Current cost disclosers and nondisclosers: Theory and Canadian evidence*

Abstract. According to section 4510 of the CICA Handbook “supplementary information about the effects of changing prices should be disclosed …” by certain corporations. Three hundred and eighty firms met the Handbook criteria in 1983, but only 73 complied, even partially. This study describes the disclosers and nondisclosers, with the objective of understanding why the CICA recommendation received such a cool reception. The findings support the hypothesis that Canadian firms disclosed nonhistone cost accounting data on the basis of cost/benefit considerations, and that auditors played a role in influencing the disclosures. There was virtually no disclosure of current cost information by clients of other than the Big Eight auditing firms. Utilities, subject to different political pressures than other firms, were apparently relatively more strongly influenced by the materiality of the disclosures. Among the nondisclosers, firms that were a little larger than average, were SEC registrants, and apparently would have shown the most material current cost adjustments if they had disclosed, tended to give reasons for not disclosing. Their publicly stated reasons implied that the costs of disclosing exceeded the benefits to them, or that they believed that the information was not useful to financial statement readers. In contrast to the United States, where compliance with similar disclosures described in FASB 33 is legally enforced by the SEC, Canada provides a laboratory for examining the relatively free choice of whether to disclose or not. Whether revamping section 4510 would increase its acceptability is left as an issue for further research to resolve. Résumé. Selon le chapitre 4510 du Manuel de l'I.C.C.A., certaines sociétés “doivent présenter un supplément d'informations sur les effets des variations de prix”. Alors que trois cent quatre-vingts firmes satisfaisaient aux exigences du Manuel en 1983, seulement soixante treize d'entre elles se sontpliées aux exigences de divulgation, et ce partiellement. Cette étude décrit les sociétés “divulgatrices” et “non-divulgatrices”, et vise à comprendre le faible enthousiasme pour les recommandations de l'I.C.C.A. Les résultats appuient l'hypothèse que les sociétés canadiennes ayant présenté des informations sur la base de la comptabilité aux coûts actuels l'ont fait par suite d'analyses coûts/avantages, de même que l'influence des vérificateurs sur ce type de divulgation. Il n'y a presque pas eu de présentation d'informations aux coûts actuels de la part des sociétés vérifiées par des cabinets autres que les constituantes des “Big Eight”. Les entreprises de services publics, sur lesquelles s'exercent des pressions politiques d'une nature différente de celles des autres sociétés, ont été relativement plus influencées par l'importance relative de cette divulgation. Parmi les sociétés “non-divulgatrices”, celles de taille quelque peu supérieure à la moyenne, inscrites à la SEC, et qui apparemment auraient montré les ajustements de coûts actuels les plus importants en vertu du mode de présentation suggéré, avaient tendance à justifier la non-divulgation de tels renseignements. L'analyse avantages/coûts défavorable, ou l'utilité discutable de telles informations pour les lecteurs d‘états financiers, constituaient les raisons invoquées par ces sociétés à l'appui de la non-divulgation. Contrairement aux Etats-Unis, où l'adhésion aux recommandations du FASB 33 portant sur une information de nature similaire est exigée par la SEC, le Canada fournit un laboratoire où il est possible d'examiner un libre-choix relatif de divulgation ou de non-divulgation. En vertu des résultats de cette étude, l'utilité des informations présentées selon le chapitre 4510 peut être mise en doute. La modification en profondeur du chapitre 4510 comme élément de solution à la non-adhésion s'avère une question sur laquelle les recherches ultérieures devront se pencher.     

“Post‐Truth,” “Alternative Facts” and “Fakenomics”

South African companies are accused of hoarding profits to accumulate large amounts of “idle” cash, as well as of being the perpetrators of massive illegal capital flight. This paper argues that much of the claimed corporate cash is either offshore or belongs to banks. It reminds that bank deposits increase when companies borrow, not when they retain profits. It shows, too, that measures of massive capital flight actually reflect data errors. Exaggerating, through faulty methodology the extent to which companies have cash or may be involved in illegal capital flight is unhelpful. It exacerbates already‐fraught government‐business relations, and complicates the search for solutions to South Africa's economic problems.     

Discussion of “The Psychology of Billing”

Hansen, Jackson, Schaefer, and Stewart (2018) examine the effects of three contextual features on tax professionals’ billing decisions in a case involving issue‐specific tax research. In this discussion, we present a tax fee model. In contrast to determining a bill, our model views tax fees in a more comprehensive perspective. We subsequently use this model to discuss the design choices and limitations of their study and to provide suggestions for future research.     

Discussion of “Optimal Conservatism with Earnings Manipulation”

In this discussion, I briefly summarize the key features of Bertomeu, Darrough, and Xue's (hereafter BDX) model. I then examine the four key assumptions that BDX employ to arrive at their results: (i) firms contract only on earnings; (ii) conservative earnings are better for contracting; (iii) conservatism motivates upward earnings manipulation; and (iv) conservatism is endogenous. I then briefly conclude.     

Discussion of “Information Asymmetries about Measurement Quality”

This article discusses Glover and Levine (2019). It summarizes Glover and Levine's model, its contributions, and practical implications. It also suggests empirical extensions based on the predictions of the model.     

Discussion of “Corporate Political Connections and Tax Aggressiveness”

Kim and Zhang (2015) study the relation between corporate political connections and tax aggressiveness. In this discussion, I identify and evaluate three main limitations of their paper: the measurement of political connections, the empirical design, and the possible reasons behind the documented results. I build on these small shortcomings to provide suggestions for further contributions in this area of research.