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The case is appropriate for courses in financial accounting and reporting, audit and assurance, forensic accounting, accounting practice and regulations and corporate governance. After studying the case, students should be able to explain the concept of control and power under IFRS; explain the concept of economic; discuss audit committee and external auditor independence issues and ways to strengthen auditor’s independence; assess the usefulness of the new extended audit report; and evaluate the role of gatekeepers such as financial analysts, audit committee, external auditor, institutional investors and regulators in enhancing the quality of financial reporting.

This case focuses on the accounting policy choices of the foreign associates of AirAsia Berhad. AirAsia Berhad is a phenomenal success, from a debt laden company to having been voted as World’s Best Low-Cost Airline in the annual World Airline Survey by Skytrax for eight consecutive years from 2009 to 2016 and the World’s Leading Low-Cost Airline in the annual World Travel Awards for four consecutive years from 2013 to 2016. In June 2015, an analyst report was leaked, and it led to heated discussion and exchanges in the market. The report questioned the non-consolidation of AirAsia Berhad associates. The share market also reacted. Various players in the market came into foray with their statements and opinions on the merit of the accounting policy choice by AirAsia Berhad. Whose views actually reflect the nature of accounting policy choice that is true and fair? Are these gatekeepers attesting to the accounting crux of substance over form?

Senior undergraduates; MBA; EMBA

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CSS: 1: Accounting and Finance

Controladora Comercial Mexicana, a Mexican retailer, had successfully managed the bankruptcy process and was ready to emerge from its problems, primarily caused by speculation and excessive debt, and begin operations anew. Was the restructured Comerci capable of regaining its position as a premier retailer, and more importantly, was the firm capable of repaying the high level of debt that it carried following bankruptcy reorganization? How strong was the reorganized firm? Had Comerci truly left its problems behind in bankruptcy court, or would history repeat itself? How could Comerci raise funds needed for growth – through additional debt? Though asset sales?

This case was researched using publicly available information, including the company's financial statements, bankruptcy filings, news stories about the bankruptcy and financial data bases (e.g. ISI Emerging Markets, Economática, Capital IQ, etc.) to obtain information about the competitors and from financial analysts.

This case is intended for advanced undergraduate or MBA electives in finance. Students should have a basic understanding of valuation and financing before attempting this case. The case could also be used in a corporate finance or banking class to illustrate bankruptcy and credit risk, or could be used in an international business class to illustrate the differences between USA and international bankruptcies.

To understand the motivations for adopting RI practices for institutional investors and asset managers; to understand the different RI strategies available to institutional investors; to understand the impediments to adoption of RI at an organisational level; to debate how financial institutions can drive the growth and adoption of RI among the investment community; and to illustrate the complexities of organisational change and the strategies that institutional entrepreneurs can use to overcome resistance to change from key stakeholders.

The case is set in October 2017 against the backdrop of the pending unbundling of Old Mutual plc into four new independent businesses, and the subsequent relisting of Old Mutual Ltd on the Johannesburg Stock Exchange in South Africa. The head of responsible investment at Old Mutual Investment Group and the main protagonist of the case, Jon Duncan, is considering what the subsequent relisting will mean for the responsible investing programmes that he has set up over the past six years. The case goes on to describe how responsible investment principles were supported through the implementation of ESG integration and active ownership strategies. It also examines recent developments in ESG product innovations and demonstrates another technique available to responsible investment practitioners in the form of best-in-class ESG screening. The case ends with Duncan contemplating the strategic priorities of the RI team moving forward, and how the managed separation might impact on the RI agenda. It provides prompts for students to discuss and formulate a strategy for advancing the aims of responsible investing.

The case is aimed at postgraduate-level students enrolled in a management-related degree programme such as an MBA, and covers both sustainable and responsible finance and institutional entrepreneurship theory.

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CSS 1: Accounting and Finance

The case on ABIL deals with the important issue of corporate governance, and particularly the crucial role that the board of directors plays. It highlights the complex issue institutional investors face when trying to assess the strength of a board and the quality of information and disclosure. The case is set in South Africa which is an emerging market.

The case targets MBA students and can be taught as part of a corporate governance or sustainable and responsible investment module or course. The case is aimed at both local and international students as the case deals with corporate governance principles that are applicable to both audiences. Where necessary, the case provides information to guide international audiences.

The teaching case is set on 6 August 2014 when Ian Matthews, the Head of Equities at a South African Asset Manager, BG Wealth, gets a call while on leave. The call is from his boss, chief investment officer, Deryck Medley, informing him of the negative trading update and asking him to come back to prepare for an emergency investment committee that afternoon. The case traces Matthews’ day as he reviews the research reports BG Wealth had put together on ABIL over the previous 15 months. Matthews also recalls the process the investment team went through internally before finally deciding to invest in the company. The case highlights not only the corporate governance failures of ABIL but also the lack of consideration given to ESG factors by BG Wealth.

The case’s primary teaching objective is to highlight the importance of corporate governance. The case provides detailed insights into the area of corporate governance through the analysis of a corporate failure. Through this teaching case, the students will follow the real-life events that led to the collapse of ABIL. It is intended that the students will be forced to deal with a complex situation and will be required to develop specific solutions to the issues raised.

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CSS 1: Accounting and Finance.

This case study will allow students to understand and analyse the process for conducting equity valuation by building a three-statement financial model, to understand and apply the workings of discounted cash flow (DCF) valuation methodology and its components, to apply the concepts related to the calculation of the weighted average cost of capital in the determination of discounting rate, to understand the terminal value calculation and assumptions thereof and to analyse the intrinsic valuation for the target company using the traditional multi-stage DCF model for investment decision-making.

In July 2019, Kapil Agarwal, an equity analyst operating out of Mumbai, India, was carefully looking over the financials of Asian Paints, a leading paints company in India. As an equity analyst, Kapil was constantly on the lookout for fundamentally strong but undervalued companies that could create long-term wealth for his equity fund. To decide upon the right valuation of Asian Paints, Kapil conducted fundamental analysis using the DCF method on the basis of available financial information. This case study puts students in an investment analyst role wherein they forecast financial statements and conduct DCF valuation for Asian Paints to discover potentially undervalued stocks for investment decision-making.

This case study is designed for use in an undergraduate or postgraduate programme in business management, particularly in a course on business valuation or investment management or security analysis.

Teaching notes are available for educators only.

CSS 1: Accounting and Finance.

Financial accounting to assess stewardship: the case requires students to evaluate Thompson’s stewardship of McDonald’s, in part based on the company’s financial accounting information. Financial reporting performs an important societal role by helping control agency problems that arise from the separation of ownership and management. Since external stakeholders cannot “observe directly the extent and quality of managerial effort on their behalf […] the manager may be tempted to shirk […] blaming any deterioration of firm performance on factors beyond his/her control” (Scott, 2014, p. 23). However, although financial reporting helps hold managers accountable to shareholders, accounting information is not fully informative about managerial effort. For example, while net income provides useful information regarding the CEO’s stewardship, it is also “noisy,” due to recognition lags and other factors (Scott, 2014, p. 364). Efforts undertaken by Thompson in a particular period, such as marketing expenditures, might reduce current earnings, yet boost future profitability. Additionally, Thompson’s predecessor’s past efforts might have positive or negative effects on current earnings. Evaluating stewardship effectively involves considerable judgment, in addition to knowledge of financial accounting. The implication of poor firm performance is that the CEO is ineffective at formulating and implementing strategies and policies to enhance firm value (Dikolli et al., 2014). Specifically, it appears that missing earnings benchmarks matter more for relatively inexperienced CEOs. Don Thompson’s tenure of 33 months at McDonalds is 42 percent lower than median CEO tenure documented in academic research, where the median tenure of chief executives documented in large sample empirical studies is about 57 months (Dikolli et al., 2014). The evidence suggests that the longer a CEO serves, the less likely he is to be dismissed for performance-related reasons. This appears to be the result of the resolution of uncertainty about CEO’s ability and leads to subsequent declines in the level of monitoring by the Board of Directors. Performance evaluation and bias: a significant body of research explores the extent to which female managers are assessed differently than their male counterparts (Powell and Butterfield, 2002). For example, female CEOs face more threats from activist investors than male CEOs. Therefore, even after women achieve the highest managerial rank, they experience more professional challenges than their male counterparts (Gupta et al., 2018). However, the question of whether black CEOs are assessed differently is more challenging to answer empirically as a result of a smaller sample size (only one percent of S&P 500 companies are run by black CEOs). Our case attempts to develop the inference that if female CEOs are subject to bias, analogous forces are likely at work when black CEOs are assessed. Recent evidence further suggests that business students sometimes demonstrate bias in making assessments (Mengel et al., 2018). The authors discuss these findings – as well as strategies for including them in the case discussion – in the “Teaching Strategy” section herein below.

The case was written from the public record surrounding the appointment of Don Thompson and McDonald’s company filings. The record includes articles from The New York Times and The Wall Street Journal, as well as local and industry publications.

The case examines the role of financial accounting in evaluating CEO performance in the context of the appointment of McDonald’s first African-American chief executive and his subsequent two-and-a-half years on the job. The case deepens students’ understanding of the link between financial reporting and stewardship, while highlighting the subjectivity inherent in assessing managerial performance, particularly over relatively short time periods. As students analyze the case, they must consider the extent to which a firm’s results are attributable to luck vs skill. We use “skill” to refer to CEO effort and other controllable factors, while “luck” refers to exogenous factors, such as macroeconomic conditions. Assessing stewardship is of practical significance. It allows pay to be better aligned with performance and empowers stakeholders to identify when a change of leadership may be warranted. The case may also be used to spur reflection, in an applied context, on the importance of being alert to unconscious bias, even when evaluating seemingly objective financial reporting data. Recent research, discussed herein, suggests that business students sometimes exhibit bias when making assessments.

The case should be included in discussions of corporate governance, executive compensation and the role of accounting information in efficient contracting. It is appropriate in intermediate financial accounting courses for undergraduates, introductory graduate accounting courses, or other courses with an element of financial statement analysis. Standard introductory accounting textbooks offer helpful supplementary reading for students. Horngren et al.’s (2014) book, Introduction to Financial Accounting (12th ed.), Pearson, London, provides an overview of the income statement and its role in assessing performance (see Chapter 2) as well as a useful discussion on evaluating the components and trends of a business (see Chapter 12). More advanced students may benefit from the in-depth discussion of earnings quality, operating income and non-operating income found in Chapter 4 of Intermediate Accounting (9th ed.), McGraw Hill Education, New York by Spiceland et al. (2018).

This case study is related to start-up post-listing investment analysis. Through this case study, students will be able to perform the business analysis guided by the Venture Evaluation Metric tool, perform financial analysis using the discounted cash flow methods and perform investment analysis recommendation with justifications from the business and financial analysis performed above.

This case study sets out the study of a scalable start-up, Zomato, which is a successfully listed start-up firm in India. Despite the start-up development success in the pre-listing, the firm has exhibited a continuous unprofitable finance performance in the post-listing and has further experienced a volatile share price performance, both of which have puzzled existing and potential investors. In addition, some analysts are in the opinions that the firm share price valuation have been inflated with overvaluation since in the initial public offering stage and remain traded with overvaluation in the market. Notably, considering the negative indicators mentioned above, investors are concerned about long-term sustainability of the firm business and financial performance. In the context of post-listing investment, the following questions are material to investors: What is the realistic growth trajectory for Zomato in the medium term? What is Zomato’s share fair value in the medium term? Can one see opportunities or risks ahead of investing in Zomato’s shares? What will be the investment strategy for new investors?

This case study is suited to bachelor’s and master’s level in business schools studying entrepreneurial finance analysis.

Teaching notes are available for educators only.

CSS 1: Accounting and finance.

This case follows the performance review and financial-statement-forecasting decisions of a Value Line analyst for the retail building-supply industry in October 2002. The case contrasts the strong operating performance of Home Depot with the strong stock-market performance of Lowe's. Students examine a financial ratio analysis for Home Depot that acts as a template to generate a comparable ratio analysis for Lowe's. The student ratio analysis is designed to build intuition with respect to interpreting individual ratios as well as ratio interrelationships (e.g., the DuPont framework). The historical-performance comparison suggests that investors are skeptical of the ability of Home Depot to maintain its performance trajectory, yet they project sustained improvements for Lowe's. Students are invited to scrutinize the analyst's five-year income-statement and asset-side balance sheet forecast for Home Depot. The case expressly focuses on the asset side of the balance sheet as a preview for other cases using free-cash-flow forecasting. The Home Depot forecast exercise exposes students to the mechanics of financial-statement modeling and sensitivity analysis, which they can use in building their own forecast for Lowe's. Finally, the strong-growth assumptions for Home Depot relative to the modest-growth forecast for the industry suggest that the company can be expected to capture massive and perhaps unreasonable market share in the near term. The exercise provides a striking example of the importance of comparing bottom-up business forecasting with top-down industry forecasts.

This case is meant for MBA students as a part of their leadership/information technology and system curriculum. It is suitable for classes in both offline and online mode.

Human resources management/information technology and systems.

The case discusses how Poppy Gustafsson (Gustafsson) (she), Cofounder and Chief Executive Officer of Darktrace plc, one of the world’s largest cyber-AI companies, is reinventing enterprise security by using artificial intelligence (AI) to detect and respond to cyberthreats to businesses and protect the public. Darktrace’s technology leverages the principles of the human immune system to autonomously defend organizations from cyberattacks, insider threats and AI warfare. In addition to leading a cutting-edge cybersecurity company, Gustafsson evangelizes gender diversity at Darktrace where 40% of employees and four C-level executives are women, a number nearly unheard of in the tech sector.The case chronicles the journey of Gustafsson and how she led the company to growth and success. Under her leadership, Darktrace has grown into a market leader in the AI cybersecurity space serving 5,600 customers in 100 countries, as of June 2021. Gustafsson not only redefined the cybersecurity space but also inspired women to pursue a career in the field of cybersecurity. She also collaborated with a social enterprise called WISE to encourage more girls to consider STEM careers.However, along the way, she faced several challenges including growing competition, procuring funds from investors, cybersecurity talent shortage and training personnel. Going forward, some of the challenges before Gustafsson would be to meet the changing cyber protection demands of customers; hire, train and retain highly skilled cybersecurity personnel; beat the competition in a saturated cybersecurity services space; sustain revenue growth; and post profits as Darktrace had incurred losses every year since its inception.

This case is designed to enable students to: understand the issues and challenges women face in the field of cybersecurity; understand the qualities required for a woman leader to lead a technology firm; study the leadership and management style of Gustafsson; understand the importance of transformational leadership in management; understand the role of Gustafsson in Darktrace’s growth and success; analyze the traits that Gustafsson possesses as a tech leader in an emerging cybersecurity space; understand the importance of gender diversity in cybersecurity; and analyze the challenges faced by Gustafsson going forward and explore ways in which she can overcome them.

CSS: 11 Strategy.

After completion of the case study, the students will be able to understand the calculation of cost of individual sources of funds and cost of capital, examine various tools such as economic value added and cash value added analyses which help determining whether a company has added value to its shareholders or not and explore the application of Benford’s law and the Beneish M-score in detecting manipulation of numbers in financial statements.

Nimmy Jacob, a newly recruited research analyst with an equity research firm, was entrusted with tracking the “auto ancillary industry”, specifically “Minda Corporation Ltd” (MIL). MIL was a leading diversified auto components manufacturing companies in India. The company’s share price meteorically rose during February 2021–2022 (Figure 1). The company’s turnover over the past few years had grown at a compounded annual growth rate of 15% during the three preceding years. The company had in the recent past bought a 15% stake in another competitor, Pricol Ltd, for a consideration of INR 400 crores and previously had used joint ventures and acquisitions to scale up its operations. Jacob, apart from the conventional financial analysis, had to ascertain whether all the strategic decisions were adding value to the shareholders’ investments by exploring the various tools available for the same and also calculate the minimum expected rate of return for MIL. Jacob was apprehensive about the financial statements, although the numbers for the company were good. Jacob was skeptical about a high-growth company having the incentive to manipulate its earnings. Manipulations could be in the form of abnormal increase in accruals, inconsistency in expenses and high days of receivables. Therefore, Jacobs used certain analytics/statistical tools to detect any manipulation of numbers in the financial statements of the company and to ascertain apt findings about the company.

This case study is intended for discussion in corporate finance, financial reporting and analysis and financial analytics at Master of Business Administration/undergraduate level.

Teaching notes are available for educators only.

CSS1: Accounting and finance