Harmonizing Pension Accounting: Income Statement Effects of Applying IAS19R to U.S. Firms
Mark P. Bauman, University of Northern Iowa; Kenneth W. Shaw, University of Missouri
With IAS19R, Employee Benefits, the IASB simplified the accounting for defined-benefit pension plans by eliminating the use of an expected pension asset return assumption and by eliminating several of the income smoothing techniques included in the previous standard. To provide prospective evidence useful to the FASB’s ongoing attempts to simplify and improve accounting standards, this study applies the revised pension accounting rules under IAS19R to a sample of U.S. firms with defined-benefit pension plans. Overall, there is no significant change in total pension expense from applying IAS19R versus current U.S. GAAP for a sample of S&P 500 firms over 2010-2012. This is due to the effects of eliminating the expected pension asset return and the “corridor” approach to smoothing unrealized gains or losses essentially offsetting each other. However, it is shown that IAS19R would significantly increase pension expense for subsamples of firms with high expected pension asset return assumptions, firms with low levels of amortized net pension losses or gains, and firms with better-funded pension plans.
Keywords: IAS19R, employee benefits, FASB, GAAP, pension accounting, “corridor” approach
Accounting for Goodwill: An academic literature review and analysis to inform the debate
He Wen, University of Missouri – St. Louis; Stephen Moehrle, University of Missouri – St. Louis
Goodwill in the accounting context represents amounts paid in excess of the fair value of the identifiable net assets for a business acquisition. The accounting for goodwill has long been a subject of debate and remains so today. Indeed, the guidance for goodwill accounting has been significantly revised by regulators twice since 2001 (2001 and 2011). Despite these recent and significant revisions, the topic is back on the Financial Accounting Standards Board (FASB) agenda as the FASB added a project to once again discuss the optimal treatment for goodwill (FASB, 2015). In this paper, we seek to inform this effort by describing the evolution of accounting standards for goodwill and then synthesizing and analyzing the academic literature on goodwill accounting and reporting. Based on this historical perspective and analysis of the literature, we then assess the strengths and weaknesses of different accounting approaches for goodwill, highlight the factors affecting the process of standard-setting on goodwill, and make recommendations. Our recommendations include recommendations for the FASB about optimal guidance and recommendations for academics concerning future academic research projects that would advance the goodwill accounting debate. Hence, this paper should be of interest to regulators and standard setters, academic researchers interested in mergers and acquisitions and goodwill, and financial statement preparers and users.
Keywords: Mergers, Acquisitions, Business Combinations, Goodwill, Stock Market, Credit Market, Financial Accounting Standards Board
Developments in Accounting Regulation: A Synthesis and Annotated Bibliography of Evidence and Commentary in the 2014 Academic Literature
Thomas Kozloski, Saint Mary’s University; Michele Meckfessel, University of Missouri – St. Louis; Stephen R. Moehrle, University of Missouri – St. Louis; Thomas Williams, University of Missouri – St. Louis
In this article, we synthesize in annotated bibliography form, recent regulation-related findings and commentaries in the academic literature. This annotated bibliography is one in a series of bibliographies that summarizes regulation-related academic research. We reviewed articles published in The Accounting Review, Journal of Accounting Research, Journal of Accounting and Economics, Contemporary Accounting Research, Accounting Horizons, The Journal of Accounting, Auditing & Finance, Journal of Accounting and Public Policy, Journal of Business, Finance & Accounting, Auditing: A Journal of Practice and Theory, and Research in Accounting Regulation. We annotate results of regulation-related research studies and key points from regulation-related commentaries. The literature featured some strong regulation-related threads in 2014 including the foundations of financial reporting, international financial reporting standards, retrospectives on Sarbanes-Oxley and the Public Company Accounting Oversight Board ten years out, corporate governance and audit quality.
Keywords: Foundations of financial reporting, international financial reporting standards, Sarbanes-Oxley, Public Company Accounting Oversight Board (PCAOB), corporate governance, audit quality
Are we there yet? Protecting Investors by Securing a Strong Auditing Profession into the Future
Jeanette M. Franzel, Board Member, PCAOB
In 2008, the U.S. Department of the Treasury’s Advisory Committee on the Auditing Profession (ACAP) issued a report with findings and recommendations to address the sustainability and effectiveness of the public company auditing profession. The ACAP report addressed a number of longstanding issues and emerging developments at a critical time in history for the auditing profession and the Public Company Accounting Oversight Board (PCAOB). As the first comprehensive study of the profession since the Sarbanes-Oxley Act of 2002, the report identifies many significant issues for the PCAOB and the profession itself. The report dealt with three primary areas: human capital issues impacting the auditing profession, audit firm structure and finances, and audit firm concentration and competition. The report contains numerous recommendations directed toward regulators, academics, the auditing profession, and other stakeholders. This paper provides updated information about the numerous actions taken on sixteen ACAP recommendations that refer to or involve the PCAOB. Given the amount of effort related to these recommendations, it seems reasonable to ask, “Are we there yet?” But this is not the correct question, because we should never become complacent in thinking that we’ve made sufficient progress or completed the necessary actions to achieve and maintain high quality auditing. Since the time ACAP report was written, risks to audit quality have changed. The PCAOB continues to focus on areas raised in the ACAP report. While key issues raised in the ACAP report remain relevant, audit firms and audit regulators must be insightful and forward-looking to detect new and emerging risks so that timely actions can be taken to ensure reliable, high quality auditing to support the capital markets and protect investors. Numerous opportunities for future research exist in evaluating the impact of actions taken on the ACAP recommendations, including to what extent the actions have accomplished the original objectives and whether unanticipated consequences have occurred or additional actions might be needed.
Keywords: Audit Regulation, PCAOB, Auditing Profession, Sarbanes-Oxley Act, Audit Quality, Audit Market Concentration
Perspective: “Catch-22” – Management Advice for the Ages
Jim Peterson
Periodic re-readings of Joseph Heller’s “Catch-22” can offer value well beyond any of the so-called team-building exercises and mission statements that pass for motivational management these days. Heller’s dark vision of a lunatic military environment, comprising equal parts corrupt self-interest and naïve idealism, has for a half-century provided an extended guide to life in any complex system -- whether business or finance, professional services, academia or government. “Catch-22” can place the absurdity of the workplace in perspective and be used as a starting point in the search for solutions.
Keywords: Catch-22, workplace solutions, Joseph Heller, motivational management
Count Down: The Past, Present and Uncertain Future of the Big Four Accounting Firms Studies in the Development of Accounting Thought, Volume 19
Larry M. Parker
Count Down: The Past, Present and Uncertain Future of the Big Four Accounting Firms, is a superior example of causal analysis of an exceptionally important issue – the “fragile state” (p. viii; p. 12) of the Big Four international public accounting firms and Big Audit (audits performed by the Big Four). Jim Peterson was a partner and senior member of Arthur Andersen’s in-house legal group. He experienced Andersen’s remarkable international success and Andersen’s dramatic demise in 2002. His background with Andersen makes his deep interest in and great concern for the current state of the “Big Four” – Deloitte, EY, KPMG and PwC – and the audits they perform (“Big Audit”) understandable. Despite the high quality of the very difficult analysis, the reviewer will discuss a few matters that probably deserve consideration at the end of the review.
Keywords: Big Four Accounting Firms, Jim Peterson, Arthur Andersen, Big Audit
The FASB: The People, The Process, and The Politics, 5th Edition
Stephen R. Moehrle
This book review covers, The FASB: The People, The Process, and the Politics, which is the fifth edition of a book that was first published in 1986 by Miller and Bahnson. It remains an insightful and thought-provoking book for undergraduate and graduate students, faculty, practitioners, and those interested in the operation of the global capital markets as they seek to understand the larger context of financial accounting regulation. As was the case with the previous editions, it is difficult to come away from this book thinking that accounting is the mundane practice of double-entry bookkeeping with little other importance to Main Street or Wall Street.
Keywords: FASB, capital markets, double-entry bookkeeping, Wall Street