Goodwill Impairment: A New Window For Earnings Management?

The Financial Accounting Standards Board promulgated standard No. 142 in an attempt to improve the understandability of accounting information.  This new rule eliminated the practice of automatically amortizing goodwill.  No. 142 requires public companies to test goodwill for possible impairment at least annually.  An unintended consequence of this new standard is the opportunity for companies to use it in earnings management.  To test the possibility that the rule is being used for this purpose, a sample of companies was chosen, all of which had amounts of goodwill on their balance sheet during the 2003-2005 interval.  The results reveal that the number of companies experiencing losses or low rates of return on total assets who actually impaired goodwill was statistically insignificant during the period under consideration.  Thus, the results strongly suggest that companies are using No. 142 in an attempt to manage the volatility of earnings.

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The Joint FASB/IASB Lease Project: Discussion And Industry Implications

Journal of Business & Economics Research (JBER) ◽

10.19030/jber.v9i9.5633 ◽

2011 ◽

Vol 9 (9) ◽

pp. 29 ◽

Cited By ~ 1

Author(s):

John Kostolansky ◽

Brian Stanko

Keyword(s):

Balance Sheet ◽

Accounting Standards ◽

Financial Accounting ◽

International Accounting Standards ◽

Financial Accounting Standards Board ◽

Font Size ◽

Operating Leases ◽

Accounting Rules ◽

The Impact ◽

Lease Accounting

Over several decades, the Financial Accounting Standards Board and International Accounting Standards Board have enacted numerous changes to the controversial lease accounting rules. As currently prescribed, operating leases are treated as rental arrangements whereby the lessee does not record a liability - a situation generally referred to as off-balance sheet financing. In an attempt to increase transparency and comparability, the FASB and IASB will soon require all leases to be capitalized. This paper quantifies the impact of the new leasing standard on the financial statements and ratios of the firms and industries represented in the S&P 100 under a variety of discount rates.

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Selecting Railway Investments in 1890s America

Accounting Historians Journal ◽

10.2308/aahj-10525 ◽

2017 ◽

Vol 44 (1) ◽

pp. 77-93

Author(s):

Joel E. Thompson

Keyword(s):

Financial Reporting ◽

Accounting Information ◽

Accounting Standards ◽

Financial Accounting ◽

Investment Strategies ◽

Financial Accounting Standards Board ◽

Accounting Data ◽

Rational Decisions

ABSTRACT The purpose of financial reporting is to provide information to investors and creditors to help them make rational decisions (Financial Accounting Standards Board [FASB] 2010). Tracing the development of investors' methods should help with understanding the role of financial accounting. This study examines investment practices involving railways in 1890s America. As such, it furthers our knowledge about the development of investment methods and their necessary information. Moreover, it shows that as investment methods grew in sophistication, there was an enhanced demand for greater comparability in accounting data to make meaningful analyses. Competing investment strategies, largely devoid of accounting information, are also discussed.

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Constructive Capitalization of Operating Leases in the Hong Kong Fast-Food Industry

International Journal of Accounting and Financial Reporting ◽

10.5296/ijafr.v3i1.3270 ◽

2013 ◽

Vol 3 (1) ◽

pp. 128 ◽

Cited By ~ 2

Author(s):

Benjamin Y. Tai

Keyword(s):

Hong Kong ◽

Fast Food ◽

Balance Sheet ◽

Accounting Standards ◽

Financial Accounting ◽

Financial Accounting Standards Board ◽

Return On Assets ◽

Fast Food Industry ◽

Operating Leases ◽

Lease Contracts

The current study is undertaken to investigate the potential problems resulting from the proposed adoption of a new accounting standard concerning mandatory capitalization of all lease contracts. In 2010, the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) issued a joint exposure draft (ED2010/9) on accounting for leases. Under the new standard, lessees are required to capitalize all lease contracts as assets and liabilities. The distinction between operating leases and capital (finance) leases will no longer exist. The long-standing off-balance sheet treatment of operating leases will be prohibited. After the adoption of the proposed standard, companies with significant operating leases are likely to experience an increase in assets, increase in liabilities, and decrease in equity, resulting in the deterioration of their return-on- assets and debt-to-equity ratios. This research examines two large fast-food restaurant chains based in Hong Kong; and through constructive capitalization, demonstrates how the companies’ key financial ratios are negatively impacted if the new standard is implemented. The results indicate that both the return-on-assets and debt-to-equity ratios of the two companies, under various discount rates assumptions, suffer serious deterioration when their operating leases are capitalized.

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Impairment reversals: unbiased reporting or earnings management

International Journal of Accounting and Information Management ◽

10.1108/ijaim-08-2016-0084 ◽

2018 ◽

Vol 26 (2) ◽

pp. 245-271 ◽

Cited By ~ 3

Author(s):

Tongyu Cao ◽

Hasnah Shaari ◽

Ray Donnelly

Keyword(s):

Earnings Management ◽

Financial Reporting ◽

Accounting Standards ◽

Financial Accounting ◽

Financial Accounting Standards Board ◽

Reporting Standard ◽

Accounting Standard ◽

Content Type ◽

Study Support ◽

A Company

Purpose This paper aims to provide evidence that will inform the convergence debate regarding accounting standards. The authors assess the ability of impairment reversals allowed under International Accounting Standard 36 but disallowed by the Financial Accounting Standards Board to provide useful information about a company. Design/methodology/approach The authors use a sample of 182 Malaysian firms that reversed impairment charges and a matched sample of firms which chose not to reverse their impairments. Further analysis examines if reversing an impairment charge is associated with motivations for and evidence of earnings management. Findings The authors find no evidence that the reversal of an impairment charge marks a company out as managing contemporaneous earnings. However, they document evidence that firms with high levels of abnormal accruals and weak corporate governance avoid earnings decline by reversing previously recognized impairments. In addition, companies that have engaged in big baths as evidenced by high accumulated impairment balances and prior changes in top management, use impairment reversals to avoid earnings declines. Research limitations/implications The results of this study support both the informative and opportunistic hypotheses of impairment reversal reporting using Financial Reporting Standard 136. Practical implications The results also demonstrate how companies that use impairment reversals opportunistically can be identified. Originality/value The results support IASB’s approach to the reversal of impairments. They also provide novel evidence as to how companies exploit a cookie-jar reserve created by a prior big bath opportunistically.

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A Perspective on the Joint IASB/FASB Exposure Draft on Accounting for Leases

Accounting Horizons ◽

10.2308/acch-50048 ◽

2011 ◽

Vol 25 (4) ◽

pp. 861-871 ◽

Cited By ~ 23

Author(s):

Yuri Biondi ◽

Robert J. Bloomfield ◽

Jonathan C. Glover ◽

Karim Jamal ◽

James A. Ohlson ◽

...

Keyword(s):

Balance Sheet ◽

Accounting Standards ◽

Financial Accounting ◽

International Accounting Standards ◽

Financial Accounting Standards Board ◽

Operating Leases ◽

Key Issues ◽

Definition Of ◽

The Impact ◽

Lease Accounting

SYNOPSIS The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) recently issued a joint exposure draft on accounting for leases. This exposure draft seeks to shift lease accounting from an “ownership” model to a “right-of-use” model. Under the current ownership model, leases can be reported on balance sheet (finance leases) if certain tests are met, or off balance sheet (operating leases) if those tests are not met. The new model seeks to report all leases on the balance sheet based on the present value of lease obligations without any bright line tests, and no sharp on or off the balance sheet classifications. We are sympathetic to the standard setters' concern that the current lease standard is being manipulated improperly by managers, resulting in large amounts of debt being reported off balance sheet. We provide a discussion of current lease accounting and the proposed exposure draft. We also comment on five key issues covered by the exposure draft: the definition of a lease, the initial measurement and eventual reassessment at fair values, the accounting for lessors, the impact of lease accounting on recognition and income measurement, and classification of lease accounting elements and their impact on accounting ratios. JEL Classifications: M40.

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Proposed Lease Accounting For Lessees

Journal of Business & Economics Research (JBER) ◽

10.19030/jber.v9i1.941 ◽

2011 ◽

Vol 9 (1) ◽

Cited By ~ 1

Author(s):

Stuart Shough

Keyword(s):

Accounting Standards ◽

Financial Accounting ◽

International Accounting ◽

International Accounting Standards ◽

Financial Accounting Standards Board ◽

Font Size ◽

Accounting Model ◽

Lease Accounting ◽

International Accounting Standards Board

On August 17, 2010, the Financial Accounting Standards Board and the International Accounting Standards Board jointly issued exposure drafts proposing a new accounting model for leases. This paper explains how a lessee would account for leases under this proposal.

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The Steep Rise Of Gift Card Purchases By The Consumer Is Changing The Method Of Accounting And Reporting Of Gift Card Income By Corporate Retailers

Journal of Business & Economics Research (JBER) ◽

10.19030/jber.v6i4.2405 ◽

2011 ◽

Vol 6 (4) ◽

Cited By ~ 5

Author(s):

Carla Feinson

Keyword(s):

State Legislatures ◽

Accounting Standards ◽

Financial Accounting ◽

Annual Reports ◽

Financial Accounting Standards Board ◽

Font Size ◽

Publicly Traded ◽

Accounting Disclosures ◽

Reporting Requirements ◽

Gift Card

The increasing popularity of gift card purchases by consumers and the corresponding increase in gift card sales in the retail industry has triggered changes in accounting disclosures and reporting requirements. The Financial Accounting Standards board, the Security and Exchange Commission and individual state legislatures have all begun to focused their attention on the various issues that are continually coming to the forefront as a result of the continuing rise in gift card transactions. The promulgations of these authoritative bodies have in turn affected the format and wording of the disclosures that are found in the annual reports or SEC filings of publicly held retail companies. An examination of 75 publicly traded retailers not only shows the similarities and differences of how gift card sales have affected disclosures but also how the very nature of gift card contracts and the ramifications of gift card sales has led to so many specific reporting and accounting difficulties.

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Should The SEC Adopt International Financial Reporting Standards?

Review of Business Information Systems (RBIS) ◽

10.19030/rbis.v16i1.6760 ◽

2011 ◽

Vol 16 (1) ◽

pp. 15-20

Author(s):

Clemense Ehoff Jr. ◽

Dov Fischer

Keyword(s):

Financial Reporting ◽

Accounting Standards ◽

Financial Accounting ◽

International Financial Reporting Standards ◽

Reporting Standards ◽

Financial Accounting Standards Board ◽

Best Interest ◽

Public Companies ◽

Generally Accepted Accounting Principles ◽

Financial Reporting Standards

In 2002, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) formally began a process to converge Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). By the end of 2011, the SEC will likely decide on whether to adopt International Financial Reporting Standards as the financial reporting system for U.S. public companies, continue with the convergence project, or reject IFRS altogether. This paper examines the benefits and drawbacks of each option and formulates a recommendation as to which option is in the best interest of U.S. investors.

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Accounting for Stock Options

The Journal of Economic Perspectives ◽

10.1257/089533005775196714 ◽

2005 ◽

Vol 19 (4) ◽

pp. 115-134 ◽

Cited By ~ 16

Author(s):

Jeremy Bulow ◽

John B Shoven

Keyword(s):

Stock Options ◽

Accounting Standards ◽

Financial Statements ◽

Financial Accounting ◽

Financial Statement ◽

Financial Accounting Standards Board ◽

Public Companies ◽

Valuation Method ◽

History Of ◽

Reported Earnings

As public companies begin their new fiscal years, they are implementing a new and controversial Financial Accounting Standards Board (FASB, 2004) proposal for expensing stock options. Applied to 2003 and 2004, this rule would have slashed reported earnings of the Standard & Poor's 500 by 8.6 and 7.4 percent; the effect in the bubble years would have been more than twice as large. We describe the history of how these options have been expensed for financial statement purposes. We assess the new FASB approach and find that it is deeply flawed. The main purpose of the paper is to describe an alternative options expense valuation method, the Bulow-Shoven approach, that addresses these problems. Our approach is simpler than the new FASB methodology, less prone to earnings manipulation and more consistent with the way the rest of compensation is treated in financial statements.

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¿Ingresos integrales, teoría de la entidad o concepto de entidad? Un compromiso diplomático en la redacción de informes financieros

De Computis - Revista Española de Historia de la Contabilidad ◽

10.26784/issn.1886-1881.v13i25.261 ◽

2017 ◽

Vol 13 (25) ◽

pp. 8

Author(s):

Marco Angelo Marinoni ◽

Andrea Cilloni

Keyword(s):

Balance Sheet ◽

Accounting Standards ◽

Financial Statements ◽

Financial Accounting ◽

International Accounting ◽

International Accounting Standards ◽

Financial Accounting Standards Board ◽

Accounting Systems ◽

Generally Accepted Accounting Principles ◽

Income Statement

The globalizations of markets and increased international cooperation in the harmonized accounting systems have highlighted the difficulties inherent in the development of generally accepted accounting principles. The Financial Accounting Standards Board, FASB, and the International Accounting Standards Board, IASB, are therefore working - through shared projects – in conducting a “Conceptual Framework Project”, which will lead to increased knowledge and understanding of the principles of international accounting convergence.The process of international harmonization has defined the concept of “Comprehensive Income”, i.e. a new structure of the Income Statement, in which they reside clearly even charges and unrealized gains (as final assets adjustments, monetary exchange variations and so on). The Balance Sheet and the Financial Statements in general, continue to maintain an approach prone to theory of property valuation, given the shareholder, as the main carrier of social interest.

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