Post Graduate Programme in Management

2016-17
TERM: VI
TITLE OF THE COURSE: CREATIVE ACCOUNTING PRACTICES
CREDITS: 2
Instructor:
Prof. Mehul Raithatha

COURSE: ELECTIVE COURSE

Email
mehulr@iimidr.ac.in

Tel. No.
588

No. of Sections: 2
Faculty Block and Room No.
A-112

COURSE DESCRIPTION
Financial statements are widely used to evaluate a firms past performance and
future prospects. The accuracy and reliability of the financial statements are crucial
for the stakeholders of the firms in order to make financial decisions.
The course aims at analysing the off balance sheet transactions used by the firm in
real world scenario. Several firms are found to have used manipulative accounting
practices by using creative ways to report the financial numbers. The course also
analyses such real life cases along with the accounting frauds like Enron, Satyam etc.

COURSE OBJECTIVES

To focus on off balance sheet financing transactions and its impact on financial
statements
To discuss real life cases of Creative Accounting behavior of the firms
resulting into manipulative accounting
To analyze cases of accounting frauds resulting from fraudulent and
manipulative financial statements and its after effects

PEDAGOGY/TEACHING METHOD:
Case study, class discussion

EVALUATION
Assignment
Class Participation
End Term Exam
Total

WEIGHTAGE
40%
10%
50%
100%

SCHEDULE OF SESSIONS
MODULE I
INTRODUCTION TO CREATIVE ACCOUNTING
Module Objective: The modules aims at discussing instances of creative accounting. It
gives insights about how several firm uses accounting policies to their advantage and
how does it affect the reporting quality.
Sessions and Objective
Session 1: Creative accounting An Introduction
Objective: This session introduces to the concepts and simple instances of creative
accounting techniques.
Reading: Bertini and Tavassoli (2015) Can One Business Unit Have Two Revenue
Models? (Harvard Business Review, March 2015)
Class discussion: David Hawkins (2012). Assessing Accounting Risk, HBS No. 9 -105-054.
Harvard Business School Publishing
Session 2: Accounting policy choice: A strategic opportunity?
Objective: In this session, there will be discussion on several accounting policies and
principles. How do firm resort to window dressing is the key area of focus.
Reading: Bruns (1993) Diversity in Accounting Principles: A Problem, a strategic
imperative or a strategic opportunity?, 9-193-045. Harvard Business School Publishing
Cases:
1.
Srinivasan and Cornell (2013) First Solar: CFRA's Accounting Quality Concerns,
HBS 9-113-044. Harvard Business School Publishing
2.
Srinivasan Padmini (2010) Now You See It, Now You Do Not: The Case Of Jet
Airways And Its Accounting Policies (IMB 331) , Indian Institute of ManagementBangalore
Session 3: Creative income statements and revenue recognition
Objective: This session aims at discussing income statement based manipulation and
creativity.
Readings:
1.
Winkler Rolfe (2015) Star of Startup.com Charged With Accounting Fraud,
Wall Street Journal
2.
Hagopian Kip (2006) Point of View: EXPENSING EMPLOYEE STOCK OPTIONS IS
IMPROPER ACCOUNTING, California Management Review, 48(4).
Case: Tayan and McNicholas (2007). Haliburton Company: Accounting for Cost
Overruns and Recoveries, Stanford Case A 187.

Session 4: Creative balance sheets and aggressive capitalization

Objective: This session aims at discussing how asset and liabilities are recorded to the
best advantage of the firms and managers.
Reading: Berman, Knight and Case (2008) Assets - More Estimates and Assumptions
(Except for Cash): Understanding the Balance Sheet-Financial Intelligence for
Entrepreneurs. Harvard Business Press.
Case: Srinivasan and Kaser (2012) Mike Mayo Takes on Citigroup (A) & (B), HBS 9-112025 & 9-112-051, Harvard Business School Publishing
MODULE II OFF BALANCESHEET TRANSACTIONS
Objective: This module deals with the instances and consequences of off balance
sheet items.
Sessions and Objective
Session 5: Off balance sheet transactions: introduction and perspectives
Objective: This session introduces to the concept of off balance sheet items and its
impact on financial statements.
Reading: Partnoy and Turner, Bring Transparency to Off Balance Sheet Accounting
(Extracts from Make Market Be Market Report) to be included in the material
Cases:
1.
Rankine (2012) Off-Balance Sheet Financing at Big 5 Sporting Goods
Corporation, TSGM TB0310, Thunderbird School of Global Management
2.
Miller and Cohen (2006), Harley Davidson Inc.: Motorcycle Manufacturer or
Financing Company, HBS case no. 9-105-027. Harvard Business School Publishing
Session 6: Lease Accounting: The off balance sheet perspective
Objective: This session focuses on leasing as a tool to keep the assets and liabilities
out of the balance sheet.
Readings:
1.
Weil Jonathan (2004) How leases play a shadowy role in accounting. The Wall
Street Journal (22/09/2004)
2.
David Hawkins (2001) Lease accounting and analysis, HBS case no. 9-100-003.
Harvard Business School Publishing
Case: Palepu and Serafiem (2011), Leasing decision at Magnet Beauty Products, Inc.,
HBS case no. 9-111-039. Harvard Business School Publishing

MODULE III MANIPULATIVE ACCOUNTING: THE GENESIS OF FRAUDS

Objective: Objective of this module is to carry out in depth discussion on accounting
frauds and manipulations by major corporations.
Sessions and Objective
Session 7: Manipulative Accounting: Letter of law vs. spirit of law
Objective: This session discusses case of Lehman brothers and debates on letter vs.
spirit of law.
Reading: Handouts of presentation to be distributed
Case: Mikes, Yu and Hamel (2013), Lehman Brothers and Repo 105, HBS case no. 9112-050 Harvard Business School Publishing.
Session 8: Accounting frauds- I
Objective: This session deals with case of Enron as to how accounting manipulative
practices were used and what it resulted into.
Reading: Handouts of presentation to be distributed (prepared from Creative
Accounting, Fraud and International Accounting Scandals by Michael Jones, Wiley,
2010)
Cases:
1.
Salter (2005) Innovation Corrupted: The Rise and Fall of Enron (A), HBS case no.
9-109-039. Harvard Business School Publishing
2.
Rankin (2004) Enron's Demise--Were There Warning Signs? (TSGM TB0135-PDFENG) Thunderbird School of Global Management
Session 9: Accounting frauds- II
Objective: This session deals with case of Satyam from accounting perspectives as to
what went wrong and whether it could have been figured out well in advance from
financial statements?
Reading: Handouts of presentation to be distributed (prepared from Creative
Accounting, Fraud and International Accounting Scandals by Michael Jones, Wiley,
2010)
Cases:
1.
Yadav and Bakshi (2009). Corporate Governance Failure at Satyam, ACRC HKU
889. Asia Case Research Center.
2.
Gaur and Kohli (2011). Governance Failure at Satyam, Ivey W11095, Richard
Ivey School of Business.

Session 10: Sub-prime crises and after effects

Objective: This session discusses the sub-prime crises, its after effects and also
impact on world economy. The focus will be on manipulative accounting and financing
practices used.
Reading: Inside Job documentary 2010 by Charles Ferguson and discussion
Case: Healy, Palepu and Serafeim (2009). Subprime Crisis and Fair-Value Accounting,
HBS 9-109-031. Harvard Business School Publishing.
*****