For students, Accounting Fraud 101
More colleges offer courses on corporate abuse
By Diya Gullapalli
THE WALL STREET JOURNAL
msnbc.com
July 16 — There will be a hot new course at many colleges this fall: how to tell if a company is cooking its books.
AT THE University of California at Irvine, MBA students will be offered “The Enron Case,” a two-credit course in which they will comb through the energy company’s financial statements looking for red flags. They also will learn about some of the factors blamed for Enron’s fall, including special-purpose partnerships, derivatives contracts and pension fraud.
THINKING INDEPENDENTLY
At Massachusetts Institute of Technology, Prof. S.P. Kothari plans to present case studies on Tyco International Ltd., Global Crossing Ltd. and Xerox Corp. in his accounting classes, then test his students’ knowledge of these companies’ accounting problems.
Professors say these new courses at some 20 colleges go way beyond traditional accounting classes that stress rote learning of the trade’s rules and regulations. Instead, they hope to teach students how to sleuth through corporate books.
“Enron has reinforced the difference between skills and memorization,” says Steve Albrecht, associate dean at Brigham Young University’s Marriott School of Business. “We don’t want to just teach kids how to copy information from books, and that’s what’s been happening.”
The American Institute for Certified Public Accountants even plans to change the CPA exam for 2004 so it will better measure students’ ability to think independently as accountants. The new test will be open book and require students to build spreadsheets and do research online during the test. This past spring the group distributed free computer disks with new practice questions to the nearly 900 U.S. schools with accounting programs.
Some say it’s about time that universities addressed the issue.
“The problem in accounting education is that professors presume to be engaged in high-level scientific research,” says Abraham Briloff, a professor emeritus at Baruch College in New York City. “They develop exotic and esoteric mathematical models when they should be rolling up their sleeves and teaching students how to dig into the 10Ks and 10Qs,” he adds, speaking of the annual and quarterly financial reports that public companies must file with the government.
Still, getting accounting instructors to change their methods may be an uphill battle, says Bill Schwartz, chairman of the teaching and curriculum committee at the American Accounting Association, a group that promotes accounting education. “When you have an aging faculty that’s within 10 years of retirement, sometimes there’s no incentive to make drastic changes,” he says. “Hopefully these scandals will push us.”
In fact, organizers of next month’s AAA annual meeting expect the biggest draws to be sessions on “earnings management,” “aggressive financial reporting,” “regulating the accounting profession” and “insider information and corporate disclosure.”
CASE STUDIES V. MEMORIZATION
Students say they can already feel the new approach.
As an undergraduate, “I did math problems and memorized dozens of GAAP [generally accepted accounting principles] rules and legal statutes,” says Michael Rockwood, an MBA student at the University of Texas at Austin. But his brother, now an undergraduate accounting major at his alma mater, Utah State University, is doing more case studies, he says.
At the University of Virginia, accounting major Brendan Abrams says “we discussed problems at different firms regularly” in accounting classes last spring, and this, he says, has prepared him well for his current internship as an auditor at Ernst & Young.
This isn’t the first time accounting scandals have prompted business colleges to revamp their courses. In the 1990s, bookkeeping problems at firms such as Waste Management Inc. and Cendant Corp. led professors to make some changes, such as adding accounting fraud minors at schools such as Bloomsburg University in Bloomsburg, Pa.
While nationwide enrollment in the accounting major has declined an average of 27% a year for the past five years, academics say the current accounting scandals might actually attract more students to the profession.
An accounting fraud class at the University of Texas at Austin this spring had three times the enrollment it did the summer before, with many of the students coming from majors other than accounting. At Hilbert College, a small liberal arts college in Hamburg, N.Y., professors say they have received dozens of inquiries from other colleges this year about starting majors in economic-crime investigation similar to theirs. And at the University of Delaware, Professor Charles Elson says he had 45 students in his corporate governance class this past spring, compared with 22 a year earlier. He plans to respond to the demand with more lectures on the role of the audit committee of corporate boards of directors.
This new emphasis on audit committees has spurred other schools to boost the discussion of corporate governance in accounting classes this fall. The National Association of Corporate Directors reports that over 20 additional colleges have requested reports and lecture material in the past four months and repeat clients such as Harvard University, Yale University and Xavier College in New Orleans have requested up to three times as many articles as last year.
Yet some professors have worried that initiatives intended to give future accountants broad-based business skills could further blur the line between auditing and management consulting-an issue in many of the current accounting scandals. Big accounting firms have given millions of dollars to business schools, sometimes with strings attached as to the type of classes they offer and research that is done. Now “schools want to distance themselves from the accounting firms,” says the AAA’s Mr. Schwartz, who also is dean of the School of Business and Economics at Indiana University in Bloomington.
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