An Empirical Examination of the Usefulness of the Motley Fool\u27s Flow Ratio

An item in the Motley Fool recently caught our attention. The article “Cisco vs. Lucent: The Flow Ratio Tells All” (by Matt Richey, June 6, 2000, in The Motley Fool.fool.com), introduced a new ratio that Richey claimed to be useful for measuring the investment worthiness of a company. Since our Financial Statement Analysis course covers traditional ratio analysis and since we were exploring some research ideas on measuring liquidity, the Fool Ratio seemed worthy of investigatio

Boards Of Advisors In Small Businesses: An Empirical Profile Of Their Composition And Use

This article discusses the literature coverage on Boards of Advisors to date and provides the results of a study designed to determine the formation and composition of Boards of Advisors and the ways in which small businesses use such boards. Our study surveyed the Chief Executive Officers or Presidents of a large sample of small businesses. We found that there is very limited use of Boards of Advisors in small businesses and that many small business managers are not aware of the concept of a Board of Advisors. However, those small business managers (97%) that use a Board of Advisors characterize their interaction with their Boards of Advisors as good or excellent. When selecting board members, the responding executives seek practical experience, good “common sense” and industry experience as the most important types of expertise. Most board members were male (67%), active in business (90%), have managerial/strategy or law (52%) and are not compensated (53%)

The Standard Auditor\u27s Report: Preparer, User, And Student Reactions To The PCAOB Concept Release

Concerns about the usefulness of the Standard Audit Report (SAR) have been expressed by investors and other users of corporate financial statement for several decades. During 2011 the Public Company Accounting Oversight Board (PCAOB) reacted to those concerns by issuing Concept Release on Possible Revisions to the PCAOB Standards Related to PCAOB Standards (“Release”). This article provides a description of the SAR, a short history (timetable) of the pressures (surveys) to improve the SAR and events that have led to the eventual Release by the PCAOB. Feedback (comment letters and surveys) from professionals and professional organizations regarding the “Release” are examined and discussed. Accounting and finance majors, future preparers and users of the financial statements, were surveyed to determine both their reactions to the PCAOB’s SAR and whether their reactions were different than practitioners. This article concludes with an analysis of the results and implications for audit practice and education

Earnings Management and Its Implications

In the wake of continuing, highly publicized financial frauds and failures, the accounting profession has placed renewed emphasis on issues related to earnings management and earnings quality. Staff Accounting Bulletin 101, Revenue Recognition in Financial Statements, which was issued in December 1999 in response to the Committee of Sponsoring Organizations of the Treadway Commission report, illustrates the importance of earnings to the SEC. The SEC and the public are demanding greater assurance about the quality of earnings. Notwithstanding the grave threat that abusive earnings-management practices pose to the reliability and accuracy of financial statements, the accounting profession may be reluctant to address this issue. While there is evidence that accounting educators are attempting to make accounting students aware of abusive earnings-management practices, further efforts are needed by state societies and public accounting firms to better equip CPAs with the tools necessary to identify earnings-management techniques. Education could help to reduce the expectations gap between auditors and financial statement users

Measuring And Changing The Values Of Accounting Students

Although prior research has consistently shown that personal values influence behavior, limited research and curricular activity have been conducted with respect to the role of personal values in accounting. This purpose of this paper is to propose a methodology that accounting programs can use to measure the personal values of students. Specifically, we examine the Muser and Orke Typology for measuring personal values. Using students from a comprehensive, private university in the Midwest, we discuss the administration of the instrument and the evaluation of the results. The paper concludes with a detailed description of how accounting programs can apply this methodology to change students’ values toward a desired goal

Applying Sarbanes-Oxley Principles to Colleges and Universities

In the wake of the financial scandals that have occurred in the corporate sector, the public is demanding more accountability not only from corporations but also from nonprofit organizations such as universities. Institutions can enhance corporate governance by implementing some of the principles and procedures the Sarbanes-Oxley Act of 2002 (SOX) have mandated for public companies. Because public accounting firms audit universities, the firms can provide a valuable service to such clients by recommending ways in which universities can implement SOX practices that are appropriate and applicable. Although SOX does not currently apply to colleges and universities, it has created a climate in which many colleges and universities are considering ways to increase transparency and accountability in their financial operations. The outlook for mandating SOX-like legislation for nonprofits is unclear, both at the federal and state level. There is evidence, however, of some opposition to the implementation of SOX principles at universities

Weighing the Public Interest

In 1981, the AICPA addressed the issue of going concern status through SAS 34, The Auditor\u27s Considerations When a Question Arises About an Entity\u27s Continued Existence. In 1988, the AICPA issued SAS 59, The Auditor\u27s Consideration of an Entity\u27s Ability to Continue as a Going Concern, which remains the authoritative guidance. To determine if additional guidance on the topic of going concern is provided by accounting organizations, the authors contacted the AICPA and the state CPA societies. The authors found that none of these organizations provide additional literature or guidance in this area. Several individuals have criticized the current literature and called for additional guidance in the area of going concern. The authors believe that the Commission on Auditors\u27 Responsibilities\u27 recommendations for improving and specifying the responsibilities of independent auditors should be revisited and the going concern opinion should be eliminated. Considering that litigation is not a serious threat, one can see that eliminating the going concern opinion is the favorable option