Financial Accounting & Auditing

The Financial Accounting Standards Committee of the American Accounting Association (the Committee) is charged with responding to requests for comment from standard setters on issues related to financial reporting. This paper summarizes the Committee's response to the Financial Accounting Standards Board’s (FASB) exposure draft, "Accounting for Uncertain Tax Positions: An Interpretation of FASB Statement No. 109."

Standard valuation methods do not lend themselves to bank holding companies. Banks create value through the types of assets and liabilities they create (e.g., lending and deposit taking relationships). Bank income streams reflect heterogeneous sources of income which differ in their margins of profitability and persistence.

Records of 793,794 employees eligible to participate in 647 defined contribution pension plans are studied. About 71% of them choose to participate in the plans, and of the participants, 12% choose to contribute the maximum allowed, $10,500.

As different activities cannot be measured or communicated with the same precision, accounting information is often only a partial and unbalanced reflection of the fundamental economics, emphasizing certain aspects of the underlying operations while disregarding others. We highlight this inherent imbalance in information as the source of an interaction between corporate operating and discretionary disclosure strategies, and thereby also as an important determinant of the information acquisition strategy.

This paper studies the application of fair value accounting in bank holding companies in the United States with the purpose of evaluating the effects of expanding fair value accounting in the banking industry.

Investment decisions frequently require coordination across multiple divisions of a firm. This paper explores a class of capital budgeting mechanisms in which the divisions issue reports regarding the anticipated profitability of proposed projects. To hold the divisions accountable for their reports, the central office ties the project acceptance decision to a system of cost allocations comprised of depreciation and capital charges.

Recent deliberations by both the International Accounting Standards Board (IASB) and the Financial Accounting Standard Board (FASB) in the United States have focused on how fair values of assets and liabilities should be measured. The issue of when, rather than how, fair value measurement should be applied is still far from resolved, however.

In this paper, we propose a method of accounting for stock options that tracks the effect of the options on shareholder value. The accounting approach we outline can be applied not only to employee stock options but to all claims that are effectively convertible into common shares, including convertible preferred stock, warrants, and call and put options on the firm's own stock. Our proposal also aims to make accounting consistent with stock prices, since the market surely takes account of the (potential) valuation effects of these claims when setting stock prices.

We consider stock markets in 20 countries to investigate whether the accrual anomaly (Sloan 1996), characterized by U.S. stock prices overweighting the role of accrual persistence, is a local manifestation of a global phenomenon. We explore whether the occurrence of the anomaly is related to country differences in accounting and institutional structures, and examine alternative explanations for its occurrence. We find stock prices overweight accruals in general, with accruals overweighting occurring in countries with a common law relative to a code law tradition.