Research in Accounting Regulation (eBook)

Front cover 1
Title page 4
Copyright page 5
Table of contents 6
Editorial Board 10
List of Contributors 12
Invited Referees 14
Part I: Main Papers 18
The Numbers Game: How do Managers Compensated with Stock Options meet Analysts’ Earnings Forecasts? 20
Introduction 21
Background and Motivation 23
Data 25
Earnings Surprise 25
Test Variable: Use of Stock Option-based Compensation 25
Dependent Variable: Earnings Management 26
Dependent Variable: Expectations Guidance 27
Control Variables 27
Model Overview 28
Sample Selection 29
Descriptive Statistics 30
Results 31
Univariate Analyses 31
Logistic Regression Analyses 31
Sensitivity Analyses 36
Alternative Abnormal Accruals Models 36
Detailed Analysis of Public Disclosures in Guidance Quarters 36
Balance Sheet Constraints on Abnormal Accruals 37
Regulation Fair Disclosure and Guidance Behavior 37
Conclusion 38
Notes 39
Acknowledgments 39
References 40
Computation of Abnormal Accruals 42
Dependent Variable 42
Independent Variables 42
Models and Variables 43
Overview of LOGIT Models to be Estimated 43
Pro Forma Adjustments to GAAP Earnings: Bias, Materiality, and SEC Action 46
Introduction 47
Literature Review 48
Methodology 50
Sample Selection 50
Process for Determining Nature and Amount of Each Individual Adjustment 53
Results 54
Size and Significance of "Pro Forma" Adjustments 55
Materiality of Pro Forma Adjustments 58
Individual Impact of Pro Forma Adjustments 59
Adjustments for Recurring Expenses 59
Adjustments for "Non-Recurring" Charges 64
Rationale for Adjustments 65
Discussion and Conclusions 65
Notes 67
References 68
Federal Securities Litigation Update 70
Introduction 71
Securities Act of 1933 71
Securities and Exchange Act of 1934 73
Conclusions 83
References 84
Antecedents and Expected Outcomes of the New Accounting Regulation in the European Union 86
Introduction 87
Research Objective and Method 89
The Antecedents of the IAS Regulation 90
Background 90
The Socio-Economic Factors 91
The Political Factors 94
The New EU Accounting Harmonization Strategy 97
The 1995 Communication – Accounting Harmonization: A New Strategy vis-à-vis International Harmonization 97
The 2000 Communication – EU Financial Reporting Strategy: The Way Forward 98
On the Choice between IAS and U.S. GAAP 99
The Financial Services Action Plan: Accounting Measures 103
Modernization of the Accounting Directives 103
The IAS Regulation 105
Expected Outcomes of the New Accounting Strategy 107
Implications of the IAS Regulation for European Accounting Harmonization 107
Implications of the IAS Regulation Beyond the EU 110
The Effect of IFRS on Regulators and Standard-Setters in the United States 110
Faithfulness and Consistency of the Application and Interpretation of IFRS in Financial Statements across Companies and Jurisdictions 110
Continued Progress of the IASB–FASB Convergence Agreement 111
The Impact of IFRS on U.S. Companies 112
The Expected Effect of IFRS in Other Jurisdictions 113
Concluding remarks 114
Notes 115
Acknowledgments 117
References 117
Part II: Research Reports 122
Existing Disclosure Challenges of IPO Allocations: A Research Report 124
Research Questions 125
Background and Motivation 125
What information is Currently Available to the Public? 128
Section 144 Filings 129
Disclosures of IPO Firms 130
Case Examples: Searching Public Sources for Transactions Reported After-the-Fact 135
Disclosure Challenges and Potential Approaches to Full Disclosure 137
Notes 139
Acknowledgments 141
References 141
Auditors’ Reporting Options and Client Disclosure Quality 144
Background and Research Question 146
Relevant Professional Standards 146
Prior Research 147
Value of Additional Disclosure Option 147
Research Question 148
Method and data 148
Sample 149
Disclosure Quality 150
Results 152
Summary, limitations, and conclusion 155
Notes 157
Acknowledgments 157
References 157
The Analysis of SFAS No. 109’s Usefulness in Predicting Future Cash Flows from a Conceptual Framework Perspective 160
Introduction 161
Background and Literature Review 163
Accounting for Income Taxes and SFAS No. 109 163
Prior Empirical Research 164
Hypothesis Development 166
Sample 167
Variable Measurement and Descriptive Statistics 167
Dependent Variable 167
Independent Variables 168
Method and Results 169
Research Methodology 169
Results 170
APB No. 11 Treatment vs. SFAS No. 109 Treatment 173
Conclusions and Future Research 175
Notes 175
Acknowledgments 177
References 177
Do CEO/CFO Certifications Provide a Signal of Credible Financial Reporting? 180
Introduction 181
Background 182
Methods 183
Sample Selection and Descriptive Statistics 185
Results 186
Conclusions 190
Notes 191
References 191
Does Income Tax Regulation Apply Downward Pressure to CEO Compensation? 194
Introduction 194
Hypothesis Development 195
Sample 197
Measurement of Compensation 197
Method 198
Results 199
Full sample 199
Three-Group Comparison 203
Conclusion 207
Notes 209
References 210
A Note on Pre-Sarbanes–Oxley Act Users’ and Auditors’ Perceptions of a Limitations Paragraph in the Auditor’s Internal Control Report 212
Appendix B 233
Internal Control Report and the (SAS 58) Three Paragraph Auditor’s Report 233
Comparison of Auditor’s Report on Internal Control 233
Internal Control Report per SSAE #2 233
Three Paragraph Auditor’s Standard Report as per SAS 58 234
Appendix A 231
RLP Format: Internal Control Report as per ASB’s File #4287, April 1991 231
NLP Format: Revised Internal Control Report to Conform to SAS 58 Format – Without the Limitations Paragraph 231
NLPF Format – NLP Format Revised Incoporating Fraud Detection/Prevention 232
References 229
Acknowledgment 229
Notes 228
Data Analyses, Results, and Conclusion 221
Results by Respondent Group and Report Type 222
Research Questions 1 and 4 Regarding Readability 224
Research Questions 2 and 4 Regarding Reliability 225
Research Questions 3 and 4 Regarding Liability 225
Conclusion 228
Methodology 218
Research Methodology 218
Internal Control Report Formats to Address Research Questions 218
Subjects, Task, and Presentation of Survey Instrument 219
Scaling Perceptual Dimensions: Dependent Variables 221
Prior Literature and Research Questions 214
Introduction 213
SIMS 2.0 Includes Controls for NYSE Special Closings, Small Firm Effects and Liquidity 236
Introduction 237
New York Stock Exchange Special Closings 237
Extensions of the DJIA, S& P500 and Inclusion of the Russell 2000® Index
The DJIA and S& P500 Indices
The Russell 2000® Index (R2000) 240
Thirty-day Commercial Paper Rates (CP30) 241
The Explanatory Power of Liquidity and Small Firm Effects 241
Stock Market Seasonals as a Function of Interest Rates or Liquidity 241
Stock Market Seasonals as a Function of Small Firm Effects 243
Summary 244
Notes 244
References 245
Appendix. SIMS 2.0: Updated Structure and Legend 246
Part III: Feature 248
Developments in Accounting Regulation: A Synthesis and Annotated Bibliography of Evidence and Commentary in the Academic Literature (2003–2004) 250
Works Cited but not Annotated 294
References 294
Conclusion 293
Other Regulation Related Findings 283
Recognition Versus Disclosure 283
Write-offs of Fixed Assets 287
Conservatism in Accounting 288
Earnings Opacity 288
Revenue Recognition in Long-term Contracts 289
Quantitative Market Risk Disclosures 290
The Value Implications of Claim Placement in the Balance Sheet 291
Shelf Registration 291
Firm and Investor Reaction to Accounting Regulation 292
Does Oversight Impact Accounting Quality? 292
International Convergence 280
Regulation Fair Disclosure 275
Principles-Based Versus Rules-Based Accounting Standards 268
Accounting for Employee Stock Option Costs 271
Corporate Fraud, Audit Failures, and Sarbanes–Oxley Reforms 251
Other Regulatory Ramifications 267
Sarbanes–Oxley Compliance Costs 266
Corporate Governance 261
Non-Audit Services 259
Audit Firm Rotation 258
Did the Sarbanes–Oxley Reforms Curb Earnings Management? 257
The Mission of the PCAOB 256
Introduction 251
Part IV: Capsule Commentaries 296
Accounting Harmonization in Latin America: Moving toward IFRS 298
The Effect of Mandatory Audit-Firm Rotation: A Monitoring Perspective 300
References 301
The Impact of International Harmonisation Efforts on Accounting Disclosure Regulation in Turkey 304
References 305
Corporate Governance and Accounting Standards in Oman 308
Part V: Perspectives 310
Standing at the Crossroads 312
The Crossroads 312
Perspective: The Decades to the 1980s and 1990s 312
Sustained Economic Expansion, Unprecedented Market Performance: Greed, Rationalization, and Entitlement 314
Reasons for the Dysfunctional Behavior 315
Results of the Climate in the 1990s 315
Again at the Crossroads 316
Standards Setting: Private or Public Sector? 316
International Standards: Convergence or Nonconvergence? 317
Basis of Standards? 317
At the Crossroads: Eugene Flegm’s Prediction 318
The Profession’s Core Values: Connecting Our Past to Our Future 320
Code of Conduct 321
Valuing Our History 322
Audit Quality Centers 325
Corporate Governance 327
Audit Committee Effectiveness Center 328
Audit Committee Toolkit 328
Audit Committee Matching System 329
Fraud Prevention 329
A Challenge to Corporate Management 330
Antifraud and Corporate Responsibility Program 330
Discipline and Peer Review Procedures 331
Private Company Financial Reporting 332
Computerized Exam 333
CPA Ambassador Program 334
Financial Literacy 335
Conclusion 337
Notes 337
The Reign of Confusion 338
The Symptoms 338
Diagnostics 340
Causes 342
Starting Points 345
FASB and the IASB Versus J.R. Hicks 348
Notes 351
References 351
How FASB and the IASB Should Apply Hicksian Theory to Calculate Income 352
Introduction 352
Hicksian Income Theory 353
Hicksian Income Practice 355
Conclusion 360
Notes 361
References 361
Going Concern and Mathematical Differential Calculus 362
Cash as an Asset 365
Asset Depreciation 366
Earnings to Serve the Capital Markets 366
Part VI: Book Reviews 368
The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron 370
Hetty: The Genius and Madness of America’s First Female Tycoon 374
Accounting: How to Meet the Challenges of Relevance and Regulation (Revised) 376
Notes 378