Trident Utility: accounting for nuclear decommissioning costs

This case relates to current accounting for the costs that utility companies will incur in the future to decommission their nuclear plants and how the accounting would change under a new Exposure Draft. There is currently considerable diversity in the methods used to account for costs incurred to decommission nuclear power plants. The Financial Accounting Standards Board (FASB) issued an initial Exposure Draft concerning these costs in 1996 and issued a revised version in February 2000. The Exposure Drafts propose more uniform accounting practices in this area. The proposed standard would, however, have significant effects on the balance sheets of utility companies that own nuclear power plants. This case investigates the consequences that the proposed standard would have on financial analysts’ perceptions of the financial soundness of utility companies affected by the standard. The case also explores some recent developments regarding deregulation of the electric utility industry and their ramifications for accounting.     

Constructing, persuading and silencing: the rhetoric of accounting standards

Members of the Financial Accounting Standards Board (FASB) and its staff are continuously engaged in a variety of efforts to persuade individuals that the work of this entity is valuable, appropriate, useful and correct. In this paper, I focus upon the persuasive efforts that are employed in “official” accounting standards. These documents do more than simply detail new technical accounting requirements. The texts have been shaped to express a particular point of view about the significance of events and activities that occurred during the standard-setting process and contain numerous efforts to persuade readers to accept this perspective. In particular, I argue that the FASB employs rhetorical strategies in its accounting standards that construct (and attempt to persuade us) that a specific standard is “good”, that silence alternatives and possible criticisms of the standard and that construct the FASB as a “good” standard-setter. These strategies help to construct standards as technical products and thereby also work to maintain the myth of accounting objectivity.     

GFC or KFC?: How Standard Setters Were Battered and Fried

The Global Financial Crisis (GFC) has exposed the fragility of both the alleged independence of the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) and their agreement to work together on major projects such as accounting for financial instruments. This paper outlines the events that have dogged the IASB and FASB in their attempts to respond to the GFC and explores the implications of the recent political pressures on accounting standard setting for the likelihood of ultimately achieving one global set of accounting standards.     

Agency problems,accounting slack,and banks’ response to proposed reporting of loan fair values

We investigate the determinants of bank representatives’ responses to the United States Financial Accounting Standard Board’s 2010 Exposure Draft that proposes fair value measurement for most financial instruments. Over 85% of the 2971 comment letters were received from bank representatives, with most bank-affiliated letters addressing—and opposing—one issue: fair value measurement of loans. The Exposure Draft proposes that companies report both fair value and amortized cost measures for loans; thus, the proposal should result in increased levels of loan-related information and improved financial reporting transparency. We investigate three reasons for bank representatives’ resistance. First, fair value measurement should result in less accounting slack than the current incurred-loss model for loan impairments; therefore, we propose that representatives from banks that historically utilized that slack will resist fair value measurement for loans. Second, we propose that agency problems are an important motivating factor because bank representatives reaping more private benefits from their franchises have less incentive to support increases in financial reporting transparency. Third, we test whether the most common reasons for opposition included in the comment letters are associated with negative letter writing. Our analyses support the first two determinants of bank representatives’ resistance to the Exposure Draft. Specifically, accounting slack and lower demand for accounting transparency are strongly associated with resistance to the standard. However, we find that stated reasons for resistance are not associated with letter writing. Specifically, representatives at firms with difficult to value loans and firms that mostly hold loans to maturity are no more likely to resist the standard than others. The narrow scope of bank representatives’ comments and our empirical findings suggest that bankers’ responses to the Exposure Draft may be more driven by concerns over reduced availability of accounting slack and accompanying de facto regulatory forbearance than by the conceptual arguments they offer. Our results have implications for standard setters, who must navigate special interests as they attempt to promulgate high quality accounting standards, and for users of financial statements who must consider how political forces shape generally accepted accounting principles.     

The recognition and measurement guidelines of FASB concepts no. 5

In making recognition and measurement decisions, accountants often encounter complex and controversial issues. They must decide what events to record, when to record the events, and how to properly measure the financial effects. A framework that could provide guidance for those difficult decisions would be helpful.In 1984 the FASB issued Statement of Financial Accounting Concepts No. 5 (SFAC No. 5) titled “Recognition and Measurement in Financial Statements of Business Enterprises” to meet this need for guidance. The document bears special significance because it may be the “end of the line,” representing the culmination of the efforts of the FASB to develop a theoretical basis for accounting [Kirk, 1984, p. 20]. In this article we review the recognition criteria established in SFAC No. 5 and present a flowchart that may be helpful to accounting educators as a portrayal of those criteria. The article also may be useful in classroom discussions of theory formulation since it indicates that the adoption of SFAC No. 5 took into consideration the diverse views of accountants, statement users, and reporting firms.     

Financial statement comparability and segment disclosure

Statement of Financial Accounting Standards (FAS) No. 131, Disclosures about Segments of an Enterprise and Related Information (FASB [1997]), reestablishes standards for how public business enterprises report segment information in financial statements. A prevailing criticism of FAS 131 is that it likely reduces financial statement comparability for firms with similar lines of business. This study estimates comparability of accounting disclosures surrounding the implementation of FAS 131 to examine potential variation in comparability associated with the segment reporting regime shift. Financial statement comparability is operationalized following the De Franco et al. (2011) accounting system comparability measure as the degree that firms have similar mappings for economic performance into financial statements. Results indicate decreased comparability for firms following FAS 131 adoption. Specifically, segment information reformulated according to how companies manage their businesses marginally limits this reduction in comparability, but greater segment information disaggregation through an increase in the number of reported segments attributed to FAS 131 application diminishes comparability overall. This study contributes to the standard setting process, as the FASB has assigned comparability to an important position in its conceptual framework and has made the goal of increasing comparability a vital component of its agenda that drives the need for accounting standards.     

Derivative accounting and financial reporting quality: A review of the literature

The financial crisis of 2008 increased the call for standard setters and financial regulators to review the effectiveness of derivative regulation in improving financial reporting quality. Prior literature defines financial reporting quality as the extent to which financial statements provide information that is useful to investors and creditors in their investment decisions (Schipper, 2003; Schipper & Vincent, 2003). This review summarizes the empirical evidence regarding the effectiveness of derivative regulation in achieving its stated objective. Extant literature shows that although derivative regulations have improved information provided to investors, there is still room for improvement. Recommendations from this stream of literature suggest that the Financial Accounting Standards Board (FASB) require managers to provide more complete, transparent, and forward-looking disclosures surrounding their derivative positions (Campbell, 2015; Franco-Wong, 2000). This review may be useful to standard setters, practitioners, and accounting academics by providing a synthesis of extant academic literature on the effectiveness of current derivative regulation. As the FASB and International Accounting Standards Board (IASB) continue to expand derivative accounting rules, this review may also be useful in identifying areas for future academic research.     

The proposed elimination of full cost accounting in the extractive petroleum industry: An empirical assessment of the market consequences

On July 15, 1977, the Financial Accounting Standards Board (FASB) issued an Exposure Draft of Statement 19 in which a proposal was set forth to establish the uniform usage of successful efforts accounting and to eliminate full cost accounting in the extractive petroleum industry. This study addresses the question of whether the proposed elimination of full cost accounting had an adverse effect on the security returns of full cost versus successful efforts firms. The evidence presented in this study suggests that the proposal to eliminate full cost accounting was associated with a significant negative difference in risk-adjusted rates between full cost firms and successful efforts firms whose financial reports remained unaffected by the proposed change. This observed difference was found to be sustained over an eight month period including confirming events and disclosures associated with the initial proposal. We do not attribute this difference to market inefficiencies but, rather, to the anticipated consequences which this mandated accounting change is likely to have on managerial behavior and to increased costs that will have to be borne by the affected companies.     

Using the standard-setting process to demystify the concepts statements: The case of SFAS 76

To illustrate the accounting standard-setting process and how conceptual consistency is lost during the negotiations involved in that process, Statement of Financial Accounting Standards (SFAS) 76 Extinguishment of Debt is used as a case study. Excerpts from actual “Comment Letters” sent to the FASB are used to highlight issues and stimulate discussion. Classroom results, wherein SFAS 76 was used, are summarized. While SFAS 76 as a case study was found to be an excellent vehicle for illustrating the problems faced by standard-setters and the role of the Conceptual Framework, any pronouncement could be used. The SFAS 76 case takes 20 or more minutes to use. However, the case can be substituted for some of the lecture on standard-setting so it does not have to expand the time needed to cover the topic.     

Bewertung der Fair Value-Bilanzierung von Versicherungsverträgen anhand der IASB-Zielsetzungen

The International Accounting Standards Board (IASB) published the Exposure Draft ?Insurance Contracts“ in July 2010. This standard draft is the basis for the final IFRS for accounting of insurance contracts and will replace the currently valid interim standard IFRS 4. In its Discussion Paper from May 2007 the IASB proposed the valuation of insurance liabilities based on a Current Exit Value. However, in the Exposure Draft the board changed his opinion (not at least due to the visible consequences of the last financial crisis) and follows an approach based on so called fulfillment cash flows. This new approach is different in many details and aims at creating a greater objectivity. Goal of this article is firstly to introduce the target valuation model and to judge it based on criteria developed in the paper. Furthermore, alternatives that could be applied in a final standard shall be shown.     

Interest rate swaps

This instructional case is intended to introduce graduate and undergraduate financial accounting and finance students to derivatives using interest rate swaps. The major learning objective is to understand derivative accounting methods, using interest rate swaps, as proposed by the Financial Accounting Standards Board's recent Exposure Draft. A secondary learning objective is to understand key features of a management control system for derivatives' activities. Both matched and unmatched interest rate swap examples are used in this case. The matched swap is based on an actual swap done by a bank for one of its customers. The case is written from the perspective of an audit partner writing a report summarizing interest rate swap accounting and related management controls for a client who wanted to recognize all gains and losses related to its interest rate swaps immediately in current earnings.     

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.     

资产弃置义务会计:理论诠释与准则展望

结合FASB对环境会计相关规范的发展历程,重点对美国在资产弃置义务会计准则制定、环境负债的确认、计量及弃置成本资本化的相关问题进行研究,进而考察了FASB和IASB在资产弃置义务会计规范上的差异根源,以期把握环境财务会计发展的内在规律。在上述基础上,分析我国资产弃置义务会计所面临的经济法律环境与市场需求,提出了我国资产弃置义务会计规范的改进建议。     

如何评价美国FASB的财务会计概念框架?

总体上来看, 美国财务会计准则委员会的财务会计概念框架的内容是详细、充实和严谨的, 基本上能自成一个完整的体系并符合佩顿和利特尔顿提出的连贯、协调、内在一致的理论体系的要求。本文肯定FASBCon cepts具有许多独创性, 值得借鉴学习。例如, 第 1号概念公告提出用财务报告代替财务报表, 发展了财务会计;第 5号概念公告提出四项确认的基本标准等等。但FASBConcepts仍有弱点和不足之处。因此, 本文提出若干建议, 试图说明它的不足和如何加以改进。     

Monopoly versus Competition in Setting Accounting Standards

Financial accounting standards are set by organizations granted a significant degree of monopoly power by various governments. While there has been considerable debate on the merits of national (e.g., US Financial Accounting Standards Board (FASB)) versus international (International Accounting Standards Board (IASB)) monopolies, little attention has been paid to the merits of using competing standard‐setting organizations (SSOs) for setting accounting standards. We compare the standard‐setting processes of the FASB/IASB to the processes of four technology‐oriented SSOs to assess the role of competition. We also provide a case study of monopoly and competitive standards in telephony. Both telephony and accounting yield some gains from coordination, and similar arguments are used (under the labels of comparability and consistency of accounting) in debates about granting a monopoly to their respective SSOs. Our results show that a group of volunteers competing with the government‐sanctioned monopoly of International Telecommunications Union transformed the telephone industry. Thanks to this standards competition, we enjoy free video internet calling and massive cost savings. Implications for accounting standard setting are discussed.     

Expected-loss-based Accounting for Impairment of Financial Instruments: The FASB and IASB Proposals 2009–2016

The financial and banking crisis of the late 2000s prompted claims that the incurred-loss method for the recognition of credit losses had caused undesirable delay in the recognition of credit-loss impairment. In the wake of the crisis, the US Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) worked towards the development of expected-loss-based methods of accounting for credit-loss impairment. Their work included an ultimately unsuccessful attempt to develop a converged FASB/IASB standard on credit-loss impairment. The FASB and IASB eventually developed their own separate expected-loss models to be included, respectively, in a 2016 FASB standard and in the IASB’s 2014 final version of IFRS 9 Financial Instruments. The failure to achieve convergence on an issue of such high profile and materiality has generated some controversy, and it is claimed that it will impose significant costs on the preparers and users of the financial statements of banks. This paper examines the various sets of expected-loss-based proposals issued separately or jointly since 2009 by the FASB and the IASB. It describes and compares key features of the different approaches eventually developed by the two standard setters, referring to issues that arose in arriving at practically workable solutions and to issues that may have impeded FASB/IASB convergence. It also provides information indicative of the possible effect of differences between the two approaches.     

A theory of the corporate decision to resist FASB standards: An organization theory perspective

This paper develops a theoretical framework that specifies the conditions under which corporations are likely to resist financial reporting standards proposed by the Financial Accounting Standards Board (FASB). Determinants of corporate resistance to FASB standards are identified at three levels of analysis: the standard, the corporation, and the corporation’s industry. Propositions are formulated summarizing the effects of the determinants at these three levels, and guidelines are suggested for testing the propositions. Implications for the theory and the practice of accounting regulation are also discussed. The overall goal of the paper is to enhance our understanding of the drivers of corporate resistance to FASB standards, so that accounting regulators can manage the implementation of accounting standards more effectively.     

AASB 1037 Sows the Seeds of Change: A Survey of SGARA Measurement Methods

International developments are set to reignite the controversy over how self-generating and regenerating assets (SGARAs) are measured. The International Accounting Standards Committee is working on an international accounting standard on agriculture due to be effective some time after 1 January 2002. The standard is expected to be similar to AASB 1037 Self-Generating and Regenerating Assets. This is an interesting development since the Australian Accounting Standards Board was urged to not move ahead of international developments when it released Exposure Draft 83 Self-Generating and Regenerating Assets
This paper surveys Australian SGARA measurement practices to assess the extent of reporting change required by AASB 103 7 and its international counterpart.     

回顾与评介——AICPA关于财务会计概念的研究

财务会计与报告的概念框架项目是在1976年由美国会计准则委员会开始的,但此前15年,其前任美国注册会计师协会曾进行了数次的尝试,包括ARS No1、No3,APB Statements No4、Trueblood报告等。美国注册会计师协会的努力既有成功经验,也有失败的教训,可供美国会计准则委员会及各国会计准则制定机构参考。     

Experimental research in financial accounting

This paper uses recent experimental studies of financial accounting to illustrate our view of how such experiments can be conducted successfully. Rather than provide an exhaustive review of the literature, we focus on how particular examples illustrate successful use of experiments to determine how, when and (ultimately) why important features of financial accounting settings influence behavior. We first describe how changes in views of market efficiency, reliance on the experimentalist’s comparative advantage, new theories, and a focus on key institutional features have allowed researchers to overcome the criticisms of earlier financial accounting experiments. We then describe how specific streams of experimental financial accounting research have addressed questions about financial communication between managers, auditors, information intermediaries, and investors, and indicate how future research can extend those streams. We focus particularly on (1) how managers and auditors report information; (2) how users of financial information interpret those reports; (3) how individual decisions affect market behavior; and (4) how strategic interactions between information reporters and users can affect market outcomes. Our examples include and integrate experiments that fall into both the “behavioral” and “experimental economics” literatures in accounting. Finally, we discuss how experiments can be designed to be both effective and efficient.