Taking AIM at the bottom line
Kellogg's Accounting and Information Management Department is changing the way students--and the business world--think about accounting

by Rebecca Lindell

Every day around noon, most of Kellogg's Accounting and Information Management Department gathers for lunch, dining on Kafé Kellogg fare and each other's ideas.

Often they talk about their research. Sometimes they talk about the Chicago White Sox. And sometimes they talk about the numbers behind the news -- say, the income-tax disclosures by IBM, or the curious accounting by the latest dot-com failure.

"I look forward to these lunches, because these are very smart people," says Lawrence Revsine, the John and Norma Darling Distinguished Professor of Financial Accounting. "I learn something new every time. I think it's an interesting sign about how we feel about each other -- that we spend this sort of time together and like to listen to each other's ideas."

These "numbers people" enjoy each other's company. A lot. In addition to sharing the noontime hour, they regularly team up for teaching and research projects. The camaraderie creates a synergy that, department members say, has produced some of the most innovative thinking on accounting anywhere.

"No matter what we do, we're all doing some progressive thing to reach the next frontier of scholarly thinking," says Bala Balachandran, the J.L. Kellogg Distinguished Professor of Accounting Information and Management and Decision Sciences. "Though we're a small department, our impact is large."

"This is a world-class department -- one of Kellogg's best-kept secrets," Revsine says of the accounting group. "We don't simply put together things that exist somewhere else. We've created courses on topics like mergers and acquisitions and financial analysis that other schools have only adopted within the last several years. What we do is exciting stuff."

Among the signature courses is the department's most popular elective, Financial Reporting and Analysis. The class attracts more than 500 students each year, and is taught by Revsine, Assistant Professor Elizabeth Keating, and department chair Robert Magee, the Keith I. DeLashmutt Distinguished Professor of Accounting Information and Management. Its textbook, also authored by Revsine, is used by about 150 accounting programs around the world.The course "is not about mindlessly downloading financial statements and cranking numbers, but understanding the motivations managers have to manipulate those numbers," Keating says. "We try to get into the shoes of people who will be looking at financial statements and show them where the pitfalls are. This was not being done before."

Other courses take an interdisciplinary approach to accounting, examining how organization-behavior principles affect what gets put into financial statements, or how accounting issues play into marketing decisions. "It's just as important to understand these issues for internal decision making," says Associate Professor Beverly Walther.

"We don't have any axes to grind or territory to protect," Balachandran explains. "We encourage cross-fertilization."

Many of Kellogg's accounting professors, in fact, arrived at the department after stints in other areas. Balachandran, a former professor in managerial economics, took a leave of absence from Kellogg and worked for Arthur Andersen before rejoining the school. Associate Professor Linda Vincent worked at Booz€Allen and then became an investment manager before embarking on her academic career. This sort of cross-training has resulted in the firm belief, shared department-wide, that to solve accounting problems, one must be creative.

"When the numbers don't add up, you have to be imaginative to determine what sort of transactions might have been engaged in to put those financial statements together," says Magee.

The Kellogg accounting team has received kudos from many quarters. Many faculty members serve on the editorial boards of prominent academic journals. Magee was editor of The Accounting Review for three years. Thomas Lys, the Gary A. Rosenberg Professor of Real Estate Management, is an editor of another leading research journal -- the Journal of Accounting & Economics. Balachandran is editor of Management Science, a top journal that spans academic disciplines in its coverage of management issues.

They are also setting the direction for the field. Ronald Dye, the Leonard Spacek Professor of Accounting Information and Management, is current vice president of research for the American Accounting Association. This group bestows the annual Outstanding Accounting Educator award to an academic whose research and teaching have profoundly advanced accounting. Two Kellogg faculty members -- Revsine in 1992 and Magee in 1999 -- have received this prestigious award, putting Kellogg in rarified company with only four other schools with multiple winners on the current faculty.

"I think that says a great deal about the quality of this department," observes Dye.

It's a reputation nearly a century in the making. The first chairman of the Northwestern Accounting Department was Arthur Andersen, the founder of the firm that bears his name. Eric Kohler, who twice served as president of the American Accounting Association and later became controller of the Tennessee Valley Authority, also was one of the department's early members.

"Back in the 1910s and '20s, this was a prominent department, but not in a traditional sort of way," Revsine says. "It was made up of influential people who wrote classic textbooks, formed international accounting firms and held important positions in government. They weren't just academics; they were shaping the business environment in the world at large."

Today, it's clear that the department continues that tradition through its research, teaching and professional service.