MGP 274 - Auditing, Internal Control and Public Accounting - Students

Management 274 Syllabus
Michael W. Maher
Room 132, AOB IV
mwmaher@ucdavis.edu
530-752-7034
Office hours: Tuesdays, 3:00 – 5:00 pm and other times as needed
Purpose of the course.
In my view, running organizations well requires two things: good strategy and good
governance. The rest is a matter of details—useful and important, but details.
Corporate governance is an exciting and timely topic. This course covers recent and notso-recent
business and accounting scandals, discusses how corporations can better
operate in the interests of shareholders and the public, and learn from people who rely on
corporate governance in making investment decisions. This course should be valuable to
current and prospective shareholders and directors and to managers who wish to operate
their organizations with effective governance. It is directly relevant to people who are or
want to be involved in governance—auditors, consultants in compensation and
incentives, staff working on mergers and acquisitions, corporate regulators, and
shareholder rights activists. We focus on shareholders as the primary constituent of the
organization, but our work is also relevant for a broader group of stakeholders.
This course aims to help students understand the workings of corporate governance. We
focus on the governance of corporations for which there is a separation of ownership
from control of resources. In these cases, owners-shareholders have entrusted corporate
managers with resources to conduct business and generate a return on investment for
them. Owners-shareholders rarely monitor corporate managers closely, which allows
managers considerable discretion in using resources. For example, researchers have long
documented the inclination of managers to achieve growth at the expense of profitability
and to manage accounting numbers to present a more stable picture of companies’
financial performance than actually occurs. The result is that corporate managers have
tremendous resources at their disposal and wield influence that arguably is greater than
that of governments.
Corporate governance is a broad and important topic that matters a lot to managers,
directors, accountants and auditors, shareholders, regulators and society as a whole.
Serious students of corporate governance must know the law, economics, finance,
accounting and auditing, sociology, psychology and political science. This course takes
one look at corporate governance; you could take many courses on this topic and still
have only scratched the surface.

Required books:
1. Richard Monks and Nell Minow, Corporate Governance, 3 rd ed, Blackwell
Publishing, 2004.
2. James O’ Loughlin, The Real Warren Buffet: Managing Capital, Leading People,
Nicholas Brealey Publishing, London, 2004. Warren Buffet is an excellent
example of a leading investor who fosters good corporate governance.
(Discussions of corporate governance can get bogged down in the wrong-doing
that we observe. I assign this biography in part because I want to end the course
on a high note.)
Grading:
1. Contribution to class discussion and turned in notes on readings and cases
(40%). I provide questions about the readings, and I assign questions about the
cases. I do not want a formal written report turned in; I want a copy of your
talking notes or notes to yourself as you go through the readings. That way, you
get some credit for contribution to the class even if you are not called on.
2. Course project (40%). Each student will become an expert in one of the recent
frauds—Enron, WorldCom, Tyco, Adelphia, Waste Management, etc.—or Arthur
Andersen & Co. I encourage you to work in teams of two – four persons. Your
assignment is (1) to prepare a four page memo to hand out to your classmates one
week before your presentation, (2) to make a presentation in class (approx. 20
minutes) and (3) to prepare a paper for me (not limited to four pages). During the
term, you will be the expert in your chosen fraud, and I shall expect you to
contribute to the class discussion accordingly. For example, we discuss boards of
directors in session 3, so I will expect you to contribute to that discussion by
stating the role of the board in failing to prevent fraud in your case.
3. Final examination (20%). Open book and open notes exam in class.

Session Topics and work in class Assignments
1. Jan. 9 Introduction.
Purpose of course.
Overview lecture on corporate
accountability
2. Jan. 18
(Make up
for holiday
on Jan. 16.)
History of key frauds.
Past, present and future of corporate
accountability. I present major financial
frauds—South Sea Bubble, Krueger
Match, Equity Funding, ZZZ Best—
many of which led to significant changes
in the legal environment. Overall, we
look at how markets, laws and ethics
create corporate accountability. In class,
I shall hand out a case or provide a video
for us to discuss.
3. Jan. 23 Shareholders.
Rights and responsibilities of management
to shareholders.
The role of shareholders in corporate
governance.
4. Jan. 30 Board of Directors.
The role of the Board of Directors in
corporate accountability.
Presentation by Robert Smiley, Director
and former Dean of the GSM.
5. Feb. 6 Auditing, internal controls, Sarbanes-
Oxley Act of 2004.
Presentation by Rick Blumenfeld, former
senior partner at Arthur Andersen & Co.
and a major player in obtaining closure on
major fraud cases over the past several
years.
6. Feb. 13 Management Performance and
Compensation
How management incentive plans help or
hurt corporate governance.
Read Monk and Minnow
(MM), Introduction and
Appendix.
Read MM Ch 1,
“Corporations” We won’t
discuss this chapter until
Session 3, but it is a good idea
to get a head start on the
reading because the chapters
are long. Questions about the
reading to be provided. (Hand
in your notes at the beginning
of Session 3.)
Read MM Ch. 2,
“Shareholders”
Discuss questions covering
chapters 1 and 2. Questions
about the reading to be
provided. (Hand in your
notes on Ch. 1 and 2 at the
beginning of Session 3.)
Read MM Ch. 3, “Directors
and the Board”. Questions
about the reading to be
provided.
Discuss General Motors case
(all parts) from MM. Answer
questions at end of case.
(Hand in your notes on Ch.
3and the GM case at the
beginning of Session 4.)
To be announced.
Read MM Ch. 4,
“Management Performance
and Compensation”.
Questions about the reading to

e provided (Hand in your
notes on Ch. 4 at the
beginning of Session 6.)
7. Feb. 20 Holiday This “off week” is a good
time to put the finishing
touches on the course project.
8. Feb. 27 The Real World
1. Presentation by D. James Sogas on
“Ethics: Hard Lessons Learned from Not
Sounding the Alarm” Mr. Sogas is an
engineer who has first hand experience in
the consequences of being on the edge of
wrong-doing.
2. Crossing Country Lines
3. Project Presentations
Read MM Ch. 5,
“International Issues”
Questions about the reading to
be provided. (Hand in your
notes on Ch. 5 at the
beginning of Session 8.)
9. Mar. 6 The Real World
Warren Buffet
Project Presentations
10. Mar. 13 The Real World
Warren Buffet
Project Presentations
11. Final exam (open book, open notes, inclass
exam).
Read The Real Warren Buffet,
Ch. 1-4. Questions about the
reading to be provided. (Hand
in your notes on WB ch. 1 – 4
at the beginning of Session 9.)
Read The Real Warren Buffet,
Ch. 6-10. Questions about the
reading to be provided. (Hand
in your notes on WB ch. 6 - 10
at the beginning of Session
10.)