The FASBs Concepts Statement On Cash Flows And Present Value

In February 2000, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Concepts No. 7, Using Cash Flow Information and Present Value in Accounting Measurements. In this document the FASB asserts without proof that a present value computation along its lines will provide a good estimate of the fair value of an asset or liability. Using numerical examples provided by the FASB, we attempt to construct arguments in support of the FASB’s claim. We find that such arguments require strong and not at all obvious assumptions about players in hypothetical markets.

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Cash Flow Accounting: is It Time For Increased Disclosures?

Journal of Applied Business Research (JABR) ◽

10.19030/jabr.v12i1.5836 ◽

2011 ◽

Vol 12 (1) ◽

pp. 47 ◽

Cited By ~ 2

Author(s):

John E. McEnroe

Keyword(s):

Cash Flow ◽

Final Section ◽

The United States ◽

Cash Flows ◽

Financial Accounting ◽

Financial Accounting Standards Board ◽

Security Analysts ◽

Flow Information ◽

Operating Cash Flow ◽

Free Cash Flows

Cash flow reporting has attracted increased attention in the United States, especially in the past decade. However, despite the use of per share cash flow information by security analysts, the Financial Accounting Standards Board (FASB) has prohibited its disclosure. This article provides a historical perspective of cash flow accounting in the U.S., as well as a discussion of cash flow advocates. The final section presents arguments for increased disclosures in the area of cash flows, including operating cash flow on a per share basis and a schedule of free cash flows.

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A Research Note On The Issue Of Non-Articulation And The Method Used To Calculate Net Operating Cash Flow

Journal of Applied Business Research (JABR) ◽

10.19030/jabr.v25i1.1048 ◽

2011 ◽

Vol 25 (1) ◽

Cited By ~ 2

Author(s):

Terry J. Ward ◽

Jon Woodroof ◽

Benjamin P. Foster

Keyword(s):

Cash Flow ◽

Indirect Method ◽

Direct Method ◽

Accounting Standards ◽

Cash Flows ◽

Financial Accounting ◽

Financial Accounting Standards Board ◽

Font Size ◽

Operating Cash Flow ◽

Statement Of Cash Flows

Using a proxy for nonarticulation, prior researchers found evidence that many companies using the indirect method of reporting net cash flow from operations have a significant level of nonarticulation.  The purpose of this study is to determine if companies using the direct method of reporting net cash flow from operations experience significantly lower levels of nonarticulation than companies that use the indirect method of reporting net cash flow from operations.  Results show that companies using the direct method have significantly less nonarticulation than companies using the indirect method.  This finding suggests that the Financial Accounting Standards Board (FASB) should consider requiring companies to use the direct method of preparing the Statement of Cash Flows.

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Amortized Cost for Operating Lease Assets

Accounting Horizons ◽

10.2308/acch-50278 ◽

2012 ◽

Vol 27 (1) ◽

pp. 51-74 ◽

Cited By ~ 8

Author(s):

Ross Jennings ◽

Ana Marques

Keyword(s):

Accounting Standards ◽

Cash Flows ◽

Data Availability ◽

Financial Accounting ◽

International Accounting Standards ◽

Financial Accounting Standards Board ◽

Present Value ◽

Financial Ratio ◽

Straight Line ◽

Operating Leases

SYNOPSIS: A proposed accounting standard issued jointly by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) would require firms to recognize many more lease assets than are currently required and to amortize those assets on a straight-line basis. A number of respondents to the exposure draft argue that the “front-loading” of lease expense resulting from straight-line amortization would not reflect the economics of the lease assets. This study compares straight-line amortization with the most-often cited alternative, present value amortization. First, we illustrate by example that under stylized conditions, present value amortization provides information that more faithfully represents the future cash flows of lease assets than straight-line amortization. Second, for a large subset of firms that are more likely to conform to the stylized conditions in our example, we find that investors value those firms as though the lease assets are capitalized and amortized on a present value basis. Finally, we find that financial ratio comparability is substantially increased when operating leases are constructively capitalized and amortized using straight-line amortization, and further increased when using present value amortization. Taken together, these results provide no evidence for favoring straight-line amortization over present value amortization as the default method for amortizing capitalized operating leases. Data Availability: Data used in this paper are publicly available.

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Relative Ability of Earnings Data and Cash Flow in Predicting Future Cash Flows

International Journal of Accounting and Financial Reporting ◽

10.5296/ijafr.v3i1.3803 ◽

2013 ◽

Vol 3 (1) ◽

pp. 214 ◽

Cited By ~ 1

Author(s):

Nasrollah Takhtaei ◽

Hassan Karimi

Keyword(s):

Cash Flow ◽

Stock Exchange ◽

Accounting Standards ◽

Cash Flows ◽

Financial Accounting ◽

Company Size ◽

Financial Accounting Standards Board ◽

Working Capital ◽

Relative Ability ◽

Future Cash Flows

The purpose of this study is to examine earnings relative ability, operational cash flow, and two traditional measures of cash flows namely net earnings plus depreciation and operational working capital in predicting future cash flows. Also, the effect of company size on ability of predictive measures mentioned is examined in this study. The population examined includes accepted companies in Tehran Stock Exchange during period from 2005 to 2009. The results indicate that net earnings have more ability than operational cash flows and its traditional proxies in predicting the cash flows future. These findings are consistent with Financial Accounting Standards Board (FASB) claim based on earnings in preference on cash flows in predicting future cash flows.

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What Are the Essential Features of a Liability?

Accounting Horizons ◽

10.2308/acch.2010.24.4.623 ◽

2010 ◽

Vol 24 (4) ◽

pp. 623-633 ◽

Cited By ~ 5

Author(s):

Dennis Murray

Keyword(s):

Financial Reporting ◽

Accounting Standards ◽

Cash Flows ◽

Economic Benefits ◽

Primary Objective ◽

Financial Accounting ◽

Financial Accounting Standards Board ◽

Time Dimension ◽

The Past ◽

Definition Of

SYNOPSIS: The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) are in the process of jointly re-examining their conceptual frameworks. The re-examination includes assessing the definition of a liability. The Boards’ existing liability definitions include three criteria: (1) a present obligation; (2) a past transaction or event; and (3) a probable future sacrifice of economic benefits. The Boards have recently proposed that a liability be defined as “a present obligation for which the entity is the obligor” (FASB 2008c, 2). The proposed definition mentions only one time dimension (the present). References to the past and future are omitted. This paper argues that these omissions are undesirable. Omitting a reference to the past removes the link between the definition and the tradition of historically based financial statements. More importantly, however, the failure to reference future sacrifices of economic benefits divorces the definition from the primary objective of financial reporting: to provide information about the “amount, timing and uncertainty of an entity’s future cash flows” (FASB 2008a, para. OB6). This paper offers an alternative definition that emphasizes the past and future rather than the present.

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A Note On Accounting For Employee Stock Options When Reporting Diluted Earnings Per Share Under The Treasury Stock Method

Journal of Business & Economics Research (JBER) ◽

10.19030/jber.v6i10.2477 ◽

2011 ◽

Vol 6 (10) ◽

Author(s):

David T. Doran

Keyword(s):

Stock Options ◽

A Priori ◽

Market Price ◽

Accounting Standards ◽

Fair Value ◽

Financial Accounting ◽

Employee Stock Options ◽

Financial Accounting Standards Board ◽

Earnings Per Share ◽

Free Environment

Firms must currently apply the fair value method in determining the amount of employee compensation incurred in the case of employee stock options.  Current GAAP also requires that for purposes of calculating diluted earnings per share (EPS), the treasury stock method be applied where the assumed proceeds from exercise of the optioned shares is used to purchase shares of the firm’s stock at its average market price of the earnings period.  These incremental shares increase the denominator for purposes of calculating diluted EPS.  These requirements are consistent across the pronouncements of the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB).  This study extends the work of Doran (2005) and Doran (2008).  These previous studies found that applying the treasury stock method where shares are assumed purchased at the average for the period price (instead of end of year price) understates the number of incremental shares (the denominator), which overstates diluted EPS.  However, these previous works assumed that no shares were actually purchased for the treasury during the earnings period.  The FASB indicates one reason that the average for the period price is appropriate is because if treasury shares purchases were to occur, “the shares would be purchased at various prices, not at the price at the end of the period.”  This study tests the notion that the average for the period price is appropriate under circumstances where the firm actually purchases shares for the treasury at its average market price during the earnings period.  This paper employs a simple one period model that assumes a risk free environment with complete certainty.  The model allows comparison of computed EPS with an a priori known, correct amount.  Consistent with Doran (2005) and Doran (2008), the results here again indicate that assuming purchase of treasury shares at their average market price of the earnings period understates the EPS denominator which results in EPS overstatement.  Correct diluted EPS is derived when the shares assumed purchased under the treasury stock method are acquired at the higher period ending market price.

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An Evaluation Of The Implementation Of Fair Value Accounting: Impact On Financial Reporting

Journal of Business & Economics Research (JBER) ◽

10.19030/jber.v9i1.934 ◽

2011 ◽

Vol 9 (1) ◽

Author(s):

Karen T. Cascini ◽

Alan DelFavero

Keyword(s):

Financial Reporting ◽

Accounting Standards ◽

Fair Value ◽

The United States ◽

Financial Accounting ◽

Financial Assets ◽

Financial Accounting Standards Board ◽

Continuous Change ◽

Fair Value Accounting ◽

The Cost

The accounting industry is in a state of continuous change.  In the United States, the historical cost principle has traditionally been the foundation of accounting.  Until recently, assets and liabilities have been required to be recorded at their acquisition prices, with the exception of designated financial assets and financial liabilities.  However, the Financial Accounting Standards Board (FASB) has now created accounting standards that are distant from the cost principle.  Statement of Financial Accounting Standards No. 157: Fair Value Measurements, issued in September 2006 (FAS157, now codified as ASC 820) and Statement of Financial Accounting Standards No. 159: The Fair Value Option for Financial Assets and Financial Liabilities, created in February 2007 (FAS159, now ASC 825-10-25), significantly increases the viability of fair value accounting. The purpose of this paper is to illustrate the benefits and pitfalls of fair value and the corresponding affects on various stakeholders.

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KRITIK TERHADAP KLAIM KEANDALAN PADA HIRARKI PENGUKURAN NILAI WAJAR: Sebuah Literature Review

Wahana ◽

10.35591/whn.v21i2.142 ◽

2019 ◽

Vol 21 (2) ◽

pp. 77-87

Author(s):

Nugroho Wisnu Murti ◽

Indriyana Widyastuti

Keyword(s):

Literature Review ◽

Accounting Standards ◽

Fair Value ◽

Review Literature ◽

Financial Accounting ◽

Third Party ◽

Financial Accounting Standards Board ◽

Fundamental Study ◽

Professional Assessment ◽

Value Hierarchy

This article provide consideration for the Indonesian Financial Accounting Standards Board that requires a review of Indonesia's Financial Accounting Standards (PSAK) 68 concerning Measurement of Fair Value. Fair Value has potential misinterpretation definition between price and value. This potential misinterpretation is indicated to be the rationale put forward in the fair value hierarchy which is indicated unfair. This potential based on claims at each level which can be questioned with the existence of aggressive discretionary issues and the analogy of financial statement analysis. However, this problem had been proven getting down by involvement of independent and professional assessment. Therefore, fair value hierarchy has the same potential of reliability by the third party. If each level has the same potential, this hierarchy can be removed to avoid misinterpretation by users of financial statements. The obligation to disclose the basis of valuation is fairer to be implemented than the hierarchy which is have potensial misinterpretation. This opinion was not without foundation, because this article based on a literature review that starts from: 1) study of the relevance of the Indonesian Financial Accounting Standards concerning fair value with the Indonesian Assessment Standards; 2) fundamental study to interpret fair value based on review literature; and 3) study of allegations of the same potential submitted in the direction of fair value as regulated in PSAK 68. Keywords: fair value hierarchy, riliability, agresive discretionary, PSAK 68

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Stock Option Expense: The Sword of Damocles Revealed

Accounting Horizons ◽

10.2308/acch.2001.15.4.311 ◽

2001 ◽

Vol 15 (4) ◽

pp. 311-327 ◽

Cited By ~ 45

Author(s):

Christine A. Botosan ◽

Marlene A. Plumlee

Keyword(s):

Accounting Standards ◽

Fair Value ◽

Stock Option ◽

Financial Accounting ◽

Financial Accounting Standards Board ◽

Return On Assets ◽

Earnings Per Share ◽

Disclosure Requirements ◽

Differences Of Opinion ◽

Fortune Magazine

Statement of Financial Accounting Standards (SFAS) No. 123 is one of the most controversial accounting standards ever issued by the Financial Accounting Standards Board (FASB 1995) (SFAS No. 123, para. 376). More than five years have passed since SFAS No. 123 first required firms to either recognize or disclose stock option expense based on the fair value of options granted. In light of the fractious debate surrounding its passage and ongoing differences of opinion regarding the usefulness of stock option expense data, this paper reports how the standard impacts firm performance. This study examines the effect of stock option expense on the diluted earnings per share and return on assets of 100 firms identified by Fortune magazine as “America's Fastest-Growing Companies.” We find that stock option expense has a material impact on the performance measures for a majority of our sample firms. Moreover, our analysis predicts stock option expense will grow over the next several years, potentially doubling in magnitude during that time. We also document some noncompliance with the disclosure requirements of SFAS No. 123, finding that 12 percent of the sample firms provided incomplete information during the most recent year examined.

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