Strategy

Let’s Combine the Accounting and Finance Majors


by FEI Daily Staff

In a general sense, majoring in any single discipline in college today — whether accounting, communications, economics or other areas — is ill-advised.

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Given the complexity of the world and the importance of learning, pursuing one subject area creates a sense of “tunnel vision” as opposed to a broad-based outlook.

Students are well advised to expand their career horizons in deciding what to study and even pursue tailor-made programs for themselves in the process.

A departure from traditional business school curricula, a combined major of accounting and finance would attract students to be well-positioned for a blended career in these disciplines, such as controllership and corporate finance. The new curriculum would stress the accountant’s role as business adviser rather than information conveyor, as well as the application of accounting to finance.

Students would undertake courses in financial statement analysis, investments and case study courses, as well as intermediate and advanced accounting, auditing and taxation. Emphasis would be on applications, such as: What should be the firm’s dividend policy? What should be its capital structure? Should the firm pursue a capital acquisition project (if so, how to finance it), and which derivatives should the firm acquire to manage risk?

Additionally, there would be interdisciplinary courses, preferably team-taught by faculty with both backgrounds, e.g., on valuation of the firm, accenting financial decision-making. The case method, which is used far more extensively in finance than accounting instruction, would be a principal instructional tool, emphasizing specific situations to encourage students to think critically about the applications of accounting to finance.

Professional ethics would be emphasized, not just in accounting courses, as is typically the case, but also in finance courses, where it tends to receive limited attention. In this manner, the learning process should be far more comprehensive than traditional study in each of the two subject areas. Students would still pursue internships, which could then be more diverse in nature, given their expanded knowledge and skillsets.

The combined major would prepare students for a long-term career within financial management, rather than just their first position. This course of study should enhance the ability of the students to pursue alternative assignments in accounting and finance.

There are two authoritative documents on improving accounting education and specific objectives for this dual major, along with the courses students would take in this program. There are also drawbacks of this proposal, which are discussed.

Previous Ideas

There are many ideas regarding integrating business education from two authoritative accounting education reports: Accounting Education: Charting the Course through a Perilous Future, by W. Steve Albrecht from Brigham Young University and Robert J. Sack of the University of Virginia (2000), and the more recent Pathways Commission Report, from the American Accounting Association and the American Institute of Certified Public Accountants (2012). Both contain important recommendations relevant to the integration of the two disciplines.

Albrecht/Sack critiques the emphasis in accounting education on recording events and preparing financial statements, rather than analyzing information for decisions. In particular, the study finds accounting education to be silo-centered, failing to infuse its subject matter with other areas of business. However, the study appears to advocate a combined program: “… With a financial market perspective, it may be appropriate to combine accounting and finance into one degree. [That]… would produce a student who has a thorough understanding of … how financial reporting affects financial markets and how financial information can be … analyzed to make better investment and market decisions.”

The Pathways Commission calls for embedding accounting research in education and practice. Since much of this research is finance-related, that recommendation would implicitly suggest the importance of finance courses, not just one survey course, in the accounting curriculum.

Like Albrecht/Sack, the Pathways report emphasizes “[t]he need to overcome the silo effect in many departments, where the curriculum is viewed as a series of independent, not integrated courses.” The Pathways report recommends an overhaul of the accounting curriculum: “Convene a task force, led by educators and including broad representation across disciplinary areas and practice, to engage the community in defining the accounting body of knowledge.”

Specific Objectives of the Proposed Program

This initiative would expose students to a comprehensive course of study in the two disciplines, providing a user perspective in financial and managerial information reporting, not just a preparer and auditor perspective, as is currently the case in most undergraduate and graduate accounting programs. It makes no sense that accounting majors are required to take only one basic finance course; they should also pursue courses on valuation of the firm, equity and fixed income securities, portfolio analysis and derivatives.

By the same token, it makes no sense for finance majors to take only introductory courses in accounting; they should pursue intermediate accounting, cost analysis, advanced accounting and taxation. Students would then enhance their financial literacy and be better business advisers.

Many accounting graduates eventually assume positions in corporate management, rather than public accounting, as experience indicates. This program would better prepare the students for long-term careers with wider exposure to the accounting functions within enterprises. That coverage would elevate the graduates’ value to their employers and possibly increase the retention rate in those positions.

Traditional accounting programs tend to focus on educating students for their first position and the certified public accountant (CPA) examination, rather than their entire career. Finance majors would benefit from the study of accounting in terms of enhancing their ability to utilize accounting in their decision-making.

This program would give the fifth year in graduate school a sense of structure that is currently lacking, as students currently select courses they need to fulfill the 150-hour requirement to be eligible to sit for the CPA and to be prepared for the Certified Financial Analayst (CFA), examinations.

Launching this formal program, the profession could attract additional highly talented students, perhaps from a broader geographic region and, in the process, further raise the quality of U.S. teaching and its national reputation.

Alternative Options for Undergraduate Study

Though an integrated five-year program involving both disciplines is the preferred course of action for this author, there are several alternative models through which students could undertake this joint program in varying degrees at the ndergraduate and/or graduate level as indicated below.

There would be no integration of accounting and finance courses, which would remain separate offerings by two separate business school departments. If students wish to be combined majors, they would pursue both sets of required courses. The typical accounting courses, three credits each, comprising 36 credits in total, include: introductory financial and managerial principles required of all business majors; intermediate financial accounting I and II; cost analysis; individual taxation; information systems; auditing; two electives such as corporate taxation and controllership; and two business law courses.

The typical finance courses, comprising 24 credits, include: the basic finance course required of all business majors; intermediate microeconomics; intermediate macroeconomics or money and banking; financial institutions; investments; intermediate corporate finance; business finance problems; and one elective, which could be international business finance or derivatives management.

Again there would be no overt integrative courses between the two departments. Accounting majors would pursue a minor or concentration amounting to 18 credits in finance and vice versa (beyond the required courses in both disciplines for all business students), so that only the most essential courses would be included in the second discipline, not requiring more than one additional semester of study.

The minor in finance would include money and banking, financial institutions, investments, intermediate corporate finance, case problems and one elective. The minor in accounting would include a special intermediate financial accounting course for finance majors, cost analysis, individual taxation, accounting information systems, controllership and one elective. It would be particularly useful for finance majors to have an accounting concentration to leverage their broader background, as internships in finance are few and far between.

In addition to either of the two options above, there would be limited integration of courses in both disciplines. The two departments would collaborate on a combined curriculum, which could involve at least one course cross-listed as an elective for both majors. However, there would be no team-teaching or other integrative features.

Again applicable to either option, but moving beyond the third alternative, there would be at least one team-taught course by faculty from both disciplines, preferably a capstone course including financial statement analysis and valuation of the firm. Additional linkages between the two departments would involve joint meetings of the student-led finance and accounting associations and a joint investment club for students, including invited presentations by specialists. This option truly integrates the two disciplines.

Alternative Options for Graduate Study

There would be no necessary linkage between undergraduate and graduate study in accounting and finance. A student would major in accounting (finance) as an undergraduate and pursue accounting (finance) courses as a graduate student.

A student would be enrolled in the combined major at the undergraduate level and continue this course of study at the graduate level or decide to focus on the other discipline at that juncture. This is the option that this author favors as it would best facilitate integration of the two disciplines.

The combined program, spread over five years, would include intermediate financial accounting I, basic finance and intermediate microeconomics in the fall of the junior year; intermediate financial accounting II, individual taxation, money and banking and financial institutions in the spring of the junior year or the summer session if students pursue full-time internships during the spring term.

During the fall term of the senior year, the students would take cost analysis, accounting information systems, investments and intermediate corporate finance; during the spring term, auditing, portfolio management and case problems in financial management.

In the graduate study year, the students would choose from the following courses: consolidated financial statements, comparative accounting systems, government/not-for-profit accounting, advanced auditing; and international business finance, capital markets and institutions, managing risk with derivatives and international economics.

Besides existing courses in the two disciplines, new joint courses, preferably team-taught by both faculties, could be developed on such topics as sustainability in financial reporting; the process of acquiring firms: due diligence: valuation, financing and accounting for the venture; behavioral aspects of accounting and finance; and leadership in finance and accounting.

There are, however, potential drawbacks to any combined discipline.

This would be a very challenging course-of-study that may be beyond the capability of a number of current students, who find one discipline hard enough to manage successfully. Nevertheless, this program would challenge the best and brightest students in these disciplines.

This program would entail additional responsibilities for both academic departments. A few key faculty in both disciplines may well feel overburdened as it is, and hence would be reluctant to consent to participate in this program without additional funding and staffing in addition to released time to prepare the teaching materials and extra graduate students to assist the faculty involved.

This unique program would lead to a BSBA and MBA or MS in both disciplines. The program aims to improve student identification with the comprehensive nature of the accounting and finance profession. In currently-taught courses, we tend to do a commendable job in presenting technical material and professional values, but less so in providing real-world applications, such as interdisciplinary cases and in presenting the wide variety of financial management practices.

Universities could do a much better job of connecting the dots between accounting and finance, which are closely intertwined in enterprise management. Too many accounting courses today are geared toward an outdated, narrow notion of what accountants and financial executives actually do, neglecting the use of accounting information.

The program described is oriented to future preparers, auditors, investors, analysts and other users of accounting information. This program aims to prepare students for lifetime careers, not just for their first positions.

Robert Bloom ([email protected]) is a professor in the department of accountancy at John Carroll University’s Boler School of Business in University Heights, Ohio.