This one-week course will introduce concepts of financial reporting, including underlying principles of financial accounting, the elements of financial statements, notes to financial statements, and key accounting standards. The course will help students provide effective advice to clients by gaining an understanding of the financial information that informs management decision-making and is used by external parties, such as investors, lenders, and regulators, to assess the economic condition of an enterprise. The instruction will include workshops to provide hands-on learning about how to read and interpret financial statements, as well as exercises designed to illustrate the use of accounting concepts in contractual negotiations or litigation. The course will also include segments on oversight of an enterprise’s financial reporting by the board of directors (typically through the audit committee), the purpose and function of the independent audit of financial statements, and the regulation of auditing. The course will be based principally on the US generally accepted accounting standards and regulations, but will also discuss international standards in these areas.
Thomas White practiced corporate and regulatory law in Washington, DC for 38 years at the international law firm, Wilmer Cutler Pickering Hale and Dorr LLP. His practice included advising clients and their boards and management on difficult corporate law, securities disclosure and accounting issues, and in conducting internal investigations. Mr. White has particular experience in legal aspects of accounting and auditing, including representing corporate audit committees and US and international accounting firms. He is a member of the Financial Accounting Standards Advisory Council, which advises the standard-setter for US accounting standards. Mr. White regularly speaks on accounting and auditing topics.
The class will meet from 9:00 a.m. to 3:00 p.m. each day with a lunch break and short mid-morning and mid-afternoon breaks.
Materials and Assignments: The instructor will provide assigned materials. Students will be required to participate in class discussions and interactive exercises. A limited number of assignments will be given that will require preparation in advance of class.
Introduction to Accounting for Lawyers. The purpose of this session will be to set the stage for the more technical instruction to follow. We will discuss what financial accounting is, and consider why it is important for lawyers to have a basic understanding of accounting and the ability to read and analyze financial statements. We will discuss the objectives and foundational principles of financial reporting, and the sources of financial accounting standards. We will compare the United States Generally Accepted Accounting Principles (US GAAP) and International Financial Reporting Standards (IFRS).
Active learning component: Students will review and discuss excerpts from the “management discussion and analysis” of a well-known public company.
Building Blocks of Financial Reporting. This session will review the components of the standard set of financial statements: balance sheet, income statement, statement of cash flows, statement of stockholders’ equity, and notes. We will also learn about the concept of “double-entry bookkeeping” that underpins financial accounting. We will discuss the concept of accrual accounting and how it differs from cash accounting.
Active learning component: Students will prepare a simple balance sheet and income statement using “double-entry bookkeeping.”
The Balance Sheet. This session will examine the balance sheet, also referred to as the statement of financial condition. We will discuss the fundamental equation underlying the balance sheet: Assets = Liabilities + Stockholders’ Equity. We will review the different types of assets and liabilities and consider the differences between current and non-current assets and liabilities.
Active learning component: Students will review and analyze the balance sheet of a well-known public company.
The Income Statement. This session will examine the income statement, also referred to as the statement of results of operations. We will review the components of the income statement, including the different types of revenues and expenses and how they are accounted for under the accrual method. We will also learn how the income statement is linked to the balance sheet.
Active learning component: Students will review and analyze the income statement and statement of stockholders’ equity of a well-known public company.
The Statement of Cash Flows and Other Components of Financial Statements. This session will examine the statement of cash flows, and how the statement relates to the balance sheet and income statement. It will consider sources and uses of cash from operating activities, financing activities and investing activities. The session will also discuss the statement of stockholders’ equity and the role of financial statement notes.
Active learning component: Students will review and analyze the statement of cash flows, and selected notes to financial statements, of a well-known public company.
Analysis of Financial Statements. This session will discuss in more detail how financial statements are used to assess the performance and financial position of a business. We will look at standard liquidity and performance measures such as working capital, debt-to-equity ratios, and gross margins. We will consider how to assess trends in the business. We will also discuss “Non-GAAP performance measures” such as earnings before interest and taxes.
Active learning component: Students will perform a financial analysis of a company based on a hypothetical case study.
How Accounting Affects Legal Matters. This session will consider the uses of financial statements by third parties such as investors, lenders or suppliers, and the legal contexts in which accounting matters can arise. We will review contracts where accounting concepts are relevant, such as loan agreements and merger and acquisition contracts, and discuss other areas where such issues arise, including litigation. We will also discuss how potential losses from legal matters (“contingencies”) can affect the financial statements.
Active learning component: Students will conduct a mock negotiation of the terms of financial covenants in a loan agreement that incorporates accounting terminology.
Audits of Financial Statements. This session will discuss auditing of financial statements by independent certified public accountants. We will discuss the reasons for obtaining an audit, the role and responsibilities of the independent auditor, and the types of assurance that an audit provides. We also consider how the auditing profession is regulated in various countries.
Active learning component: Students will review and discuss the auditor’s report for an audit of a well-known public company.
Oversight of Financial Reporting. This session will discuss the mechanisms employed by enterprises to ensure accurate financial reporting. These include the primary role of management in preparing financial statements and the role and responsibilities of the board of directors, particularly the corporate audit committee, in the US and other countries.
Active learning component: Students will review and discuss the charter of an audit committee of a well-known public company.
The Future of Accounting. This session will discuss developments that may have far-reaching effects on accounting and financial reporting in the future, such trends in the global capital markets and the impact of rapid technological change, including new technologies such as blockchain, and structural changes to the auditing profession. We will also summarize our learning during the week.