Teaching Prospective Financial Statements: A Compilation Project

Abstract

The planning process is central to the work of business management. Strategic planning involves a broad scope and long-term planning horizon that provides a guide 10 achieve the organization's goals. External users also need prospective financial information to assess credit or equity positions in a firm. The accounting professional in private industry plays a key role as a member of the planning team, processing management's plans and assumption to provide meaningful reports and analysis. Many small and mid-sized firms look to the public accounting professional for assistance in developing prospective financial information (Stillwell, 1986) Public accountants may also be engaged by a client 10 review prospective financial statements that are going to be publicly disseminated. Clearly, expertise in developing, reporting and analyzing forward looking accounting information is important, but there is relatively little instruction offered on this topic in the traditional accounting curriculum. This paper describes a project that is effective for teaching how to prepare comprehensive prospective financial statements. The articulated statements are created using Excel, and can instantly process an unlimited variety of "what if' considerations. The final product has the added advantage of having the same form as the historical financial statements. The benefit of comparability with historical statements is significant.