Financial statement frauds that have impaired the integrity of financial reporting and led to new regulation (i.e., the Sarbanes-Oxley Act of 2002) have reemphasized the importance of financial reporting knowledge. Accounting majors must not only know the multitude of accounting rules, but also the overall reporting requirements. Yet, students frequently lack some knowledge in this area.
The purpose of this study was to investigate accounting majors' financial reporting knowledge, which is necessary to succeed in the challenging accounting profession, and to develop recommendations that will help accounting educators address any weaknesses. A multi-course case project consisting of financial statements and notes containing intentional errors and omissions was utilized in Intermediate Accounting courses.
The study found that students' identification and correction of errors and omissions varied depending on the specific reporting issue. Overall, a higher percentage of students correctly identified errors and omissions on the face of the financial statements than in the notes. Furthermore, only a relatively small percentage of the students noticed that several comparative financial statement years had been omitted. The results from this study suggest that additional instruction is needed, particularly with respect to overall reporting requirements and the relevance of financial statement note disclosures.
The accounting profession has experienced significant changes during the past few years. Highly publicized accounting frauds involving large companies such as WorldCom and Enron and some surprising audit failures have enhanced the scrutiny of the profession and have led to additional regulation (i.e., the creation of the Sarbanes-Oxley Act of 2002). These recent financial reporting scandals have enhanced cognizance of a long recognized need for high quality and truthful financial reporting.
Accounting professionals must be quite knowledgeable about financial reporting. For example, accounting professionals must be able to prepare financial statements and notes that are free of material misstatements and omissions, and must be able to detect financial statement errors and omissions. Accounting majors should acquire fundamental financial reporting knowledge while completing their accounting curriculum. However, frequently accounting majors experience difficulties preparing financial statements and notes that are relevant, reliable, and in compliance with Generally Acceptable Accounting Principles (GAAP). Accounting educators must utilize the limited time available in financial accounting courses (particularly Intermediate Accounting) to help their students learn and understand the fundamental principles and concepts underlying financial accounting and reporting, as well as the multitude of specific accounting rules that comprise GAAP. An understanding of the strengths and weaknesses of students' financial reporting knowledge is needed for the effective and efficient utilization of this limited class time.
Thus, the purpose of this study was (1) to identify accounting majors' specific strengths and weaknesses regarding financial reporting and (2) to develop recommendations that will help accounting educators address these weaknesses. A multi-course financial reporting project containing errors and omissions was utilized for analysis of students' financial reporting knowledge. Overall, a higher percentage of students were able to identify errors and omissions on the face of the financial statements than in the financial statement notes. Additional discussions regarding the relevance of full disclosures in financial statement notes from the user perspective, and additional time devoted to required note disclosures may be useful in addressing this weakness. Furthermore, additional discussions of overall reporting requirements and reinforcement of basic concepts may be needed. …