Preliminary, Subject to Change

Posted: 02.24.2014

30117 Accounting and Financial Analysis II Spring 2014

Professor Robert Bushman
Phone: 919-962-9809
E-mail: rbushman@chicagobooth.edu
Personal Website: http://public.kenan-flagler.unc.edu/faculty/bushmanr/
The course objective is to increase your sophistication as users of financial information and
enhance your ability to discern the economic essence of important classes of complex business
transactions from the financial statements. The course integrates financial accounting
knowledge with financial economics to understand the accounting for and economic nature of
complex deal structures, organizational design, financial distress, corporate governance
structures, and currency risk. The course involves a mixture of lecture and case analysis.
Technical material will be developed in the class sessions. There is a set of core cases that serve
as a platform for in-depth class discussion and analysis. The cases span many fascinating deals
and key issues facing managers of complex organizations.
Course topics include accounting issues related to:

Control/influence over other entities and changes in control:

Mechanisms of control, M&A deals, step-acquisitions, non-controlling interests,
strategic alliances, carve-outs/spin-offs, alternative business entities, taxes & financial
reporting for control changes, bankruptcy strategy, fresh start accounting.

Financial statement view of healthcare: Analyze the Financial Statements of the United
States focusing on off-balance liabilities & inter-agency debt transactions; examine
price-setting by analyzing the financials of publicly traded health service providers.

Inflation: Inflation adjusted financial statements, understanding vulnerability to

inflation, hyper-inflation, and tax implications of inflation.

Foreign Currency: Foreign currency translation, functional currency and how it

delineates currency risk, translation risk, translation in hyper-inflationary economies.

Prerequisites:
A solid grasp of basic financial accounting and finance is essential.

Course Materials
Course Pack: All cases, readings and homework assignments are included in the packet.
Chalk site: Contains lecture slides, as well any course documents not included in the course
pack.

Robert Bushman

30117 Spring 2014 Syllabus

Preliminary, Subject to Change

Posted: 02.24.2014

Overall Course Grades:

4 Homework Assignments
Final exam
Total

60 %
40 %
100 %

4 Homework Assignments:
Each homework assignment consists of a data set and 5 questions at 3pts each.
Budget 12 hours for each assignment.
The homework assignments are not group projects. You are expected to work alone on
the assignments under the honor code.
Final Exam in class
To aid in preparation for the final, I will provide a practice exam with both a written and video
answer key.

Office Hours:
I will be traveling to Chicago from Chapel Hill, North Carolina each week to teach this course. I
can schedule meeting before or after class. If you want to talk during the week, send me an email and we can set up a phone meeting.

Robert Bushman

30117 Spring 2014 Syllabus

Preliminary, Subject to Change

Posted: 02.24.2014

Class Session Details

Week 1 (April 4 & 5)
The concept of control, separating cash flow and control rights, private benefits of control,
pyramid structures, accounting for influence the equity method
Required:
Read:
Control Premiums and the Effectiveness of Corporate Governance Systems, Alexander
Dyck and Luigi Zingales. Journal of Applied Corporate Finance Volume 16, Issue 23, pages 5172, Spring 2004
Prepare to discuss the Berkshire Hathaway Case

Week 2 (April 11 & 12)

Strategic alliances and the equity method; Acquisition accounting details & comprehensive
example
Required:
Prepare to discuss the Renault-Nissan Alliance Case.
Optional Reading
Chapters 2 and 4 in: Global guide to accounting for business combinations and noncontrolling interests. You should view this document as a reference source. It delivers
a lot of information in an efficient format. Link to all PwC accounting guides.

Week 3 (April 18 & 19)

Equity method for bank holding companies; accounting for target company executives predeal stock compensation; alternative business entities; application of acquisition accounting
in a private equity setting, carve-outs and spin-offs
Required:
Prepare to discuss the Citigroup Case
Read two articles from The Economist:
The new American capitalism: Rise of the distorporation. Oct 26th 2013
Finance in America: Subterranean capitalist blues. Oct 26th 2013
Prepare to discuss the Blackstone Group case.
Optional Reading
Chapter 3: Employee Compensation Arrangements in: Global guide to accounting for
business combinations and non-controlling interests
Robert Bushman

30117 Spring 2014 Syllabus

Preliminary, Subject to Change

Posted: 02.24.2014

Week 4 (April 25 & 26) Homework 1 due

Value to controlling versus non-controlling interests; step acquisitions; M&A risk issues and
contingent consideration
Required:
Homework assignment 1 due
Prepare to discuss the Novartis-Alcon case
Optional Reading
Chapter 6: Partial Acquisitions, Step Acquisitions, and Accounting for Changes in the
Non-controlling Interest in: Global guide to accounting for business combinations and
non-controlling interests
Chapter 2, section 2.6: Contingent consideration

Week 5 (May 2 & 3) Homework 2 due

Reverse mergers; M&A Tax Issues
Required:
Homework assignment 2 due
Read: Merck to Buy Rival for $41 Billion. By Jonathan D. Rockoff, Wall Street Journal
March 10, 2009.
Read Darden case (UV0881): The treatment of goodwill and other purchased
intangibles for tax purposes (in course pack)
Optional Reading

Chapter 5: Income Tax Implications in Business Combinations in: Global guide to

accounting for business combinations and noncontrolling interests

Week 6 (May 9 & 10)

Acquisition accounting and tax structure; targets NOLs; territorial versus world-wide taxation
of corporate taxation, deal strategies to shift corporate profits out of the U.S.
Required:
Read: It's Not Just Apple: The Ultra-Complicated Tax Measures That Microsoft Uses To
Avoid $2.4 Billion In U.S. Taxes. By Walter Hickey, May 21, 2013, Business Insider.
Read: Perrigo to buy Elan, reincorporate in Ireland. July 30, 2013, The Boston Globe. (By
Shawn Pogatchnik, Associated Press)
Optional Reading
Chapter 5: Income Tax Implications in Business Combinations in: Global guide to
accounting for business combinations and noncontrolling interests

Robert Bushman

30117 Spring 2014 Syllabus

Preliminary, Subject to Change

Posted: 02.24.2014

Week 7 (May 16 & 17) Homework 3 due

Accounting for financial distress; Fresh Start Accounting
Required:
Homework assignment 3 due.
Read: Coming Through in a Crisis: How Chapter 11 and the Debt Restructuring Industry
Are Helping to Revive the U.S. Economy. Stuart Gilson. Journal of Applied Corporate
Finance, Volume 24 Number 4, Fall 2012, pp 23-26.
Prepare to discuss Eastern Airlines Case

Optional Reading
Chapters 1 and 4: An Introduction to Bankruptcy Proceedings in: Guide to Accounting
for Bankruptcies and Liquidation (course pack)

Week 8 (May 23&24)

Structural subordination; healthcare economics through the lens of financial reporting
Required:
Prepare to discuss RJR Nabisco case
Read the document A Citizen's Guide to the 2013 Financial Report of the U.S.
Government available at https://www.fms.treas.gov/fr/index.html. Also peruse the
Financial Statements of the U.S. on the same site. Check out the Statements of Social
Insurance.
Prepare to discuss the HCA case.

Week 9 May 30 & 31) Homework 4 due

Inflation Accounting
Required:
Homework assignment 4 due
Read "Inflation Accounting and Analysis" (HBS 100063; I have also prepared a sheet
called Errata for Inflation Accounting and Analysis.
Prepare to discuss the two HBS cases Aluar: Aluminio Argentino S.A. (A (HBS 111059) &
B (HBS 111070). Both cases are in course packet.

Robert Bushman

30117 Spring 2014 Syllabus

Preliminary, Subject to Change

Posted: 02.24.2014

Week 10 (June 6 & 7)

Foreign Currency Translation; Course wrap up
Required:
Prepare to discuss the HBS Case: Cosmeticos de Espana, S.A. (HBS 111019). Think about
the question: Should the subsidiary's financial statements be translated into the
parent's reporting currency using the official exchange rate (BsF2.15 = US$1), or at the
parallel rate (BsF6 = US$1)?
Prepare to discuss the HBS Case Farmington Industries, Inc.: Managing Currency
Exposure Risk (HBS 104053) (Case discussion questions on page 6 of the case).

Week 11 (June 13 & 14) Final Exam in Class

I will provide a practice exam and both a written and video answer key

Robert Bushman

30117 Spring 2014 Syllabus