Management Development Institute, Gurgaon Graduate Programmes

Course Outline
Programme: PGPM- II Year, 2017-19

Title of the Course: Forensic Accounting & Course Credit: 3.0 credits
Corporate Governance

Core/Elective: Elective Term: V

Area: Finance Academic Year: 2018-19

Course Faculty Name: Sandeep Goel & Contact No.: 5288

Sanjay Bakshi
Email: sandeep@mdi.ac.in
sbakshi@mdi.ac.in

a. Introduction/description of the course:

Since the birth of human being, one trait which has never left his skin is “Greed.” This
greed into the business arena assumes the shape of a financial fraud. Over the last
few years, the world has witnessed numerous corporate scandals involving financial
frauds by people at the top. This has been a collaborative activity, rather than an
individual effort, including financial experts - auditors, accountants, investment
bankers, credit rating agencies, securities firms, banks, and investment managers.
These fraudulent practices are a serious, costly, and growing epidemic for business
and government and in particular for shareholders, and therefore call for serious
financial governance. This is where ‘Forensic Accounting’ comes into picture,
commonly referred to as “FRAUD ANALYTICS.” It investigates, detects and
analyses the corporate frauds for value investing and shareholders’ wealth
maximization. Thus, financial statements and their complete disclosures’ analysis
become crucial for detecting these manipulative practices for the stakeholders’
interests at large.

b. Course Objectives/Learning Outcomes/Competencies:

This course will examine the "financial hazards," how they inevitably result in
financial and corporate blowups and what lessons we can draw from blowups such as
those of Enron, WorldCom, Satyam Computers, Kingfisher Airlines, Sahara, Lehman
Brothers, and the mortgage crisis in USA.

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This course primarily will help students to answer questions like:

(1) What are the various types of financial frauds committed in a corporate world?
(2) What incentives lead people to "cross the line" into the territory of fraud?
(3) What could be the mis-implications of these fraudulent practices on shareholders’
wealth maximization?
(4) How these financial frauds can be detected and prevented with the help of
‘Forensic Analytics’?
(5) What are the best board practices to enhance shareholders’ value?
(6) How financial systems can be designed to prevent these frauds or stop it before
it’s too late?

Industry Orientation
This course will provide a platform to the students to explore career growth and
industry orientation in the following areas:
Core Areas
1. Fraud Analytics
2. Corporate Governance Rating & Compliance
3. Value Investing
4. Risk Management in Banks and Financial Institutions
5. Financial Analysis & Business Valuation
Allied Areas
6. M&A
7. Corporate Finance
8. Financial Markets & Services

Big Four Consulting Firms (KPMG, E&Y, Deloitte & PWC), Rating Agencies
(Standard & Poor’s, Moody’s, CRISL, ICRA & CARE), and Research Houses
(Accenture, People Research.Com) offer these verticals.

c. Pedagogical Methods:
Forensic Accounting & Corporate Governance will employ a ‘Case-based’ and
‘Analytical approach’ to understanding financial frauds & governance issues in the
corporate world.

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d. Evaluation Criteria with their weightages:
Sr. No. Name of Component Number Weightage
assigned
1 Quizzes 4 20%
2 Class Participation
3 Assignments
4 Projects 1 20%
5 Cases
5 Any other component
6 Mid-Term Examination 1 30%
7 End-Term Examination 1 30%
Total Weightage Assigned: 100%

e. Text Book:
Financial Shenanigans (print/ e-book)
Schilit, Howard. (2002). McGraw Hill, books.google.co.in.

Readings:
1. EVA Reporting in India
Goel, Sandeep. (2012). EVA Reporting In India: The Market Analogy,
Singapore Management Review, Vol. 34, No. 2, pp.18-29, Singapore Institute
of Management, Singapore.
2. Business management: quality vs. profits
Goel, Sandeep (2013). Business Management: Quality vs. Profits, The
Business & Management Review, Vol. 3, No.4, pp. 1-6, Academy of Business
& Retail Management(ABRMR), London, UK.
3. Financial reporting – the old age tussle
Goel, Sandeep. (2012). Financial reporting–the old age tussle between legality
and quality in context of earnings management, Procedia Economics and
Finance 3, pp. 576-581, Elsevier, www.scincedirect.com, Romania.
4. Earnings management in India
Ajit, D. (2013). Earnings management in India, SEBI DRG Study.
5. Bivoail Corporation Case
Chapman, Craig. (2009). Bivoail Corporation: Revenue Recognition and FOB
Sales Accounting, HBS Case, 4011 April 7.
6. Depreciation at Delta Airlines Case
Bruns, William J. (2010). Depreciation at Delta Airlines: The Fresh start
HBS Case, 4013, November 23.
7. Enron: a case study
Stuart L. Gillan and John D. Martin
8. The Satyam Fiasco
Mak Yuen Teen

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 9. Do Earnings Lie?
Bannister, James, and Machuga, Susan. (2013). Do Earnings Lie? – A Case
Demonstrating Legally-Permissible, Journal of Accounting and Finance, Vol.
13, No. 5, University of Hartford.
10. Demystifying Earnings management
Goel, Sandeep. (2012). Demystifying earnings management through accruals
management: An Indian corporate study, Vikalpa, January-March, Vol. 37,
No. 1, pp.49-56, Indian Institute of Management, Ahmadabad.
11. How to Manage Earnings Management?
Mohanram, Partha S. (2003). How to Manage Earnings Management?
Accounting World, October, The Institute of Chartered Financial Analysts of
India.
12. Demutualisation of stock exchanges in India
Goel, Sandeep. (2015). Demutualisation of stock exchanges in India: The
Corporate Governance Chapter, Springer Proceedings in Business and
Economics, Springer, New Delhi, Ch. 19.
13. Corporate Governance in the Changing economic scenario
Goel, Sandeep. (2014). Corporate Governance in the Changing Economic
Scenario: The Indian Regulatory Picture, Conference Proceedings, 8th
February, K.J. Somaiya Institute of Management Studies and Research,
Mumbai.
14. The ratings game: corporate governance ratings and why you should care
Matthew S Brown, Katten Muchin, and Zavis Rosenman

Videos / Movies:
1. MoviesAboutUnderhandedFianancailSheananigans
www.mentalfloss.com/blogs/archives/24098
2. Enron: The Smartest Guys in the Room
http://documentary-movie.com/enron-the-smartest-guys-in-the-room/
3. Anatomy of a Takeover
http://www.learner.org/resources/series81.html
4. Buffet on corporate governance
http://www.bloomberg.com/news/articles/2016-07-21/u-s-business-titans-push-
commonsense-governance-principles
5. Corporate Governance Failures
https://www.youtube.com/watch?v=3ktx_cmzflU
6. The Governance Problem: How it started
https://www.youtube.com/watch?v=V0zemSfMWSQ

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 f. Detailed course content with Session by session Plan:
I Pre-mid Term (Sandeep Goel)

Session No. Session Theme Additional Readings/ Cases

1 CREATIVE ACCOUNTING
Learning objective: Case:
To be oriented with the nuances of creative accounting Roche Pvt. Ltd.
Contents:
§ Concept and types of Earnings management -
aggressive vs. conservative management
§ Types of financial shenanigans
§ Incentives for financial shenanigans
2 CARROT OF “MANAGEMENT
COMPENSATION”
Learning objective: Case:
To be acquainted with slacks in accounting with Personal Industries Ltd.
management compensation
Article:
Contents: EVA Reporting in India
§ EVA designing and abuse for top management
§ Carrot approach of Bonus
3-4 FINANCIAL SHENANIGANS – “REVENUE &
EXPENSE MANIPULATION”
Learning objective: Cases:
To be well versed with revenue and expense Biovail Corporation
manipulative practices by the management and learn Delta Airlines
from the corporate mistakes
Contents: Articles:
§ Revenue and Expense manipulation 1. Business management: quality
vs. profits
§ Provisions and Reserves’ fabrication
§ Accruals management - Depreciation cook-up 2. Financial reporting – the old
age tussle
5-6 FINANCIAL SHENANIGANS - “ASSETS
MANIPULATION”
Learning objective: Cases:
Enron
To be well versed with various financial manipulative
practices by the management and learn from the WorldCom
mistakes of corporate engaged in financial scamsXerox
The Satyam Fiasco
Contents: Kingfisher Airlines
§ Off-balance sheet items – Leasing designing, Sahara
Factoring, SPVs
§ Tax bubble – Deferred tax convenience Article:
§ Financial statements’ impact analysis Earnings management in India

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7-8 FRAUD ANALYTICS - “EARNINGS’ QUALITY
X-RAY”
Learning objective: Case:
To be acquainted with various analytical tools for Do Earnings Lie?
detecting and preventing financial frauds
Articles:
Contents: 1. Demystifying earnings
§ Red Flags in the financial Statements management
§ Forensic models - Altman Z Score, P Score 2. How to Manage Earnings
metric, Quality of earnings, Quality of revenue Management?
§ Discretionary accruals model
9 CORPORATE GOVERNANCE MODELING &
RATING
Learning Objective:
Case:
To be acquainted with corporate governance
Reliance demerger
framework and understand in depth the board
effectiveness in corporate governance
Article:
Contents: Demutualisation of stock
§ Corporate governance models exchanges in India
§ Indian corporate governance structure
§ Regulation of corporate governance - Clause 49,
SOX compliance
§ Board’s responsibility in ensuring governance -
CEO duality
§ Independent directors and Board committees
10 GOVERNANCE RATING FOR “SWM”
Learning objective: Case let:
To analyse the relevance of corporate governance Berkshire Hathaway
rating for shareholders’ value
Contents:
§ Arm’s Length Application, Corporate Governance
rating and shareholders’ value

g. A list of Reference Book(s) and suggested readings:

Readings:
1. Financial Statement Fraud, Joseph T. Wells, Wiley
2. Fraud Detection and Risk Management, www.aaai.org
3. Financial Warnings, Charles W. Mulford & Eugene E. Comiskey, Wiley
4. A Pox on Both Your Houses , Jonathan R. Macey
http://digitalcommons.law.yale.edu/fss_papers/1417/
5. Maximizing Shareholder Value, William Lazonick &Mary O’ Sullivan
http://test.business.illinois.edu/aguilera/Teaching/ICC/Lazonick_OSullivan_2
000_maximizing_shareholdervalue.pdf

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Additional Readings:

Ø Note: Necessary Readings and Cases & Exercises (Course Pack) have been
provided.

h. Other detail (if any)

PROJECT
(To be decided and announced in the due time of the Course)

As an integral component for learning and evaluation the students are being assigned
a project on Forensic Accounting & Corporate Governance. This is a group activity
and it is expected that each member of the group would actively participate in the
exercise.

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II Post mid-term (Sanjay Bakshi)
Contents:
• Good and bad capital allocation decisions in businesses relating to earnings
retention or payout decision, buyback decision, organic vs. organic growth
decisions
• Incentive compensation - including those relating incentive system design
• Analysis of company communications with investors and analysts
• Aggressive vs. conservative accounting behaviour
• Forensic accounting and frauds

• Benford’s Law and Other Statistical Techniques for Fraud Detection

• Use and misuse of leverage
• Vulnerable business models prone to abuse by using aggressive accounting

Cases:
• Capital Allocation at Berkshire Hathaway
• Capital Misallocation at GE
• Capital Misallocation at the Aditya Vikram Birla Group
• Capital Misallocation at the Tata Group
• Fraud at Educomp Solutions
• The Analytical Methods of Jim Chanos (the world’s most successful sjort
seller)
• The Analytical Methods of Harry Markopolous (who exposed Bernie Madoff)
• Godrej Industries and Sterlite’s Treatment of Minority Stockholders
• The Missing Cash at Satyam and Aftek Industries
• Early Warning Signals from The Stock Market for Debt Investors
• Quality of Disclosures at Reliance Communications
• Abuse of Zero Coupon Securities
• Veritas Forensic Reports on Rcom, DLF and UB Holdings
• The Alchemy of Finance at Reliable Engineers
• Spotting Financial Jargon
• Sealed Air Leveraged Recapalization

Readings:
1. The Moral Instinct by Steven Pinker
2. Nudge by Richard Thaler and Cass R. Sunstein
3. Financial Shenanigans by Howard Schilit
4. Financial Warnings by Charles W. Mulford
5. The Great Financial Scandal of 2003 by Charles T Munger
6. Buffett on Corporate Governance
7. Buffett on Stock Options
8. Ben Franklin's Way to Wealth
9. Ben Franklin's Poor Richard's Almanack
10. Lucifer Effect by Philip Zimbardo
11. Famous Financial Fiascos by john Train

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 12. Ambit Strategy on Indian Annual Reports Facts or Fiction
13. Ambit Strategy on How Accounting, Governance and Capital Allocation
Drive Alpha in India
14. Ambit Strategy on Beware of the Zone of Darkness
15. Carol Loomis Columns on Capital Allocation Decisions and Mergers and
Acquisitions

Movies/Documentaries
1. Enron: The Smartest Guys in the Room
2. Boiler Room
3. Dot Con
4. Maxed Out
5. Dan Ariely on Cheating