By Michael J. Krause
NOVEMBER 2005 – While the accounting cycle and FASB’s conceptual framework are a dominant part of the initial instructional unit in an intermediate accounting course, these two topics should also serve as a pervasive reference point for all subsequent financial accounting discussions. Successful accounting education depends upon students knowing why professional practice calls for a particular accounting treatment. Background lessons (or work experience) also give accounting students insights into why financial accounting authoritative pronouncements mandate what they do. Delving into details without context will lead to disaster in accounting education or practice. The professional literature supports this position. For example, SSARS 1 requires that a CPA who performs a compilation or review must have a general understanding about the industry in which the client or business functions before implementing the specific required tasks that fulfill the engagement.
Young students can begin to develop an accounting experiential background with what the author calls “quasi-cases,” which have definite solutions. A “classic” case, as defined by Clarke and Gardner (Journal of Accounting Education, Vol. 8, No. 1, 2004), requires students to make decisions that should result in diverse conclusions standardized only by their professional presentation. The “classic” case format is effective in undergraduate capstone courses and graduate courses. In functional courses, such as intermediate accounting, students start the transition from basic-principles knowledge to professional-context knowledge. This author believes that because quasi-cases dramatically narrow data-sorting choices, a junior-level accounting student (60 college credit hours) has a greater chance within a quasi-case format for intellectual growth via the actual experiences of accounting practitioners. An analogous situation exists when a service business trains its staff.
Accounting firm managers know that a staff accountant’s first-year experiences are the foundation for greater insights and responsibilities in the second and third years. If initial work assignments are more limited in scope, then wouldn’t logic call for initial college case assignments to be more limited in scope? While the scope should be limited, the context of a case assigned in intermediate accounting can be enriched by input from working professionals. Hoping to add to that enrichment and to promote an ethical business world view, the author assigns a Wall Street Journal project where students follow SEC investigations. Ethical perspectives, like lessons about the accounting cycle and FASB’s conceptual framework, should shadow every accounting-course assignment at every level.
Quasi-cases can include reviewing basic lessons on the accounting cycle and showing how other more-advanced lessons (like multinational issues) fit within that fundamental framework. For example, once initial adjustments for receivables and payables are covered, when the topics of depreciation and prepaid expenses were broached, discussions can turn to new issues of accrued interest, premium amortization, investments’ fair value adjustments, and cash dividends. Quasi-cases can also explore the benefits of using reversing entries for accounts payable and accrued interest payable. Introducing correcting entries will emphasize that the accountants’ responsibilities go beyond the scope of bookkeeping. The author has found that a single case study, classic or quasi-, does not completely fill in a student’s experience gap. Yet the quasi-case study experience also allowed the author to start class with a review or context for a new lesson with: “Remember in the case study when you had to….” This lesson-reinforcement tool using recent quasi-case experience promotes long-term learning.
The author administered a diagnostic exam to an intermediate accounting class that had used a quasi-case. Of the 29 students, 16 strongly agreed, or agreed, that the case study helped when they took the diagnostic test. (Eight students were neutral, and only five disagreed or strongly disagreed that the case study helped.) Twenty-eight students also strongly agreed, or agreed, that the diagnostic test was a good experience. Additionally, all 29 students strongly agreed, or agreed, that the diagnostic test helped them understand accounting basics.
The results of the exam indicated that the quasi-case assignment helped the students understand the accounting cycle. The median score on the diagnostic exam was 28 out of 40 correct. The top three incorrect questions dealt with topics that had not been covered in the quasi-case. To the author’s delight, the one perfectly answered question (on the purpose behind closing entries) contained a perspective that reflects his views on accounting education: Concentrate on reasons, and the details will eventually be understood in later applications.
Cases based on practitioner input can generate benefits by applying contextual experience to theory in a way that promotes more than “for the exam” learning. Long-term learning generates an awareness that leads to more-complex professional and ethical issues. Without the initial input from accounting practitioners, whether in the form of cases or other personal interventions, such professional awareness will not happen in the college environment. Most important, the early initial input from accounting practitioners to today’s students will lead to an improved start in the long-term development of tomorrow’s staff accountants.
Editor’s Note: This article is a follow-up to “Bridging the Gap Between Professors and Practitioners” (February 2005), which discussed how case studies establish a connection between accounting professors and practitioners. It continues the author’s perspective on the use of case studies in intermediate accounting courses and the need for collaboration between educators and practitioners.
Michael J. Krause, CPA, is an associate professor of accounting at Le Moyne College, Syracuse, N.Y.