Financial Reporting & Analysis,
Prentice-Hall, Inc., 1999

Lawrence Revsine, Daniel W. Collins
and W. Bruce Johnson

Synopsis

We wrote Financial Reporting & Analysis to try to change the way in which the second course in financial reporting is taught. At most schools, this course is called "Intermediate Accounting" or, occasionally, "Financial Reporting". Typically, it focuses on just the details of GAAP and the accounting processes that underlie financial statements. This approach doesn't encourage critical thinking and ignores the possible disparity between accounting numbers and economic substance.

In contrast, our goal is to instill an understanding of the environment in which financial reporting choices are made, what the options are, how to use these data in making decisions, and - most importantly - how to avoid misusing financial statement data. Our book provides instructors with an opportunity to present the "big picture" without sacrificing technical underpinnings. It's a user-oriented book that carefully shows students where the numbers come from.

We convey the exciting nature of financial reporting. We do this in two stages. First, since business contracts are often linked to accounting numbers, we describe managers' incentives to "manage" numbers to benefit themselves and shareholders. Second, we then employ real world financial reports and events to illustrate vividly how GAAP alternatives and unavoidable subjective estimates give managers discretion in reporting results.

This approach integrates the perspectives of accounting, corporate finance, and economics to help students grasp how business transactions get reported. In our approach, we first describe the business transaction and then show students the technical details of GAAP, how those details are applied in practice, and what the financial statements look like. Then we go a step farther and ask: What do the numbers mean? Does the accounting process yield numbers that accurately reflect the economics of the transaction? And if not, what can users do to overcome this limitation?

This book is aimed at those who use financial statements for making decisions. Our definition of users includes auditors doing analytic reviews and establishing audit scope, lenders, equity analysts, investment bankers and others. We help readers learn how to get behind the numbers and conduct better audits, improve cash flow forecasts, or undertake realistic valuations.

Our book provides instructors with an entirely new mechanism for achieving key goals of the Accounting Education Change Commission. Specifically, we help instill capacities for 1) abstract logical thinking, 2) solving unstructured problems and 3) understanding determining forces (i.e., incentives). Our text discussion, as well as exercises, problems and cases were chosen or developed to help achieve these objectives.

Most of our exercises are a vehicle for learning underlying GAAP mechanics and financial statement "gymnastics," skills that we consider crucial for understanding. These are carefully chosen - primarily from past CPA exams. Virtually all problems and cases were written specifically for this book to provide instructors with assignment material that corresponds with our approach and allows students to build the skills that the AECC sought. Additional Information is also available at our website: http://www.prenhall.com/phlip/revsine.

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