ACCT 476 (Performance Measurement Issues)

Accounting 476: Performance Measurement Issues

Leventhal School of Accounting

University of Southern California

Fall 2010

Class number 442-14150R

Professor: Kenneth A. Merchant

Office: HOH 606

Telephone: (213) 821-5920

E-mail:

Class Hours: T/Th 4:00-5:50 p.m.

Classroom: ACC 303

Office Hours: By appointment. Arrange by e-mail. I will do my best to accommodate your schedule.

For Campus-Wide Emergencies:

Emergency Info Line 213-740-9233

USC Emergencies 213-740-4321

Information tune into KUSC Radio at 91.5 (FM)

USC Info Line 213-740-2311

Prerequisites: Open to all accounting and business majors and minors, after completing BUAD-250b or BUAD-281 or BUAD-305 or ACCT-410.

Disabilities: Any student requesting academic accommodations based on a disability is required to register with Disability Services and Programs (DSP) each semester. A letter of verification for approved accommodations can be obtained from DSP. Please be sure the letter is delivered to me as early in the semester as possible. DSP is located in STU 301 and is open 8:30AM to 5:00PM, Monday through Friday. The phone number for DSP is 213-740-0776.

Honor Code: The Leventhal School Student Honor Code took effect on September 1, 1993. All students are subject to the Code and are responsible for familiarizing themselves with it. If needed, copies may be obtained from the receptionist in ACC 101.

Text: K.A. Merchant and W.A. Van der Stede (2007), Management Control Systems: Performance Measurement, Evaluation and Incentives. London: Financial Times/Prentice-Hall, 2nd edition.

Course Objectives

This course is designed to broaden and deepen your conceptual and technical understanding of accounting as it is used for management purposes. The emphasis in the course is on financial controls, which dominate in importance at managerial levels in all but the smallest organizations. Using financial controls requires managers to make decisions about: (1) responsibility structures (e.g., cost centers, profit centers), (2) performance measures (e.g., market, financial, and/or non-financial measures and their combinations), (3) performance evaluations, which take into consideration performance targets or other benchmarks, and (4) rewards (including performance-dependent compensation). The course is issue-oriented, with current and emerging issues as a major focus.

The course is built around a textbook—Merchant and Van der Stede’s Management Control Systems. The text will be supplemented with some new cases that will be distributed via Blackboard.

The focus of most of the classes will be on a case that brings the topics “to life” and provides issues for us to discuss. The readings are intended to provide background that is useful for informing the case discussions. For each case, I will provide some Discussion Questions. These questions are intended to help frame and focus your reading and consideration of the course materials.

The cases require advance preparation and thought. I encourage you to prepare the cases in a study group. Much of the learning comes from sharing and discussing your ideas with your peers.

Grading

In-class quizzes 50 points

E-mail questions and class participation 50 points

Final exam 100 points

Total Points 200 points

The quizzes will be given in a few classes on an unannounced basis. As protection against the possibility of a bad day or an unlucky absence, in computing my course grades I will disregard the lowest quiz score.

On the bottom of many of the class assignments, you will see that I have included an “e-mail question.” Prior to noon before our class pertaining to that assignment, please send me an e-mail message answering the question(s) for that day’s class. This is not intended to be a time-consuming obligation. Your answers should be brief—three sentences or less for each question.

Your answers to the e-mail questions serve multiple purposes. First, they help me to get to know you and to see how you think. Second, these messages open the communication channels between us. Since you have to send me a message, it is easy to append another thought. In the past some students have used this opportunity to ask a question on another topic or to give me some feedback about the course. I welcome this. I might also respond immediately to your e-mail question answer. Third, your e-mail answers help me orient the class discussion. For example, they help me both to judge the mindset of the class and to find people with unique perspectives. Finally, the questions are functional because they encourage good advance preparation. The regularity with which you input your e-mail question answers on a timely basis and the quality of your answers will form part of your participation grade.

I assign a material proportion of the grade based on class participation. I do this for several reasons. First, it improves my grading accuracy. I think I can learn more from hearing you share your ideas in a long series of classes than I can from reading what you write in a short exam session. I keep track of participation in every class.

But perhaps more important than that, grading class participation motivates class participation, and having highly interactive class sessions helps the learning process. Active class participation encourages students to be well prepared and thus to become active, rather than passive, learners. Participation provides students with the opportunity to gain from the experiences and talents of everyone in the class. And class participation helps students improve their oral communication skills. This is important because research shows that people in the business world tend to spend very little time reading and even less time writing reports. A great deal of managers’ and other professionals’ interactions with others are through oral communication.

Class participation evaluations will be based primarily on the quality of the participation in classroom discussions. To be clear on what I am looking for regarding class participation, and to further aid in your preparation, I have listed below some characteristics of effective class participation:

(1)  Does the student make points that are especially pertinent to the discussion? Do they increase the understanding of the class or are they simply a regurgitation of the problem or case facts?

(2)  Is there continuity in one's contribution from what has been said previously during class, or are the comments disjointed, isolated, or tangential? The best class contributions are those that reflect not only excellent preparation, but also good listening, interpretive and integrative skills.

(3)  Do the comments reflect a willingness to put forth new, challenging ideas or are they always agreeable and "safe"?

(4)  Is the participant able and willing to interact with others by asking questions, providing supportive comments or challenging constructively what has been said?

Your participation will be evaluated based on a near-continuous scale, the end points of which can be described as follows:

Outstanding Contributor: This person's contributions reflect exceptional preparation, and the ideas offered are always substantive and provide major insights and direction for the class. If this person were not a member of the class, the quality of the discussions would be diminished significantly.

Unsatisfactory Contributor: This person may be absent from class or someone who rarely participates in class discussion. Alternatively, this person’s contribution in class reflects inadequate preparation and/or understanding. Ideas offered are not substantive and provide few, if any, insights and never a constructive direction for the class. Integrative comments and effective arguments are absent. Class comments are either obvious, isolated from the main discussion, or confusing to the class.

The final exam will be a take-home exam, likely a case or two. You can take this exam as an individual or as a group. The groups can be as large as four people. In the middle of the course I will ask you to tell me if you will be taking the exam as an individual or in a group, and if in a group, who is included in your group. The answers to the final exam must be deposited in my mailbox in the lobby of the School of Accounting Building by 5 p.m. on Thursday, December 9.

No make-up exams or quizzes will be given (see LSOA policy on incompletes).

The policy of the Marshall School of Business applies to the retention of graded material.

Required Course Materials

To be purchased:

Merchant, K.A. and W.A. Van der Stede, Management Control Systems, London: Financial Times/Prentice-Hall, 2nd edition, 2007.

You can buy new or used as you wish. Just make sure that you get the second edition of the book (yellow cover).

To save you money, I will distribute some newer cases (i.e., not included in the book) using Blackboard. Please print these cases. In my opinion, you cannot prepare a case well just by reading it on a computer screen. You need to have a hard copy that you can study, annotate, and bring to class for reference.


Class/topic schedule:

Class date Primary topic

Oct 19 The control function of management, the roles of performance measures, and things that can go wrong

Oct 21 Results controls

Oct 26 Financial responsibility structures

Oct 28 Performance measures

Nov 2 Financial performance targets

Nov 4 Dealing with the distorting effects of uncontrollables

Nov 9 Control impacts of the Sarbanes-Oxley Act of 2002

Nov 11 Earnings management and the roles of controllers and CFOs

Nov 16 Financial reporting problems and corporate governance

Nov 18 ERM: Measuring and managing risk

Nov 23 Industry application: Retail brokerage

Nov 25 No class—Thanksgiving

Nov 30 Industry application: A Not-for-Profit (USC)

Dec 2 Industry application: Banking

Final exam distributed at the end of this class.

Dec 9 Take-home final exams due by 5 p.m.


The Leventhal School of Accounting adheres strictly to the grading standards of the University and the School of Business Administration. Additionally, the Leventhal School of Accounting has supplemented those standards with certain others. For students' convenience, and to prevent misunderstanding, these additional standards are summarized below.

GRADING STANDARDS

The following grades are used: A - excellent; B - good; C - fair; D - minimum passing; Ffailure. The grade of F is awarded for failing work at the end of the semester. The assignment of minuses and pluses when earned is required.

The grade of W (Withdraw) is assigned if the student officially withdraws after the third week but before the end of the twelfth week of the semester. No withdrawals will be permitted after the end of the twelfth week except by student petition to the University's Committee on Academic Policies and Procedures.

Students may elect to audit courses during the first three weeks of the semester. A course taken for audit (V) will be assessed at the current tuition rate. A course taken for audit (V) will not receive credit and will not appear on the USC transcript or grade report. Under no circumstances will the University allow a change in the registration status of a course from letter grade or credit to audit (V) or vice versa after the third week of a given semester.

The grade of IN (Incomplete, i.e., work not completed because of documented illness or some other emergency occurring after the twelfth week of the semester) is reserved for those highly unusual cases where, due to circumstances judged fit by the Dean of the Leventhal School of Accounting, the student is unable to complete a specified single item of the course requirements by the time final grades are submitted.

IN grades can be removed only by the student completing the missing requirements of the course to the satisfaction of the instructor.

Marks of IN in courses numbered below 500 must be removed by the end of the semester following the one in which the mark of IN was assigned. If not removed within the specified time limit, marks of IN automatically become marks of IX (expired incomplete), with the exception of thesis and dissertation, and compute in the GPA as an F. A student may remove the IN only by completing the work not finished as a result of illness or emergency. It is not possible to remove an incomplete by re-registering for the course. Previously graded work may not be repeated for credit.


G.P.A. PREREQUISITES FOR UNDERGRADUATE ACCOUNTING COURSES

The grade point average prerequisites for any undergraduate student enrolled in any accounting course is a minimum 2.5 gpa for all completed accounting courses. In computing grade point average prerequisites, BUAD 250ab, 305 and 302T are considered accounting courses.

Grades in accounting courses taken at other institutions will not be included in the computation of the cumulative accounting grade point average.

When a student's cumulative accounting grade point average falls below 2.5, the student is placed on probation. If a student on probation does not regain a minimum accounting cumulative GPA of 2.5 after completing the next 12 semester hours in all courses (including accounting courses) attempted within the University, that student will not be permitted to continue as an accounting major in the Leventhal School of Accounting. Exceptions to this policy may be granted only in unusual circumstances by the Academic Standards Committee of the Leventhal School of Accounting. Decisions of the Academic Standards Committee are final.

To be removed from probationary status, a student may elect either to take another accounting course or courses for which prerequisites are met or to repeat an accounting course or courses in an attempt to earn a higher grade. Regardless of the course of action taken, all courses completed will be counted in computing the cumulative accounting grade point average.

The grade of "W" in an accounting course taken while a student is on probation will not extend probation. The probation period ends at the end of that semester during which the student completes a cumulative total of 12 semester hours of courses in any subject(s) at the university. Under no conditions will the student be permitted more than two successive semesters, including the summer semester, to complete the 12 semester hours of courses.

Students must attain a minimum 2.5 cumulative accounting grade point average to graduate with a Bachelor of Science in Accounting degree.

See the USC Catalogue for further restrictions on including grades in repeated classes in the overall grade point average computation.

OTHER ACADEMIC STANDARDS