Material Detail

I have found financial statement analysis is difficult to teach from a textbook. Students generally are not interested in hypothetical companies that textbooks often provide. Also, effectively testing on financial statement analysis is extremely challenging.

 

As an example on how I tested  this on a written exam, I gave a balance sheet with a very small amount of accounts receivable and a high amount of inventory (as a percentages of total assets). Students were given ratios including accounts receivable turnover and inventory turnover. The question required students to first analyze the balance sheet to determine what asset account was most significant, select the most meaningful ratio, and justify why they chose the ratio. The test did not go very well for most students as the time to take the exam and complete this type of problem was simply not long enough. 

 

But financial statement analysis is a very important skill to nail down for first through third year auditor positions: testing on balance sheet accounts and the time spent on each area often directly correlates to the balance sheet account significance. So how do we make this more relatable to students?