‘‘that’’ versus ‘‘which’’); commas; active versus passive voice; misused words (e.g., ‘‘affect’’ versus ‘‘effect’’); economy and appropriateness; and writing organization. (Accounting faculty who wish to focus more specifically on addressing the issue of ‘‘faulty modifiers’’ should consult Stout & DaCrema, 2004.) We based our choice of these topics on the collective teaching and editorial experience of the authors (an accounting professor and an English professor) over the past 25 years. In our experience, these 10 areas represent the most common writing problems of accounting and business students and, as such, represent areas in which the ‘‘pay-off’’ from an instructional intervention is greatest.

MBA Student Feedback – The Writing-Improvement Resource The accounting professor presented the writing-improvement module described above to MBA managerial accounting students in the spring (n ¼ 14) and fall (n ¼ 14) terms of 2004, and the spring term (n ¼ 12) of 2005. To obtain feedback on the ‘‘writing-improvement resource’’ (see the appendix), he administered to each class at the conclusion of the module an evaluation form consisting of nine items. Seven of these items used a five-


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point scale (generally, 1 ¼ ‘‘Strongly Disagree,’’ y, 5 ¼ ‘‘Strongly Agree’’), one item required a nominal response (‘‘Yes,’’ ‘‘No,’’ or ‘‘Not Sure’’), and one item (viz., ‘‘Other comments?’’) was open-ended. One of the nine items was a self-assessment of the student’s ‘‘business writing skills.’’ The instructor asked the students to give frank and anonymous feedback. Of course, this feedback is limited by the fact that the underlying class sizes were small (generalizability issue), and because it covers only student perceptions of the value of the resource. We have not attempted here to obtain actual test results regarding the value of the resource in improving student writing. Perceived Quality and Value of the Writing-Improvement Resource Table 2 includes summary information by semester and for the overall sample, regarding six items on the evaluation instrument, broken down both by the total respondents (n ¼ 40) and by the semesters. As these results show, students ascribed value to the writing-improvement resource and agreed that it is appropriate to devote ‘‘accounting class time’’ to coverage of the material in the resource. Students also felt that the resource might be useful to them in the future for improving their business writing. Planned Usage of the Writing-Improvement Resource One can maintain a position that an educational resource of the type represented in the appendix to this paper ‘‘adds value’’ only to the extent that students actually use the resource. We do not have such information, but one of the questions on the end-of-module survey was whether students planned to use the writing resource in the future. Responses to this question, by section and overall, appear in Table 3. These results suggest planned use of the resource by a majority of students in the sample. (Of the five students in the sample who replied ‘‘No’’ to this question, three agreed with the statement on the survey that ‘‘I have strong (i.e., excellent) business writing skills’’; the other two students ‘‘strongly agreed’’ with this statement.) Responses to Open-Ended Question The evaluation survey gave students an opportunity to provide additional comments regarding the writing-improvement resource and its use in an accounting class. Of the 40 students in the sample, 22 offered additional comments. Following are selected comments from our sample: I think it was a good idea and can only help the student. Many have poor grammar skills and can use this handout.

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Table 2.

MBA Student Feedback: Writing-Improvement Resource. Q1

Q2

Q3

Q4a

Q5

Q6

Section I – Spring 2004 (n ¼ 14): Mean Median % ‘‘Strongly Agree’’ or ‘‘Agree’’a

4.21 4.00 92.9

4.50 5.00 92.9

4.64 5.00 100.0

1.43 1.00 92.9

4.50 5.00 85.7

4.29 4.50 85.7

Section II – Fall 2004 (n ¼ 14): Mean Median % ‘‘Strongly Agree’’ or ‘‘Agree’’a

4.43 4.00 100.0

4.36 4.00 92.9

4.29 4.00 85.8

1.57 1.00 85.8

4.71 5.00 100.0

4.29 4.50 78.6

Section III – Spring 2005 (n ¼ 12): Mean Median % ‘‘Strongly Agree’’ or ‘‘Agree’’a

4.08 4.00 91.7

4.50 5.00 91.7

4.25 4.00 83.4

1.42 1.00 100.0

3.92 4.00 91.7

4.08 4.00 83.3

Total (pooled results) (n ¼ 40): Mean Median % ‘‘Strongly Agree’’ or ‘‘Agree’’a

4.25 4.00 95.0

4.45 5.00 92.5

4.40 4.50 90.0

1.48 1.00 92.5

4.40 5.00 92.5

4.22 4.00 82.5

Notes: Q1 ¼ The handout ‘‘Ten tips for improving business writing’’ taught me something about writing that I did not formerly know; Q2 ¼ I found the handout clear; Q3 ¼ The accompanying discussions were useful in clarifying or enhancing the value of the 10 items covered in the handout; Q4 ¼ I do NOT think the handout is a practical tool, i.e., its suggestions cannot be easily put into practice; Q5 ¼ It is appropriate to use time in a business/accounting class to cover material on the ‘‘ten writing tips’’ handout; Q6 ¼ The ‘‘ten writing tips’’ handout will be useful in helping me improve my business writing skills; and scale: 1 ¼ Strongly Disagree, 2 ¼ Disagree; 3 ¼ Unsure; 4 ¼ Agree; 5 ¼ Strongly Agree, 9 ¼ No opinion. a For item Q4, the reported percentages represent the total of ‘‘Strongly Disagree’’ and ‘‘Disagree.’’

Planned (MBA) Student Usage of Writing-Improvement Resource Do you think you will use the writing-improvement resource (‘‘Ten tips for improving business writing’’) in the future as a personal writing resource? Table 3.

Response % MBA managerial accounting

Yes

No

Not sure

No opinion

Section I – Spring 2004 (n ¼ 14) Section II – Fall 2004 (n ¼ 14) Section III – Spring 2005 (n ¼ 12) Total (n ¼ 40)

64.3 85.7 75.0 75.0

21.4 7.1 8.3 12.5

14.3 7.1 8.3 10.0

0.0 0.0 8.3 2.5


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The handout reminded me and taught me about some items I have not used or seen since high school, many years ago. I am a huge offender on most of these issues. This is an excellent reference. The list of misused words is very helpful. Having that resource handy will be a benefit!!! One of the reasons I am pursuing my MBA is to improve my communication skills. Your handout was very helpful in this regard. Thank you. Not only is the subject matter (covered on the handout) applicable to dayto-day business needs, but the handout presents helpful tips in an easy-touse format. The ‘‘ten tips’’ handout will make a fine writing resource. I strive to make my communications clear and concise. It bugs me when I have to re-read something several times to understand what the sender was trying to convey. I think this kind of material is appropriate for professionals in any discipline. I will use it to improve what I do. The handout is useful because it is concise and can easily be utilized as a Reference Guide for the topics discussed. I will certainly use it in the future. Several students provided recommendations for improving the value of the writing resource and associated in-class discussion. Maybe we should have written a short paper applying them (the ‘‘tips’’), and get feedback from (our instructor) on where our skill level is. Should have some questions on this material on the multiple-choice section of one of the in-class exams. It might be a good idea to do an in-class exercise with the ‘‘ten tips’’ lecture. That exercise would allow us to receive feedback on our present skill level. [The handout was] very informative and interesting. The handout can be improved by underlining what is being pointed out. We were heartened by a postscript one of the MBA students in our sample appended to the evaluation form: ‘‘I now find myself acutely aware of every word I write.’’ But the conclusion of the postscript reminded us, as it should remind all instructors who choose to use the resource, that it is important to avoid overwhelming accounting students with grammatical instruction. The conclusion read: ‘‘I envision myself ending up buried in your log of grammatical ineptitude. Be gentle.’’ The authors of this paper feel that ‘‘gentle’’ use of the present resource is an effective, yet relatively painless, way for accounting students (and faculty) to improve their business writing.

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ACKNOWLEDGEMENTS The authors thank the editor, Bill N. Schwartz, and the anonymous reviewers for their comments and helpful suggestions.

REFERENCES Alsop, R. (2003). The top business schools: A joint report with Harris Interactive. The Wall Street Journal, 244(September 17), R1–R4. Alsop, R. (2004). WSJ guide to business schools: Recruiters’ top picks. The Wall Street Journal, 245(September 22), R1–R10 (Also see: www.harrisinteractive.com/bschools.). American Institute of Certified Public Accountants (AICPA).. (1999). AICPA core competency framework for entry into the accounting profession. New York, NY: AICPA. Available at: http://www.aicpa.org/edu/corecomp.htm. American Institute of Certified Public Accountants (AICPA), Board of Examiners. (2003). Skills for the uniform CPA examination. New York, NY: AICPA. Calloway School of Business and Accountancy, Wake Forest University. (2004). A report on recruiters’ perceptions of undergraduate business schools and students. Christensen, D., & Rees, D. (2003). Communication is key – Skills needed by entry-level accountants. The CPA Letter/Education, 83(February/March), G1–G2 Available at: www.aicpa.org/members/div/career/edu/index.htm. Cleaveland, M., & Larkins, R. (2004). Web-based practice and feedback improve tax students’ written communication. Journal of Accounting Education, 3, 211–228. Danziger, E. (1997). Writing in plain English. Journal of Accountancy, 184, 71–74 Available at: www.aicpa.org/pubs/jofa/july97/danziger.htm. Dillon, S. (2004). What corporate America can’t build: A sentence. New York Times, December 7, Section A, p. 23. Messner, M. (2003). The write stuff: How to prepare effective reports. Strategic Finance, 85(July), 15–16. Morgan, G. J. (1997). Communication skills by accounting graduates: Practitioner and academic perceptions. Accounting Education: An International Journal, 6, 93–107. Powell, E. (1995). A note on purpose, voice, and style in business writing. Darden Business Publishing, University of Virginia (#UVA-BC-0113SSRN). Rebele, J. R. (2002). Accounting education’s uncertain environments: Descriptions and implications for accounting programmes and accounting education research. Accounting Education: An International Journal, 11, 3–25. Reinstein, A., & Houston, M. (2004). Using the Securities and Exchange Commission’s ‘‘plain English’’ guidelines to improve accounting students’ writing skills. Journal of Accounting Education, 22, 53–67. Securities and Exchange Commission (SEC). (1998). A plain English handbook: how to create clear SEC disclosure documents. Available at: http://www.sec.gov/pdf/handbook.pdf. Stout, D. E., & DaCrema, J. J. (2004). A writing intervention for the accounting classroom: Dealing with the problem of faulty modifiers. Journal of Accounting Education, 22, 289–323.


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Ulrich, T. A., Michenzi, A. R., & Blouch, W. E. (2003). CPAs assess the development of professional skills of recent accounting graduates. Journal of the Academy of Business Education, 4, 126–137.

APPENDIX. WRITING-IMPROVEMENT RESOURCE: TEN TIPS FOR IMPROVING BUSINESS WRITING Your accounting instructor embraces the development of written communication skills as one of the goals of the course you are taking. In this regard, he is providing you with the following handout that contains ten ‘‘tips’’ for improving your writing. These tips relate to issues involving: (1) agreement (e.g., verb–tense agreement); (2) sentence problems (e.g., sentence fragments); (3) faulty modifiers (both misplaced and dangling); (4) apostrophes; (5) restrictive and non-restrictive clauses (‘‘that’’ versus ‘‘which’’); (6) commas; (7) active versus passive voice; (8) misused words (e.g., ‘‘affect’’ versus ‘‘effect’’); (9) economy and appropriateness; and (10) writing organization. Please study the handout carefully and use it in the future as a ‘‘writing improvement resource.’’ Additional resources for improving your writing are provided at the end of this document.

1. Agreement A sentence, like a spreadsheet, consists of several parts. If a spreadsheet contains a wrong number in one cell, the numbers will be wrong in other cells. Similarly, there must be internal consistency – agreement – among the several parts of a sentence. For illustration, note the lack of agreement in this sentence: ‘‘This is one of the jobbers who buys my material.’’ (In formal terms, ‘‘who’’ is a relative pronoun because it relates to something else, in this case to ‘‘jobbers.’’) If looked at closely, who refers to ‘‘jobbers.’’ Quite obviously the speaker has more than one jobber keeping him in business; he tells us, in fact, that there are ‘‘jobbers’’ who buy his goods. ‘‘Who,’’ then, agrees with these (plural) jobbers who keep his business afloat. Since buy, not buys, is the plural form, the sentence should read, ‘‘This is one of the jobbers who buy my material.’’ The sentence now makes grammatical sense. Similarly, consider the sentence: ‘‘The CEO, as well as the CFO and the Operations Manager, are chiefly responsible for last year’s slowdown.’’ You’re right: the word should be ‘‘is,’’ not ‘‘are.’’ Even though there’s an intervening phrase (‘‘as well as the CFO and the Operations Manager’’), the

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sentence’s main shape is thus: ‘‘The CEO [singular] is chiefly responsible for last year’s slowdown.’’ The middle portion, however important, is still an incursion into that main shape and therefore does not alter its basic singularity. ‘‘Is,’’ therefore, is the correct singular form. (Technically, ‘‘The CEO’’ is the subject and ‘‘is’’ is the verb.) The rule is that verbs are governed by their subjects. The important point is that clear and precise writing requires us to look carefully at the components of the sentences we form and then make common-sense judgments about them, as we do when we prepare a financial report. In the section below we provide additional examples of the general problem of ‘‘agreement.’’

Number-Based Agreement: Singular or Plural? A frequent dilemma is whether to use the singular or the plural form when one of two words, one of them singular and the other plural, is the subject of a sentence, as in ‘‘Neither the auditor in charge nor his subordinates was/ were willing to sign off on the report.’’ The solution is easy: the closest word governs the verb form. Hence ‘‘Neither the auditor in charge nor his subordinates were willing to sign off on the report’’ is correct. It is unfortunate that English does not have a form that is neither singular nor plural, but is instead somewhere in between. Such a form would solve the problem of switching from a singular to ‘‘they’’ in a sentence such as this: ‘‘If anyone looked at our computer programs, they would be shocked by our failure to keep these programs up to date.’’ ‘‘Anyone’’ is singular – you cannot get any more singular than one – but ‘‘they’’ is plural. In short, we have an ‘‘agreement’’ problem. One solution is to recast the sentence: ‘‘Anyone who looked at our computer programs would be shocked y’’ Another is to pluralize everything: ‘‘If others looked at our computer programs, they would be shocked y’’

Gender-Based Agreement: He/She/They? On a related problem (although the issue here is stylistic, not grammatical), whenever possible you should avoid ‘‘the slash solution.’’ ‘‘He/she,’’ by any standard, is pretty ungainly. The construction almost always can be remedied by pluralizing. A portion of one large university’s catalog reads: ‘‘Each student must take responsibility to meet with his/her adviser on an ongoing basis.’’ How easy – and elegant – it would have been to change ‘‘each student’’ to ‘‘students’’ and ‘‘his/her’’ to ‘‘their.’’


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Expletives: Here, There, Everywhere Grammatically, an expletive is a word that fills the gap in a sentence when the usual word order is reversed. The most common expletive is ‘‘there,’’ a word that has no bearing on number; instead singularity or plurality is determined as if the ‘‘there’’ didn’t exist. ‘‘There were five main factors leading to their decision’’ is correct, since ‘‘five main factors’’ determines the plural ‘‘were.’’ Using the plural here is pretty intuitive. But problems stemming from the expletive ‘‘there’’ often crop up in conversation, where ‘‘there’’ frequently forms a contraction (e.g., ‘‘there’s’’ for ‘‘there is’’). ‘‘There’s some very good reasons for being cautious’’ is wrong; ‘‘reasons’’ is plural and therefore makes the whole construction plural: ‘‘There are some very good reasons for being cautious.’’ Like ‘‘there,’’ ‘‘here’’ is an offender against agreement chiefly in conversation, when it contracts with ‘‘is’’: ‘‘Here’s the five reports you ordered.’’ But both ‘‘there’’ and ‘‘here’’ are guilty of spawning agreement mistakes in writing as well as in conversation. A sentence such as ‘‘There was, at least in several portions of the 1998 study and the follow-up 1999 study, two flaws that undermined the conclusion’’ will not enhance your reputation with sharp-eyed readers (or with alert listeners).

Tense Agreement Though it seems natural that the tenses of words signifying simultaneous actions should be consistent, violations of tense agreement occur surprisingly often. ‘‘Last week he interviewed the four candidates and re-read their resumes. Then he decides he does not need an extra employee anyway.’’ The problem is obvious. All the actions took place in the past, but the proper past forms (‘‘interviewed’’ and ‘‘reviewed’’) give way in the next sentence to the present forms (‘‘decides’’ and ‘‘does not’’). The rule is simple: put verbs in their proper tense and keep them there. The reason for tense inconsistency probably stems from the perceived greater vividness of the present tense: an exciting tale takes on added dimensions when put in the present (‘‘The coffin creaks, opens, and suddenly the dead man steps out’’). But in business writing – and for that matter all formal writing – you should ensure that your verbs do not arbitrarily move from one tense to another. The fact is, our employer decided he did not need extra employees. The question of agreement touches on other matters not discussed here. However, common sense and a grasp on the principle of agreement are almost always sufficient to provide the correct answer.

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2. Sentences: Complete, Fragments, Splices (Run-Ons), and Fusion It is regrettable that this handout must now address grammatical terms. But it is almost impossible to talk about what constitutes a sentence – and what constitutes a would-be sentence – without recourse to certain bedrock grammatical principles. However, this preliminary discussion on sentences, if not totally painless, will emulate modern dentistry in being almost so. Therefore, you will feel not pain but ‘‘a little pressure.’’ Completeness To exist, a sentence must have, at the least, a grammatical subject and a predicate (or verb). (To predicate something about something else is to assert something about it. That is what a verb does. While purists might disdain this recommendation, the best course of action is to accept that ‘‘verb’’ and ‘‘predicate’’ mean pretty much the same thing and are in the main interchangeable terms.) ‘‘John laughed’’ – this is a perfect sentence, grammatically, because it provides the two essential components of a sentence: something to make a statement about (John) and the making of that statement (he laughed). Put another way, the verb – ‘‘laughed’’ – is asserting something about the grammatical subject – ‘‘John.’’ An informal definition of grammatical subject, then, is the thing in a sentence about which something is asserted; an informal definition of predicate (or verb) is the thing that does the asserting. Sentence Fragments: Less than Meets the Eye A sentence fragment occurs when there is no combination of subject and verb: ‘‘Smith was written up last year for gross negligence. Formed too many sentence fragments.’’ The first part is a grammatically complete sentence: it has a subject (‘‘Smith’’) and a predicate (‘‘was written up’’). The second part, however, is a fragment. It has no subject to go with the almost-predicate ‘‘formed.’’ (‘‘Formed’’ is an almost-predicate because it has no subject about which to assert anything.) In conversation and informal writing, of course, sentence fragments are altogether acceptable. Your neighbor’s over-the-fence response to your salutation ‘‘How’s everything going? Is your husband feeling better?’’ is likely something like ‘‘Fine; yes, better, thanks.’’ If she says, ‘‘Everything is going well. My husband is feeling better,’’ you might advise her to get more rest. But in formal writing, stay with complete sentences. Splicing: Two Wrongs Don’t Make a Right Comma splices occur when commas instead of periods are used as sentenceclosers, as in ‘‘Smith was written up last year for gross negligence, he formed


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too many sentence fragments.’’ The writer, to his credit, added a ‘‘he’’ to the verb. The problem, however, is that the writer is dealing here with two complete sentences; instead of placing a period between ‘‘negligence’’ and ‘‘he,’’ he spliced the two sentences together with a comma. A ‘‘sentence’’ – or would-be sentence – whose parts are incorrectly joined by a comma splice is generally known as a run-on sentence. Put another way, comma splices form run-on sentences. (Non-Nuclear) Fusion If there were an infuriation scale by which grammarians measured errors, fused sentences would be the measuring stick. A fused sentence occurs when two complete sentences are pushed together without even the dignity of a splicing. There’s neither a period nor a comma to separate them. You’ve probably deduced the inevitable example: ‘‘Smith was written up last year for gross negligence he formed too many sentence fragments.’’ The sentence is as breathless as it is incorrect. Comma splices inflict serious wounds; fused sentences are fatal. This discussion of sentences, especially of the need to form sentences with precision, points to a fact of central importance to business writers: imprecise language calls into question the writer’s precision of thought. And precision of thought is one of the most highly valued traits, if not the most highly valued, in business and accounting. 3. Faulty (Misplaced and Dangling) Modifiers A modifier refers to a thing that in one way or another changes the meaning or characteristic of another thing. When an aircraft designer modifies the shape of a wing, she changes that shape. When a heart patient modifies the way he eats and exercises, he’s changing his style of life. And when an official speaks from his ‘‘bully pulpit,’’ the modifier ‘‘bully’’ changes ‘‘pulpit’’ in such a way that we know we’re not going to hear a church sermon. Even words like ‘‘the’’ and ‘‘a’’ are modifiers (the former ‘‘definite,’’ the latter ‘‘indefinite’’), because they significantly change what they refer to: the place in town to eat (the tourist hopes) is better than a place to eat. Misplaced Modifiers Modifiers should go as close as reasonably possible to the things they modify. ‘‘Wearing a broad smile, she vigorously applauded the speaker, who listed five reasons for returning to the gold standard.’’ ‘‘Wearing a broad

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smile’’ modifies ‘‘she’’; let’s assume her smile dripped with mockery because she regarded the speaker’s arguments as absurd. But ‘‘She vigorously applauded the speaker, who listed five reasons for returning to the gold standard, wearing a broad smile’’ changes or badly obscures the meaning. Here the placement of the modifier ‘‘wearing a broad smile’’ suggests it was the speaker who wore the smile, perhaps because she realized the absurdity of her own proposition. This is a misplaced modifier; it comes too far from what it intends to modify (and to boot it seems to modify something else). Dangling Modifiers A dangling modifier is similar to a misplaced modifier, though it possesses one very significant difference: it doesn’t have anything to modify. It dangles in mid-air. Actually it is a would-be modifier, much like that would-be sentence – the sentence fragment – described above. Dangling modifiers are often deadlier than misplaced modifiers, since, once they are noticed, they frequently lay open the sentence to intellectual or, worse, comic, derision: ‘‘Jogging along the highway, the bus had to swerve sharply to avoid an accident.’’ Buses do not jog along highways, and the notion of a bus doing so somehow produces a picture like that of Bugs Bunny splattered against a wall. With dangling modifiers, the reader has to supply the proper facts, and that is the responsibility of the writer, not the reader. The sentence in all probability means, ‘‘Rolling down the highway, the bus had to swerve sharply to avoid hitting a jogger.’’ But it might mean, ‘‘As I was jogging down the highway, the bus had to swerve sharply to avoid an accident’’ or ‘‘As he was jogging y’’ or ‘‘As the young man was jogging y .’’ A dangling modifier, clearly, isn’t simply a grammatical gaffe. Like a misplaced modifier, it can leave the real meaning in tatters. The problem of misplaced modifiers, then, like other grammatical problems discussed in this handout, is that they impede our ability to communicate clearly, concisely, and unambiguously – qualities that are highly valued in business writing and that, not unimportantly, help distinguish an individual from the rest of the pack.

4. Apostrophes The most basic use of apostrophes is to denote possession (‘‘This is Jack’s account.’’) and to take the place of missing elements in contractions. (‘‘How’s (i.e., how is) the market doing today? There’ll (i.e., there will) be some disappointed short-traders.’’) Few people make mistakes here. Problems sometimes arise, however, when certain words that themselves denote


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possession (and therefore do not need apostrophes) are yet given apostrophes. ‘‘Hers,’’ ‘‘theirs,’’ and ‘‘its’’ are the chief offenders. An apostrophe is improper in the following construction: ‘‘Don’t touch that. It’s her’s.’’ Here the ‘‘it’s’’ is fine: the apostrophe stands in for the missing i of the contraction for ‘‘it is.’’ But ‘‘her’s’’ is wrong, since the word itself is possessive. The construction should be ‘‘Don’t touch that. It’s hers’’ (or ‘‘theirs,’’) not ‘‘her’s’’ (or ‘‘their’s’’). You can also accept with complete trust that there are no such words as hers’, theirs’, and its’ in the English language. Plural Possessives To form a plural possessive, however, the apostrophe indeed comes after the word, that is, the pluralized word. ‘‘The economists’ fear’’; ‘‘the ‘‘regulators’ new rules’’; ‘‘the partners’ decision’’ – these are all proper forms, since we are talking about more than one economist, regulator, and partner. However, apostrophes (except in exotic circumstances that will not be discussed here) are not used to form simple plurals. Hence the statement, ‘‘Heres the report you requested. The companys CFO, however, didn’t sign off on it. Therefore, the figures’ cannot be validated’’ contains three sins of apostrophe omission, and one of commission. The moral implications we leave to you.

5. That and Which (Restrictive and Non-Restrictive Clauses) That and which bedevil writers like flies at picnics. However, sorting them out is easy. If the choice involves identifying something, use that. If the choice involves providing additional information, use which. (Technically, the grammatical term describing the first instance is ‘‘restrictive’’ or ‘‘essential’’; the term describing the second instance is ‘‘non-restrictive’’ or ‘‘non-essential.’’) ‘‘Podanz and Son was the first area firm that used the new software’’ uses the ‘‘that’’ construction to identify Podanz and Son as the first software users in the region. ‘‘Podanz and Son, which used the new software, enjoyed an advantage over their competitors’’ uses the ‘‘which’’ construction to add information to the main point – that the firm enjoyed an advantage over the competition. The fact that the firm was the first in the area to employ the new software (however important that fact is) plays second fiddle here to the fact of the firm’s competitive advantage. By no stretch can ‘‘which used the new software’’ be construed to identify which firm first used the new software. (We note, however, that British usage permits ‘‘which’’ as an identifier.)

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An easy way to remember the rule is to invoke the Empire State Building example. In the sentence, ‘‘The Empire State Building, which is at Fifth and 34th, is 1,454 feet high,’’ you are not using ‘‘which is at Fifth and 34th’’ to identify the Empire State Building; everyone knows which building you are talking about. You are simply providing more information about it. But the sentence, ‘‘The Empire State Building that serves as Sloppy Puddle’s City Hall is two stories high’’ is a different matter. The two-story Sloppy Puddle Empire State Building is here being identified as the city hall, perhaps because there are two Empire State Buildings of different heights in that thriving metropolis. There is one very important rule that relates to this rule: use a comma before a ‘‘which’’ (i.e., non-restrictive) construction; use no comma before a ‘‘that’’ (i.e., restrictive) construction. 6. Commas This area is a bit murky, since to some extent comma use depends on personal preference and individual style. It is simply a fact that some very good writers employ commas more frequently than other very good writers. But there are rules for their use on which everyone – or at least everyone who has a strong interest in correct English – can agree. However, since the limited scope of this instructional resource does not permit a comprehensive review of the subject, we will address only a few comma rules. The first relates to the discussion in the immediately preceding section. Essential (restrictive) elements – those that take that instead of which – are not enclosed by commas. Non-restrictive (non-essential) elements–those that take which instead of that – are enclosed by commas. This is pretty close to the next rule: Don’t use commas to mark off essential (restrictive) words or phrases – that is, those used to identify something – even if they aren’t introduced by that. ‘‘Mary’s daughter Margery cooked breakfast for us’’: we can assume here that Mary had more than one daughter and was identifying the one who cooked the breakfast. But do use commas to mark off non-restrictive (non-essential) elements even if they aren’t introduced by which. In the sentence, ‘‘Mary’s daughter, Margery, cooked breakfast for us,’’ we can assume Mary had only one daughter and that the breakfast, not the name, was the important fact. We have already addressed another rule, above, in the discussion pertaining to the comma splice. Use periods, not commas, to separate complete sentences.


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Don’t place commas between the subject and the verb, even if the subject is long. ‘‘The essential difference between pragmatic governments and utopian societies, is the recognition by the former that most law is really property law.’’ The comma after ‘‘societies’’ doesn’t belong there. Don’t use commas simply because what follows is enclosed in quotation marks. ‘‘He was reading a very interesting chapter called, ‘‘The Making of a New Accounting Ethic’’ from the book Whatever Happened to the Bottom Line? The comma after ‘‘called’’ should be deleted. It does not introduce a quotation.

7. Active–Passive Voice In general, the active form is preferable to the passive form, since it is more forceful and succinct. (In technical terms, the active voice occurs when the grammatical subject performs the action of the verb; the passive voice occurs when the grammatical subject receives the action of the verb.) The active sentence ‘‘The dog bit the cat’’ is stronger and more economical than the passive ‘‘The cat was bitten by the dog.’’ However, at times the passive form is useful. For example, sometimes the doer of an action is not known: ‘‘The car was sprayed with bullets.’’ If we do not know who the shooter(s) was (were), we are almost required to use the passive voice. It is certainly better than ‘‘One or more people sprayed the car with bullets.’’ Similarly, anonymity is at times desired, as in ‘‘It was decided to withhold the election results.’’ If the CEO (or whoever it was who withheld the results) wants to keep a low profile in the matter, the passive voice is a handy device for doing so. The CEO might cringe at ‘‘The CEO decided to withhold the election results.’’ However, if no appropriate reasons call for the passive form, use the active. ‘‘Three accounting firms were hired before the Snacko Company received a clear financial report’’ lacks the vigor, clarity, and straightforward quality of ‘‘The Snacko Company hired three accounting firms before it received an unqualified audit report.’’

8. Misused Words It would require more space than this handout enjoys to list words that frequently are misused. Fortunately, scores of grammar/usage books and numerous Web sites provide such lists. To whet your desire to look them

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over, we present here several pairs of misused words that we have seen with daunting regularity over the years. Affect-effect: Affect ¼ to influence; effect ¼ to cause. The rain affected the score; the Bears actually seem to like muddy fields. To effect any change around here, you’d have to fire the whole management team. Comprise-compose: Comprise ¼ to consist of; compose ¼ to form or shape. One quart comprises two pints. The United States comprises 50 states. A quart is composed of two pints. Never say: A quart is comprised of two pints. Compliment/complement: Compliment ¼ to say nice things about; complement ¼ that which comprises the whole. Smith complimented him on his ability to reduce the complement of inventory items. Accept/except: Accept ¼ to receive; except ¼ to omit or leave out. I’ll accept the changes only if you except the third and fifth paragraphs. Principle-principal: Principle ¼ a philosophical rule or some other type of guide; principal ¼ chief; most important, as in the head of a school. The principal way to a virtuous life is to follow your principles. That’s what our principal always told us.

9. Economy and Appropriateness These are two concepts about which it is difficult to pontificate. Economy in writing is a desirable trait. Yet, carried to an extreme, it can lead to unclearness or brusqueness. Similarly, we all want to write appropriately. Yet appropriateness is that elusive quality at which we always aim but whose bull’s-eye we sometimes find blurry. Therefore, this brief section will avoid the duskier aspects of ‘‘economy’’ and ‘‘appropriateness’’ and content itself with making several generalizations. Economical writing is better than wordiness. ‘‘These fiscal reports, totaling three, continued to serve as the company’s guidelines for the whole period of the fiscal year’’ is a mouthful compared to ‘‘These three reports were the company’s guidelines for the whole fiscal year.’’ The problem with the first version is not only that it takes longer to read; it is also less


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persuasive than the second version, whose forthrightness emits an air of credibility. Writing appropriateness generally comes down to not using ‘‘50-cent’’ words and constructions when quarters will do the trick, and not using dimes when the commodity is more highly valued. ‘‘His continual perambulations caused the office personnel to become unrestful’’ is – let’s face it – a terribly pretentious way of saying, ‘‘His constant pacing made the office nervous.’’ Pretentiousness does not create trust in the writer; it has the feel of insincerity. By the same token, ‘‘We felt that the buck stopped at the CFO’s desk’’ is, in a formal report, inappropriately chatty. ‘‘We felt that the CFO should take charge of the matter’’ serves the purpose much better; it has the feel of seriousness. 10. Organization It is frustrating to read a business document (e.g., consulting report) that fails to make its organizing principles clear. The most important advice here is the most obvious: you should clearly demonstrate the breakdown of your exposition or argument, both verbally and visually. Verbally, your introductory paragraph should clearly lay out what you intend to do. A useful stratagem, if the opportunity presents itself, is to place a number in the introduction: ‘‘Our report covers five problem areas’’ or ‘‘Seven infractions are possible with this procedure.’’ That number will provide a convenient map for both you and your reader. Visually – and the specific implementation of this principle may depend on guidelines already set for the piece of writing you are doing – you should use whatever typographical devices logically present themselves as marks of demarcation: numbering, bold headings; italicized subheadings; bulleted lists; and the like. In any event, a formal report should not look like an informal essay or, worse, a rambling collection of unconnected thoughts.

ADDITIONAL INFORMATION SOURCES: BUSINESS WRITING The following references are useful both for expanding on the points made above and for providing information on matters not covered in this handout. An effective procedure for using printed resources is to choose a good one (e.g., The Allyn & Bacon Handbook, listed below), thoroughly familiarize

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yourself with it, and stick with it. As for Web sites, their advantage is the ease with which individual problems can be called up and addressed. In our opinion, the best site is the Owl Online Writing Lab at Purdue University (http://owl.english.purdue.edu/handouts/index2.html), which is easy to use, comprehensive, and attractively formatted. Print Aldred, G.J., Brusaw, C.T., & Oliu, W.E. (2000). The business writer’s handbook (6th ed.). Boston: Bedford/St. Martin’s. May, C.B., & May, G.S. (2003). Effective writing: A handbook for accountants (6th ed.). Upper Saddle River, NJ: Prentice-Hall. O’Connor, P.T. (1996). Woe is I: The grammarphobe’s guide to better English in plain English. New York: Riverhead Books. Rosen, L., & Behrens, L. (2000). The Allyn & Bacon handbook (4th ed.). Boston: Allyn and Bacon. Websites http://owl.english.purdue.edu/handouts/index2.html http://aliscot.com/bigdog/index.htm http://www.english.uiuc.edu/cws/wworkshop/grammar_handbook.htm http://www.asu.edu/duas/wcenter/handouts.html http://www.bartleby.com/64/index.html http://www.grammarbook.com/grammar/effWrite.html http://www.vic.uh.edu/ac/grammar/main.html

THE FINANCIAL STATEMENT APPROACH TO TEACHING INTERMEDIATE ACCOUNTING David W. Cornell and J. Gregory Bushong ABSTRACT This paper describes using financial statements as the foundation for teaching Intermediate Accounting. The objective of the financial statement approach is to lay the foundation for life-long learning by stressing analytical and problem solving skills as opposed to simple memorization of computations and entries. Providing a foundation enables students to structure their learning of new material by associating it with information learned previously. The financial statement approach presents unstructured problems that require students to analyze the effects of economic events on a complete set of financial statements. We supplement the problems and exercises in textbooks with financial statement problems produced in Excel. We construct the problems in a manner that facilitates production of different problems for each student. We use the problems for homework, as projects, and on examinations. We provide an example of a financial statement problem and its solution in an appendix to this paper. You may contact the first author for a copy of the Excel file for the problem included in the appendices. In recent years, accounting educators have responded to pressure from various constituencies to improve the skills of accounting graduates. The Advances in Accounting Education: Teaching and Curriculum Innovations, Volume 7, 329–348 Copyright r 2005 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 1085-4622/doi:10.1016/S1085-4622(05)07014-8

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DAVID W. CORNELL AND J. GREGORY BUSHONG

skills demanded by these constituencies are consistent and include analytical thinking, problem solving, and communication skills (Albrecht & Sack, 2000; AICPA, 1999; AECC, 1990). The purpose of this paper is to describe our approach to addressing some of these issues by supplementing Intermediate Accounting textbooks with problems requiring students to produce and/or correct a complete set of financial statements. Students should learn to prepare financial statements in Intermediate Accounting. The financial statement approach helps students understand the statements and their interrelationships, and it helps them maintain a focus on the ultimate objective, preparing financial statements. Students often resort to memorizing a seemingly endless array of disjointed information if they lack an understanding of the financial statements. Alternatively, students who understand financial statements can learn the material presented in class because they can view it in relation to a unified whole. Additionally, we push the students to develop the more difficult skills of application and analysis from Bloom’s taxonomy of learning objectives. Students also can begin to understand the effect of economic events on a business if they have an understanding of the financial statements. The financial statements are a model of the business and its activity; therefore, if students understand the statements, they begin to understand the impact of events on the business. Investors and creditors base their decisions at least partly on financial statements, and accountants must understand the impact of transactions on the business and the financial statements in order to optimize these decisions. Students can begin to understand the impact of transactions on the business only after they understand the basic financial statements and the manner in which businesses create those statements. The next section of this paper summarizes the literature related to developing a framework for learning accounting information and the use of financial statements in the accounting curriculum. We then discuss implementing the financial statement approach and conclude our paper with a discussion of how we produce a financial statement problem. An example problem and its solution is shown in Appendix B, as is a listing of financial statement problems (Appendix A) that we have developed for Intermediate Accounting.

LITERATURE REVIEW The AECC (1990, p. 6) indicates that accounting education should create a foundation for continued learning, and that memorization of rules and

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regulations is contrary to the goal of learning to learn. Logically, one would expect that Intermediate Accounting textbooks would provide that foundation. The literature regarding establishing a foundation for accounting education and the literature on the use of financial statements to supplement textbooks indicate that they do not adequately do so. Our review of selected Intermediate Accounting textbooks verifies that the books do not use financial statements as the foundation for learning.

Creating a Foundation for Future Learning The emphasis of the AECC on establishing a base for future learning suggests a constructivist approach to accounting education. Constructivism emphasizes learning rather than teaching (Jonassen, 1996, p. 12; Lehrer, 1993, p. 197; Thompson, Simonson, & Hargrave, 1996, p. 54). Among other ideas, it stresses that new learning occurs by making connections with previous experience or knowledge (Akhras & Self, 2000, p. 6; Thompson, Simonson, & Hargrave, 1996, pp. 12–13). In essence, accounting curricula should strive to establish a firm foundation for future learning. Many accounting academicians have offered suggestions as to what that foundation should be. Table 1 summarizes these suggestions. The first three papers discuss changes in individual accounting courses, and the last two discuss changes in accounting curricula. Frakes and Nunamaker (2003, p. 44) state a common theme in these publications when they state that there is an ‘‘apparent conflict between a discrete, account-by-account approach to teaching complex accounting standards and the desire to build a meaningful foundationy’’ Raby states it this way (1964, pp. 167–168): ‘‘Once we have helped structure the area of taxes for the student, then, and really only then, can the multitude of exceptions to rules that defy any attempt at generalization fit meaningfully into a pattern of understanding.’’ Ainsworth and Plumlee (1993, p. 117) are blunter about the results of not establishing a foundation. They contend that students tend to memorize the mechanics of a procedure if the sequencing of topics is not correct. In essence, these authors suggest that students need a foundation in order for learning to take place. We believe that financial statements are the logical foundation for the continuous learning of financial accounting and that textbooks are deficient in this regard. The literature supports the use of financial statements as a foundation for financial accounting. The literature also includes examples of instructors supplementing textbooks in order to provide that foundation.

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Table 1.

Research on Establishing a Foundation for Learning Accounting Information.

Authors

Foundation

Amernic and Robb (2003) Frakes and Nunamaker (2003) Raby (1964)

Jennings (1998)

Ainsworth and Plumlee (1993)

Benefits

Individual courses Quality of earnings Students’ understanding concepts through experiential learning (2003, p. 6) Monetary versus Students’ understanding of GAAP based nonmonetary on valuation methods (2003, p. 50) accounts Decision-making Enables students to learn, as opposed to framework memorize, the concepts discussed in his tax course Curricula Altered sequence of Allows students to understand current GAAP and potential alternatives to courses, including current GAAP instead of trying to Accounting Concept memorize the current rules and Research as the first course Resequenced course Their objective was to ensure that offerings students understand simple topics before they tackle topics that are more sophisticated. Additionally they want students to understand the importance of the information and the accounting controls and approval processes before they learn the mechanics of the computation.

Use of Financial Statements in Accounting Curricula Many authors present ideas for implementing financial statements into the accounting curriculum; however, most introduce them by using annual reports of publicly traded companies. Christ (2002, pp. 45–47) requires students to use annual reports to recreate, in summary form, the entries a company used during a year. Amernic and Elitzur (1992, pp. 31–36) use a longitudinal approach to the use of annual reports to show the evolving nature of accounting principles in response to changing legal, social, and economic environments. Pasewark (1997, pp. 81–84) describes many ways to integrate annual-reports into Intermediate Accounting, including referencing annual reports during the classroom discussion, using annual-report

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practice sets, and using annual reports for examination purposes. Harkins and Mills (1985, pp. 150–152) use annual reports to help students make the link between the accounting process and financial reporting and to help them understand the aggregation and terminology in annual reports. These authors supplement Intermediate Accounting textbooks in order to enhance the learning of their students. Christ (2002, pp. 45–47) states that an objective of her annual report project is to push students to a higher level of cognitive development on Bloom’s taxonomy of learning objectives. She finds a weakness in exercises and problems found in Intermediate Accounting textbooks. The problems require straightforward recall of definitions and application of rules (Christ, 2002, p. 45), which is at the lower end of Bloom’s Taxonomy (1956), whereas she wants her students to achieve at the higher end of that continuum.

Intermediate Accounting Textbooks Christ reviewed four textbooks in arriving at her conclusion. We reviewed five Intermediate Accounting textbooks to determine if there has been a significant increase in either the level of financial statement inclusion or the content of the problems and exercises. We list the five textbooks in Table 2. Four of the five textbooks include the complete financial section of a publicly traded company’s annual report, and all five show excerpts from annual

Table 2.

Textbooks.

Author, Year and edition

Publisher

Intermediate Accounting Textbooks Norton, Diamond, and Pagach, 2006, 1st Kieso, Weygandt, and Warfield, 2004, 11th Spiceland, Sepe, and Tomassini, 2004, Updated 3rd Stice, Stice, and Skousen, 2004, 15th Nikolai and Bazley, 2003, 9th

Houghton Mifflin Company John Wiley & Sons, Inc. McGraw-Hill Irwin Thomson South-Western Thomson South-Western

Introductory Financial Accounting Textbooks Edmonds, Edmonds, McNair, Olds, and Schneider, 2006, 5th Larson, Wild, and Chiappetta, 2005, 15th Needles, Powers, and Crosson, 2005, 9th Weygandt, Kieso, and Kimmel, 2005, 5th

McGraw-Hill Irwin McGraw-Hill Irwin Houghton Mifflin Company John Wiley & Sons, Inc.

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reports throughout the textbook. All of the textbooks include end-of-chapter questions about financial statements and some of the questions require analysis of sections of the statements. The textbooks present a discussion of the accounting cycle and illustrate or require the production of financial statements in their early chapters. They do not illustrate, nor do they require the preparation of, a complete set of financial statements based on data in the text after the chapter covering the accounting cycle. Students receive their first introduction to financial accounting in the Principles of Financial Accounting course. Thus, students should begin to understand financial accounting in that course. We reviewed four principles texts. One of the four, Fundamental Financial Accounting Concepts (Edmonds, Edmonds, McNair, Olds, & Schneider, 2006) illustrates how events affect all of the financial statements. They show the effects of the financial statements through a horizontal model, which includes all four of the primary financial statements. Throughout the text, the authors provide complete sets of simple financial statements. The second author’s University uses the Edmonds et al. text. However, his experience indicates students still lose sight of the statements if they do not see or prepare a complete set of statements in parts of the Intermediate course. End-of-chapter material includes questions and exercises that require that students use the annual reports. None of the other three textbooks show a complete set of financial statements as part of the topical coverage through the textbook. All of these authors supplement the text with one or more financial sections of annual reports of publicly traded companies, however. In summary, accounting educators have identified a need to include financial statements and annual reports in their Intermediate Accounting classes. Textbook authors have responded to this need by incorporating annual reports or portions of annual reports in recent editions of their textbooks. However, Intermediate Accounting textbooks fail to integrate topical coverage into a complete set of financial statements. At best, they present an example of the disclosures for the item they are discussing. This approach does not provide students the opportunity to understand the impact of a transaction on a complete set of financial statements. This understanding is critical to being able to perform any type of analysis of alternative accounting principles. In essence, students are achieving only the lower levels of Bloom’s taxonomy of learning objectives (Christ, 2002, p. 45; Ainsworth & Plumlee, 1993, p. 117). The literature supports the need for the development of a foundation for learning accounting information, and many instructors use financial statements taken from annual reports as a method to develop that foundation.


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To establish this foundational knowledge of financial statements we have our students actually create and/or correct a complete set of financial statements to reflect Generally Accepted Accounting Practices (GAAP) in our Intermediate Accounting courses. We are working to move our students to higher levels of Bloom’s taxonomy of learning. We call our methodology the financial statement approach to teaching Intermediate Accounting.

THE FINANCIAL STATEMENT APPROACH Successful implementation of the financial statement approach involves supplementing textbooks with course materials that emphasize financial statements. We use the approach for testing and for homework, and students have reacted very positively.

Teaching Philosophy and Course Objectives Establishing course objectives and discussing those objectives is the first step of the financial statement approach. Our syllabi include a teaching philosophy section in which we describe the importance of learning, as opposed to memorizing, accounting principles. It states that we use the conceptual framework as established by the Financial Accounting Standards Board to help students understand the principles that we will study during the semester. Additionally, it indicates that we use financial statements to ensure that students understand the impact of economic transactions on a complete set of financial statements. We reiterate the importance of the financial statements by including them in our course objectives, which we write using active verbs that describe how we will assess students’ learning. Table 3 includes the teaching philosophy section of our syllabi and examples of our course objectives for First Intermediate Accounting. We discuss the syllabus on the first day of the semester. We supplement this discussion with a PowerPoint presentation on the findings of the AECC and Bloom’s taxonomy of learning objectives. Each student receives a copy of our PowerPoint presentation. The emphasis of the discussion is that our primary objective of the class is to push students to higher levels of knowledge. We tell the students that we are going to achieve that objective by emphasizing how economic events and GAAP affect the financial statements. On the second day of class, we complete a financial statement problem that demonstrates how the students can find the solution.

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Table 3.

Objectives and Statement of Philosophy. Course Objectives

Students will 1. demonstrate their understanding of the accounting cycle by creating and maintaining a basic accounting system that results in financial statements that external parties can use for investment and credit decisions. 2. apply time value of money concepts in a variety of borrowing, lending, and investing situations and will be able to prepare/correct financial statements containing time value of money elements. 3. identify, measure, and communicate elements of financial statements in accordance with Generally Accepted Accounting Practices (GAAP) and prepare/correct the resulting financial statements. 4. apply revenue recognition methods in appropriate situations and prepare/correct resulting financial statements. 5. identify and explain types of accounting changes and recast financial statements to reflect their impact. Statement of Philosophy Your goal in this class should be to understand and learn the topics covered, as contrasted to simply memorizing them. You should memorize very little of the course content. If you have not already done so, with this class you should begin the life-long process of learning accounting skills. You can only develop these skills through the application of theories to a set of facts. Class meetings will start with the examination of accounting theories as they apply to a given situation, and then move to the application of those theories to the specific problem we are examining and to the resultant financial statements. I will place emphasis on the logic, consistency, and conceptual foundation of the information, not its memorization. My goal is to help you establish a foundation upon which you can begin to develop the critical thinking skills you will utilize throughout your career. I will base this foundation on the conceptual framework of accounting as determined by the Financial Accounting Standards Board and the financial statements that result from the financial accounting process. By the end of this class, you should be able to develop a conceptually sound solution to problems never before encountered, and you should understand their impact on financial statements.

We proceed into the course content after setting the expectations for the class. We use the Kieso, Weygandt, and Warfield’s Intermediate Accounting textbook and work through the chapters in numerical order. Throughout the course, we incorporate the conceptual framework to explain the rationale behind GAAP. The conceptual framework helps students understand why GAAP has developed in the manner that it has, and it enables them to start thinking like accountants. We utilize many of the problems and


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exercises in the text to give the students practice at implementing GAAP. The financial statement approach goes a step further by supplementing the textbook with handouts that we produce in Excel. The handouts include financial statements and require the students to either complete and/or correct them for errors. Preparation of financial statements helps students complete the learning process by ensuring that the students understand the effect of GAAP on the statements. It has not increased the number of problems or exercises that we discuss in class or assign as homework: instead, we substitute a financial statement problem for a problem from the textbook on the same topic. The first author started using the financial statement approach five years ago when he used a financial statement problem relating to revenue recognition on an examination. The students struggled with the problem because previously he did not require that they consider all the financial statement implications of the various revenue recognition methods. Many students complained that the question was not fair because they had never looked at financial statements prior to the examination. In essence, they were complaining that they had to think critically in order to answer a question posed in a manner they had not experienced previously. The instructor was surprised that the students were not able to relate the entries that they had studied to a set of financial statements. The next semester the first author produced a couple of financial statement problems to supplement the textbook, and started using them more frequently on examinations. The second author began using the approach two years ago, and over the years, we have accumulated three or four financial statement problems for each chapter of the text in which their usage is appropriate. Appendix A lists the financial statement problems that we have developed to date for First Intermediate Accounting. We do not use financial statement problems for all of the topics discussed in class. Doing so would enable the students to revert to memorization because they will have seen all of the topics in financial statements. Instead, we tell the students that the financial statement problems they work are similar to the financial statement problems on examinations. We remind them that the examination problems will cover different topics than ones they work during topical coverage. Prior to adopting the financial statement approach, we asked students to determine the impact of an event on pre-tax income or on a portion of the financial statements, and often the response was a blank stare. Now students can do the analysis and understand the impact of different events on the statements.

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Examinations We did not change the format of our examinations when we implemented the financial statement approach. Our examinations still consist of multiple choice questions, short-answer questions, and problems. We did change some of the problems from typical, end-of-chapter type problems to financial statement problems, which we did not cover in class. An example of an examination problem utilizing the financial statement approach and solution appear in Appendix B. The problem relates to warranties offered by a car manufacturer. Our classroom discussion of GAAP related to warranties focuses on accrual accounting, the revenue recognition principle, the matching principle, and on the correct accounting treatment for a change in accounting estimate. We also work a problem from the text involving warranties. We do not consider the financial statement implication of offering both a standard and extended warranty. The test problem therefore pushes the students to analyze the impact of the warranties on the financial statements. It is not sufficient for the students to be able to repeat the computations or the entries reviewed in class.

Homework Problems We normally allocate 15–20% of an examination’s total points to each of our problems. This implies that the problem should require 10–15 minutes to complete. Therefore, a financial statement problem on an examination must be limited in scope. Homework problems are not constrained in this manner. There are many benefits of assigning financial statement problems as homework instead of on examinations. One of the main benefits is that it causes students to become active learners. We often discuss the conceptual reasoning behind the accounting for a transaction and assign a financial statement problem as homework. Therefore, students must determine the impact of transaction on the financial statements either by themselves or with a study group in a collaborative learning environment. Normally, we assign homework problems that are more complex than the exam problems. For instance, we can increase the complexity of the warranties problem by including deferred taxes and prior period adjustments. Several other benefits accrue from the use of financial statements in outside-class assignments. Often we require students to work in teams, do research on accounting standards, prepare written reports, or make class presentations.


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We believe these benefits offset the cost to the instructor of implementing the financial statement approach. We have not approached our colleagues to request that our departments adopt the financial statement approach in all of our financial accounting courses. We both work at small universities where we are the only instructors for the courses we teach. Therefore, all students graduating from our universities encounter the financial statement approach even though the department has not adopted it as a teaching approach. Student reactions to our classes seem to indicate that the students like the financial statement approach and our emphasis on learning as opposed to memorizing accounting principles. Student Reactions Anecdotal evidence suggests that the students view our courses as difficult but believe they have learned a lot as a result of completing the course. Limited student feedback is available through the end-of-semester student evaluations. No specific questions on the evaluation form relate to the financial statement approach. There are open-ended questions asking ‘‘What did you like best about the class?’’ and ‘‘What did you like least about the class?’’ Students frequently mention the financial statement approach in response to both of these questions. Sometimes, students complain that the examination problems are different from the homework problems. We actually view this type of comment as a compliment to our abilities to construct an examination that pushes students beyond memorization. Additionally, the number of comments expressing satisfaction with the challenge of learning as opposed to memorization overshadows these complaints. We also occasionally receive unsolicited written comments about our approach. We value these comments in particular because of the fact that they are unsolicited, and the student felt strongly enough about the class to want to express their gratitude. A graduate student wrote the following unsolicited comment on his final examination. The student already had completed a Masters Degree in Finance at a different university and was starting work on a Masters in Accountancy at the first author’s institution. This is the most challenging class I have ever taken. However, I have learned more in your class than any class I have ever taken. These tests are extremely difficult (time and numerically challenging), but the financial statement approach is outstanding. Thank you.

An interesting side note is that the student earned his first B in graduate school in the class; he had a perfect 4.00 at his previous institution. Yet, he

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appreciated the challenge and did not object to receiving a grade that was lower than he was accustomed to achieving.

PRODUCING A FINANCIAL STATEMENT PROBLEM We produce the financial statement problems in approximately two hours using Excel. Generally, our problems consist of a workbook with several tabs. The first tab is the input worksheet, the second tab contains the assignment (included in Appendix B), and the third tab contains the solution (included in Appendix B). We may include additional tabs if the problem is complex or we want to provide additional explanation. We structure the input worksheet in a manner that facilitates preparation of numerous versions of the problem. We refer almost all of the amounts in the problem to two or three variables in the input worksheet. Changing one or all of these variables results in a unique problem and solution. For example, the warranties problem in the appendices has two independent variables, number of units sold and sales price. We force non-current liabilities to ensure that the balance sheet balances. The input worksheet also has a diagnostic section to ensure that the problem is working as intended. Typical diagnostics are whether the forced amount in the balance sheet is a positive number, the balance sheet for the solution balances, and income is positive. We place the diagnostics in cells adjacent to the cells containing the variables and use simple if/then statements. If the workbook does not contain an error, the diagnostic places a zero in the cell. If it contains an error, the word ERROR appears. The diagnostic enables us to identify errors immediately and minimizes the possibility of distributing problems that students cannot solve. Several advantages result from constructing the problems in a manner that facilitates production of different versions. First, we can produce different versions of an examination to minimize copying. Second, it facilitates the use of the problems for individualized homework or group projects. We give each student or group a different version of the problem. The solution process for all of the groups will be the same and therefore students are able to work together in a collaborative learning environment. However, each problem has different numbers and therefore students cannot submit the same solution. Finally, it enables the students to generate additional problems to work. We post some of the Excel files on Blackboard and instruct the students on their usage. The files are easy to work with, and students can use them to generate as many new problems as they want to work.


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CONCLUSION One of the most important goals of accounting education is to help students understand the foundational knowledge necessary for life-long learning. We believe that the financial statements are at least part of that foundational knowledge, and that we should supplement textbooks with financial statement problems in order to help students understand that foundation. The financial statement approach stresses analytical and problem solving skills as opposed to simple memorization of computations and entries. It also exposes students to the financial statement implications of the economic transactions that they are studying. The instructor has flexibility in the execution of the approach and can implement it slowly. It will not require a large investment of preparation time. The approach is different from published practice sets and textbook assignments, and yet complements those materials in a manner that the instructor can tailor it to meet her educational objectives.

ACKNOWLEDGMENTS The authors gratefully acknowledge the valuable comments and helpful suggestions made by Bill Schwartz, the anonymous reviewers, and the participants of the 2003 American Society of Business and Behavioral Sciences Conference. Their comments helped immeasurably in clarifying our thoughts and improving this paper.

REFERENCES Accounting Education Change Commission (AECC). (1990). Objectives of education for accountants: Position statement number one. Torrance, CA: Accounting Education Change Commission. Ainsworth, P. L., & Plumlee, R. D. (1993). Restructuring the accounting curriculum content sequence: The KSU experience. Issues in Accounting Education, 1(Spring), 112–127. Akhras, F. N., & Self, J. A. (2000). Modeling the process not the product of learning. In: S. P. Lajoie (Ed.), Computers as cognitive tools, volume two: No more walls (pp. 3–28). Mahwah, NJ: Lawrence Erlbaum. Albrecht, W. S., & Sack, R. J. (2000). Accounting education: Charting the course through a perilous future. Accounting Education Series, Vol. No. 16. Sarasota, FL: American Accounting Association. American Institute of Certified Public Accountants. (1999). Core competency framework for entry into the accounting profession. New York, NY: AICPA.

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Amernic, J., & Elitzur, R. (1992). Using historical annual reports in teaching: Letting the past benefit the future. The Accounting Historians Journal, 19(1), 29–50. Amernic, J., & Robb, S. W. G. (2003). ‘‘Quality of earnings’’ as a framing device and unifying theme in Intermediate accounting. Issues in Accounting Education, 18(1), 1–22. Bloom, B. S. (Ed.). (1956). Taxonomy of educational objectives: The classifications of educational goals, by a committee of college and university examiners. Handbook I. Cognitive Domain, New York: Longmans, Green. Christ, M. Y. (2002). Developing intermediate accounting students’ analytical skills through the annual report project. Advances in Accounting Education, 4, 41–57. Edmonds, T. P., Edmonds, C. D., McNair, F. M., Olds, P. R., & Schneider, N. W. (2006). Fundamental financial accounting concepts (5th ed.). Boston: McGraw-Hill Irwin. Frakes, A. H., & Nunamaker, T. R. (2003). A fundamental approach to teaching accounting valuation. Advances in Accounting Education Teaching, 5, 43–54. Harkins, J. L., & Mills, J. (1985). Annual reports: A pedagogical tool for intermediate accounting. Advances in Accounting, 2, 149–166. Jennings, R. F. (1998). Concepts before rules: A new approach to intermediate accounting. Issues in Accounting Education, 13(4), 833–850. Jonassen, F. H. (1996). Computers in the classroom: Mindtools for critical thinking. Englewood Cliffs, NJ: Prentice-Hall. Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2004). Intermediate accounting (11th ed.). New York: Wiley. Larson, K. D., Wild, J. J., & Chiappetta, B. (2005). Fundamental accounting principles (17th ed.). Boston: McGraw-Hill Irwin. Lehrer, R. (1993). Authors of knowledge: Patterns of hypermedia design. In: S. P. Lajoie & S. J. Derry (Eds), Computers as cognitive tools (pp. 197–227). Hillsdale, NJ: Lawrence Erlbaum. Needles, B. E., Powers, M., & Crosson, S. V. (2005). Principles of accounting (9th ed.). Boston: Houghton Mifflin Company. Nikolai, L. A., & Bazley, J. D. (2003). Intermediate accounting (9th ed.). Cincinnati: Thompson South-Western. Norton, C. L., Diamond, M. A., & Pagach, D. P. (2006). Intermediate accounting financial reporting and analysis. Boston: Houghton Mifflin Company. Pasewark, W. R. (1997). Integrating corporate annual reports into the accounting curriculum. Accounting Education: A Journal of Theory, Practice & Research, 2(1), 79–94. Raby, W. L. (1964). A decision-making approach to the first tax course. The Accounting Review, 167–172. Spiceland, J. D., Sepe, J. F., & Tomassini, L. A. (2004). Intermediate accounting (Updated 3rd ed.). Boston: McGraw-Hill Irwin. Stice, E. K., Stice, J. D., & Skousen, K. F. (2004). Intermediate accounting (15th ed.). Cincinnati: Thomson South-Western. Thompson, A. D., Simonson, M. R., & Hargrave, C. P. (1996). Educational technology: A review of the research (2nd ed.). Bloomington, IN: Association for Educational Communications and Technology. Weygandt, J. J., Kieso, D. E., & Kimmel, P. D. (2005). Financial accounting (5th ed.). New York: Wiley.


APPENDIX A. LIST OF FINANCIAL STATEMENT PROBLEMS FOR FIRST INTERMEDIATE ACCOUNTING Accounting information system Incorrect adjustment of financial statements Statement of income and retained earnings Intraperiod tax allocation Interperiod tax allocation Investments and comprehensive income Extended phase-out of discontinued business segment Accounting and the time value of money Non-cash purchase of equipment Cash and receivables Valuing accounts receivable Notes received for goods and services Discounting a note receivable Valuation of inventories: A cost basis approach Inventory cost flow assumptions Inventory errors Inventories: Additional valuation problems Lower of cost or market Relative sales value method Gross profit method Retail method Purchase commitments Acquisition and disposition of property, plant, and equipment Exchanges of equipment Disposal of a fixed asset Lump sum purchase of plant and equipment Depreciation, impairments, and depletion Change in depreciation estimates Current liabilities and contingencies Asset retirement obligations Warranties Premiums Long-term liabilities Issuing bonds versus common stock Early retirement of debt

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APPENDIX B. EXAMPLE OF THE FINANCIAL STATEMENT PROBLEM Holden Company started business on January 1, 2004. Holden sells equipment to construction companies. The equipment carries a standard two-year warranty, and Holden offers an extended warranty to customers. Holden had the following activity during 2004. Number of units sold............................................ Sales price per unit............................................ Estimated warranty costs per unit for the standard two-year period............................................ Extended warranty sales price per unit............................................ Estimated warranty costs per unit for the extended warranty period............................................ Actual warranty costs incurred in 2004............................................

50 $40,000 $3,400 $5,000 $3,040 $105,000

You are Holden’s external auditor and during your review of the books, you determined that the Company did not account for warranties in accordance with Generally Accepted Accounting Principles (GAAP). Please correct the financial statements to reflect GAAP. You estimate that Holden Company would be required to provide the following amount of warranty work in 2005 related to the units sold in 2004. Estimated amount of warranty cost to be incurred in 2005............................................

Balance Sheet as of December 31, 2004 Cash Accounts receivable Inventory Property and equipment Accumulated depreciation Total assets

$79,000

Original $234,800 128,700 87,000 430,400 ð48; 200Þ $832; 700

Revised

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Accounts payable Taxes payable Other liabilities Common stock Additional paid-in capital Retained earnings Total liabilities and stockholders’ equity

$145,140 25,700 266,800 100,000 55,400 239; 660 $832; 700

Income Statement for the year ended December 31, 2004 Sales Cost of goods sold Gross profit Expenses Depreciation expense Warranty expense Warranty revenue Pre-tax income Tax expense Net income

$2,000,000 1; 256; 000 744,000 (438,000) (48,200) (105,000) 250; 000 402,800 120,840 $281; 960

Statement of Retained Earnings for the year ended December 31, 2004 Beginning retained earnings Net income Dividends Ending retained earnings

$— 281,960 42; 300 $239; 660

Statement of Cash Flows for the year ended December 31, 2004 Net income Depreciation expense Change in accounts receivable Change in inventory Change in accounts payable Change in taxes payable Change in other liabilities Operating cash flows

$281,960 48,200 (128,700) (87,000) 145,140 25,700 266; 800 552; 100

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Investing cash flows Purchase of equipment

ð430; 400Þ

Financing cash flows Issuance of common stock Dividends paid Total financing cash flows Change in cash Beginning cash Ending cash

155,400 ð42; 300Þ 113; 100 234,800 — $234; 800

Solution to Warranties Problem Balance Sheet as of December 31, 2004

Original $234,800 128,700 87,000 430,400 (48,200)

Revised

Cash Accounts receivable Inventory Property and equipment Accumulated depreciation Taxes receivable Total

$832; 700

$234,800 128,700 87,000 430,400 (48,200) 73; 000 $905; 700

Warranties payable Unearned warranty revenue Accounts payable Taxes payable Other liabilities Common stock Additional paid-in capital Retained earnings Total

$— — 145,140 25,700 266,800 100,000 55,400 239; 660 $832; 700

$79,000 250,000 145,140 — 266,800 100,000 55,400 9; 360 $905; 700

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Income Statement for the year ended December 31, 2004 Sales Cost of goods sold Gross profit Expenses Depreciation expense Warranty expense Warranty revenue Pre-tax income Tax expense Net income

$2,000,000 1; 256; 000 744,000 (438,000) (48,200) (105,000) 250; 000 402,800 120; 840 $281; 960

$2,000,000 1; 256; 000 744,000 (438,000) (48,200) (184,000) 73,800 22; 140 $51; 660

Statement of Retained Earnings for the year ended December 31, 2004 Beginning retained earnings Net income Dividends Ending retained earnings

$— 281,960 42; 300 $239; 660

$— 51,660 42; 300 $9; 360

Statement of Cash Flows for the year ended December 31, 2004 Net income Depreciation expense Change in accounts receivable Change in inventory Change in accounts payable Change in taxes payable Change in other liabilities Change in taxes receivable Change in warranties payable Change in unearned revenue Operating cash flows Investing cash flows Purchase of equipment Financing cash flows Issuance of common stock Dividends paid

$281,960 48,200 (128,700) (87,000) 145,140 25,700 266,800 — — 552; 100

$51,660 48,200 (128,700) (87,000) 145,140 — 266,800 (73,000) 79,000 250; 000 552; 100

(430,400)

(430,400)

155,400 ð42; 300Þ

155,400 ð42; 300Þ

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Total financing cash flows Change in cash Beginning cash Ending cash

113,100 234,800

113,100 234,800

$234; 800

$234; 800

IDEAS ON GLOBALIZING THE INTERMEDIATE ACCOUNTING COURSES Robert Bloom and Mark Myring ABSTRACT This paper emphasizes the importance of integration of international accounting topics into the accounting curriculum. Recent research demonstrates the failure to internationalize accounting courses. We provide a framework for internationalizing the intermediate accounting sequence, with emphasis on incorporating International Accounting Standards (IAS) or International Financial Reporting Standards (IFRS) into the curriculum. By examining selected topics, this approach provides supplemental global material for intermediate accounting courses. Thus, this paper furnishes specific ideas to use in conjunction with standard textbooks in these courses.

In recent years, changes in the business environment have intensified the need to integrate international issues into the accounting curriculum. The World Trade Organization (WTO) has developed rules for international transactions, adopted by 148 countries, to promote trade that is smooth, predictable, and as free as possible (World Trade Organization, 2004, p. 1).

Advances in Accounting Education: Teaching and Curriculum Innovations, Volume 7, 349–372 Copyright r 2005 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 1085-4622/doi:10.1016/S1085-4622(05)07015-X

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ROBERT BLOOM AND MARK MYRING

The North America Free Trade Agreement (NAFTA) has reduced trade barriers among the U.S., Canada, and Mexico. Additionally, the European Union’s adoption of the common market platform has facilitated international trade in the region. Specifically, the adoption of the Euro and International Accounting Standards serve to reduce barriers to international commerce and the flow of capital in the region. These changes have contributed to a significant increase in international transactions. The volume of international trade of manufactured goods has doubled since 1990 (World Trade Organization, 2003, p. 30). As the business environment has changed, so too has the importance of integration of international topics into the accounting curriculum. Today’s graduates face a global economy. Multinational companies have grown in size and importance, now affecting nearly every country, government, and person. It is hard to imagine a business of any size that is limited to domestic suppliers or customers. Understanding the realities of our global business environment is essential to the success of our graduates. Integration of international topics into the accounting curriculum should help accomplish this understanding. Educators, practitioners, and accreditation boards have long recognized the importance of international accounting. Accounting research has documented the perceived importance of integrating international accounting topics into the curriculum. Survey evidence reveals that both educators and practicing accountants recognize the importance of integration of international topics into the curriculum (see, for example, AlNajjar & Gray, 1992, pp. 146–147; Adams & Roberts, 1994, pp. 174–176; Conover, Salter, & Price, 1994, pp. 266–268; AlNajjar & Peacock, 1995, p. 2; Sands & Pragasam, 1997, pp. 193–197). The Association to Advance Collegiate Schools of Business (AACSB, 2003) in its accreditation standards has called for synthesis of international issues through the accounting and business curriculum (p. 18). Accounting educators have also called for curriculum internationalization. Specifically, the Accounting Education Change Commission (AECC) previously recommended globalization of the accounting curriculum. The AECC (1990) asserted that accountants should possess ‘‘an awareness of the different cultures and sociopolitical forces on today’s world . . .’’ (p. 18). Moreover, the AECC said that accountants should have ‘‘[i]n depth knowledge in . . . specialized areas, such as international accounting.’’ Albrecht and Sack (2000, pp. 16–17) have criticized accounting educators for failing to reform the curricula in light of changes in the international business environment.

Ideas on Globalizing the Intermediate Accounting Courses

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Despite calls for curriculum change, there continues to be little integration of international accounting topics into the accounting curriculum. Of particular concern is the lack of such integration into the intermediate accounting sequence. Surveys by Tondkar, Flanigan, Adhikari, and Hora (1998, pp. 485–486) and Adhikari, Flanigan, and Tondkar (1999, pp. 177– 179) show a relatively low level of integration in these courses. A potential cause for this deficiency is the lack of research on methods to integrate international topics into this course sequence. Stout and Schweikart (1989, pp. 126–128) and Huang and Mintz (1992, pp. 69–70) examine the internationalization of the accounting curricula. Other studies examine integration of selected international accounting topics (e.g., Bloom & Collins, 1990, pp. 309–310; Bloom, Fuglister, & Kantor, 1992, pp. 240, 244–251; Tondkar, Adhikari, & Coffman, 1994, pp. 271–273). Previous research indicates intermediate accounting educators have not sufficiently integrated international accounting into the curriculum. A potential cause for this deficiency is the lack of knowledge about global variations in accounting practices. Specifically, many accounting educators do not have sufficient knowledge of international differences in accounting standards and, therefore, cannot integrate such topics into the courses. This problem is even more pronounced for intermediate accounting instructors due to the number of new pronouncements issued every year. Quite simply, intermediate accounting instructors must dedicate a large portion of their time evaluating and integrating new pronouncements, and have little time left to investigate topics such as differences in international accounting. We attempt to alleviate this problem by providing an overview of selected international topics for integration into the intermediate sequence. Thus, instructors with little knowledge of accounting standards beyond the U.S. can use this paper to assist in covering international topics in the intermediate sequence. Since the number of topics in the intermediate accounting sequence is so numerous, we do not provide a comprehensive analysis of each potential topic. Accordingly, we provide ideas for incorporating global vignettes pertaining to selected topics in these courses. The topics to consider are: comparative standard setting, convergence of accounting standards, intangibles, leases, earnings management, and differences in the format of financial statements among countries (See Exhibit 1 for placement of these topics in the intermediate sequence). We also provide an example of a comprehensive project designed to enhance students’ understanding of the impact of differences in accounting standards on interpretation and analysis of financial statements.

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Exhibit 1.

Integration of International Accounting Topics.

Topic

Coverage during Discussion of

Convergence of accounting standards Comparative standard setting processes Leases Earnings management Accounting for goodwill Financial statement formats

Throughout the course sequence The standard setting process at the beginning of the first course Leases Accounting theory, revenue recognition, or disclosure issues Intangible assets Financial statements or disclosure issues

CONVERGENCE: PROSPECTS AND PROBLEMS The need for convergence between U.S. GAAP and International Financial Reporting Standards (IFRS) is apparent. A single set of international standards would facilitate cross-border listings on stock exchanges, e.g., jointly on the New York and London stock exchanges, allowing firms to tap international financial markets without incurring the cost of preparing accounting financial statements under different sets of accounting standards. Financial statements prepared under a consistent set of accounting standards would assist the users in their analysis of companies. Specifically, having a single set of international standards would expedite international investment and credit decision making and allow for financing with less risk. Moreover, one set of standards can mitigate the costs of educating accounting professionals in different countries. However, convergence would be untenable if there is a lack of uniform interpretation and enforcement of such standards. The International Accounting Standards Board (IASB) has no authority to enforce its standards. The problem with these standards today is a lack of uniformity in interpretation from country to country. Many countries do not enforce their application and interpretation. Factors such as audit quality, professional auditing standards, interpretation of accounting standards, and strength of corporate governance mechanisms may cause differences in financial reporting around the world. Research demonstrates that adoption of IFRS does not ensure convergence. For example, China’s recent attempts to harmonize accounting standards to IFRS have failed to eliminate material differences in actual financial reporting practices of firms (Chen, Sun, &


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Wang, 2002, pp. 195–196). What benefit are international standards if there is little or no oversight in their interpretation and enforcement? Another issue is the fundamental difference in the nature of accounting standards issued by the IASB and the Financial Accounting Standards Board (FASB). The FASB’s financial standards tend to be rules-based, while international accounting standards tend to be principles-based. Much recent debate centers on the advantages and disadvantages of principlesbased standards. Put simply, principles-based accounting provides a conceptual basis for accountants to follow instead of a list of detailed rules. The principles’ orientation gives management and auditors greater latitude in applying the standards (Quinn, 2004, pp. 35–39). Rules-based systems have permitted companies to emphasize ‘‘form over substance.’’ There is a mindset that is only concerned with the following question: ‘‘Are we following the rule?’’ One rule tends to lead to subsequent rules on the same issue. A principlesbased system, while more generalized than a specific rules system, stresses the spirit of the standard rather than neat guidelines to follow. A primary benefit of principles-based accounting is that it provides broad guidelines that can be applied to numerous situations (Shortridge & Myring, 2004, pp. 35–36). Broad principles avoid the pitfalls associated with precise cut-offs, allowing contracts to be written specifically to manipulate the intent of the standard. In addition, principles-based accounting standards allow accountants to apply judgment in assessing the substance of a transaction. Another advantage of a principles-based system is that it results in standards that are less complex in nature. Finally, the use of principlesbased accounting standards may provide accounting statements that are more reflective of a firm’s actual performance as there are fewer opportunities to manipulate accounting results based on highly specific accounting rules. Despite the benefits of principles-based accounting standards, there are a number of drawbacks. The major drawback is actually one of its greatest benefits: It does not provide explicit rules that many practicing accountants and business managers would prefer. In addition, a lack of precise guidelines could facilitate inconsistencies in applying standards from one organization to another. Another difficulty in applying a uniform set of accounting standards is international variance in culture. Specifically, accounting from country to country varies in terms of cultural differences, using that term in its broadest sense to encompass history, economic conditions and traditions, legal systems, political systems, and social customs. For instance, the U.S. is the

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most litigious country in the world, characterized by class-action lawsuits and contingent fee arrangements, which are seldom found in other countries. U.S. GAAP reflect this lawsuit mindset in their detailed rules, attempting to cover every foreseen circumstance.

COMPARATIVE STRUCTURE AND STANDARD SETTING PROCESSES International variability is evident in the standard setting process. Identification of cross-country similarities and differences in standard setting can enhance understanding of the strengths and weaknesses of these processes. The instructor could review international differences in the standard setting process within the first segment of the first course in intermediate accounting during coverage of the financial reporting environment. After reviewing the steps in the U.S. standard setting process, the instructor can compare and contrast the structure and standard setting process internationally. In this paper, we provide an overview of the standard setting processes of the IASB and the FASB. The stated objectives of the IASB and the FASB differ in many respects. The objectives of the IASB Foundation are (IASB, 2005, www.iasb.org): (a) to develop, in the public interest, a single set of high quality, understandable and enforceable global accounting standards that require high quality, transparent and comparable information in financial statements and other financial reporting to help participants in the world’s capital markets and other users make economic decisions; (b) to promote the use and rigorous application of those standards; and (c) to bring about convergence of national accounting standards.

The mission of the FASB is to establish and improve standards of financial accounting and reporting for the guidance and education of the public, including issuers, auditors, and users of financial information (www.fasb.org). Thus, while the IASB mission focuses on international convergence of accounting standards, the FASB’s mission does not explicitly state that as an objective. The structures of the IASB and the FASB differ in many respects. Nineteen trustees from all over the globe, including six from the U.S., who are appointed by a nominating committee, choose the members of the IASB. Appointed by the trustees, 12 of the 14 IASB members are full-time and compensated for their work, compared to 7 full-time, compensated FASB members. The IASB board members do not have to reflect the geographic


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mix of its members (Quinn, 2000, p. 50). In addition, there is also an Advisory Council consisting of 30 members who meet three times yearly to counsel the board and the trustees. Furthermore, an Interpretations Committee consisting of 12 members provides assistance in applying the standards. In the U.S., there are 16 trustees on the Financial Accounting Foundation (www.fasb.org) who appoint the members of both the FASB and its advisory councils. The IASB and FASB standard setting processes are similar in many respects. The IASB process has several steps (Epstein & Mirza, 2004, pp. 7–8). First, the IASB staff identifies and reviews the topic under consideration, including a review of the requirements of national accounting standards on the topic. Next, the IASB consults with its Standards Advisory Council to determine if the issue should be added to the agenda. After deliberations, a discussion document is published for public debate. The IASB approves a draft statement of principles and subsequently prepares an exposure draft and circulates it for public comment. The IASB may then revise its exposure draft. If the revision is significant, the IASB re-circulates it for public comment. Otherwise, subject to a vote of 8 out of 14 Board members, the exposure draft becomes a final standard. The first step in the FASB’s standard setting process is placement of an item on the FASB agenda. After extensive research, a discussion memorandum is prepared and circulated to the public. In this memorandum, the FASB defines the problem and delineates the accounting issues. In addition, the board describes alternative solutions to the issues under consideration as well as the advantages and disadvantages. After securing and analyzing public response, the FASB issues an exposure draft. Subsequent to receiving and analyzing public responses to the exposure draft, the full board votes (4 out of 7) on the issuance of the standard. A summary of the current differences between the IASB and FASB appears in Exhibit 2.

CURRENT STATUS OF THE CONVERGENCE BETWEEN U.S. AND IAS STANDARDS Due to growing pressure to develop a consistent set of international accounting standards, the FASB and IASB signed the ‘‘Norwalk Agreement,’’ in 2002. The agreement states that both the FASB and the IASB will ‘‘use their best efforts to (a) make their existing financial reporting standards fully

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Exhibit 2. Summary of Differences between the IASB and FASB. Characteristic

IASB

FASB a

Due process Compliance with standards

No meetings open to public Voluntary

Nature of standards Number of standards Orientation of standards

Principles and interpretations Fewer standards Worldwide orientation to developed and undeveloped nations Harmonization and standardization 8 out of 14 must support it

Goal of standards Vote of members to pass a standard a

All meetings open to public SEC enforcement of FASB standards Rules and interpretations Many standards U.S. orientation

Standardization 4 out of 7 must support it

IASB reserves the option to hold such meetings if it deems them necessary.

compatible as soon as practicable, and (b) coordinate their future work programs to ensure that once achieved, comparability is maintained’’ (FASB, 2002, p. 1). Thus far, several standards under this agreement have been brought together in a project that is on-going over the long term. In a number of areas, there is already an agreement between the IASB and the FASB as to appropriate accounting treatment for financial statement items. In the past, FASB has emphasized rules, while IASB has emphasized principles. Stock options are an expense according to both FASB and IASB. Both FASB and IASB approach goodwill the same – to capitalize and then to use an impairment test. The FASB issued Statement No. 151 (FASB, 2004), which calls for expensing abnormal idle capacity and spoilage costs, to converge with the IASB approach. Exhibit 3 summarizes the similarities and differences between FASB and IASB standards. Current examples of the efforts to converge are accounting for changes in estimate and changes in principle. Under a 2005 standard, the FASB has adopted elements of the IASB’s standard on this subject. Specifically, for changes in depreciation method, the FASB now requires a switch to the IASB approach, which is to treat them as a change in estimate (FASB, 2005, pp. 19–22). The rationale is that this method change is often interconnected with a change in estimated useful life of the fixed asset. The FASB has also abandoned its treatment of changes in accounting principle or method. Formerly, FASB rules called for a cumulative effect in

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Exhibit 3.

Selected Differences between IASB and FASB Standards.

Asset impairment Capital leases Comprehensive income Extraordinary items Goodwill

Interest capitalization

LIFO Property, plant, and equipment

Research and development

Segmented reporting

IASB

FASB

Comparing discounted cash flows and book value of asset Less specific criteria – no ‘‘bright lines’’ Not required to be reported in total Not shown as such Impairment test comparing fair market value and book value, a one-step test May be done

Comparing undiscounted cash flows and book value of asset One of four specific criteria, including ‘‘bright lines’’ Total required to be reported

Not allowed At historical cost adjusted for cost allocations or revaluations adjusted for cost allocations Expense research costs; development costs capitalized and thereafter amortized if likely to generate future product benefits By lines of business and geographic area

Shown as such Impairment test comparing fair market value and book value, a two-step test Required under certain circumstances on constructed assets Allowed At historical cost adjusted for cost allocations

Expense

By manner in which the enterprise is governed internally

net income, pro forma for comparative statements, whereas a restatement was made for a change from LIFO to another GAAP method, a change in accounting for long-term construction contracts, IPO financial statements, and a change in accounting for extractive industries. IASB principles advocate restatement (retroactive application) for all of those changes in principle apart from depreciation method changes. In an effort to converge, the FASB has switched to the IASB approach of restatement for most changes in accounting principle under Statement 154. FASB’s current regulations show prior period adjustments to retained earnings and restatement of comparative statements for error corrections, the same approach used by the IASB. While the FASB and IASB are making progress toward standards’ convergence, with each body making changes in its own standards to reach a

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common ground, there are still key differences between the two sets of accounting standards. Some of the major differences in the accounting standards are summarized below. One of the main differences between FASB and IASB accounting standards involves accounting for property, plant, and equipment. FASB uses historical cost for property, plant, and equipment. By contrast, the IASB allows the use of either historical cost or the revaluation (fair value) amount. Specifically, the IASB allows firms to report assets using revalued figures, reflecting fair values minus subsequent depreciation. However, if revaluations are performed, they should be performed on a regular basis with all the items in a particular category (such as equipment) revalued. Revaluation asset increases also affect stockholders’ equity. Revaluation asset decreases reduce the previous equity increments for revaluation asset increases, with any residual decrease charged off to the income statement. Upon disposal of the revalued asset, any revaluation equity increments remain in stockholders’ equity. Interest costs pertaining to assets with extensive completion time are to be capitalized under FASB rules. Under IASB standards, such interest can be either capitalized or expensed. If it is likely that such costs, assuming they can be reliably measured, will provide future benefits, the costs should be capitalized. Accounting for asset impairments also differs between IASB and FASB standards. If the undiscounted cash flow is less than the book value of the asset, there is asset impairment under FASB standards. The IASB principle, on the other hand, shows asset impairment when the discounted cash flow is less than the book value of the asset (IASB, 1999a). Significant differences also exist in acceptable accounting methods for liabilities and equity. The FASB rules call for a pension minimum liability, which is the excess of the unfunded accumulated benefit obligation over fair market value of pension plan assets. IASB principles have no such pension minimum liability. The FASB requires convertible debt to be shown as debt, while the IASB requires its reflection as partly debt and partly equity. The FASB treats deferred tax liabilities and assets as current or long term on the balance sheet depending on the related asset or liability. The IASB treatment is to show all deferred taxes as long term on the balance sheet. Significant differences exist in the recognition of expenses format of the income statement. FASB calls for expensing research and development, apart from the internal costs of developing a website or software. IASB principles expense research, but capitalize development costs if they are expected to lead to product development. U.S. accounting permits LIFO;


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the IASB does not. Extraordinary items are limited to unusual and infrequent occurrences by FASB, while there are no longer any extraordinary items under IASB principles. In determining earnings per share, FASB considers basic and diluted income from continuing operations, discontinued operations, extraordinary items, cumulative effects, and net income. IASB considers basic and diluted income from continuing operations and net income only. As for earnings per share dilution yardstick, the FASB uses basic income from continuing operations per share; the IASB uses basic net income per share. The FASB segments financial reporting by application of the same approach that is used internally in managing the company. IASB segments by business lines and geography.

ACCOUNTING FOR GOODWILL A great degree of international variation exists in the methods companies use in accounting for intangible assets. Differences in goodwill accounting have no direct cash flow impact. However, to the extent that the accounting influences net income, it conceivably could impact managers’ bonuses, and thus have indirect cash consequences. Students will observe significant differences in GAAP among countries. We provide a comparison of goodwill accounting in the U.S. and IASB. The instructor can best address this topic in the context of the intangible asset chapter. The instructor can ask students to explain the difference in accounting standards based on cultural differences. The IASB Standard 38 on Intangible Assets (IASB, 1999b) calls for treating goodwill as an intangible asset with an indefinite life just as the corresponding U.S. standard does. As IAS 38 states: Intangible assets with indefinite useful lives are not amortized but must be tested for impairment at each reporting date. If recoverable amount is lower than the carrying amount, an impairment loss is recognized. The assessment must also consider whether the intangible continues to have an indefinite life.

Under IAS 36 on goodwill impairment, the cash generating unit (CGU) or group of CGUs represent the lowest level in the firm at which goodwill is monitored for internal management purposes. However, this unit cannot be larger than a business segment. In the U.S., the reporting unit considered constitutes a business segment. In computing goodwill impairment, the IASB calls for an annual comparison of the recoverable amount of the CGU (i.e., higher of the fair value net of selling costs versus the value in use, the

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latter being the present value of future cash flows) to its book value. In the U.S., the fair value of the reporting unit is compared to its book value. However, should the fair value be less than the book value, an additional step is required to see whether impairment exists. It is necessary to compare the implied value of goodwill to the recorded value. If the implied value is less than the recorded value, there is impairment. The IASB measures goodwill by comparing the recoverable value of the reporting unit to its book value. If the recoverable value is less than the book value, impairment occurs.

LEASES Accounting for leases is a long-standing controversial issue worldwide. In the U.S., FASB Statement No. 13 (FASB, 1980) is the quintessential rulesoriented standard. Its IASB counterpart, on the other hand, is principlesoriented. A rules-oriented standard provides a checklist of specific items to follow in deciding whether to expense or capitalize a lease, in contrast to a principles standard, which calls for the exercise of professional judgment to determine if capitalization is appropriate. The U.S. standard calls for capitalization of non-cancelable leases by the lessee if at least one of the following fair conditions prevails: (1) a transfer of ownership by the end of the lease term, (2) a bargain purchase option by the end of the term, (3) a lease life reflecting at least 75 percent of the economic life of the leased asset, or (4) the present value of minimum lease payments amounting to at least 90 percent of the fair value of the leased item at the inception of the lease. Rules-oriented standards are readily circumvented, and FAS 13 is no exception. In particular, companies can readily avoid the first three criteria, and may hire an insurance company to guarantee a residual value of the leased equipment to reduce their present value of minimum lease payments in order to circumvent the fourth criterion. Moreover, FAS 13 calls for applying the lower of the lessee’s incremental borrowing rate versus the lessor’s implicit interest rate to generate a higher present value so as to satisfy the fourth criterion. Lessees circumvent that requirement by not knowing what the lessor’s interest rate is – neither asking the lessor about, nor attempting to compute this rate. The IASB leasing standard (IASB 17, 2003) requires capitalization by the lessee if the lessee assumes most of the risks and rewards of ownership of the asset in question. Put another way, is this transaction in substance an installment purchase of an asset? If so, capitalization is necessary. Under


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this standard, management accountants and their auditors should determine whether the lease represents a rental agreement (i.e., an operating lease) or long-term asset acquisition. There are no simple 75 and 90 percent rules to use in making that decision under IAS 17 in contrast to FAS 13. Under IAS 17, the following conditions usually call for capitalization (IASB 17.10, 2003): the lease transfers ownership of the asset to the lessee by the end of the lease term; the lessee has the option to purchase the asset at a price which is expected to be sufficiently lower than fair value at the date the option becomes exercisable [and] that, at the inception of the lease, it is reasonably certain that the option will be exercised; the lease term is for the major part of the economic life of the asset, even if title is not transferred; at the inception of the lease, the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset; and the lease assets are of a specialized nature such that only the lessee can use them without major modifications being made Other situations which may require capitalization of a lease include (IASB 17.11, 2003): if the lessee is entitled to cancel the lease, the lessor’s losses associated with the cancellation are borne by the lessee; gains or losses from fluctuations in the fair value of the residual fall to the lessee (for example, by means of a rebate of lease payments); and the lessee has the ability to continue to lease for a secondary period at a rent that is substantially lower than market rent This section on comparative lease accounting goes in the intermediate accounting sequence at the end of the leasing chapter. Students would appreciate this subject matter after coverage of the detailed, rule-based U.S. standard on leasing.

EARNINGS MANAGEMENT: MOTIVATIONS AND METHODS The motivations and methods of earnings management vary significantly across countries. Comparisons of these motivations and methods in

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different countries represent an important international topic in the intermediate accounting sequence in order to make meaningful financial statement analysis across countries. Cultural differences, along with differences in accounting regulation and corporate governance, affect earnings management across countries. To what extent convergence to IASB standards would affect income manipulation remains to be tested empirically. We would expect earnings management to continue, even with convergence. Extensive research has examined earnings management both in the U.S. and abroad. This research has identified three motivations for earnings management: (1) capital markets – the management of earnings to influence short-term stock price performance; (2) management contracts – the management of earnings to maximize executive compensation; and (3) regulatory – the management of earnings to comply or reduce the effects of governmental regulation (Healy & Wahlen, 1999, pp. 377–379; Cohen, Dey, & Lys, 2004, pp. 3–4). The strength of the capital market motivation is likely to vary across countries due in part to differences in investor characteristics. In the U.S., there is strong investor focus on short-term profitability. Thus, stock markets react adversely when companies fail to meet short-term earnings exceptions. Hence, there is a motivation to manage short-term company performance. By contrast, France and Germany, as examples, emphasize long-term profitability rather than short-term performance. In such countries, there is less motivation to manage short-term earnings. Numerous studies have identified the presence of earnings management motivated by capital markets in the U.S. (Healy & Wahlen, 1999, pp. 370–375) as well as in other Anglo-Saxon countries (Holland & Ramsay, 2003, pp. 43–44). Furthermore, comparisons across countries reveal that U.S. companies are more likely to manage earnings than companies in other countries (Brown & Higgins, 2001, pp. 393–394). Management compensation contracts also differ across countries. Such contracts in the U.S. and other Anglo-Saxon countries commonly incorporate measures of short-term profitability. Specifically, managers in the U.S. receive benefits from meeting short-term earnings measures. In addition, stock options often comprise a significant portion of executive compensation, which, in conjunction with the short-term perspective of investors in the U.S., enhances the motivation to manage earnings. Research has documented the presence of earnings management to maximize executive


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compensation in the U.S. (Healy & Wahlen, 1999, pp. 376–377; Cohen et al., 2004, pp. 1–4). Regulatory environments also differ significantly across countries. Evidence from the U.S. and other Anglo-Saxon countries suggests that firms manage earnings primarily to comply with or minimize the adverse effects of industry and anti-trust regulations (Healy & Wahlen, 1999, pp. 377–379). Code law countries also show evidence of regulatory earnings management. Specifically, there is often a mandatory dividend payout rate. Thus, companies can retain only a percentage of earnings. Such a requirement, along with the high conformity between tax and financial reporting in these countries, motivates managers to lower earnings. More recently, Cohen et al. (2004) investigated earnings management in two overall periods: pre- and post-Sarbanes-Oxley (SOX). The results document evidence of increasing management of income in the pre-scandal and scandal sub-periods within the pre-SOX period, especially in industries that are not performing well (Cohen et al., 2004, pp. 3–4). Earnings management declined considerably in the post-SOX period. A company can use a variety of methods to manage earnings. In many Anglo-Saxon countries, earnings management occurs through the use of accruals and the timing of expenditures for expenses (e.g., research and development). By contrast, many Germanic countries use a system of hidden reserves or discretionary reserves to manage earnings. Additionally, legal reserves in stockholders’ equity are mandatory in code or civil law countries, based on a required percent of contributed capital. Each year a percentage of net income is added to the reserve to raise it to the needed total. Legal reserves protect creditors by preventing the amount reserved from being used to declare and pay cash dividends. Thus, the cash supposedly conserved by not paying dividends can provide debt service. While the instructor conceivably could cover this topic in the last segment of the intermediate sequence on disclosure issues, we think it is best to address this topic much earlier in the sequence – in the segment on basic accounting theory or on revenue recognition.

COMPARISON OF FINANCIAL STATEMENT FORMATS We provide an overview of how financial statements differ in the U.S. and the IASB, and furnish an assignment for international comparison of financial statements. The instructor can discuss this topic in the context of

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covering financial statements. Another possibility would be to save the IASB statements for coverage during the segment on disclosure issues. The current format of the U.S. balance sheet became common in the 1920s, when the banker and creditor were the principal users of financial statements. As a result, the emphasis is on liquidity and solvency. By contrast, the IASB balance sheet accents the stockholder and investor. Therefore, long-term precedes short-term assets in the IASB. The IASB balance sheet stresses net assets or stockholders’ equity. We illustrate these differences in Exhibit 4. Students should observe the differences in the IASB versus the U.S. balance sheet, including some of the terminology. The IASB uses, e.g., ‘‘share capital’’ and ‘‘share premium’’ accounts in contrast to the U.S. terms of ‘‘common stock’’ and ‘‘paid in capital in excess of par.’’ The IASB permits revaluation reserves in contrast to U.S. GAAP. The IASB uses the term ‘‘own shares’’ versus the U.S. term ‘‘treasury shares.’’ In the U.S. the ‘‘minority interest’’ is frequently found between liabilities and stockholders’ equity, which is a requirement in SEC reporting. The IASB shows the minority interest as the last item in shareholders’ equity on the balance sheet. The IASB income statement, in multi-step format, is similar to the U.S. income statement as such. However, distribution costs, administrative expenses, and other operating expenses in the IASB statement, appear after ‘‘Other operating income.’’ In the U.S. statement these items precede the caption of ‘‘Income from operations’’ as ‘‘Operating expenses.’’ Also, in the IASB income statement, investment income and finance costs go after ‘‘Profit from operations.’’ In the U.S. income statement, these items would come after other operating income and expenses. In the IASB statement, profit from continuing operations appears separate from losses from such operations. The U.S. statement puts the gains and losses together. There is a separate caption for profit attributable ‘‘to equity holders for the parent’’ as well as one for the minority interest in the IASB income statement. The U.S. statement subtracts the minority interest from net income (Exhibit 5) The IASB statement of ‘‘Recognized income and expense’’ includes items that would appear either in a U.S. statement of comprehensive income, as an adjunct to the income statement, or as part of a statement of changes in stockholders’ equity. But, regardless of the format, American firms must report the total comprehensive income figure. Also, the U.S. shows the following items as part of ‘‘other comprehensive income’’ – gains and losses on revaluation of: available-for-sale securities, cash flow hedges, and translation of foreign operations along with transfers to net income from various sales of such securities. The IASB includes ‘‘gains/(losses) on revaluation of

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Exhibit 4. Differences in the Format of the Balance Sheet. U.S. Panel A: Assets Assets Current assets Cash and cash equivalents Trade and other receivables Finance lease receivables Trading investments Construction contacts Inventories Non-Current assets Long-term investments Finance lease receivables Available-for-sale investments Interest in associates Investment property Property, plant, and equipment intangibles Patients Franchises Goodwill Total assets

IASB

Non-current assets Goodwill Other intangible assets Property, plant, and equipment Investment property Interest in associates Available-for-sale investments Finance lease receivables Current assets Inventories Construction contracts Trading investments Finance lease receivables Trade and other receivables Cash and cash equivalents Non current assets classified as held for sale

Total assets

Panel B: Liabilities and Equity LIABILITIES Current liabilities Trade and other payables Retirement benefit obligation Tax liabilities Obligations under finance leases Bank overdrafts and loans Short-term provisions

Current liabilities Trade and other payables Retirement benefit obligation Tax liabilities Obligations under finance leases Bank overdrafts and loans Short-term provisions Net current assets

Non-current liabilities Bank loans Convertible loan notes Retirement benefit obligation Deferred tax liabilities Long-term provisions Obligations under finance leases

Non-current liabilities Bank loans Convertible loan notes Retirement benefit obligation Deferred tax liabilities Long-term provisions Obligations under finance leases

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Exhibit 4. (Continued ) U.S.

IASB Total liabilities Net assets

Minority Interest Stockholder’s equity Capital stock Common Stock at Par Paid-Capital in Excess of Par Retained Earnings Accumulated other comprehensive income (Treasury Stock)

Total stockholders equity

Equity Share capital Share premium account Revaluation reserves (Own shares) Equity reserve Hedging and translation reserves Retained earnings Equity attributable to equity-holders for the parent Minority interest Total equity

Source: Adapted from Deloitte Touche Tohmatsu (2005), IASB Model Financial Statements.

properties’’ in its statement of recognized income and expense (Exhibit 6). In the U.S. there are no upward revaluations; downward revaluations are impairment losses, reflected in the income statement. The IASB and U.S. statement of cash flows both have three sections: operating, investing, and financing (Exhibit 7). Under IASB standards, interest received and interest paid can fall under any of those three depending upon its specific purpose. In the U.S. statement of cash flows, interest received and paid appears only in the operating section. The IASB standard shows a sub-caption in the operating section for ‘‘Cash generated by operations’’ before showing income taxes paid and interest paid. Then, the IASB reflects the ‘‘Net cash from operating activities.’’ In the U.S. there is no sub-caption for cash generated by operations. The IASB includes the following items as ‘‘Investing activities,’’ which the U.S. shows as ‘‘Operating:’’ dividends received from associates, dividends received from trading investments, and proceeds on disposal of trading investments.

COMPREHENSIVE PROJECT Requiring a final, comprehensive project is another potential means of integrating international topics into the intermediate accounting sequence.

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Exhibit 5.

Differences in the Format of the Income Statement.

U.S.

IASB

Continuing operations Revenues Cost of goods sold Gross profit Operating expenses Income from operations Interest income Interest expense Realized gains and losses Unrealized gains and losses

Income from continuing operations before income taxes Income taxes Income from continuing operations

Income or loss from discontinued segments (net of tax)

Revenues Cost of goods sold Gross profit Other operating income Distribution costs Administrative expenses Other operating expenses Share of results of associates Restructuring costs Profit from operations Investment income Finance costs Profit before tax Income tax Profit for the period from continuing operations Discontinued operations Loss for the period from discontinued operations

Extraordinary gain or loss (net of tax) Cumulative effect of a change in accounting principle (net of tax) Net income Earnings per share Income from continuing operations Discontinued segments Extraordinary items Cumulative effect of a change in principle Earnings per share

Profit for the period Attributable to Equity holders for the parent Minority interest


Specifically, the instructor could ask students to research accounting in a company, say, from Europe that reports under IASB standards, and compare it to a company in the U.S. in the same industry. Details of such an analysis are provided below. The first step in this process is identification of significant differences between the standards used by the U.S. company (i.e., U.S. GAAP) and those used by the foreign company (i.e., IFRS). Included in this analysis would be verbal statements of the potential impact each difference would have on the balance sheets and income statements of the two companies.

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Exhibit 6.

Recognized Income and Expense Under IASB Standards.

Statement of Recognized Income and Expense

Gains/(losses) on revaluation of properties Gains/(losses) on revaluation of available-for-sale investments Gains/(losses) on cash flow hedges Exchange differences on translation of foreign operations

Statement of Comprehensive Income Net income Other comprehensive income Gains/(losses) on revaluation of available for-sale investments Gains/(losses) on cash flow hedges Exchange differences on translation operations

Actuarial gains/(losses) on defined benefit pension schemes Tax on items taken directly to equity Net income recognized directly in equity Transfers Transferred to profit or loss on sale of available-forsale investments Transferred to profit or loss on cash flow hedges Tax on items transferred from equity

Profit for the period Total recognized income and expense for the period Attributable to Equity holders of the parents

Transfers Transferred to profit or loss on sale of available-for-sale investments Transferred to profit or loss on cash flow hedges Transferred to the initial carrying amount of hedges items on cash flow hedges Total comprehensive income Minority interests


Additional analysis might include differences in the strength and extent of corporate governance mechanisms between the two countries. Next, the instructor could ask the students to prepare horizontal and vertical analyses of the company’s balance sheet and income statement, along with a detailed analysis and interpretation of liquidity, activity, leverage, and profitability ratios for both companies. The students would compare the two companies on the basis of these ratios after taking into account significant accounting practices and their impact on the ratio analysis. Such analysis using real world examples could help students understand how differences in accounting standards affect financial statements. In addition, this analysis demonstrates how differences in financial reporting complicate financial statement analysis.

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Exhibit 7.

Differences in the Format of the Statement of Cash Flows.

U.S.

IASB

Operating activities Cash receipts from customers Interest received Cash paid to supplier and employees Cash generated by operations Income taxes paid Interest paid Dividends received from associates Dividends received from trading investments Proceeds on disposal of trading investments Purchases of trading investments Net cash from operating activities

Operating activities Cash receipts from customers Interest received Cash paid to supplier and employee Cash generated by operations Income taxes paid Interest paid Net cash from operating activities

Investing activities Proceeds on disposal of available-for-sale investments Disposal of subsidiary Proceeds on disposal of property, plant, and equipment Purchases of property, plant, and equipment Acquisition of investment in an associate

Investing activities Interest received

Purchases of patents, and trademarks Expenditure on products development Acquisition of subsidiary Net cash from investing activities

Financing activities Dividends paid Repayments of borrowing Repayments of obligations under finance leases Proceeds on issue of convertible loan notes New bank loans raised Increase (decrease) in bank overdrafts

Dividends received from associates Dividends received from trading investments Proceeds on disposal of trading investments Proceeds on disposal of available-for-sale investments Disposal of subsidiary Proceeds on disposal of property, plant, and equipment Interest paid Purchases of property, plant, and equipment Acquisition of investment in an associate Purchases of trading investments Purchases of patents, and trademarks Expenditure on products development Acquisition of subsidiary Net cash from investing activities Financing activities Interest received Interest paid Dividends paid Repayments of borrowing Repayments of obligations under finance leases Proceeds on issue of convertible loan notes New bank loans raised

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Exhibit 7. (Continued ) U.S.

IASB

Net cash (used in)/from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year

Increase (decrease) in bank overdrafts Net cash (used in)/from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year


CONCLUSION AND FINAL COMMENTS The ambitious aim of globalizing the intermediate accounting courses, covering a broad range of issues, has conceptual merits. Pressures to change are coming from different constituencies. Reform is in the works, spurred by the Albrecht and Sack (2000) study, and the AECC and AACSB program requirements. This paper offers ideas to globalize intermediate accounting courses, but clearly does not present an encyclopedia approach toward that end. Students derive great benefits from inclusion of international accounting topics in the intermediate accounting sequence. First, the instructor can provide an overview of differences in accounting standards around the world. This knowledge is extremely important in today’s global business environment. In the process of globalizing these courses, we raise provocative issues in the classroom. For example, what would happen if the U.S. SEC were to recognize IASB standards? Would these standards then become the most prominent accounting standards worldwide? Would harmonization of accounting standards worldwide follow? Would U.S. companies then be able to use IASB standards? What would happen to the FASB? The principal drawback to modifying these courses is inertia on the part of faculty. To some, attempting to globalize intermediate accounting may mean adding more material to otherwise overloaded syllabi. Additionally, it is difficult to ascertain specifically what the current state of accounting is in many countries as a subject to include in intermediate accounting courses because the standards are not necessarily translated into English and the relevant journal articles and books are dated; the Internet is not particularly helpful as a result. One remedy is for faculty to attend international


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accounting seminars, generally held in English, to hear what academics have to say about new accounting developments in their countries.

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