Recent Developments at the Securities and Exchange Commission: Academic Contributions and Opportunities

In recent years, the Securities and Exchange Commission (SEC) has grown in size and scope. The implementation of Sarbanes-Oxley (SOX) and the globalization of accounting standards have increased the SEC's workload and brought forth important questions regarding the development and application of accounting and auditing standard setting and regulation. This paper identifies key issues of importance to the SEC including record levels of restatements, SOX implementation, the backdating of stock options, increased use of fair-values in financial reporting, adoption of IFRS by numerous non-U.S. registrants, and foreign deregistration. The article highlights the contribution of academic research as it relates to SEC speeches and rulemaking, drawing upon experience of 2005–2006 SEC academic fellows.

Download Full-text

Viewing the 1996 FAF Restructuring as Policy Making without a Formal Due Process

Accounting Horizons ◽

10.2308/acch.2002.16.3.199 ◽

2002 ◽

Vol 16 (3) ◽

pp. 199-214 ◽

Cited By ~ 6

Author(s):

Paul B. W. Miller

Keyword(s):

Financial Reporting ◽

Policy Making ◽

Due Process ◽

Accounting Standards ◽

Sole Source ◽

Securities And Exchange Commission ◽

Financial Accounting ◽

Perceived Threat ◽

Financial Accounting Standards Board ◽

Public Accounting

In 1996, a major financial reporting controversy emerged, escalated, and was resolved without substantial exposure or a formal due process. Specifically, a committee of the Financial Executives Institute (FEI) sent a letter to the chair of the Financial Accounting Foundation (FAF) asserting that the Financial Accounting Standards Board (FASB) “process is broken and in need of substantive repair.” When Securities and Exchange Commission (SEC) Chair Arthur Levitt determined that neither FAF nor public accounting leaders were dealing with the FEI proposals to his satisfaction, he acted to defeat this perceived threat to FASB's independence, focusing on the composition of the FAF. In response, the FAF trustees resisted because they viewed his intervention as a threat to FASB's independence. When the trustees did not voluntarily change, Levitt proposed reconsidering Accounting Series Release No. 150, which designates FASB as the sole source of GAAP for SEC filings. Eventually, Levitt prevailed. This paper describes this intervention as a case of policy making without a formal due process and adds to the already weighty evidence that accounting standards are political.

Download Full-text

Accounting Standards and Earnings Quality — Evidence from Registered ADRs

Review of Pacific Basin Financial Markets and Policies ◽

10.1142/s0219091518500224 ◽

2018 ◽

Vol 21 (04) ◽

pp. 1850022

Author(s):

Yaseen S. Alhaj-Yaseen ◽

Kean Wu ◽

Leslie B. Fletcher

Keyword(s):

Financial Reporting ◽

Earnings Quality ◽

Accounting Standards ◽

Securities And Exchange Commission ◽

High Quality ◽

Reporting Standard ◽

International Financial Reporting Standard ◽

The Us ◽

Us Gaap

This paper examines the changes in earnings quality of registered American Depositary Receipts (ADRs) as a result of switching accounting standards. We aim to shed light on the potential impact of International Financial Reporting Standard (IFRS) adoption on US firms. A suboptimal approach to achieve this goal is through examination of US firms’ surrogates such as ADRs. Unlike previous studies, we made a distinction between registered and unregistered ADRs and affirmed that registered ADRs are the closest surrogates with which to conduct our analysis because they are exclusively required to adhere to the Securities and Exchange Commission (SEC)’s stringent disclosure requirements. When cross-listing their equity on the US exchanges, foreign issuers can file their financial reports with the SEC using IFRS, US GAAP (generally accepted accounting principles), or their domestic GAAP with reconciliation to US GAAP. An improvement in earnings quality is documented when ADRs adopt US GAAP or IFRS versus domestic GAAP. However, when the comparison is made between US GAAP and IFRS, no difference in earnings quality is documented. These results indicate that switching to high-quality accounting standards is likely to improve earnings quality. This improvement is maximized when the difference between reporting standards is high and minimized if otherwise. Our conclusion is that the adoption of IFRS in the US is unlikely to change earnings quality of local issuers. Moreover, we drew a distinction between reconciliation with and adoption of high-quality accountings standards and find that while the former can enhance earnings quality, the latter can further improve it.

Download Full-text

ERRORS AND FRAUD IN ACCOUNTING. THE ROLE OF EXTERNAL AUDIT IN FIGHTING CORRUPTION

Annals of Spiru Haret University Economic Series ◽

10.26458/1743 ◽

2017 ◽

Vol 17 (4) ◽

pp. 29-36

Author(s):

Luminita Ionescu

Keyword(s):

Financial Reporting ◽

Accounting Standards ◽

External Control ◽

Electronic Systems ◽

High Quality ◽

External Audit ◽

Strong Connection ◽

Recent Developments

Accounting errors and fraud are common in most businesses, but there is a difference between fraud and misinterpretation of communication or accounting regulations. The role of management in preventing fraud becomes important in the last decades and the importance of auditing in curbing corruption is increasingly revealed. There is a strong connection between fraud and corruption, accelerated by electronic systems and modern platforms.The most recent developments tend to confirm that external auditing is curbing corruption, due to international accounting and auditing standards at national and regional levels. Thus, a better implementation of accounting standards and high quality of external control could prevent errors and fraud in accounting, and reduce corruption, as well.The aim of this paper is to present some particular aspects of errors and fraud in accounting, and how external audit could ensure accuracy and accountability in financial reporting.

Download Full-text

Accounting Transparency and International Standard Setting

The Oxford Handbook of Economic and Institutional Transparency ◽

10.1093/oxfordhb/9780199917693.013.0022 ◽

2014 ◽

pp. 455-476

Author(s):

Sidney J. Gray ◽

Helen Kang

Keyword(s):

Financial Reporting ◽

Accounting Information ◽

Accounting Standards ◽

Standard Setting ◽

International Accounting Standards ◽

Corporate Accountability ◽

Future Prospects ◽

Market Reactions ◽

International Standard ◽

Financial Reporting Standards

This chapter explores accounting transparency as an important aspect of corporate accountability. After defining accounting transparency and identifying factors that influence it, the chapter considers the debate between providers and users of accounting information on how transparent accounting information should be defined, measured, and reported. It also discusses the roles of international standard-setting organizations in promoting accounting transparency as well as measures of accounting transparency, including disclosure level and market reactions. Finally, it looks at future prospects for setting international accounting standards, paying particular attention to International Financial Reporting Standards.

Download Full-text

Audit Research after Sarbanes-Oxley

Auditing A Journal of Practice & Theory ◽

10.2308/aud.2005.24.s-1.5 ◽

2005 ◽

Vol 24 (s-1) ◽

pp. 5-30 ◽

Cited By ~ 96

Author(s):

Mark L. DeFond ◽

Jere R. Francis

Keyword(s):

Audit Quality ◽

Scientific Evidence ◽

Academic Research ◽

Securities And Exchange Commission ◽

Institutional Changes ◽

Compelling Evidence ◽

Negative Consequences ◽

High Profile ◽

Sarbanes Oxley ◽

Accounting Scandals

The scrutiny auditing received following Enron's failure and the accounting scandals at Worldcom and other companies provides compelling evidence that auditing matters and is important. What is unclear, however, is whether auditing was sufficiently “broken” in the first place to warrant the radical reforms and changes effected by the Sarbanes-Oxley Act of 2002 (SOX). While there have been some high profile corporate failures and accounting scandals, the number of demonstrated audit failures as evidenced by successful litigation or U.S. Securities and Exchange Commission (SEC) sanctions is quite small and approaches an annual failure rate of close to zero. In addition, our interpretation of the academic research suggests that many of the “solutions” embodied in SOX are not only unlikely to solve the profession's alleged problems; they may well have serious unintended negative consequences. So the disconnect is large between the scientific evidence on audit quality and institutional changes premised on the assumption that auditing is broken. This paper attempts to stimulate research into some of the important questions implicitly raised by SOX regarding the audit profession's potential failings. An outline of our primary observations and suggestions are presented in the paper's Introduction.

Download Full-text

Ruckman, Inc.: Converting from U.S. GAAP to IFRS

Issues in Accounting Education ◽

10.2308/iace-10020 ◽

2011 ◽

Vol 26 (2) ◽

pp. 341-360 ◽

Cited By ~ 7

Author(s):

Rebecca Fay ◽

John A Brozovsky ◽

Patricia G Lobingier

Keyword(s):

Financial Reporting ◽

Accounting Standards ◽

Financial Statements ◽

The United States ◽

Securities And Exchange Commission ◽

High Demand ◽

Financial Reporting Standards ◽

Accounting Courses ◽

Cpa Exam ◽

Two Phases

ABSTRACT This case is designed as a comprehensive review of significant differences between accounting principles generally accepted in the United States of America (U.S. GAAP) and International Financial Reporting Standards (IFRS) for specific topics covered during most Intermediate Accounting courses. The task requires you to analyze and evaluate a company's significant accounting policies for compliance with IFRS as you plan and conduct the conversion of a firm's financial statements from U.S. GAAP to IFRS. The skills developed throughout this case are currently in high demand as IFRS is quickly becoming the global norm in accounting standards and many multinational companies based in the U.S. are already affected by these standards. The Securities and Exchange Commission (SEC) has developed a roadmap that may require U.S. companies to begin adopting IFRS in 2015. You will be tested on your knowledge of IFRS on the CPA exam. The case is presented in two phases, allowing you to experience the conversion process from planning to execution.

Download Full-text

Issuance Of Subsidiary Stock As An Earnings Management Strategy

Journal of Applied Business Research (JABR) ◽

10.19030/jabr.v21i1.1495 ◽

2011 ◽

Vol 21 (1) ◽

Author(s):

Susan Perry Williams ◽

Thomas H. Williams

Keyword(s):

Earnings Management ◽

Financial Reporting ◽

Management Strategies ◽

Academic Research ◽

Financial Statements ◽

Research Literature ◽

Securities And Exchange Commission ◽

Net Income ◽

Earnings Expectations ◽

Income Statement

Arthur Levitt, chairman of the Securities and Exchange Commission, expressed concern that the pervasiveness of earnings management in American corporate financial statements threatens the integrity of financial reporting.  Levitt referred to the “cookie jar” phenomenon wherein U.S. firms have earmarked opportunities to “find gains” when earnings are less than anticipated.  The academic research literature includes a large number of studies on earnings management strategies.  One relatively unexplored strategy is the use of stock issuances by subsidiaries to generate gains under the provisions of SEC Staff Accounting Bulletin No. 51.  Based upon a sample of 125 observations of this accounting choice over the period 1985 through 1997, our study provides compelling evidence that recognition of gains on the issuance of subsidiary stock coincides with periods when earnings fail to meet expectations (as measured by analysts’ forecasts), and that the recognition of these gains in the income statement is effective in achieving earnings expectations. Further, the amounts of these gains are large relative to pre-gain net income

Download Full-text

The FASB’s Approach Toward Reviewing, Conducting and Sponsoring A cademic Research and to Engaging Academics

Accounting Horizons ◽

10.2308/horizons-2020-140 ◽

2021 ◽

Author(s):

Stephen A. Zeff

Keyword(s):

Academic Research ◽

Accounting Standards ◽

Standard Setting ◽

Financial Accounting ◽

Financial Accounting Standards Board ◽

Historical Account ◽

Setting Process

This is a historical account of the various approaches which the Financial Accounting Standards Board has used since 1973 in making use of academic research and in bringing academics into the standard-setting process.

Download Full-text

Value Relevance Change Under International Accounting Standards: An Empirical Study of Peru

Review of Pacific Basin Financial Markets and Policies ◽

10.1142/s0219091511500081 ◽

2012 ◽

Vol 15 (02) ◽

pp. 1150008 ◽

Cited By ~ 6

Author(s):

Chunhui Liu ◽

Lee J. Yao ◽

Michelle Y. M. Yao

Keyword(s):

Financial Reporting ◽

Value Relevance ◽

Accounting Standards ◽

Fair Value ◽

Securities And Exchange Commission ◽

International Accounting ◽

International Accounting Standards ◽

Recent Period ◽

Financial Reporting Standards ◽

Value Measurement

In face of broad adoption of International Financial Reporting Standards (IFRS), the Securities and Exchange Commission (SEC) is considering its quality and acceptability. This paper reports a study that examines changes in value relevance with a sample of Peru firms mandated to use international accounting standards between 1999 and 2007. The period under study is broken into a period of International Accounting Standards (IAS) between 1999 and 2001, a period of early IFRS between 2002 and 2004, and a more recent period of IFRS between 2005 and 2007 by major changes to accounting standards. The empirical results generally indicate that value relevance improved from the IAS period to the early IFRS period when the International Accounting Standards Board (IASB) took over the International Accounting Standards Committee (IASC), but worsened from the early IFRS period to the recent IFRS period when more accounting standards started to reflect IASB's preference for fair value measurement of assets and liabilities. Quality weakens to a greater extent for firms with more discretion for fair value estimates. Further analysis shows that such changes are less likely to result from changes in economic conditions, but from the changes of the standards. The findings are particularly alarming in face of rising IFRS adoptions and call for quality improvement to IFRS.

Download Full-text

Academic Research and Standard-Setting: The Case of Other Comprehensive Income

Accounting Horizons ◽

10.2308/acch-50237 ◽

2012 ◽

Vol 26 (4) ◽

pp. 789-815 ◽

Cited By ~ 46

Author(s):

Lynn L. Rees ◽

Philip B. Shane

Keyword(s):

Academic Research ◽

Accounting Standards ◽

Standard Setting ◽

Net Income ◽

Financial Accounting Standards Board ◽

Comprehensive Income ◽

Other Comprehensive Income ◽

Income Reporting ◽

Definition Of ◽

Accounting Standard Setting

SYNOPSIS: This paper links academic accounting research on comprehensive income reporting with the accounting standard-setting efforts of the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB). We begin by discussing the development of reporting other comprehensive income, and we identify a significant weakness in the FASB's Conceptual Framework, in the lack of a cohesive definition of any subcategory of comprehensive income, including earnings. We identify several attributes that could help allocate comprehensive income between net income, other comprehensive income, and other subcategories. We then review academic research related to remaining standard-setting issues, and identify gaps in academic research where hypotheses could be developed and tested. Our objectives are to (1) stimulate standard-setters to better conceptualize what is meant by other comprehensive income and to distinguish it from earnings, and (2) stimulate researchers to develop and test hypotheses that might help in that process.

Download Full-text