August 04, 2008
Towards a New Transactional Curriculum: Good-bye Debits and Credits
Posted by Tina Stark

For years, the teaching of transactional skills was in the real backwaters of legal education.  Not many courses were taught, and few if any full-time faculty made it through the brush and swamps to teach any of these courses.  But in the last three years, there has been a sea-change, and transactional education is hot.  Now we have two issues:  What are we supposed to teach and how should we do it?

Although the list of things that we should teach is long, one focus of our teaching must be business and the business world.  Business obviously does not have a long and storied history in the legal curriculum, but doing deals is fundamentally different from litigating and, therefore, what we teach and how we teach must also differ.

Business belongs in the curriculum because that is what transactional lawyers do.  “Transactional lawyers” is just a gussied up name for business lawyers and what business lawyers do is to help their clients do business deals, whether a multibillion dollar acquisition or the licensing of software.  It follows, therefore, that if lawyers are to represent their clients adequately, they must understand business and the client’s business.

For a deal lawyer, not knowing about business is akin to a litigator not knowing the evidence rules.  Business is discipline specific substantive knowledge that a deal lawyer must have to function effectively.

One way that law schools have tried to address the need for business education is through the “accounting for lawyer” course.  I believe that we need to rethink what this course should be. 

Traditionally, students learn the accounting concepts by learning debits and credits and reading cases.  But practicing lawyers don’t make book-keeping entries, and they read agreements, not cases, when doing deals.  The firms are not looking to their lawyers to make book-keeping entries.  Instead, they want lawyers who understand financial statement concepts and how to use those concepts to advance or protect their clients’ interests.  Indeed, when the firms bring in consultants to teach accounting, the only time they mention debits and credits is when they say they are not teaching them.  Instead, the consultants focus on the use of financial statement concepts in transactions and financial statement analysis.

Here are some specifics about how a revised accounting course could be taught.

First, the course would be three credits rather than two, so that students would have the time to cover a broader and more in depth curriculum.  Debits and credits would not be taught and students would not read cases – with a few exceptions.  Instead, source materials would be articles, financial statements, and agreements.  Pedagogically, the course would be divided into three parts – although they would often overlap.

In the beginning of the course, students would learn about the different financial statements and the line items on each statement.  When teaching the line items, we would provide context.  For example, when studying receivables, a factor could guest lecture, making very real to students the importance of collecting receivables. 

In the second part of the course, students would learn how to analyze and critically read both the financial statements and the notes.  Having this skill will give students the ability to gain a sophisticated understanding not only of a client’s financial position, but also the other side’s.  Ultimately, it would result in students being better able to counsel their clients.  It might even result in a student being able to spot something that was not “quite right.”

The course would conclude with the students applying the course material by learning how lawyers use the financial statement concepts in transactions.  Students would analyze and negotiate, among other provisions, purchase price adjustment provisions, earn-outs, royalty provisions, and complex financial loan covenants.

In my next post, I will discuss another course that I suggest be added to the business curriculum.

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