Financial Management and Reporting
The master course Financial Management and Reporting attempts to cover key elements of international accounting and to provide a deeper understanding of selected aspects of international accounting in real-life situations. We are convinced that a conceptual understanding of reporting principles and competences to derive conclusions from the reporting framework is much more important for students and professionals than detailed expertise in very specific items as typically taught in accounting courses. The course likewise addresses contemporary topics of international financial reporting (IFRS - International Financial Reporting Standards), non-financial reporting (GRI - Global Reporting Initiative), and integrated reporting standards (IIRC - International Integrated Reporting Council).
Course Format and Target Audience
The extracurricular course Financial Management and Reporting is conducted based on a flipped classroom approach. The lecture of this course is fully video-recorded. Students are obligated to work through the content of the lecture prior to the course meetings. The course is designed to provide deeper insights into current issues of international reporting to experienced students and early practitioners. The course is scheduled to take place for the next time in the winter term 2018/2019.
Content of the Course
Chapter 1: Conceptual framework of the IASB
The first chapter is on the key elements of the conceptual framework of the IASB. We truly believe that a deeper understanding of the conceptual elements of the IFRS is the basis - and even more important than detailed (and most likely non-persistent) knowledge about specific pieces of regulation - for a sound application and analysis of IFRS financial reports. In the context of IASB standard setting, we also discuss the consequences of the overwhelmingly high number of conceptual changes in the IFRS - which might heavily contradict the target of providing comparable financial accounts - on the informativeness of IFRS financial reports.
Chapter 2: Cost-accounting and mark-to-market-accounting
The focus of the second chapter is on two important measurement concepts implemented in the IFRS. We particularly discuss these measurement concepts in the context of tangible assets (e.g., investment property) and financial assets. Thereby, we critically question whether the general preference of the IASB for mark-to-market-accounting really leads to more informative IFRS financial reports.
Chapter 3: Net and hedge accounting
Generally, the IFRS requires to report separately on each asset/liability. However, there are circumstances in which the IFRS allow or mandate so-called "net accounting" which means that only the difference between an asset/liability and related/corresponding other assets/liabilities is presented in the financial statements. For example, "net accounting" is an important facet of hedge accounting, pension accounting, and deferred tax accounting. The key purpose of this chapter is to provide a more detailed understanding of the reporting incentives arising from options and choices in the context of net accounting and to demonstrate the challenges to compare IFRS financial statements when the reporting policies differ due to "net accounting".
Chapter 4: Interim reporting
While there is considerable convergence of the world's predominant accounting systems, there is a small number of issues that still show remarkable different regulation. A key issue - which is also of greatest importance for managers' reporting incentives (e.g., incentive for managerial short-termism that potentially harms a firm's long-term value creation) - is a firm's reporting frequency. We primarily discuss managers' reporting incentives under the so-called integral approach (e.g., basic concept of the US GAAP) and the so-called discrete view (e.g., basic conception applied in the IFRS).
Under the integral approach, interim periods (e.g., quarters) are considered to be an integral part of the annual period. Consequently, annual expenses that my not arise from a specific interim period are generally accrued within all interim periods based on managers' best estimates. Under the discrete approach, each interim period is considered to be a "stand-alone" reporting period and as such is not associated with expenses that may arise in other interim reporting periods. The IFRS (IAS 34) have a general tendency towards the discrete approach.
Chapter 5: Environmental and sustainability reporting
Internal and external parties (e.g., investors and regulators) increasingly demand information in the context of a firm's sustainability-related exposure. In particular, the G4 reporting framework developed by the Global Reporting Initiative (GRI) has gained wide global acceptance and is the (in most cases explicitly stated) basis for firms' sustainability reporting. In this chapter, we discuss the "business case" of environmental accounting. The major challenge of environmental accounting is to identify the drivers of a firm's environmental performance (e.g., air and water pollution) in the context of a firm's business model and to make the entire emission picture (e.g., "carbon footprint") measureable. Thereby, we also discuss the association of a firm's financial performance (as reported in IFRS financial statements and on the stock market) and environmental performance (as reported in line with the GRI's G4-framework).
Chapter 6: Carbon accounting and disclosure
In the public and political debate, there is a strong focus on firms' carbon emissions that are (very reasonably) suspected to contribute to the overall undesirable worldwide climate change. Regulators have established various measures to reduce carbon emissions. For example, the EU installed a carbon emission certificate system to generate market-based incentives for low-emission production and distribution activities. Thus, the measurement and disclosure of carbon emissions is a topic of great importance with direct real effects on a firm's stakes.
In the winter term 2015/2016, the first part of this chapter is lectured by a former technical director of TÜV Süddeutschland who was engaged in the development of measurement techniques to quantify a firm's carbon footprint and who served as an assurance provider for carbon emissions. Thereby, we discuss potential approaches to directly and indirectly measure (e.g., input-based metrics) carbon emissions. A key insight of this chapter is to understand that - even if a firm's supply chain is very long or complex - reliable estimates for carbon emissions can be derived after gaining insights on the firm's value creation process.
In the second part of this chapter, we discuss various possibilities on how to report on carbon emissions (e.g., carbon footprint, carbon emissions in tons or in monetary units). Therefore, we analyze carbon emissions statements of various leading firms and critically question whether the reported information are (really) decision useful for investors and other stakeholders.
Chapter 7: Integrated reporting
Integrated reporting is maybe the latest profound trend in accounting and reporting. Although related to sustainability reporting, integrated reporting is much more and conceptually different to "combined reporting on financial and non-financial issues". The key purpose of a truly integrated report in line with the framework of the International Integrated Reporting Committee (IIRC) is to provide information on the connectivity of financial and non-financial actions and developments that are related to a firm's value creation in the short-, medium-, and long-run. The focus of this chapter is on understanding the challenges and consequences of switches to an integrated reporting format.
Type of Assessment
To successfully pass this course, students are (i) required to actively participate in all sessions (33%); for exceptions from the participation requirement, please contact the lecturer prior to the application deadline of the course. (ii) The students have to pass two 30 minutes intra-semester written exams that refer to the Chapters 1-4 ("IFRS accounting") and to the Chapters 5-7 ("sustainability and integrated reporting"), respectively (each 33%).