Accounting Research Tutorial
Ten Steps to Accounting Research
Step 1) Establish the Facts; Identify the Issues
"The researcher's first task is to gather the facts surrounding the particular problem. However, problem-solving research cannot begin until the researcher has clearly and concisely defined the problem. One needs to know the 'why' and 'what' about the issue in order to begin the research process."1 We will use the merger in 2001 between America Online and Time Warner to form Time Warner as our example. Internet portal America Online paid $147 billion for media conglomerate Time Warner in 2001. But the book value of Time Warner's assets was only $51 billion. The enormous $96 billion difference amounts to "Goodwill", or the value of Time Warner's brands, trademarks and other intangible assets, "subtracting an astonishing $1.5 billion a quarter from the bottom line."2 How is this "Goodwill" accounted for in the new AOL Time Warner's financial statements? What effect will the new Financial Accounting Standards Board (FASB) Statement 142 concerning Goodwill and Other Intangible Assets have on AOL's financial reporting? What are the implications of deals like this on the integrity of financial statements used by investors, analysts, regulators and others?
Step 2) Make a List of Keywords and Concepts
Accounting terminology embodies established accounting issues. Most Handbooks and Textbooks have excellent indexes that will lead you to discussions of the topic and provide you with potential keywords and concepts you can use in your search. Accountants' Handbook. Vol 1., Financial Accounting and General Topics and Vol.2., Special Industries and Special Topics are available online through netLibrary. RIA Checkpoint offers the Handbook on Accounting and Auditing published by Warren, Gorham and Lamont as past of its WG&L Library. CCH's Accounting Research Manager has Miller guides and other resources, Goodwill is an "Intangible Asset" resulting from a "Business Combination" and is defined "as the excess cost of an acquired company over the sum of identifiable net assets."3 Critical issues in accounting for Goodwill involve "Valuation" and "Amortization", the "Purchase Method" vs. "Pooling-of-Interests Method" of accounting for "Business Combinations.". So now we have a vocabulary we can use when searching for information: Goodwill, Business Combinations, Intangible Assets, Valuation, Amortization, Purchase Method, and Pooling-of-Interests. We might add "Mergers" and "Acquisitions" and additional terms as we learn more about the topic.
Step 3) Use the Accounting Information Center to Identify Research Resources
The Accounting Information Center to find accounting standards, artcies, books, case studies, databases, examples, websites and other resources to use in researching accounting issues. We will discuss specific sources in the following steps.
Step 4) Find an Overview of the Topic
Handbooks and Textbooks are often the best places to start looking for information on unfamiliar topics. Their mission is to define, explain and provide examples for students and practitioners. The Accountants' Handbook. Vol.1: Financial Accounting and General Topics and Vol.2.: Special Industries and Special Topics are both in netLibrary. You must be careful about the date of publication. Many accounting issues are in flux and may be under consideration by the accounting standard setters such as the American Institute of Certified Public Accountants (AICPA), the Financial Accounting Standards Board (FASB), the Public Company Accounting and Oversight Board, the U.S. Securities and Exchange Commission or the International Accounting Standards Board (IASB). We will learn that is precisely the case regarding Goodwill Accounting. CCH's Accounting Research Manager contains accounting standards from all of these organizations as well as accounting news, guides to the literature, interpretations, and examples. The 10-K Lookup feature enables you to locate SEC filings illustarting your research topic. Use ABI/INFORM, Business Source Premier (EBSCO), Factiva, Lexis-Nexis, and The Wall Street Journal to search for well-written articles in journals, magazines and newspapers. These play an important role in informing professionals and the public about current issues and controversies. The World Wide Web offers a new way to search for information about accounting topics. Google is especially good for quickly finding relevant material. In all cases you must carefully consider the authority, reputation and timeliness of the source of the information.
Step 5) Identify Authoritative Pronouncements
Accounting research relies heavily on authoritative precedents promulgated by recognized standard setting bodies. CCH's Accounting Research Manager combines the authoritative literature with other publications to give a comprehensive treatment of accounting topics. It includes the FASB Statements, Current Text, and Emerging Issues Task Force (EITF) abstracts as well as all of the AICPA publications, PCAOB publications, SEC rules and regulations, and the International Accounting Standards Board (IASB) material. The Financial Accounting Standards Board (FASB) is currently making available the full text of the FASB Statements on the FASB Website. Users must agree not to store copies on their computers or link directly to the statements. The AICPA Library is now available in RIA Checkpoint. It includes the AICPA Professional Standards with every Statement on Auditing Stanadrds (SAS), the Technical Practice Aids, the Audit and Accounting Guides and Other Audit Risk Alerts. The CCH Internet Research NetWork has several publications providing access to the authoritative accounting literature in the SEC Accountant's Module including the U.S. Master GAAP Guide and the SEC Accounting Rules. Lexis-Nexis has a variety of AICPA Publications including the Industry Audit Guides and the Statements on Auditing Standards (SAS), the Miller GAAP and GAAS Guides, The Journal of Accountancy, the CPA Letter and others. We have print subscriptions to many of these publications in the Business Reference area in Library West. New FASB Statements and AICPA Auditing Standards are published in the Journal of Accountancy and may be found online in the Article databases. RIA Checkpoint has the AICPA's Statements of Position (SOPs). Both AICPA and FASB make some information about current issues freely available on their Websites. In June 2001 FASB issued Statement Of Financial Accounting Standards (SFAS) No. 14: Business Combinations and SFAS No. 142: Goodwill and Other Intangible Assets, replacing the Accounting Principles Board Opinions Nos. 16 & !7, that previously guided accounting for goodwill in business combinations. Henceforth, all Business Combinations must be accounted for using the purchase method with Goodwill treated as an asset on the balance sheet that must be regularly reviewed for impairment. The pooling-of-interests method is no longer allowed and Goodwill is not amortized.
Step 6) Search for Articles, Case Studies and Examples About the Issues and Their Implications
Online article databases including ABI/INFORM, Business Source Premier (EBSCO), Factiva and Lexis-Nexis offer a tremendous opportunity for finding background information, literature reviews, specific examples, practical and public policy implications and other material on virtually any substantive accounting issue. The more controversial the issue the more likely it is to be widely discussed in the periodical literature. A great example for a comprehensive review of Goodwill accounting is: "Understanding Accounting for Business Combinations: An Instructional Resource," by Hugo Nurnberg and Jan Sweeney. Issues in Accounting Education, 22 (2), May 2007. pp255-284.
Step 7) Search the Web
Goodwill Hunting is a companion Case Study that illustrates a variety of high-quality published information on Accounting for Goodwill. Google will help you locate additional materials freely available. Use the Websites listed in the Accounting Research Center to find more.
Step 8) Examine the Financial Statements Published in SEC Filings
U.S. and Foreign Companies whose stock trades publicly in the United States are required to file audited financial statements that meet U. S. Generally Accepted Accounting Principles (GAAP) with the Securities and Exchange Commission (SEC). These are made available in the SEC's EDGAR database. You can also retrieve EDGAR filings in Factiva, Thomson Research, Hoover's Online, OneSource, and other databases. Pay particular attention to the Financial Footnotes published in the 10Ks where significant accounting policies are disclosed These are usually found in Note 1. For example, in AOL's September 2001 10Q (quarterly filing) there are numerous references to "goodwill" due to the substantial negative impact on earnings of amortizing the excess purchase price under current rules. In 2002 under the new FASB Statement 143 the charges to earnings were magically transformed into an asset carried on future balance sheets. Reported earnings greatly benefited.
Step 9) Search Investment Research Reports
Goodwill is a good example of an accounting issue that has major implications for investment analysis and strategy. Investment banks all have sophisticated research departments that analyze accounting rule changes for their impact on financial statements, corporate strategy and investment opportunities. Investext on OneSource has a good selection ofreports from leading firms including Credit Suisse, Deutche Banke and others that evaluate the impact of changes in Goodwill Accounting. And you will find numerous, detailed reports on all major publicly traded companies - there are hundreds of reports for Time Warner.
Step 10) Putting It All Together
Now you should have command of the topic. You know the accounting terms used to describe the issues. You are familiar with specific information resources. You’ve located overviews, articles and other material that provide a basic understanding and perspective on the issues as well as areas where controversy remains. You’ve identified relevant information sources, databases, books, reports and Web sites and utilized effective search strategies. You know the important published authoritative and semi-authoritative pronouncements and who issued them. You have seen examples in published financial statements. You’re ready to apply all of this information to your specific situation. Refer to the Accounting Guide for additional information. Examine the Goodwill Hunting Case Study for specific examples.
2. Pablo Galarza. "The Goodwill Games." Money 30 No. 13 (December 2001): 61. In ABI/INFORM.