Can Accounting Be Fun? Meet Peter PopeWHEREVER THERE IS A FINANCIAL PERFORMANCE DIMENSION THERE IS AN ACCOUNTING STORY, SAYS THE BOCCONI PROFESSOR. AMONG THEM, THE CASE OF WAYNE ROONEY'S TRANSFER
Peter Pope is a staunch supporter of the idea that, contrary to conventional wisdom, Accounting can be fun. «It influences many decisions relevant to our everyday lives - wherever there is a financial performance dimension there is an accounting story», he says. Ask for an example and he will talk about the accounting techniques that wealthy owners use to pump money into their football teams and navigate around the rules of financial fair play. Professor Pope is a newcomer at the Department of Accounting of the Bocconi University, coming from the London School of Economics. His current research aims to understand the interface between financial reporting practices and investment strategies. And, yes, he did some work in the area of the regulation of football.
Peter Pope was born in Blackpool, in northwest England. At school, he specialized in Math and Physics and went on to study Civil Engineering. «But I found I was spending too much time out in the cold Yorkshire weather doing old-fashioned survey field work. So, I eventually switched to study Accounting and Economics and later took up a management accounting job in industry before going back to post graduate studies at Lancaster University». His first full professorship appointment was at Strathclyde Business School in Glasgow at the age of 30 and later he moved to Lancaster University, staying for 17 years, then to Cass Business School and, since 2013, the London School of Economics. He has also been visiting professor at the University of California at Berkeley and the Stern School, New York University. His PhD is from Lancaster University, and he is a qualified management accountant (FCMA), the Academic Coordinator for the Institute of Quantitative Investment Research and a Fellow of the Academy of Social Sciences.
His research lies at the intersection between Accounting and Finance. «Accounting is a multidisciplinary area of study», he says. His work focuses on the assumptions made by accountants in translating the economic reality into accounting numbers. He is currently working on the role of financial reporting quality for equity and bond markets. «I am interested in identifying the footprint of risk in accounting numbers and the implications for quantitative investors. Many of the inputs to investors’ decisions come from accounting numbers, and investors who understand accounting have an advantage».
As an example, he quotes the accounting for Research & Development expenditures. This is a risky activity for companies: the payoffs can be high, but very often R&D is unsuccessful. «Because the payoffs are so uncertain, accountants record research expenditure as an expense in the income statement, rather than capitalizing and recognizing an asset on the balance sheet. This despite the fact that on average R&D creates values for companies and their shareholders». This is the kind of inconsistency between the accounting and economic realities that Professor Pope delves into. A further example that creates challenges for investors if they do not understand accounting principles is the accounting for news about future prospects. «We might say that accountants are gloomy», he says with a grin. «When a company suffers bad news, for example a reduction in consumer demand for its products, accountants recognize the bad news immediately, the assets on the balance sheet are impaired and profit is reduced immediately. On the other hand, if the news is good, accountants do not recognize the good news in profits until future sales are realized, possibly many years later».
Professor Pope supports the Everton football club in Liverpool – his exact words are «I have had the misfortune of being a lifelong Everton supporter, living in the shadow of Liverpool FC and with many more bad years than good ones to remember». The accountant in him remembers when Wayne Rooney was sold to Manchester United in 2004. «At the time, he was not on the balance sheet of Everton FC having been with the club since he was a schoolboy, he says. «Overnight he turned into a 27 million-pound asset on the balance sheet of the Manchester United. The same occurs in mergers & acquisitions. Homegrown value is missing from the balance sheet of a company, but it ends up on the balance sheet of the acquirer when the company is the target in a successful M&A deal».
Professor Pope is a senior editor of the Journal of Business Finance & Accounting and has served on the editorial board of many international journals, including the Journal of Accounting Research and The Accounting Review. He has published widely in both accounting and finance journals. He received the Best Paper Award 2004-2008 from the Financial Reporting section of the American Accounting Association for Which Approach to Accounting for Employee Stock Options Best Reflects Market Pricing?.
Find out more
Kevin Aretz, Peter F. Pope, Real options models of the firm, capacity overhang and the cross-section of returns, in Journal of Finance, 73.3 2018, pp. 1363-1415.
Sonia Konstantinidi, Peter F. Pope, Forecasting risk in earnings, in Contemporary Accounting Research, 33:2, 2016, pp. 487-525.
Annita Florou and Peter F. Pope, Mandatory IFRS adoption and institutional investment decisions, in The Accounting Review, 87(6), 2012, pp.1993-2025.
Peter F. Pope, Bridging the Gap between Accounting and Finance, in British Accounting Review, 42(2), 2010, 88-102.
Kevin Aretz, Sohnke Bartram, Peter F. Pope, Macroeconomic Risks and Characteristic-based Factor Models, in Journal of Banking and Finance, 34(6), 2010, 1383-1399.
Peter F. Pope, Martin Walker, International differences in the timeliness, conservatism and classification of earning.
by Claudio Todesco