It's an old accounting joke: A man asks "How much is 2+2?" and his accountant says "What do you want it to be?" Corporate management has strategic choices to make about accounting policy in valuing companies. Phillip C. Stocken, associate professor of business administration, developed Advanced Issues in Accounting, a second-year elective, to mold Tuck MBAs into sophisticated consumers of financial information. An assistant professor at Wharton before arriving at Tuck in 2003, Stocken brought his expertise in the theoretical analysis of accounting issues to the classroom during the winter term.
Most Tuck students are not going to become accountants. Why did you see a need for an additional accounting course when there's already a required core course?
It's pretty clear that our students are not typically going on to become CPAs. But students going into investment banking, financial-strategy consulting, and equity analysis will need to know the detailed accounting mechanics behind corporate financial statements, and those aren't covered in the core course. I thought we needed to address them at Tuck to keep our students competitive in the recruiting process and the corporate environment. So this course is designed to improve the ability of our students to consume financial statements, to be aware of the strategic accounting-policy choices that firms can make, and, to the extent that they believe those choices might not fairly reflect a firm's underlying economic reality, to make adjustments to the financial statements when valuing a company.
This elective builds on the core course, which you also teach—any differences in how you approach the material in the two courses?
I would say there are different dimensions to each experience. Teaching in the core is somewhat predictable in the sense that I've taught the material so many times that I've already experimented with how best to present it. It's pretty well developed. In contrast, when I teach the elective, I'm teaching material that is considerably more difficult, so there is more work involved in how to approach it. But the elective is particularly fun because of the opportunity to renew the relationships that I began with students in the core, in their very first weeks at Tuck.
How do you teach advanced accounting to people who aren't accountants?
I teach these students in the same way I would teach someone who is a CPA or who is going on to become a CPA. We don't sugarcoat anything. It's a very, very technical discussion of accounting issues. And some of these issues are incredibly complicated. The accounting for pensions is an extraordinarily complicated standard. Derivatives—that's an incredibly complex standard: just the professional guidelines alone are hundreds and hundreds of pages long. But some of the best accountants I've ever seen are investment bankers. They're the ones a client comes to and asks, "What would be the consequences of buying this other company? What would our results look like?" They're the ones doing the consolidation, the ones advising what strategic policies could be used. They're not CPAs; they are highly sophisticated users of accounting information and, in some sense, producers of it.
Do things like FASB-IASB standards figure into accounting courses at Tuck?
In some ways, both the FASB [Financial Accounting Standards Board] and the IASB [International Accounting Standards Board] do. For example, in September 2008, just before we began the core course, the SEC announced on the front page of the Wall Street Journal that it was going to allow U.S. companies to use international financial reporting standards. We had already written up our class notes to teach primarily U.S. GAAP [Generally Accepted Accounting Principles], so we quickly revisited the international standards and identified where they differed substantially from U.S. standards, to highlight some of those key areas in the course. But students are battling to come to grips with just one set of standards, and it would confound the issue to give them a deeper, more detailed exposition of the differences between the two sets—the course would become a little unwieldy. So we focus on U.S. GAAP and simply highlight key differences between the two sets of standards.
How does your research feed into the way you teach the course?
There's a lot of discretion in accounting, and one could very easily quibble with some of the accounting guidance. And some of that quibbling is informed by research. Once a year, the FASB invites about 70 people—about 35 academics and 35 people from the standard-setting bodies, professional accounting firms, credit-rating agencies, regulators, investment banks, and so forth—to discuss issues with which standard-setters are grappling. The advantage of this meeting is that you begin to appreciate that some of these calls are judgmental—that the right answer is not obvious. So it's hardly surprising that we might disagree with some calls they've made. Some of our objections are informed by research we've done: they might have some view about how they think investors behave, and we might have a different view because we've done research into that actual behavior.
Do you think that the current economic environment makes this a particularly important course right now?
I think a course like this is important to offer at any time; many of the topics are evergreen. There were 46 students enrolled in the elective this past winter, and I'm pleased by that, given the size of our student body and the fact that this is a difficult course—it requires a ton of work on the part of the students. We take ownership of our students in some sense at Tuck; there's a real warmth to the interaction between students and faculty. So to the extent that there's something that I can do to fill any void in their business education before they head out into the world, then I'm more than happy to try to do that.