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Interpreting Company Accounts: Window Dressing and Depreciation - Lesson Plan: 2 x 1 hour lessons

A series of 'off the shelf' lesson plans and resources for use in the classroom. These lessons deal with Interpreting Company Accounts and are relevant to the following specifications:

• AQA: Unit 4, 13.4
• OCR: Module 2875

Aim:

These lessons look at the issue of 'window dressing' and depreciation in assessing company accounts. Depreciation will have been covered at a basic level in AS courses. However, this resource develops the issue of interpreting company accounts to incorporate the concept as part of the problems firms face in valuing assets and how methods of measuring depreciation can legitimately result in different interpretations of those accounts.

It is important at the outset to ensure that students are very clear that window dressing is not illegal and what the dividing line is between presenting your accounts in the best light and deliberately deceiving shareholders.

The initial task in the lesson is designed to reinforce that idea. What follows is an Activity that presents two issues relating to the subject matter. The first, Sainsbury's, was widely reported. A view of the company's interim summary should help to provide the student with some information about how 'good news' can be presented, but perhaps the 'bad news' is not flagged up quite so obviously!

This is followed by a series of reports from the press about the figures and the student is asked to make an assessment of how far they believe Sainsbury's window dressed the accounts.

The second task relates to the problems of valuing assets that are human. Jonathan Woodgate was transferred in 2004 from Newcastle to Real Madrid. Since his move he has hardly played and there has been some suggestion that Newcastle 'underchanged' Real! Woodgate hardly played during his time at Newcastle but the value the club gained when they sold him was greater than they paid for him.

Alan Shearer on the other hand has been an asset in more ways than one - a prolific goal scorer and a talisman at the club. Does the hero worship status he is accorded affect his value to the club - for example in sales of replica football shirts? Shearer is, however, planning to retire at the end of the current season - how does this affect his value? Do footballers have a 'scrap value'?

The tasks are designed to encourage students to investigate and discuss some of these issues and form some opinions on how a business would treat such difficult asset valuations in its accounts.

The tasks can be completed as written tasks but it is preferable to allow the students to spend some time discussing the issues and arriving at some common views. In task 1, question 3 can be set as a written assessment and in task 2, question 5 could be done in a similar manner.

If the discussion approach is adopted, it is suggested that students are given the opportunity to feedback and discuss their ideas with the rest of the group.

Learning Objectives:

At the end of the session, students should understand the following:

• The nature of 'window dressing' - what it is and what it is not
• The main methods by which accounts can be 'massaged'
• The meaning of the term 'depreciation'
• The two main methods of depreciation - straight line and declining balance
• How different methods of assessing depreciation can affect a company's accounts
• The problems involved in valuing assets

Resources:

• PowerPoint Presentation - Interpreting Company Accounts [136 KB] (basic version also available for quicker download [114 KB])
• Mind Map - Interpreting Company Accounts
• Activity - Interpreting Company Accounts: Window Dressing and Depreciation
• PC and digital projector
• Prompt sheet 'report details'
• PCs for student research

Lesson Structure:

Lesson 1

1. Hand out the prompt sheet 'report details'. Students are to look at the report and write a short paragraph as a memo to their parents on their performance over the year in school. The only proviso is that the students must NOT lie or deliberately deceive but the aim is to demonstrate how they have improved during the year. (15 minutes)
2. Ask a selection of students to highlight their report to parents. Note where the student has presented their performance in the best light and what they have highlighted and what they have chosen to 'miss out'. (10 minutes)
3. Introduce the idea of 'window dressing' in accounts and make the link with what they have been doing. (5 minutes)
4. Show the Presentation and discuss the issues arising. (10 minutes)
5. Give out the Activity. Organise the class as appropriate - into groups if preferred or as an individual activity. Explain the purpose and aim of the tasks and how they are to be completed (to be at the discretion of the teacher/lecturer). (5 minutes)
6. Students have preliminary discussions to plan out how they will approach the tasks and what the key issues are in the tasks that they will have to consider. (10 minutes)
7. Close the session by reviewing the main outcomes of the lesson. (5 minutes)

Lesson 2

The second lesson should be taken up with the students following through the tasks. If carried out as a group activity, go round each group raising questions for the group to think about and consider in their final feedback. Time should be left for each group to feedback their ideas and for the whole group to discuss the outcomes and the issues surrounding the subject of window dressing and depreciation.

Written assessments can be set as suggested above.