The effect of pension accounting on corporate pension asset allocation

We examine the impact of new pension disclosures and subsequent full pension recognition under FRS 17 and IAS 19 in the United Kingdom and SFAS 158 in the United States on pension asset allocation. These standards require recognition of net pension surplus/deficit on the balance sheet and actuarial gains/losses in other comprehensive income. Therefore, these standards introduce volatility into comprehensive income and balance sheets. We identify a disclosure period during which UK companies disclosed all the required data under FRS 17 in the notes without recognition. We also identify a full recognition period starting 1 year before until 1 year after the adoption of FRS 17/IAS 19 (UK) and SFAS 158 (US). We predict and find that UK companies, on average, shifted pension assets from equity to debt securities during both the disclosure and the full recognition periods. We also find that while before the adoption of SFAS 158 US companies maintained a stable allocation to equities and bonds, these companies, on average, shifted funds from equities to bonds around the adoption of SFAS 158. Cross-sectional analysis shows that the shift away from equities is related to changes in funding levels, shorter investment horizons, increased financial leverage, and the expected impact of the new standards on shareholders’ equity.     

Discretionary accounting choices: the case of IAS 19 pension accounting

Based on a sample of 3207 firm-year observations for the years 2005–2013, we investigate how stock-listed companies in France, Germany and the UK use two discretionary choices in their accounting for defined benefit pension plans under International Accounting Standard (IAS) 19 Employee Benefits. We first analyse companies’ decision whether to voluntarily early adopt the equity method of accounting for actuarial gains and losses. Second, we analyse companies’ choice to present pension interest cost and expected return on plan assets, or, in 2013, net pension interest cost, in operating or financial income. Our findings provide evidence that companies’ decisions to early adopt the equity method in 2005, the first year this accounting choice was available, were motivated by short-term effects on equity. Our analyses also indicate that the choice regarding where to present interest cost and expected return on plan assets in the income statement is associated with the resulting effect on Earnings before Interest and Tax. Finally, we document country-specific differences in the use of the discretion provided under IAS 19, suggesting that discretionary pension accounting choices may impede comparability.     

The role of specialists in financial reporting: Evidence from pension accounting

The increasing use in financial reporting of estimates prepared by specialists has raised questions on the role these specialists play in financial reporting quality. In the setting of defined-benefit pension accounting—where the pension actuary is involved as a specialist—I examine whether pension sponsors with strong incentives to improve reported funding status pressure their actuaries for aggressive (obligation-reducing) assumptions. Among these sponsors, I find that those that are economically important clients of their actuaries use more aggressive discount rates than less important clients of the same actuary. Sponsors incentivized to inflate reported funding status but constrained from doing so also tend to seek out new actuaries. Discount rates become more aggressive after switches. These findings suggest that specialists are used to facilitate aggressive reporting. They also indicate that auditors—who are charged with evaluating specialists’ independence before relying on their work—may have difficulty implementing this guidance in practice.     

Assessing financial reporting comparability across institutional settings: The case of pension accounting

The drive for comparability of financial information is to enable users to distinguish similarities and differences in economic activities for an entity over time and between entities so that their resource allocation decisions are facilitated. With the increased globalisation of economic activities, the enhanced international comparability of financial statements is often used as an argument to advance the convergence of local accounting standards to international financial reporting standards (IFRS). Differences in the underlying economic substance of transactions between jurisdictions plus accounting standards allowing alternative treatments may render this expectation of increased comparability unrealistic. Motivated by observations that, as a construct, comparability is under-researched and not well understood, we develop a comparability framework that distinguishes between four types of comparability. In applying this comparability framework to pension accounting in the Australian and USA contexts, we highlight a dilemma: while regulators seek to increase the likelihood that similar events are accounted for similarly, an unintended consequence may be that preparers are forced to apply similar accounting treatment to events that are, in substance, different.     

On the robustness of the results of adoption date choice studies: The case of pension accounting

This paper examines the robustness of the results of adoption date choice studies to sample selection criteria, variable set, and the approach to model building. We use the new pension accounting standard (SFAS 87) in our examination. To this end, we develop a model of the relationship between the adoption date of the pension standard and the variables commonly used in adoption date studies. The variables are: (1) Firm size (2) income change prior to the adoption date and proxies for income management; (3) tightness of debt constraints; and (4) extent of the impact of the standard on financial statements.The results are consistent with the smoothing and compensation hypotheses, but not with the size hypothesis. Debt constraints did not have a significant effect on the selection of the adoption date; but, to the extent that the funding status of pension plans is a measure of the income effect of SFAS 87, the results are also consistent with the selection of adoption date to ease accounting-based debt constraints.Further tests indicate that the results of adoption date choice studies depend on the sample selection critiera, the variable set, and the approach to model building. Future researchers should be aware of the sensitivity of the results to these factors.     

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.     

Regulatory oversight and trade-offs in earnings management: evidence from pension accounting

Review of Accounting Studies - I develop approaches that quantify the use of discretion for the three main assumptions used for the financial reporting of defined benefit pension obligations: the...     

Pension plan accounting estimates and the freezing of defined benefit pension plans

This study provides evidence that, when “hard” freezing their defined benefit pension plans, employers select downward biased accounting assumptions to exaggerate the economic burden of their benefit plans. Downward biased expected rates of return and discount rates allow managers to increase reported pension expenses and, for discount rates, allow managers to increase reported pension liabilities. We find that prior to the Sarbanes-Oxley Act, both rates are downward biased when firms freeze their plans, whereas after SOX the bias is lower. This finding is consistent with managers opportunistically biasing pension estimates to obtain labor concessions during periods of reduced regulatory scrutiny.     

Information asymmetry of fair value accounting during the financial crisis

We examine whether US banks’ fair value net assets, measured according to the three-level hierarchy introduced in SFAS 157, are associated with information asymmetry during the 2008 financial crisis. Our results show that bid–ask spread, a proxy for information asymmetry, is positively associated with fair value net assets, and the degree of association is contingent upon the three-level hierarchy, with bid–ask spreads being lowest for Level 1 (the most transparent valuation inputs) and highest for Level 3 (the least observable). Also, there is some evidence that SFAS 157 led to a reduction in bid–ask spread, and we find that quarterly changes in Level 1 and Level 2 fair value net assets are significantly associated with changes in bid–ask spread in 2008 when the spread was rapidly rising, but not in 2009 when it was falling. Our findings suggest that the three-level hierarchy under SFAS 157 provides investors with useful information, and fair value is associated with uncertainty, as measured by bid–ask spread, before and during the financial crisis.     

Wall Street’s bailout bet: Market reactions to house price releases in the presence of bailout expectations

The rise and subsequent collapse of US house prices was one of the factors underlying the recent financial crisis. One could expect that the crisis brought increased attention to the housing market and thus led to stronger market reactions to house price news. We find that reactions indeed change, but with a peculiar twist: from September 2008 on, good news from the housing market are associated with falling US stock prices, and vice versa. The likely explanation, for which we provide cross-sectional evidence, is that falling house prices increased the market’s trust in a government bailout, thereby increasing market valuations of firms that were expected to benefit from government rescue measures.     

The effects of corporate bailout on firm performance: International evidence

Not all corporate bailouts are the same. We study corporate bailouts from around the world during 1987–2005. Among these bailed-out firms, some firms are economically distressed while others are financially distressed. Some firms are bailed out with cash (either as equity or as loans) while others are bailed out with debt relief. Some firms are bailed out by the government while others are bailed out by other stakeholders. We examine these firms’ operating performance before and after their bailouts, but specifically across different bailout types, and we also measure their stock returns surrounding their bailout announcements.     

Developments in pension reform: the case of Dutch stand-alone collective pension schemes

Corporate defined-benefit plans suffer from a number of serious weaknesses, including credit risk of the sponsor, ambiguous ownership of the surplus and back-loading of benefits. Also defined-contribution plans feature drawbacks. Individuals are not well equipped to make the complex financial decisions involved, transaction costs are substantial and various risks are not managed properly over the life cycle. Stand-alone collective pension schemes offer an attractive third way between corporate defined-benefit schemes and individual defined-contribution schemes. The members of the fund are the risk bearers and the funds manage risk aimed at providing an adequate income level during retirement at low costs. Dutch pension funds are evolving into such stand-alone pension schemes. Some directions for future reforms are sketched.     

Share prices and pension funding: An empirical test of the joint effect of pension insurance and the pension tax shield

This article examines the joint significance of the tax benefits of pension funding and the value of government sponsored pension insurance in determining the efficacy of corporate pension funding. When the pension tax shield benefits are dominant, additional funding may enhance shareholder wealth. However, additional funding is observed to have negative effects on equity prices when the value of pension insurance is dominant relative to the value of the pension tax shield. When neither the tax or insurance effects are dominant, marginal adjustments in pension funding apparently will not alter corporate share prices.     

The introductory financial accounting course: Its role in the curriculum for accounting majors

This paper reports a study that addressed two related research questions. The first concerns the proper emphasis in teaching introductory financial accounting in terms of the conceptual and procedural aspects of the subject. The second deals with the adequacy of introductory courses in preparing accounting majors for their intermediate and advanced accounting courses. Professors who had recently taught intermediate and/or advanced accounting responded to a questionnaire designed to answer the above questions. A recent study of the curriculum for accounting majors helped provide a framework for part of the questionnaire. The responses provide some evidence favoring a more conceptual emphasis, although it is not conclusive. There is a clear indication that these professors perceive the preparation received by accounting majors to be inadequate. A related finding is that more study of the accounting curriculum is needed, especially in terms of when the various topics should be taught.     

The decline of the professionally-qualified accounting academic: Recruitment into the accounting academic community

The profile of the accounting academic has changed in recent years. The earliest academics were often recruited from the accountancy profession. Now the typical accounting academic recruit has a profile similar to the rest of the university, with the PhD being the qualification of choice. The reasons for this trend are examined using a cultural and institutional logics framework. The recruitment context and the institutional changes impacting on recruitment in accounting in academia are explored through the views of heads of department who have knowledge of both their institution’s recruitment policies and of the requirements of their discipline. As the research assessment process appears to be a driver of changing recruitment patterns, recruitment is considered in contrasting contexts: Scotland, where periodic research assessment takes place in both old and new universities, and the Republic of Ireland which does not have such a process. Despite differences in the views expressed by heads in these different contexts and differences in their research environments, the trend in all sectors is towards the recruitment (Scotland) or development (Republic of Ireland) of PhD holders rather than professionally qualified staff. The consequences for the nature of the discipline are discussed.     

信用卡消费分期付款业务贷款化核算探讨

信用卡消费分期付款业务以其申请方便、还款手续快捷等特点成为越来越多持卡人缓解暂时资金压力的优先选择。与此同时,该业务也成为银行业又一项重要的利润增长点。各商业银行在努力拓展市场、提升业务量的同时,也高度重视内部管理,竭力为该项业务的开展提供有效的后台保障。     

美国货币市场与联储救市政策工具的实施效果

金融危机爆发后,美国货币市场流动性几近枯竭,为重启和恢复货币市场功能,美联储新增多种政策工具向金融机构提供了大量流动性。该文重点分析了这些政策工具的设计意图及实施效果,指出实施救助后,美国货币市场运行趋于正常,但除短期国债市场外,其他子市场的融资量尚未恢复到危机前水平;美国货币市场的表现再现了美国实体经济的问题,而要解决这些问题,单靠联储的货币政策是远远不够的。     

The smoothing of pension expenses: a panel analysis

The main purpose of this paper is to utilize recent developments in panel data techniques to evaluate whether the smoothing of pension expenses is neutral in its long-term effect on reported earnings. Adopting a long-term perspective, the empirical analysis also identifies sources of potential deviations. Results suggest that the current smoothing mechanism tends to induce significant biases in the recognized pension expenses. For a majority of the sample firms, the tendency is to overstate the sponsoring firms’ earnings in the long run. To a large extent, such biases reflect the combination of both ineffective amortization of the deferred gains and losses and questionable latitude in pension rate discretions.     

Auditing standards,increased accounting disclosure,and information asymmetry: Evidence from an emerging market

The interest in accounting disclosure and audit quality by academics, practitioners, and regulators heightened following the various financial reporting scandals, and subsequent legislative and professional response to these scandals. An important question is whether the implementation of stricter auditing standards such as those mandated by the US Sarbanes-Oxley Act would improve the information environment of firms whose shares are publicly traded. In this paper, I investigate the link between information asymmetry, measured by bid-ask spread, and increased accounting disclosures following the adoption of new auditing standards in China—an environment in which disclosure hitherto was relatively low. I report the following primary results of the statistical analyses. First, information asymmetry cost is substantial in the Chinese order-driven emerging markets. Second, the firms in the sample experienced significant reductions in their bid-ask spreads subsequent to the adoption of the new auditing standards. Third, the reductions in the bid-ask spreads were abrupt and permanent. However, no significant result is found for firms in the control group with foreign ownership, whose financial statements were prepared in accordance with international accounting standards and were audited with international auditing standards. The results have implications for policy makers and regulators in general, and those in emerging markets in particular.     

Excel in the accounting curriculum: perceptions from accounting professors

Public accounting firms emphasize the importance of accounting graduates being proficient in Excel. Since many accounting graduates often aspire to work in public accounting, a question arises as to whether there should be an emphasis on Excel in accounting education. The purpose of this paper is to specifically look at this issue by examining accounting faculty's perceptions of Excel in public accounting and accounting education. We survey 245 faculty members at over 100 accounting programs. We find that a majority of faculty incorporate Excel in their accounting classes consistent with their perception of Excel importance. However, we find that students are not fully proficient in Excel based on faculty's perceptions. This study contributes to the accounting education literature by identifying possible disconnections between Excel skills faculty include in the accounting curriculum and specific Excel skills faculty believe new hires (i.e. recent accounting graduates) most often use in public accounting.