Week 1

Week 1 - BUSINESS 421 Summer 2011 Click to edit Master...

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Click to edit Master subtitle style BUSINESS 421 Summer 2011 Week 1
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Agenda (Post Break) 3. Assignment of specific seminars 4. Critical Thinking 5. What is Theory 6. Readings for this seminar l Scott, Chapter 1, “Introduction” l Copeland, “Ethics as an Imperative” 7. Questions 8. Summary 22
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Scott — Chapter 1: Summary § You need to understand and critically examine the broader implications of financial accounting § Will lead to the “fair and efficient operation of our economy” 33
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Scott — Chapter 1: Summary § Historical Perspective § Scott outlines the Merino/Neimark [M/N] argument to assist in deciding whether markets should be regulated. § M/N argue that the US securities market was regulated in 1933/34 because of numerous reporting and accounting manipulations that contributed to the 1929 stock market crash. 44
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Scott — Chapter 1: Summary § Historical Perspective § Scott then says that the M/N argument does not indicate how much regulation should exist. § Standard setting becomes political process. § A “successful” standard is one that many interest groups back. 55
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Scott — Chapter 1: Summary § The Market Meltdown § Section 1.3 of the text focuses on what it calls “the 2007/2008 market meltdowns.” § Without minimizing the troubles and actions described, it is also fair to say “been there, done that, what colour T-shirt would you like?” § The financial failures of the past decade do not represent something not seen before. 66
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Scott — Chapter 1: Summary § The Market Meltdown § It seems that every decade or so we are exposed to financial failures with the concomitant teeth gnashing and cries of “how could this happen?” § The answer is simple — in a word, greed. § Nobody wanted to kill the goose that lays golden eggs. 77
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Scott — Chapter 1: Summary § The Market Meltdown § Enron’s unstable house of cards was known long before it failed, but analysts who tried to call attention to the unstable situation were belittled by their peers, hounded by executives from Enron and even fired by their own firms for failing to “tow the party line.” § Examples of financial fraud can be found in almost every decade of the past century as well. 88
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Scott — Chapter 1: Summary § The Market Meltdown § What you should take away from this material are these key points: § First, financial reporting must be transparent, so that investors can properly value assets and liabilities. It is essential that the basis on which the numbers used to report assets and liabilities is known and that the process of assigning these numbers is reliable and meaningful. 99
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§ The Market Meltdown § What you should take away from this material are these key points: § Second, fair value accounting, being based on market value or estimates thereof, may (will?) understate value-in-use when markets collapse for whatever reason. Remember that fair value is based on an active market. Moreover, many assets do not have a market, so models are needed, which leads to issues of reliability. 10
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Week 1 - BUSINESS 421 Summer 2011 Click to edit Master...

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