"Business: a question of numbers" by Professor Paul Klumpes

Pr. Paul Klumpes joined EDHEC Business School early January as Professor of Accounting. He will be teaching Financial & Fundamental Analysis to MIM Students, Research Methodology to MSc in Management Control Students. He will also teach a transversal seminar on "Business Numbers" to all MSc Students in the Business Management Track.

My decision has been motivated by the high reputation of the School and by the growing interest of EDHEC in the area of Accounting through its EDHEC Financial Analysis & Accounting Research Centre where I will pursue my researches. It is a strategic decision to join EDHEC that is now considered as one of the top Business Schools in Europe.

Furthermore, EDHEC is strongly internationally-oriented in terms of programmes, students, faculty and positioning and as I am considering myself an international individual it seems to be a natural move to follow. Being originally from the Netherlands, I lived in Australia and the UK, I believe it is the right time to discover another culture.

What are you going to teach at EDHEC?

I will be teaching Financial & Fundamental Analysis to students in Year 1 of the Master in Management programme and Research Methodology to MSc in Management Control students.

I will also teach a transversal seminar on Business Numbers to all MSc students in the Business Management track.

Can you tell us a bit more about fundamental analysis?

Fundamental Analysis refers to the value of equities as defined by accountants and compare to the market value. The key here is to advise investors to trade by believing in market efficiency. It requires analysts to be confident enough in their knowledge to get the fundamental value of a firm.

What is your advice to aspiring students in the field of accounting and finance in the wake of the recent financial crisis?

I would advise them to be aware of the different international standards of accounting and different accounting rules and regulations. They must be aware of broader issues such as cultural differences, transparency and corruption. To sum up, they must be competent enough to advise prospective clients by using fundamental analysis within the environment context.

You have been very active in publishing numerous position papers and articles over the last few years. Are you going to be actively involved in EDHEC Research Centres?

Yes, I intend to take an active role in the Financial Analysis & Accounting Research Centre. I have a strong connection with behavioural finance along with experience in Risk and Asset management. Thus, I will probably be involved with EDHEC-Risk at some point.

How serious do you think issues on Earnings Management are? What do you think should be done to avoid such issues?

Earnings management is the extent to which current earnings reflect true economic' or sustainable earnings. It can also involve the shifting of income from current years to future years, and vice versa. This practice is widely documented in the financial and academic press and so I suspect markets look through this activity. Accounting rules are also fairly flexible so that while management has discretion over these practices the auditors will have scope to question them. However there are more subtle forms of earnings management, related to risk management. Accounting numbers reflect the allocation of values, but not of risk. So fair value accounting is one device that firms (especially banks) use to manipulate their income but it is not an effective way for investors to understand the underlying risks. More effort should be made by regulators to allow investors to receive more transparent reports, e.g. by mapping or reconciling GAAP reports to Regulatory reports (e.g. BASLE II or Solvency II).

What advice would you like to give to current students on the matter of job seeking in such economical conditions?

I would emphasise the importance of building and conceptualizing your own valuation models and financial models that are sound intellectually and also based on independent thought and skills. Many courses here in EDHEC supply students with the tools to develop such models. For example, in Financial Analysis, I strongly encourage students to think about equity valuation models which are based on independent analysis. In fact most successful investors (E.g. Warren Buffett) also use these approaches to identify good investment opportunities. You can then use these tools to interrogate current market prices that are traded in order to identify areas of either mispricing or under or overvaluation. Such skills are invaluable to many investment banks, insurers, investment firms and hedge funds and would place EDHEC students at a significant advantage to other business school students who are not taught these skills.

What are your feelings about settling in France?

It's too early to say yet, but Im really enjoying the culture, the food and the people. Vive la France!

Written by ANGELIQUE MICONNET