Leaning Tower of Pizza: A Business Start‐up

The following take‐out pizzeria restaurant simulation highlights the information sources that an entrepreneur can use to prepare a cash budget and financial forecast for a new business venture. Based on the information contained in this simulation, students make a capital budgeting decision and prepare pro forma financial statements.     

Sanders Foods: Planning for Success—An Instructional Case*

This case describes the second-generation importer Sanders Foods, which requires improved profitability. A new CFO has been hired to improve profits and thereby increase the market value of the firm for a possible future sale. The firm's strategy, although still completely valid, has not been carried out as intended. The board of directors has reaffirmed the firm's strategy. The CFO and CEO have developed a five-year plan to implement the strategy; the plan has been approved by the board. The task for the CFO is to develop a bottom-up budget for next year that accomplishes the first year of the plan. The operational improvements to achieve the existing strategy with the next year's budget will be demanding, which means it will likely need to be frequently updated with forecasts. Students will be tested on their knowledge and skills in implementing a committed budget, complete with a process for forecasts.     

Hydro One IPO

The case describes the initial public offering of Hydro One, one of the largest ever in Canada. The focus is on the financial statement analysis and business valuation of Hydro One from the perspective of a potential institutional investor. The case discusses several alternative valuation methodologies, with particular emphasis on the peculiarities of performing a prospective analysis for a rate‐regulated entity.     

An Instructional Case Comparing the Accounting Policies and Financial Results of Online Retailers

In the role of financial analyst for a venture capital firm, you are assigned the responsibility of evaluating two online retailers who have applied for financing to build a distribution center in western Canada. Based on your developing knowledge of Canadian accounting standards for private enterprises (ASPE), you evaluate the financial reporting policies and financial results of the two companies to identify the company that is best suited for your firm's support. Through this case, you will refine your understanding of ASPE and you will exercise your reasoning and analytical skills.     

Collaborative Resource Solutions

Collaborative Resources Solutions (CRS) is based on a real situation outlining the issues related to buying a service organization. This instructional case requires students to provide advice to a client who is considering purchasing a 50 percent ownership of a similar consulting business with the vision of blending the two companies together and increasing the knowledge base of her current company; therefore improving the ability to target more to clients. The case requires the students to evaluate the strategic, valuation, and financial issues in considering the acquisition of the existing business. In order to do so, students are required to analyze the financial information provided, both historical and forecasted, as well as analyzing key internal operations issues that may impact the future success of the business. This case is suitable for use in upper‐level undergraduate business strategy courses and accounting courses, as well as in master‐level accounting courses. Assessment rubrics and teaching notes accompany the case for use by instructors.     

Mountain City Transit: Management Control and Performance Measurement

Mountain City Transit (MCT) is a short in‐class case based on a real‐life city transit department, a context with which students are very familiar. The case allows three delivery options for instructors. A first option is for instructors to use the case to introduce various elements of management control—the case is rich, thereby allowing students to identify multiple issues facing the organization. As a second option, instructors can use it as a performance management case wherein students build a balanced scorecard and receive a completed strategy map to analyze. As a third delivery option, the case can be used twice during the course, both to introduce management control and to discuss performance measurement. Students will also discuss real life implementation challenges that MCT and other organizations face.     

Accounting Standards and Earnings Management: Evidence from China

This article examines the effect of an asset impairment–related regulatory reform on earnings management in China. Chinese Accounting Standard No. 8 (CAS No. 8), which prohibits the reversal of long‐lived asset impairments, was promulgated to constrain managerial opportunism with respect to previously recognized impairment loss reversal. CAS No. 8 forbids the reversal of long‐lived asset impairment losses only, while allowing the reversal of short‐term asset impairment losses. Based on a sample of China's A‐share listed companies on the Shanghai and Shenzhen Stock Exchange during the period 2001–2008, we reveal that managers use less current asset write‐downs and more reversals in the post–CAS No. 8 period. However, such reporting practices do not appear to be influenced by managerial incentives to avoid reporting losses and/or for “big bath” accounting purposes.     

What Do FAS 157 “Fair Values” Really Measure: Value Or Risk?

FAS 157, the U.S. accounting standard that prescribes how fair values of assets and liabilities are to be measured when other U.S. GAAP standards require fair valuation, stipulates that fair values be measured as the exit values of assets and liabilities—the proceeds for assets hypothetically sold on the date of the financial report, and, correspondingly, the amount required to settle liabilities on the date of the financial report. This conceptual article argues that exit values do not reflect the value of the net assets of the firm to shareholders, which is best reflected by discounted cash flows to maturity. Moreover, exit values—biasing fair values downward when markets are illiquid—have a pernicious, systemic risk effect; specifically, they give rise to write‐downs that in turn cause contagion: prices of equities and other financial instruments of peers react negatively, leading to further write‐downs by those peers. This may have aggravated the recent financial crisis. However, while exit values are not proper measures of value to shareholders, they are useful measures of downside risk when prospects turn sour for a firm. Thus, both exit values and discounted cash flows should be presented in financial statements.