Statement no. 73 additional comment on deposit insurance reform legislation

Shadow Financial Regulatory Committee Statements

Statement no. 73 additional comment on deposit insurance reform legislationSeptember 16, 1991     

Statement no. 74 Bank of Credit and Commerce International

Shadow Financial Regulatory Committee Statements

Statement no. 74 Bank of Credit and Commerce InternationalSeptember 16, 1991     

Statement no. 72 OMB and CBO statements calling for more informative accounting and budgeting for deposit insurance

Shadow Financial Regulatory Committee Statements

Statement no. 72 OMB and CBO statements calling for more informative accounting and budgeting for deposit insuranceSeptember 16, 1991     

THE SEC OVERRULING OF SFAS 19 AND THE BEHAVIOR OF SECURITY RETURNS

In August 1978, the Securities and Exchange Commission (SEC) announced its intention to employ Reserve Recognition Accounting, and also issued Accounting Series Release No. 253 which in substance overruled Statement of Financial Accounting Standards No. 19 (SFAS 19), "Financial Accounting and Reporting by Oil and Gas Producing Companies." There are relatively few cases where accounting promulgations have been reversed, and these cases merit careful analysis. Accordingly, this research employs an identical methodology and sample of an earlier study (Benjamin and McEnroe, 1981) in order to ascertain the security market effect of the SEC's overruling of SFAS 19. The a priori expectation would be that the SEC intervention should cause a reversal of any security market effects found in the prior study.     

Europe's single market for financial services: views by the European Shadow Financial Regulatory Committee

Although the world of banking and finance is becoming more integrated every day, in most aspects the world of financial regulation continues to be narrowly defined by national boundaries. The main players here are still national governments and governmental agencies. And until recently, they tended to follow a policy of shielding their activities from scrutiny by their peers and members of the academic community rather than inviting critical assessments and an exchange of ideas.The turbulence in international financial markets in the 1980s, and its impact on US banks, gave rise to the notion that academics working in the field of banking and financial regulation might be in a position to make a contribution to the improvement of regulation in the United States, and thus ultimately to the stability of the entire financial sector. This provided the impetus for the creation of the “US Shadow Financial Regulatory Committee”. In the meantime, similar shadow committees have been founded in Europe, Japan and Latin America.The specific problems associated with financial regulation in Europe, as well as the specific features which distinguish the European Shadow Financial Regulatory Committee (ESFRC) from its counterparts in the US and Japan, derive from the fact that while Europe has already made substantial progress towards economic and political integration, it is still primarily a collection of distinct nation–states with differing institutional set-ups and political and economic traditions. Therefore, any attempt to work towards a European approach to financial regulation must include an effort to promote the development of a European culture of co-operation in this area, and this is precisely what the European Shadow Financial Regulatory Committee seeks to do. In this paper, Harald Benink, chairman of the ESFRC, and Reinhard H. Schmidt, one of the two German members, discuss the origin, the objectives and the functioning of the committee and the thrust of its recommendations.     

An Investigation into the Potential Adoption of International Financial Reporting Standards in the United States: Implications and Implementation

International Financial Reporting Standards (IFRS) have been adopted by most of the G20 countries. Given the broad worldwide acceptance of IFRS and significance of attaining comparability to facilitate free flow of capital, the US standard setter, the Financial Accounting Standards Board (FASB) made a commitment to jointly work with the International Accounting Standards Board (IASB) to explore the possibilities of convergence of US Generally Accepted Accounting Principles (GAAP) with IFRS. In 2007, the US Securities and Exchange Commission (SEC) eliminated the requirement that foreign companies listed on the US stock exchanges reconcile their IFRS‐based financial statements with the US GAAP. In the same year the US SEC issued a concept release to the public requesting comments on a proposal to allow US issuers to prepare financial statements in accordance with IFRS. Following these initiatives by the FASB and SEC, the aim of the present study is to investigate the implications of a potential full adoption of IFRS by the US. The present study details the challenges and benefits of adoption and outlines the steps required for a successful outcome of this process.     

IFRS in the United States: If,When and How

This paper provides an overview of the convergence efforts of the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board. It begins with their 2002 Memorandum of Understanding and traces developments up to the December 2011 announcement by the IASB Chair that convergence has come to a close, and it is now time to incorporate IFRS into the US financial reporting system. The paper then assesses approaches being considered by the SEC for incorporating IFRS into the US financial reporting model. The conclusion calls on the SEC to ‘make a decision’ and set a date for US adoption of IFRS. Otherwise, the SEC effectively will have abandoned its goal of a single set of high quality global accounting standards.     

Does implementation guidance affect opportunistic reporting and value relevance of earnings?

In recent years, both the SEC (2003) and the FASB (2004) [Securities and Exchange Commission, 2003. Study Pursuant to Section 108(d) of the Sarbanes-Oxley Act of 2002 on the Adoption by the United States Financial Reporting System of a Principles-Based Accounting System. Securities and Exchange Commission, Washington, DC; the Financial Accounting Standards Board, 2004. On the road to an objectives-oriented accounting system. Financial Accounting Series: The FASB Report (August 31), 1–5.] have indicated a need for accounting standards where principles are balanced by implementation guidance (i.e., a framework for exercising professional judgment). In this study, we take advantage of a jurisdictional split during 1996–2001 whereby the same economic event (i.e., an impairment in oil and gas assets) in the extractive petroleum industry was accounted for by “full cost” firms under a SEC standard (Regulation SX 4-10) which provides extensive implementation guidance, and by “successful efforts” firms under a FASB standard (SFAS No. 121) that provided relatively little guidance for implementing the standard.     

Convergence between US GAAP and IFRS: Acceptance of IFRS by the US Securities and Exchange Commission (SEC)

Abstract

The world's capital markets stand to benefit significantly from widespread acceptance and use of global accounting standards that are high quality, comprehensive and rigorously applied. The US Securities and Exchange Commission (SEC) announced in April 2007 a series of actions it intends to take relating to the acceptance of International Financial Reporting Standards (IFRS). To implement this, the SEC proposed in July 2007 amendments to Form 20-F and conforming changes to SEC Regulation S-X to accept financial statements prepared in accordance with IFRS without reconciliation to US Generally Accepted Accounting Principles (GAAP) when contained in the filings of foreign private issuers with the SEC. This paper analyses the forces driving convergence between US GAAP and IFRS and discusses the most recent activities by the SEC in relation to IFRS and international cooperation, including the SEC vote as of 15 November 2007, to allow foreign private issuers to prepare their financial statements using IFRS as issued by the IASB without reconciling to US GAAP.     

The Impact of SFAS No. 14 Segment Information on Price Variability and Earnings Forecast Accuracy

This study provides empirical evidence on the economic effects of Statement of Financial Accounting Standards (SFAS) No. 14 segment disclosures. Required disclosures under this standard subsume those of the Securities and Exchange Commission' (SEC) 1970 line-of-business disclosure rule both in terms of the variables to be disclosed and the degree of decomposition of the consolidated information. Consequently, this study hypothesizes that stock price variability will be greater at the time of, and security analysts' earnings forecasts more accurate following, release of these disclosures. The results of the empirical analysis support these hypotheses. They indicate that SFAS No. 14 segment disclosures convey incremental information over previously reported SEC line-of-business information that is relevant to stockholders and to security analysts.     

The adequacy of fixed asset disclosures under U.S. GAAP

Prior to 1995, the U.S. Securities and Exchange Commission (SEC) required publicly-traded, capital-intensive registrants to prepare detailed supplemental schedules summarizing the activity in fixed asset-related accounts. This study examines these previously-mandated schedules and illustrates how current aggregated reporting requirements potentially conceal insights that could be gained with finer information. This is a significant issue, as current disclosures under International Financial Reporting Standards (IFRS) are similar to the former SEC requirements. The analysis supports the conclusion that stakeholders in capital-intensive U.S. firms are at an informational disadvantage relative to stakeholders in similar firms reporting under IFRS.     

Using Form 20-F reconciliations to internationalize an accounting course

Accounting courses and textbooks in the United States focus on US generally accepted accounting principles (GAAP). As a result, US accounting students have little exposure to International Financial Reporting Standards (IFRS) and to differences between these standards and US GAAP. To familiarize students with the differences between IFRS and US GAAP, accounting instructors can develop assignments based upon the reconciliation of IFRS to US GAAP net income included in Form 20-F, the annual document submitted to the SEC by non-US firms. The course assignment described in this paper provides students with a “road map” of the differences underlying specific company financial reporting, and helps instructors identify where these differences occur. The assignment represents an innovative way of integrating international financial reporting standards and SEC reporting requirements into a higher level undergraduate or graduate accounting course.     

IFRS in the United States – Developments and Current Status

International Financial Reporting Standards (IFRS) are now required or permitted for use by companies in more than 100 countries, including the majority of the G20 members. However, domestic public companies domiciled in the United States (US) continue to be required to file financial statements with the Securities and Exchange Commission (SEC) in accordance with US Generally Accepted Accounting Principles (US GAAP), and are prohibited from preparing them based on IFRS. This article describes the developments of IFRS‐related activities and initiatives in the US over the period 2007–2012, and provides an overview of the current status regarding potentially incorporating IFRS into the US financial reporting system based on recently issued reports by the SEC.     

Management Discussion and Analysis: An Evaluation of Practice in UK and US Companies

The Accounting Standards Board has proposed the inclusion of an Operating and Financial Review in the annual reports of large UK companies, similar to the Management Discussion and Analysis (MD&A) required by the Securities and Exchange Commission (SEC) in the USA. This paper explores the nature of the MD&A reports already existing in the case of 42 UK companies which report to the SEC and compares these with a sample of 42 large US companies. Techniques of content analysis and a subjective scoring system were used to quantify the differences between observed practice of UK and US companies within the same set of regulations. UK companies were found to provide more informative reports with respect to disclosure of aspects of risk and uncertainty, as well as providing more forward-looking information. In both the UK and the USA there was no evidence of homogeneity of form and content within or between industry groupings. It is concluded that it is feasible for UK companies to produce the type of report envisaged by the Accounting Standards Board and that a wide range of practice exists within the framework of the SEC regulations. Research into user needs will be required to identify the most useful disclosures.     

美国SEC采取的异常行动对IASB影响的分析——SEC提出以IFRS取代US GAAP

本文试图研究美国 SEC 于2007年发布两个要求评论的文件草案(一为概念公告,另一为建议规则),这两个公告的主题是允许美国上市公司和外国在美国上市的私人公司均可按照国际财务报告准则编报它们的财务报表,而无需按美国公认会计原则进行调整,这是国际会计与审计界一件关键性大事。本文对美国 SEC 出人意外的行动——将在2013年采用 IFRSs 取代本国的 GAAPs 及其背景进行了分析,并提出我国值得考虑的对策。     

An examination of the perceptions of auditors and chief financial officers regarding principles versus rules based accounting standards

The debate over the adoption of International Financial Reporting Standards (IFRS) by United States issuers, or its convergence with U.S. Generally Accepted Accounting Principles (U.S. GAAP) has been going on for several years now. However, as of this writing, the Securities and Exchange Commission (SEC) has still not taken a definitive position on the issue. This is in part due to issues involving the cost of adoption, independence concerns relating to the IFRS promulgation body, the International Accounting Standards Board (IASB), and the debate over which type of accounting standards is superior for financial reporting: IFRS, which are said to be “principles-based,” or U.S. GAAP, which are said to be “rules-based.” In this paper we examined the views of two stakeholders in the U.S. financial reporting system, auditors in large public accounting firms and Chief Financial Officers in the Fortune 1000. We elicited their perceptions involving ten situations where specific rules are incorporated in U.S. GAAP. We asked if the elimination of the specific rule would be likely to better achieve the “qualitative characteristics of useful financial information” as defined by the Conceptual Framework for Financial Reporting adopted by the Financial Accounting Standards Board (FASB) in 2010 (FASB 2010) and the similar document adopted by the IASB at the same time (IASB 2010). We found that in eight of the ten situations both groups preferred the rules-based accounting regime (the current U.S. GAAP rules) over a principles-based approach.     

The effect of recognition vs. disclosure on investor valuation: The case of pension accounting

Whether or not the format of financial reporting influences user assessment of the reported information is an important issue to the Securities and Exchange Commission (SEC), the Financial Accounting Standards Board (FASB), and managers. Do investors, in determining security prices, differentiate between information recognized in the balance sheet and that disclosed in the footnotes? The findings indicate that investors appear to consider pension information disclosed in the footnotes as value-relevant, given that an accrued (prepaid) pension liability (asset) is also recognized in the balance sheet. Second, investors attach equal importance to both sorts of pension information.     

The academic community’s participation in global accounting standard-setting

International Financial Reporting Standards (IFRS) are now used in more than 100 countries. In the US, the Securities and Exchange Commission (SEC) is considering a “Work Plan” to allow or require US corporations to use IFRS. Considering the rising importance of IFRS, the International Accounting Standards Board (IASB), the SEC, the European Union (EU), and others have called for broader stakeholder participation in the global accounting standard-setting process. Academicians are seen as one group that has the potential to have a strong positive influence in the shaping of accounting standards.This study investigates the academic community’s participation in the IASB’s standard-setting process through the submission of comment letters for 79 issues. For 55 IASB issues, 90 academics and academic organizations (5.8% of all respondents) provided 153 responses (2.7% of total responses). For 24 Draft Interpretations issued by the IASB’s International Financial Reporting Interpretations Committee (IFRIC), just 17 academics and academic organizations (4.9% of respondents) provided 20 responses (1.9%).Overall, Anglo country writers dominated, with Australia, Canada, New Zealand, the United Kingdom, and the United States together providing a majority of writers and responses. Non-Anglo EU countries provided about a quarter of the writers and responses. While academic interest increased for a few issues, usually discussion papers and substantive issues, the overall response rate remained low. Possible reasons for low participation rates are discussed, as well as some changes that may increase academic engagement with the IASB’s standard-setting process.     

A Critical Look at SFAS 34: Capitalization of Interest Cost

In 1974, the Securities and Exchange Commission (SEC) noted that an increasing number of companies were capitalizing interest costs, and that this practice was not being adequately disclosed (FASB, 1979, par. 26). In light of the alternative practices concerning the accounting for interest and lack of adequate disclosure by companies that were already capitalizing interest, the SEC recommended that the Financial Accounting Standards Board (FASB) consider the issue of accounting for interest cost. As a result of the SEC's initiative, in 1979 the FASB issued Statement of Financial Accounting Standards [SFAS] No. 34, Capitalization of Interest Cost, which mandated uniform interest capitalization rules in accounting for interest costs associated with the acquisition of qualifying non-current assets. The purpose of this article is to examine SFAS 34 in terms of its financial statement impact, the congruence of its assumptions with economic behaviour, its effect on subsequent standards related to interest capitalization, and its implications on financial accounting standard setting. To explore these issues we first illustrate the extent to which interest capitalization affects financial statements. We then empirically analyse the measure employed in SFAS 34 for the capitalization of interest cost in cases where debt is not directly linked with the acquisition of qualifying non-current assets. In addition, we critically examine the treatment accorded interest cost in subsequent FASB standards. Our research suggests that SFAS 34′s rationale for interest capitalization is incompatible with firm behaviour, and that the rules for interest capitalization as reflected in various accounting standards are inconsistent. These findings suggest that in the case of interest capitalization the benefits of comparability in financial reporting are not realized. A policy recommendation is then offered to alleviate some of these difficulties. The recommendation is to disallow the capitalization of interest cost in the absence of a direct link between the debt and the acquisition of qualifying assets.     

Did the FASB Codification Reduce the Complexity of Applying U.S. GAAP?

We examine whether the Financial Accounting Standards Board (FASB) Codification made it easier for preparers and auditors to locate relevant accounting guidance. We find that areas of U.S. GAAP with more dispersed and voluminous guidance before the Codification experience a larger post-Codification reduction in restatements. We find a similar decline in SEC comment letter questions referencing areas of U.S. GAAP with more dispersed and voluminous pre-Codification guidance. Our results suggest that before the Codification, preparers and auditors had difficulty in locating the appropriate accounting guidance and that the Codification mitigated this difficulty.