1. Raymond N. Johnson, CPA Key Issues u Crisis of Confidence in the Professions u Reflection-in-Action

2. Raymond N. Johnson, CPA Crisis of Confidence in the Professions u Challenger Accident u Litigation in the Medical Profession and Public Accounting u Fraudulent Financial Statements »The derivative crisis in Orange County »ZZZ Best

3. Raymond N. Johnson, CPA Public Expectations u Technical Rationality & Positivists

4. Raymond N. Johnson, CPA Public Expectations u Technical Rationality & Positivists u Positivist thought: The world can be explained with the exactness of science. u The precision of Newtonian Physics can be attained in all matters if we obtain sufficient knowledge.

5. Raymond N. Johnson, CPA How precise are financial statements?

6. Raymond N. Johnson, CPA How precise are financial statements? u Cash u Accounts Payable u Accounts Receivable u Allowance for Doubtful Accounts u Inventory u Fixed Assets u Warranty Expense

7. Raymond N. Johnson, CPA Schon High Ground: Precise but relatively unimportant problems. Low Ground: Swampy, messy, problems of important human concern. Complex, unstable, uncertain

8. Raymond N. Johnson, CPA What is Knowing-In-Action?

9. Raymond N. Johnson, CPA What is Knowing-In-Action? u Knowledge is revealed through action u Examples »Response to trial balance that doesn’t balance. »Preparation of statement of cash flows »Instant analysis: current liabilities exceed current assets »Instant analysis: Heavy proportion of fixed assets on balance sheet => capital intensive company. u Characterized by expected responses

10. Raymond N. Johnson, CPA What is Reflection - in - Action? u

11. Raymond N. Johnson, CPA What is Reflection - in - Action? u Characterized by ends that are unstable. u “Managing Messes”: Ackoff u “professional practitioners often think about what they are doing, sometimes even while they are doing it.... What features do I notice when I recognize this thing? What are the criteria by which I make this judgment?”

12. Raymond N. Johnson, CPA Reflection - in - Action Level I Subject Matter of Accounting

13. Raymond N. Johnson, CPA Reflection - in - Action Level I Subject Matter of Accounting Level II Thinking, about your thinking, while you are thinking, to improve your thinking

14. Raymond N. Johnson, CPA Reflection - in - Action Level I Subject Matter of Accounting Level II What features do I notice when I recognize this thing? How am I framing the problem that I am trying to solve?

15. Raymond N. Johnson, CPA Reflection-in-action u There is a situation of action to which we bring spontaneous, routinized responses. »Preparing journal entries, preparing financial statements, analyzing financial statements u Routine responses produce a surprise »Book value of asset is negative »Why is working capital so high? »Why is return on assets greater than return on equity?

16. Raymond N. Johnson, CPA Reflection-in-action u Surprise leads to reflection within an action-present. »Review journal entries »Review general ledger activity »Pull apart calculations: sub-analysis u Question underlying assumption: »Cash flow forecast yields unexpected projected negative cash

17. Raymond N. Johnson, CPA Reflection-in-action u Reflection gives rise to on-the-spot experiment. »What if these were the numbers? »If a company pays a current liability on 12/31/96, what is the effect on working capital and on the current ratio?

18. Raymond N. Johnson, CPA Schon High Ground: Precise but relatively unimportant problems. Low Ground: Swampy, messy, problems of important human concern. Complex, unstable, uncertain

19. Raymond N. Johnson, CPA Schon & Johnson High Ground: Precise but relatively unimportant problems. Economic Substance Measurement Disclosure Analysis Low Ground: Swampy, messy, problems of important human concern. Complex, unstable, uncertain

20. Raymond N. Johnson, CPA Business / Accounting Cycle Resources Goals and Investing Deploy Resources

21. Raymond N. Johnson, CPA Business / Accounting Cycle Resources Goals and Investing Deploy Resources Key Processes Outcomes Profitability Growth Markets Customers

22. Raymond N. Johnson, CPA Business / Accounting Cycle Cash Flow Resources Goals and Investing Deploy Resources Key Processes Accrual to Cash Outcomes Profitability Growth Markets Customers

23. Raymond N. Johnson, CPA Business / Accounting Cycle Cash Flow Resources Resource Development and Value Goals and Investing Deploy Resources Key Processes Accrual to Cash Outcomes Profitability Growth Liquidity, Solvency Markets Customers

24. Raymond N. Johnson, CPA Financial Footprints An example of a messy problem How do you practice “reflection - in - action?”

25. Raymond N. Johnson, CPA Reflection - in - Action What features do I notice when I recognize this thing? How am I framing the problem that I am trying to solve?

26. Raymond N. Johnson, CPA Cases u First Draft when Due u Turn in both original and rewrite at the next class »Rewrite may just address the items you missed. u For material that was incorrect in the first draft »Clearly articulate “best” solution »Clearly articulate the logic behind the “best” solution »Discuss what you learned by correcting the first draft (knowledge and learning process)

27. Raymond N. Johnson, CPA Financial Footprints u Inventory u Without Inventory

28. Raymond N. Johnson, CPA Financial Footprints With Inventory u Pharmaceutical u Oil u Brewery u Supermarket Chain u Department Store u Home Builder u Japanese Trading Co. Without Inventory u Insurance u Airline u Money Center Bank u Hotel / Casino u Fast Food Franchising u Advertising Agency

29. Raymond N. Johnson, CPA Financial Footprints u With Inventory u Pharmaceutical u Oil u Brewery u Supermarket Chain u Department Store u Home Builder u Japanese Trading Co. Higher Profitability Lower Asset Turnover Lower Profitability Higher Asset Turnover

30. Raymond N. Johnson, CPA Financial Footprints u With Inventory u u Oil u Brewery u u Department Store u Home Builder u Japanese Trading Co. Higher Profitability Lower Asset Turnover Lower Profitability Higher Asset Turnover Pharmaceutical Supermarket Chain

31. Raymond N. Johnson, CPA Financial Footprints u With Inventory u u Oil u Brewery u u Department Store u Home Builder u Japanese Trading Co. Which two companies are the most fixed asset intensive?

32. Raymond N. Johnson, CPA Financial Footprints u With Inventory u u Oil u Brewery u u Department Store u Home Builder u Japanese Trading Co. Which two companies are the most fixed asset intensive? Which company has the highest inventory turnover?

33. Raymond N. Johnson, CPA Financial Footprints u With Inventory u u u u u Department Store u Home Builder u Japanese Trading Co.

34. Raymond N. Johnson, CPA Financial Footprints u With Inventory u u u u u Department Store u Home Builder u Japanese Trading Co.

35. Raymond N. Johnson, CPA Financial Footprints Without Inventory u Insurance u Airline u Money Center Bank u Hotel / Casino u Fast Food Franchising u Advertising Agency

36. Raymond N. Johnson, CPA Financial Footprints Without Inventory u Insurance u Airline u Money Center Bank u Hotel / Casino u Fast Food Franchising u Advertising Agency What Assets / Capital is needed to deliver service? u Investments u Fixed Asset Intensive u Current Liabilities / Rec. u Fixed Asset Intensive u Human Resource Intensive

37. Raymond N. Johnson, CPA Financial Footprints Without Inventory u Insurance u u Money Center Bank u u Advertising Agency What Assets / Capital is needed to deliver service? u Investments u Current Liabilities / Rec. u Human Resource Intensive

38. Raymond N. Johnson, CPA Financial Footprints Without Inventory u Airline u Hotel / Casino u Fast Food Franchising What Assets / Capital is needed to deliver service? u Fixed Asset Intensive Rank Order In Terms of Profitability

39. Raymond N. Johnson, CPA Business / Accounting Cycle Resources Goals and Investing Deploy Resources

40. Raymond N. Johnson, CPA Business / Accounting Cycle Resources Goals and Investing Deploy Resources Key Processes Outcomes Profitability Growth Markets Customers

41. Raymond N. Johnson, CPA Business / Accounting Cycle Cash Flow Resources Goals and Investing Deploy Resources Key Processes Accrual to Cash Outcomes Profitability Growth Markets Customers

42. Raymond N. Johnson, CPA Business / Accounting Cycle Cash Flow Resources Resource Development and Value Goals and Investing Deploy Resources Key Processes Accrual to Cash Outcomes Profitability Growth Liquidity, Solvency Markets Customers

43. Raymond N. Johnson, CPA Reflection - in - Action What features do I notice when I recognize this thing? How am I framing the problem that I am trying to solve?