Meeting user information needs: The impact of major changes in FASB and GASB standards on financial reporting by colleges and universities

This longitudinal study reports the impact of changes in generally accepted accounting principles on financial statement disclosures for 100 public and private institutions of higher education. Disclosures from the period when all colleges and universities followed the same accounting standards are compared with disclosures in periods after major changes in accounting and reporting standards were made by the Financial Accounting Standards Board (FASB) for private institutions and by the Governmental Accounting Standards Board (GASB) for public institutions. We find that an importance-weighted disclosure index shows that user needs are better met using the new reporting standards for public but not private institutions. An expanded unweighted index, however, shows improvement for both public and private colleges and universities. Using this disclosure index, the improvement for universities reporting under GASB standards exceeded the improvement for those reporting under FASB standards.     

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。     

The usefulness of current-cost measures of debt in assessing systematic risk: extending the provisions of SFAS no. 33

Current-cost disclosure requirements of SFAS No. 33, Financial Reporting and Changing Prices (Financial Accounting Standards Board [FASB] 1979), as amended by a recent exposure draft, Financial Reporting and Changing Prices: Current Cost Information (FASB 1984), focus on the asset side of the balance sheet. Both pronouncements exclude liabilities and preferred stock from their requirements for current-cost disclosure. Evidence presented here suggests that the usefulness of current-cost disclosures in assessing systematic risk is enhanced significantly by expanding these disclosure requirements to include liabilities and preferred stock. Decision usefulness is emphasized by accounting regulators as an important financial reporting objective. Considering the results presented here, the addition of current-cost measures of liabilities and preferred stock to the disclosure requirements of the exposure draft appears to be consistent with that objective. Further, the costs involved are anticipated to be minimal. The implication is that society can benefit from these additional disclosures through a more effective allocation of resources at minimal incremental cost.     

International operations and voluntary disclosures by U.S.-based multinational corporations

This study uses analysts' ratings of firms' disclosures to examine how the differences between U.S. and foreign disclosure environments affects the voluntary disclosures of U.S.-based multinational corporations. We hypothesize that these different disclosure environments discourage U.S-based multinationals from releasing costly information to competitors. Examining how these differences impact U.S. MNCs' reporting may further our understanding of the relationship between voluntary disclosures and differences among countries' accounting standards. Furthermore, it may explain how convergence of mandated accounting standards might impact voluntary disclosures. Controlling for industry membership, firm size, profitability, earnings-return relations, and capital market activity, we find that U.S. firms with more extensive foreign operations tend to provide fewer voluntary disclosures. These results are most robust for informal and flexible disclosures, such as investor relations, where the findings indicate a negative relation between foreign operations and disclosure.     

Practice versus Prescription in the Disclosure and Recognition of Derivatives

The contentious issue of the recognition and measurement of derivative instruments is again high on the Australian standard-setting agenda, following pronouncements by the International Accounting Standards Committee (USC) and Financial Accounting Standards Board (FASB). This study investigates firms' disclosure of derivative accounting policies and measurement practices pursuant to the introduction of AASB 1033. A lack of clarity and completeness in the disclosures suggests that supplementary requirements are necessary. A preference for using hedge accounting is also apparent. Should an Australian standard disallow or impose conditions on hedge accounting, fims will need to alter their current accounting practices and risk management strategies and they will probably reassess their use of derivatives.     

An Analysis of Concepts and Evidence on the Question of Whether IFRS Should be Conservative

Do international accounting standards require conservative accounting? The IASB's conceptual framework suggests that they should not, while the research literature is largely silent on the matter, typically presuming conservatism to be an outcome of private contracting rather than standardized, public, general purpose financial reporting. In this paper, we analyze the actual requirements of IFRS. We find multiple examples of recognition requirements that lead to unconditional conservatism, measurement requirements that lead to conditional conservatism, and also presentation/disclosure requirements that further support a conservative reporting environment. These findings complement, support and deepen existing evidence in the empirical literature that accounting is in practice conservative. We show, however, that the requirements for conservatism in IFRS conflict with, first, the IASB's stated position in its conceptual framework that accounting should not be conservative and, second, the private contracting explanation for conservatism that is generally accepted in the literature. What is missing, and lies behind both conflicts, is an acknowledgement and understanding of the role of an agency/contracting perspective in enhancing the decision‐usefulness of general purpose accounting standards, given the information/incentive asymmetry and uncertainty that characterizes the real‐world context in which those standards operate. From a policy perspective, such an understanding would reconcile the IASB's conceptual framework with the actual requirements of IFRS. From a research literature perspective, such an understanding would re‐position accounting standards as central to the practice of accounting conservatism, which would in turn require revision to the generally accepted theory of a private contracting explanation for the empirical evidence of conservative accounting practice.     

Financial statement users’ institutional logic

In this paper, we investigate what we call “financial statement users’ institutional logic,” defined as users’ expressed fundamental views and beliefs about accounting information. We analyze users’ comment letters to standard setters in response to the proposed standards on lease accounting to identify the dimensions of the institutional logic that underlie their views on accounting information. Our qualitative analysis identified and validated ten principal dimensions, namely economics and substance, due process issues, measurement, readiness and relevance for use, conceptual foundations, clarity, presentation and disclosure, cost-benefit issues, comparability and consistency, and financial statement manipulation. Quantitative analyses revealed that four of these dimensions, i.e. due process issues, readiness and relevance for use, comparability and consistency, and cost-benefit issues, occupy a medium or large amount of space in users’ comments and are referred to in strong terms, while economics and substance and measurement, although also widely discussed, are addressed in weaker terms. Overall, our study begins to fill a gap in the literature by providing insights into users’ views on accounting information. These insights challenge the “homo economicus user” currently constructed in standard-setting debates.     

Assessing professional ethics in tax: A case on uncertain tax positions

We develop and present an ethics case dealing with an uncertain tax position. The case can be used to assess professional ethics as part of an assurance-of-learning (AOL) plan as well as a component of a course grade. We present data on student performance on this case over a 5-year period. Students consider existing ethical frameworks to identify and frame the potential ethical “dilemmas” they might face in addressing whether to countenance a client’s suggested treatment and disclosure of an uncertain tax position. In addition, students evaluate the AICPA guidance and U.S. Treasury standards on taking and reporting uncertain tax positions in the tax return and the FASB and PCAOB standards on reporting and auditing uncertain tax positions in the financial statements. The case allows faculty to assess students’ ability to frame potential ethical dilemmas when clients engage in aggressive tax behavior, to recognize with whom and with what professional reference documents they should consult when an uncertain tax position arises, and to choose among alternative actions when faced with client/preparer conflicts.     

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.     

Why haven’t U.S. GAAP and IFRS on insurance contracts converged? Evidence from an unsuccessful joint project

This study examines the FASB’s and IASB’s unsuccessful joint project on accounting for insurance contracts. It highlights the divergent views the Boards may hold on certain fundamental accounting issues. Further, this study examines how the costs and benefits of accounting standard convergence can vary within an industry, conditional on factors such as prior accounting standards and firms’ global operations. Empirically, U.S. insurers’ negative market reactions to the joint insurance project suggest U.S. investors perceived net costs would outweigh net benefits. This study also finds that market reactions of U.S. insurers were more negative than those of European insurers. The results of cross-sectional analyses indicate that U.S. life insurers perceived higher net costs associated with the joint project, while European insurers with more global revenue perceived higher net benefits. This work illuminates some of the challenges facing standard setters when attempting to develop a globally acceptable set of financial reporting standards.     

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.     

An analysis of proxy statement leadership structure justification disclosures

The Dodd-Frank Act’s qualitative disclosure requirements have prompted a call in the accounting literature for greater qualitative disclosure scrutiny. In this paper, we investigate the informativeness of qualitative leadership justification disclosures required by Section 972 of the Dodd-Frank Act. The disclosures are divided between justifying combining the CEO and Chairman of the Board (CEO Duality) and splitting these two positions (split structure). We use content analysis in our investigation. We discover that the two types of justifications are very different. The split structure disclosures tend to be ‘boiler plate’ and lack informativeness. In contrast, our tests suggest that CEO Duality justifications are informative. Our tests suggest that disclosures’ intensities in CEO Duality firms are positively associated with an increasing volume of information that supports CEO Duality as the more appropriate leadership structure choice. Additionally, our test results show that leadership disclosures change users risk perception, but only for CEO Duality firms. This suggests that investors believe in and are using the disclosures when making their investment decisions.     

Institutional thinking: The case of financial instruments

Although financial accounting practices and disclosures are frequently altered, such changes appear to be constrained by “institutional thinking”. In this paper, I explore an instance of institutional thinking — the emergence and development of an FASB project on financial instruments. This study illustrates the programmed ways in which accounting problems are constructed and resolved, a process that shadows certain questions while emphasizing the traditional accounting concerns with disclosure, recognition and measurement.     

Accounting standard’s effectiveness on equity overstatement – Conservatism when it matters

This paper evaluates the effectiveness of FASB’s standards on accounting conservatism when a firm is likely overstating assets or understating liabilities. Specifically, this paper considers whether conservatism increases due to SFAS 87, 106, 121, 142, and 123R, conditional on the firm being an aggressive reporter. To test these standards, I perform two time-series analyses from 1976 though to 2010. The first analysis compares the number of observations with a book to market ratio (BTM) greater than one to all observations at the industry level. The second determines whether each standard is correlated with a reduction in the probability of a firm having a BTM greater than one. I use the BTM greater than one to identify firms that should be more conservative (avoid equity overstatement), and to exclude those that are biasing earnings to artificially low levels. The results are consistent with only some of the standards, SFAS 106 (Employers’ Accounting for Postretirement Benefits Other Than Pension) and SFAS 142 (Goodwill and Other Intangible Assets), being effective in reducing equity overstatement.     

Statement 133: Not Perfect, but a Step in the Right Direction

Statement 133 represents progress toward achieving the goals of GAAP. To the extent it requires companies to mark their derivatives to market, balance sheets will give investors a clearer, more complete picture of a company's assets and liabilities.
But if the fair value accounting prescribed by Statement 133 has provided clarity for investors about corporate derivatives positions, it has also forced some companies—those unable or unwilling to qualify for hedge accounting—to report more volatile earnings, causing the accounting rule to come under heavy criticism. As the author argues, however, such criticism is based on the misperception that the objective of GAAP income statements is to provide a "normalized" measure of financial performance—a single number that can be discounted or capitalized by analysts to arrive at a company's value. In fact, it is mainly the job of the analysts themselves, not accountants, to determine which elements of a company's income statement are recurring and central to the business.
What's more, the author argues that the FASB went too far when it allowed hedge accounting for forecasted transactions. Rather than expanding the use of hedge accounting, the FASB should promulgate a comprehensive fair value standard, one that aims to mark all corporate assets and liabilities to market—which would eliminate the need for hedge accounting or any of its associated complexity, and compensate for 133's dearth of disclosures.     

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.     

What corporate america wants in entrylevel accountants: Some methodological concerns

In September 1993, the Institute of Management Accountants (IMA) and the Financial Executives Institute (FEI) commissioned the Gary Siegel Organization (hereafter GSO) to carry out a study that was ultimately titled, “What Corporate America Wants in Entry-level Accountants.” The GSO employed a research approach that included focus group interviews, telephone interviews, and mail questionnaires. Central to the GSO study is an assessment of accounting knowledge and skills areas (AKSAs). AKSAs are 15 broad accounting knowledge and skills areas selected from the content specifications of professional accounting examinations and from major topic areas taught in college accounting courses. The research results were reported at the Annual Meeting of the American Accounting Association in August, 1994, and published as a monograph as well as in Management Accounting.According to a joint IMA/FEI position statement, “The results show that Corporate America believes universities are doing a less than adequate job of preparing people for entrylevel work in management accounting” (p. 25). Consistent with these conclusions, the IMA/FEI position statement continues, “University accounting programs must be restructured to respond to the needs of the corporate customer.” (p. 25).As a way of measuring the service quality gap with respect to the AKSAs, the GSO apparently tried to adapt a perceptions-minus-expectations research methodology used to measure service quality referred to as SERVQUAL. Unfortunately, the GSO study contains serious methodological flaws. These methodological flaws call into question the conclusions drawn from the study. Accounting educators and administrators need to exercise caution in using the GSO study results as the basis for wholesale restructuring of the accounting curriculum. At the least, additional studies ought to be made to either confirm or disconfirm the results reported by the GSO study. In this paper, we outline a more acceptable method for using the SERVQUAL perceptions-minus-expectations framework.