The standard-setters’ toolkit: can principles prevail over bright lines?

We study lease accounting in an international panel data set to examine how accounting outcomes vary with two features of accounting standards: the emphasis on using professional judgement to apply principles, and the presence or absence of bright-line tests. We study four countries—Australia, Canada, the UK, and the US—and companies in two lease-intensive industries—retail and transportation. Our primary study period spans the time when Australia and the UK switched from domestic to international accounting standards, and in one test, we also consider Canada’s transition to international standards. We find that neither an explicit requirement to apply a principle nor omitting bright-line tests materially increases the use of capital lease treatment among these firms. Overall, we conclude that this financial reporting outcome is relatively insensitive to these standard-setting tools.     

Changing the Concepts to Justify the Standards*

In this paper, I discuss the current project to converge the IASB and FASB conceptual frameworks, specifically efforts to purge the converged framework of concepts that hinder the promotion of balance sheet valuation using fair values. I discuss why I believe these efforts to be misguided, based on how investors who analyze financial statements employ accounting information. I focus on stewardship, reliability, and earnings — terms either demoted in importance or at risk of being eliminated in the framework convergence project. I explain their salience to financial statement users and argue against their deletion or demotion.     

South Africa’s transition from apartheid: The role of professional closure in the experiences of black chartered accountants

As apartheid gave way to political freedom in South Africa in the last quarter of the 20th century, chartered accounting firms began to hire black South African trainees for the first time. The study examines the oral histories of black chartered accountants within the context of social closure theory and South Africa’s changing political and ideological landscape. The evidence indicates that processes of professional closure and credentialing excluded the majority population from the ranks of the profession on basis of race and class throughout the period 1976–2000.     

Calendar effects and the pricing of risk: the UK evidence

For some time there has been a puzzle surrounding the seasonal behaviour of stock returns. This paper demonstrates that there is an asymmetric relationship between risk and return across the different months of the year. The paper finds that systematic risk is only priced during the months of January, April and July. Variance risk and firm size are priced during several months of the year including January. An analysis of the relative behaviour of size based securities reveals that firm capitalization makes a valuable contribution to the magnitude of risk premiums.     

REVERSE LOGISTICS: THE RELATIONSHIP BETWEEN RESOURCE COMMITMENT AND PROGRAM PERFORMANCE

In response to increasing volumes of returned products, firms are establishing programs to guide the reversal of flows in the supply chain, i.e., reverse logistics. With reverse logistics programs firms seek cost savings and efficiencies related to reclamation, redistribution, and disposal of products returned “upstream” to the retailer or manufacturer. This paper reports on a recent survey of electronics catalog retailers regarding reverse logistics program involvement. In addition to creating a profile of current reverse logistics activities in an industry characterized by high volumes of returns, the research also examines the relationship between investment in reverse logistics related resources and reverse logistics program performance.     

Securities fraud

Recent frauds in investment banks and securities houses have revealed how vulnerable modern financial institutions are to criminal activity by their employees. In this paper, we examine how regulators may limit the incidence of securities fraud by encouraging firms to provide managers and dealers with appropriate incentives and by imposing ex post penalties once a fraud has been discovered