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FEDERATION OF SCHOOLS OF ACCOUNTANCY/DELOITTE & TOUCHE FACULTY CONSORTIUM CORPORATE GOVERNANCE: SYNERGIES BETWEEN RESEARCH AND TEACHING Ganesh Krishnamoorthy Associate Professor Northeastern University May 17, 2003 CORPORATE GOVERNANCE: SYNERGIES BETWEEN RESEARCH AND TEACHING We now have a significant body of knowledge from prior research tells us, among other things, about: How corporate governance impacts (or is associated with) financial reporting quality How corporate governance affects the assurance provided by the external audit function What makes boards and audit committees effective in fulfilling their financial oversight responsibilities CORPORATE GOVERNANCE: SYNERGIES BETWEEN RESEARCH AND TEACHING Where and how are issues related to corporate governance addressed in the accounting curriculum? No systematic evidence (that I could find). An informal survey of accounting faculty at Northeastern University reveals that the coverage of corporate governance issues in most courses is ad-hoc and uses few “structured” pedagogical approaches such as readings, cases, etc. Is there adequate coverage in textbooks? Few instructional cases in Issues in Accounting Education. CORPORATE GOVERNANCE: SYNERGIES BETWEEN RESEARCH AND TEACHING Current Research (with Arnie Wright & Jeff Cohen at Boston College): Does the type (“agency” and “resource dependence”) and strength of the corporate board impact auditors’: 1. Program planning (audit scope) judgments; 2. Inventory obsolescence and valuation judgments; and 3. Assessments about the audit committee’s role in helping resolve potential disagreements with the management? CORPORATE GOVERNANCE: SYNERGIES BETWEEN RESEARCH AND TEACHING Case used in the research: Realistic case drawn from the SEC filings of a real firm where there’s an inventory obsolescence/salability issue. Pilot and post-experimental tests were conducted to check the realism of the case. Instructional Case: Dynamic Data: Corporate Governance and the Quality of Financial Reporting Designed for use in a financial reporting, auditing, or a management control systems course. CORPORATE GOVERNANCE: SYNERGIES BETWEEN RESEARCH AND TEACHING Major learning objectives are to provide students with an understanding of: The “actors” involved in corporate governance and how they affect the particular financial reporting issue (inventory valuation) at hand. Factors impacting the effectiveness of the board of directors and the audit committee in fulfilling their financial oversight responsibilities. The “agency” and “resource dependence” roles of the board. The current regulatory and legal environment affecting governance. The ethical dilemmas that management may face and the role of the governance agents. Governance considerations when dealing with a multinational corporation/client. CORPORATE GOVERNANCE: SYNERGIES BETWEEN RESEARCH AND TEACHING Additional areas where cases and other instructional resources can be particularly useful: 1. Assessing the effectiveness of governance mechanisms in an organization. 2. Governance mechanisms and their role in detecting or preventing fraud and deterring earnings management. 3. Interaction among “actors” in the corporate governance “mosaic” and the resulting impact on financial reporting quality. 4. Audit committees and their role in enhancing auditor independence. 5. The role of governance mechanisms, especially audit committees, in helping resolve disagreements between the auditor and the management. 6. Evaluation of governance in audit client acceptance/continuation decisions. 7. The impact of governance factors in the audit process.
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