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In 1997, Statement of Financial Reporting Standards (SFAS) 131 introduced a substantial change in how segment information is reported in US-GAAP (Generally Accepted Accounting Principles) financial statements. We seek to examine whether this change in financial reporting policy increases investors' ability to process information relevant to conglomerate firms (i.e., those operating in multiple industries) more quickly, and whether this increased efficiency in information processing varies cross-sectionally based on firm complexity and the direction of industry news. Our results indicate that SFAS 131 has increased the speed with which stock prices capture information about conglomerates, relative to focused firms, although we find that some frictions remain with regard to disclosing bad news. This study documents an example of how a change in disclosure policy can enhance pricing efficiency, and hence, it may be of interest to the Financial Accounting Standards Board (FASB) in its ongoing initiative to consider potential changes to SFAS 131. [ABSTRACT FROM AUTHOR]

Copyright of Contemporary Accounting Research is the property of Canadian Academic Accounting Association and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

We compare the abilities of earnings and cash flows to predict future cash flows. We take a novel approach in that we perform apples-to-apples comparisons of five earnings components measured on an accrual basis with their equivalents measured on a cash basis. On the one hand, we find that the operating profit component (sales net of cost of goods sold and SG&A expense) outperforms its cash-basis equivalent in predicting future cash flows. On the other hand, we find that the depreciation expense and non-operating income components underperform their cash-basis equivalents in predicting future cash flows. Additionally, we fail to find significant differences between the predictive abilities of the interest expense and income tax expense components and their cash-basis equivalents. The inconsistent findings across earnings components suggest that unequivocal all-or-nothing conclusions on the relative predictive abilities of earnings and cash flows are unwarranted. [ABSTRACT FROM AUTHOR]

While measurement is a fundamental process to the preparation of financial statements, the conceptual frameworks established by both the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) offer limited guidance on selecting an appropriate measurement basis for assets and liabilities. This paper examines the historical progression of fair value measurement, a measurement basis that is at the centre of some of the most polarising views. We believe that understanding the evolution of fair value measurement is pivotal for aiding academics and practitioners in shaping the future trajectory of measurement. This is particularly crucial given the technological advances in corporate reporting and the need to enhance the connectivity between financial and non-financial reporting. [ABSTRACT FROM AUTHOR]

Relations between REIT CEO compensation, firm stock performance and risk, after FASB accounting changes and additional SEC compensation disclosure requirements in 2006, are examined. Total compensation becomes more weighted to bonus payments and stock grants and away from options and salary. The majority of REIT CEO compensation comes from bonus payments and stock grants. REIT CEO compensation is found to be positively correlated with lagged firm stock performance, but not lagged firm risk measures. A new metric related to the REIT dividend requirement, dividends paid to CEOs from share ownership, is positively related to CEO total compensation, and the positive relation is driven by a strong association between cash dividends to CEOs and their equity-based compensation. These findings suggest that REIT CEOs trade-off certainty in cash compensation for equity-based wealth and related cash flows. Most important, our results suggest that REIT CEOs are paid for performance and are less likely to earn windfalls that have been associated with the use of options and mis-priced firm risk in non-REIT firms. [ABSTRACT FROM AUTHOR]

Lease accounting has often been criticized for being too reliant on bright lines and subjective judgments, as lessees were not required to disclose assets and liabilities arising from operating leases directly on the balance sheet, thereby improving the appearance of the financial condition to investors. To remedy this, in January and February 2016 the IASB and the FASB issued the new accounting standard IFRS 16 and ASC 842, starting a new era of lease accounting and ending the guesswork previously required when calculating companies' lease obligations. This paper investigates the impact on investors' risk perception level of EU and US airline companies, following the enactment of these accounting standards. Results confirm the importance of disclosing all the relevant information about leases directly within the financial statements and not in footnotes, as this increases transparency and comparability between financial statements, protecting all investors, ranging from the rational ones to the more credulous. [ABSTRACT FROM AUTHOR]

Copyright of Contemporary Accounting Research is the property of Canadian Academic Accounting Association and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

CECL—an accounting response to lessons learned from the 2008 to 2009 financial crisis—like most accounting standards, is not perfect. Imperfections are a direct result of tradeoffs embedded in major new standards issued by the Financial Accounting Standards Board. Tradeoffs arise from cost—benefit judgments made over many years by individual Board members—often holding diverse views about costs and what constitutes decision-useful information. This article contributes to the assessment of those judgments and perceived weaknesses in CECL so that future Boards can continue the iterative process of improving U.S. GAAP. Some stakeholders assert that there are weaknesses because they believe CECL (a) will change how banks are managed; (b) may reduce the lending products provided; (c) necessitates a need for banks to raise capital; (d) would create widespread confusion among investors; and (e) could reduce the availability of credit. Now that CECL is effective for of the entire banking industry, the author believes the Financial Accounting Standards Board (FASB) and public policy-makers will benefit from rigorous academic research to help understand whether CECL met its main objective of providing more decision-useful information about expected credit losses. To achieve this objective, CECL strived to better align measurement of the allowance for credit losses (a valuation account) with changes in credit risk and to require consideration of a broader range of information. This article explores the relevant accounting issues and early financial reporting results to pique the interest of academic researchers. [ABSTRACT FROM AUTHOR]

The Current Expected Credit Loss (CECL) Financial Accounting Standards Board (FASB) standard that goes into effect for major banks in 2020 contains a serious conceptual error. Using the contractual rate rather than the hurdle rate (the competitive rate on a loan for which there is no expected loss) as the rate to discount expected cash collections gives rise to accounting losses where no economic losses exist. This can have a profound effect on required capital and hence lending, especially in economically depressed episodes. [ABSTRACT FROM AUTHOR]

This study is the first to examine the litigation-disclosure modifications of legal proceedings (i.e., Item 103) and contingency-note disclosures (i.e., Accounting Standards Codification [ASC] 450) in the 10-K. Litigation-disclosure modifications are defined as the amount of litigation content disclosed in year t but not in year t – 1. I first confirm the Securities and Exchange Commission's (SEC) and the Financial Accounting Standards Board's (FASB) concern that firms are providing less litigation-disclosure modifications. I then find firms with higher proprietary cost, higher litigation risk, and non-Big 4 auditors to be associated with more litigation-disclosure modifications. I also find that although firms are providing less litigation-disclosure modifications in the two litigation sections, such disclosures do predict future occurrence of litigation cases and are complementary in providing litigation information to investors. Results indirectly support the FASB's 2012 decision to not precede with disclosure policy changes in contingency-note disclosures. [ABSTRACT FROM AUTHOR]

During our 2007 to 2015 sample period, firms recorded unrealized gains and losses on fair-valued liabilities attributable to changes in the firms' own credit risk, referred to as the debt valuation adjustment (DVA), in earnings. Various parties criticized the inclusion of DVA in earnings as counterintuitive and manipulable. Using a small but comprehensive sample of European banks reporting nonzero DVA during this period, we decompose banks' DVA into a normal portion explained by economic factors (e.g., changes in bond yield spreads) and an abnormal portion (the residual). Controlling for abnormal loan loss provisions (LLP) and realized securities gains and losses (RGL), we find that banks' abnormal DVA is negatively associated with their premanaged earnings, consistent with banks exercising discretion over DVA to smooth earnings. We further find that banks that record larger LLP or RGL or that have histories of using LLP or RGL to smooth earnings are less likely to exercise discretion over DVA. These findings obtain in the financial crisis but not afterward. Collectively, our findings suggest that banks exercised discretion over DVA substitutably with discretion over LLP and RGL during the crisis. With the caveat that our analysis is limited by a small sample and the inherent difficulties of DVA decomposition, our findings have implications for how bank regulators and investors should interpret banks' reported DVA, particularly in stress periods such as the crisis, and they provide support for the International Accounting Standards Board and Financial Accounting Standards Board's (FASB) decisions to require firms to record DVA in other comprehensive income starting in 2018. [ABSTRACT FROM AUTHOR]

Non-GAAP financial measures are disclosed by companies to provide information to investors and other stakeholders beyond what is required by traditional GAAP-based financial statements. Although these voluntary non-GAAP measures may provide useful information for decision-making, their limited regulation and standardization may mislead investors. This case exposes students to several aspects of non-GAAP measures. First, students will be able to locate, compare, and analyze differences in GAAP and non-GAAP measures in various disclosure mediums and subsequently describe the benefits and disadvantages in different contexts. Next, using EDGAR, students will be able to locate and discuss specific issues regulators have taken with these disclosures by analyzing SEC comment letters. Finally, students will be able to compare the usefulness of GAAP and non-GAAP measures using the FASB conceptual framework. Overall, this case provides students with an increased understanding of how companies use differential financial disclosures in the broader financial reporting environment. [ABSTRACT FROM AUTHOR]

The article outlines accounting standards updates issued by the U.S. Financial Accounting Standards Board to its Accounting Standards Codification in 2023. The updates cover common control arrangements in leases, equity method and joint ventures in investments in tax credit structures, presentation of financial and income statements, distinction of liabilities from equity, stock compensation, joint venture formations, disclosure requirements in codification, and cryptocurrency asset disclosure.

The Financial Accounting Standards Board introduced FIN 48 (ASC 740-10) to increase relevance and comparability in the reporting of uncertain tax positions. The extant literature has found mixed results when examining the effects of FIN 48 using research designs that lack a counterfactual. Using a difference-in-differences design, we examine the effect of FIN 48 on the mapping between GAAP tax expense and future cash taxes paid over the next three years. We find that the mapping for US firms improved under FIN 48, and the improvements are strongest among domestic firms, which are less affected by the inability to offset positions under FIN 48. We find no difference in the change in mapping for firms that expect higher or lower ex ante audit and detection risk. We find no evidence that FIN 48 reduced the mapping for firms with a low likelihood of being audited or for multinational firms. Our results are robust to the use of multiple control groups. Our findings suggest that FIN 48 improved the relevance of tax expense for some US firms. [ABSTRACT FROM AUTHOR]

We examine the response of individual investors to firms' adoptions of SFAS 109 – Accounting for Income Taxes. We predict that SFAS 109 reduces disclosure-processing costs and provides new decision-useful information, reducing the information disadvantage of individual investors relative to more sophisticated investors. Using monthly individual investor stock holdings data and staggered firm adoptions of SFAS 109, we provide evidence that individual investors increased their holdings in firms following adoption of SFAS 109. The increases are concentrated among more financially knowledgeable individual investors and among individual investors that are more likely to trade on financial statement information. We provide evidence that the increased demand among individual investors following SFAS 109 adoption is concentrated in firms with (i) tax attributes associated with less informative disclosures under the prior standard and (ii) substantive improvements to balance sheet reporting of deferred taxes and tax disclosures following SFAS 109 adoption. Results of a path analysis suggest that SFAS 109 adoption aided individual investors directly and indirectly via a decrease in analyst forecast dispersion. Collectively, the evidence is consistent with SFAS 109 benefitting individual investors by improving the accessibility and informativeness of financial reporting on income taxes. Our findings highlight the importance of evaluating how improved accounting standards can benefit a key stakeholder of the SEC and FASB: individual investors. [ABSTRACT FROM AUTHOR]

This paper evaluates the real effects of the new lease standard, ASC 842, on firms' investment and operational outcomes. Using a sample of airline companies, we find that, subsequent to the promulgation of ASC 842 (2016–2018), public airlines reduce operating lease usage by about seven to ten percentage points relative to private airlines. The reduced lease usage is replaced by increased ownership, suggesting an equilibrium shift in firms' investment due to changes in the cost-benefit tradeoffs associated with the operating lease classification. We also find evidence that the decline in lease usage hinders public airlines' operational flexibility, as we observe more idle capacity in flights post-ASC 842. Facing excess capacity, public airlines seem to deploy their aircraft to shorter flying routes, raising the possibility of more wear and tear on the fleet. Overall, our evidence suggests that the new lease standard has intended and unintended real effects. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: M41; M48; D22; D24; D25; E22; G38. [ABSTRACT FROM AUTHOR]

The disclosure requirements of ASC 606 significantly expanded the volume and granularity of revenue information. However, because of the significant judgment associated with the standard, it is unclear whether the new disclosures increased the decision-usefulness of financial reports. To shed light on this question, we investigate the revenue disaggregation requirements of ASC 606. These requirements had significant disclosure consequences, illustrated by an over two-fold increase in the median number of revenue items in disaggregating firms' reports. Consistent with enhanced decision-usefulness, we find higher (lower) analyst sales forecast accuracy (dispersion) for disaggregating firms. These benefits are primarily present when disaggregation is accompanied by detailed qualitative disclosures, when disaggregated revenues are comparable, and when the granularity of segment information is low. Our study contributes to research evaluating ASC 606 and offers valuable insights to standard-setters currently considering broader disaggregation of income statement items (Financial Accounting Standards Board (FASB) 2022). Data Availability: Data are available from the sources identified in the paper. JEL Classifications: G24; G30; G34. [ABSTRACT FROM AUTHOR]

We designed and implemented an inquiry-guided experiential learning project in which students researched and interpreted accounting standards from FASB Accounting Standards Codification to support their applications and assessment of the accounting treatment in a hands-on quasi-real-world simulation for investment activities. Specifically, in the project's first phase, students explored, researched, identified, and interpreted the related accounting standards from the Codification for a fictional client's investment activities. Students then ran an investment portfolio simulation in the second phase, in which they (1) created organic investment activities, (2) made authentic applications of accounting standards, (3) analyzed and evaluated the impact on self-prepared financial reports, and (4) modified subsequent investment decisions. Most students were well motivated to explore and self-study the accounting concepts and procedures. They considered the project relevant, interesting, and effective. Their performance in project knowledge tests improved student learning along factual, conceptual, procedural, and metacognition knowledge dimensions. They were willing to put time and effort into the project and would recommend it for future use. [ABSTRACT FROM AUTHOR]

Copyright of Journal of Community Service & Empowerment is the property of Journal of Community Service & Empowerment and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Copyright of Contemporary Accounting Research is the property of Canadian Academic Accounting Association and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

The Financial Accounting Standards Board (FASB) released Accounting Standards Codification (ASC) 606, "Revenue from Contracts with Customers", with the aim of enhancing transparency to provide fairer representation and inhibit the misuse of revenues to manipulate earnings. During COVID-19, variable considerations in ASC 606 were used to manage earnings as a tool to help firms survive. The study aimed to test the mediating role of earnings management in influencing the effect of variable considerations in ASC 606 on the continuity of the firm. An online questionnaire was sent to financial reporting preparers in US public shareholding firms; 403 valid questionnaires were received. The results of PLS-SEM revealed that crises such as COVID-19 have highlighted the way in which variable considerations in ASC 606 were exploited to manage firms' earnings to ensure their survival. Companies resort to showing their best financial performance, beautifying its financial reports by manipulating profits, using flexibility in accounting policies, but this may negatively affect the country's entire economy by collapsing companies and creating more financial crises that cannot be easily addressed. [ABSTRACT FROM AUTHOR]

Tax indemnification transfers the risk of potential tax settlements from a taxpayer to an external party. Current accounting standards require firms to reflect unrecognized tax benefits (UTBs) even when the underlying tax position has indemnification. Practitioners suggest that financial statement disclosures regarding tax indemnification are necessary to allow users to assess tax risk adequately. However, acquirers rarely disclose tax indemnification arrangements from merger and acquisition (M&A) contracts. Evidence suggests that tax indemnification attenuates the positive association between UTBs and future tax cash outflows. Moreover, results are consistent with indemnification agreements resulting in minimal settlements. Because of the effect that removing accounts associated with lapsed indemnification agreements has on effective tax rates and the attenuating effect that indemnification has on UTB's association with future tax cash outflows, the findings could be of interest to the Financial Accounting Standards Board regarding their income tax disclosure project. JEL Classifications: M48; M41; G34. [ABSTRACT FROM AUTHOR]

As firms lower innovative investment in response to FASB Interpretation Number 48 (FIN 48), they choose between reallocating those funds to noninnovative investment, not changing noninnovative investment, or lowering noninnovative investment. Using a difference-in-differences research design, I provide evidence of the latter outcome. I also show that the results persist each year following FIN 48, are consistent across both types of noninnovative investment, and are more prominent among firms with declining research and development (R&D) and among firms not previously under continuous audit. I also provide evidence that these effects are mitigated when managers have greater incentives to reallocate investment. My findings respond to Blouin and Robinson (2014) call to understand the real effects of FIN 48 by providing evidence that it lowers firms' incentives for noninnovative investment. [ABSTRACT FROM AUTHOR]

We examine the disclosure quality consequences of copying FASB guidance when drafting initial narrative disclosures. Specifically, we study first-time disclosures after three accounting standard changes with significant narrative disclosure requirements (ASU 2014-09, SFAS 161 and SFAS 157). We find robust evidence that initial disclosures similar to FASB guidance contain less firm-specific information and are less readable, on average. Moreover, we find some evidence that copying FASB guidance when drafting initial disclosures is associated with muted analyst revisions, suggesting that the resultant disclosures may be less useful to analysts. However, we also find that firms that copy FASB guidance when drafting new disclosures receive fewer SEC comment letters related to the new standard, indicating that firms enjoy some benefit from imitating the FASB. These results shed new light on the firm's information production process and should be important to regulators providing implementation guidance, managers drafting initial disclosures, and academics researching accounting standard changes. [ABSTRACT FROM AUTHOR]

We study the risk-relevance of non-GAAP earnings. Risk is an important earnings attribute in valuation models, and the FASB's conceptual framework identifies providing information about risk as a primary objective for earnings. Although prior research addresses the value-relevance of non-GAAP earnings, researchers have paid little attention to their risk-relevance. We find that non-GAAP adjustments yield an earnings number that isolates the more risk-relevant components of earnings. Excluded earnings components, however, contain some, albeit less, information about risk. Thus, although non-GAAP earnings can help investors prioritize the more versus less risk-relevant components of earnings, non-GAAP earnings are potentially most informative about risk when used together with GAAP earnings. [ABSTRACT FROM AUTHOR]

SYNOPSIS: Motivated by trends toward gender equality on standard-setting boards in the United States, this study interviews women members of the FASB, GASB, and EITF to understand the factors critical to their successful nomination and appointment. Semistructured interviews were conducted with women standard setters to root our understanding in their own experiences and perceptions. Value emerged as a generalizing theme. Participants perceived value to the board in nomination as associated with professional expertise and ties with professional societies. Most participants perceived value in giving back to the profession by serving as a voice for an important stakeholder group as a critical factor for acceptance. Women standard setters consistently downplay the idea that diversity, equity, and inclusion represent primary decision criteria for board membership. Instead, their reflections imply that it is up to the profession to implement practices that promote the advancement of the most competent professionals from all backgrounds. Data Availability: Anonymized interview data are available upon request to the authors and are subject to prior consent by participants to share. JEL Classifications: M41; M48. [ABSTRACT FROM AUTHOR]

Being a continuous learner often is viewed as a key attribute of successful accounting professionals. This paper describes a project that engages master level financial accounting students directly in the standard-setting process by having students research, write and submit a class comment letter on a current Exposure Draft to the Financial Accounting Standards Board (FASB). This project integrates multiple competencies through experiential learning. The project is designed to provide students with first-hand experience engaging in the standard setting process, introduce students to some of the challenges with staying abreast of current developments, and help students develop tools and skills they can use throughout their careers to learn about emerging accounting issues and critically analyze alternative solutions. JEL Classifications: M41. [ABSTRACT FROM AUTHOR]

One approach to achieving comparable financial statements is to adhere to identical (or converged) standards, methods, models, and estimates. However, adherence to identical standards, methods, models, and estimates is impractical and contrary to current trends in standard setting. As an alternative, the FASB has proposed that satisfying the fundamental characteristics of relevance and representational faithfulness should result in higher comparability. Under this assumption, a focus on increasing the quality of the financial information that is generated by firms would be an effective means of improving comparability in financial reporting. We inquire whether this proposition is reflected in the practices of U.S. firms. Our analysis corroborates the intuition of the FASB and the notion that distinct characteristics of financial information influence accounting comparability. Our results also suggest that accounting principles can enhance comparability by encouraging high-quality valuations across diverse asset and liability classes on balance sheets and high-quality estimates of operating performance in income statements. [ABSTRACT FROM AUTHOR]

Objective: This research investigates the effects of the 2019 US lease standards for US lessee companies, comparing with the potential effects of IFRS 16 to explore the economic reasons that would have led the FASB and the IASB to diverge from their joint lease standard project. Method: We hand-collected detailed data on leases for 500 US lessees firms' 2019 financial statements to first analyze Topic 842's effects on financial ratios and to simulate these effects had the FASB adopted the same earnings recognition criteria in IFRS 16. Next, we investigate the value relevance of these observed and simulated effects on the stock market. Results: Topic 842 generated significant variations in companies' financial indicators, but it was not possible to identify the value relevance of these variations due to model limitations. The IFRS 16 simulation shows a significant increase in EBIT and operating cash flows, but a drop in net income, which seems to have been incorporated into stock prices. This suggests the FASB's decision to diverge from the IASB could include the desire to avoid lower earnings and their negative impacts on the stock market. Contribuições: This research adds to the literature first by focusing on the US when most of the recent studies investigated the IFRS world and, second, by exploring economic reasons rather than the hierarchy of power between the FASB and the IASB. Finally, we add a novelty derived from the detailed manual work which allowed us to estimate the effects had the US firms been under IASB's jurisdiction. [ABSTRACT FROM AUTHOR]

We examine whether the Financial Accounting Standards Board (FASB) Codification made it easier for preparers and auditors to locate relevant accounting guidance. We find that areas of U.S. GAAP with more dispersed and voluminous guidance before the Codification experience a larger post‐Codification reduction in restatements. We find a similar decline in SEC comment letter questions referencing areas of U.S. GAAP with more dispersed and voluminous pre‐Codification guidance. Our results suggest that before the Codification, preparers and auditors had difficulty in locating the appropriate accounting guidance and that the Codification mitigated this difficulty. [ABSTRACT FROM AUTHOR]

Determining whether constituent opinion agrees or disagrees with proposed regulation is crucial to improving our understanding of standard-setting practices. However, the constituent feedback mechanisms provided by regulators to constituents results in large-scale unstructured datasets—thus establishing an obstacle in examining differences of opinion between parties. Utilizing publicly available documents of the FASB, this study trains machine-learning models to efficiently and effectively categorize the level of agreement and disagreement on proposed regulation between the regulator and its constituent base. We employ three different approaches—a lexicon-based approach using the dictionary method and two participant-based approaches leveraging human raters (AMT and AS). We find that the machine-learning models demonstrate more accuracy in correctly classifying observations as compared to human raters. Further, the analysis indicates that the machine-learning models using the participant-based approach and the lexicon-based approach achieve similar accuracy in predicting constituent agreement and disagreement with proposed regulation. Data Availability: Data available upon request. [ABSTRACT FROM AUTHOR]

This an apologia to Williams, P. F. (2022). The decline of substance over form in accounting: A problematic dichotomy. Accounting, Economics, and Law: A Convivium critique of Fischer, D., Ellman, O., & Schochet, S. (2021). The decline of substance over form in accounting. Accounting, Economics, and Law: A Convivium, 20190052 article about the decline of substance over form in accounting. The concept of "substance over form" has traditionally been a guiding principle for practicing accountants. In recent years, FASB has taken away the prerogative from individual practitioners to organically evolved GAAP. In the pre-FASB era, GAAP was indeed a bottom-up generally-accepted framework. Nowadays, FASB appropriates to itself the privilege to decide when form conforms with economic substance and when form should be bent to correspond to accounting theory. [ABSTRACT FROM AUTHOR]

This essay is a comment on the paper authored by Fischer, Ellman and Schocet (2021, The decline of substance over form in accounting. Accounting, economics, and law: A convivium. (2023)) who argue that the trend in financial reporting regulation involves de-emphasizing the important of economic substance relative to form in how auditors are to perceive their role. The danger foreseen by the authors is the further shrinking of the leeway for professional judgment, which is an important hallmark of a true professional. Agreeing the authors have raised a crucial issue for any group claiming professional status, I try to add to the discussion by pointing out that form and substance in the realm of financial reporting regulation are not antipodes but complementary parts of a process of continuous redefining of what economic substance is. Social reality is socially constructed and as such choices of form made by humans effectively shape substance. Given the capture of accounting by economics during the 1960s, accountants have lost an appreciation for the tentativeness of economic substance and now serve not as participants in shaping economic substance but as enforcers of an imaginary economic substance that derives from the assumptions and values in the ideology of neoclassical economics. [ABSTRACT FROM AUTHOR]

"Substance over form" is a traditional accounting maxim that has also influenced legal thinking and has its roots in classical philosophy. "Substance over form" states that accountants do not record transactions based on the outward form of the transaction but discern its economic substance and report accordingly. Nevertheless, "substance over form" has been deemphasized by the FASB's conceptual framework in recent decades, to the point that an internal debate now rages over whether accountants and auditors have a right and responsibility to put substance over form. FASB must therefore make its position clear on where it stands in this debate. [ABSTRACT FROM AUTHOR]

The sudden bankruptcy of the famous energy giant Enron reflected a key issue that financial information reflected in financial statements is to some extent distorted if the control of a company is measured only by voting rights, as the parent company's financial statements ignore the other companies that the enterprise actually controls through agreements. As a result, the Financial Accounting Standards Board (FASB) developed FIN 46, which requires special purpose entities (SPE) to consolidate their financial statements into the parent company's financial statements and also has become the basis for VIE structures. China's capital market has always been very restrictive in terms of financing, which has led companies in the Internet industry and other asset-light companies that require large amounts of capital for upfront development to seek overseas financing through the VIE structure. In addition, the Chinese government also restricts foreign investment in certain specific industries, such as the Internet industry, mining industry, etc., due to national security, data security and other considerations, which makes foreign investors who want to invest Chinese companies in the industries in the Special Administrative Measures (Negative List) for the Access of Foreign Investment in Pilot Free Trade Zones (2021) or vice versa have to go through the VIE structure. However, the characteristics of VIE structure also determine that there are various means for international tax avoidance among VIE companies, resulting in tax base erosion in China. This paper discusses in detail the tax avoidance methods of VIE companies and the possible countermeasures. [ABSTRACT FROM AUTHOR]

The Financial Accounting Standards Board (FASB) enacted Statement of Financial Accounting Standards No. 131 (now Accounting Standards Codification 280) to improve the valuation of firms' future growth opportunities through changes to segment disclosures. Prior research on foreign investment relies primarily on levels analyses. Using both changes and levels analyses, we provide evidence that investments in foreign fixed assets by US firms is significantly and positively related to operating income and net cash flows from operations. Foreign fixed assets are also significantly and positively related to stock prices, returns, and stock liquidity. Generally, our results suggest that increases in international diversification are related to increased operating performance and liquidity, while our price and returns results suggest that investors incorporate geographic asset data in their valuation models. [ABSTRACT FROM AUTHOR]

The growth in the use of financial derivatives for a variety of purposes has caused increased complexity in derivative reporting standards. As such, financial statement users have asked the Financial Accounting Standards Board to update guidance to increase transparency while preparers seek clearer guidance on the application of standards and a broadened scope of hedge accounting. The most recent derivative accounting guidance update, ASU 2017‐12 (Topic 815), broadens instruments that qualify for hedge accounting, expands allowable hedge accounting techniques, and reduces reporting requirements by omitting the reporting of hedge ineffectiveness. While these changes might simplify reporting requirements, there is the risk that the omitted disclosure would have been relevant to investors' decision‐making. In this paper, we examine how derivative disclosure practices changed following the implementation of ASU 2017‐12. Using a hand‐collected sample of twenty S&P 500 firms, we calculate a derivative disclosure compliance (DDC) score and find that, on average, DDC scores decreased following firm adoption of ASU 2017‐12. This decline was realized for firms regardless of the notional amounts of derivative instruments held. However, the decline was not significant for early adopting firms suggesting a motivation for completeness by select firms. Our initial findings indicate that the update on derivative disclosures is not being uniformly applied potentially lessening its value to users. As a result, further updates may be necessary. [ABSTRACT FROM AUTHOR]

Purpose: The article presents and comments on the main structures, key approaches, and content of the new conceptual framework promulgated by the Financial Accounting Standards Board (FASB) in December 2021.Methodology/approach: Descriptive-analytical and content analysis.Findings: After presenting the modernization of FASBs conceptual approach towards financial reporting, the article presents the results of this modernization. It shows how the primary users have been redefined and it also describes the quality and constitutive elements of financial statements, how the components of these elements are measured, and the principles for shaping general purpose financial reporting. The article points out important differences between the FASB Framework 2021 and the IFRS/IASB Framework 2018 regarding the definition of a reporting entity, the types of financial statements, the number and type of elements of the financial statements, the definition of assets, and the quality of financial information in the notes to the financial statements.Practical implications: FASB modernized approach verifies and develops the conceptual frameworks as a financial reporting theory. It confirms their role as the basis for the standard-setting function, and interpreting standards and financial statements. In this way, the general level of distrust towards financial reporting relevancy and reliability may be reduced, increasing the opportunities to use the new FASB framework for a broadened and deepened interpretation of Polish financial reporting and auditing regulations and practice. As a result, it allows them to be better shaped and taught, and it provides a more informed direction for research.Originality/value: This paper is probably the first public presentation in Polish of the ideas of the new FASB conceptual framework for financial reporting.

Recent comments on the FASB preference for the asset-liability focus in its conceptual framework motivate this historical perspective on the early accounting tension between it and the alternative revenue-expense focus. The commentary identifies and reviews significant pre-1980s studies indicative of focus preference and finds pre-FASB lack of consensus on the issue. The commentary concludes that this lack of consensus will continue in the absence of a coherent body of abstract knowledge that is capable of giving professional authority to mandated accounting standards. [ABSTRACT FROM AUTHOR]

In February 2007, the FASB issued Statement 159 to provide entities the discretion to select financial instruments to be measured at fair value in the balance sheet. Entities quickly identified an opportunity to exploit Statement 159's transition provisions to transfer unrealized losses directly to stockholders' equity, bypassing the income statement. This paper describes the events surrounding the issuance of Statement 159 and examines the reasons why the FASB issued a standard that had the potential to reduce financial statement comparability and provide a mechanism for earnings manipulation. The paper contributes to historical research in three areas: convergence of U.S. GAAP with IFRS, changes in accounting standards, and the FASB's Conceptual Framework. [ABSTRACT FROM AUTHOR]

The article informs about the need to revise diluted earnings per share (EPS) calculations in financial reporting standards. Topic include It highlights the historical complexity and issues with previous standards and presents recommendations for improving the economic reality and presentation of diluted EPS, especially in the context of increasing convertible bond issuances, to better serve the needs of investors, lenders, and creditors in making financial decisions.

Using a set of hand-collected data, we study the economic consequences of FASB Staff Position APB 14-1, which was adopted in 2008 and intended to increase reported interest expense and decrease reported leverage. First, we document that issuers are more likely to respond to APB 14-1 by reducing the outstanding amount of cash-settled convertible debt when they are more able to bear the cost of repurchase. Second, we explore the debt contracting explanations for issuers' repurchase decisions. In particular, we focus on the contracting practice for GAAP changes and the inclusion of financial covenants related to interest coverage ratios. We find that issuers are less likely to repurchase the outstanding cash-settled convertibles when their bank loan contracts allow them to request a freeze on GAAP provisions to exclude mandatory GAAP changes in calculating accounting-based covenants. Further, when firms' bank loan contracts contain financial covenants related to interest coverage ratios, issuers are more likely to repurchase outstanding cash-settled convertibles to avoid technical default due to the higher reported interest expense resulting from requirements under APB 14-1. These empirical results are consistent with the notion that firms do respond to mandatory GAAP changes when they are more able to afford the cost of such responses. Furthermore, debt contracting practices can help explain firms' decisions to respond to mandatory GAAP changes. [ABSTRACT FROM AUTHOR]

Mr. Schroeder, who is currently a visiting scholar at Rutgers University, provides a thorough and detailed discussion of (1) how new FASB standards are formulated and adopted and (2) how this pertains specifically to the CECL standard. His insights will provide accounting researchers with a better idea about the approach of the FASB and the careful procedures that accompany the formulation of new accounting standards. In its general move toward forward-looking accounting rules, the Financial Accounting Standards Board (FASB) adopted ASU 2016-13, I Measurement of Credit Losses on Financial Instruments i , to better align the recognition of expected credit losses with changes in credit risk. [Extracted from the article]

We investigate whether Financial Accounting Standard (FAS) 123R, which requires a firm to recognize its stock-based compensation at fair value, affects the firm's stock repurchase activity. Specifically, we examine the effect of the standard on the incentive to substitute stock repurchases for dividends. As stock-option holdings increase, firms alter their payout composition; rather than offering dividends, they increase their stock repurchases to return cash to their shareholders. Prior research also indicates that stock repurchases are used to manage earnings per share (EPS). Managers are likely concerned that FAS 123R negatively impacts earnings, as firms must now record stock-based compensation at fair value. Overall, we find that FAS 123R is associated with an increase in stock repurchases and that this effect is greater the higher the level of management stock options; the impact on dividend yields, however, is less pronounced. Our study reveals the unintended economic consequences of a change in accounting by demonstrating its effects on how firms return cash to their shareholders. [ABSTRACT FROM AUTHOR]

Among the objectives of the Financial Accounting Standards Board’s (FASB’s) Conceptual Framework was to provide guidance for the FASB’s own future standard-setting efforts. One of the major choices made by the FASB when developing its Conceptual Framework was the adoption of the “asset and liability view” of income determination in Statement of Financial Accounting Concepts No. 3 (SFAC 3). Anecdotal evidence indicates that the asset and liability view is central to several prominent standards issued by the FASB since SFAC 3. However, there has not been a thorough analysis of the application of the asset and liability view in standard-setting. This paper begins to close this lacuna in the literature. Specifically, we report on a systematic examination of citations of the asset and liability view in FASB standards since the issuance of SFAC 3 in December 1980. [ABSTRACT FROM AUTHOR]

The purpose of this study is to empirically examine the relations between audit outcomes and accounting standard design (principles-based vs. rules-based) for US firms. Considering that audit outcomes may vary with audit risk, which may differ under different accounting standards, we examine and find that audit risk and audit fees are lower when client firms rely more on principles-based standards. Next, we find that principles-based standards are associated with a lower likelihood of receiving a going concern opinion and with a shorter audit report lag. However, for firms that rely more on principles-based standards and have greater incentives to engage in earnings management, audit fees are higher. Collectively, our results inform the FASB, the SEC, and the PCAOB of the potential benefits of using principles-based standards with respect to audit outcomes and, more broadly, provide evidence on the role of accounting standard design in auditing. [ABSTRACT FROM AUTHOR]