David R. Koeppen BOISE STATE UNIVERSITY
CREATING AN ACCOUNTING CULTURE IN THE CLASSROOM
Abstract: Numerous critics of accounting education have suggested that students graduating from accounting programs are welltrained but poorly educated. One reason that this may be occurring is that accounting education has become increasingly ruleoriented, focusing more on training future accountants rather than on educating those individuals. It is suggested here that accounting educators should spend more time developing an awareness in students of the culture of accounting. Two methods for accomplishing this change are suggested: (1) Focusing on the issues instead of the rules, and (2) providing students with a historical perspective of the events which have developed and shaped the practice of accountancy. By adding culture to the accounting curriculum, students will be better educated and thus be better prepared for their future careers.
Accounting education in recent years has been criticized for not adequately preparing students for their future careers. One common criticism of graduates of accounting programs is the inability of those graduates to think; that they lack the conceptual and analytical skills needed for success.
For many accounting students, this inability to think may be caused by the absence of a sense of history, or an accounting culture, in the classroom. Due to the absence of this culture, students, as future accountants, frequently fail to understand their roles in society. And, in failing to understand their own roles, they fail to understand how those roles interact with the roles of the standard setting boards, the regulatory agencies, and the various professional affiliations and organizations.
The current educational process is clearly flawed since it denies many students knowledge of the culture of accounting. By making modest changes in the current educational process, however, an accounting culture can be added to the curriculum. This rather modest change brings the study of accounting history into the classroom. And that study can start students thinking.
THE ACCOUNTANT AS AN HISTORIAN
Accounting is in substance a financial record, or history, of an entity, and thus the accountant is in essence an historian, a chronicler of financial transactions and events. Yet the study of accounting focuses primarily on current rules and regulations. Little time is spent studying how those rules and regulations have evolved.
The culture of accounting, however, transcends what currently exists at any one point in time. Culture includes “the sum total of ways of living built up by a group of human beings and transmitted from one generation to another.”1 Thus, culture includes not only what currently exists, but also what went before.
Accounting educators have a professional responsibility to ensure that this accounting culture is transmitted to their students. Only through studying accounting’s history can educators discharge this responsibility to transmit culture from one generation of accountants to another. Only through studying history will students be aware of the rich and diverse events that created the current culture of accounting. And only through this study will students better understand their culture and become better financial historians.
THE EDUCATIONAL PROCESS
Many members of the accounting profession are calling for major changes in accounting education. Recently, an increase in the number of credithours of coursework (to 150 hours) has been advanced. Several studies and proposals suggest that major revisions in accounting education are needed. One study [American Accounting Association, 1986, p. 172] states:
. . . there is little doubt that the current content of professional accounting education, which has remained substantially the same over the past 50 years, is generally inadequate for the future accounting professional … a complete reorientation of accounting education is needed.
Another monograph [Arthur Andersen & Co., et al., 1989, p. 11] states: “The current textbookbased, ruleintensive, lecture/ problem style should not survive as the primary means of presentation.”
1The Random House College Dictionary, Revised Edition, 1984.
It is apparent from these comments that the current form of accounting education is not meeting the needs of its constituents. But what is it that needs to be changed?
A Traditional Education
Fifty years ago, accounting education consisted of (1) identifying a reporting issue, and (2) defining the accounting methods and procedures needed to resolve the issue. Very few acounting methods and procedures existed at the time, and even fewer controversial accounting issues. What determined whether an accounting principle was generally accepted or not was just that — general acceptance or usage of the principle by practitioners. Authoritative statements, by and large, did not yet exist. Thus, a fairly large proportion of the time available to educators could be spent on analyzing the issues and identifying alternative measurement and reporting techniques.
Standards Overload
A proliferation of accounting standards has occurred over the last fifty years. The Committee on Accounting Procedures issued 51 Accounting Research Bulletins from 1938 to 1959. From 1959 to 1973, the Accounting Principles Board issued 31 Opinions. And, since 1973, the Financial Accounting Standards Board has issued more than 100 Statements of Financial Accounting Standards. With this tremendous increase in the number of authoritative standards, something has to be omitted in the classroom. And that something has been the study of the issues: Educators have replaced study of the issues with study of the rules.
Current Education
Many instructors spend the majority of their classtime covering the current authoritative standards (GAAP) and the procedures used to ensure compliance with those standards. This approach has benefits for both the student and the instructor. For the student, intensive study of GAAP assists in preparing for and passing the Uniform CPA Examination.2 For the instruc
2Passing the Uniform CPA Examination has an obvious benefit to students. Whether or not study leading to this achievement is the most beneficial use of a program of study is a wholly separate issue and is open to debate. A similar debate centers on whether CPA examination pass rates can be used to measure the quality of an educational program.
tor, the most significant benefit is the relative ease of teaching compliance with rules and procedures as opposed to developing students’ conceptual and analytical skills.
The cost. There is also a cost associated with the current method of teaching. Students are taught that there is only one correct set of solutions — those defined by GAAP. They learn that there are no alternatives; that one cannot contradict the rules. Study of the rules instills in students the notion that there is a readily available (and correct) solution for every reporting issue. And that all the student must do to find that solution is consult the authoritative standards.
This discourages creativity in the student. And creativity is exactly what is needed when new reporting issues emerge or evolve. Accountants lacking strong conceptual and analytical skills will simply be unable to cope with those new issues.
Training Versus Educating
Unfortunately, the current educational process merely trains students in GAAP; it does not educate them for a career in accounting:
Education is the development of the special and general abilities of the mind (learning to know) . . . Training is practical education (learning to do) or practice, usually under supervision, in some art, trade, or profession . . .3
Accounting education, emphasizing memorization of rules and procedures, is not appropriate in today’s environment. As Cragg [1987, p. 61] so aptly stated, “No intelligent person maintains that any amount of listening and remembering will produce an educated man.”
The monograph authored by the managing partners of the Big Eight accounting firms further emphasizes these issues: “The focus should be on developing analytical and conceptual thinking — versus memorizing rapidly expanding professional standards” [Arthur Andersen, et al., p. 8]. But how can the accounting instructor develop analytical and conceptual thinking?
FOCUSING ON ANALYTICAL AND CONCEPTUAL THINKING
The author has found two basic rules that help to focus the classroom experience on analytical and conceptual thinking. Those rules are: (1) study the issues; and (2) study history. Based on the author’s experience, following those two simple rules adds immeasurably to what the student gains from the classroom.
Rule #1 — Study the Issues
Make sure that your instructional methods leave time for studying the issues as well as the rules. For example, consider the accounting for business combinations.
One method of instruction might simply state that there are two basic methods of accounting for business combinations, purchase accounting or poolingofinterests accounting. Students can be instructed to memorize the twelve criteria for distinguishing a poolingofinterests from a purchase. Once this basic distinction has been established, the instructor can emphasize the worksheet procedures and techniques used under each method.
A second method of teaching purchase and poolingofinterests accounting would focus on the issues first: Why are there two methods of accounting for business combinations? Could there be more than two methods (the partpurchase, partpooling argument)? What are the substantive differences between the accounting procedures for each method (market values versus book values)? Why might managers prefer to use one method over the other? Could this lead to accounting abuses? Would the public interest be better served if there were only one method? Why do we need twelve criteria to identify a poolingofinterests? Only after completing the analysis of the issues would the procedures and techniques used under each method be discussed.
Students “trained” using the first method will probably be technically competent, and they may perform well on professional examinations. They will not, however, be as well prepared to serve the public interest as students “educated” using the second method. Students instructed using the second method would have a much better understanding of the social, political, economic, and ethical problems involved in the accounting for business combinations.
Rule #2 — The Issues Are Not Enough — Study History
Studying the issues results in a much broader coverage of the practice of accountancy. And this naturally creates a need for setting an historical perspective in the classroom. As an example, consider the accounting for an early extinguishment of debt.
Instructional method one would be very brief and concise — any early extinguishment of debt is accounted for as an extraordinary item under existing GAAP. Students can easily memorize this and little class time is “wasted”.
Method two, however, would examine the issues in more depth. Does an early extinguishment of debt meet the criteria of an extraordinary item — that is, is it characterized by an “unusual nature” and “infrequency of occurrence”? If not, why should it be treated as extraordinary?
Taking an historical perspective helps to explain the rationale for this treatment. Prior to 1973, gains and losses incurred on debt extinguished through refinancing were typically amortized in future years. Effective in 1973, Accounting Principles Board Opinion No. 26 required that all gains and losses from early extinguishment, including those from refinancings, be recognized currently in income. Accounting Principles Board Opinion No. 30, which was effective in late 1973, established the “unusual nature” and “infrequency of occurrence” criteria for extraordinary items, and classified gains and losses on early extinguishments to be reported as ordinary income. Interest rates in the early 1970’s climbed well above previous rates. This resulted in opportunities to reacquire debt at substantial discounts and, correspondingly, huge gains. This ability to increase ordinary income through a simple refinancing quickly became a concern of the Securities and Exchange Commission, and, soon thereafter, of the newly formed Financial Accounting Standards Board. The result, issued in 1975, was Statement of Financial Accounting Standards No. 4, requiring that gains and losses from early extinguishments of debt be reported as extraordinary items.
Discussion Opportunities
An historical analysis such as this offers the instructor numerous opportunities to get students started developing their conceptual and analytical thinking abilities. For example, the discussion might include:
1. The interrelationships between accounting standards, and how those accounting standards may impact the financial statements.
2. The nature of the bond market and when bonds will sell at a premium or discount (and thus when bonds can be refinanced at a gain or a loss).
3. The definition of “net income” and its components.
4. The ethical implications of managers “artificially” manipulating income to achieve certain operating results.
5. The political setting of accounting standard setting, including the roles of the SEC, the FASB, and other interested parties.
6. The ability of an accounting standard to positively or negatively affect the public interest.
CONCLUSION
Adding an historical dimension adds a sense of culture to the accounting curriculum. Developing the students’ awareness of this culture will help them to understand the role of accounting in society and their own role as accountants. This should lead to better educated students and better prepared professionals.
Adding accounting culture to the curriculum does not come without a cost. More class time will need to be spent on discussion of substantive issues rather than accounting procedures and techniques. The instructor must be willing to make a tradeoff between “training” and “educating”. Adding culture, using the historical approach suggested, does not require a wholesale revision of the methodology of accounting instruction. Each instructor can and should determine the appropriate mixture of training and educating that will best meet the needs of his/her students at each class level. Quite clearly, however, adding more hours of training to ensure coverage of the burgeoning number of accounting standards will not benefit our students’ future careers.
REFERENCES
American Accounting Association, “Future Accounting Education: Preparing for the Expanding Profession,” Issues in Accounting Education (Spring, 1986) pp. 16895.
Arthur Andersen & Co., Arthur Young, Coopers & Lybrand, Deloitte Haskins & Sells, Ernst & Whinney, Peat Marwick Main & Co., Price Waterhouse, and Touche Ross, Perspectives on Education: Capabilities for Success in the Accounting Profession (1989).
Cragg, C. I., “Teachers Must Also Learn,” reprinted in Christensen, C. R., Teaching and the Case Method (Harvard Business School: Boston, Massachusetts; 1987) pp. 6067.
